Week 25 – 2022
I’ve had this idea floating around my head to let people into my little investing bubble and share what I’m doing every week. Despite the obvious exposure from The FTSE Show, I do acknowledge that I have a face better suited for radio.
I’ve also neglected those who follow me via email. I am sorry for that. I haven’t really put out anything of meaningful value in quite some time. This has been something else on my conscience.
So, I’ve decided to combine both points by sending out a weekly diary on my investing journey. I’ll talk about how the week has gone in the markets, the effect it’s had on my portfolio, my long-term goals, what actions if any I plan to take, as well as sharing some ideas and tips/strategies that I think may help anyone else trying to get ahead and grow their portfolio. I plan to write them every Monday and will focus on the previous week.
Whether it becomes of value to people or not, I guess you will have to be the judge.
But if it is, please let me know by way of dropping me a reply to this email and any subsequent ones. It would be very much appreciated to hear from anyone reading.
So I can’t yet talk about this week as it’s Friday and there is still movement happening in the markets. We don’t yet know where it will come to rest today. I will therefore kick this thing off by providing some insight into what happened last week.
It was a fascinating week for me. UK stock prices continued their fall which we in the investment club have been seeing since Sept 2021. We’re seeing some wonderful companies’ share prices fall over 50% since the start of the year. Yet when you look under the hood, these are companies making record profits in 2021 and 2022 with strong expectations from me to continue their growth. Some of these share price drops are not reflective of underlying business performance. But you have to do your research to know which stocks are in good shape and which ones are not. It’s crucial to understand that the share price drop is not reflective of underlying business performance in many of the stocks I follow. Whilst there are many FTSE companies out there who ARE seeing significant drops in revenue and profit, along with rises in debt levels being taken on (especially in travel, tourism and hospitality sectors), the vast majority of companies in my portfolio are achieving wonderful financial results and are literally paying down debt levels to all-time lows. Many of them have no debt at all.
The watchlist of my 54 hand-picked stocks rose in value a little last week in terms of it’s overall combined value along with a general rise across the market as a whole. The watchlist is now down -7% in value for June compared to the FTSE 100 which is down about -5%. It’s down -28% for the year. But remains at +136.3% since 2014 which works out as a +15.1% annual average return since then. To have produced +15.1% annually since 2014 despite the -28% we’ve suffered in 2022 is a testament to the importance of hand-picking the right companies to invest in. When the markets recover I would expect that to get back to over 20% annual average return again.
2022 has been a rare year for the watchlist. Since 2014 we’ve not experienced a year like it.
It may sound odd, but I’ve felt tremendously excited by this drop. For two main reasons.
Firstly, an educational one. What an experience. When Warren Buffet tells us that Berkshire Hathaway has experienced 7-8 events where their entire portfolio fell by 50%, we can now start to relate. When Peter Lynch tells us that the markets fall by -25% or more every 6 years on average, we now know what he’s talking about.
I’m excited because what a learning experience this is for all of us. Imagine how much stronger an investor we all will be when we’ve come through the other side of this, held our nerve, bought more stocks in the right companies whilst the prices fell and then watched the markets recover (as they always do).
Imagine how you’ll feel about the next crash that comes. You’ll laugh to yourself just like Buffet when you hear those commonly heard words “this time it’s different”.
This is the real test. It’s easy to invest in a bull market. But it’s in a bear market where the skills come into play. When we are on the other side of this I will be a very proud man to know that many of my members held onto their positions. And prouder still of those who added more. Not just because they did it, but because it shows they have turned a corner in their mindset and mentality. No longer the scared beginner who panics at the first sign of a drop and sells their stock. When Bloomberg anchors are spreading panic about a -3% drop on the DOW, you’ll be the one waving your stick at the TV shouting “3%, try losing 50% in 2022!”.
Although, of course, we haven’t lost a thing.
You only lose if you decide to sell. And why would you sell when your assets are worth less than they were when you bought them?
I see people investing in old football trading cards now. I see people buying up old Sega and Commodore 64 consoles. Waiting for their value to rise. I see people buying antique books. Stamps. Art. Jewellery. But unlike the stock market, there’s no constant view of their market value. It’s not pushed in your face every minute of every day. You just hold onto it all, and one day get it valued. Which is usually a more laborious process than turning on your phone to see the latest prices.
Nicholas Darvas was a ballroom dancer who travelled the world, in the 1930’s I think. He got his stock prices via telegram. They were often late. The newspaper took a week to reach him. Some weeks he didn’t get the chance to see the prices. He writes in his book how not knowing the price was the key to his success. Anyone here who’s opened a trade, watched it fall for 10 minutes and then closed it again in panic knows precisely what I’m talking about. We are often our own worst enemies.
I remember back in 2008 opening a paper trading account online, trading with fake money to practice. I bought a handful of stocks without any clue what I was doing. No research. I just bought the names I’d heard of. I forgot all about it. Until around 2013 when I came across my old account and opened it up to find I was up +£96,000 in profit. Hilarious. But an early lesson for me in the virtues of patience and compounding profit.
The second reason I’m excited about this phase of the market is the opportunity to add. I bought over £11,000 worth of stock in 2020 when the pandemic caused an almost 40% drop in the markets. My account was deep in the red, but I knew what I was doing. I bought more of my favourite stocks. Stocks that my research had shown me were going to be doing well over the next 5-10 years. By the end of the year, I was flying. Not only had my account fully recovered, but I now had the additional profit from my latest acquisitions as prices eventually climbed higher than their pre-crash levels.
Many of these have since fallen in share price value again in 2022. But just imagine where they could be in 2024. And I’m still buying almost every month, and will keep buying every month between now and then.
If you have read about legendary investors like Buffet, Munger, Lynch, and even John Henry of Liverpool FC. They all made their fortunes in bear markets. Every single one. To be frank, it really is the only way to make a fortune on the markets. You can’t make a fortune buying high and selling higher. You’ll make something, but not a fortune. Fortunes can only be made when you buy low and sell when the markets have had 10-20 years to eclipse where it once was.
How are you feeling about the current state of the market? Are you concerned? Nervous? Worried about your portfolio? Or are you excited about the opportunities?
Drop me a line in reply and let me know your thoughts.
How to check out my stuff:-
My Books: https://www.amazon.co.uk/CLEAN-Guide-Investing-Money-Stockmarket/dp/1916190928/