While my portfolio has grown a lot in the last month, with an astonishing 4% (I would double my money in 2-3 years if this happened every month), this is mainly thanks to highly diversified index funds. There is a clear sell off at other segments in the market.
The March 8th tech-bear market
Tech stocks and highly innovative growth stocks have actually seen a major sell off. This started in February and so far has seen its low point the 8th of march.
For me I saw this as an opportunity to get in at sometimes a 50% discount for some of my now more highly conviction stocks such as Palantir. Has it paid out well for me so far? Not yet actually. My growth portfolio currently is a bit around 0%, occasionally above, occasionally bellow.
Ever tried to catch a falling knife in the dark? This is basically what I am trying to do here. You don’t actually know when it will hit the ground, but you think the bottom is near.
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The thing about growth stocks is if you think a stock drops 50% its now undervalued with 50% is not correct either. If something drops with 50% its new value is now 50% lower. There is nothing inherently that changed at the stock.
When you look at my high conviction ETFs they have actually been performing extremely well. This supports more or less the thesis that the bull run has not come to an end yet. My SWRD ETF for example is up with 9% this year. This is HUGE because you normally would expect an ETF going up about 8% per year average.
The Majority of my Growth stock portfolio is not profitable. You are banking on future potential and hoping that other people will see it to, so that the stock will keep rising steadily until its profit numbers catch up with its growth. It makes me constantly re-evaluate my stocks, and I would say for 90% I have a high conviction they will do well in the long term.
What I think is behind this is that the extreme bull run market we have seen in the Tech sector last year and certain medical stocks, are now expanding to other sectors. So money is moving out of tech and into the general market. And not just the US market, the European market has been doing particularly well this year and I expect this to grow faster as Europe vaccinations will be taking off in spring at a rapid pace, something they were lagging behind on some far.
Have a look at the German stock market for example that has been outperforming the SP500 the last month, and I expect it will keep this up for a few more months as the European economies re-open.
Is a bigger market crash coming?
Pretty much every day someone is predicting a market crash and this often makes the media. If I would say the market will grow this year with a steady 8% then nobody will care about that. However if I say we could be facing the biggest crash in May that we have seen in 100 years, I might get some attention.
Since February I do not think we have seen a bear market. While we are seeing a small bear market in some sectors like technology to me it looks more like the bull market we have seen in Tech last year is now expanding to other sectors.
But I do need to admit the market we are seeing now, especially in the US, is very volatile and it can go either way. I can’t predict where the market will be in 1 month. If I could I would be extremely rich.
I do see large amounts of money entering the market with recovery programs, especially in the US, and I can’t imagine if the US prints Billions of dollars that the market will not take off. If you create more of one asset, other assets go up in price. Say you would suddenly double the houses, then the value of houses will go down, or another way you could look at it the value of money will go up compared to houses.
So that’s what we will start to see by the end of the year when money comes pouring in, and its hard to think that this will not have a positive effect on all asset classes (real estate, stocks and even cryptocurrency). Additionally this bull market has started only 1 year ago. The average bull market usually lasts 3 years.
What to do in the case of a bear market
Should we enter a bear market anyway, the worst thing you could possibly do is move out of the market. Especially your ETFs are crucial to hold on to. Because as fast as the market can drop, this is how fast the market can rise again. And you can’t predict when this time will come. Moving your money out exposes you to the risk that you could miss out on some of the biggest gains in years.
My portfolio had huge losses during Corona, instead of moving out I kept adding. At some point I was looking at a 30% loss. I remember how painful it felt, and how counter-intuitive to keep adding. But eventually it paid off as 1 year ago I was looking at a 30% loss for my SPRD ETF, and now I am looking at a 16% profit. I started this position in January 2020, so JUST before the corona crisis and still I made a really good profit after 1 year.
So the strategy for ETFs is extremely simple. HOLD and buy more.
For stocks it could get a bit more complicated.
I found a really interesting video on Cathie Woods says this about how to act during a bear market:
Cathie Woods knows her stuff as her ETF made 100% profit last year.
My strategy is to buy only the stocks I really believe will do long for the long term. Its extremely difficult to hold a stock during bear markets if you don’t believe in its future.
For example Palantir dropped 10% after I purchased it. Instead of selling off I decided to buy more, and managed to even get lucky and get in at a low point. I can only do this because I have a high conviction in this stock.
I don’t exclude it will drop again, but in this case I would again try to buy at its low point.
Meet Kevin, a channel I look regularly has a similar strategy. He ended up selling 1.2 Mil of his lower conviction stocks and bought more of his high conviction stocks. I was happy to see Palantir was in the list and it seems its even in his top 3. Palantir was also one of the only stocks that was up yesterday even though most of the tech market was selling off. This might have influenced his decision.
I do not think we will see a market wide global crash the coming months. I do not think we will see sky-high inflation prices either.
But I don’t know this for sure, it can always happen. The only thing I keep convinced of is that time in the market is exponentially more important as timing the market.
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