Adnan Rafique M.D.
Warren Buffett once said, buy the stocks when everyone is fearful and sell when everyone is buying. We have heard this phrase so many times, yet very few have the guts to follow the advice of the best stock market investor of all time, especially when times are this difficult in stock market.
During these highly dangerous times when the world is facing so much uncertainty either due to war, supply chain issues, worker shortage and rising inflation, it's not easy to feel excited about any kind of investment, let alone the stock market. Feds are busy raising interest rate trying to control inflation. All these worries and actions of feds pushing the economy towards overdue recession. Even though this “R” word is inevitable and has happened so many times in history every so many years, rookie investors have always failed to take advantage of these declines and reap massive growth in the long run.
People with growth-heavy stocks have suffered the most in the last few months due to the technology sector decline. Some very reliable and rapidly growing stocks have crashed to the ground so quickly that investors didn’t have time to exit before they realized that their beloved stocks have lost half of their value. Examples of those once very reliable and favorite stocks are Paypal, Square, Twilio, Cloudflare, Crowdstrike, Facebook, etc. Another reason so many people have experienced such a horrible decline in their once “amazing portfolio” is because they were not diversified enough and most people don’t know how to hedge against impending bust in stock market. Intelligent investors keep their portfolio diversified and they also know when to sell and raise cash. The best time to sell is when you have decent gains in your portfolio and also when Tom, Dick, and Harry busy buying stocks without any understanding and still making money in short term market boom. In later part of 2020 until mid 2021, when meme stocks were exploding and students and average people were in euphoria about their newly started portfolio, smart investors were taking profit and raising cash for inevitable bust in stock market. It's not easy to time the market but this is very basic ”sell when everyone is buying and buy when everyone is selling.”
Have a Plan:
I’m a firm believer of staying in the market for along time and enjoy the magic of compound growth. Without strategy, discipline and patience, it's not easy to have a consistent growth in any investment. With the recent sharp decline, most novice investors have sold their positions in order to protect their remaining capital. This is NOT always the worst thing you can do. My strategy is to sell those stocks which have no fundamentals and are high risk, raise capital and start buying Solid growth stocks at a steep discount, like Goog, TSLA, AAPl, FB, LULU, AMZN, NVDA, CRWD, etc. Never buy all your position at once, rather start buying with every significant dip and lower your average cost, it's called “ Dollar-cost-averaging.”
Dollar-cost-averaging is the best strategy for long term growth of your portfolio. If you have some of the best stocks in your portfolio and you are 40-60% down, start adding more of the same first before buying some new and high risk stocks. I still believe there is a lot of potential for long-term investors in this market. The key is to buy essential and valuable stocks at cheaper prices and hold them for at least 3-5 years. I’m not interested in short-term market trend but I’m certain that the market always goes higher in the long run. So stay in the market and keep buying quality names at cheaper valuations during these scary times.
Take a look at your portfolio, identify some long term winners and solid growth stocks. Diversify and take advantage of the sale that's going on in the stock market. Best time to buy is when people are depressed and losing money in stock market.
Picking the right names in this scenario should not be hard for those who understand the business of the company they are interested in buying. Buying a stock is just like buying a business, don’t buy companies with no income or cash flow. Don’t be greedy, look at their balance sheet and fundamentals. Some of the best tech companies of our time are on sale but every individual should look into their own risk tolerance and time horizon before buying stocks. Below are the names of some of the high quality index funds, ETF, and individual stocks that look attractive for a long-term hold.
Index funds and ETF: If you don’t have time to do too much research about individual stocks and it looks risky to you, you should invest in high quality and low fee Index funds and ETF. Some of the high quality names are IGV, VGT, VOO, ICLN, VGHCX, etc.
Mercadolibre, Inc ( MELI): Meli is the biggest ecommerce company in latin america, also called Amazon of Latin America. The company is led by his original founder and has a huge growth potential. It has grown over 50% in the last 2 years. Has dropped more than 50% from its peak but still have rich valuation. My entry point will be around $600 or below. Great stock for long term investors.
NVIDIA Corporation (NVDA): One of the best semi-conductor stock with huge potential growth in the next decade or so. Every portfolio should have this company. Currently at reasonable discount, my entry point will be below $160.
TESLA (TSLA): There is so much innovation and demand for their EVs that this company will do great in the long term. As it drops further due to geopolitical issues in Russia and rising interest rates, I will keep adding to my portfolio. I always believe TESLA is not a car company, it's an energy company that has some great business ideas and leadership to execute these ideas.
Alphabet, Inc. (GOOG): Another quality and essential name for consumers around the world. It's a technology powerhouse that is engaged in innovation and helping the world solve multiple problems. One of the most valuable companies on the planet and it's at a reasonable valuation. You can easily keep this stock for 5 years and enjoy the upswing after this transient downtrend.
Lululemon Athletica, Inc. (LULU): One of the quality athletic apparel companies which have declined significantly from its peak due to soft sales and forecast but most analysts are very bullish going forward. LULU had a Very decent last quarter and sales continue to rise once again due to the rise in outdoor activities. With any dips in the future, this can be a great name to buy for the next 2-3 years.
Dividend Stocks: Some of the dividend stocks for long term growth are BHP , RIO, DLR and ZIM. Dividend sticks are usually slow growth but gives you some income if you have large amount invested. Dividend is not guaranteed.
Generac Holdings Inc. (GNRC): Designs, manufactures, and sells power generation equipment, energy storage systems, and other power products for the residential, and light commercial and industrial markets worldwide. It has a solid business model worldwide. It has declined almost 50% from its peak.
Cloudflare, Inc. (NET): CloudFlare, Inc. operates a cloud platform that delivers a range of network services to businesses worldwide. The company provides an integrated cloud-based security solution to secure a range of combinations of platforms, including public cloud, private cloud, on-premise, software-as-a-service applications, and Internet of Things (IoT) devices. Its security products comprise cloud firewall, bot management, distributed denial of service, IoT, SSL/TLS, secure origin connection, and rate-limiting products.
High-Risk High-Reward: Buying stocks these days is a high risk for the short term but some names can be worth including in your portfolio. In the stock market, they say
“Investors should have a bigger stomach than a bigger brain” to tolerate the volatility and risks. Always keep less than 10% of your portfolio in high-risk names for aggressive growth.
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