It’s been a difficult month for tech investors after Jerome Powell changed his stance that inflation is not transitory. Gone are the days where there was helicopter money leading to invisible hands lifting up stock prices when shares plummeted. Being one who has a basket of stocks concentrated on the tech sector, my portfolio experienced a significant drop in value. However, I am not too discouraged by it because I have learned a lot of valuable lessons in investing last year. And in this blogpost, I will share with you my execution plan.
Share Consolidation
In my previous blog post, I resolved to do a stock consolidation once the tech stocks have rebounded from their lows. However, I have decided to reduce my stock count as the tech route deepens due to two reasons. First, a majority of my high conviction stocks started to correct significantly early this year, which presents an attractive entry point. Second, since all the tech stocks are beaten down already, divesting from a beaten down stock with lower conviction and adding to another beaten down stock with higher conviction makes perfect sense to me. To find high conviction stocks, I did a deep dive on the company’s fundamentals, watched CEO interviews on YouTube, and performed napkin math to determine the valuation of the stocks.
My ideal plan for this year is to reduce my stock count to 5. But some cynics may wonder: what about FOMO (fear of missing out)? What if you miss out on the next big thing?
Throughout my investing journey, I have learned that it’s okay to let go of tempting burgeoning opportunities. There are actually limitless opportunities and it’s impossible to capture all of them out there. With the limited amount of time I have each day, I would rather focus on a few companies where the CEO has great ambition and the ability to execute perfectly. Second, even if a generational company is presented in front of me, I lack the ability to research companies that are not within my circle of competence. For instance, it's an arduous task to understand - let alone study - the prospects of companies such as the genome sector if we lack understanding of the biotechnology field.
“Nothing tests conviction like a falling stock price.”
I used to do very comprehensive valuation methods to determine the company’s valuation on growth stocks such as Fiverr, Pinterest and Square; however, I began to realize that such methods may not bode well for growth stocks. After all, my calculation is so complicated that it can be challenging even for myself to follow up and re-evaluate the valuation of the companies whenever they release their financial reports. Doing up research on a company consists of qualitative and quantitative analysis, and in the past, I have been more engrossed in the numbers and intrinsic value. These days, I spend more time reading on S1 filings, as well as watching CEO interviews on YouTube. It has become one of my hobbies as I begin to enjoy the learning process of understanding the CEO and the company on a deeper level to build my conviction in it. Hence, when stocks such as Coinbase dipped and news that RobinHood is stealing Coinbase’s lunch in lowering their fees, I am not concerned at all. Coinbase is a software company with competitive advantages such as being simple and easy to use and focusing on compliance by pursuing a license even before it is required for them to do so. Unlike Robinhood, which focuses on developing a commission free app, Coinbase has a grand ambition to disrupt the banking industry by creating more economic freedom for every individual and business.
Do Nothing
Doing nothing is seen as an activity that is associated with being unproductive; however, in investing, doing nothing is actually a strategy: it is a discipline that requires the equanimity to simply buy and hold. When Nasdaq turns volatile, it can be very tempting to check your stocks every now and then and determine your next move. Being invested in the stock market for 11 years, I have undergone a few market corrections, and each and every time it has rebounded in a v-shaped manner and ended up with higher highs. Fidelity did a recent study and found that a certain type of investors consistently did the best in investing returns. Guess who?
Dead people.
If you want to do well in investing, it’s advisable to forget you have an investment account. Instead of checking stock tickers which give you jitters every now and then, channel that energy to be more productive by researching the next 10X companies.
Many skills are needed to do well in investing, such as the ability to value a company or even predict the next market trend, but nothing beats having a good investor mindset. These are the three simple and reliable psychological steps which I have been applying in times like these.
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