At the start of the Covid-19 pandemic, tech stocks were all the rage. Fast forward 10 months ahead to today, to many investors’ dismay, the opposite became true and tech stocks tumbled. The culprit? Chairman of the Federal Reserve Jerome Powell’s casual dropping of the terms “transitory” to describe the current inflation.
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| Source: https://www.inbitcoinwetrust.net/jerome-powell-finally-admits-that-inflation-is-not-transitory-bitcoin-is-here-to-protect-you-f2445f2b5240 |
Despite the tech selldown, many believe this is just the beginning, especially since Nasdaq is getting top heavy and it’s still up 19% YTD. The mega cap stocks (Facebook, Google, Apple) have disproportionate weightage relative to smaller cap peers (Fiverr, Lemonade, and Roku), and the former’s outperformance has eclipsed the price weakness of the smaller constituents. To give some perspective, if we were to strip off the top 10 mega caps in Nasdaq, the index year-to-date is only up 3%, and currently two-thirds of Nasdaq’s 3,600 stocks are trading below their 200 moving averages.
Being a tech-heavy investor, my portfolio was inevitably not spared and it seems like a year not worth remembering. Two weeks of sell down was all it took to almost wipe out my 10 months worth of gains.
While fear gripped the stock market, I chose to “hold on to dear life” (HODL) and buy the dip when there was blood on the streets - even if the blood was my own.
Since hindsight is 20/20, I want to step into 2022 with a growth-mindset to reflect on what I could have done better as an investor.
Over-diversifying
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| Source: https://tradebrains.in/over-diversification-dangerous-for-portfolio/ |
Sometimes, more is less. In my stock selection process, I invested in companies after doing some research and I liked their business models. As my interest in investing grew, I started increasing my exposure to diverse companies, reading up more on the companies, and investing in them.
Over time, my total stock count ballooned to 50+ stocks. Since September this year, I have taken steps to reduce my stock count to 40. The problem with holding on to so many different stocks is that it’s really hard to keep abreast of its latest developments and keep track of its latest financials. My focus was on quantity over quality. By the time some stocks sold down, I had realized that I was late to discover the cracks in these stocks’ fundamentals. I could have avoided unnecessary losses by selling them earlier on.
My plan for 2022 is to reduce my stock count to 20, and further trim them to 10 by 2023.
Over-complicating Analyses
Since 2021, I have been doing a meticulously-detailed analysis on stocks such as Square, Fiverr and Pinterest. However, I found out that my analysis was exceedingly detailed, and I made assumptions on almost every line of financial statements and cash flow statements. After analysing, it turned out that most of my projections were not anywhere close to the actual estimates. Upon reflecting, such a method of estimation would probably be more well-suited for value stocks rather than growth stocks. The best way to analyze growth stocks would have been to do napkin math, which is to arrive at an approximate valuation of a stock as a multiple to its operating cash flow.
I have spent the past few months doing napkin math on stocks like Crowdstrike, AirBNB and Netflix - not only have my projections turned out to be more accurate, but also I took less time to perform each analysis. Moreover, napkin math gave me the confidence to buy these stocks on the dip and the conviction to hold on even when the prices continued to plunge. Since the calculations are more simplified and concise, it’s also easier for me to check back on my calculations and do a comparison with the actual company’s earnings.
Overly-optimistic valuations
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| Source: https://steemit.com/education/@futureentech/an-overly-optimistic-outlook-does-more-harm-than-good-caption-please |
My projections were simply too lofty as I presumed that the stock market was prepared to accept a higher valuation. The current tech correction has proven me wrong and I should not have overpaid for a stock despite having strong fundamentals and great business. Although most of my shares are trading below 200 moving average, the silver lining is that these companies will certainly rebound - it will just be a matter of time. Their businesses are still firing on all cylinders amidst the pandemic and all the way leading up to inflation.
Their businesses were firing on all cylinders in the height of the pandemic and are still burgeoning in today’s high-inflation environment
It’s only unfortunate that I bought them at a rich valuation and hence now have a lesser margin of safety and lower capital gains when the stock market recovers. Fortunately, my steady stream of income allows me to average down along the way to reduce my average buy prices.
What I did right
This year, I became more intentional in my investing journey and spent time questioning all of my investing decisions rather than doing passive investing such as dollar cost averaging. Since 2010, I have been holding a basket of REITS to collect passive income. But after identifying my goals for 2030 to FIRE by 40, I know that this kind of returns from REITS will not give me what it takes to achieve complete financial independence.
The best way for me going forward to invest in the most innovative companies that can do a 10X in 10 years. Although I did not divest my REITS at a perfect timing this year, having that courage to make up my mind was what I believe I certainly did right for this year.
Currently, I am still holding on to Mapletree Industrial Trust (MIT) and Champion Reit. As I have mentioned in my previous blog post, I will divest the latter at a more reasonable valuation when Hong Kong officially opens up to tourists. As for MIT, I am still queuing to sell at $2.77.
Closing Thoughts
Since hindsight is 20/20, I want to step into 2022 with a growth-mindset to reflect on what I could have done better as an investor.
In 2021, I learned that there is a season for everything. Even during turbulent times when inflation is rampant and tech stocks are down, there’s no better time than the present to reflect on how we can restrategize our investments so we can step into 2022 as informed investors.
Thank you so much for spending time reading my blog and I really appreciate you. If you enjoyed reading my blog, hope you can support me by liking my Facebook page here or sharing my post. You may also follow my Twitter account here, where I post my buy and sell transactions. Currently, I do not earn any fees through any affiliate programme or sponsor. If you have any queries, feel free to post them and I am happy to take questions! :)
