Every year, I do a post-mortem analysis, aka annual review of the previous year. This time, I didn't feel like it. I know that's not professional to say, but that's the truth.
As I recall, this time last year, everyone was full of hope, that a recovery was happening from COVID, and then BHAMMM!... the second wave hits, and from what I hear from small business owners is that it was the second wave and lockdowns that really hit them hard.
They're still recovering.
And I think everyone has come to the conclusion that lockdowns don't work, and that the effectiveness of masks and vaccines are being questioned.
This third wave, renamed Omicron has seen people being hit hard with flu like symptoms but recovering after a week. Anyways, this is not a political debate. It's just a thought.
Then why are the markets witnessing down trends. Well, if things do get back to normal (and we can see that with UK removing the mandate for masks), we could see more people less involved in the stock market, trying to eek out some money and instead getting back to physical offices and work.
But with hyper inflation looming, or showing its head - things are going to get more expensive, whether incomes will match that, depends on demand & supply in the market. Higher prices, lower demand.
Navigating this is going to be tricky. 2022 already feels like deja vu, though with more elements being added.
So enough with the introductory philosophy, you're here for the money. And here's what I see.
Markets could correct further, if you're a long term investor - you should be drooling. If you're fully invested, you should be concerned.
Let's start with the US Markets... The Dow Jones.
This is a weekly chart, and if you are to go by investor Jeremy Grantham's Fed Put - more like a doomsday call of 50%, you might want to pay attention to this.
I'm a big believer we of gap fills, seen it happen time and again, some times its quick, other times it take much longer. We have a gap to fill (marked in the blue zone).
Coincidentally, that coincides with the 200 day moving average ( EMA ), and that's about a 15% drop from where we are now. Seeing a big black candle within the week, should be of concern.
But even if you go by fib retracements, you can also see the 1.272 level coinciding with the blue gap fill zone as well.
The best thing is to follow the RUT and see where that's going to get an indication of how the market is really doing, after a long sideways consolidation since March 2021 - looks like we could be entering a distribution phase.
As for Bitcoin...
I no longer have a position in BTCUSD , and I've explained why I sold everything.
But this is hard to see, was sharing this chart with a few close friends who were asking when to buy. I said it's not the time.
Is is time? BTCUSD still looks weak. Once you reach the cross of death, there's a 50/50 chance of it happening. If it does, you can see 50% drops, if it doesn't you can see 60-70% increase from that point.
But as more central banks around the world are looking to introduce "CBDC" - Central Bank Digital Currency, there is a question as to whether the governments will allow cryptos to flourish that are not controlled by them.
My bias is for short, for the short term.
Cash Flow is KING.
One of the key lessons I learned the hard way, was buying a falling knife, aka dollar cost averaging or rupee cost averaging. You can only do so much buying, so long as you have the capital or cash to keep buying the dip.
There are various schools of thought, I'll just touch upon different perspectives.
The first is be prepared for 50% drop in the value of what you've invested, that's Warren Buffett school as I like to quote. Don't miss the nuance in this, he looks to buy good companies, not just anything. Good companies with a moat.
The second school of thought is be protective of your capital, follow trailing stops. Anything falling beyond 25% has some fundamental reason why its falling so much. Recovering back to break even is hard. And if you don't understand this, watch the video below (it's a MUST watch):
The third school of thought is, hey I am prepared to be like water, what I call the Bruce Lee school. Go with the flow, some call this school trend following, the trend is your friend. But catching trends is hard, and there is of course the school of contrarians, where you do the total opposite.
Anyways, let's assume you do buy the dip, as I mentioned you can only do so much. So long as you have capital, you can continue buying to a comfortable level, until the markets revert, typically through an SIP - Systematic Investment Plan (preferably automatically).
So imagine if you had cashflow coming in every month, that you used to contribute to your SIP? How would that sound? Well, that's exactly what I'm doing.
The idea is to look for monthly / weekly income generating assets that you can use to plough your returns back into investing. I have two favourites:
- Dividend Investing
- Bond Investing
I'll be talking about these in the next post, so stay tuned. If you're not a member yet, you might want to consider it, as I show my actual investments.
See you on the inside!
Update: Since I got a question about "Cash Is Trash" phrase, I thought I'd include the source of this, investor Ray Dalio. And here's what he had to say on it...