To The Moon

$Sirius XM(SIRI)$ $iShares 20+ Year Treasury Bond ETF(TLT)$ $Brookfield Corp(BN)$ $Intel(INTC)$

The S&P 500 fell 3% yesterday, experiencing a sharp drop, while popular retail stocks like Tesla declined by 8%, with an additional 1.7% decrease in after-hours trading. Even my position, Brookfield Corporation, was down 6% at market close. The sell-off was triggered by the Federal Reserve lowering interest rates by 0.25% and signaling only two quarter-point cuts in 2025. This forecast is 0.5% lower than what the market anticipated, which had priced in more aggressive rate cuts for next year.

As a result, bond yields spiked, and stocks sold off rapidly. Notably, many analysts and banks have been bullish on the S&P 500 for 2025, raising price targets to as high as 7,000. U.S. stocks have seen record inflows of $448 billion this year, indicating that investors are shifting capital from international markets to U.S. indexes. These substantial inflows have driven valuations higher, with leading stocks like Apple trading at elevated price-to-earnings (P/E) ratios of 40, despite limited business growth in recent years. The overall P/E ratio of the S&P 500 has now reached 31, which is just 10% below levels seen during the dot-com bubble.

In summary, the market has become expensive and is priced for perfection. With the Fed's announcement of smaller-than-expected rate cuts, panic selling ensued.

today’s, I want to cover this market volatility, what actions I took, my outlook for 2025, and strategies to manage emotions during turbulent markets — ultimately seeing volatility as an opportunity.

Buying the Dip

First, regarding today’s market action, I decided to buy more shares of Brookfield Corporation. Seeing the stock down 5% was too good an opportunity to pass up, given my conviction that it remains a high-quality business. The fundamentals haven’t changed; the sell-off simply allowed me to purchase at a better price, improving my potential future returns.

Over the past month, I've continued adding select stocks to my portfolio. I typically don’t hold large amounts of cash or try to time the market. I believe there is always value to be found, and if the market continues to decline this year or corrects further in 2025, I will keep buying to capitalize on opportunities.

Newer investors often worry when their stocks drop, especially after recent purchases. Previously, I addressed a concern from an investor who bought a stock that fell 10% shortly after. This uncertainty stems from focusing on share price rather than the underlying business. The key to staying unemotional during volatility is to strengthen your conviction by understanding the business itself, not just its share price movements.

Focus on Fundamentals

For example, take PAGS, a stock I’ve been adding to despite its underperformance this year. while the S&P 500 has gained over 20%. The stock is down 70% from its MAY highs, but instead of panicking, I focus on its business fundamentals.

PAGS financials show steady growth: revenue is at an all-time high, operating income reached $269 million in the latest quarter, and net income hit $388 million over the past 12 months. Its key performance indicators (KPIs) also remain strong.

By focusing on the business fundamentals rather than short-term price swings, I see these corrections as buying opportunities.

The fundamentals of this business are at an all-time high and continue to show growth. At the beginning of 2024, PAGS provided guidance for revenue, loan portfolio growth, and operating margins. In the second quarter of 2024, they raised their guidance for 2024, 2025, and 2026. Then, in the third quarter—the most recent quarter—they maintained that upgraded outlook for 2024 and their three-year projections through 2026.

This indicates the company is experiencing strong demand, with stable margins and profits, and a consistent outlook. As a result of my research into PAGS, my conviction in the company has strengthened, even as the stock price has dropped. This has created a clear buying opportunity. Currently, the stock is trading at a price-to-earnings (P/E) ratio of just 5.13, and analysts estimate earnings per share (EPS) of around $1.2 for 2025. This means the forward P/E ratio is approximately 8, while the business continues to project about 15% annual growth.

Growth Potential

That was a brief summary of my recent research on PAGS. I've gone into much greater detail in previous articles, where we've also discussed bearish arguments and my evaluations of those perspectives. The key takeaway is this: to see falling stock prices as an opportunity, you need to focus on the business behind the share price. If you let stock prices dictate your decisions, you'll constantly react to market swings instead of making rational, long-term choices.

I’ve been encouraging investors to strengthen their conviction in the stocks they own. There’s a very real chance we’ll see another market correction in 2025, similar to what happened in 2022. Having solid conviction ahead of time means you won’t need to redo your research when a correction happens. Instead, you’ll be ready to act quickly and seize opportunities.

Historically, markets at elevated levels often face corrections or periods of lower returns. When those corrections come, your conviction will be tested. That’s why I ensure my convictions are solidified beforehand.

Opportunities in Declines

To conclude, I’d like to share there’s a quote from Charlie Munger: “If you’re not willing to act with equanimity to a market price decline of 50% two or three times a century, you’re not fit to be a common shareholder.” This captures the essence of viewing volatility as an opportunity, not a risk.

Detach from Emotions

Many investors fear volatility because stocks inevitably experience declines of 30%, 40%, or more. But if you sell out of fear during these drops, you turn volatility into a loss. Even the best stocks can lose you money if you let emotions dictate your actions. The key is to remain calm, rational, and optimistic during market declines.

Warren Buffett often says that successful investing is more about managing emotions than having a high IQ. When others are panicking, successful investors see opportunity. Lower stock prices mean higher potential returns. For example, the market correction of 2022 offered incredible buying opportunities: Google traded at a price-to-free cash flow of 15 and has since doubled; Amazon hit a 10-year low price-to-operating-cash-flow ratio and also doubled; Brookfield Corporation dropped to $40 CAD and has since doubled as well.

These downturns often generate the best long-term returns, even if it doesn’t feel that way when stocks are falling. I hope this helps you shift your perspective on volatility, so you can see it as an opportunity, just like the most successful investors do.

Market Volatility and Investment Strategy

Focus on Fundamentals: Assess the health of the business behind the share price rather than short-term price fluctuations.

Strengthen Conviction: Build confidence in your investments ahead of potential corrections, like those seen in 2022.

Embrace Volatility: View market declines as opportunities to buy quality stocks at lower prices, increasing long-term returns.

I hadn’t planned to make this article today, but seeing the market down 3% inspired me to share this. My portfolio took a hit too, but I’m using this as a chance to buy more stocks where I have high conviction.

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