To The Moon

2022 - Year Full of Challenges & Test of Conviction

2022 is coming to an end with the much hoped-for Santa rally nowhere in sight while recessionary fears start to weigh on stocks again. As we move into the new year, it is good to reflect on some of the mistakes made this year, re-calibrate and prepare for an equally (hopefully not more) challenging 2023.

To start off with, my overall US and SG portfolio are in the red though they fare better than the key market indices. While I am not generally worried about my portfolio (primarily due to avoidance of speculative stocks and focusing only on fundamentally strong stocks), there are areas which I could have done better to improve the portfolio performance.

1. Don’t be swayed easily by the market – trust your own analysis if they are sound!

This may sound simple but it sure is difficult to follow this principle, especially if you see the market showing tremendous, gravity-defying rallies. You will start to doubt your own analysis and that FOMO behaviour will likely be triggered.

I was no exception on 1-2 occasions, when the probability of more aggressive rate hikes was increasing but the market was simply ignoring it and continued to show strong uptrend. Unfortunately, I entered into new positions and ended with a higher than desirable averages (though some may argue to DCA regularly instead of at specific price points).

Remember, the market is not always logical and unless you are swing trading for short term profits, don’t get trapped by irrational price movements. When in doubt, you can always chat with fellow tiger friends who are always so willing to share their insights. Some of my trustable friends include @koolgal , @LMSunshine ,@MHh , @SR050321 .

2. Individual companies are unlikely to escape unscathed with macroeconomic changes

Picking stocks with strong fundamentals and good prospects may earn you a higher rate of return, beating the market. However, in the face of a bear market, most stocks will be succumbed to the same downward pressures if the macroeconomic or industrial trend changes. One notable example for me was $NVIDIA Corp(NVDA)$ . Reports of multiple headwinds in the semi-conductor market were prevalent as bitcoin demand faltered and demand for PC also exhibited a weakening trend etc. What ensued was an over 30% drop in stock price for Nvidia.

Despite the negativity shrouding the semiconductor market, I continued to hold strong conviction for Nvidia since its cutting edge products serve the needs for multiple industries (and I perceived as a cushion which is primarily absent in most other chip companies). Despite being an industry leader, Nvidia still fell victim to the weakening demand and rising interest rates. Likewise, for $Microsoft(MSFT)$ , the growth for its Azure cloud services exhibited some slowdown as companies scale down their spending due to recessionary fears. Despite the price corrections, my conviction for these 2 companies remain strong as they are key to transformation for corporates out there. 

3. Don’t be greedy – take some profits in anticipation of potential reversals

Most value investors will opine that corrections offer an opportunity for DCA and not to fret if you are holding onto stocks of fundamentally strong companies. However, learning to take some profits and re-investing them is equally critical as well. Please don’t be mistaken that I am discouraging value investing, but taking some profits (not selling all) ahead of potential market reversals increases your the ability to redeploy and put in more positions during a major correction. One example was REITS, which are generally perceived to underperform when there are higher interest rates. While I believe most Singapore REITS are versatile with mostly fixed debt, the market lost their trust in REITS and they quickly went into the reds before I could take some profits.

2022 is indeed a challenging year for most retail investors, and I am no exception. However, I am not concerned on my portfolio as these fundamentally strong companies will be able to withstand any recessionary pressures or economic downturn. Instead, I will look for the next opportunity while keeping in mind the lessons learnt.

Wishing all my Tiger friends a happy new year and may 2023 be prosperous and fulfilling!  [Grin] 

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