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Tuesday, 23 February 2021

(Tradeview 2021) - Are We In A Bubble?

 



About 2 weeks ago, Elon Musk's Tesla revealed they have taken a huge position in Bitcoin and he believe in this cryptocurrency so much so he think it is worth more than cash (I am assuming he is only talking about currencies which are subjected to negative rates). Then, this week he said he feels Bitcoin is a bit on the high side. Few weeks ago, he promoted Dogecoin. Then he said it is best to sell. In 2020, the most watched or followed twitter account was Donald Trump. After Trump was banned, Elon Musk pretty much became the new king of twitter. One was a mad president. Another is a mad richest man in the world. Both are extremely powerful people with great influence.  


I grew up with the belief the the Presidential office of the United States is one of prestige, decorum and greatness. I too believed to become the richest man in the world, it would require someone of great brilliance and humility like Bill Gates, Warren Buffet and the likes. I never knew being eccentric, crazy and out of the norm would be what it takes to scale such heights. At times, I am not sure what is becoming of the world anymore. 




In relation to the stock market, everyday, I am learning something new, toying with new ideas and trying to bridge the gap between expectations and reality. I have always understood being a fundamentalist is very lonely. Most path taken is not that common. With the flood of new retail investors, social media and surge in "Gurus", the market may not behave as in tune with the usual rationality that I am used to. In 2020, investors were always searching for resilient stocks which are shielded from the pandemic and is able to deliver earnings. In 2021, investors are looking beyond recovery. Those who are screaming buys on tech stocks mostly do not know what they are shouting about except to justify with the common hip words "5G, AI, IOT, Solar, Green, Renewable, Digitalisation etc".

So how do we navigate the market as it is? I asked myself this question almost every day. To sit out a rallying market is to miss out on opportunities. At the same time, to be highly vest in an overextended irrational rally, is to take a huge risk. The good thing is, we are retail investors. We should use this to our advantage. Our capital is small, we are nimble and we have the luxury of time. The luxury of time is not what hedge funds, professionals or banks have. They need to churn out returns every single day, month and year to justify taking clients money. We do not face such pressure. We are not forced to pull the trigger or swing the bat. This is what I hope you all will remember. One of the best lessons I have learnt from investing over the years is risk management is as important as picking the right stock. 

It is never easy investing in the stock market. Over the CNY, I have heard how many people became stock market experts in the course of 2020. Often during such conversations, I am usually a very good listener. A big part about investing is to be a good observer, listener in order to gauge the market sentiment, feel on the ground in order to have better market insights. If you are always the one talking, I do not think you would benefit much in terms of learning from others. My takeaway from these CNY conversations which revolved around glove stocks, GameStop, BitCoin, Tech stocks, EPF withdrawl, "what's next year theme" would be - Retail investors did well in 2020, is hungry for more action in 2021 and can't wait to have another stellar run.

There were honestly no sense of fear or worry but more skewed towards optimism. In my view this is a good thing. Being all solemn and worrisome wouldn't help with the current predicament. Optimism translates to confidence and confidence is important from the aspect of investor confidence, business confidence and consumer confidence. However, whilst I do think it is important to remain invested in the stock market, I will adopt a rather cautious stance in 2021. I believe that the market is due for a correction, before it can continue any further uptrend or historic rally. When too much optimism is in the market, it becomes exuberance. Over-exuberance at any point in time, is never good. You can have a look at this viewpoint from Michael Burry, famous from the movie "Big Short".




In a nutshell, this is what I would do in such times. Take your time in looking to enter stocks. If you want to take a position, be prepared to hold it for some time. If you are not, stay sidelines. For position in good fundamental stocks which may yet to be performing or temporarily underperforming, do not be too worried as overextension in the market goes in both directions (upwards and downwards). This is why I am advocating as what I always have been, build a balance portfolio and build up the cash coffers. By doing so, in the event there is a correction, investors can navigate better be it to average down or take fresh positions in their favourite companies. By being heavily invested as they were in 2020, would be a dangerous move considering many sectors or stocks are "overvalued".

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Food for thought: 





1 comment:

  1. Hi,
    Do you invest in Hong Kong and USA market ?
    As I'm an avid reader of your blog post, it will be great if you can produce Long Term Value Pick for Hong Kong and USA market.
    Thanks.

    ReplyDelete