Invest Is Cheap

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3 Random Thoughts

 1. Magic Momentum

Newton's third law of motion states that for every action, there is an equal but opposite reaction.

This holds true in markets.

The momentum that you leverage on the way up will crush you on the way back down.

The stocks that experience a meteoric rise are often the ones that crash violently back to reality and vice versa.

Tesla is arguably the poster child for this.

From $24 a share to $409 a share from March 2020 to November 2021 before losing 64% of its value in 2022. Madness.

Last week Tesla had its best week since March 2020, up 33%. It's now up 53% this year alone. 

Tesla Stock Price

You see this everywhere. Meta lost over a trillion dollars in market cap last year and is now up over 110% off the lows.

It jumped 23% yesterday alone.

Netflix (120%) Redfin (+183%) Coinbase (+142%) Roblox (45%)

The list goes on.

The 50 worst-performing stocks of 2022 are up an average of 20.1% so far this year.

These high beta stocks will swing from overbought to oversold, and this creates opportunity. The opportunity for both wealth and destruction.

But these aren’t suddenly fundamental market leaders because they have bounced from oversold positions.

These are trades, not investments. There is a difference.

If you are purchasing these names

1. Know what price you are going to cut your losses

2. Know what price you are going to take your gains.

This market moves too fast to be yoloing on ‘feel’

Just ask anyone who chanced the ‘wait and see’ approach in 2022…

Plenty of opportunity here, but the volatility will wipe you out if you don’t plan accordingly.

2.Don’t Listen to The Fed

Why are we so obsessed with every word the Fed utters?

Jerome Powell is finances answer to Harry Styles at this point.

Thousands of screaming wall street ‘fan girls’ gather to salivate at his every word.

Yes, the Fed actions are a crucial part of any investment outlook, but we need to be focused on what the Fed does, not what they say.

In march 2020, the Fed released a statement confirming they had no intention to cut rates due to the pandemic. 2 weeks later, we had the first-ever double emergency rate cut.

In June 2021, as the economy showed significant signs of recovery, the Fed was still pricing in 0% rates through the end of 2022 with a 50bp rate hike in 2023.

Instead of sitting at 0% as forecast, the Fed Funds Rate is now at 4.5% to 4.75%.

Not even close.

You need to realise the Fed can’t predict the future. They are being led by the data just like everyone else. As the information changes, so will their policy.

Don’t hang your hat on anything the Fed is saying. They are guessing just like the rest of us.

Follow the data, not the press release.

3. Where do we go from Here

Yesterday, markets rallied following the Fed's nod towards a slowdown in rate hikes and an easing in financial conditions.

The Nasdaq index is now up 17.5% in 2023. Clearly, a soft landing is the default position on Wall Street.

I disagree with this take.

It's easy to construct a narrative in your favour. You take the recent drop in inflation and the slowing interest rate hikes and declare victory.

Realistically, these easy narratives are worthless. The trend in the data is far more important.

Instead of rejoicing over a slowdown in inflation, you need to look at the data and ask yourself, why is inflation falling?

Is this an innocent return to trend, or is there something more sinister afoot?

My view is that recessionary forces are too strong to assume inflation, and the economy will just neatly slow to a new equilibrium.

There appears to be this assumption that it will all happen in an orderly, linear fashion.

It won't.

This isn't the all clear.

Free Weekly Stock Tips

1 Good / 1 Bad

Investing Is Cheap

For most people. The optimal investment strategy can be boiled down to

'Get exposure to the market for as cheap as possible and hold for as long as possible.'

Here are some of the cheapest and best ways to do that for Irish investors.

• Vanguard S&P 500 UCITS ETF (VUAA)

• Vanguard FTSE All-World UCITS ETF (VWRA)

• Vanguard FTSE Emerging Markets UCITS ETF (VFEA)

All three are accumulating share classes with expense ratios of between 0.07% and 0.2%.

A combination of all three will give you exposure to the entire global market for a hilariously low fee. Simples.

I will go into more detail on these in next week's post.

In the meantime, If you need help setting up your investment portfolio and getting a plan in place, reach out.

Don't Be Like Me

In the interest of transparency, I have to admit, this was not the newsletter I planned to send out today. The original newsletter was written on Wednesday.

But despite my frantic searching.. that newsletter has disappeared off the FACE OF THE EARTH.

It's hard to put into words how devastated I was about it.

But it's hardly surprising. My desktop looks like the detective's evidence wall in every serial killer movie ever.

^^ Actual footage of me trying to find the doc on my desktop this morning.

So here is a reminder not to be like me.

Save your shite. Be organised. Be a normal, fully functioning human being.

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