Pulse of the Market - January 2022
Last year, Tik Tok was the main culprit of some crazy stories in the market. The two main topics: The brainwashing of Tik Tok kids and learning from the legend, Peter Lynch.
The Storm has Arrived
Rough waters, panic selling, fear, capitulation, and the “everything is going to zero” mantra is in full force this month. As many people have experienced more recently in December 2018, March 2020, and this month, this a real correction (indexes down 10%+) when can lead to a short or prolonged bear market. Do we see a recovery after the Fed makes its first move (with interest rate hikes, tapering) or continued prolonged selling? Definitely a wait and see. FYI January was the worst month for the SPY index of around -7% since March 2020.
Not Financial Advice: The Plague of Tik Tok
Tik Tok….. What can I say. I feel like I lose hundreds of brain cells when I see one video of some 15 year old telling people to buy Dogecoin let alone thousands of brain cells.
The problem is social media sites like Tik Tok have become the hub for financial advice, mainly given how accessible it is. More importantly, CNBC has dropped the ball on actually educating young investors and instead chooses to clickbait them left and right with no factual analysis.
Want to see the stats. Just take a look.
And here is a perfect example to sum up Tik Tok financial advice. Gotta love the dog coins.
In the end, schools actually need to teach kids about financial education. How to save, earn and invest. Not how to use the Pythagorean theorem.
The Man Behind Magellan: The Peter Lynch Story
Peter Lynch ran Fidelity’s Magellan Fund from 1977-1990, which at its inception managed $18 million. Through his 13 year career, the fund grew to $14 billion in assets, which produced a 29.2% annual return, significantly outperforming the broader market.
In my mind, Peter Lynch is the greatest investor of all time or GOAT. A lot of people say Buffett but he normally buys entire businesses, which an individual investor can’t do. Here are many lessons Peter Lynch has learned and shared that I think are very valuable:
Ride your Winners
This is somewhat counterintuitive since most people see taking a quick, small gain as a win, but buying and adding to winners will make much more over the long term then continually adding to failing, poor businesses. Winners keep winning, just like in sports.
Know the Business
His big winners included Lowes, Dunkin Donuts, Phillip Morris, Ford. Do you see a pattern here? Very easy to understand businesses. One of his famous quotes is, “If you can’t explain the business in 2 minutes to a 5 year old you shouldn’t own the stock“
Stay in the Market
Yes, corrections in the market, or even a bear market is scary. Losing money isn’t fun. Perfect example has been this month, which is a correction that can lead to a bear market if sustained. Fear is a more powerful emotion than greed and as Peter Lynch commonly said, “The real key to making money in stocks is not to get scared out of them.”
That doesn’t mean raising some cash and selling some losing positions is not a sound strategy. But completely getting out of the market for good is a losing strategy and always will be (just look at March 2020 until now as an example or during 2007-2008). Another quote of his to round this point out is, “You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets.”
Gambling vs Investing
With the adoption of crypto, options trading etc, many people are trying to hit the lottery ticket with the next 10x coin or option. As Peter Lynch said, “Although it's easy to forget sometimes, a share is not a lottery ticket, it’s ownership of a business”. This is why coins like Doge, Shiba Inu get so popular in like a week than tank because there is literally nothing backing them besides a cute dog picture.
He is an open book of knowledge. This speech is so well put in terms of logical fallacies most people (especially me) have while investing. Well worth the watch and he is quite funny:
And this one. My favorite quote from him is right at the beginning of the video:
“There is always something to worry about in the stock market. Everyone has the brain power to do well in the stock market. The question is whether you have the stomach for it. That is the key organ in the body”
JPOW Backtracks
If you missed Jerome Powell testifying to the banking committee, this meme pretty much sums it up. Good luck predicting what the FED is going to do on rate hikes, inflation. He has hawkish rhetoric in his minutes before the meeting than backtracks everything under oath (very credible).
Pelosi Capital is “Retires” then “Un-Retires”
Nancy Pelosi announced her retirement than pulled a U-turn and is running again. If you want to learn how my former representative beats 99% of hedge funds trading millions in call options, this mini-documentary on Nancy is very eye-opening (and the rest of his videos on his channel are excellent). Sorry, I meant how her husband beats 99% of hedge funds *without her knowledge*.
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always a great read, thanks matthew!