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: