Unlocking an article published early in the recent crash, on 11 Jan 2022. Some details removed to preserve subscribers’ privileges.

Market had the best rally since 2020 last week. Looking back, I could have bought more aggressively. While I added over $200,000 over the last three months, it seems like a good idea now to have gone all in.

I really try not to think in this backward manner as we don’t know what tomorrow brings. We didn’t know if the crisis would deepen, and most commenters were predicting things to get much worse at the time.

I stuck to my plan of reaching about $250,000 in leverage, and it worked out well enough. We should aim for good enough, and not perfection. I threw enough darts over time to have made it worth the while.

My core plan is still sticking to U.S equities and companies which can manage inflation well. Tesla is a good example, and it played how I thought it would, with Tesla raising their prices recently. I was also right earlier that rising rates were nothing too serious to worry about, and the market reacted well to the first rate hike. My banker was encouraging me to flee to gold, oil, and banks (seemed to be general market consensus), and was a bit doomsday about rising interest rates. I’m glad I ignored him.

I am turning a bit more cautious now as I think consumers are being seriously affected by inflation and oil prices being the way they are. Recession risks are increasing and there is little history of how the market would behave in an environment of high inflation and slow growth. Still closely watching and I’ll adjust the sails if need be.

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First published on 11 Jan 2022

Nasdaq had one of its worst weeks in recent memory, and forums are filling up again with questions of buying and selling.

I’ve been feeling quite zen about the whole thing. Been there, done that, got the postcard.

I continue to think that we are more likely in a bull market, with a strong economy and full employment in the backdrop.

The narrative of rising interest rates leading to lower valuations for tech stocks is lazy and of disservice to investors.

Inflation should favor stocks as one of the few investments that can adjust and past on rising costs. Not all companies will be affected by inflation in the same way. Consumers don’t stop spending, they carefully choose what they spend on.

Companies with deep moats and pricing power can pass on costs to consumers and continue to show profit growth. One example is Tesla, where they will be able to raise prices and continue to sell out every car. Dominant companies which build good workplace practices can rise wages to attract the best employees, who in turn create products that people will prioritize their spending on. If a company can’t do these, they fade and decline. But there will plenty of winners even in an inflationary environment.

Another argument is the usual TINA (there is no alternative). Bonds, property and most other assets are also at historical highs. Bonds and property don’t do well with rising rates either. In comparison, stocks aren’t really that bad.

So I wouldn’t be too afraid of rising rates. I agree with the Fed that it has to happen, along with tapering. It is unsustainable to keep providing emergency stimulus funding while the economy is at full employment. Pulling back unneeded debt is part of a healthy functioning market economy.

I’ve been adding to my Airbnb position, and added 30 shares at $1XX last night. Total now is 100 shares at an average price of $1XX. I’ll probably keep adding until I reach USD $20-30,000.

For small positions, I won’t necessarily make a blog post for every one, and these will only be posted on the discord channel.

It’s a funny reason, but I think that Airbnb will benefit because they have kitchens.

More people will be travelling, for longer periods. Covid restrictions favor long stays in the same country and area, instead of hopping around. Instead of taking multiple small holidays, people will want to go on longer trips. For families, that means accommodations with fuller facilities, like kitchens. Something that most hotels don’t have.

Besides that banal explanation, Airbnb’s business model is very scalable, having the ability to add rooms at the drop of a hat. Hotels need buildings and workers. Airbnb is also one of the rarer stocks that is a household name but generally not talked about on Wall Street and forums. I like stocks which are not hyped and are under the radar. A big bonus if I can browse the products and see customer reviews too.

Airbnb is also a bet on workplace flexibility, which will continue as that is what workers want. I don’t go to an office myself, but friends and family don’t seem to be looking forward to going back to the office. One reason I imagine is that they have to wear a mask the whole day. Something I personally find hard to endure. Benefits of working from home like more sleep, flexibility, and time with family won’t be going away, unless companies want to lose their talent.

So I’m very comfortable adding Airbnb, and I should see some results by the end of the year.

For Palantir, position is down over 12% already from my buy point of $1X. Position is small enough at around USD $6,000 that it doesn’t hurt, and I may keep it that way. I would want to see their next earnings before adding more.

I’m at about SGD $180,000 margin used, and I think I can go up to $300,000- $400,000. But will be conservative and stick around $250,000. Which is about XX% leverage on a XX dollars, still within a safe range. Technically I can go up to 70%.

Will continue to nibble over the next few months. Likely to be volatile in this first quarter as we see the first rate hike and the market will do what it does. But I think the market will get used to the idea of rate hikes and we can see an upward climb for 2022 overall.

Portfolio is down significantly, but I’m not bothered to calculate exactly. I shouldn’t be too focused on how it looks like every day. I view this stretch as an opportunity to keep building wealth and security, and this is a period of investment that will pay off in the next few years. What happens these next few weeks or months doesn’t really matter. I’m generally satisfied with my portfolio composition, and not making any big moves.

A useful mantra I tell myself now is “Don’t do anything stupid”. It means not taking any big risks, not FOMO-ing, and staying calm.

3 thoughts on “Don’t Do Anything Stupid

  1. Property generally does well in rising rate environment, unless you’re in nosebleed-high rates territory where nobody can afford mortgages & basically there is currency & economic crisis. The US hit this around 1979 – 1982. Property transactions collapsed & liquidity dried up. Doesn’t mean there is no value in property … it just becomes an illiquid store of value. Those who couldn’t service mortgages or property costs like property taxes etc were obviously hurt if they had to sell out at large discounts.

    Companies with strong moats (e.g. pricing power), fortress balance sheets (don’t need to service or take on high-interest debts), rising FCF, ideally low capital needs (capital efficiency) will do well in inflationary environment.

    Look at Berkshire’s performance during the 1970s to early-1980s. You can see the yearly performance compared to the S&P 500 at the start of every annual shareholder letter on their website.

    Except for the big bear in 1974, Berkshire blew away S&P 500 during that stagflationary period. S&P 500 actually did quite OK, but a few years couldn’t match inflation i.e. 1977, 1978, 1981.

    1. I feel property in Singapore is going to rise despite wherever interest rates are due to limited supply and increased demand for space at home. But prices now are a bit eye-popping, wondering how long it can sustain. But seems pretty likely that it will continue rising.

      Thanks for the history lesson, very insightful. I had a look and you’re right. Berkshire even had triple digit returns in a couple of years in the 1970s.

      Agree that strong companies will do well in an inflationary environment. It’s certainly better than holding cash. Berkshire has been on fire lately too. I think they will repeat their outperformance for a while.

      1. There are periods in S’pore history where property did badly for a longish time e.g. those who bought in 1996-1997, 2012-2013.

        I also suspect there wasn’t much liquidity for property *investments* during the mid-1970s in Singapore, when inflation rates crossed over 20+%. At most for necessary roof-over-head with then highly-subsidised HDB flats.

        At current prices, I won’t be surprised if annualised capital gains for S’pore property will be nothing to shout about for the next 5-8 years.

        Lol, Berkshire was just an example of strong company with the above characteristics — Buffett & Munger also tend to only invest or buy over companies with similar factors. And I knew that Buffett was conscientious enough to always have an easy-to-see table of yearly comparison between Berkshire and S&P 500 on the 1st page of every annual letter, so I don’t need to do the work.

        Sniffing ground for such companies can be scouted in Dividend Aristocrats, Dividend Achievers, and various broad US high dividend ETFs (scan their top 10-20 holdings). Still need to do due diligence though.

        These are the “Uncle” stocks that very seldom go 100+% in one year. For investors, their main purpose is to keep pace with US & World economy while paying growing dividends. Unless you’re a retiree or more conservative investor, these stocks usually form one part of the portfolio.

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