Too many investors “water their investment weeds” while picking their flowers.
And according to the old adage, “if you water your weeds and pick your flowers, you’ll end up with a garden full of weeds.”
It can be extremely tempting to sell stocks that are winners to lock in profits.
And if you’re stubborn like me, you understand the urge to buy more shares when your favorite stock trades lower. After all, if you liked it at $50, you should love it at $35 — right?
But that’s not how the game of investing usually works.
If shares of your most recent investment trade higher, it’s generally a sign that you did something right!
And according to Bill — my boss and mentor at the hedge fund — if it’s working, you should buy more. This way you have more of your capital invested in positions that are actually creating gains.
The inverse is also true.
When you invest in a stock and shares fall lower, there’s an important message being conveyed.
Typically, this means there’s something wrong with the company you purchased, or there’s something wrong with your timing. (Or both.)
Successful investors try to avoid putting more money into losing positions. But rookie investors often throw good money after bad by doubling down on losing bets.
In today’s turbulent market, investors need every advantage they can get. And one of the best ways to tilt the odds in your favor is to “buy more of what’s working,” and consider selling the stocks that aren’t behaving the way you hoped.
Now, let’s shift gears and take a look at some of the important news for investors today.
The Job Market is Surging — For Some
- Reuters: Record job-switching pushing inflation higher.
- Workers have more leverage to ask for better pay.
- Widespread wage increases may account for 20% of inflation.
- Nearly 4 million Americans quit jobs per month last year.
- WSJ: Echoes of the wage-price spiral from the 1970s.
- As employees press for higher wages, businesses raise prices.
- Consumer prices and wages have been rising together.
- The economy has changed since the 1970’s but risks remain.
- WSJ: Early retirement is still risky.
- Owning real estate has given many the wealth to retire early.
- 4.2 million people left the workforce during the pandemic.
- Retirees now make up 19.4% of the population vs. 18.3% in 2020.
Widespread Inflation Is a Major Concern
- WSJ: Farmers feel the squeeze of inflation.
- Farmers face higher prices for chemicals, seeds, fertilizer & equipment.
- Supply costs are rising faster than crop prices, crimping profits.
- Global supply chain challenges are in play driving costs higher.
- Bloomberg: China’s iron ore crackdown sparks rout.
- Beijing ramped a campaign to stop iron ore prices from overheating.
- Iron ore prices are now down as much as 13%.
- Chin wants to boost steel consumption without sparking inflation.
- WSJ: Producer prices leapt in January.
- The producer price index rose 1% month over month for January
- This was the fastest rise since May 2021.
- On an annual basis producer prices are up 9.7% over last year.
- WSJ: The Fed was slow to address inflation. Can Powell catch up?
- Powell is now shifting from being a monetary dove to a hawk.
- Inflation is now running at a 40-year high of 7.5%.
- Fed officials warn they can’t provide the same predictability.
- Factset: Nearly 75% of SPX companies are citing inflation.
- Of 337 companies, 246 have cited inflation during earnings calls.
- Industrial and financial companies are citing inflation the most.
Don’t Water Those Investment Weeds!
- WSJ: Pension funds chase returns in private-market debt.
- Pension funds are investing in private loans to try to boost yields.
- These funds are moving capital out of high-yield bonds.
- Private loans typically carry much higher risk.
- CNBC: Intel to buy Tower Semiconductor for $5.4 billion.
- The deal gives INTC a foothold in technologies like radio frequency.
- INTC will pay $53 per share versus the $33.13 closing price for Tower.
- The deal should help INTC with capacity issues.
- WSJ: Blackstone’s last mile logistics deal for $24 billion.
- “Mileway” formed in 2019 to house urban warehouses & dark kitchens.
- Last mile properties are used by companies like AMZN for distribution.
- Blackstone is selling Mileway to a new Blackstone fund.
- Bloomberg: Big oil pumping cash as if $100 oil has already happened.
- Majors like BP, TOT, XOM and CVX generated highest cash flow since 2008.
- Leaner firms are benefiting the most from the current rally.
- Companies spent much of 2020 cutting costs – leading to current profits.
- WSJ: Consumer pessimism grows as inflation accelerates.
- Current sentiment readings are near the April 2020 lows.
- This matches levels seen just before the market surged higher.
- High inflation is tempering enthusiasm for spending.
Are Digital Assets REALLY Different?
- Reuters: Bitcoin runs into Russian rules and regiments.
- A new law for crypto assets expected to be announced in Russia.
- Russia has become the third largest center for Bitcoin mining.
- The rule will likely allow crypto only through licensed companies.
- CNBC: Here’s the Bitcoin outlook with geopolitical tensions & rates.
- Crypto investors are watching Russia and the Fed for direction.
- In recent months, Bitcoin has been correlated to growth stocks.
- Use cases are expanding, only scratching the surface.
- CoinShares: Positive weekly inflows for digital assets.
- Digital asset investment products received a net $75 mil last week.
- Blockchain investment products had largest inflows since December.
- Bitcoin investments now have a 4-week run of inflows.
- CoinDesk: Bitcoin rangebound as traders hedge risk.
- An increase in put options indicates demand for downside protection.
- Ironically, this could lead to higher prices as hedges are lifted.