If You Held Thus Far…
It wasn’t easy and it sure as hell wasn’t fun, but the long-term consequences of staying the course, not succumbing to the low-ball offers that buyers are quoting some of the best businesses in the world, with growth prospects for decades ahead and of actually SHUTTING OUT the noise and buying more equity in these businesses, so that 10-20 years from now, you’d be compounding at silly-good pace, will go down as one of your most pivotal wealth decisions.
It’s a horrible feeling to buy the dip and not to be instantly gratified and, but the tried and true way of converting fiat currencies into assets that grow predictably over time.
Still, this is no ordinary ‘Dip’ and I want to address this.
For the past 13 years, which are nearly the length of 2 full business cycles, central banks and governments popularized stimulus and zero interest rates.
Because it caused no immediate inflation, the ramifications of these policies did not induce fear and P/E multiples grew, so much so that appreciation in price became the norm.
When one buys a business or a fraction of it, via purchasing shares on the open market, the business tends to appreciate, when the fundamentals of it justify it. In other words, I wouldn’t expect to acquire a juice stand and for other entrepreneurs to make me offers on it, higher than what I purchased it for, without improvements on my part, yet that is exactly what happened.
Because of zero interest rates and plenty of corporate credit, other entrepreneurs bid up businesses, especially tech-related ones, chasing prices higher.
This culture is now evaporating and is replaced with skepticism, doubtfulness and classic value investing mentality.
Investors rather wait than buy…
The business outlook is the WORST since the Great Financial crisis:
Courtesy: Zerohedge.com, Bloomberg
93% Of Investors Generate Annual Returns, Which Barely Beat Inflation.
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This ‘Dip’ is different, because you have no support from Washington D.C. or from Wall Street’s Federal Reserve Bank, so the component of multiples (P/E ratio) and other ratios of valuation, roaring back up, without merit, are not logical to assume.
This means that when buying stocks, the primary consideration one should have, when he conducts due diligence should not be from the standpoint of what can I sell my shares for in 12-18 months, but how much better will the fundamentals be in 36-60 months from now.
It very well could be that the markets don’t return to new all-time highs for 3-5 years:
As you can see, apart from the Covid-19 March Panic, when Wall Street’s consensus was that the global economy would be shut down for 2-3 years, we’ve never seen a bigger sell program on the stock exchange.
Investors are just entirely bewildered by how to invest in a world, where risks are real, government/central bank support is non-existent and inflation is super-hot.
Instead of taking any chance that CEO’s will figure it out and grow stronger over time, they’re cashing out and waiting for the storm to pass.
In my career, I’ve rarely seen better set ups for gold.
For anyone, who still sits there confused, asking himself why gold prices are hitting all-time highs, he’s got it ALL WRONG.
Gold is up 1% in 2022, while some of the best businesses in the world are down 30%-70%, so gold is doing EXACTLY what gold investors expect of it; he is retaining purchasing power, while everything around it CANNOT!
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