Investing in 2022
Reflections after 1.5 years of investing in the USA stock market.
1. The market doesn’t move in a straight line
Due to some market inefficiencies, stocks are almost always either overvalued or undervalued to varying extents. It may take some news or shift in sentiment for the momentum to change and for asset prices to move toward their fair value.
Should some stocks become clearly overvalued, it is prudent to take some profit off the table and wait for a better entry price. Buy and hold forever is another strategy for quality companies, and has worked well for the likes of AAPL and AMZN over the last 20 years.
2. Sleep well at night when you buy quality companies
From the very beginning, there were companies which I invested in ‘seriously’ and some moves I identified as high-risk ‘lets just see how it goes’. GME definitely fell under the second category, and I allocated a much smaller amount of maximum 2–3k over multiple trades with the expectation of losing all my capital. This is a stark difference compared to the 10–20k I was willing to put into tickers like FB, MSFT and AAPL.
Looking at my -30% portfolio today, the only ones I regret putting too much money into are SKLZ and perhaps the BABA options.
SKLZ, FSLY, FTCH and PLTR are all high risk growth stocks recommended by my stock picking subscription on Seeking Alpha, The Data Driven Investor. The author, Andres, made known that these are aggressive growth stocks which were far more volatile and could half as easily as they could double. Although they did well in 2020, most of these were hammered throughout 2021 and have fallen over >70% of their peak.
Perhaps it is only because I have lost money on these bets, that they have become somewhat regretful investments. The situation would be different had I gotten in slightly earlier in 2020.
Nonetheless, because I understand the risks involved and the reason for putting a few thousand in them, it doesn’t feel like the end of the world where I become entirely averse of such growth stocks and risky plays in the future. I still sleep well at night knowing why I entered, and patiently wait for the reversal.
3. Even the winners today have periods of drawdown
This is a recurring point drilled into the weekly updates by the investment subscription. Following his massive success in 2020, Andres was faced with angry comments from subscribers who got in after the growth stock boom cycle. Just about every pick in his portfolio was doing poorly, including names like SQ, ROKU, CURI, TDOC.
The thing is, if you look at stocks that have done well historically, they too have had periods of poor performance. Between Dec’13 and Apr’14, AMZN lost 25% of its value peak to trough. This happened again between Aug’18 and Dec’18 where AMZN dropped from ~2000 to 1540. If you were holding AMZN during that time, it would come across as a poor investment and some may have sold their positions.
However, those who had faith in its long term outlook would have been rewarded with one of the best returns over the last 20 years. Today in 2022, AMZN has a drawdown of 33% peak to trough. Will it be able to replicate the strong recovery previously and provide strong annualized returns for its shareholders? Only time will tell — but for now I’m holding onto my positions.
4. Don’t get cocky when you make some money
When up some 20% equivalent to a few tens of thousands in profits, I bought the latest iPhone13 Pro for SGD$1800, under the pretext that it was a free gift from the AAPL profits anyway. Granted my 5 year old Iphone7 needed to be changed, but what I noticed is that good days enables someone to justify some unnecessarily luxurious spending.
But the market doesn’t always go up. I’m now sitting on a 30% drawdown and not expecting to breakeven anytime in the near future, so in reality all those big ticket items were paid out of my own pocket.
If you don’t reign in your expenses, things could get very ugly due to lifestyle creep, unrealistic expectations, or the pressure of having to maintain a certain image in front of your friends whom you once boasted about your short term success to.
5. Survivorship bias is real
It is a well known fact that people tend to only post their highlights on social media. How many people are comfortable with sharing their failures and vulnerabilities with their friends?
During the strong bull market of 2020, I saw many real life stories of people who made it big playing options or leveraged trades in the stock market.
One of the most well known is u/DeepFuckingValue from r/wallstreetbets. He famously identified GME as a ticker with potential for short squeeze, and has locked in millions in realised profits. Another local influencer I follow made 500k off a few smart trades and started renting his own apartment to the tune of several thousand dollars a month — because he can now afford to.
On the other hand, how many stories of friends losing money have you heard of? Surely the reality is that many people are also sitting on heavy losses, and what you hear of has always been skewed towards success.
I want people to know that they’re not alone in this (apes together strong!!). Let’s normalize taking losses and learn from them, because:
6. The investment landscape is changing
This is something that I’m still actively learning about, but there are many points to consider. Briefly:
a) Stagflation — consumer prices in March’22 are up 8.5% from a year ago, the sharpest increase since 1981. People in our generation have never experienced a real financial crisis like the 1970s. The high annualised returns of the 2000s might not be possible in the next 10 years, forming another Lost Decade.
b) War — Russia, Ukraine, oil prices, nuclear powers, supply chain disruptions, the freezing of Russia’s foreign reserves. Are countries’ foreign reserves still worth anything when the West can simply shut them off?
c) Legitimacy of digital assets — An unprecedented development in the history of mankind that could change the value of money as we know it. The money system we know today is actually only 50 years old and is showing huge cracks as trade deficits in the US has accumulated into a massive negative net international position.
1971-present (Petrodollar System), 1944–1971 (Bretton Woods System), 1700s-1944 (Gold standard system). Should digital assets be normalised, its anyone’s guess as to what could possibly happen between countries’ international debt, trade surplus, monetary policy, etc.
I recommend reading the series by Lyn Alden Schwartzer here.
Conclusion
From point#6 you can tell it’s all a big big mess. Investing sure isn’t easy. Moving forward, I’m looking to be more cautious when deploying capital, be humble and grounded during times of success, and work towards a sustainable approach to investing as I hit my 30s and expenditures increase.
If you are in a similar stage of life like me, resonate with the above, and are interested in learning about investments together, do hit me up on Linkedin or contact gohyuchen@gmail.com.
On crypto: I have a sizeable position in crypto as well, but the approach is entirely different and still largely based off speculation. Hence leaving it out of this article.
