Diversified Bullish

An Investing and Stocks Blog

Jan 09, 2023

Volatility, Friend or Foe?

Volatility is scary because when a stock thrashes down, it hurts pretty bad. Investors need to set aside their emotions and ask themselves, "Has my thesis about this company changed?". If you still have conviction, the market's volatility has created a possible buying opportunity.

It sounds simple put into words, but observing the market in real time never goes so smoothly. Your perceptions of a "bottom" or a stock's range can be way off. Volatility is an opportunistic investor's friend, and a timid or inexperienced investor's foe. However, even a seasoned pro can get it disastorously wrong and get wiped out by a falling knife. Make volatility your friend, but be careful!

Dec 14, 2022

Gains Happen in Bursts

Gains tend to happen quickly in a short time. This is a reason to hold onto those shares a little longer. That sudden unpredictable catalyst might be around the corner.

When a stock moves, it can happen after years of stagnant price action. Don't miss your gains by exiting at the wrong time. If earnings are heading the right direction, the gains will come.

Nov 28, 2022

Humans in the Balance Sheet

Corporations value humans, until times get tough. Then they start to cut.

I thought they were less brutal, deploying strategies so feudal. Employees are just a line item to them.

What's good for the company? They'll land on their feet. They don't care about a human in the balance sheet.

Oct 08, 2022

The Recession is Bullshit

I can't shake the feeling that we are being toyed with by invisible forces. First, a disease is manufactured and propagated. Then, a response to the disease is conceived. It includes locking down society and subsidizing the people with printed money.

This is all a tidy narrative for companies to retrofit to their own needs. A cycle of boom and bust is synthesized in the name of the greater good. Employers now have a reason to fire their employees and raise prices of their widgets. Stocks suffer because it's going to be difficult. Everyone knows a recession is coming!

Fear mounts. Worries pile up. The Federal Bank must curb inflation. They need to raise interest rates on borrowing money to get this nasty inflation monster under control. Now it costs more money for people to take out a loan and buy houses. Companies don't give raises. Inflation of consumer staples eat into our salaries. "The recession is coming!", they said.

In summation, we have a (natural?) phenomena, seized by world governments to extend their power in the name of protecting the people. Stocks go down for now. That's ok as a long term investor. However, I can't get over the idea that is all humans, all the way down. Humans doing human things: scheming, reacting and seizing an opportunity to claim the sky is falling. All along, fat cats padding their own pockets at the expense of their fellow man!

Do you think a recession will happen? Is it already happening? Or is it only our reaction to the idea of it? I, for one, find it amusing how humans can be so sure they know what is coming and what has already happened. I'm a skeptic! This recession is bullshit.

Sep 08, 2022

Check Your Expectations

I have enjoyed Josh Brown's perspective as the market thrashed the past few years. A CNBC regular with razor sharp takes, I think I heard him recently say something to the effect of "check your expectations".

I agree with many things Josh says, but especially with this sentiment. Stoics know that by checking our expectations, we can better regulate our perception of what is happening with our investments. Consider lowering your targets for ROI and just relaxing your expectations in general.

Sep 02, 2022

What Does Intrinsic Value Mean?

The goal of this post is to find a layman's idea of what a stock's "intrinsic value" means. Intrinsic value is often praised as a claim to why the market price of company should be higher. What does that mean?

Checking Investopedia, the top hit on Google, "There is no universal standard for calculating the intrinsic value of a company... Typically, investors try to use both qualitative and quantitative to measure the intrinsic value of a company, but investors should keep in mind that the result is still only an estimate." - Investopedia, https://www.investopedia.com/terms/i/intrinsicvalue.asp

The next hit, Corporate Finance Institute offers a "Net Present Value" based formula, along with net cash flow, interest rate, etc. So it seems that the mathematics of instrinsic value calculation are sound, but the weighting of possible future outcomes is where an an analyst is more of an artist. https://corporatefinanceinstitute.com/resources/knowledge/valuation/intrinsic-value-guide/

In essence, intrinsic value is a mathematical model an analyst creates by weighing projected outcomes. There is no standard for producing an intrinsic valuation of a company. I find this somewhat amusing, because before when I heard the term intrinsic valuation, I assumed there was more to it. Such as a formal methodology that is carried out. However, like all future prediction models, they are subjective and sound more like a guess to me. I will be sure to take these instrinsic value calculations with a grain of salt from now on.

Aug 28, 2022

Industry-Based Investing

When picking investments, I like the idea of selecting assets based on their industry or the rise of a specific technology. One can observe the world, watch trends come and go and consider adding them to your portfolio.

For example, I believe that solar technology is likely to be an important source of energy in the future. I am basing this thesis on an anecdotal conversation with an energy engineer, along with generally positive sentiment for the solar energy industry as of late. For these reasons, I am marginally invested and building a position in a solar company, Sunrun.

Electric vehicles are another industry that I believe will play a big part in the future of humanity, so I'm holding Tesla. It's been my best investment by far. I'm still holding because I believe that electric vehicles are going to be huge in the future. One can hold a company based on principle, provided the quarterly earnings reports are acceptable.

Sometimes your thesis will be wrong. You can't win 'em all. You also don't need to win them all. Pick a few winners and mix with index funds to round out your portfolio and the 80\20 rule will emerge. A few of your assets will perform better than the others and reap most of your gains.

I think that this industry-based line of thinking is a way to frame your investments that can make it easy to remember why you're holding it. One can certainly be wrong about our projections into the future, but these are the types of angles a keen investor seeks out.

Jul 16, 2022

Buy The Close

In my experience, markets sometimes open up with a pump in prices. In situations where I bought near to the open because of some anticipated event, I usually bought at a higher price than if I had waited.

I find it's best to watch stocks throughout the trading day, then put in a buy order in the final hours or minutes before the market closes for the day. This is general knowledge for most investors and traders. While not always a certainty, I think it is a good tip to keep in mind when adding to your portfolio on any given day.

Buy the close, because "gains happen overnight": https://breakingequity.com/blog/most-gains-for-spy-happen-overnight-a-quantitative-study

Jul 11, 2022

When Stocks Go Down

If a stock goes down, it may still be a good investment. Some investors act like a stock you own should never go down, and if it does it's not something you should invest in. This view is unreasonable because as we've seen in 2022, market and geo-political conditions can have broad-sweeping effects on all stocks and index funds regardless of company performance.

Investors like growing companies. In recessionary times, investors like profitable companies with stable product demand. Therefore, the companies that are less profitable now but investing heavily in the future may be undervalued currently compared to their potentially more developed, profitable future.

Stocks like NET and SNOW are tech infrastructure plays that have been hit hard by the flight to more established companies. Their underlying bull theses are still in tact. Today, they are priced at a 50%-60% discount compared to their price at the beginning of 2022. The recent market turbulence is allowing me to lower my cost basis on both positions. In the long run, savvy investors will repurpose this downturn into an opportunity. I'm betting that will be the case with these two promising companies.

Sometimes stocks will go down and it is not necessarily an indicator of weakness. Trust your convictions and consider tuning out the stop loss daytrader heros. Sure, it's fine to cut losses. However, sometimes it's necessary to hold your shares "in the red" until conditions improve. Your positions will recover faster if when stocks get cheaper, you buy more.

Jul 10, 2022

Are We in the "Worst Case" Scenario?

As far as stocks are concerned, yes I think so. While the S&P 500 Index is down approximately 15% YTD, many stocks saw anywhere from 30-80% drawdowns. Now one would think selling does not make much sense. Perhaps the inverse of selling is the answer. Why not wait 10 or 20 years and see where the market lies? You can also do nothing and build your cash pile, maybe a smart move in this environment.

I'm not calling a bottom. Stock valuations are unpredictable and since the trend is down, prices might go lower. My bets are placed that we're nearing worst case scenario territory at the moment. Disease, war and inflation have given a much needed haircut to the frothy stock prices of 2021. Here's hoping to better scenarios ahead.

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