Current Market Conditions

Hey, The Investor’s Podcast Network Community!

What a month is has been for the stock market! On December 3, the S&P500 was trading at 2,790. Yesterday, before the market opened, it was trading at 2,351 — a drop of nothing less than 15.7%, only to bounce back close to 5% in just one trading day to the biggest point gain ever.

So what should we as investors do? It probably comes as no surprise that I strongly suggest you do not start selling your positions. If you don’t like the stock cheaper than December 3, you shouldn’t have bought it in the first place. But should you buy now or hope for the stock market to drop further?

I think the answer depends on your strategy. Preston, for instance, would like to see a positive price momentum for a stock that is out of favor, because he knows he can’t time the market and buy at the bottom. At the same time, he does not want to miss out on a lower price of a stock that seems to be in a free fall. It’s a solid strategy.

My approach is a bit more traditional. If I like the price, I typically buy the stock knowing that it might drop sharply over the next period of time, only to revert to the intrinsic value later. This is because I’m very ignorant of what is happening short term in the stock market. I also don’t like to watch the price action too much, as it stresses me out.

I’m not going to tell you which approach is the best — I think it depends on your personality and investing approach. Nonetheless, I believe that in a tumbling stock market, the most important thing is to filter out all the noise and to avoid changing your strategy in the spur of the moment.

In our most recent episode, we discuss the current market conditions with our friends Tobias and Hari. Preston talks about why he decided to short the market earlier this month, while I pitch Fonar Corporation, which appears to be a good value stock. I sent out my intrinsic value assessment of Fonar Corporation in my last newsletter, and you can find all of our intrinsic value assessments on our free Intrinsic Value Index.

With the current drop in the stock market, what am I personally doing? Earlier this year, I mentioned that I bought a rental property. Before the market tumbled, I was looking to invest even more. However, given the current market conditions, it’s on hold and I’m now considering to buy more stocks. Don’t get me wrong. The stock market is still not cheap. But as investors, we should also have an idea of what the expected yield is of all asset classes and use volatility to our advantage. Right now, stocks are more attractive than how they have been for a long time, especially if you look away from the overall stock market and investigate individual picks that are out of favor.

Thank you very much for your support in 2018 and for being a part of the TIP Community! We truly couldn’t do this without you. Preston and I wish you the very best in 2019 and hope you’ll continue with us on our journey of demystifying the financial markets.

Your Friends,