Equity Mates - Don’t Panic: Here’s What’s Happening, Why You Should Stay Invested & What We’re Buying
The hosts discuss the current market downturn, highlighting it as a potential buying opportunity. They reflect on past downturns, noting that they often regretted not capitalizing on them. The Equity Mates community has responded positively, showing calm and encouragement. The episode is divided into three parts: current market news, the power of long-term investing, and personal strategies during downturns. They discuss recent tariffs introduced by Trump, affecting global markets and causing significant market drops. The hosts emphasize that long-term market performance includes downturns, and missing the recovery can significantly impact returns. They cite a Bank of America study showing the importance of staying invested, as missing the best days can drastically reduce returns. They also highlight that predicting market bottoms is nearly impossible, using historical examples to illustrate this point. The hosts conclude that staying invested and sticking to a plan is crucial, especially during volatile times.
Key Points:
- Market downturns are often buying opportunities; don't miss them.
- Long-term market performance includes downturns; stay invested.
- Missing the best market days can drastically reduce returns.
- Predicting market bottoms is nearly impossible; stay the course.
- Engage with investment communities for support and insights.
Details:
1. 🎙️ Podcast Introduction and Hosts' Emotions
- Hosts express excitement and greed due to market downturn, viewing it as a buying opportunity.
- Reference to past market downturns, specifically a 20% fall in 2018, where they felt they missed out on capitalizing.
- The EquityMates Facebook community has reacted with calmness and encouragement during the market downturn, focusing on portfolio opportunities rather than panic selling.
- Hosts encourage participation in the Facebook group for support and discussion.
2. 📰 Episode Overview and Community Reaction
2.1. Episode Overview
2.2. Global Tariff Developments
3. 🌍 Market News: Tariffs and Reactions
- Australia avoided major US tariffs due to not having a significant trade deficit with the country, highlighting strategic trade relationships.
- The S&P 500 index dropped by 11% within two days, approaching correction territory, which indicates significant market volatility and investor concern.
- The NASDAQ entered a correction phase with a 20% decrease from its recent high, reflecting substantial losses in technology stocks.
- Approximately $6.57 trillion was erased from US markets over two days, illustrating the severe financial impact of the tariff announcements.
- Since mid-February, the NASDAQ has fallen by nearly 20%, signaling a prolonged downturn in technology and growth stocks.
- The lack of clear market winners contrasts with previous periods where European, Chinese, Hong Kong, and UK markets experienced gains, suggesting a global market uncertainty.
4. 💼 Trump's Tariff Strategy and Global Reactions
- Trump's tariff strategy is viewed by some as a negotiation tactic to secure better trade deals, while others believe it aims to bring manufacturing back to the U.S. This dual perspective highlights differing expectations of the strategy's purpose.
- Howard Lutnik suggests that the U.S. is at a point of maximum leverage, enabling Trump to negotiate improved deals. Conversely, others argue that maintaining tariffs is essential to incentivize the return of manufacturing jobs to the U.S.
- The U.S. has imposed a 34% tariff on China, which has been reciprocated by China with a 34% tariff of its own. Additionally, Trump has threatened an extra 50% tariff, potentially bringing the total to 104%, taking into account a previous 20% tariff.
- China claims to possess monetary and fiscal tools to mitigate the impact of U.S. tariffs and may benefit if countries opt to relocate manufacturing due to the tariffs.
- In response to U.S. tariffs, the European Union is reportedly preparing a reciprocal tariff package, indicating a broader international backlash against U.S. trade policies.
5. 📉 Tariffs Impact on Markets and Companies
5.1. 📉 Tariffs Impact on Markets and Companies
5.2. 🌍 Regional Impact and Strategic Responses
6. 📜 Historical Context of Tariffs
6.1. Historical Impact of Tariffs
6.2. Modern Parallels of Tariffs
7. 📈 Power of Long-Term Investing: Staying Invested
- The long-term performance of the stock market includes challenging times, demonstrating resilience through events like the Great Depression, World Wars, and trade wars.
- Historical data shows that the All Ordinaries index has returned 13% annually over the last 100 years with dividends reinvested, despite significant global events.
- The stock market has historically overcome numerous challenges and consistently reached new highs.
- The S&P 500 falls by 20% or more approximately every four years, with recent falls occurring in 2018, 2020, 2022, and projected for 2025, emphasizing the cyclical nature of the market.
8. 🔄 Missing the Market Recovery: Risks and Consequences
- A Bank of America study covering the S&P 500 from 1930 to 2021 shows a substantial impact on returns when missing the 10 best days of each decade.
- In the 1940s, holding investments returned 35%, but missing the best 10 days resulted in a 14% loss.
- In the 1990s, a complete hold returned 316%, while missing the top 10 days reduced returns to 186%.
- From 1930 to 2021, holding throughout yielded a 17,715% return; missing the best 10 days each decade resulted in a mere 28% return.
- Research from Hartford Funds indicates 78% of the best days of the S&P 500 occur during a bear market or in the first two months of a bull market.
- After the S&P 500 bottomed on March 9th during the JFC, it rose 30% by May and 60% by the end of 2009, highlighting the risk of waiting for a perfect buying moment.
9. 📊 Recap of Market Turnaround Trends
- Following the lowest point of the GFC in 2009, the stock market increased by 39% after 3 months, 53% after 6 months, and nearly 100% after 2 years.
- After the COVID-19 market trough in 2020, the market rebounded 40% in just 3 months.
- During the Great Depression, the market rose 93% three months after its lowest point.
- In recent times, post-2018 market fall of 20%, the recovery was 19% in 3 months; European debt crisis saw a 11% rise after its bottom.
- Missing the sharp recovery phase can result in significant lost returns, highlighting the importance of staying invested during downturns.
- Pinpointing the exact market turnaround point is extremely difficult, as evidenced by misleading headlines during major downturns.
- Historical headlines during market bottoms in 2002, 2009, and 2020 showed negative sentiment, making it hard to identify the recovery start.
10. 📈 Staying Invested: Strategies and Insights
- Staying invested in the market is crucial because missing the best days can significantly impact total returns. Timing the market is nearly impossible, so the recommended strategy is to remain invested for long-term wealth building.
- Historically, markets have always recovered, and past downturns often appear as good buying opportunities in hindsight. Investors are advised to stay the course and adhere to their investment plans.
- If you have available cash, consider purchasing more stocks during downturns as they can present buying opportunities.
- In response to market crashes, investors should evaluate whether to add equally to core and satellite investments or focus on one based on personal investment strategies. Timing the market bottom is challenging, and strategic buying should be the focus.
11. 💡 Personal Investment Approaches during Market Downturn
- Conduct a total portfolio review to assess risk and opportunities during market downturns, focusing on both short-term and long-term impacts.
- Differentiate between passive (e.g., index funds) and active investment approaches, and evaluate which aligns best with your goals during a downturn.
- Consider increasing investments in tech and thematic ETFs focusing on high-quality companies, as these sectors often recover well post-downturn.
- Evaluate small cap positions with firms like Fairlite for potential growth, while maintaining a diversified portfolio to mitigate risks.
- Major holdings such as Alphabet, Eli, and Berkshire Hathaway should be re-evaluated for increased investment, using performance metrics and long-term growth potential as guides.
- Utilize spare capital strategically by investing in core strategies and maintaining dollar cost averaging to capitalize on lower market prices.
- Establish automated financial structures to ensure consistent investment contributions, even during volatile market periods.
- Maintain a portion of funds as 'dry powder' for opportunistic investments, allowing flexibility to act on market insights without deploying all capital immediately.
- Explore international investments or alternative assets to diversify and potentially reduce risk in a downturn.
12. 📋 Stocks to Watch and Research Strategies
- Many high-quality stocks remain expensive despite market fluctuations, such as Promedicus with a price-to-earnings ratio above 100.
- Australian stocks like Zero, Promedicus, Coccia, REA Group, WiseTech, and Ordinate are noted, with some becoming slightly cheaper.
- In the US, big tech names and companies like Eli Lilly, Visa, Mastercard, Axon Enterprise, and Intuitive Surgical are highlighted.
- Reddit, being the fifth most visited website, trades at a discount compared to peers but has seen a 60% drop since February, despite turning profitable recently with $71 million in quarterly profit.
- Reddit's current valuation still has a price-to-earnings ratio of about 60, indicating it isn't yet a bargain despite declines.
- Investors are advised to be cautious and research the impact of tariffs on stocks, and to avoid impulsive buying just because prices have dropped.
- Consideration of timing is essential, with the suggestion to average into existing holdings or core ETFs if no clear buying opportunities arise.
13. 📣 Closing Remarks and Community Engagement
- Encouraging audience interaction through comments on YouTube and Spotify to gather insights on audience interests and questions.
- Promoting the use of a voice note feature for audience to share what they're buying or inquiries, indicating a focus on community-generated content.
- Emphasizing the importance of staying subscribed to keep informed on ongoing stories, stressing continuous engagement and information flow.
- Highlighting the cumulative nature of earnings and learning in investing, suggesting a long-term engagement strategy.