A letter to new investors: Recession Fear? Nothing To Fear About

I apologize for my recent hiatus. There are three main reasons for my absence:

i) I have been enjoying spending time with my two kids.

ii) I have been reading books to sharpen my investing and trading skills, particularly with options.

iii) The main reason is that the recent bull market has made it relatively easy to make money. Given that my investment style tends to be more conservative and less exciting, I felt there might not be much interest in my insights at this time.

I would like to congratulate MooMoo for its continued growth and expansion into Malaysia! I also know that several other brokers, which I won’t name, are expanding effectively. With more people entering the stock market, there are many new investors joining the scene.

Oh well, over the last few weeks, the market has experienced a significant downturn. I would like to share my thoughts on the current situation. If you are a new investor who is struggling emotionally due to the following reasons, this message is for you:

i) Seeing your portfolio turn red after it had been consistently green since you started investing.

ii) Feeling regret for not selling your stocks at their peak 2-3 weeks ago.

iii) Experiencing stress from looking at your portfolio, which is affecting your emotions and other aspects of your life.

Since this post isn’t intended to provide stock recommendations, I won’t share the details of my portfolio. However, if you’re interested in the stocks I buy, please comment below. I'll consider sharing more if I receive enough comments, though I must admit, I’m becoming increasingly lazy.

If you're wondering why ETFs generally keep going up, it's because the global population continues to increase, ETFs consistently replace weaker stocks with stronger ones, and inflation (which decreases the value of money relative to assets like ETFs) plays a role.

If we are investing in a company, it's important to get back to the basics. Why do we invest in a company? Because we believe the company can generate profits, increase in value, and allow us to benefit from it.

Therefore, we should always ask ourselves: Why are we buying shares in this company? Have we done enough research? Have we used its products ourselves? Or are we just buying because someone recommended it or because of FOMO (Fear of Missing Out)?

Let’s look at two charts to explore this scenario.

The chart is also showing that Microsoft price is keep going up, despite there are several drawdown in between, including in the current market. But, if we look at Microsoft financial data below:

In the last 10 years, Microsoft’s net earnings, revenue, and operating cash flow have consistently grown. Microsoft also has a strong moat and is actively investing in AI to stay competitive. Although the recent CrowdStrike-Microsoft saga did impact my confidence, as it might prompt other companies to seek alternatives in case something goes wrong with Microsoft again, this could potentially weaken Microsoft’s moat. However, from a fundamental perspective, Microsoft remains a solid company to invest in. This type of company is a good buy when it dips, as it has consistently rebounded and reached new highs.

However, not all stocks can rebound after crashing.

The chart was like a roller coaster. First, it had a strong run from April 2020 to February 2021, then it crashed and has continued to decline since. If we look at the fundamentals, NIO has not shown consistent operating income, and its net income has remained negative, with the company losing more money from 2021 to 2023. Moreover, the competition in the electric car market is intense, with companies like Tesla, Li Auto, XPeng, and BYD. Therefore, I would not invest in this company. It might be suitable for trading, but not for long-term investing. Buying this type of non-profitable stock based on hype, especially after a crash, could lead to more trouble, as it may never recover

During the current market downturn, it's always a good time to review our portfolio. Going back to basics: if a company is making money and is profitable, even if its stock price is impacted by inflation fears, sector rotation, recession concerns, or other issues, consider this a good opportunity to add more shares and compound our wealth when the price eventually rises.

See long term, if we are holding index ETF and good companies, any downturn is a great opportunity to make us richer.

I was thinking of sharing some thoughts on psychology management, but I'm feeling tired and about to go to sleep. I'm not sure when I'll see you all again, but with a great community like moomoo, I'm confident that everyone, especially new investors, will be able to get through this period.