Hi Multis
How are you doing? I hope you are not too stressed out about the markets. This week, I got a reminder that the markets are not the most important thing in my life.
Our daughter Romy (she’s 11) broke her little toe from jumping on a trampoline.
Of course, that’s nothing to really worry about, but every Multi parent will know that seeing your child in pain really affects you deeply and if it were possible, you would take over the pain without any hesitation.
Zack, who writes these great articles for you, is also very sensitive and he felt I was a bit less connected this week.
So, yes, I am OK. And I was indeed a bit less active this week. Next to spending a bit more time with our daughter, I’ve been working a bit more behind the scenes for long-term initiatives in the last few weeks. The results may or may not become visible towards the end of the year or early next year. We’ll see. I’ll update you asap if something starts to get more concrete. IF because it’s not certain, as many things in life and investing.
On top of that, I’ve been researching much more this week, as there are more attractive stocks with this pullback. There may be crystallizing something, but I’m not sure yet.
Having said that, let’s dive into the Overview Of The Week.
Articles In The Past Weeks
This is the third article this week.
In the first one, I gave you the five stocks I consider the Best Buys Now. Of course, because the whole market is down, these stocks are down as well and that’s why I see them as even more attractive. As always, I put my money where my mouth is and I bought these stocks, together with a few more.
The second one was a deep dive on Mercado Libre. I really invested a lot of time into the article. You can read it here.
Memes Of The Week
Scary times mean the number of memes shoots up, and we can appreciate them more.
This is the first one. I made it myself, based on this post.
Multi Julien did a big investment to beat the index this year.
And this one shows that AI is not always as productive as you would want it to be.
And Multi Julien, who lives in Belgium, where Meli is a brand of honey products, posted this one as well.
Interesting Podcasts Or Books
This week, I watched Drew Cohen’s deep dive on Mercado Libre. You can find it here.
The markets in the past week
While the Russell 2000 dropped the most the past few weeks, it now dropped the least, with 1.68%. The S&P 500 dropped by 1.90% and the Nasdaq by 2.07%.
Despite the alarm messages you hear and see everywhere, the S&P 500 is down just 6.77%. The Nasdaq is down 9.65% and the Russell 2000 is now down more than 10%. That’s a correction already.
That means there could be much more downside. Or not, of course. You never know in the markets. The stock market can drop hard and fast, 2020-style, or slower, 2021-2022-style. I don’t know which one is more painful. More about this later.
You won’t be surprised that the Greed & Fear Index dropped further, to 15.
Quick Facts
1. Bear Market Ahead?
I hear a lot of negativity from all sides, even with the main market indexes not even in a correction (a 10% drop) yet.
Sentiment is now at its lowest point since Liberation Day. But you don’t need graphs to see that all around you, sentiment is negative. You see posts like this one everywhere.
Well, to start with, this is utter nonsense. What if I picked the bottom of the 2008-2009 crash as my starting point and showed you these returns?
Of course, you’d call me out for cherry picking the bottom, right? At least, that’s what I hope. But picking the absolute top is not a problem all of a sudden? It’s as much cherry-picking as choosing the very bottom as your starting point.
Secondly, it assumes that you invested on one single day, the very top, and poured in all the money you had. You never invested a single cent in the markets anymore. Yes, in those circumstances, you’d have to wait for 13 years. But if you invested like “normal” people do, you would probably not throw in all the money you had on a single day. If you did, you could probably use the long waiting period to learn about how to invest better, and hopefully, you have some money to average down.
But back to today. Sure, there are reasons to believe that the current environment could trigger a bear market. I don’t have to name them, I think: Iran, expensive oil and gas, potential inflation or stagflation, a private credit crunch and probably some others.
But what if we looked at the data first? This is based on 105 5% pullbacks since World War II. Only 24.8% turned into a correction (so down 10%+) and 12.4% into a bear market (down 20%+).
That means that 62.5% of all 5% drops are just that, 5% drops. But investors panic each time as if there will be a huge bear market. As you can see from the stats, chances are not that big, but of course, it’s not impossible.
Never forget that things can always change quickly. As fast as the conflict started, it can stop. Sure, there will still be some residual damage, but what I mean is that nothing is set in stone. There are no anchor points that are certain and that means it could change tomorrow.
Four years ago, Warren Buffett was asked about a potential World War. This was his answer:
Well, if you tell me all of that’s going to happen, I will still be buying the stock. You’re going to invest your money in something over time. The one thing you could be quite sure of is that if we went into some very major war, the value of money would go down.
I mean, that’s happened in virtually every war that I that I’m aware of. So the last thing you’d want to do is hold money during a war. And you might want to own a farm, you might want to own an apartment house, you might want to own securities.
I mean, during World War Two, you know, the stock market advanced. The stock market advances over time. American businesses are going to be worth more money. Now, dollars are going to be worth less. So that money won’t buy you quite as much, but you’re, you’re going to be a lot better off owning productive assets over the next 50 years, then you will be owning pieces of paper.
I’m preaching against everything you hear now. I know. But don’t forget that 99% of the information on the internet and in the media comes from traders, not investors. Everyone has their reasons to talk about the short term. Brokers want you to trade, the media want you to be hooked when things go wrong, using your strong fear emotions for interaction.
And don’t forget that many influencers just want to be seen as smart. Negativity makes you seem smarter. And you can repost a post later if a bear market comes. You add something like: “You see? I told you.” If the bear market never comes, you never talk about the post again, of course. That’s how most do it online.
I want to be the antidote and I want to show you that there’s still a sun behind the current clouds and it will always return. Sure, when it returns is impossible to know, but that it will is almost certain, unless the world is devastated and then we have bigger problems.
Often, when we least expect it, the market can go up.
Maybe we have already seen the bottom? I saw this chart today.
Negativity around events is always the biggest in the first few weeks. Then it’s seen as the new reality or a temporary hiccup.
That doesn’t mean I don’t see the potential for long-term disruption from what’s going on in the world. It means that we have always pulled through.
I don’t want to downplay what we are going through. If you look at what happened in the seventies, it’s pretty scary. A 5-month oil embargo in 1973 resulted in almost a decade of stagflation. That’s definitely a risk now as well.
Sure, the US has its own oil production now but it imports a ton of things from Asia. Probably, the device you are reading on is assembled in China. They have much higher oil prices, so the product becomes more expensive, and transport costs as well. That could cause inflation to spike if the Strait of Hormuz is not opened fast.
There’s also the bull whip effect. I made this years ago and this is the normal situation.
But it also goes the other way around. Even a small disturbance in the supply side, can cause big effects for the consumer.
Natural gas is essential for fertilizer production, which is an important input for food prices, as we all experienced in 2022. Helium plays a critical role in healthcare and chip manufacturing. Ukraine was already a bottleneck for neon, a critical material for chip lithography. This adds to the supply difficulties. And think about shipping and insurance costs, and so much more. If the problem keeps lingering, it could potentially cause a big shock. The longer it takes, the bigger the impact. Of course, Iran knows this.
That’s also the reason why President Trump has set an ultimatum for Iran to open the Strait of Hormuz. We will see how that ends.
2. Tech = Cheap?
Of course, I know. Many stocks are down much more from their highs and that can be painful. Especially tech is hit hard.
For a long time, the Mag 7 has dominated the markets, but now, they are all down more than the S&P 500 and the Nasdaq.
Microsoft, usually one of the less volatile stocks, is now down 29%.
Sure, you hear about the big investments companies must make for building out data centers and other AI-related costs and that could put pressure on the margins of some. But these companies have huge piles of cash and probably, they are spending it well to make sure they will have huge piles of cash in the future as well.
Many of the things you hear are stories and they are not all based on reality. I go further and say that most are not based on reality. Remember when Google was going out of business just about a year ago? Or Meta a few years ago? Tesal has probably been proclaimed dead over a dozen times and the story around Nvidia was initially that it had no moat. Now that it has proven it has, the story is that the moat will end (so less pricing power) or growth will drop or whatever other story.
But look at this graph:
As you can see, all of them except Amazon are expected to still be profitable on an FCF basis in 2026. Be critical when you hear these stories. Often, they are just someone’s very superficial opinion stated with too much certainty.
Is tech really cheap now? I would argue that many tech stocks are. But that doesn’t mean that they can’t get any cheaper, of course.
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