If you are accumulating a position in a company you like, and your goal is a three to five year holding for doubling or tripling your investment, Volatility gives you an opportunity to build your position at excellent prices. The game is: Buy Low, Sell Higher. – LOTM
We have been in a high volatility period for a while now. Minimally, since January 2020.
- First the 30% market decline is three weeks in late February and March 2020.
- The amazing rally from the end of March 2020 until February 2021.
- The correction from February 2021 to present.
Some may dispute the choice of the last date but the many “growth” stocks and Blockchain related stocks & coins, topped out in February 2021.
Volatility is with us. We are in love with it when we on board and it’s going up. We get giddy, titillated and happy but maybe a bit fearful when it’s working for us. We are shocked, surprised and fearful, maybe even a bit angry when it turns against our position in the market.
Learning to deal with Volatility is creating an Opportunity for yourself.
Quotes from some Investment Pros, concerning their view on volatility:
- “Volatility caused by money managers who speculate irrationality with huge sums will offer the true investor more chance to make intelligent investment moves. He can be hurt by such volatility only if he is forced, by either financial or psychological pressures, to sell at untoward times.” Warren Buffett
- “Risk is not defined by volatility, but rather ill-conceived investment.” Michael Burry
- “Volatility is the friend of the unleveraged long-term investor. We much prefer the bumpy road to higher rates of return than a smoother rise to more modest profits” Bill Ackman
Additions Volatility quotes have been collected at Investors Master Class
The market has been volatile in an upward direction. It is starting to reverse direction and will remain volatile.
Here are some guidelines to surviving market or industry volatility:
- Do not use margin. Margin allows others who are bigger and stronger to push you into to situations where you are forced to sell – margin calls. The market is not a benevolent playground. Some players are bullies.
- Screen each one of your investments. Otherwise called profiling. If you buy companies with each of the characteristics below, the odds of your company surviving a recession or depression are excellent. There are many to choose from so avoid “story stocks” that do not have these characteristics.
- Avoid companies that have debt that exceeds cash. Also known as “net debt”. You want a negative net debt number as that means cash on the balance sheet exceeds debt.
- Another quick check is to compare Market Capitalization of a company to its Enterprise Value. Enterprise value is Market Capitalization plus Debt minus Cash. If the company’s Enterprise Value is less than its Market Cap , the company has more cash than debt.
- Avoid companies that do not have positive cash flow or clear vision of positive cash flow within three quarters. A key component of success is to survive long enough to be successful. Positive cash flow allows survival. No one can count on a bank giving us a loan when you need it.
- Buy companies with rising revenue. If revenue is growing, a company has a good chance to grow out of problems that arise.
If a company meets each item above, the probability of surviving an economic crash, and for your to buying more shares cheap, are excellent.
Some resource sites for quickly checking for the above include:
- TradingView.com. – TradingView covers each company on the planet. Click the dropdown button, “See overview” that is to the left of entering the symbol.
- Finviz.com – An excellent site but limited in number of stocks covered.
- SEC Filing can usually be found at NASDAQ. The SEC filing are the raw numbers from the balance sheet and cash flow statements, so some calculations need to be made.
- Company financials at their web site.
Bottomline is, don’t be afraid of Volatility. It is the norm. Be smart about it and take advantage of Volatility to accumulate more shares of companies that you know and understand. It is the fastest way to create wealth if understood and executed properly. It is Investing! It is not gambling or acting impulsively. Know what you own and why? Market Crisis also equals Wealth Opportunity.
Respect the Market: There is little doubt that following the ending of moratorium (next 120 days) on rents and mortgages or when interest rates rise, we will exceed 2008/09 Bankruptcies. Know what you own and why?
If you want to talk about coaching and strategy, contact us at Money@LivingOffTheMarket.com
LOTM Research & Consulting Service
Where Value meets Buy Signals!
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* An account related to LOTM holds a position in this security.
Neither LOTM nor Tom Linzmeier is a Registered Investment Advisor.
Please refer to our web site for full disclosure at www.LivingOffTheMarket.com ZTA Capital Group, Inc.
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