Unpredictable Markets and Value Investing

These days a lot of people are reaching out to me asking what to do in these market conditions. You might be in the same situation. Maybe you've lost money because you bought at a time where the market was really high and now, you’re in red, and have lost money on buying stocks (not everyone know that stocks can be expensive – that’s ok, I’ve been there myself). This might help explain the market condition and also what you can do.

What happened?

Lately the stock market has been shaken by several events. First the American federal reserve announced they would be raising interest rates – read about it here.

And now Russia invaded Ukraine – an event that has particularly impacted us Europeans and personally has given me nightmares. My heart is with my fellow Europeans in Ukraine, and everyone affected by this terrible war.

This post will focus on the financial markets during this terrible time, to give some insights to people who is confused about the stock market.

Waking up to the sad news on Thursday the stocks in Europe fell. The British stock index FTSE 100 fell by 3% and Germany’s DAX Index had its worst day since the COVID-19 crash. To some people’s surprise the stock market in USA rose on Thursday as bombs hit the Ukrainian capital Kyiv and the American S&P500 stock index kept rising through Friday. 

Some people were very confused about this as war could not possibly be good news. But for some American companies, war is profitable. Industries within warfare, cybersecurity, surveillance, and many other industries will see an increase in revenue (sales) and growth because countries, companies and individuals will seek to protect themselves and most entities in the western world turn to USA to buy these products as American companies are leading in many of these categories. When an industry sees rapid growth and demand, the companies in the industry must hire new people to supply the demand. These people will buy goods and services, which will benefit the local grocery store and many other shops, services and restaurants that will have to hire new people for the rising demand. These new hires will buy goods and services which will benefit the local grocery store… And so, the cycle goes. A hypothesis is that the American market had an optimistic outlook because a war in Europe is likely to create growth in USA. When the market moves like what we saw on Thursday and Friday in USA, it's because large funds are moving money into the market - not individual investors. According to SEC Institutional investors own about 80% of the equity (stock) market, so-called retail investors like you and me account for 20%.

When the American stock market is positive other stock markets are likely to follow suit. And on Friday FTSE 100 and DAX were back in green and rising prices.

What will happen in the stock market next week? The coming month? No one knows – no one has a crystal ball and can predict exactly what will happen. We know that the American Federal reserve will come out with some news about interest rates in mid-March – we don’t know what they will say or do, or how the market will react on the news. Many will speculate on what will happen but that's all it will be: speculation.

What you can do if you're in red?

Continue to educate yourself about value investing - you're here and you've made it all the way to the end of this article - awesome job - congratulations - you've done much more than so many others! The reason you would want to learn about value investing is because: For value investors what is happening in the global market is not affecting our focus. You invest in wonderful businesses at a fair stock price, and you don’t have to stress about unstable market conditions. It’s liberating to be able to focus on the wonderful company, and not like back in the day: stress about falling stocks. You’re ready to buy when the time is right. If you've followed the value investing principles your stocks are likely ready or waiting to buy more stocks when time is right. And in the meantime you can focus on education and your investing practice, on your family and giving them an extra tight hug these days, on living life right now, and on sending contributions to humanitarian organizations working in Ukraine.


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