Many of our users at Stock Card love investing in the companies shaping the future of humanity. Artificial intelligence, 5G technologies, and gene-editing are some of the most researched themes and collections on our platform. We support our users in their quest to invest in the future by maintaining a comprehensive database of growth potential across thousands of industries and markets. Such databases power the first box on Stock Cards' 2X2s, and our Head of LiveOps, Shama Patwardhan, is the steward of this database. When the COVID-19 pandemic hit the world, Shama took on the challenge of digesting the pandemic's impact on its potential. In this blog post, she discusses the result of her learnings and the adjustments we are applying to Stock Card's growth potential database.
What happened in the first quarter of 2020?
Currently, the world is going through a rare phenomenon. One contagious virus brought the whole world to a standstill. COVID-19 virus, also called Coronavirus, was first detected in November 2019 in China and spread globally. The first case of Coronavirus in the U.S. was found in January 2020. By mid-March, all the global economies came to a screeching halt. The properties of the virus made it more difficult to contain or monitor. The majority of businesses, manufacturing facilities, global travel, and retail operations shut down. Consecutively, panic ensued as the uncertainty about jobs and daily normalcy created growing anxiety. Governments around the world announced a "shelter-in-place" policy, and cities around the world resemble apocalyptic scenes of empty streets. There was no hum to the engine of the world's economy.
How did the world's growth get impacted?
The impact of the Coronavirus outbreak was felt differently by different industries and businesses. Some markets, such as airlines and cruises, were struck severely that the companies' survival in those sectors was and is still doubtful. On the other hand, some markets, like pharmaceuticals and digital communications, experienced a surge in demand, well-above the most optimistic forecasts before the COVID-19 pandemic. Such extreme and unexpected negative and positive impacts created the need to review the growth rates and potential of the markets, sectors, and industries that power Stock Cards, and modify them such that they represent a more informed state of forecasted growth.
Hardest hit industries: The decline in demand has severely burnt several industries. Due to the "shelter-in-place" rule, people stepped out of their houses only for essential shopping needs. This change in consumer behavior affected has hit some of the industries the most:
Highest positive impact: While some industries struggled to survive, some could barely satisfy the explosive demands for their products. Among several sectors and industries, some are benefited from an extraordinary surge in demand. Here are a few examples:
Adjustments to Stock Card's growth potential database
Stock Card's growth potential database typically includes three to five years of forecasted growth potential figures for each sector, industry, and market. However, due to the varied near-term impact of the Coronavirus outbreak, we added a new one-year projection to the database for 2020, to incorporate the effect of the impact. We applied short-term adjustment by first short-listing all the sectors, industries, and core markets negatively or positively affected by the outbreak. We then applied the appropriate adjustment factor to each one.
COVID-19 Impact Adjustment Factor
We started the process by quantifying the impact of a partial shutdown across sectors and industries. Researchers at George Mason University studied how the level of digitalization can be used to calculate and quantify the impact of COVID-19 on industries and sectors. The higher the digitalization, the lower the impact. Using the results of this research, a penalty of 2.78% for high-digitalization industries and a penalty of 5.56% for low-digitalization industries can quantify the impact of COVID-19 on sectors, industries, and markets.
Additionally, to incorporate the impact of social distancing on profoundly impacted industries, we took an additional adjustment. We reduced the resultant CAGR from the previous step by industry-specific projected decline percentage. We short-listed the markets that are profoundly impacted by social distancing such as airlines and restaurants and applied an additional adjustment factor to account for the impact. As of May 29th, 2020, we have calculated the rate based on a 3-month partial shutdown assumption.
The above two-step process resulted in a new short-term growth rate database to power Stock Card's growth potential bucket on our iconic 2X2s. Throughout 2020, we will monitor the state and the progress of the reopening of the economy. We would be revising this COVID-19 growth potential figures based on how many months the partial shutdown continues. We assumed that the new growth rates are applicable for at least one year until the economies resume their previous performance level.
The new 2020 growth potential database
The final result is a new 2020 growth potential database that we are pushing live on June 1st, 2020. The outbreak negatively impacted approximately 50 industries, and another 30 reported an unusual surge in demand. You would see the results by visiting any Stock Card page and clicking on the first bucket of any of the 2X2s. The video below shows how you can get to the revised growth of potential data on Stock Cards.
Industries and Markets affected by COVID-19
The COVID-19 pandemic has taken a toll on many sectors across the globe. The real estate sector is one of the hard-hit areas of the economy. As restaurants, bars, retail stores, and offices shut down around the world, landlords, property owners, and property management companies are going through an extended period of declining revenues. It is no surprise that the S&P 500 Global REIT index has fallen more than 30% since the middle of February 2020. In regular times, REITs (Real Estate Income Trusts) are some of the most popular types of securities investors hold for their abundant and reliable dividend income. However, the COVID-19 pandemic has caused many REITs' investors to question the reliability of investing in REITs. In this blog post, we share a list of reliable REITs worthy of attention despite the COVID-19 impact.
Aren't all REITs reliable?
When we published the COVID-19 investment resources, we discussed not every company can survive the COVID-19 pandemic. Those with ample cash and access to capital and manageable debt have the highest likelihood of going through the COVID-19 economic crisis and coming out of it ready to take off. The same logic applies to REITs. Not all REITs are worth your investment dollars. Some REITs have the operational strengths that can survive through the economy's cycles and keep rewarding the investors with a reliable source of income.
How to find Reliable REITs?
There are 335 REITs listed on the main U.S. stock exchanges. In the first step, we wanted to get rid of those with massive liabilities and debt. REITs with high-interest expenses compared to their earnings (EBIT) are the worrisome bunch. Companies with debt have to be able to cover the interest expense of their debt using their earnings. Just by using that as criteria, nearly two-thirds of REITs are out of the list. To make the search for reliable REITs even more precise, we applied a few additional filters:
Those criteria are pretty standard for evaluating companies with strong balance sheets. However, there is one data point that is particularly important for assessing REITs. For a non-REIT dividend-paying stock, typically, investors look at the stock's payout ratio. This ratio refers to the percentage of the company's earnings that is used to fund dividends. When such a rate goes above 70% to 80%, it is seen as a red flag. All companies need to reinvest a portion of their earnings to grow, and it's not an operationally savvy idea to borrow money to pay dividends. Therefore, the dividend payout ratio is an indicator of the sustainability of the dividend payment in the future. If a company uses almost all of its earnings to pay dividends, or worst, if it uses funds beyond its profits to fund its dividend payments, the sustainability of the dividend payment is questionable. The same logic applies to REITs. However, the usual payout ratio is not the right way of measuring the sustainability of a REIT's dividend.
Best Brokerage for Dividend Investors
REITs are one of the best dividend-paying investments. Especially if you choose to reinvest your dividend income back into your portfolio, gradually and steadily, you own more of the companies you have initially added to your portfolio. All you need to do is to sign up for a brokerage account that allows you to easily opt-in a dividend reinvestment option (a.k.a. DRIP). We like M1 Finance, particularly, for its easy ways of managing your account, including opting in a DRIP offer.
What is a FFO payout ratio?
Being in the business real estate, a REIT has a high depreciation cost. This cost is purely an accounting-driven number, and it is not an actual cash expense. Companies use depreciation to "expense" the initial capital they invest in acquiring the real estate over a few years. This accounting practice allows investment in real estate to be worthwhile by reducing the nominal earnings of the property or landowner and giving the owner significant savings in the amount of income tax that is calculated using the company's earnings. Because of this accounting practice, the earnings of a REIT are artificially (of course, legally) underestimated. Consequently, you cannot blame a REIT for having a high payout ratio and use it as a reason to skip investing in it. Instead, REIT investors look at FFO per share (Funds from Operations per share) and use that as a replacement for the earnings per share to calculate the company's payout ratio. Accordingly, we used the FFO payout ratio in our search for reliable REITs.
That adjustment in our screening process resulted in an additional 20 or so REITs that are reliable but would have been rejected if we used the standard calculations of the payout ratio.
Once we applied all the above-mentioned filters, the final results were a list of 32 REITs most likely reliable enough to go through the COVID-19 pandemic or any other economic crisis and come out of it without the need to cut their dividends.
The list is available to all Stock Card users on the Discover page using the "Reliable REITs" tag. You can access it by creating a free account on Stock Card.
Some times, companies with strong operations and enough cash at hand share their success with their shareholders in the form of a dividend. Many investors use dividend payout as a source of side income or reinvest the money to grow their investments. But not every dividend-payer is worth investing in. In the latest addition to Stock Card's collections, we looked for true dividend-payer stocks that are worthy of every dividend seeker's attention.
Launching Stock Card's "Stocks For Dividend-Seekers" collection
We started the process by looking for stable dividend-paying companies using market capitalization, beta, and dividend yield:
Not every dividend-paying stock is worth your attention!
Finding reliable dividend-paying stocks is not just about searching for companies that pay a dividend. You also need to weed out those companies that cannot sustain their dividend payout and focus on those that have a reliable history of growing their dividend yield. We added a comprehensive list of criteria to our research to find the true dividend-paying stocks, including a few critical ones:
The result of the above analysis was a new set of 91 true dividend-paying stocks. We added them to Stock Card's collections, and you can access them for free by typing "Stocks for Dividend Seekers" in the search box on our website. Log in and check the list:
There are more than 15,000 publicly-traded companies listed on the stock exchanges in the U.S. Even if we ignore smaller and volatile penny stocks and only focus on the three main exchanges, NYSE, NASDAQ, and OTCM (Over The Counter Markets), there are still more than 6,000 individual stocks every investor has to review and choose from. More experienced investors have already learned and come up with a process to narrow down their focus to only a small set of companies on their watchlist. However, if you are a new investor, facing more than 6,000 stocks feels confusing and overwhelming. Where does a new investor start from? And, what criteria should you use to find a starting list of companies to build a portfolio?
Launching Stock Card's "Stocks For Beginners" collection
When started the process, we asked our first-time users and investors what matters to them the most, and came up with four criteria to screen the universe of 15,000 publicly-traded companies for the gems that are worthy of the attention of a beginner investor:
The result of the above screening is a list of more than 64 stocks that you can easily access, play around, and build your own starter portfolio. There is no guarantee that these 64 stocks continue to grow and not lose value. After all, we are dealing with the stock market that fluctuates by nature. However, these 64 stocks give a starter investor a chance to create a portfolio with less risk and more stability. Have a look at the Stocks For Beginners collection today:
Karen Sheng, Head of Data Science at Stock Card, is the portfolio publisher of the Phoenix portfolio. She combines her technical trading skills with the "collection" functionality on Stock Card and gives us a sneak peek into her thought process that led to a new addition to her portfolio. Check it out!
On April 29th, the share price of Alphabet (Ticker: GOOG / GOOGL) went up almost 10% post-earnings. The reaction is primarily attributed to the positive outlook of Google Cloud and YouTube ads revenue. The COVID-19 pandemic has been a double-edged sword for the group of companies in the internet & social media advertising business. On the one hand, revenue from the travel & hospitality industries, as well as small businesses, have diminished. On the other hand, these platforms have seen the increased engagement of users as people have increasingly consumed digital content while being sheltered at home.
On the tailwind of this emerging trend, I would like to introduce the new addition to the Phoenix portfolio and demonstrate my thought process. A unique feature on Stock Card's "Discover" page is to filter stocks based on "collections." A collection is Stock Card's proprietary classification system framed in natural language. For instance, when a user starts typing the word "advertising" in the search bar, the engine screens the universe of publicly-traded companies for companies in the advertising space. See the above image for more details.
There are six stocks within the "social media advertising" collection. For this exercise, I would like to focus on stocks that are ex-China and have a share price that is under $50. That leaves us with three stocks – SNAP, PINS and TWTR. The following is snapshots of these stocks:
Next, let's move on to technical analysis. This is the set of technical indicators that I used to identify entries:
The combination of the technical indicators outlined above and the fundamental information visualization available on Stock Card enabled me to add a new stock to my Phoenix portfolio. Stock Card VIP users can log in to their premium accounts and get to know the latest picks. Make sure to follow the Phoenix portfolio by clicking on the bell icon on the top-right corner of the portfolio page to follow my new stock picks.
By the way, this is Karen, and I own all of the stocks included and will be added to the Phoenix portfolio. Also, Stock Card has a Disclousre policy.
Our very own Head of Data Science, Karen Sheng, is introducing the Phoenix portfolio on our Portfolio Store. Being a technical trader, Karen has a unique and different strategy for investing. Read along and follow her Phoenix picks by clicking on the bell icon on the top-right corner of her portfolio page.
The COVID-19 pandemic has disrupted our lives in an unprecedented manner - from where and how we communicate and work, to how we seek medical attention is drastically different compared to only a few months ago. In the world of investing, while some sectors such as travel and hospitality have become distressed, the demand for other products or services has grown drastically. The general public adapts to the new "normalcy," and so needs our investment approach. We started to put together and invest in a diversified portfolio in this context. Our CEO has already launched the COVID-19 portfolio that focuses on a group of stocks with strong fundamentals that are more resilient to the market correction caused by the outbreak of COVID-19. Her COVID-19 portfolio is mostly focused on the so-called "buy the dip" approach. The new Phoenix portfolio is more of a defensive play. Being a technical trader, I’m inclined to purchase stocks or get into bullish options trades when a stock has either recovered or maintained bullish momentum.
Use this portfolio to get a balanced view of possible approaches to benefiting from the COVID -19 opportunity. I have put my real-money in the stocks in the Phoenix portfolio to back my decisions. There are more stocks on my watchlist, and I am continually monitoring them, waiting for a pullback to identify opportunities for entries. Follow the Phoenix portfolio by clicking on the bell icon on the top-right corner of the portfolio page. Stock Card sends you an email automatically when I add a new stock to my collection of Phoenix stocks.
Why are investors pouring money back into the stock market, despite the grim economic status of the country? -- A member of Stock Card's private community
Questions similar to the above are flooding the investors' communities and online media. It seems that the stock market's movements, and investors are being quite irrational. While the answer to such questions is quite complex, there is a simple underlying logic that drives such seemingly irrational behavior. In this short blog post, we'd share the summary of the analysis we just completed at Stock Card HQ (the virtual HQ) to explain why investors are rushing back into the stock market, despite the grim state of the economy.
The seemingly irrational movement of the market
The three major stock market indices in the U.S. have lost between 25% to 30% of their value between February 18th and March 23rd. The decline wasn't surprising considering the effect of the COVID-19 on halting production and consumption globally. However, what the market has done after March 23rd is surprising to many people. Between March 23rd and April 16th, the same three indices have gained between 23% to 25% even though the economic activity hasn't resumed to the pre-COVID-19 levels. In the absence of economic recovery, it is puzzling to observers and commentators to see such a seemingly clear irrational behavior. Something has got to give.
What's going on here?
To solve the puzzle, let's discuss how people and algorithms make investment decisions. Making investment decisions is a probabilistic process by nature. You would invest more when there is a higher chance of a return, measured by the price you are paying for assets compared to their estimated value. If you pick up stocks at a better price compared to their fair valuations, you will win. Following such logic, investors and algorithms must believe that they can invest in the stock market at better prices now. Are they correct?
Let's look at the data! On the Stock Card platform and the Stock Card of each company, there is a specific section for the fair share price information. In this section, Stock Card automatically collects, aggregates, and visualizes the mathematical calculations that are commonly used to calculate the fair share price of a company. We use price to sales, price to earnings, price to free cash flow, and price to book value ratios, pull financial analysts' price target, use all that information to calculate companies' fair share prices, and compare them with the current prices. Those calculations show whether a stock is over or undervalued at its current market price.
Using the aggregated numbers for all available Stock Cards, we compared the distribution of undervalued and overvalued stocks between April 2020 and February 2020. The results are quite telling.
On Monday, April 13th, when we did the analysis, there were 6,743 companies on the Stock Card platform. Those are publicly traded companies listed on NYSE, NASDAQ, and OTC markets with a market cap of higher than $300 million. Among them, and as you can see in the above image, shares of only 2% of the listed companies were overvalued. When you compare that number with February of 2020, nearly 6% of the companies with a market cap of higher than $300 million, listed on NYSE, NASDAQ, and OTC markets, were overvalued. Simply, when investors and algorithms pour money back into the market, it is because they believe the odds of success are in their favor. Because of the price declines between Feb and March, the chances of throwing a random dart at the stock market board and hitting an overvalued stock is nearly three times (6% v.s. 2%) lower now compared to February of 2020.
Looking at the stock market movements with a lense of probabilistic decision-making is one of the best ways to understand why the stock market moves, albeit sometimes quite irrationally. In addition to the above analysis, the rush to invest back in the stock market is exacerbated by the fact that for almost 11 consecutive years, we were dealing with overpriced equities. During those 11 years, most investors were longing for the possibility of investing in anything at lower prices.
It's not surprising to see the rush back into the market when you peel the onion of the stock market to its primary governing logic. Assuming long-term success in the stock market is dependant on investing in well-managed companies at a fair price compared to their intrinsic value. Currently, the odds of success in the stock market is higher than what it was a few weeks ago. That's why money is being poured back into the market.
Waiting for the stock market to reach its bottom, before starting to invest, is a mythical pursuit.
Our fellow StockCardians, since the start of the COVID-19 market crash, everyone is looking for the bottom. Many investors are waiting on the side until the market hits bottom before they invest. Of course, finding the bottom is a logical and intellectually satisfying strategy. However, in practice, finding the precise day or week that the market reaches its bottom and starts its recovery is mostly a mythical pursuit. In this long-form blog post, we'd like to share our approach in dealing with the COVID-19 market crash. Moreover, we will discuss the ways Stock Card can help you to invest during the COVID-19 crash. As always, if you have questions and comments, ping us on Intercom on our website, or send us an email. Our email is firstname.lastname@example.org. Let's get to our guide to investing during COVID-19 ...
Is it time to buy?
A wise man once said, and another wise man recently reminded us that "When the Time Comes To Buy, You Won't Want To." Boy, oh boy, he was right. Nothing seems right when you are pressing the "buy" button amidst a market crash. It doesn't help either that everyone is screaming at you to stay away from the stock market. These days investing in the stock market feels very uncomfortable. Despite that, is it time to buy now?
The short answer is, probably yes, with a few considerations. However, the short answer doesn't help much. Let's get to the long answer and hash things out.
Making investment decisions is a probabilistic decision-making process by nature. You would invest less when the odds of gaining outsized returns are not in your favor, such as the entire 2019. In contrast, you get more aggressive when the odds of success are in your favor. My fellow Stockcardians, the odds of investment success are in your favor simply because the stock market is sprinkled with reasonably priced stocks.
We recognize the boldness of the statement we are making in this post. There is no guarantee that the stock prices will go up from here. And, a few years from now, with the benefit of hindsight, we may see that investing now wasn't the best choice, and we could have waited for a few more months and gotten even better deals. But, we don't have a crystal ball that can show us the future, neither does anyone else. All we can see now is a stock market full of undervalued stocks that we would have invested in them even at 20% to 30% higher prices had COVID-19 hadn't happened. Regardless of whether the prices will continue to fall or not, the odds of success are in your favor if you invest at fair prices.
Why are the odds of investment success higher now?
As you know, on the Stock Card platform, we automatically collect, aggregate, and visualize the mathematical calculations that are commonly used to calculate the fair share price of a company. We use price to sales, price to earnings, price to free cash flow, and price to book value ratios, pull financial analysts' price target, use all that information to calculate companies' fair share prices, and compare them with the current prices. Those calculations show whether a stock is over or undervalued at its current market price.
On Monday, April 13th, there were 6,743 companies on the Stock Card platform. Those are publicly traded companies listed on NYSE, NASDAQ, and OTC markets with a market cap of higher than $300 million. Among them, and as you can see in the below image, shares of only 2% of the listed companies were overvalued. It gets even more impressive when you compare that number to February of 2020 when nearly 6% of the companies with a market cap of higher than $300 million, listed on NYSE, NASDAQ, and OTC markets, were overvalued. When we say the odds of success are in your favor, it's because the chances that you throw a random dart at the stock market board and hit an overvalued stock was nearly three times (6% over 2%) higher back in February of 2020, compared to April 2020. Imagine how much higher the odds of success would be if you take a meticulous look at each company and make an informed decision as to whether or not to invest in it.
Isn't it better to wait and see whether the market falls further?
Similar to every investor out there, we'd love to invest precisely on the day that the market hit bottom. Wait ... wait ... wait ... the bottom has arrived, buy ... buy ... buy ... What a brilliant strategy, except that we don't know where and when the bottom is. If we've learned anything from the preceding 11-year bull market, we know that market forecasts are almost always wrong. We can compare the market's movement with the historical crashes all day and night and try to predict where in the cycle we are, but it wouldn't give us any more concrete answers than an informed guess. While all market crashes recover, eventually, there is no telling where we are in the cycle because every market crash happens in a different economic context.
As an example, during the market crash of 2007-2009, it took the government nearly one year to come up with the $787 billion stimulus package to end the recession. The stock market started a slow descent in October 2007, with a big crash in September 2008, and the stimulus package came through only in February 2009. During the COVID-19 crash, the stock market started its descent late February 2020, and in less than two months, the stimulus cheques and loans have begun to flow through the economy. The context has changed so much, not sure for the better or worst, but a direct comparison between this market crash and any other market crashes in history is only directional correct and lacks context. And, timing the sequence of the market's movement is nearly impossible.
How to invest in the stock market now?
Knowing all that, how should we all invest in this period of heightened uncertainties? COVID-19's most dire impact on the economy is its unique speed. In a matter of one quarter, the demand for some sectors of the economy has fallen to nearly zero. Take airlines as an example. Compared to last year, the number of travelers going through airport TSA has fallen by 97%. Therefore, the source of immediate revenue for airlines has dried down. The situation is no better for restaurant, entertainment, or retail industries. The impact is not as drastic in other industries and sectors. However, a 20% to 30% decline in the revenue of a payment processor and credit company is not unreasonable. It's a no brainer to screen your investment universe for companies with enough cash on their balance sheet to compensate for the lack of revenue without the need to borrow money to fund the day-to-day operations. Focusing on companies with a strong balance sheet would drastically increase the odds of success in the COVID-19 era.
We built Stock Card to make your stock market research simpler, faster, and more fun.
Rules of the investment game during COVID-19
Before we wrap-up, let talk about the rule of the investment game during COVID-19. The rules are not specific to the COVID-19 market crash. However, they become even more important during a market crash. These are the fundamental rules that at Stock Card we don't cross. It is paramount to our success to draw the lines and not cross them at any cost.
Here are the seven commands of COVID-19 investing to make sure the odds of success stay in your favor:
Without a doubt, COVID-19 has brought dismay and sadness to millions of people globally. People have lost their lives, loved ones, and their jobs. One the one hand, COVID-19 has been a disastrous situation for many people. However, there is another side to the coin. COVID-19 can also be an opportunity, especially for stock market investors.
Warren Buffett once said, he has been lucky to go through a handful of stock market crashes. The COVID-19 market crash can be your lucky opportunity to build your wealth. At Stock Card, we agree that investing at the bottom of the market crash is an excellent idea. However, we don't believe there is a way to predict the bottom. That's why we focus on investing in well-managed companies, with strong balance sheets, at fair stock prices, and we do so as often as we can. The chances are that one of those investments would land at the bottom. That would be a fantastic coincidence. However, most of our decisions will occur during other times but the bottom, and that's okay with us. As long as we take the most advantage of the fair stock prices while adhering and accepting the rules of the game (see the previous section), we feel lucky to be an investor during the COVID-19 market crash. We hope you do so too!
Your Stock Card Team
COVID-19's most dire impact on the economy is its unique speed. In a matter of one quarter, the demand for some sectors of the economy has fallen to nearly zero. Take airlines as an example. Compared to last year, the number of travelers going through airport TSA has fallen by 97%. Therefore, the source of immediate revenue for airlines has dried down. The situation is no better for restaurant, entertainment, or retail industries. The impact is not as drastic in other industries and sectors. However, a 20% to 30% decline in the revenue of a payment processor and credit company is not unreasonable. It's a no brainer to screen your investment universe for companies with enough cash on their balance sheet to compensate for the lack of revenue without the need to borrow money to fund the day-to-day operations. Focusing on companies with a strong balance sheet would drastically increase the odds of success in the COVID-19 era.
What criteria did Stock Card use to populate this new collection?
Having a strong balance sheet is a combination of how much cash the company has at its disposal, how much liability or debt it has to cover, and whether the company has the resources to fund its operations without the need to borrow money or raise capital. We used the following nine criteria to generate the strong balance sheet collection:
The result of the above screening is a list of more than 250 stocks that you can easily access, play around, and pick and choose from and create your COVID-19 portfolio. Visit the Strong balance sheet collection.
We created this video in response to a question from Matt K. one of our newest users who wanted to know how to use Stock Card to find dividend-paying stocks. You don't have to keep Googling for your stock market research!
Don't forget to look up the Stock Card of your favorite companies, and while you are at it, make sure to visit our COVID-19 portfolio.
Today, during a brainstorming session at Stock Card HQ (virtual HQ), we were discussing the seemingly irrational movements of the market during the COVID-19 crash. Our very own Karen Sheng, Head of Data Science, who happens to be a professional trader too, walked us through her analysis as to where the market is headed. We thought you would also enjoy reading it. Thank you, Karen!
Reflection on the market from the perspective of a technical trader: The outbreak of COVID-19 and the subsequent nationwide shutdown has been a catalyst for an unprecedented correction of the stock market in a very compressed time frame. Hindsight is always 20/20. This post intends to shed some light on the market behaviors from the perspective of technical analysis. The primary tool used for this analysis is a Fibonacci retracement, which is commonly used to identify support and resistance levels. As we wrapped up a shortened trading week on April 9th, the S&P index was a few ticks away from a critical pivot point, the 50% retracement level at 2793.28. In plain English, the index has recovered approximately 50% from the recent swing low at 2194.83.
Where is the market headed to post-Easter? The nuanced answer is that, as a retail investor or trader, we don’t know; however, the Fib levels give us some guidance on where the target is going to be either way. If the market breaks through the resistance, the next resistance level is around 2934. On the other hand, it’s also likely that the index will pull back and test a new low.
Is there any evidence for such observation? For the short swing immediately after the all-time high, the index hit the 50% retracement level at 3125 and “puked” afterward.
What are the implications for investments? When the market plummets, an average investor would not know where the “bottom” is. However, cost-averaging in the accumulation of stocks in the sectors that are more resilient to the shutdown (e.g., tech sector) could have yielded at least some modest short-terms gains. When the market appears to be rallying again, it’s crucial to fend off the euphoria sentiment (“The bull market is back!” news headlines) and be aware of the resistance and possible pullbacks.
Don't forget to look up the Stock Card of your favorite companies, and while you are at it, make sure to visit our COVID-19 portfolio.
Our very own Shama Patwardhan, Head of LiveOps, has published a new portfolio to the Portfolio Store. This portfolio is particularly interesting because of its focus on companies that are shaping the future by making the world smarter. Investing in future-defining companies is always a good strategy. However, it is even more important to go the extra mile and bring our attention to the companies that are shaping the world's future. During the COVID-19 market crash, most investors get bogged down by the day-to-day market fluctuations. However, savvy investors don't take their eyes off of the prize, and that's precisely what this new portfolio is set out to achieve. Scroll down to read about the Smart World portfolio.
Invest your money now, to secure your future!
Make your money work for you!
Every now and then, we come across such advice through articles, books, and news. So why not secure our future, by investing in it? Our future will be highly impacted by advancements in research and technology. Rapidly growing fields such as artificial intelligence, machine learning, big data analytics, and Internet-of-Things would be the backbone of our future. Overwhelmed by the big complex words?! Don't be! It simply means that our future will be dependent on technology that develops fast, high-quality products, makes our devices understand us, and helps us connect with the outside world using the internet. These products have been and will shape our future, giving birth to a Smart World. You have already heard of smart homes, smart cars, and smart cities! So how can we participate in this exciting future? We find strong growing companies that are working towards making the world smarter and invest in them over the long term! As the company succeeds, our portfolio succeeds and rewards us with a strong positive return.
Every investor looks for a chance to buy shares when the stock price is undervalued. And that's what's happening now. With the Coronavirus outbreak, the stock market has been consistently falling. Instead of panicking, we look at it as an opportunity to buy great companies at a discounted price!
Being prepared for a stock market crash is not an over-night thing. Like an Olympic athlete, you can't wake up on the day of the match, do five pushups, prop yourself up with a hoo-ha in the mirror, and win big. It takes time to learn the skills, and even longer time to establish the muscle memory. The twist of the story is that knowing the skills and having the muscle memory to repeat them is not enough to protect yourself against big market crashes. It would help if you also build the emotional resiliency to deal with the ups and downs of the market. And, that's how a savvy investor makes her portfolio crash-proof.
Starting to invest and crash-proofing your investments involves learning to think probabilistically, building the mental muscle memory to adhere to the process, and, more importantly, building the emotional resiliency to stick to the process when all hell breaks loose. In 2017, I wrote a piece about how to prepare for a stock market crash to demystify the process. The purpose of that article was and still is to follow the footsteps of an athlete that prepares for Olympic games. The only difference is that our Olympic is called a stock market crash.
I'm refreshing the original 2017 post with the hope that it helps a new cohort of stock market investors to get ready for the next market crash. If you are starting to invest in the stock market now, this is for you!
It was a heated conversation for three days all day at Stock Card HQ. I'm not going to lie to you. We raised our voices a couple of times. What were we talking about?
It all started when the cautionary memo of the billionaire and fund manager, Howard Marks, landed in our mailbox. The man is a legend in the investing industry, and his cautionary tales are our bedtime stories. We read the memo, and the debate started. We were discussing Howard's note on the impending stock market crash. But, our discussion wasn't about what you are thinking! We were not debating whether a crash is possible or not. Neither, we were trying to predict whether the crash is this month or the next. All intelligent investors know a crash is always a possibility; it's not a matter of IF but rather WHEN. Knowing that a crash is impending, we were discussing how we would prepare our portfolio for a market crash. After hours of conversations, discussions, arguments, modeling, and researching how some of the best investors in the world have survived the past market crashes, we came up with our approach to crash-proof our portfolio. You know... how you baby-proof your house when a new bundle of joy is due. We wanted to share with you how we get our portfolio ready for when the market's bundle of joy arrives.
This article was originally published in 2017 in preparation for the expected market crash back in 2017. It is still as relevant as it was back then.
Follow our 2020 Starter portfolio by clicking on the bell icon on the top-right corner of the Portfolio's page. You will be notified as we start discussing, learning, and picking stocks. Hope to see you soon.
Also, if you are a first-time investor, live in the U.S., and would like to collaborate with Stock Card team
Microsoft wins a big contract; iRobot suffers from the trade war.
Disclaimer: Hey folks, this is Shama, and I own shares of Microsoft.
Stamps.com is back on track, while Boeing is flying off the track.
Disclaimer: Hey folks, this is Hoda, and I own shares of Stamps.com.
Facebook's vision for the future is crashing, while UPS is just getting started to shape the future.
Listen to Planet Money’s podcast, Episode # 943 - Unicorn Cowboy. It is a fascinating story of the founder of SoftBank, Masayoshi Son, and how he built his company.
Disclaimer: Hey folks, this is Shama Patwardhan. I wrote today's post, and I own shares of Facebook.
Just Eat (GrubHub of Canada and the UK), and Takeaway.com (Same thing in Amsterdam) are merging. Consequently, shares of Just Eat (Ticker: JSTTY) went up by more than 19%. The celebration came after takeover news by Takeaway.com.
What does it mean for investors?
The company has been growing rapidly and steadily, with the most significant growth coming from its Canadian operations. The merger by Takeaway.com is perceived to be great news for investors. It will give the combined company the strength to compete with Amazon-backed delivery competitor Deliveroo. While this company has proven to be a well-managed and growing stock, the takeover news has pushed the stock to an overvalued range. There is no need to rush and invest now. The resulting company may still be worth investing in, once the merger is finalized and the dust is settled.
Zoom out, and now what does it mean?
Delivery-food wars and mergers are coming. Amazon shut down its food delivery and instead invested in Deliveroo. The combination of a very competitive market + delightfully entitled customers + and the need for delivery speed is killing these company's margin. There is not enough room for too many food-delivery apps. We should be ready for similar mergers and takeovers in the U.S. market. Low margin businesses, with high acquisition cost, and little to no customer loyalty need massive scale to become profitable and stay like that.
By the way, Just Eat's Stock Card is here: https://stockcard.io/JSTTY
#investment #investor #stockmarket #fooddelivery
Episode eleven of our Weekly Master, the Basics of Stock Market Research webinar, is out. In this episode, we discussed, is it time to invest in Snap (Ticker: SNAP)?
The latest better than expected quarterly results by Snap has got the market excited, and the stock price is rocketed. If you have been watching the stock for a while and have been wondering whether its time to invest in Snap, this episode is for you.
Don't forget to join us next week for another live and informative "Master the basics of stock market research" webinar. Register here: Register here: https://blog.stockcard.io/webinar.html
Folks, last week, we talked about July as the month to review our portfolios and watchlists to identify what's worth our attention, and which stocks have lost their luster. I shared with you a four-part checklist. And, the first two questions in the checklist are about which winners in our portfolios are worth holding, and which losers are not worthy of our time anymore.
This week, I'd like to share our approach to answer the first two questions of the checklist. This is a long-form email that goes through the step-by-step process we are using to conduct our July's portfolio clean-up. Let's get to it.
There are 94 stocks in my Roll With Our CEO portfolio. First, I wanted to identify the winners and losers based on their total return in comparison to the overall market. I have all such information available to me on Stock Card. If you go to Track Your Performance page, the last column in each portfolio shows your stocks' gain over the S&P 500 market index. I used that column to group my stocks into overperforming (winner) and underperforming (loser) stocks. This is how the results turned out:
Note that an underperforming (loser) stock may have grown higher, but not just faster than the overall market. While not losing money is great, overperforming the market matters the most. If they are underperformers, you'd want to dig deeper to figure out whether you can see a reasonable path for the company to surpass the market. Otherwise, it needs to get casted to free up cash for stronger picks.
The next step I took was to group the stocks in my Roll With Our CEO portfolio based on their market potential and operational strength. Again, such information is available on the Track Your Performance page. Looking at the Stock Card's 2X2 thumbnails (on All Stock Card page), as you know, the top two colors represent "market potential" and "company strength". If both market potential and company strength categories were yellow, grey, or red, indicating a potential weakness in the market or operations of the company, I tagged the company as a stock that needs a "Review." Here's how the results turned out:
Now, let me take the analysis one step further to figure out how many stocks are real concerns because not only they have "Underperformed" the market, but also they need a "Review". This is the part I'm very excited about. It's a map of my portfolio based on where I need to pay the most attention:
In the next few weeks, I will share a detailed review of the 20 stocks in my portfolio that have underperformed the market, and also have shaky market potential and operations. The Stock Cards of those companies will get a comprehensive review and update, and you will be notified if any of them are either worth adding more to or getting rid off. Stay tuned for the next update.
NEXT STEP FOR YOU:
Now, it's your turn to start your July portfolio review. How many of your stocks have underperformed the market? And, which ones have a combination of shaky market and operations?
If you have any questions about how to evaluate your portfolio using the above approach, you can schedule a one-on-one Office Hour. This is a concierge-style service we only provide to our VIP users. All existing VIP members or if you are planning to join us as a VIP member, have the privilege to schedule a VIP only Office Hour to ask their questions (Disclosure: We are stock market research coaches. The Office Hour is not an investment advice and we are not investment advisers.)
Episode nine of our Weekly Master the Basics of Stock Market Research webinar is out.
In this episode, we answered a question submitted by one of our newest members, Michael (He didn't give us his last name). He asked, "How to get the most out of Stock Card?"
Thank you, Michael, for submitting this great question!
If you are new to Stock Card, if you have been wondering how to best use Stock Card to research the stock market mistake-free, this episode is for you. Don't forget to join us next week for another live and informative "Master the basics of stock market research" webinar. Register here: Register here: https://blog.stockcard.io/webinar.html
Folks, how often do you review your entire portfolio? How regularly do you clean up your watchlist?
For me, it happens at least twice per year. Do you remember the 2018 Castaways portfolio from last December? We went through the Stock Card's universe and got rid of the companies that were not worthy of our time and attention any more. As we enter July, it is time to step back again and get a sense of how things are going.
The goal is to make sure that the stocks we own are still worth holding, and the stock in our watchlists are still worth our attention. During July, as I go through my semi-annual clean-up, you will hear a lot form me and my Roll with Our CEO portfolio.
Here is the 4-part checklist I will be following to complete my July's clean-up:
Are you ready to do the same for your own portfolio?
New Feature: Have you seen the new "Sentiment" gauge on Stock Cards?
We've been asking ourselves how do we make sure Stock Card users do not panic when stock prices jump off the cliff or take off rapidly? How do we make sure Stock Card users stay calm and in charge of their decisions without overreacting to the market's fluctuations?
Watch this short, 10-min video to learn about how the new feature on Stock Cards can do just that!
Stock Card's portfolios update:
Get F.I.R.E.D. Up! portfolio had a great first month, and it is already outperforming the overall market. Have you visited and followed it? Eric, Get F.I.R.E.D. Up's portfolio publisher is on a journey to retire in his mid-40s, and you can follow him along.
Stock Card's Mentoriship Program:
Have you ever wanted to validate your thoughts and ideas with a fellow investor you trust in a private and 1-on-1 chat? Or, just wanted to ask a question, since you don't have time to do research? Have a look at our latest mentorship program.
Episode eight of our Weekly Master the Basics of Stock Market Research webinar is out.
In this episode, we researched a new stock pick for Stock Card's 2019 Starter Portfolio's June 2019. The Starter Portfolio shows up once a month, and it is created for first-time investors to pick one new stock each month. The goal is that by the end of the year, you have a portfolio of 12 stocks as the foundation of your stock market journey.
And, don't forget to join us next week for another live and informative "Master the basics of stock market research" webinar.
Episode six of our Weekly Master the Basics of Stock Market Research webinar is out. This is a special episode because we recorded it in the middle of the week to answer the question of our latest users. The question is so important that our CEO decided to create a short, 10-min video to answer it:
How to use Stock Card's color coding to research a stock?
Don't forget to join us next week for another live and informative "Master the basics of stock market research" webinar.