Welcome back to the MSI weekly newsletter!
The week that was:
In many of my past newsletters, I have talked about how we are in the midst of a bear market. Believe it or not, there is actually a definition for a bear market. When the stock market is down 20% or more from its previous all time high, it is considered a bear market. Bear markets usually last a good amount of time.
Currently, Nasdaq is experiencing a bear market, as it is down more than 20%. For some time, companies such as Amazon and Apple were holding up the market, even though many other stocks were over correcting. However, on Friday, Amazon reported poor results, causing the share price to drop by 15%. When a stock like Amazon falls that much, the overall market is affected, like how it is now.
During bear markets, many shareholders start selling their stocks, without thinking about whether the stock is good or bad. Recently, I heard a saying, don't throw the baby with the bathwater. The baby represents the good stocks, while the bathwater represents the lower quality stocks. During a bear market, many stockholders panic and sell their stocks indiscriminately, both good and bad. It's like throwing out the baby with the bathwater. All that selling causes the stock market to go down even more. However, at a point, there is over selling. When there is overselling, there is a good opportunity to buy blue chip stocks at a bargain price.
In this bear market, when quarterly results are reported, good results are not rewarded, or they go up by a little bit. When companies report even a little bit of bad news, the stock price gets punished. In this market environment, it is better to buy a stock after its results are reported, because if the results are poor, you can get the stock at a good price, and even if the results are decent, there won't be much change to the stock price. If there is a stock you really want to buy, it is better to buy it in small quantities at a time, until the bottom is reached.
Take the example of two good stocks in my portfolio - WD-40 and Stanley Black & Decker. WD-40 reported good results a few weeks back. The stock went up and has held up pretty well despite the heavy selling in the overall market. On the other hand, Stanley reported a poor outlook and the stock got punished quite a bit.
Bought 4 SWK at $120.96
I added more shares of SWK after the stock went down due to inflation issues. This is a good long term stock to own. They have raised their dividend each year for more than 50 years in a row!
Bought 2 SBUX at $74.96
Starbucks is a quality company with a legendary CEO that has ust taken over. The company is facing short term headwinds but I am confident they will fix things.
Bought 1 DPZ at $339
I started a new position in Domino's Pizza. The stock got heavily punished after reporting poor results. DPZ is an innovative company with good international growth. They along with Starbucks are perhaps the most tech-savvy companies in the consumer discretionary sector. Tech-savvy companies are likely to address inflation issues better than others.
What I am watching out next week:
The Fed has their meeting on Tuesday and Wednesday. The interest rate is likely to go up by 0.50%. But more than that, the focus will be on their tone for future rate hikes. If the tone is bearish, the market may go down more. But it is possible there will be a rally since the market has already gone down a lot heading into the meeting.