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[18 Jun 22] Newsletter: How to process, play and persevere in these bear markets!


5×5: Five articles summarised in five lines 🌟

  • Lessons: Stay the course in bear markets
  • Concepts: Two different things – volatility and risks
  • Markets: Analyzing the bear global markets
  • Strategy: How does trend following play in bear markets?
  • Stock Talk: Why are AMC stocks struggling?
  • [New] Readers Corner: See you on Twitter winning our merchandise!

We’ll remember but not fondly ☘️

  • Bear markets are a given – you can’t escape them in your pursuit of creating wealth.
  • In a bear market, smart long-term decisions often look foolish in the short term.
  • Your decision making process is put to a stress test while your investments tumble down.
  • If we are to enjoy long-run investment success, we need to be able to navigate such exacting periods.
  • This article pinpoints, in 3 sentences or less, many features of a bear market.

Read More – What We Should Remember About Bear Markets

Of Volatility and Risk 🎯

  • Volatility is often confused with risk and the other way around.
  • Volatility encompasses the changes in the price of a security, a portfolio, or a market segment both on the upside and downside.
  • Risk, on the other hand, means that investing in such security may not help you meet your long term goals.
  • Risk should be the real worry of investors and not short term volatility in the prices of securities.
  • Investing in a volatile instrument is fine until it helps you achieve your financial goals.

Read More – Risk, Not Volatility, Is the Real Enemy

Why so bearish, son? 😷

  • There are 500 stocks in the S&P 500. 495 of them were down on 13th June 2022.
  • For just the 12th time since 1950, the S&P 500 fell 1% on four consecutive days.
  • Stocks & bond prices are falling while things are getting costlier (inflation).
  • The yield on 2-year treasuries rose above the yield of 10-year treasuries which is not something you want to see.
  • These are tough times for the market and they’ll get worse. Staying the course may be rewarding.

Read More – So Bearish it Hurts

Make the trend your friend 😇

  • Trend following is a rules-based system that goes long or short basis market trends
  • In a flat market, there are whipsaws – in, out, in, out, in, out – too many trades and you’re bleeding from a thousand little cuts in a market that’s gone nowhere.
  • In a bull market, trend following can become a drag as against a buy & hold approach.
  • But in a bear market, for wealth management purposes, trend following can be very helpful.
  • It helps you capture the downside market movements too and make some alpha out of it. You’re not reduced to sitting ducks when the market falls.

Read More – Trend Following

Why are AMCs losing sheen? 🛠

  • The earliest listed AMCs – HDFC and Nippon Life – used to trade at PE multiples of 40-50 times a couple of years back. They now trade at 25-28 times trailing earnings.
  • The other key metric – yields, measured as a ratio of revenue to assets under management – has also declined for the listed players.
  • For AMCs, reinvesting money back into the business does not necessarily bring growth. So they can’t compound their capital and have to pay out most of it.
  • Regulators have also enforced lower TERs as the AUM rises resulting in decreased incomes of AMCs
  • The move toward passive funds has also been impacting the income of active funds.

Read More – Why are mutual fund AMCs falling so badly?

Readers Voice ⚡️

We all learn different things from your various experiences. Here’s a chance to share your learnings and win capitalmind merchandise!

Quote the tweet shared below and tell us about the kind of memories this falling market brings for you. We will retweet a few interesting replies and pick one winner of the hamper.

Last week’s quiz results💡

Answer: Old Monk! (thank you everyone for sharing nostalgic details about the drink ;))

Quiz Winner – Jim Mathai 🎉

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