My 3 Thoughts on Yesterday’s Deepest US Market Decline Since June
4 September 2020
Yesterday (3 September 2020), the US market had its deepest one day decline since June.
The S&P 500 and Nasdaq had their deepest declines since June 11 and for Dow, it was their biggest decline since June 26.
Here Are My 3 Thoughts on Yesterday’s Deepest US Market Decline Since June:
1. The Market Is Unpredictable
If there is one thing that I have learned through my experience in the stock market is that the short term market movement is unpredictable.
The longer-term market movement, however, is more predictable, provided one does not pay an exorbitant price to participate in it.
So I have always gotten my gains not for from predicting the short-term market movements, but from betting on the long-term direction of the business.
2. We Only Know Who Is Swimming Naked When The Tide Runs Out
Two of the human biggest enemy in investing is greed and fear.
In this Bloomberg article that was just published today titled “Day Trader Options Frenzy Turns Ugly in $730 Billion Nasdaq Rout”, it mentioned the unexpected movement of the market likely resulted in many short-dated calls going bust.
“A call with a $125 strike price on Apple Inc. shares, expiring tomorrow, plunged 89% as shares sank 8% to $121. A bullish wager for Tesla Inc. to reach $500 by Friday’s expiry lost 90% as the stock dropped 9% to $407. And a call on Zoom Video Communications Inc. with a strike price of $420 became essentially worthless as shares hit $381.”
It is just one example of how potentially an unexpected movement in the market – in the short term – can blow up in someone’s face.
Primarily because in my view, these are gamblers, not investors.
3. Valuation Matters
Ultimately, valuation matters.
How I reduce my downside risks in investing is that I only invest in things that offer a margin of safety.
Meaning I try not to overpay.
Be it growth stocks or not.
Especially not after it has run up too much and the valuation starts to not be mouthwatering, investment-wise.
For example, I think Apple and Tesla already have such a huge run-up – so it makes sense that yesterday, those two fell 8.01% and 9.02% respectively.
I do not have those two stocks – but I have Facebook, and it did not fell as much – just 3.76%.
My other bigger position – which I have been in from a few months ago – Carnival Corp, is actually up 5.21% yesterday.
I think valuation should form a cornerstone of every investor’s decision of what to invest and when to buy, hold, or sell their stocks.
Without understanding valuations and investor’s mentality, we are blind.
I understand that for certain amazing companies, there will be a premium that has to be considered to be paid to participate in their growth. But I am always cautious as to what is a reasonable price to pay for that premium.
Remember, to finish first, we must first finish.
Yesterday’s minor stock market decline is just a reminder for us to stay rational in our investment journey.
Was this article useful for you?
If it is, would really appreciate it if you could take one minute to share it on Facebook.
The information provided is for educational and general information purposes only and is not intended to be personalized investment or financial advice. We make no promises as to the accuracy or usefulness of the information we present.
Important: Please read our full disclaimer.
Disclosure: I am/we are long on Facebook and Carnival Corp.
Chris Lee Susanto
Founder of the value investing blog Re-ThinkWealth.com (if you type “value investing blog” in Google, his blog is likely the first one). Being a full-time investor himself, Chris knows that he did not beat the S&P 500 return so far (as of the time of this writing) by listening to stock tips. So, when he teaches, he also doesn’t believe in giving stock tips as it is not sustainable for you in the long run. He will teach you how to make your own intelligent decisions with his 4M1S framework. Feel free to also join his free investment telegram channel here.
More from Chris
Bitcoin can be considered the world’s best-known cryptocurrency. Today is the 21st of November, 2020 and coincidentally, Bitcoin supply is also […]
I have been wanting to buy the Oculus Quest for the longest time. A few years ago, when Oculus first came out with The Oculus Quest, I wanted to […]
Based on the current trend of the mail-in ballots, it seems likely that Biden is going to be the victor of the US election in
Netflix currently has more than 65 million U.S. subscribers and about 195 million paid […] Their last hike for the U.S. price was in January 2019.
Being an avid follower of many investment and finance blogs or websites in Singapore, I thought why not I create an
1. Long-Term Challenge With Media Division The first thing that comes to mind when we hear SPH is the newspaper. And newspaper makes money through […]
There are many value investing lessons that I have learned throughout these past five, six years. For today, I thought to share with you eight of the value investing lessons […]
Elon Musk is a fantastic marketer and an innovative entrepreneur. I have been curious about the Tesla story for quite some time. And here are my five key takeaway from Tesla 2020 […]
Snowflake does cloud computing that implements a variable pricing model, which can be at times more attractive than fixed packages […]
The adage that “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” by Benjamin Graham could not be more true over the past few days. As of 9 September 2020, […]
My Bet: In 2020, The Stock Market Will Not Crash Again. Yes, it is hard to predict where the stock market is heading in the short term. But my bet with regards to virus-related concern is that I do not think that we will crash again back to March-April Lows in 2020 just because of it […]
Think About How SIA Was When Times Was “Normal” Before we got into this COVID-19 mess, SIA is already not a great business to own even when times were “normal.” All of us know that the airline […]