There is currently a sense of nervousness in the international stock markets. A few tech stocks that did exceptionally well last year have recently lost some ground. These include Amazon and Salesforce, for example. Even defensive consumer goods manufacturers such as Unilever, Procter & Gamble, and Church & Dwight have recently lost some value. I’m looking more closely at Procter & Gamble stock shares right now. The company is fantastic.
Fears of inflation
Fears of inflation and a rise in interest rates on Treasury bonds spread because that scenario would make equities such as stocks less attractive. Nevertheless, investors do not want to sell their profits yet. So far, the international stock markets are still relatively close to their (all-time) highs.
That’s not surprising because where else can they achieve a comparable return? In the last few years, shares have only gone uphill on average.
The rally after the Corona crash was impressive. Although the global economy came to a partial standstill and has still not fully recovered, investors have been buying stocks like crazy. Some private investors gambled like in a casino. The short squeezes at GameStop and AMC were pretty wild.
I think we are still in the phase of greed. But with the fear of inflation, that could change. The greed that first pushed people into the stock markets and still keeps them there could quickly turn into fear. Then everyone wants to secure the profits of the last few years at any price, which will cause share prices to fall due to oversupply.
Crash prophets can unsettle investors
The crash prophets can also take advantage of the current situation and continue to spread their doomsday scenarios.
I, too, expect that there will be sharp corrections in the future. Yes, there virtually must be. Inflation is a possible trigger here. Many shares have a somewhat high valuation based on their historical multiples.
A crash is something quite normal in the stock markets. It happens again and again. It doesn’t unsettle me, but I expect it at any time and visualize its impact. The problem is when so-called experts (I am not one) or crash prophets want to misguide investors or sell them some stupid products. This behavior is just as bad as people pushing some overpriced stock and getting folks to put their savings into companies whose stock price is way too inflated.
Nervous investors make mistakes and try to take control of a non-controllable situation
Nervous and perhaps inexperienced investors can be easily influenced and (mis)guided by emotions. They buy shares not based on fundamental valuation but out of fear of missing out on further gains. Conversely, they sell because they cannot bear book losses.
I bought Tanger Factory Outlets shares in December 2019 and shares of Publicis Groupe, a French advertising and public relations company, in January 2020. Both shares have crashed 50 percent during the Corona crash. But now they have made up for all the losses, and I am up by a double-digit percentage.
The problem with nervous investors is that they are trying to control a situation they cannot control. Investors cannot influence the share price development. They can only react and thus never really gain control. But we tell ourselves that we can gain control by making buy and sell decisions. But that is only a fictitious control.
If I had sold my Tanger Factory Outlets shares with 50 percent in the red, I would have felt I had regained control. I would have said to myself: the assets are out of the fire, there is no more danger. Well done!
Timing is not possible, and not reacting is often the better decision
No matter what, my readers and I know that we cannot see the future. Will there be a sharp rise in inflation? Who knows. I think so. But what I believe is completely irrelevant for the stock markets.
Simply doing nothing is often the better decision. That’s why I’m trying not to get nervous now about all the discussions about inflation or interest rate increases, etc. Imagine we get nervous, sell everything, pay fees and taxes, and stocks keep going up… Then we stand on the sidelines with a pile of cash and don’t dare invest.
Knowing that you know nothing is relieving. I don’t have to put pressure on myself to respond to possible scenarios. I act according to my (investing) principles and not according to what is currently being discussed. From what I know from my readers, they take a similar approach. I think that’s good.
Go for a walk in the fresh air
Conversely, I can, of course, understand that one might be worried by the daily discussions. Is it right to invest in a growth company like TeamViewer now, when tech stocks could come under pressure with higher interest rates? Should I rather wait until the end of the month, because the markets could crash until then?
You start listening to supposed experts and try to time the market, even though that’s not possible. My advice if you are nervous is: go for a walk in the fresh air. That’s also what I’m doing. Always! Of course, I also sometimes think about what it would be like to sell right at the peak and get back in after the crash. But whether that succeeds depends solely on luck. Well, I’m not so good with luck and stock markets…
When it gets too much with my thoughts, reading on Twitter and YouTube videos, I go for a walk. There are so many more important things in our lives than the very best share price performance and portfolio management. A walk in the fresh air straightens out many crossed thoughts.
Procter & Gamble looks appealing
I am currently looking at Procter & Gamble again. The company is excellent. No matter when you invested in the past years. Even if you bought at the past all-time highs (ATH), you’re currently in the profit zone. Now, Procter & Gamble has lost 15 percent from its last ATH. A buying opportunity? I don’t know. It can still go down properly. But at the moment, I can get Procter & Gamble shares cheaper than a few months ago, even though it’s the same company. That’s good!
What’s particularly impressive is Procter & Gamble’s balance sheet. Just look at how many of its shares this company is sitting on. Compare this to the meager amount of debt.
Procter & Gamble is not yet a bargain, but it is no longer overpriced either. Plus, if I am the owner of a company like Procter & Gamble, I am not afraid of inflation. Maybe the stock price will go down due to rising interest rates. Then it is like that. Procter & Gamble can quickly raise its product prices in an inflationary scenario. Thus, the shares even offer investors some protection against inflationary monetary depreciation.
So yeah: If I get too nervous, I may go out for a walk, and buy Procter & Gamble shares afterward 🙂
In this sense, I wish you the very best,
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Thank you TEV
I bought it before reading that it is not yet a bargain 🙂
All thr best
Thanks for coming by Bassem. Currently, there are no bargains I am afraid. We have to deal with this reality 🙂 You got your Procter & Gamble shares for less money than they cost a few months ago even though it’s the same company plus your share of ownership in this great company has increased. Not a wrong decision in my eyes 🙂
Luckily, it is up 3% today 🙂
A question I am still reflecting about:
For long term investing, do you think using stoploss order at some level, say 80% of stock purchase price, is a good idea to save some cash in case of market crach ?
good question. Here are my thoughts:
In theory, this sounds reasonable. In practice, it can quickly happen that shares crash and immediately rise again. Plus: Such a stop-loss order means literally “sell at any price”. So it may be that your selling price is even lower than you originally intended.
In such a “flash crash” scenario, you are left with cash, and when the share price rises immediately again you can only buy back the company at a higher price. The result is that you make a loss.
But of course, if you feel safer with such an approach, there’s nothing wrong with it I guess. And it may make sense for more risky investments. However, past experience indicates that simply buy and hold and ride out crises probably works better. At least that’s what I do with my core investments.
All the best!
Thank you for your answer,
Yes I would feel much safer, but I see your point.
When my broker “Degiro” allows, I use stop limit orders with 0.5 euro between stop and limit lebels to escape gaps. I am aware this doesn’t completely protect of flash crash when price moves in small ticks. But hopefully, this should execute well for soe sticks at least.
Do you know a broker that offers stop limit for all stocks ?
I also wanted to let you know that I don’t receive a notification email when you reply to my comments.
Thank you TEV
Hi Bassem, sorry, no, I don’t know such a broker. I’m not really knowledgeable in this area, to be honest, because I don’t use such tools.
Regarding notifications. Yeah, I think that’s on purpose. I don’t want to spam people’s inboxes when I reply to them 🙂 Of course, I’m pleased when readers comment under the articles and discussions unfold, but I think it’s better when they drop by voluntarily and not because a mail reminds them of me 🙂
All the best!
Just to confirme I am back to see your answer, thank you TEV 🙂
That’s kind, many thanks Bassem!