Year End 2022

My First Bear Market

What a year! Since my interest and research in the financial markets began in 2013, this is my first real bear market. It is a bear market I always knew would come and one I knew I would accept and embrace for the educational and emotional value it would provide. Experienced investors tell us that most traders leave the market in these volatile situations. I decided long before today that I would not be one of these. I have watched inexperienced “investors” moan daily about the market and the amount of red in their portfolios, celebrating green rallies that soon turn back south. Unless you plan to retire very soon, why would you want the market to push back up in the near term? The long-term investor should see this as the best buying opportunity in a lifetime.

The way I am viewing this market as a trader who has limited economic education is; This bear market was initially expected in 2020, with news reports in the lead-up from 2018 to 2020 informing us that the yield curve had inverted (this was the first time I had to google what a yield curve was). This, the media informed us, predicted a recession in the early decade of the 2020s.

A curve ball shot through the economy in the form of covid, where stimulus altered what I feel was the natural market cycle and sent the S&P500 soaring 120%. This stimulus was temporary, and now, through central bank tightening, that extra money has been sucked back out of the financial system. Mr Market now wants his money back and wants to continue with his natural trajectory.

This may sound like the ramblings of a madman, but the main thing I have learned this year is nobody knows. I knew this before, but watching the so-called “professional” investors and economists talking with such confidence on CNBC, only to have their predictions shattered in sometimes an embarrassing way, makes my theories just as plausible.

Stripping away the covid situation and now having the recession we were meant to have, the S&P could fall lower before we find that level playing field.

If you want to calculate the stimulus level in/out vs GDP growth internationally and globally vs the millions of other data sets that could affect where the indices and economy currently sit, I welcome you. I do feel you may sound just like those “clever” CNBC interviewees and could do with getting out more instead of trying to solve the impossible puzzle of economics. Remember, it has been proven that monkey-picking random stocks can beat the S&P.

With that being said, this monkey has only recently started buying into the market after losses at the beginning of the year; my portfolio is down 26.9% year to date. These losses would have been much more if I had not mainly gone to cash in the spring. It is time to start averaging back into some positions, ready for the next bull market. I class these as position trades and will liquidate when valuations look ridiculous and the irrational behaviour identified in all bull markets, especially 2021, occurs again. It is all one big cycle, but many believe that “this time it’s different,” it is not! The market will rise and crash several times again before you meet your maker. Take advantage of the dips.

My biggest loser this year was Boohoo, I started buying in around 2018, achieving an average price of 165p. I like the management, I like the company, I have purchased the products and I visited the distribution centres and interviewed staff on more than one occasion. The issues surrounding the slavery accusations were a witch hunt by the media highlighting a historic industry-wide problem laying all the blame at boohoos doors. I feel then as I do now that coming away from the situation could help make the company stronger and boohoo would become an advocate for best workplace practices going forward, which is showing. What I did not know then was how the Covid situation would affect all companies, especially Boohoo. My always positive side lead me to believe that things would pass rather quickly, supply chains would normalise, and we could crack on. But this year as one situation normalises another gloomy situation begins.

With the purchasing of Debenhams and the potential to takeover revolution beauty, Boohoo is ignoring the negative comments towards their share price and cracking on with business. I think once things pass the company could make great progress in achieving a bigger market share, but it is going to be a long drag to that point. I liquidated my position at 71p a 57% loss. It hurt at the time but seeing the price head further down to 28p took the sting off slightly. Since purchasing Boohoo, I have changed my strategy. Boohoo was more of an investment; I am now a trader with stop losses. Flip-flopping? It is ok to re-evaluate and change investment style after sufficient research. We never stop learning and developing.

Most complain that the management at Boohoo has yet to make a purchase of shares at this level but recently I heard an anonymous CEO of a different company comment that they are countless reasons why the management could not be buying their companies’ shares as much as they want to, and it is mostly out of their control. Something to consider.

As the pound tanked in autumn, everyone became a currency expert. This, I suspected would be great advertising for currency exchanges both for retail traders and professional institutions. I bought into Argentex Group PLC (AGFX) a company that provides currency exchange for professional clients such as companies and the more well-off amongst us and PLUS 500 (PLUS) which provides a platform for all the above retail currency experts to lose their money on. Both companies rose significantly to provide great gains and make the year more bearable. I have learned that sometimes is best to have that confidence to jump on the bandwagon and ride out it, adhering to set rules.

I had a target for AGFX and sold at that price. The next day I woke to find yet another positive trading update and the stock was up 12%. At least I followed my rules. Maybe going forward, I could leave something on the table. I will explore this option.

I have dipped my little toe into the house builders buying slowly averaging into my favourite companies: Barratt Developments (BDEV) Persimmon (PSN) Taylor Wimpey plc (TW.) and Gleeson (GLEE).

I watched an old re-run of Only Fools and Horses over Christmas, A fishing trip to Cornwall for the Trotters, to stay in Boycies empty weekend cottage from 1983. A reference in the show was made about Barratt Homes. This was not the reason for my purchase but reinstated my thinking; even though many companies have been and gone, some companies and industries just keep plodding along experiencing the manic ups and downs of the market while providing great dividends to their shareholders and with house builders currently offering great dividends, I’m happy to start averaging in slowly, keeping the risks clear that more downsides could still come. Just as in 1983, I am sure companies like Barratt will ride out these short insignificant blips on the chart and build for the next 40 years, quenching Britain’s thirst for housing.

Over the past year, I have developed an extensive watchlist with price targets which are some distance from where we currently stand. I will look to buy at these prices or once a recession has been officially announced and ride the wave back out. The stock market usually rises way before the end of a recession so be on your toes, and ready! The industries I favour at this point are companies in the consumer discretionary category, such as retail, home furnishing, and DIY. Companies which will see the consumer returning with more confidence. The companies I like will have strengthened in the recession by taking market share and proving financial resilience through dark times. Will this happen in 2023? I do not know but I am sitting patiently researching and educating myself to the point I can take advantage of any macro events.

My property portfolio has laid untouched for years. I have great trouble-free tenants and the properties have run themselves. The equity in this portfolio is now up 93% and 2023 may be the time to use this capital to increase the holdings in this portfolio. Property now and in the near past looked expensive, with my calculations never adding up to make a good profit on a refurb and refinance strategy, this could change in 2023 when house prices are predicted by some to fall considerably.

All property investors are waiting for another 2008 crash so they can enter the market and buy cheap houses, believing they are the only switched-on investors who can buy when everyone else is fearful. Problem is, everyone is waiting for the same situation. Unlike in 2008, there are more educational and YouTube gurus passing the same information snatched from a Warren Buffet book. Could this make a crash harder to come? How strong will the fear have to be to push the weak from the market? We are seeing some early signs of that fear in the stock market as the dip buyers are now feeling the pain and realising a buy-the-dip strategy is easier said than done.

Going into 2023. I am going to research property sales strongly to grasp an idea of where we are and where we could be going. I will use my tried and tested calculations to see if that profit margin looks favourable.

Overall, how do I feel going into 2023? Can it get worse? Yes, it can. One more black swan effect could finish us off! I do not like to make predictions. Instead, I hope for inflation to continue heading down, a soft recession with a decrease in interest rates, the buyer taking control of the housing market and a summer of happiness where we all buy new clobber from boohoo and Jet2 it to Spain for a Pina Colada while watching our stocks slowly drift back up.

Good Luck and Happy New Year