- Aquarius Investments
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- Aquarius Investments Issue 12
Investor Quote of the Week
"You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets."
Quote Meaning
Stock market crashes happen. That is a given.
Nobody saw coming the 2008 financial crisis.
The 2020 COVID crisis came out of nowhere.
Stocks decline, and markets crash on occasion.
That’s life, and as an investor, you must expect stocks to decline at certain times throughout your investing life.
If you are unable to mentally withstand market crashes and see your stock portfolio go down 40–50% from its peak, you aren’t ready to invest yet.
To succeed as an investor, you must have patience, discipline, and the ability to add to your portfolio when stocks decline.
S&P 500 Index during the 2008 Financial Crisis
Nugget of Wisdom
Buy established companies with a long track record.
Buying companies that just had an initial public offering (IPO) can be risky.
Investors like venture capital or private equity companies that invested in private rounds before the IPO are ready to cash out.
And the banks that listed the company likely made the valuation extremely expensive to make legacy investors happy (and get big fees as well).
Established companies that have been listed in public markets for a while have a proven track record.
Financials date back 5–10 years, and you can see what has happened to the stock over time.
Not only that, established companies are likely to pay regular dividends compared to newer, unproven listed companies that are still in “start-up” mode.
Dividends give a stock some predictability and a buffer for how long the shares may fall, given that the dividend payments remain regular and not cut.
Buying established companies with a long track record is smart because:
Proven Success: These companies have already shown they can make money and survive tough times.
Stability: They are less likely to suddenly fail compared to newer companies.
Dividends: Many established companies pay regular dividends, giving you a steady income.
Growth Potential: They often continue to grow steadily over time.
Less Risk: Investing in well-known companies can be less risky than betting on new startups.
Essentially, it's akin to selecting a car with a proven track record of dependability over an untested new model.
Visa Stock Price: An example of an established company
Mistakes to Avoid
Do not go “all in.”
If you think a company is a good investment, do not put 100% of your eggs in that one basket.
The company could have unexpected surprises.
Not only that, just because it’s down 50% doesn’t mean it can’t go down further.
To give you an example:
I bought META shares in November 2022 for $127 per share.
It was a good deal because I snapped the shares at a 12x price/earnings ratio.
For one of the biggest, most profitable companies on earth.
However, I went “all in” too soon.
The stock crashed even further to $88 per share, a 30% drawdown!
In these types of situations, always keep more cash on hand.
You can “average down” your position, adding to it as prices decline further.
By going "all-in," you must be prepared to see further drawdowns because timing the “bottom” is pretty much a fool’s game.
Never risk more than what you can afford to lose, but if you’re confident in your choice of investment, always keep some liquid cash on hand to capture more opportunities.
META Shares Sliding from $127/share to $88/share in Nov 2022
Stock of the Week
McDonald's Corp (Ticker: MCD)
McDonald's Stock Price
Company Description
McDonald's Corp. engages in the operation and franchising of restaurants. It operates through the following segments: U.S., International Operated Markets, and International Developmental Licensed Markets and Corporate. The U.S. segment focuses its operations on the United States. The International Operated Markets segment consists of operations and the franchising of restaurants in Australia, Canada, France, Germany, Italy, the Netherlands, Russia, Spain, and the U.K.
Profitability Metrics
5-year average EBIT margin: 42%
5-year average net-income margin: 29%
5-year average return on capital (TTM): 14%
Growth Metrics
Revenue growth 5-year average (year-on-year): 4%
EBIT growth 5-year average (year-on-year): 6%
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Talk soon,
Sam