Investor Quote of the Week

Quote Meaning

Don't always focus on being right. You need to focus on the size of each of your investments and your position size.

You could be right and have small gains, or you could be wrong and lose big time.

You need to focus on cutting your losses short when you are wrong and riding your winners when you’re right and your investment thesis is still correct.

Nugget of Wisdom

Invest in countries with established capital markets.

You can get burned if you invest in countries with poor capital market infrastructure.

Countries with a high degree of political risk, as well as countries where the listed stocks are still majority owned by families, pose significant risks.

Political risks can cause stock prices to not reflect a company's true value, and prices can remain down even if the company is fundamentally sound and growing every year.

This is also known as “price discovery.”

Due to political risks and red tape, the general market tends to discount the company, leading to a lack of price discovery.

Families that own the majority of the company's shares also dictate its direction, showing little regard for external shareholders.

This is not always the case, but in many cases, families maintain a tight grip over the company, often leading to poor corporate governance.

Going back to political risk:

Alibaba’s stock price collapsed in 2021 and has not recovered even during the current bull run in US equity markets.

Fundamentally, Alibaba is a growing company with monopolistic power in China and other Southeast Asian countries where it operates, but because it is Chinese and faces extreme political risk, it trades at a discount.

Unless investor perceptions of investing in China change for the better, shares may remain low for a very long time.

It also doesn’t help that Alibaba doesn’t pay any regular dividends, so it leaves investors questioning if they should even stay in the stock and look for better alternatives.

Mistakes to Avoid

Don’t time the market.

Stocks can always go lower. There is no crystal ball.

Just because a stock has fallen 50% doesn't mean it can't fall 70%, even if the company's valuation is already low compared to historical measures or if the company is still sound financially.

Stock prices can remain at irrational levels for a very long time, so position yourself accordingly and diversify into 10–12 other stocks to shield yourself from the big drawdowns of individual stocks.

For example (see below), Meta dropped to $87 from $131, which a lot of investors considered a “safe” area to invest in.

That’s another 33% drop from an already low $131 stock price.

Smart investors would’ve averaged in over time, buying shares of Meta at lower prices below $131, but investors who already bet the farm were down over 30%.

Stock of the Week

Nike, Inc.

Company Description

NIKE, Inc. engages in the design, development, marketing, and sale of athletic footwear, apparel, accessories, equipment, and services. It operates through the following segments: North America, Europe, Middle East & Africa, Greater China, Asia Pacific & Latin America, Global Brand Divisions, Converse, and Corporate.

Profitability Metrics

5-year average EBIT margin: 13%

5-year average net-income margin: 11%

5-year average return on equity: 40%

Growth Metrics

Revenue growth 5-year average (year-on-year): 7%

EBIT growth 5-year average (year-on-year): 12%

Want My Help?

I offer 1:1 consulting, where I help you with everything you need to know about investing so that you can start managing your own investment portfolio.

Receive one-on-one expert guidance from me on how to develop your own investment portfolio so you can take charge of your own finances.

If you want to learn how to invest in the stock market or in general, I will teach you how to do it on your own in less than 90 days.

Apply here.

Got Questions?

Just reply to this email, and I'll get back to you!

I’d love to hear your questions or feedback.

Cheers,

Sam