The Coronavirus Impact on my Hedgehog Portfolio
Continuing from my previous post “Update for the Hedgehog Portfolio Dec 2019“, both of my portfolios has been impacted to some degree. I’ll update on my 2nd portfolio.
(Image 1)
From hitting an all-time high of 100% in February, it fell back to below 100%.
(Image 2)
My returns of 12.8% in February was nearly wiped out and it fell into a territory of -3%.
(Image 3)
Similarly, the coronavirus has impacted S&P 500.
S&P 500 is a market index that represents the top 500 listed companies in United States.
What happened in the month of February could be fearful and nerve wrecking for many investors, including for me. There is no investor who is perfectly immune to these market movements. The difference is how much are we affected?
Let me assure you, while you could see from Image 1, my results may look pretty awesome.
BUT…!
Remember, I had to go through many “valleys” where my portfolio results were very choppy. It was up then it was down.
I do not have a magic wand, so each time, I questioned whether this is a start of a big recession. Nonetheless, I comforted myself in knowing that I am buying good companies with growing earnings. This led me to outperform last year.
I was not buying any crappy companies. I would be dead worried if I did.
One of the biggest mistakes for any investor is to listen to market commentators.
When the market is up, they would say: “don’t miss the boat!”
When the market is down, they would say: “don’t buy stocks now!”
When it is so convenient to say anything, they are not anything at all.
Stop listening to them because you will get more worried.
Earnings is the Long-Term Driver of Share Price Performance
I take comfort in the knowledge that I am buying good companies that are growing their intrinsic value day by day. Once that is established, I do not worry too much daily or monthly fluctuations.
While sentimentals drive share price in the short term, earnings power drive the share price chart in the long term.
When you look into the long term, all these little “valleys” will be nothing but great opportunities — provided you are buying them at the right value.
What do I mean by that?
Take a look earnings of Yum! Brands during the previous financial crisis. It owns brands such as KFC, Taco Bell, and Pizza Hut.
You would assume the stock price would be a straight rocket upwards? Nah…
Source: CapitalIQ
It fell by nearly 32%! That would have shaken a lot of investors out of their share holdings. For those shrewd investors who understood valuations, instead of selling, they would be buying. From that point, Yum Brands’ return was about >80%!
My simple advice is take every mini correction as opportunities to accumulate more of good businesses. Focus on identifying good businesses.
Borrowing this from Vishal at Safal Niveshak:
In all of our pursuit of returns, we may fail to act upon accumulating the right knowledge to create the right behavior during crisis. Instead, we focused on timing the market, look at technical indicators, chasing stocks without understand their underlying fundamentals or seeing investing as a gambling activity.
Instead of timing the market so actively, why not pursue time in understanding which are the companies that deliver long term growth in earnings instead?
You Might Be Thinking…
“What if the stock market crashes further down?”
Then, let it be. You do not need to have perfect timing to make excellent returns in the stock market. Anyway, if you have chosen good companies, they will bounce back hard.
In pursuit of perfect timing, you may ended up missing up on a lot of opportunities.
I do not have a view on where the market is heading, I have a view that my business is going to earn more money over time, hence, it is going to be more valuable.
When a company is becoming more valuable, yet the share price is being suppressed, it is almost like a coiled spring ready to bounce back any time.
It can’t go to zero or stay suppressed for a long time. Having this frame of mind allowed me to buy great companies AS LONG AS they are available at great prices WITHOUT worrying about stock market crisis.
Sure I have not been able to buy a few businesses at good prices, overall, I still did okay.
In ending
If history is of any value to us, let’s take a look on how the stock market reacted during the past viral outbreaks.
(source: MarketWatch)
Use it for your own interpretation! 😄