So many people presume they will know what to do when a correction comes. I wish it were that easy.
Hindsight is 20/20, and everything looks obvious after the fact. But I can tell you from first-hand experience. It’s nearly impossible to swing for the fences and buy up the significant dips when everything is burning around you.
Take the pandemic as an example. In March 2020, companies that I held, and had positive conviction in, fell 50%. It’s easy to look back now and see that these were buying opportunities, but committing capital to a company as it craters is testing for even the most unwavering Stalwart.
The narrative upon which you initially invested has now completely changed.
Nothing is obvious.
When the economy comes to a standstill, the world grounds to a halt, commodity markets fall apart, policymakers are changing the rules, and the government needs to step in to shore up the Fixed Income market. Will you be able to set aside emotion and dive in headfirst?
They say you learn from experience, and for me, my lack of a clear analytical checklist left me in a state of decision paralysis. Lesson learned.
Create your Checklist
Most of us mere mortals can’t separate logic from emotion in the heat of the moment, so make sure you set out some rules to guide you through those clouded moments.
You can think of your emotional state and the ability to make good decisions as sitting on opposite sides of a seesaw. If your state of emotional arousal is high, your capacity to decide well is low. A checklist helps take out the emotion and moves you toward a proper choice. It also keeps you from succumbing to decision paralysis.
This checklist will be different for everyone, but here are some examples.
Does the company still hold a competitive advantage?
Is this correction macro-led or idiosyncratic? - is this just contagion effects from a market-wide sell-off, or is this a company-specific correction?
Has the growth outlook for the company dramatically changed?
Is this an earnings or non-earnings event? For example, did the stock fall off the back of a disappointing quarterly earnings call, or is this a non-earnings-related correction? There will always be some added volatility during each earnings season, so it is important to make the distinction.
Analyze the value indicators of the company - Is the company competitively priced relative to others in its sector? This is done by measuring the key metrics (P/E, P/S, FCF, etc.) against the company’s competitors.
Analyze the momentum indicators for the company – 200-day moving average, MACD, RSI, Support and Resistance levels. These technical indicators will help you establish when the stock is overbought or oversold.
Analyze the quality indicators for the company - Compare Free cash flow metrics, Cash Flow Return on Equity figures, ROIC, Gross Profits and EPS stability relative to competitors
If these metrics remain strong, so too should your conviction.
Some of these terms may be new to you, but you need to know them if you are looking to be a successful stock picker over the long term. Buying stocks simply because they have fallen and you expect them to mean revert is a recipe for disaster.
More than 40% of all companies that were ever in the Russell 3000 Index experienced a “catastrophic stock price loss”, which we define as a 70% decline from peak levels which is not recovered.
Don’t just assume these stocks will come back. Many of them don’t. You have a much greater probability of picking a mega loser than a mega winner.
“While the most successful companies generated massive wealth over the long run, only around 10% of all stocks since 1980 met the definition of “mega winners”.
It’s perfectly ok to be a contrarian, but be a well-informed contrarian, don’t just blindly follow the stock down. The odds are not in your favour.
With the new year just around the corner, take some time to set out your investment plan and checklist for the coming year. Fortune favours the prepared.
As always, you can find more investing information at theislandinvestor.com
Applecroft B&B named in Ireland’s Top 10
By Michelle Crean What a better way for a local business to celebrate its silver jubilee than to be named in the Top 10 places to stay in Ireland especially as they prepare to reopen after the pandemic. Owners Kathy and Don Brosnan, who run Applecroft House in Woodlawn, were named number 6 in Ireland’s […]
By Michelle Crean
What a better way for a local business to celebrate its silver jubilee than to be named in the Top 10 places to stay in Ireland especially as they prepare to reopen after the pandemic.
Owners Kathy and Don Brosnan, who run Applecroft House in Woodlawn, were named number 6 in Ireland’s Top 10 B&Bs for 2022 by the Irish Independent ‘Reader Travel Awards’ while Ireland’s Best B&B was named as Dingle’s Pax House.
The couple began their business in 1997 and are very happy with the feedback from visitors who voted for their B&B, especially after two difficult years.
“I’m thrilled, especially as we’re celebrating our silver jubilee this year,” Kathy told the Killarney Advertiser.
The couple built their house in the early ’80s and aptly named it ‘Applecroft’ as it was built in a field which has an orchard.
In the late ’90s they opened five spacious rooms up, each with its own theme; ‘Poet’s Corner’, ‘Past Times’, ‘The 19th Green’, ‘The Race-goer’s Club’ and ‘The Kerry Way’, for guests as Kathy, who worked in The Europe Hotel and the Great Southern Killarney for many years, had a passion to bring a great stay experience to guests visiting Killarney. They kept themselves busy planting in their two acre garden during the pandemic.
They have won numerous awards over the years and have had film crews in but this latest award is the icing on the cake for the couple who are looking forward to reopening in late March.
“It’s amazing, and a bonus especially with the two years we’ve had. We’ve never experienced anything like that. It was “wow” – we were preparing to reopen on St Patrick’s Day that year and all of a sudden everything closed down on the 16. It was a big shock.”
Don creates amazing bread and scones which guests rave about, she added.
“I was delighted as we came tenth for breakfast and sixth for the B&B.”
Tributes paid to life-long Legion supporter
By Sean Moriarty Legion GAA Club has led tributes to one of their most ‘fervent’ supporters who passed away on Tuesday. Described as one of the town’s ‘old stock’, Tim Looney from Coolgraine Park and late of Daltons Avenue, was a central part of Killarney’s rich sporting heritage. As well as a life-long supporter of […]
By Sean Moriarty
Legion GAA Club has led tributes to one of their most ‘fervent’ supporters who passed away on Tuesday.
Described as one of the town’s ‘old stock’, Tim Looney from Coolgraine Park and late of Daltons Avenue, was a central part of Killarney’s rich sporting heritage.
As well as a life-long supporter of Legion, he played basketball in the famous town leagues of the 1970s and the seven-a-side soccer ‘Wipeouts’ competitions.
“He was a very proud Legion man and always flew the green and white flag out his window whenever the club was playing in a big game,” PRO Enda Walshe told the Killarney Advertiser. “He was a fervent loyal club supporter but was also one of the characters of the winter basketball leagues.”
Tim was also a regular participant in Dart Pub Leagues back in the 1970s and 1980s.
Tim’s funeral took place today (Friday). He was laid to rest at Killarney Burial Ground after 10am Mass St Mary’s Cathedral.
Tim is survived by his wife Nuala, his children Joanne, Paudie and Timmy, and was a much loved grandfather to Stephen, Makaela, Chloe, Padraic, Keelan, Alex and the late Lorna. He will also be sadly missed by his daughters-in-law Margaret and Sharon, son-in-law Tony, sisters Kathleen, Sheila and Ann, brothers Lewis-John and Paddy, brothers-in-law, sisters-in-law, nieces and nephews, grand-nieces and grand-nephews, relatives, neighbours and many great friends.
Applecroft B&B named in Ireland’s Top 10
By Michelle Crean What a better way for a local business to celebrate its silver jubilee than to be named...
Tributes paid to life-long Legion supporter
By Sean Moriarty Legion GAA Club has led tributes to one of their most ‘fervent’ supporters who passed away on...
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