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Conviction is everything

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Last week, one of my close friends mentioned in passing that he had bought Virgin Galactic, the space tourism company owned by Sir Richard Branson.

Since purchasing a few months back, the stock had continued to slip, and he sold his entire position. The following day the stock jumped 39% after the FAA approved its passenger spaceflight license… such is life.

To be honest, the whole conversation blew my mind. While I have no affinity to Virgin Galactic itself, I think it is fair to say that any investment in to a space exploration company is likely to be a volatile, ultra-long-term investment. In fact, I fail to think of a single investment that would require a more forward-looking investment thesis - yet he held for just three months.

As I dug a little deeper, his actions became a lot easier to understand. Having purchased the company off the back of a headline he saw online, he had no problem selling even faster at a loss. As the stock tanked, his defensive wiring kicked in, and, in an effort to protect from further losses, he sold. Seems rational, right? Many of us would have done the same simply because it's difficult to maintain faith in a company you know nothing about.

All this got me thinking; potentially, the biggest reason retail investors struggle with stock selection and even passive investing is a lack of conviction around what they hold.

Narratives are not enough

Many of the most-discussed investments or stock picks are notorious for being surface-level in nature. DIY investors will blurt their two-line quip about a particular company they have invested in, but if you go in search of some more in-depth supportive analysis, you will be left empty-handed.

The truth about modern-day retail investing: Many of the positions are populated by investors whose investment thesis is supported by little more than a tagline they pulled following an 'in-depth' three-minute Google search.

Now, I'm not saying this whimsical investment approach applies to everyone, nor am I saying that searching online for stock tips is inherently a bad thing (I do it all the time). What I will say is, this quick stock tip search needs to be the beginning of your investment research, not the end.

You can borrow someone's idea, but you cannot borrow their conviction. By simply taking another person's stock tip, you’re left with a plethora of unanswered questions; how much should I invest, at what point should I sell, what changes to the company's outlook will change the investment thesis? These are all questions you need to answer on your own.
 

Do your homework

Over your investing lifetime, major corrections will happen. Any number of random short-term events can tank a stock. When that happens, you need something to fall back on to avoid doing something you later regret.

You will never expose yourself to the exponential returns of truly innovative companies if you don't understand why you own the stock in the first place.

Not one of the Mega-Cap companies that dominate the current investing landscape achieved this status without first experiencing multiple bouts of gut-wrenching volatility.

Those who thought Amazon was just an online bookstore lacked the conviction to hold as the stock plummeted over 90% after the dot com crash. However, for those who had the iron stomach and foresight to see the company's true potential, the rewards were life-changing.

This works in the opposite direction as well. Those who thought Netflix was simply a DVD vending machine company sold their shares as the company jumped in value, while those who held their conviction since IPO multiplied their investment by 500 times without even having to lift a finger.

In short, you need to do your own homework if you want to be a successful active investor. Investing in every tip you see online may work over the short run, but without an understanding of what you own and why you own it, you are in for a painstaking investment experience laced with perpetual uncertainty.

To learn how to generate conviction in your investment decisions visit www.theislandinvestor.com.

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Pandemic policy changes have left us with skewed data figures

By Michael O’Connor They say history doesn’t repeat itself, but it often rhymes – at this point however, even the rhyming has stopped. The pandemic policy changes have left us […]

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By Michael O’Connor

They say history doesn’t repeat itself, but it often rhymes – at this point however, even the rhyming has stopped.

The pandemic policy changes have left us with skewed data figures, manipulated comp stats and a remarkably unfamiliar backdrop resulting in immeasurable uncertainty amongst investors across the globe.

During times like this, it is best to break complex problems down to their simplest forms and concentrate solely on the most crucial variables.

And the most crucial variables in this case are inflation and Fed policy.

An infinite number of potential outcomes are possible over the coming months, but all will be derived based on the aggressiveness of future Fed adjustments and the persistence of inflation.

There will always be risk

There is no perfect scenario here. The inflation we are experiencing is the by-product of an overheating economy.

The cumulative net worth of US Households is now almost $150 Trillion, $80 Trillion more than it was 10 years ago. The US labour market currently boasts two jobs for every one person looking for work, and corporate earnings jumped 35% in 2021, the largest increase since 1950.

Simply put, there is more money in the system than ever before.

The supply side issues have been well documented, but if inflation is to be quelled, then the demand side of the equation needs to be solved.

This is where the Fed’s tightening cycle comes in.

The Fed cannot improve supply issues, but they can negatively impact demand by dampening the labour market and decreasing the amount of capital in the systems through higher interest rates.

This tighter monetary policy is expected to bring inflation under control, but as the Fed increases the speed of rate hikes, the odds of economic contraction also increase.

In short, the goldilocks scenario of a gradual decline in inflation while maintaining labour market strength, household wealth and corporate profits, remains a pipe dream.

To strip inflation out of the system, a period of economic contraction is a necessary evil.

Crucially, this contraction does not need to lead to a crippling recession or anything of the sort. The level of contraction we experience will depend solely on the Fed’s ability to strike a balance between cooling inflation and maintaining demand.

Only time will tell if they can successfully thread the needle.

Jumping back in

Before declaring an all-clear for stocks, investors need to believe we are at the peak of policy tightening and inflationary pressure.

Certainly, we are seeing signs of improvement from an inflationary standpoint. For example, wheat prices are now lower than at the beginning of the war in Ukraine – another showcase of the unpredictability of markets.

With that said, one crucial paradox remains. Investors want interest rates to fall so stocks can rise, but any fall in interest rates is unlikely if stocks rally, somewhat capping the recent upside.

Make a plan

As always, I encourage a long-term focus. Investors will be better served focusing on the bull market opportunity on the other side rather than overemphasising what may be left in the bear market.

Those looking to take advantage of any potential upside need to get their house in order. You need to take the time to develop a clear picture of what your allocation will look like, create a watchlist of preferred names and know your entry points.

Scrambling together a plan after the fact is a sure-fire way to ensure you miss the very opportunity you were trying to capture.

Learn more at

https://www.theislandinvestor.com/

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Tenant’s termination notices have risen by 58%

By Ted Healy of DNG TED HEALY It has been highlighted this week that the number of termination notices issued by landlords to tenants has risen by 58% in the […]

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By Ted Healy of DNG TED HEALY

It has been highlighted this week that the number of termination notices issued by landlords to tenants has risen by 58% in the first six months of the year compared to the previous six months.

There were 2,913 termination notices issued in the first six months of this year compared to 1,845 in the last six months of 2021.

It is reported that 55% of those notices were for the purpose of sale of the property.

A ban on evictions during lockdown periods during the COVID-19 pandemic lowered the number of termination notices. However, the eviction moratorium was lifted in April 2021 and numbers have been rising significantly since then.

The figures, released by the Residential Tenancies Board, have been described as “very alarming and require urgent action”.

They highlight the ongoing crisis in the rental sector and make for stark reading. At the time of writing only four properties were advertised as being available for rent in Killarney on Daft.ie.

The exodus of private landlords from the market is a real concern and needs to be addressed. Landlords exiting the market in greatest numbers at present are those that in the past had charged rents that were less than market rates and are now only able to minimally increase rent on their properties because they are subject to Rent Pressure Zone rules.

The Government has extended Rent Pressure Zones until the end of 2024 and has prohibited any rent increase in a Rent Pressure Zone from exceeding general inflation or two percent, whichever is lower.

However, more needs to be done to entice private landlords to stay in the market and supply of available properties needs to be increased.

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