[INVESTMENT] MEMO – 18.10.2021

INVISIBLE HAND

The disconnection between economic realities and performance of the stock market in the past 1-2 years is somewhat perplexed.

To me, most of the companies are now overvalued. Countless unicorn companies are given record valuations despite not making any profit year after year. Some unicorn companies used heavy leverage to fund expansion in order to achieve the growth that they projected. This action is, to me, quite madness and dangerous especially in times of uncertainty.

One may ask what and who cause all this madness? I think, this is not easy to explain. The government and central banks around the globe promised and committed to provide unlimited quantitative easing, lower the interest rate, buy corporate bonds and even giving direct payment grant to businesses. Basically, they injected liquidity to these unicorn companies. The government and central banks around the world intervened substantially in the free market changed the rules of economy. In other words, the economic rules which would naturally correct the situation is unable to react accordingly.

  

A good example is the 2008 global financial crisis and the recent Covid-19 global pandemic driven recession. The consequences of default and bankruptcy or winding-up were negated but INFLATION is now inevitable. Another enemy would be the economic inequality - wealth disparity.

INFLATION

Let’s talk about the scariest: INFLATION. I will leave the topic of economic inequality to the next memo. 

We all understand the basic of inflation. According to Investopedia, inflation is the rate at which the value of a currency is falling and, consequently, the general level of prices for goods and services is rising. In simple words, inflation means the price of goods and services are increasing. The same volume of food you eat costs USD2 five years ago may now cost USD2.5.

Scary, right? What scarier is the rising prices of energy and raw and building materials. At the same time, the disruption in the supplying chain cannot meet the surge in demand amid the easing of Covid-19 lockdowns. This is exactly what happen right now. When goods and service providers are faced with higher prices, they often pass those costs on to end consumers like you and me. Think about it, we all need energy utility, food and shelter in our daily life to survive. If the price in one or two of these items are rising to a irrepressible level, the value of our currency will become less and we will be paying more for less. Not to mention the wealth disparity will once again be widening.

RISK & OPPORTUNITY

My take: 1. The constantly interference of central bank and also stimulus packages grant from the government, all these actions cause a lot of liquidity in the stock market. The short-term bumpy ride may continue for a period of time and also still brace for volatility. 2. The overwhelming sales of the new Apple iPhone 13 worldwide, especially in Asia countries, shows sign of growth amid the pandemic. Hundreds of photographs showed people are crazy about new iPhone and even rushed to get one or to queued to be the first owner. They gave us an illusion that whether the economy is really in the bad shape? 3. Every crisis comes with an opportunity. If we look at each individual company, I always believe that a company with strong fundamentals and who can creates consistent earnings are the only reason you buy the shares of that company.

PORTFOLIO PERFORMANCE

Since my last Memo, I have substantially added my position in  $AAPL (Apple) as I believe in its solid fundamentals. My portfolio is strategically allocated and diversified across different business sectors and regions (US, China and Hong Kong). My portfolio performance, so far, for this month is up 4.39%. Overall, my whole portfolio currently is up at 28.31% since its inception in May 2021.

Stay safe.  

MNMLH

18.10.2021