The Upside of a Falling Stock Market

The following is a guest post

The global stock market has experienced a rapid downturn in the last ten days. The slump has sounded alarm bells on the state of the world economy. It has also given investors in the stock market a headache, due to uncertainty. 

The situation has different effects on different investors. For example, an investor who is about or at retirement might consider risking less. However, if you are an investor that has a long way to go before retirement, a sharp recession in the stock market should not scare you away from investing.

As the more experienced investors usually advice, the worst thing an investor can do is to sell. When the market is experiencing a slump, it is the best moment for you to increase the amount of money you save.

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Recent Sell

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Another set of sales in our portfolio. A lot of stocks and ETFs in this round. The ongoing correction has been a spectacle to behold. The stock and bond markets have diverged quite a lot over the past few days. What initially appeared to be a dip which lot of investors chased is starting to look like the start of a much bigger issue. Where this market is headed is anyone’s guess. For the record, I don’t believe the media narrative that the market is falling just because of COVID-19 (and then things will return to normal once warm weather is here). There have been lots of fundamental problems and signs of excess for a while and COVID-19 was probably just the initial domino to fall.

I bought the initial dip as well when the correction started two weeks ago, but decided to reverse course and sell some of my high beta stocks & broad index funds and go to cash. Even with some of my high conviction long investments (I know…I appear crazy right now)..but with the Fed panicking (& all other central bankers hitting the panic button), I believe we will see a lot more problems before the next cycle of growth can begin. A lot of these high beta stocks were close to my cost basis (as I initiated a position in most of them in 2019), so in a negative environment, I expect pick them back up at a much lower price.

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Passive Income Update – Feb 2020

Welcome to our monthly passive income update for Feb 2020. This is part of the scorecard series where we track our dividends and other sources of passive income. We also include changes and updates related to our investments during the month – showing the overall progress.

Passive Income  Update

Passive income for the month of Feb 2020 was CAD$753.84, which comprised of US$419.20 and CAD$192.11 (exchange rate is US$1 = CAD$1.34).

The change for the month is -15.48% QoQ and 48.08% YoY. This brings our passive income to $1,586.61 YTD and achieves 15.86% of our annual goal of $10K in passive income.

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2 Recent Buys – SPGI, BAM

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A quick update on two purchases in my portfolio last week in the midst of the correction.

  • First purchase: I added to my position in S&P Global Inc (SPGI) @ $283.00. I have been building my position in SPGI slowly as the stock continues falling from its all time highs. I am still nowhere close to a full position, so I expect more purchases in SPGI if the stock keeps falling. See previous purchase here.
  • Second purchase: I added to my position in Brookfield Asset Management (BAM.A.TO) @ $83.90. Another incremental purchase as I build to what is now a full position. I believe in Bruce Flatt’s stewardship and expect continued tailwinds for Brookfield as interest rates continue falling further than where we are today — thus making an even stronger case for alternative asset managers. See previous purchases here.

What are your thoughts on these purchases. Share a comment below.

Full Disclosure: Long SPGI, BAM.A.TO. Our full list of holdings is available here.

Outlook for March 2020

The long awaited correction is finally here. What a dropdown last week witnessed. After continued strength in the bull market, we find it confusing when market gyrate so much so fast. Looking at the big picture, the move may seem fairly small, but the reality remains that the S&P500 is down 8.47% YTD, and about 12.7% from the peak. Whether this is the dip we should be buying or is this just a tremor before we continue to experience more crashes, remains to be seen.

What is interesting is that Vix has shot up over the month of Feb to 40, and central bankers are already stepping in to calm the markets down showing support and signaling further rate cuts. The bond market is already forcing the Fed’s hand in a sense, by taking the yields further down…close to 1%. Last I checked, the bond market was pricing in 4 rate cuts in 2020!!

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