60 - Rising Tension in the Taiwan Strait
Explaining the recent tough stretch in the market
Three options for the “Gamvestor”
One China Policy
Give Me My Money Now!
Numbers that Matter
Gamvestor 👉 Investor
No way around it, the market this year has been a dog. Except if you are in oil stocks, but I’m not sure your gains in Chevron are going to make up for your losses at the pump.
If you started investing in 2020 and subscribed to the “buy the dip” strategy or you were taking your stock picking cues from Wall Street Bets and Davey Day Trader, you probably don’t know where to turn right now. And based on the action I have seen in the market I think a lot of people are taking a turn and exiting stage right, and taking what money they have left right out of the stock market.
You might be wondering, how did we get here and what’s next? I think a large contributing factor to our recent stock crash is the proliferation of the “gamvestor.” You probably have never heard of this term, it is something I made up to describe people who think that because they buy stocks that makes them an investor. When in reality they share much more similarities to a gambler, hence the term gamvestor.
If you were someone who was caught up in the craze and started buying stocks in companies that had flashy ad campaigns, charismatic CEOs, or you got a tip on a Reddit board you are not alone. It was a wild time and it seemed like every week there was a new millionaire on Reddit because they invested in some obscure medical device company or better yet AMC. But now the environment is different, interest rates are going up in an effort to fight inflation, and once red hot pandemic stocks like Peloton and Zoom are crashing harder than Biden’s approval numbers.
But now we are at a crossroads. The S&P 500 is down 16% for the year and every week your account balance is going down, what’s next. I think there are 3 options that face every gamvestor.
Option 1: Ditch the entire asset class of stocks and put all your money back in the bank where it is “safe.”
Option 2: Double down assuming that this dip is going to be the same as all of the others.
Option 3: Take this opportunity to transform from a gamvestor into an actual investor.
My recommendation would be Option 3, and if that’s where you are leaning I’m sure you are wondering how to make that transition. The answer is slowly and carefully. The reason I say slowly is that if you think of the stock market as a way to get rich quickly you are treating it as a casino. And the reason I say carefully is investing is very similar to working out. We all know a friend who when they start to workout will go really hard for a week only to end up injuring themselves and end up not going back for a couple of years.
As you begin your transition from gamvestor to investor there are 3 books that I recommend: Rich Dad Poor Dad, One Up Wall Street, and Get Rich Carefully. They are quick reads and also serve as a litmus test of your interest in the stock market. If, like my wife, you can’t read more than 5 pages without falling asleep, it is probably best to have someone else manage your money, which is not a terrible self-realization. Better have someone else manage your money than you mismanage your own money.
U.S. to Defend Taiwan?
On Monday, President Biden was at a press conference with the Prime Minister of Japan when a reporter asked him, "Are you willing to get involved militarily to defend Taiwan if it comes to that?" Biden responded, "Yes."
This sent shockwaves throughout the international community because the United States has always maintained a very ambiguous stance on its relationship with Taiwan.
If you want to dive into the nitty-gritty of it, I recommend checking out this Wikipedia page that goes into depth of the One China Policy. For those who don't and take my word for it, basically the U.S. says that the People's Republic of China (mainland China) and the Republic of China (Taiwan) are like the title say, one country. This one foot in one foot out has been going on since the 1970s.
On Thursday, Secretary of State Antony Blinken clarified the off-the-cuff statement made by the president, saying, "We do not support Taiwan independence, and we expect cross-strait differences to be resolved by peaceful means."
With an increased global interest in sovereignty post-Russia invasion of Ukraine, Taiwan has been concern number one. Taiwan is the world's leading producer of semiconductors. Because the global economy relies on these chips, many do not expect the U.S. to allow the control of this precious component to be ceded to their most prominent geopolitical foe.
Will, this result in battles of diplomacy or bullets, is yet to be seen, but there is no denying the conflict in the Taiwan Strait is definitely rising.
Give Me My Money, Now!
There is uncertainty in the market around inflation, interest rates, and a possible recession. This is causing investors to liquidate their speculative stocks and move into cash or stocks with low price to earnings multiples that pay out regular dividends.
When investing, you are usually looking for a return on investment. You want the stock in the future to be worth more than what you paid for it. Future profit or revenue growth generally causes a stock's price to increase.
BUT in a high inflation environment (what we are in now), if you are buying a company based on future profits, those future profits aren't worth as much because of inflation. If those future profits aren't as highly valued, the stock's valuation and the price go down, which is what we are seeing.
Would you rather have $1 today or in 5 years? With the money moving out of high growth tech stocks and into strong dividend companies, it sounds like everyone is saying, "give me my money, now!" (Steve Harvey stand-up reference)
Numbers that Matter
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