Where do you learn about investing?
If you like rollercoasters, especially those with plenty of ups and downs and the occasional big drop, the stock markets performance this past week should be right up your alley. Lots of ups and downs throughout the week, with a steep plunge to end this week’s thrill ride.
After two strong years of growth and all-time highs in numerous stocks and the four major North American stock exchanges (Toronto Stock Exchange Composite Index (TSX), the S&P 500 Index (S&P), the Dow Jones Industrial Average (DJIA), and the Nasdaq Composite Index (Nasdaq)), 2022 has given it all back. All three of my Portfolios are down, ranging from 10% to 40%. It is not fun to see the Portfolios shrinking on a weekly basis. It was much more enjoyable in 2020 and 2021 when growth stocks were all the rage. You could hardly pick a bad technology company. Each morning I would check to see how the markets were doing and more often than not, the markets were up. More importantly, the share prices of the companies I owned were climbing higher. Selecting companies was fun and investing was easy. Life was good. 😊
Well, at the start of 2022 the Stock Market gods decided it was time to see who was serious about investing and could take the bad with the good. The fun and easy part of investing that was so plentiful previously has disappeared. I’ve noticed several people on Twitter (NYSE:TWTR) who had been tweeting daily about how well they were doing have gone silent. Of course, they may have abandoned Titter but more likely they are experiencing the ‘hard’ part of investing – the losses. A silver lining of the market correction has been finding out which Twitter accounts are worth following because those that are still tweeting regularly share their experiences and help you make sense of the market. For me, the net result has been that Twitter has become a much more informative resource.
Definitely more luck than brilliant foresight, in 2020 I created my own process for evaluating companies thanks to both Motley Fool Canada and Motley Fool USA presenters. In 2021, I was able to tweak it further thanks to numerous resources including Motley Fool, Twitter, and numerous investing books (for a list of these resources, click here). By running companies through my process before investing and having the mindset that I will become an owner of every company I invest in, I am much more confident that these companies will come through this market correction and be fine. More importantly, despite the current pain, the Portfolios will be start growing again once the correction is over. That being said, I am sure some companies will take longer than others to recover the lost ground and some may not recover.
While I wait for this current downturn to run its course before the markets resume their historic upward march, I am focusing on learning more about investing and how to identify the companies I want own. This correction has brought to light some weaknesses in my process, so I am adjusting my process accordingly. What worked great in 2020 – 2021, is not working in 2022. I am also tweaking the process to better reflect the companies I want to own.
Rather than worry about what I cannot control (the stock market), I am focused on what I can control – growing my knowledge of investing. What about you? What resources do you lean on to improve your investing knowledge and skills? What are you doing during this market correction?
Now let’s look at the roller coaster ride that was last week’s stock markets….
Weekly Market Review
Monday: Another week has gotten off to a rocky start. This time the commodity (Energy and Materials sectors) heavy TSX was able to post a gain for the third straight session. The TSX is one of the few Indexes globally that has done well in 2022 thanks to surging commodity prices.
Meanwhile in the US, the S&P, the DJIA, and the Nasdaq, all ended in the red, despite a late day rally. The S&P Energy and Materials sectors have done well, like their Canadian cousins, but the American Indexes are much more heavily weighted towards growth sectors like Technology and Consumer Cyclicals. Unfortunately, they are also the sectors most impacted by higher interest rates which eat into their future earnings.
Tuesday: A good day in the stock market with all four Indexes ending the day higher. In Canada, investors went bargain hunting in the Consumer Cyclical and Technology sectors, propelling the TSX higher. Pullbacks in the Energy and materials sectors were the only sectors not to finish in the black today.
In the US, all three Indexes had their best days in a few weeks thanks to a broad-based rally. The Energy sector was the only American sector to fall back today. Many of the S&P companies that have recently reported quarterly earnings have beat estimates causing investors push the Indexes higher.
Wednesday: A mixed bag for the Indexes with the DJIA the only Index to end the day higher. In Canada, the TSX was dragged down by the interest sensitive, high growth Technology and Consumer Cyclical sectors. The Canadian inflation rate for March came in at 6.7%, the highest in 31 years, all but confirming future interest rate hikes.
In America, the Nasdaq was the biggest loser thanks to Netflix’s (NASD:NFLX) 35% drop. While Netflix reported higher revenues for the first quarter, it also reported a surprise drop of over 200,000 of subscribers (remember, the market does not like surprises) and expected deeper losses going forward. Other streaming companies and stay at home companies got caught in the Netflix downdraft and saw their share prices fall between 5.5% and 11.3%. Netflix is a perfect example of what happens to high growth companies when they lose their growth slows down or declines. Many of these companies are part of the Nasdaq and S&P Indexes, hence their declines today.
Thursday: Anticipation of aggressive interest hikes on both sides of the border led to investors taking some money off the table, resulting all four Indexes losing ground for the day.
In the US, the US Federal Reserve indicated a .5% interest rate hike is ‘on the table’. Canada has already increased interest rates.25% and another .5% hike in April.
Friday: Fears of aggressive rate hikes hammered the markets today, knocking each Index down at least 2%. The TSX had its largest single day decline since November 2021 and closed at its lowest since March 1, 2022. Every sector on the TSX fell today.
The scene was not much better in the US as the DJIA racked up its biggest one-day loss since October 2020, an extending its weekly losing streak to four. The S&P and Nasdaq were not much better, posting their third straight weekly loss. As in Canada, every sector lost ground today. Next week the biggest American companies by market capitalization report their first quarter earnings. Let us hope there are no negative surprises from Amazon (NASD:AMZN), Apple (NASD:AAPL) , Google parent Alphabet (NASD:GOOGL) and Microsoft (NASD:MSFT) or it could be an ugly week.
For the week ended April 22, 2022, the TSX fell 3.1%, the S&P lost 2.8%, the DJIA declined 1.9% and the Nasdaq dropped 3.8%.
Weekly Portfolio Review
The fear of aggressive interest rate hikes by the Bank of Canada and the US Federal Reserve to cool off high inflation led to a very bad week for the Indexes, which in turn led to a bad week for the Portfolios. What else can I say?
Companies on the Radar
After investing in Berkshire Hathaway (NYSE:BRK.B), I have had a bit of an epiphany when it comes to the companies I am interested in. Previously I was focused on adding to large, relatively ‘safe’ companies with strong growth prospects and a bit of a dividend like Nvidia (NYSE:NVDA), Microsoft and Home Depot (NYSE:HD). I was concerned I had too few nontechnology companies that could weather the storm when growth companies were experiencing strong headwinds, such as the current high interest rate environment.
The addition of Berkshire, with its numerous leading American companies, addressed my concern of too few nontechnology companies and added a value-oriented conglomerate to diversify Portfolio 1. With that concern addressed, I am looking at increasing ownership in growth-oriented companies. I am looking at Crowdstrike (NASD:CRWD) and Cloudflare (NYSE:NET) in the cybersecurity field, and The Trade Desk (NASD:TTD) in the digital advertising industry. All have been beaten down this year, are leaders in their respective fields, and should do well once the market recovers.
The usual suspects remain on my radar but are now on periphery in the event of a major event that presents a buying opportunity.
- Microsoft
- Apple
- Home Depot
- American Tower (NYSE:AMT)
- Berkshire Hathaway
Portfolio Update
Portfolio 1
Portfolio 1 for the week ended April 22, 2022: DOWN
Rivian (NASD:RIVN) is running into major supply issues as suppliers of semiconductors elect to allocate chips to the proven customers rather than new companies like Rivian. Chip manufacturers are concerned new companies like Rivian will not be able to meet their production numbers, causing chips to go to waste, or able to pay their bills.
Tesla (NASD:TSLA) had a great first quarter earnings report, highlighted by a nearly 33% margin. Despite supply chain woes that are dogging other vehicle manufacturers, Tesla seems to be able to secure the components necessary to produce their electric vehicles. Tesla delivered more than 310,000 vehicles in the first quarter, growing revenue 81% compared to the first quarter in 2021. Not bad for a manufacturer! 😊
Activity
No significant activity to report this week.
Dividends
Dividends Received this week for the following companies:
Companies followed by DRIP (Dividend Re-Investment Plan) indicate additional shares were purchased with the dividend. Any cash leftover was added to the cash balance.
Canadian $
Automotive Properties Real Estate Investment Trust (TSX:APR.UN) DRIP
Andlauer Healthcare Group Inc. (TSX:AND)
Algonquin Power & Utilities Corp (TSX:AQN) DRIP
BCE Inc (TSX:BCE) DRIP
US $
BSR Real Estate Investment Trust (TSX:HOM.U)
Innovative Industrial Properties Inc (NYSE:IIPR)
Quarterly Reports
Tesla Inc.
All currency listed in US dollars
Selected highlights from their first quarter 2022 financial results on April 20, 2022
- Quarterly revenues of $18,756 million versus $10,389 million the previous year.
- $3.3 billion net income compared to $438 million the previous year
- Earnings per share of $2.86 compared to $.39 for the same period in the previous year.
Pulse Seismic Inc.
All currency listed in CAD dollars
Selected highlights from their first quarter 2022 financial results on April 20, 2022
- Total revenue was $1.9 million compared to $4.8 million for the three months ended March 31, 2021.
- Net loss was $2.5 million ($0.05 per share basic and diluted) compared to net earnings of $33,000 ($0.00 per share basic and diluted) in the first quarter of 2021.
- On March 31, 2022, Pulse was debt-free and held cash of $5.3 million.
- Approved a quarterly dividend of $0.0125 per share.
Portfolio 2
Portfolio 2 for the week ended April 22, 2022: DOWN
Disney (NYSE:DIS) announced Hong Kong Disneyland will reopen on April 21. Another revenue stream comes back online for the Mouse. Meanwhile, in Florida Disneyworld is about to lose its ‘special tax’ status that provided it with a great deal of autonomy. Currently, Disneyworld provides its own firefighting, power, water, and roads services in exchange for relief from state taxes and fees. I do not see a winner in this as Disney will lose its autonomy and Florida state will be responsible for all these services and any other outstanding debt on the district’s books. I am sure Disney will fight this, so the outcome is far from certain. But I am positive of one thing, the lawyers will get paid.
Microsoft and Kraft Heinz (NASD:KHC) signed a deal to help Kraft Heinz migrate to Microsoft’s Azure cloud to accelerate their digital transformation.
Activity
No significant activity to report this week.
Dividends
Dividends Received this week for the following companies:
Companies followed by DRIP (Dividend Re-Investment Plan) indicate additional shares were purchased with the dividend. Any cash leftover was added to the cash balance.
Canadian $
Dream Industrial Real Estate Investment Trust (TSX:DIR.UN) DRIP
Summit Industrial Income REIT (TSX:SMU.UN)
US $
No US$ dividends this past week.
Quarterly Reports
No quarterly reports this past week.
Portfolio 3
Portfolio 3 for the week ended April 22, 2022: DOWN
This week Shopify’s (TSX:SHOP) share price dropped over 17% on news Shopify is in talks to buy the start-up shipper Deliverr, and Amazon announced it will allow online sellers to use the Fulfillment by Amazon service on their own websites as well as on Amazon. Typically, vendors’ websites do not provide purchases and shipping from Amazon. If the website is built by Shopify, the vendor would often provide shipping through Shopify’s fulfillment network. If shoppers now have the option on how they want their order fulfilled, this could lead to lower revenues for Shopify. Finally, the overall bearish sentiment of the market (thank you Netflix) is not helping high growth technology companies like Shopify.
Activity
No significant activity to report this week.
Dividends
Dividends Received this week for the following companies:
Companies followed by DRIP (Dividend Re-Investment Plan) indicate additional shares were purchased with the dividend. Any cash leftover was added to the cash balance.
No dividends this past week.
Quarterly Reports
No quarterly reports this past week.