My investing muse - Wartime trading (24Feb2022)

Explosions went off in various parts of Ukraine as Putin has ordered a special military operation.

Extract from Wall Street Journal (WSJ):

Russian troops and tanks pushed into Ukraine and airstrikes hit the country’s capital and more than a dozen other cities early Thursday after President Vladimir Putin said he ordered a military operation to “demilitarize and de-Nazify Ukraine” and bring its leaders to trial. Ukrainian officials said an initial wave of strikes targeted military installations, airfields and government facilities across the country, as well as border-force installations. 

JP Morgan summary of Russia Exports

From the photo above (from Yahoo Finance) showing Russian exports as a share of global production, we can expect the price of these commodities to increase because of the current situation.  At the same time, Russia is also one of the biggest suppliers of oil and gas to Europe.  Europe is dependent on Russia for about 40% of its natural gas supplies despite the expansion of renewable energy over the past two decades. Ukraine and Russia account for 29% of the global export of wheat and Ukraine have become one of the biggest exporters of corn to China.

Beyond just the disruption of the exports from both Russia and Ukraine, this will add to the inflationary pressures on prices amidst the supply chain challenge and pandemic.  $Gold - main 2204(GCmain)$ continued to climb amidst the news with other commodities.  The stock markets are falling and thus far, the oil/energy companies are the few doing well as crude oil hit 8 year high.

S&P500 has dropped over 12% from recent high

Peter Lynch mentioned this - on average, the market will see a correction of 10% & more every 2 years and 20% & more every 6 years.  Now, the question is whether the market will drop more than 20%.  The most important organ for investing is not our mind but rather our stomach - to stomach the temporal drops in prices.  With the imminent Fed rate hike, Fed balance sheet reduction, persistent inflation, pandemic and supply chain challenges, this Ukraine tension has added much fuel to the fire.

From the current situation, it would be "difficult" for Ukraine to expect any "military" reinforcement from NATO or US.  What the US-led NATO could do was to apply economic pressure through sanctions.  Unfortunately, Russia has "prior" experience from Crimea and would be more "prepared" to face this.  In the near horizon, there would not be any "military" relief from external as US mentioned that their troops would not face Russia in battle. Russia looks determined to work this through and looks prepared should the war drag on. 

How to invest during times of war?

When investors see the price of stocks nose dive, many of us would be "tempted" to sell off the various positions we have on hand.  There would be various stocks that may see a great decline as "stop-loss" positions could be triggered as the price fell.  If we have qualified our investments through the study of the financial fundamentals and the competitive advantages, we do not need to sell in panic.  In fact, I would say that this can turn out to be a great opportunity to add to our positions should these companies be fairly priced with good discounts (margin of safety).  To take up the new position, I would prefer to follow technical: using a more prudent view using 1 Day or even 1 Week chart time frames.  These businesses with good fundamentals and competitive advantages are likely the ones that recover faster than their competition.

However for us who are uncertain, NOT INVESTING is also a great call.  

The drop in prices is currently influenced more by the macro than the individual business.  Thus, it may not be wise to sell off, especially if we can hold these for a longer time frame.  Avoid leverage and invest with prudence.  If you are losing your sleep over your investments, then you may wish to reconsider the size (amount) of your positions. 

Keep well and let us do our due diligence before we invest.

Comments

Popular posts from this blog

List of Top Dividend Stocks (updated as of 31 Dec 2021)

Websites I use for my trade setup - Part 4 of 4 (03Dec2021)

My interpretation of 10 commandments of investing management by Mohnish Pabrai