Stop investing based on hope (05Mar2022)

When we invest, the common goal should be that of profit.  Our personality, values & understanding play a part in how we invest.  

More often than not, my emotions let me down as the voices of FOMO (fear of missing out) and YOLO (you only live once) crowded out rationality and discipline.  I have learnt through personal failings that successful investing has more to do with discipline than emotions.  Irrationality seeps in as we ponder what we could miss. Of course, there would be cases where these "gut" decisions were correct.  For me, I have more misses than hits.

The other element of investing lies in the "selling of hope".  Some stocks created great anticipation leading to their listing.  Thus, it is not surprising to find these stocks being oversubscribed and their listing will be burning bright for the initial days.  Rivian arrived with much aplomb with funding from Ford and Amazon.  Amazon has placed an order of 100,000 units for their commercial fleet.  This was touted to be the one that will challenge Tesla and other automakers.  Rivian went on to record a high of $179.47.  This hope did not last as long, it was in a downward decline since Nov 2021.  

From a record high of $179.47, $RIVN currently lies at $47.39


From the IPO price of $15, Grab has fallen to $3.36 following their recent dismal earnings

Similarly, the same was to be said about Grab which arrived with much fanfare following investments from Softbank, Uber and Singapore's sovereign wealth funds Temasek. 

Investors poured their capital into Rivian and Grab - believing in their mission, vision and the product/services they deliver.  With Grab taking over Uber's business in Singapore, much expectation and hope were rendered.

The following were extracted from local news about their "Hope" for 2022:

Grab said it expects the following for the first quarter of 2022:
    • Deliveries GMV to be between US$2.4 billion to US$2.5 billion (Q4 of 2021 hit a record high of US$2.4 billion)
    • Mobility GMV to be between US$750 million to US$800 million (Q4 of 2021 was US$765 million)
    • Financial Services Pre-Inter Co Total Payments Volume to be between US$3.1 billion to US$3.2 billion (Q4 of 2021 was US$3.4 billion)
    • Grab also expects GMV growth for each of the subsequent quarters in 2022 to accelerate to 30 to 35 per cent year-on-year, subject to shifts relating to the Covid-19 pandemic.

The management shared about their "hope of revenue growth from Grab's businesses in deliveries and financial services".  

Learnings

With Fed increasing the interest rate, investors are rotating out from "stocks with the promise of high growth" to stocks of valueInvestments should not be purchased on the basis of hope but on results.  Being prudent, I will need to see profitability and strong financial fundamentals before I can consider adding these stocks to my watchlist.  This is one reason that I am sceptical of IPO, especially for many retail investors seeking to make a quick buck after initial listing.  

There is a chance of me "missing out" on great profits should the price surge during my wait. In the case of GRAB, the risk-reward tells me that I can stand to lose more with these businesses.  I do not need to buy every profitable business, I only need to buy those that I understandI do not have the funds nor can afford the resources to be updated from such diversification of portfolio too.

Warren Buffett once said, “The first rule of investment is don't lose [money]. And the second rule of investment is don't forget the first rule.

My confidence and conviction are born out of established growth and good financial fundamentals, not empty promises.  There is also a chance of the price dipping further if they fail to meet the earnings estimates or offer a weaker than expected guidance.

In conclusion, let us buy what we understand. Let us research before we invest.  Let us wait for these companies to get out of the red before we start considering them for our portfolio.

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