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#11 - We're taking a hit but never sinking

Stock Picking after Moat | Invest with Martin

What you do if it goes down more

Yet again we had a crazy week with markets going heavily up on Wednesday followed by a heavy fall Thursday.

This time it’s the FED “playing” by pumping up the interest rates by 50bp (that’s 50 basis points, or 0,5%).

As we have talked about before, they do this to battle the inflation.

When inflation is high, they need to slow down the activity of the economy, and they do that with a higher interest rate.

They are expected to keep doing this the next 4-6 months.

This happens in Europe as well.

If you started investing in the broader markets by now, and everything is in red, you have one job to do:


This is the test you need to pass.

If it goes down further, so be it. You can buy more if you dare.

Remember that the market always comes back up. No matter what happens, no matter how bad. It always comes back up again.

It can take years of course, but it can also take a few months.

It might never go further down, than it is now.

You don’t know, I don’t know, and that’s why you shouldn’t sell.

Stay in the market and ride out the storm. You will be ahead once it’s quiet again.

If you have individual stocks it’s a bit different.

Ask yourself: “Is this company I invested in, the same as before?”

When the markets are falling like they are at the moment, usually all stocks go down, also the ones that have nothing to do with what is going on.

So the company you’re invested in, might be totally fine in terms of its finances and activity.

It might also loose a lot of its business during these times. Due to supply chain issues, high inflation, or because we’re coming out of covid and our lives change.

You need to figure out if the current situation or landscape of things, did enough to chance the long-term business of the stock you invested in.

If it did, would you still buy it today?

If not, you might want to get out.

With that, let's look at the company's share price.

Buy the company at the right price - Part 1

Last time, we took a look at the earnings the company is making for us. The “earnings per share” or EPS.

Today I will open up the topic of buying the company at the right price.

It’s a bit more complex, I will have to admit, and so I might need two or even three weeks to explain this to you.

First things first, we need to establish what the share price is.

We don’t just want it to be low.

A company can trade at it’s all-time highest price and still be cheap.

It can also trade at a very “low” price compared to the last years, but still be really expensive.

Let’s look at Microsofts shareprice of the last 5 years:

You might think “oh it went from $68 to $274, it must be expensive”.

Well, we need to figure out what the business is doing behind that share price. Microsoft is making a lot of money, so that share price might perfectly represents how much money the company is making.

Since the stock market is just a place where people trade with each other, the share price of a company only represents what people are willing to pay for it.

It’s like a live, eternal auction house. What people are actually paying for, whether they know it or not, is the expected earnings or growth of the company in the future.

That’s one of the reasons why the Tesla stock have been going up so much; people expect A LOT of their sales and future growth.

It's also why Netflix, Meta or Lyft went down so much. They showed small signs of slower or negative growth, and because so much where expected of them, they went down a lot.

So - the share price is a barometer of sorts. It not the temperature of the current market.

You should never look at the share price, no matter how far down it went, and think "oh it must be cheap, I'm buying".

You risk ending up with a really expensive company, that is doing really bad behind the scenes. And like we talked about, we need to look behind the scenes. What we need to calculate, is the company's intrinsic value. Or in other words, what is the core business of the company, actually worth.

This can be calculated in many ways, according to what investment-religion you're part of. Next time we will look at some of them. I like to calculate it in more ways than one, so I have comparisons of different calculations.

Different intrinsic values.

For now have a wonderful Sunday, a great week, and then I will see you next time. Same place, same time.

Good luck out there in the markets ;)

Stay awesome 💸

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