The headline for this week investment community is still the interest rate and for me it is again to accumulate more shares at lower prices.
Just when we thought that the risk from interest rate has subsided, Mr Fed Chief came on public media and shared that with economy reopening, we could expect some inflation. Yet he gave no details of how Fed would act in such a scenario. This creates a new uncertainty to investors on whether they could count on the Fed to tame inflation.
Investors do not like uncertainty in general.
As a result, shares price of listed companies in US started to drop. Investors might have divested equities and moved to Treasury bonds to lock in higher “risk-free” yields.
High tech growth companies were especially hit as higher yields means higher discount rate and that means that their future cash flows would be discounted more heavily and worth less. Many of these companies are not even earning money today and thus their valuation is based on projected growth and eventual profitability (if and when it happens). In general, the Free Cash flow of a company has a direct bearing on its share price and in this case, the projected cash flow. No wonder their share prices plunged.
Many of the NASDAQ high tech growth companies were in deep deep red by end of this week.
Take for example, Tesla, it dropped from US$691 at the start of week to US$546 on Friday before rebounding to US$597 to close Friday session. Wild swing man! A 15% drop in a week. At US$597, it is 30% off the peak price of US$880 just a month ago. You cannot have a weak heart to invest in Tesla!
Anyway, I bought a few shares when it dropped below US$600 to average down my earlier investment. I hope the rally late in the session yesterday would continue and hopefully bring my Tesla investment to green zone next week.
There were bloodbath everywhere in every high tech stock last week! Actually, we were spoilt for choice if you have a long term view and willing to ride out all these volatilities. I wasn’t sure what to buy actually. I started with SQUARE and then moved on to NVIDIA – a few shares here a few there.
In the end, I decided to just go for ETF. I bought Ark Innovation ETF (ARKK).
This ETF is “managed” by Miss Cathie Wood who has gained quite a name for herself for the performance of ARKK last year when it was up 100%, having just UP 50% in 2019. However, since the start of Feb, ARKK has been trending downwards along with the weakness in the NASDAQ market. In fact, it performs worse than NASDAQ as it holds more risky companies in its portfolio. For example, its largest holding of 10% is Tesla.
It has dropped about 25% off its peak already. Hence, I think that was a good enough entry point for me.
As my regular readers would know, I have an index portfolio containing ETFs and Unit Trusts, which I would rarely sell/trade once I bought them. In fact, I would add to them on a monthly basis – SG, HK, US, Reits ETF/unit trusts. I see my index portfolio as the foundation source for my passive income eventually … It is not there yet but it is growing rapidly. You can see my past posts on index portfolio if interested.
From now onwards, I would be adding ARKK to my index portfolio regularly to give myself a “permanent exposure” to these high tech growth companies. If the share prices of these companies continue to decline, I would add more ARKK.
You may be interested to know that with these recent purchases of US equities, my overseas holding has increased to 26.5%, up 2% in a week !!! and bringing me ever closer to the 28% target.
One more quick update on my index portfolio – I have bought Gold ETF via SGX recently.
This is because my holding of Gold ETF has dropped below my target of 5%. If Gold continues to drop, I would buy more to balance up to 5%. I believe in having a small exposure to Gold (current target is 5%), alongside Bond, Equities and Reits.
Ok, folks, that’s all I have to share.
Hope you find it interesting and useful.
Have a great investment week ahead.