I rarely write about individual stocks, so when I do, something must be up.
The reason I rarely write about individual stocks is because I think it is very, very difficult (almost impossible) to consistently pick winning individual shares. If you build a portfolio of 20 “really promising” individual shares, chances are that 10 will go up and 10 will go down. Perhaps you get lucky and 12 go up and 8 do down, but you get the point.
I think there is perhaps room for investors to hold one or two individual companies if they follow them really closely and keep an eye on their financials. It also helps if these are companies that you really like yourself.
I hold Apple in my portfolio because I follow the company closely, I keep an eye on the Apple rumour sites and I follow their financial performance as well. This is fairly time consuming, and I would suggest that the average investor (with a traditional day job) does not have time to do this properly for more than one or two companies.
As a result, I tend to advocate for people to buy funds (where you hold multiples shares all under one umbrella). This means that you are minimising the risk of any one holding going wrong and maximising your chances of making positive returns.
However, things are a little crazy right now and, as a result I find myself wanting to comment on what’s going on with some individual companies.
MarketWatch recently reported on 19 large cap stocks that are now down over 60% from their recent highs. This is serious stuff. Something must have really changed if these stocks have fallen my more than half in a short space of time? Well… yes and no.
Many of the stocks on the list are household names. Zoom, DocuSign and Netflix are some of those featured. Now, clearly these names all benefitted from the pandemic and this created what now seems to have been a temporary spike in their share price, however many of these shares are now trading at a lower level than they were before Covid struck.
Now, perhaps the market got a little over excited during the pandemic and assumed that we would all be stuck in our homes binge watching Stranger Things and hosting virtual quizzes for the rest of our lives, but surely that was never going to be the case?
It seems to me that the gains in some of these shares during the pandemic was overdone, but I do wonder if this recent sell-off has been overdone as well.
Netflix is now down 74% from its one-year high – 74%!
Yes – perhaps we are watching a bit less now than we were before Covid hit, but are you saying that we are watching less than before the pandemic. I don’t think so!
Yes – competition has increased from the likes of Disney+ and Apple TV, but does that equate to a ¾ reduction in the share price. I think not!
Look, I am not about to begin recommending that you start buying individual shares in any of these companies. Leave that to the experts. But… I think we may be looking at an interesting buying opportunity to pick up some shares at very low prices.
While I don’t tend to advocate buying individual holdings, you could gain exposure to many of the names in the MarketWatch list by buying a technology index tracker fund or something along those lines.
Fortune favours the brave and as Warren Buffet always says “Be fearful when others are greedy and greedy when others are fearful”.
Based on the above numbers, I would say that some are feeling rather fearful right now!
Perhaps it is time to get greedy?