WHY GROWTH STOCKS CRASHED: How to Turn Your Portfolio Around!! - YouTube

Hello Intelligent Investors, this is Victor here.

As you may already know, growth stocks have recently crashed.

Many investors who have invested in growth stocks are concerned about the US stock market

and want to know “what are the best strategies going forward.”

On Nov 4th, right before the current growth stock crash, I wrote this post for all our

members. I said: “The market is exceedingly greedy now (here is the fear & greed index),

meaning most US stocks are substantially overvalued. I think it's a good idea to wait for pullbacks,

hold more cash, and stay away from overvalued stocks going forward. The market cannot always

go up this fast. There will always be corrections, large market dips, especially when the market

is overpriced, so I think it's important to be prepared with a lot of cash. The best time

to buy in is when the market has a large correction (for example, during the peak of pandemic

in March 2020), so most stocks would become undervalued.”

The US stock market is very fearful now as represented by this Fear & Greed Index here.

This means many US stocks have become undervalued. In this video, you will learn about these

two important topics: First, why did growth stocks crash? You will

learn about the main reasons that have caused most growth stocks to crash recently.

And second, how to turn your growth stock portfolio around. You will learn about the

7 steps that will help turn your growth stock portfolio around.

If you like this video, make sure to hit the like button, subscribe and turn on the notification

button. I will continue to make many excellent stock analysis and investing videos every

week that will help you become a great investor. Also, if you like this channel and want to

support it, check out my Patreon Blog in the video description and become a Premium Member.

Our goal is to create the Best Intelligent Investor Community that will help all our

members grow their stock portfolios to over 7 figures over time. With your support, we

will be able to stay independent, hire other outstanding analysts to cover different stocks,

and create many excellent stock analysis and investing videos every week that will help

you become a great investor. The link is in the video description.

Take a look. Let’s start. So why did growth stocks crash recently?

There are several major reasons. The first main reason is that there is the

new Omicron COVID variant that was recently discovered in South Africa.

Many investors are concerned that the new Omicron COVID variant will spread to many

countries including the US, the European countries, and the Asia Pacific countries.

If the new COVID variant continues to spread, countries will close their borders. There

will be more travel restrictions, which will affect many businesses around the world.

In my opinion, I believe the market overreacted to this new Omicron COVID variant.

The second main reason is that the US Fed is planning to taper its $120 billion monthly

Quantitative Easing QE Program much faster than before because the current high inflation

rate in the US is no longer “transitory.” This means the current high inflation rate

in the US is lasting much longer than the US Fed initially expected.

For example, the US PCE inflation rate is at 5% as of October 2021. This PCE inflation

rate has been increasing every month since the pandemic started. It is much higher than

the US Fed’s average 2% target inflation rate.

In my opinion, the current high inflation rate in the US is definitely not transitory

if we look at how much energy prices, home prices, food prices, commodity prices, and

new and used car prices have increased in North America. Many companies in North America

have a hard time hiring more employees because many people are quitting their jobs to look

for other higher-paying jobs or to start their own businesses. This is another sign that

the current high inflation rate in the US is not transitory.

The US Fed is much more hawkish now. This means the US Fed is much more concerned about

fighting inflation risk instead of printing more money and maximizing employment in the

US. According to this article here:

“Fed Chairman Jerome Powell, who earlier this week said the central bank will likely

in its next meeting discuss speeding the unwind of its $120 billion-per-month government bond-buying

program.” “Powell also said the word "transitory"

was no longer appropriate to describe the current high inflation rate.”

“Stronger-than-expected elements in Friday’s U.S. employment report reinforced the view

of a more hawkish Fed and weighed on growth stocks.”

The US Fed is expected to increase its Fed Funds Rate much faster after it ends its tapering

in 2022. This means the cost of borrowing for consumers, businesses and corporations

will increase faster going forward. When interest rates increase, mortgage rates and loan rates

for consumers will increase. Business loan rates and commercial loan rates for businesses

will also increase. In my opinion, the US Fed tapering and interest

rate increases will likely have a large impact on growth stocks going forward because many

growth stocks’ underlying businesses do not have consistent cash flows yet. Many of

their businesses are still losing a lot of money every quarter. This is why growth stocks

have recently crashed. Growth stocks tend to do very well when interest rates are low.

This is why Cathie Wood’s ARK ETFs have underperformed the S&P 500 substantially this

year. Most of the companies within ARK ETFs are disruptive companies that are still losing

a lot of money every quarter. Valuation does matter especially when interest rates are

expected to increase. The 3rd main reason growth stocks have crashed

recently is that most growth stocks were substantially overvalued before.

I always use this Fear and Greed index to find out whether the US stock market is currently

overvalued meaning very greedy, fairly valued meaning neutral, or undervalued meaning very

fearful. The best time to buy stocks is when the market

is very fearful because most stocks would be undervalued. And the best time to sell

stocks is when the market is very greedy because most stocks would be overvalued.

For example, on Nov 4th when the Fear and Greed Index was very greedy, I wrote this

post for all our Patreon members explaining why I believe the US stock market was substantially

overvalued. I said: “The market is exceedingly greedy now (here is the fear & greed index),

meaning most US stocks are substantially overvalued. I think it's a good idea to wait for pullbacks,

hold more cash, and stay away from overvalued stocks going forward.”

“The market cannot always go up this fast. There will always be corrections (large market

dips) especially when the market is overpriced, so I think it's important to be prepared with

a lot of cash.” Now, most growth stocks have crashed at the

time of making this video. The lesson here is that valuation does matter.

When the market is very greedy, it is best to wait for pullbacks, hold a lot of cash,

sell some shares of overvalued stocks to have more cash, and wait for the market to become

very fearful again, so you can buy more outstanding stocks that are undervalued.

The 4th main reason is most likely sector rotation at the end of the year. Most fund

managers and hedge funds are likely rotating their investments from growth stocks to value

stocks and to other sectors such as consumer staples that would perform better when the

inflation rate is high and when interest rates start to increase.

Obviously, no one can predict what the largest fund managers and hedge funds will be doing

next or what sectors they will be investing in next.

In my opinion, it is best to have the right strategy going forward if you want to grow

your portfolio consistently over time. Let talk about the 7 steps that I believe

will help grow your stock portfolios over time.

The 1st step is to have a lot of cash when there is a large market correction, so you

can buy more outstanding stocks that are substantially undervalued.

I always say this. Cash is king during a market correction.

The stock market is always in a mood swing. One week, it can be very optimistic and greedy.

The next week, it can be very pessimistic and fearful.

As of now, if you look at this Fear & Greed index, you can see the market is very pessimistic.

Growth stocks have crashed recently. This means many growth stocks are much more undervalued

now. Warren Buffett wrote this in his 1986 Shareholder

Letter: “Our goal is more modest: we simply attempt to be fearful when others are greedy

and to be greedy only when others are fearful.” Warren Buffett also said this before: “A

market downturn doesn’t bother us. It is an opportunity to increase our ownership of

great companies with great management at good prices.”

Obviously, if you have a lot of cash now, you can start buying shares of many outstanding

businesses that have become undervalued. If you don’t have a lot of cash now, a very

good strategy is to start cutting down your monthly expenses and to “save at least 10%

of your gross income every month, so you can have more savings to invest going forward.”

For example, if you look at my main growth stock portfolio here, it is currently at $651,000

at the time of making this video. 6 months ago, when I made the first growth stock portfolio

analysis video, this portfolio was at $530,000. This portfolio has increased a lot in value

this year because I invested in many outstanding businesses including Apple, Google, Microsoft,

Nvidia, AMD and Tesla. The winners in this portfolio more than offset the losers even

during this large growth stock correction. Personally, I want to take advantage of this

large market correction. What I do is to keep saving a minimum of 10% of my monthly income

and keep buying more shares of outstanding businesses that I believe are undervalued.

I like to be greedy when others are very fearful. The 2nd step is to keep buying great stocks

gradually to build a portfolio instead of buying stocks all at once.

Buying stocks all at once, in my opinion, is a common mistake because you would run

the risk of buying stocks when their prices are too high or are near their peaks.

It makes sense to buy stocks all at once when the S&P 500 is in a large market correction,

but you have to be very good at timing the market and finding the bottom. For example,

during the peak of the pandemic in March 2020, the S&P 500 index represented by the SPY S&P

500 ETF was down as much as 32%. That was the best time to buy more stocks because most

stocks were substantially undervalued. The problem is that no one can predict where

the bottom is. This is why I believe a much better approach is to buy shares of outstanding

businesses gradually instead of buying stocks all at once.

For example, when I first started investing many years ago, I did not have $50,000 to

invest or $100,000 to invest. After graduating, I only had $5,000 to invest. I had to save

a portion of my income every month. I kept buying stocks gradually whenever I saved $1,000

to $2,000. I still follow this strategy to keep buying outstanding stocks gradually now.

The 3rd step is to build a portfolio consisting of top 20 best companies that have increasing

earnings, increasing economic moats, great cash flows and trustworthy management.

Obviously, you will have to do your research and do your extra due diligence first before

investing in any stocks or any investments. If you take the time to do your research first

and always invest in what you know meaning only invest in companies you understand the

most, you can find many outstanding businesses around you that have increasing earnings and

increasing economic moats. Personally, I believe a very good strategy

is to build a portfolio with top 20 companies that have strong fundamentals, increasing

earnings and increasing economic moats. You can have top 20 companies or top 25 companies

in your portfolio, depending on your portfolio size. I believe having the top 20 stocks in

a portfolio is optimum because it is still manageable for most people. If you have too

many stocks, let say 50 stocks in a portfolio, you will likely have a hard time following

all the latest news and being an expert in all their businesses.

For example, I currently have top 25 stocks in my growth stock portfolio here. Not all

of them are winners. The biggest losers are Alibaba and Tencent Holdings. The good thing

is that the biggest winners more than offset the losers. For example, just my gain in Alphabet

is more than enough to offset all the losers. If you build a portfolio gradually consisting

of top 20 companies that have strong fundamentals, increasing earnings and increasing economic

moats, you will eventually have a winning portfolio with many multi-bagger stocks. The

multi-bagger stocks often offset the losing stocks.

The 4th step to building a winning stock portfolio is to find outstanding businesses around you

that are likely undervalued. This is the hardest step because you will

need to do a lot of research on stocks, understand their businesses and their competitive advantages,

understand their products and services, predict their future growth prospects, and understand

their risks. If you are a value investor, you will need

to estimate each stock’s fair intrinsic value, so you will know when the stock is

overvalued, fairly valued or undervalued. If you are a long-term investor, investing

in stocks Is the same as investing in businesses. Stocks are representations of businesses.

In the long run, stock prices always move according to company earnings and business

fundamentals. In the short term, stock prices always move

up or down depending on market sentiments known as greed and fear.

Benjamin Graham said: “In the short run, the market is a voting machine. In the long

run, it is a weighing machine.” So how do you find great businesses around

you? Here are several examples.

If you look at my growth stock portfolio here. There are several big winners this year.

For example, I bought Tesla stock before the stock split and before it joined the S&P 500

index. I decided to buy back my Tesla shares last

year when I saw there were many people buying Model 3. I saw more and more people were driving

Model 3. Two months ago, I bought more Roblox shares

when the stock dropped below my fair intrinsic value of $76/share. The stock is up 55% after

Roblox released its latest earnings. I decided to buy Roblox shares because I realized Roblox

is a very popular online metaverse platform among kids under 13 years old.

If you want to find outstanding stocks, the key is to find great businesses around you

by noticing what everyone is buying and using the most every day.

For example, if you notice that everyone is using the Google search engine and watching

YouTube every day, you may find out Alphabet, the parent company of Google, is an outstanding

business with increasing earnings and a large economic moat.

Of course, you will need to do your own research on the company and do your extra due diligence

first before investing in anything. The 5th step is to stay away from stocks that

are substantially overvalued and stocks that are overhyped because overvalued stocks tend

to have larger corrections when the market crashes.

Back in 2020, most growth stocks such as Zoom, Peloton and DocuSign increased substantially

in value because the pandemic forced everyone to stay at home, to work from home, and to

work out at home. Many pandemic stocks crashed recently because their businesses are no longer

benefiting from the pandemic as much as before and because they were substantially overvalued.

Also, many growth stocks crashed recently because of their high valuations, the current

stock rotation, raising interest rates, the high inflation rate in the US, and the current

US Fed tapering that will likely accelerate. Going forward, I believe it is important to

stay away from companies that are substantially overvalued because they will be impacted the

most when there is a large correction. Companies that are still losing a lot of money

and burning a lot of cash every quarter will be impacted the most when the US Fed tapering

accelerates and when interest rates start to increase.

The 6th step is to sell the losers that are no longer outstanding businesses instead of

waiting for them to recover. I made many investing mistakes in the past.

I actually learned the most from my mistakes. For example, if you look at my main growth

stock portfolio here, you can see my biggest losers are the Chinese stocks including Alibaba

and Tencent Holdings. In my opinion, they are outstanding businesses but their valuations

have dropped substantially this year because of the current regulatory crackdowns in China,

the ongoing geopolitical issues between the US and China, and Chinese stocks’ potential

delisting going forward. I will make a video about Chinese stocks’ potential delisting

very likely next week. If you look at this realized gain and loss

history here, you can see I sold my Pinduoduo shares at a large loss and my ARK ETFs at

a large loss last week. I made the mistake of investing in Pinduoduo

stock near the peak even though I knew Pinduoduo was substantially overvalued compared with

Alibaba and JD.com. I also made the mistake of investing in ARK ETFs near the peak without

doing enough research on ARK ETFs first. I always do a lot of research on stocks, but

I was fear of missing out (FOMO) on Pinduoduo and ARK ETFs.

I had two options. The 1st option was that I could wait until

Pinduoduo and ARK ETFs to recover, but this may take them several years.

The 2nd option was that I could sell Pinduoduo and ARK ETFs at a large loss and reinvest

the capital in other US stocks that are outstanding businesses and that are undervalued.

I chose the 2nd option because I can reinvest the capital in other outstanding US companies

that I believe are undervalued especially after growth stocks have recently crashed.

The positive thing is that the winners in my portfolio more than offset the losers.

For example, just the gain from Alphabet is more than enough to offset the losers.

My plan is to keep investing in the winners that are outstanding businesses and keep buying

their shares when they become undervalued. The 7th step is to stay invested for the long

term and let your stock portfolio grow over time.

I believe it is much more important to stay invested at all times through all the market

ups and downs instead of timing the market because no one can time the market right all

the time. Another reason to invest for the long term

is that US stocks, as represented by the S&P 500 index, tend to do very well over the long

run because of the US economic growth and because of the S&P 500 companies’ earnings

growth over the long run. Warren Buffett said: “The real fortunes

in this country have been made by people who have been right about the business they invested

in, and not right about the timing of the stock market.”

If you look at my growth stock portfolio here, you will see that it has many multi-baggers,

including Apple, Adobe, Amazon, Alphabet and Microsoft. They did not become multi-baggers

overnight. They have become multi-baggers mainly because of their underlying businesses

and their increasing earnings over the long run.

Based on my experience, I find that long-term investing is much better than short-term investing

because long-term investing tends to have much lower risks. Also, if you invest in the

right businesses such as Tesla and Nvidia, these outstanding businesses tend to have

the biggest gains in the long run. Now, as always, make sure you always do your

research and do your extra due diligence first before investing in anything. Don’t invest

in anything you do not understand. If you like this video, make sure to hit the

like button, subscribe and turn on the notification button. I will continue to make many excellent

stock analysis and investing videos every week that will help you become a great investor.

Also, if you like this channel and want to support it, check out my Patreon Blog in the

video description and become a Premium Member. Our goal is to create the Best Intelligent

Investor Community that will help all our members grow their stock portfolios to over

7 figures over time. With your support, we will be able to stay independent, hire other

outstanding analysts to cover different stocks, and create many excellent stock analysis and

investing videos every week that will help you become a great investor. The link is in

the video description. Thank you for watching this video and supporting

our channel. This is Victor from the Intelligent Investor

Channel, and I will see you in the next video.