My US stocks portfolio is up 101%
What did I do to achieve this return? 3 Lessons everyone should keep in mind!
There are times when the stocks go up in general. No matter the company or the sector. If companies have profits and stories to sell, they will go up!
This is when even a pan wala becomes the best stock picker.
And then there are times when companies make more money in one year than their stock price but the market keeps pushing them down.
There has to be something that is happening!
Let us find out what that is!
The background
I analyzed Pakistan Stock Exchange from 2012 to 2023 June and found four different time frames.
- 2012 - 2016. Interest rates falling, economic growth was good and general confidence was high. The stocks were the best asset class, even better than real estate.
- 2017 - 2019. Above-normal economic growth comes back to haunt us and we go into interest rates hike, managing current accounts, and major rupee depreciation. Stocks crashed!
- 2020 - 2021. COVID removed all economic discipline and we go from cautious treading to full-fledged growth mode. Stocks went up again but with a little caution.
- 2022 - 2023 to date. Again the indiscipline comes back to haunt us with high inflation and interest rates, rupee depreciation, and stocks going out of favor.
Common theme?
Interest rates!
Whenever the stocks are up (in the periods above), interest rates are either low or coming down.
See, when the interest rates are down, growth is good.
Everyone is seeing growth in their incomes and in return, they want to buy stuff, spend more, and borrow more.
All this means that companies make more money! In return, they invest more money into the country which means more money to the people through salaries.
The cycle goes on!
Unless an external force stops it.
And that external force is inflation, which brings interest rates up!
Follow interest rates to make money in the stock market!
Yes, we will go into detail as to which stocks rally the most and how to pinpoint them but generally speaking, follow interest rates to make or save money.
I should have said follow inflation but then it would have been too complicated for an average subscriber. But if you can, following the trend of inflation, you can predict where would the interest rates go. But if that is too much, I would simply suggest you follow interest rates.
If they are falling, stocks, real estate, and everything that has any risk associated with it will go up!
Why?
Simply speaking when interest rates are coming down or are down, institutions, banks, or retail investors in general won't be earning decent profit by putting their money into a bank account. They will hunt for risky assets.
And when money hunts returns, prices of risky assets start to go up.
This is completely in reverse today. Right now interest rates are high, everyone is happy with profits given by the banks or money market funds and so they are not looking to invest in the stock market.
Stock prices: Up vs Down in the last 10 years!
When the market is going up (again, follow interest rates) almost everything goes up! See this table:
Period | Theme | Stocks Up | Stocks Down | % of Up vs Down |
2012 - 2016 | Bull Market | 426 | 25 | 95% |
2017 - 2019 | Economic Issues | 99 | 342 | 29% |
2020 - 2021 | COVID Economics | 290 | 147 | 66% |
2022 -2023TD | Economic Issues Again | 93 | 360 | 21% |
In the first rally (5 straight years), 95% of the listed stocks went up.
How could you be wrong in stock picking?
This is when new investors came in and after enjoying profits, they lost the most.
These days they hate the stock market!
Whose fault is this?
In the next bull market, albeit short, 66% of the stocks went up. Investors were cautious that the bull market might not last and hence they were selectively bullish.
In both times, interest rates fell to push economic growth which as a result pushed the profits and stock prices up.
But stocks do go up even in the bear market
29% of the stocks went up even when the stock market was in bear mode. And the second time (which is what we are seeing today), 21% of the stocks are still up.
On the face of it, you might think that good stocks do rally even when the times are bad. You just have to pick the right ones.
Not so fast!
The stocks that are up today are what I call Topi stocks. See the top ten names rallying the most:
Company | Capital Gain (%) |
Pakistan International Airlines Corporation | 1837.91 |
Haseeb Waqas Sugar Mills Ltd | 370.59 |
Data Textiles Ltd | 370 |
Khairpur Sugar Mills Ltd | 345.64 |
Pak Leather Crafts Ltd | 286.85 |
MetaTech Trading Ltd | 272.16 |
J.A. Textile Mills Ltd | 254.8 |
ZIL Ltd | 240.33 |
Khyber Tobacco Company Ltd | 150.01 |
Would you have picked any one of these?
I wouldn’t have!
There is no theme, no sector-specific idea, nothing!
People that have a lot of their money stuck in these stocks are pumping them so that new buyers come and get them off their hands.
Beware of a bear market rally!
How can I say that? After all, we want to find stocks that multiply in times, right?
No!
We want to find themes first and then find stocks. And we want to be more right than wrong!
Do you see any theme or sector from the list above?
- 2 sugar mills
- 1 airline stock
- 2 textiles
- 1 leather
- 1 tobacco and
- 1 soap company
If there is one piece of advice I have for you all is to stay away from stocks that have no theme in a bear market!
You will make a loss.
What is next?
We will break down the two bull times and find common stocks and themes. In this way, we will be able to pick out the stocks that do well.
If there is a clear theme, then it means we can safely predict the next multi-beggar stocks when interest rates start to go down again!
Coming up Next Wednesday!
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