Nothing has change. Not really.

I’ve been seeing a lot of investors saying something like “nothing has changed except the price of the stock.” The stock of most companies are down drastically in 2022. Although to think that 2022 is same as 2021 except the stock price being down is completely missing the facts. Only if investing was that simple.

“If you’re not a little confused about what’s going on, you don’t understand it”

Charlie Munger

Today the CPI number came out at 9.1%. The expectation was 8.8 or 8.9%. So the actual was a little different than expectation and many stocks get hit by 3 or 5 or 7% drops.

2022 is not like 2021. Things have fundamentally changed. The interest rate for mortgages is higher, oil prices are high and likely to stay higher, bitcoin has come down crashing, Robinhood investors are no longer going to keep pushing stock price higher, liquidity is drying up from the market, and valuations that companies will get in 2022 is not same as what someone would have given in 2021 or 2020. These changes are real. These have real impact on economy and valuation of businesses. So saying “nothing has changed” is too naive. If you hear investors or management saying nothing has fundamentally changed, they don’t understand.

“Sector by sector, we’re seeing a varied picture of how inflation is impacting essential vs discretionary consumer spending. One notable highlight is that travel sectors such as airlines and lodging continue to show signs of strong demand.” – Mastercard (MA) Senior Advisor Steve Sadove

Anywhere you read, recession is here. Everyone believes we are already in a recession. Although Mastercard is not seeing a sign of slowdown. Typically when we get into a recession the discenionary spending is the first place we see the change in consumer behavior.

The uncertainty is high in the market. It is not clear if we are in a recession, how deep it will run, if inflation will be controlled, when it peaks, will fed be able to control inflation and get out of QE without taking down the economy.

We don’t know the answers to these questions. Anyone that says they know is lying. And anyone that says “nothing has changed except the stock price” doesn’t know what they are taking about.

Leave a Reply

%d bloggers like this: