The Magazine for Asian Investors
“The stock is not the company. And the company is not the stock.”– Jeff Bezos
With these words, Amazon founder Jeff Bezos explained why his company survived the dot.com crash. What did he mean by that? While the share price was collapsing, the company was flourishing and the internal company figures indicated a very healthy company. Amazon’s stock fell from $100 to $6, opening up one of the greatest opportunities ever for investors. Today, the price per share is over $3,330.
These are the most promising investments when shares of profitable companies can be bought at a cheap price. The markets do sometimes offer these asymmetric opportunities where asymmetric profits can be made.
Stocks can sometimes seem strange especially when stocks of healthy companies are beaten down due to market sentiment or macro news related to the industry. Sometimes, after a bull run, there can simply be an outright sell-off. Patient investors can grab bargains once the carnage is over and wait for the stock price to rise again.
Therefore, our tip for 2022 is: Beat down stocks of profitable companies.
Gold stocks could offer those opportunities right now. After the high of 2020, a huge sell-off in gold stocks followed. This has led to the fact that exactly this opportunity is now there. At a gold price of $1,800, gold producers are more than in good shape and can generate a lot of free cash flow. In addition, they are cheap thanks to the sell-off in 2021. Another aspect is that big names like Barrick Gold or Kinross Gold are cheap to buy, so you don’t have to take very big risks as with small exploration companies that don’t have any gold yet.
What factors are causing gold stocks to rise? Above all, rising gold prices are causing the shares to skyrocket. Going into the year 2022, the macro factors for rising gold prices are still given. Negative real interest rates, high government debt and deficits, and never-ending QE measures are all arguments for a rising gold price. Will QE not end in 2022? Yes, the Fed has already tried in 2019 and this attempt was so successful that the next QE injection was needed immediately. Will Fed Chair Powell do the Volcker? The U.S. government has little interest in an interest rate increase to 20% because the probability increases that if interest rates rise too high the U.S. can no longer pay its debts. Moreover, thanks to its dual mandate, the Fed cannot risk the labor market figures.
If an interesting stock has been found, the next step is still to investigate. The finances of the company, news of the company, and insider buying or selling are all factors that must be taken into account. In the end, of course, the price plays a big role. Stock markets have been running from one high to the next in 2021, making the likelihood of an imminent downturn high. Market sentiment is also important because the potential is best when healthy companies that are down after a crash are available to buy.
Patience and to strike when the right moment has arrived remains also in 2022.