10/30 Newsletter – A Trainwreck

Amanda Greenbrier
All Posts

Week of October 30, 2022

There’s a lot going on in the markets right now. Let’s dig into some critical updates!

$META’s troubles

$META shares tumbled 24% on Thursday to its lowest level in nearly four years following an earnings report that one Wall Street analyst described as a “trainwreck.”

While Facebook’s parent, $META, focuses on making a major investment in virtual reality, its current reality is looking bleak.

In September 2021, Facebook’s market capitalization reached a high of more than $1 trillion as revenue and profits surged.

But now, $META’s stock has plunged 67% as compared to a year earlier and its market value has declined to $268 billion as of Thursday.

Questions are swirling about its gamble on the metaverse while the core Facebook business is facing challenges due to many issues with advertising. Advertisers are cutting down on spending and consumer demand is declining, leading to declining advertising revenue.

Meanwhile, the decline in $META’s stock price has had a significant impact on Mark Zuckerberg’s personal net worth, which has dropped by over $88 billion in the last 12 months.

The challenges for $META are twofold.

The user growth rate has declined rapidly in recent times as other platforms like TikTok are accumulating more and younger users.

Meanwhile, advertising revenue has fallen, giving concern to investors. As the economy slows down, advertisers are beginning to cut spending. Concurrently, $META is reeling from the impact of Apple’s iOS14 privacy changes, which has reduced the ability to track users and which $META says has cost the company over $10 billion this year.

Tech has taken a beating this year.

And if $META, which has been one of the best performing tech stocks in the past decade, is struggling, you can only imagine the pain other tech companies are in right now.

Wages Rising

Wages and prices continued to rise rapidly through the late summer, keeping the Federal Reserve on track for more rate increases in order to bring down sky high inflation.

The employment-cost index, a measure of worker wages and benefits, rose 5% in the third quarter from the same period a year before according to the Department of Labor as employers competed for workers in a tight labor market.

Despite this news, nothing changes the current landscape of inflation.

The Fed is still on track to raise interest rates by 0.75% at their meeting next week and potentially by 0.50% in December.

So what does all of this mean for you?

Let’s analyze the latest developments more closely.

Prepare, Don’t Predict

$META’s troubles and steadily rising inflation are symptoms of an overall trend of the economy slowing down.

It’s tough to make market predictions at this time…are we close to the bottom? Possibly. Will the bear market continue to extend? Possibly.

What you can do in market conditions like these is prepare.

Here’s what the team at VJ Equities does:

  1. Hold the stocks of great businesses.
  2. Sell unprofitable, cash-burning tech stocks and other speculative investments.
  3. Hold plenty of cash.

Let’s dig a little deeper into this strategy.

Hold the stocks of great businesses

Strong, cash flowing businesses may experience a drop in their stock prices, but it’s always temporary. Eventually, the market will value them appropriately.

High quality companies are in the business of compounding growth and creating wealth for their shareholders.

This means holding these stocks will never go out of style.

Sell unprofitable, cash-burning tech stocks and other speculative investments

This is straightforward.

Get rid of all your speculative stock holdings.

Unprofitable businesses get destroyed in bear markets.

Make sure you’re not gambling in the market and focus on high quality businesses instead of speculative stocks.

Hold plenty of cash

Patient investors are profitable investors.

Plus, the market can stay irrational much longer than you can stay solvent.

For this reason, in a bear market, you want to have enough cash to navigate through the storm.

And you also want to have cash on the sidelines that you can readily deploy when you identify killer opportunities in the market.

So make sure you have cash when you need it.

Hopefully, these three tips give you some guidance on what to do to navigate the troubled waters of the upcoming months.

And as always, the team at VJ Equities will be by your side to help you uncover opportunities in the market.

We’ll return soon with some more stock recommendations in the coming days. Stay tuned.

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