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Author: williekeng   |   Latest post: Thu, 18 Aug 2022, 12:00 PM

 

Is It Too Early (or Late) to Buy US Stocks in 2022?

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Note: I want to let you know this sponsored article is a collaboration with Tiger Brokers. Whatever I write here is my own views and opinions, based on my research.

It's over two years since COVID hit. And just buying the S&P 500 index would have gained 66% over the last two years since the COVID crash in March 2020.

Not too bad.

But year to date, the US stock market is returning all that gains:

  • S&P 500 is down 16.7%
  • NASDAQ is down 26.5%

What an absolute slaughter.
What's more, I'm reading scary macro headlines almost every other day… it's scary. You've inflation hitting all time high...

Credit: CNBC

Then, behind the scenes, you got the Fed raising interest rates

(updated: Fed pushed rates by 0.5% — biggest hike in 20 years).

Credit: The New York Times

Finally, you've the ongoing war in Ukraine. It seems like the bad news never ends.

And the question comes: is it still too early to buy US stocks in 2022?

Why buy US stocks now?

You already got your Singapore banks.

You picked up some Singapore REITs.

Then the STI continued to go up.

Credit: Singapore Exchange Website (as at 26 May 2022)

What next — buy the dip?

Actually, as I updated this article US stocks continued to fall. What next — buy the dip?

In fact, some of the biggest, profitable stocks have fallen - PayPal, Starbucks, Amazon and Meta Platforms.

These are popular names that have produced huge free cash flow and are highly profitable over the last 10 years.

Credit: Yahoo! Finance

These are what I like to call "capital-efficient" businesses — producing huge free cash flow from the little capital they employ.

This also allows these companies to grow year after year.

And what's interesting, since the 1980s, profit margins have grown massively because of improved technology and less capital-intensive companies in the S&P 500.

Credit: Goldman Sachs Research

That got me thinking - if I'm looking for capital gains to support my dividends, you got to look out of Singapore.

The US stock market is still the deepest and biggest stock exchange in the world.

And some of the best businesses in the world come from the U.S.

These are also some of the more innovative companies.

It's important not just to diversify across sectors, but also across different countries. If one market doesn't do well, the other can always compensate it.

Do I think it's too late to get into US stocks?

Stocks often move in big cycles. And they often last much longer than you think.

In fact, there are three distinct, big bull cycles since World War II (each of these cycles interrupted briefly by shorter, "mini" bear cycles).

For instance, you've the 1945 – 1968 post-war boom. Then you've got the 1982-2000 "deregulation and reform" bull run. Both bull runs have lasted about two decades.

And more recently, you've the QE + post-global financial crisis recovery bull run (only to have been punctuated by the recent COVID outbreak).

Credit: Goldman Sachs Research

If you ask me, in the grand scheme of things, we're not at the early stage of a bull run. Perhaps somewhere in the middle of it.

So, no, it's not too late.

Why there's never a better time to buy US stocks

And what I'll say is this: "time in the market is more important than timing in the market."

You see, if you'd invested $10,000 in stocks between 2001 and 2020, stocks would have returned you US$42,231 if you'd stayed invested through the entire period.

Credit: J.P. Morgan Asset Management Research

Your returns would have halved if you tried to time the market and missed the 10 best days of stock performance.

How about missing just 20 days? Your returns would have gone just merely 0.69%.

Main point: just invested and don't worry too much about "timing the market".

What if I'm wrong?

What if I'm really too early. I buy stocks now and the market keeps dropping.

Then what?

Charlie Munger says: "that selling for market-timing purposes actually gives you two ways to be wrong: the decline may or may not occur, and if it does, you'll have to figure out when the time is right to go back in."

In my opinion, it's way easier to buy and keep.

If the market really goes down, I just buy more of what I like. That's it.

As long what I'm buying are great businesses with a durable competitive advantage, I'm not worried.

I pace out my purchases and make sure I don't buy everything at one go.

What's more important is to ride through market corrections.

Over the past years, the market bear cycles are getting shorter and shorter.

Credit: First Trust Advisors, Morningstar.com

Even if you bought at the wrong time, history shows that market recovers and goes back up over time. The big thing that separates other investors is to have patience to hold through.

Sure, there could be a series of market corrections here and there. But honestly, who knows?

If you ask me, I find it's hard to call a big correction.

Since last year, the stock market has already "priced in" rising inflation, Fed increasing interest rates and the ongoing war in Ukraine.

The stock market drops but it recovers over time.

What's more, economies are opening up, travel is starting soon and the US economy just reported that they have hit one of the lowest unemployment rates in history.

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My final thoughts

The stock market is a giant bag of emotions — markets will go up, markets will go down.

I admit, I could be wrong about marketing timing in the short-term (who can truly predict anyway?). And what's important is to get started investing.

Long-term, I'm still optimistic about the US stock market's bull cycle. That's because I see how some of the best businesses in the US are benefitting from a re-opening up in economies across the world.

At the same time, these companies are also riding on technology and innovation.

While rising inflation, rates hike and the war in Ukraine could pose some volatility every now and then, I'm not too bothered.

What's more crucial is accumulating great businesses with a giant competitive advantage.

Note: I want to let you know this sponsored article is a collaboration with Tiger Brokers. Whatever I write here is my own views and opinions, based on my research.

Sometimes, investing can be simple.

Willie Keng, CFA

Founder, Dividend Titan

The post Is It Too Early (or Late) to Buy US Stocks in 2022? appeared first on Dividend Titan.

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