Far East Capital Newsletter
Expectations are being brought back to earth
4 Jul 2022

In This Issue

Expectations are being brought back to earth

The Dow Jones Index has had the worst six month period for many decades. Those of you who invested in the ASX mining sector have seen many falls greater than 50% in the last six months, so the fantasy that began in May 2020, with the rise from the post-pandemic low, is well and truely over. You can blame the Ukraine War, the supply shortages, energy prices, inflation, interested rates and Chinese lockdowns, but whatever the reasons, it was always going to happen. That is how markets work, going from excesses to the extremes at the other end of the cycle.

For the first time in many many months I can look around and see quite a range of companies that I believe offer good fundamental opportunities. It is a great time to buy but don't expect instant gratification. There could be further falls but on a balance of probabilities, and the passage of time, now is the time to to be doing some bottom fishing.

Don't assume that stocks that have fallen most heavily will be the best buys. Those stocks that were grossly over- bloated on irrational thematics and rambunctious hyperbole are unlikely to fool investors again as we wake up to the knowledge that the emperors are not wearing clothes. The punters that bought them were purely gambling on the greater fool theory. Now is the time when these companies become exposed for what they are.

When the market collapses almost everything falls, even the good stocks. You can build a portfolio of quality companies now and become more of a fundamental investor, but we know what will eventually happen. When the market recovers most people will move out of these stocks into the more speculative ones that inevitably offer better performance, albeit at greater risk ... and the next cycle unfolds. 

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