Where did all of this volatility come from? Why are so many stocks dropping so rapidly? Is it time to panic? (no, please don’t do that)
Hello everyone and welcome back to Investing with Antoaneta. In today’s blog, we’ll talk about volatility. Why it happens, how to deal with it and how to profit from it. And, of course I’ve also got your five stock ideas for the month. I just want to throw in a quick disclaimer here – this blog will be a tad longer than usual because we’ve got a lot of things to cover.
So, the Stock market is very volatile right now. The health situation is picking up speed again, travel restrictions are getting stricter, and supply chains suffer. But, here’s the thing: there’s a chance that this might not even affect the economy as badly as people believe. Economically, people might not even feel it at all. But, as we all know, the Stock Market is not a direct reflection of the economy. People speculate, try to predict and prepare.
Here’s what I think…
In the recent past, we had another very dangerous and deadly variant. It spread very quickly, and it was very dangerous. But it didn’t really slow down the economic recovery in a negative way. It continued its recovery pretty steadily. There’s lots of demand, lots of open positions and companies continue to post record earnings quarter after quarter.
But, as we have already established, people are concerned. And what happens when they’re concerned? You get volatility.
“Be fearful when others are greedy and greedy when others are fearful.”
The people who are only following the big indexes aren’t even noticing this because they don’t reflect the situation accurately.
- S&P 500 is down only 1.40% over the past month.
- Dow Jones Index is down 4.2% over the past month
- QQQ has barely even budged with 0.09%
So, the market is very volatile, but the volatility isn’t hitting big indexes and big tech. We’re looking at a situation similar to what we had back in 2018. It’s mostly the small-cap that’s affected by this. And this makes a lot of sense since big tech is rarely bothered by physical limitations like economic situations or supply chains. On the contrary, digital businesses flourished during the big lockdowns.
Why is this happening?
- Lockdowns create uncertainty and fear.
- People can’t really go where they want to go.
- People are less likely to spend their money.
Over the last two years, US households have “socked away” (означава “закътали“) over $1.6 trillion in excess savings. And, just for comparison, financial advisors usually tell people to hold on to 3-6 months’ worth of emergency savings.
But this isn’t a “usual” situation. What we’re seeing today is very unique. And it has caused a shift in the mentality of people. I talk a lot about self-improvement, budgeting and saving, and one of the most common problems people have is precisely this – holding onto their money. People today usually live paycheck-to-paycheck. This is also one of the things I get asked most often – how do I stop living like this? How do I become financially independent?
Well, the health crisis managed to scare most people into saving. And while I can’t honestly call that “a good thing”, it’s not entirely bad either on a personal level. Because when you’re trying to change your habits, the first step is always the most difficult. Once you’re already “in the groove”, it’s much easier to stick to your new habits.
But, hey, I’m an optimist. I always try to look for the positive things, even in overall bad situations. Coincidentally, this is also a big thing that people need to learn if they want to improve their overall situation in life.
Selling at a “loss” to dodge taxes
This is a bit off-topic, but I feel like I should mention it here because it also contributes to the volatility. Yes, I know that people do this all the time, but it’s the most obvious during periods of high volatility.
This is called tax selling. Basically, you sell an asset (or, in our case – shares) at a capital loss. This allows you to lower (or completely eliminate) the capital gain coming from other investments (shares where you’re at a plus), and you get to pay lower taxes.
Doing this while the market is very volatile contributes to the overall confusion. It can easily skew the perception of more inexperienced investors, which is why I wanted to bring it up.
Long-term investing and volatility
Now, here’s the thing. There’s a big difference between the people who sell all the time and me. I’m a long-term investor, so I don’t spend every day looking at the market. I like to do my research, buy my shares and hold them for the long term. Traders don’t look at it like that. They’re all about the small changes, and they’re always on the lookout for selling opportunities.
When I find good company, I know that I don’t really have to worry about it unless the fundamentals change. If there’s a big shift, like if the management changes or if they make some strange move, I look into it and reconsider my position. Volatility doesn’t concern me at all (except when it gives me good opportunities to add more shares for cheap, of course).
For example, Google recently dropped a bit. And that got a lot of people worked up. If you’re following the company, you probably saw at least a couple of videos of people freaking out about the whole situation. But me? I’m not worried at all. Because the fundamentals didn’t change. Visa and PayPal were also pretty volatile, but it’s the same situation, really. I see no long-term problems, so I’m not concerned at all.
This is why I always try to have enough money on hand. Because it allows me to capitalise on volatility if I see good opportunities. And, of course, I always buy and sell in increments. If there is some outstanding opportunity that I really feel like I just have to get in on, I’d even sell a bit of my other less-profitable positions. Again, this all comes with the long-term mentality. I’m not looking at the “right now”; I aim for the future.
Some people use stop loss, but since I mainly invest in big, solid companies that I’ve researched really well, I don’t feel I need to. If you’re new to investing, this could help you feel a bit more confident.
But with my strategy, I have to do this very rarely. And that’s a big part of what I like about it! Actually, I’ve got an entire blog dedicated to this, and if you haven’t seen it yet, now is probably a good time to check it out. I’ll leave a link for you down in the description below.
And now, let’s get to the stocks for this month. Today, I’ve got five stocks for you:
- Digital Ocean Holdings
- Walt Disney
Digital Ocean Holdings
Digital Ocean Inc. (Digital Ocean Holdings), ticker symbol DOCN is a cloud security firm based in New York. They focus on cloud infrastructure and digital business security, both of which are absolutely crucial in the global business landscape right now. The global health crisis and subsequent lockdowns made cloud computing even more important than ever, and security providers have been working around the clock to bring more innovative solutions to the table.
Now, I know that cloud security is a highly competitive field. I’m big on Amazon, Microsoft and Google’s Cloud services, and those three already account for about 60% of the world’s infrastructure. But competition also inspires innovation, and that’s precisely what Digital Ocean is going for. Big-name corporations will usually bet on one of the already established leaders in the field, but small and medium-sized businesses often look for more affordable solutions. They’d much rather go to Digital Ocean than bother with Amazon or Google.
- Current Price: $84.04
- Market Cap: 8,931B
- EPS: -0.28
Why I like Digital Ocean Holding
Digital Ocean is targeted at small and medium-sized developers and service providers looking to provide cloud solutions to their own clients. On top of the standard package of virtual servers, preconfigured software solutions, storage and database management, they also offer custom-tailored advanced functionality options, excellent transparency and predictable pricing plans. Or, in other words, exactly what a humble digital solutions provider is looking for. And, finally, Digital Ocean has a lot of room for growth. Management expects their addressable market to reach 115.5 billion dollars by 2024, which would make it around three times larger than what it was when the company first IPO’d.
For the third quarter for 2021, Digital Ocean scored a revenue growth of 37% year-over-year, up from their 25% average in 2019 and 2020. Currently, they’re sitting at a 116% dollar retention rate. Gross margins also increased significantly, and management is now focused on scaling the business even further.
Yancey Spruill, Digital Ocean’s current CEO, came on board after the co-founders stepped down in 2018. Before Digital Ocean, he was part of SendGrid, an email marketing company acquired by Twilio in 2018. He has a considerable financial stake in DigitalOcean’s success from performance-based equity compensation. Spruill has a 92% employee approval, and the company is currently sitting at 4.5 stars on Glassdoor.
All in all an excellent company and one that I’ll definitely be following closely.
Coca-Cola Hellenic Bottling Company
The Coca-Cola Hellenic Bottling Company (LON: CCH) is the third-largest Coca-Cola bottle provider globally (and the largest in Europe). It’s an absolutely massive company, with deliveries ranging in the billions. In addition to Coke, CCH also licences products like Fanta, Costa Coffee and Monster Energy.
Note -the stock is primarily traded on the London Stock Exchange and the Athens Stock Exchange. Currently, Coca-Cola HBC operates in 29 countries across the globe.
This company is a tad different from my other suggestions for this month, but this does little to protect it from volatility. Unlike the digital businesses that we usually discuss, Coca-Cola HBC is vulnerable to travel restrictions, supply chain disruptions and quarantine regulations. After all, it’s not like physical goods are going to produce and move themselves. Not yet, at least. One day automation might be able to handle the entire process, but we’re not there just yet.
- Current Price: $2396
- Market Cap: 8,766B
- PE Ratio: 19.50
- EPS: 122.90
Why I like it
Personally, I see CCH as a way to add more reliable growth to my portfolio. I’m all about diversification and long-term stability, and this company gives me both. They’ve been in business for ages, they’re an industry leader, and the forecasts are fairly positive, and CCH’s earnings are expected to grow by 27% over the next few years.
Zscaler Incorporated (ticker symbol ZS) is an American cloud-based information security provider. Like most tech companies, they managed to remain largely unaffected by the lockdown’s negative effects. Instead, they continued growing. When you’ve got so many people working remotely, the demand for secure cloud computing goes up. We’ve already discussed Zscaler in a couple of previous blogs (in case you missed them, I’ll drop the links down in the description for you), so I’ll keep it brief here.
- Current Price: $313.35
- Market Cap: 43.886B
- EPS: -2.17
Long story short, Zscaler is positioned very well within the market. Depending on how the health situation develops, they could be looking at yet another good growth spurt. However, even if we don’t get new lockdowns or restrictions, the demand for cloud security isn’t going away anytime soon. At least not until some incredible new tech comes around and reshapes the entire digital world.
I remain very optimistic about the company, and I’ll continue looking for opportunities to add more Zscaler stock to my portfolio.
Walt Disney Co (ticker symbol DIS) is a company that I don’t think needs an introduction. They’ve been around for nearly a century now and managed to grow from a humble animation studio to a multi-billion dollar international entertainment provider. Walt Disney owns the rights to hundreds of highly profitable IPs (intellectual properties), entertainment parks.
After peaking at over $200 per share, Disney has been steadily dropping in price over the last couple of months. Of course, this doesn’t mean that I’m selling. Quite the contrary – I’m actively looking for good opportunities to add more DIS stock to my portfolio.
- Current Price: $146.22
- Market Cap: 265.778B
- PE Ratio: 133.66
- EPS: 1.09
Why I like Walt Disney
Because I believe that Disney will get back to that peak and even surpass it in the future. The lockdowns had a significant impact on the entertainment park side of the business, and with a new potential crisis on the horizon, it makes perfect sense for the price to dip again. Disney+ also took a hit due to a content drought. They added almost nothing new to the streaming platform and got only 2 million new subscribers. But, if you really think about it, that’s pretty impressive on its own.
Currently, Disney+ is sitting at 118.1 million subscribers, up by 60% from last year. And they managed that during a pretty rough period with very little new content. This makes me very optimistic for the future of the service, especially with all of the new stuff that’s planned to come out soon.
All in all, I’m a big believer in the future of Disney. I’m holding onto my shares and waiting for good opportunities to add more Disney stock.
DocuSign – DOCU
DocuSign, ticker symbol DOCU, is the world-leading e-signature provider. And, as a business leader, I’m going to just tell you right now that electronic signatures are a big deal. Think paperwork, sales orders, registrations, purchases and transactions, legal contracts. And I’m just barely scratching the surface, really. All in all, electronic signatures save time, effort, resources while also making everything a lot more convenient and efficient.
That’s precisely why DocuSign is sitting at a massive customer base (1.11 million) and an incredible market opportunity (nearly $50 billion).
But that’s not all. On top of e-signatures, DocuSign also provides its clients with a ton of additional functionality like contract lifecycle management, professional analytics, notary and more. All of these things can save tremendous amounts of time (and effort) for a manager.
Full disclosure here, I don’t actually own any DocuSign stock at the moment. I’ve had my eye on this company for some time now, and I’m waiting for a good opportunity to add some shares to my portfolio. And it seems like that moment is almost here.
- Current Price: $135.09
- Market Cap: 26.575B
- EPS: -0.58
Like most other digital service providers, DocuSign was able to benefit from the lockdowns. They enjoyed steady revenue growth, essentially doubling their business in just two years.
Revenue went from 700 million to 1.5 billion in two years, and they’re currently looking at a 121% net dollar retention rate.
The company was valued very highly until recently, and a big drop was expected. But what happened wasn’t a drop; it was pretty much a crash. Back in September, DocuSign hit its all-time peak of $315 per share. Then it started dropping, and it didn’t stop until it reached $135 on December 3. Keep in mind that DocuSign hasn’t traded for $133 for more than a year now.
The reports and the “return to normal”, that’s what. DocuSign reported that
- Customers are returning to normalised buying patterns thanks to vaccination.
- Revenue growth is slowing (forecasted revenue is sitting at $557 – $563 million)
- Billings growth is slowing (forecasted billing growth is 28%)
And, if you ask me, this drop off was mainly due to the high valuation. When investors see rich valuations, they go into it expecting significant growth. If the CEO comes out and tells them that it’s not happening, many investors are going to sell out their positions. Which is precisely what we’re seeing right now.
Personally, I see this as a potential buying window. The share price will likely keep dropping for a bit until it plateaus, but I am reasonably confident that there’s a bright future for this company. They’re still an industry leader, and e-signatures aren’t going anywhere. So, I’ll keep a close eye on the situation and see if I can’t grab some Docusigns for cheap.
Don’t let the negativity get to you. There will always be volatility. Stocks will always move up and down. These things are entirely out of your control. As long as you do your research and you’re smart with your strategy, you’ll be able to make the market work for you. Check out also my previous blogs such as “Why did Cathie Wood Sell some of her Shares?”.
Remember – you don’t have to invest in the stocks I’m listing here. This isn’t financial advice. I’m just giving you examples from my portfolio and showing you why I personally like them.
If you enjoyed this blog, please don’t forget to to comment and share it with your friends. I really appreciate it.
If you want more of the same, check out our Private Investing Group. We’ve got a live chat group, free courses, e-books and a ton of other goodies.
And that’s all I’ve got for today.
Thank you all for being with me today and until next time!
Recommended for further reading:
- MONEY Master the Game – Tony Robbins
- The Five Rules Successful Stock Investing
- Business Secrets from the Bible – Daniel Lapin
- Intelligent Investor: The Definitive Book on Value Investing – A Book of Practical Counsel
- Smarter Investing: Simpler Decisions for Better Results
- Shares Made Simple: A beginner’s guide to the stock market