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Quick Thought Of The Week: Scary

Brian-Hillegas-Flickr

It’s beginning to look more like Nightmare on Wall Street than Miracle on 34th Street. Something seems to have gone badly wrong with global markets as we head into the holiday season.

What has happened to all those ultra-bullish call on stocks? What has happened to those over-the-top US tax cuts that were supposed to drive share buybacks to underpin the market?

What has happened to the “easy-to-win” US trade war with China that was intended to bring investments hurtling back to the US? What has happened to those FAANG stocks that some reckoned could defy gravity?

Just one word describes all that has gone over the last two years: hubris.

Hubris is a sign of extreme pride and dangerous overconfidence. It can be an indication of losing touch with reality.

Point is, once the market starts to believe that nothing can possibly go wrong, something often does go wrong.

The sixth innings

Warren Buffett was once asked about his views on the global economic recovery after the Great Financial Crisis. He used a baseball analogy. He said that we are only in the sixth inning and the sluggers are coming to bat….

…. But he also said that this doesn’t mean it’s a good time to buy stocks.

Whether markets are bullish or bearish, it is important to remember that the old rules of investing will always apply. Fundamentals will always matter.

It is important not to get carried away by the hyperbolas, the jingoisms and the tweets….

…. It doesn’t matter whether we are buying tech stocks or something from the defensive sector.

If we are buying a stock, we won’t go too far wrong if we work out the yield on the asset over the lifetime of the asset. Build into the assumptions a decent margin of safety, and our investments should deliver long-term returns to our portfolios.

Remember, it is not a stock market, as such. It is a market of stocks. As a stock picker, we should be concerned about how our particular stocks are performing rather than how the stock market is doing.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.