Hi Reader,

Welcome to the 5th edition of the Stockstartr newsletter. In today's edition, you'll learn to be greedy when others are fearful and why financial news is likely not doing you any good in the short term.

Fundamental

Be Greedy when others are Fearful

<InserMost stock market participants follow the latest hype. They speculate that a company or industry will continue to grow rapidly. Unfortunately for them, the game of musical chairs will stop. And those who didn't sell on time will find themselves with massive losses.

Investor Warren Buffett instructed everyone who wants to listen to be fearful when others are greedy and greedy when others are fearful.

Instead of being a greedy market participant at the heights of the markets, let us be greedy when the market is near its lowest. Every week, more news about the industry turns negative. And the industry goes from bad to worse. Bankruptcies happen, and every investor becomes scared.

These are opportune moments to purchase stock within this industry. Under one condition: you know or at least expect the market conditions to improve.

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Which companies should you buy? With the bankruptcies happening, it isn't such a sure thing. Luckily for us, there will always be survivors.

The survivors are the strongest companies. Before the downturn, they had high profit margins, a significant market share, low to no debt, and great cash flows.

The stock prices within the industry are beaten down. Thus, some strong companies are offered bargain prices. How great is that? A discount with a decent upside potential when the market conditions improve.

As an investor, you have to treat carefully with the above approach. The key is future improvements in market conditions. You must be confident that it is temporary and that demand for the product will pick up after the dust settles.

Many technologies, once the new and hot thing, have made way for innovations. Streaming platform Netflix replaced VHS and DVD rental stores. Other production companies quickly followed suit to adapt and survive.

On the other hand, only some industries' downturn means immediate replacement. The housing market went down during COVID. Some building companies went into bankruptcy. Now we know that the housing market went up again. As long as the population grows, the housing market will continue to flourish as a whole.

Glossary

Sector

A sector is an economic area in which businesses have similar products, services, or business activity. The American economy is divided into 11 sectors, representing large groups of companies. Every industry is divided into industries. The 11 sectors are:

• Energy: industries related to fossil fuels.
• Materials: involvement around mining, forestry, paper, and chemicals.
• Industrials: a wide variety of construction, heavy equipment, and professional services.
• Consumer Discretionary: everything around durable consumer products like cars, clothes, and household appliances.
• Consumer Staples: everyday consumer needs like food, drinks, and medicine.
• Health Care: companies developing medicine, equipment, and services.
• Financials: industries related to banking, stock brokering, and insurance.
• Information Technology: a broad sector covering every technology like software, hardware, and components.
• Communication Services: industries related to media, entertainment, and cell phone and internet services.
• Utilities: providers of gas, water, and electricity.
• Real Estate: covering real estate managers & developers, as well as investment trusts.

Practical

The Annual Report's Table of Contents

The American annual report (10-K) contains 4 parts divided into 15 items, a standard the SEC maintains. Companies are free to include the shareholder's letter written by the CEO. This letter provides an outlook into the future and often a retrospect. Every shareholder's letter provides different information as the CEO decides what is essential to convey to its shareholders.

The parts we discuss are a quick summary so you can find your way around the annual report. The items we discuss, however, are helpful to grasp the company.

Part 1 is related to business operations, properties, and legal issues. The first item describes the company's business. What is it, in which markets does it operate, what is its strategy, competition, and more?

The second item discloses significant company-owned physical assets. A restaurant chain will disclose the many restaurants it owns and where they are located. Further, it communicates which locations are closed and will open soon.

Item 3 is the legal items. Any significant pending lawsuits are reported here.

The second part reports the company's financials, with item 7 providing the management's discussion & analysis of the financial conditions. Some managers decide to discuss extensively, while others provide the bare minimum. In general, the analysis compares the current and prior periods, giving the reader an overview of the operational issues.

Item 8 provides the financial statements. This item starts with the independent auditor's report, followed by the 3 most read pages of the whole report: the balance sheet, cash flow statement, and income statement. The auditor's report provides the going concern opinion of the external accountant checking the validity of the books.

Part 3 concerns any information related to the executives. Disclosure of compensation, ownership, board members, and more. It is typical for these items to refer to a proxy statement.

Part 4 provides notes and signatures for the report's validity.

Principle

Financial News isn't here to benefit you

Financial news is more accessible now than ever, with quick updates directly in your inbox or through notifications on your phone. It seems incredible to have the information at your fingertips. However, from an investor's perspective, it is more a curse than a blessing.

Reading the news and knowing what happens all around us isn't necessarily bad. It is that speculators and inexperienced investors will act on the news. They purchase or sell their portfolio with all the consequences that follow. It isn't investing.

The media sells fear and creates the reaction to act. What most news articles cause the stock or market as a whole to move is often forgotten the next day. It returns to its original state. It happens frequently when the article causes a reaction in the opposite direction of the general market trend.

Don't you believe it? Follow the financial news for a week and see the stock price reactions on the day of reporting and the following days after.

When you have been active for many years, you must have noticed that similar events are interpreted as the complete opposite, based on the market trend.

For example:

• Banks make a $3B profit: business conditions are favorable - stocks rally.
• Banks lose $3B: bad news is out of the way - stocks rally.

or

• Oil prices spike: growing global economy contributes to demand - stocks rally
• Oil prices drop: more purchasing power for the consumer - stocks rally.

This happens the same way in economic downturns, but then stocks have sell-offs, of course. Every piece of information is bad for the stock price.

What you can do: follow the financial news to get a general feeling for the market. You'll get the feeling when everyone is greedy or fearful, so you know how to act.

You don't need the articles directly pushed to you to get the general feeling. Famous investors from the past understood this and read the newspaper a day or 2 later. It is an excellent safeguard against being influenced by emotion.

You can create a similar environment. Read the news only after the stock market closes or subscribe to a digital newspaper (Financial Times or Wall Street Journal). It is a curated list of the most important articles, and the great thing is that it is only available the next day.

Thanks for reading Stockstartr. For questions, suggestions, or feedback, please reply to this email. We will gladly take the time to listen to you. Please ask your friends and colleagues to sign up.

No investing advice is given at any moment. The newsletter is purely for informative purposes only.​
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