Do you remember the days, like a while back, when Apple and Tesla stocks were skyrocketing every day? I mean when the bonus shares were announced.
Almost every single day of the trading week, the stocks were in green and in double digits percentage-wise. Crazy right? The most satisfying and the best part was, you could enter the stock at any price, check back later, and realize a few percent profits on the capital you invested for. But, is that the right way you want to invest? What if the stocks plummet, even though that didn’t happen? In a nutshell, always invest for the long term in quality stocks, such as AAPL, and not the APE stocks such as AMC, coz you never know, when it plummets. You just can’t find the reason why coz the fundamentals are way off and the valuation does not exist for the stock price to match.
Anyways moving on…
Looks like nowadays (at least for the past couple of weeks), all the market movers and the big guns are trailing sideways. Be it Apple, Tesla, Microsoft, or Amazon, pick any (I mean the stable big guns). In fact even the much-loved Square is down to the low 200s. But trust me, this is all part of the game.
Stocks move sideways, and when it seems forever, the gains start pouring in. Just look at the APPL stock over the past decade, it’s always been the case. But, when the stock moves, it moves really fast and hard to catch the momentum.
So, as an investor, what do you do? How can you time the entry and exit point, or should you even? You have two options here, one is to hold cash and wait for the market’s direction or two Dollar-cost averages (DCA) on your favorite stock picks. BTW, the second option is what I’ll prefer any day.
If you give me a choice to buy APPL or Microsoft every single day of my life, I will. Be it even a fraction of the shares. And even if the results are bad! I mean can the results really be bad for the above two companies?
Before we being, Why am I talking about the US Inflation here? What does it have to do with the US stocks or the stock market in general?
Recently I read this on the daily national.
If you read the above article carefully, you’ll notice that the US economy is struggling big time with inflation. Costs are surging extremely high while people are still finding their jobs.
Anyways, I’m not an economist, there are people with far more abilities than me to take care of the inflation part. The central banks will eventually jump in to make sure things are under control and get inflation under control, to prevent the 2008 financial crisis again (recession).
Let’s look at the Canadian inflation part now, and see where we stand.
Again, look at those numbers, definitely not as high as US, but still 3.4% and the highest inflation rate in nearly a decade!
Not a good sign right.
Now, look at this below.
What I mean to say here is, usually, when the inflation rates (or percentages) hit record levels, the Central banks quickly jump in controlling the money flow by raising the interest rates. There a ton of videos explaining this, so I won’t continue this further.
But, the one thing I am more interested in is, what does inflation has to do with the US or the Canadian Stock Market.
Before we answer this question, look at this –
The sudden increase in inflation is generally considered the most painful, as it takes companies several quarters to be able to pass along higher input costs to consumers.
Likewise, consumers feel the unexpected “pinch” when goods and services cost more. However, businesses and consumers eventually become acclimated to the new pricing environment. These consumers become less likely to hold cash because the value over time decreases with inflation.
So, in a nutshell, inflation is bad for the stocks and the stock markets overall. Hands down.
And this leads us to a series of questions again, so what do you do when the stock market is going nowhere or sideways for months or even years? Or even better when the stock market is in a decline? Do you Dollar-cost average (DCA), invest in other debt instruments such as Government Bonds, buy gold or silver, invest in cryptocurrencies or invest in real estate. What do you do? How do you park your money to get the best value?
While The bank interest rates are extremely low, it’s almost useless keeping money in your chequing accounts unless you want to save some bank fees by maintaining the minimum account balance. What do you do with the rest?
Here’s my simple solution to the above problem
What I genuinely feel is that companies such as Apple and Microsoft will do extremely well no matter inflation or not (coz their products are extremely good and people buy no matter what). Especially Microsoft, I just love their Q reports. The company is so well-diversified with products, services, recurring revenue and cloud.
You can bank on AAPL and Microsoft for the next 20 years easy. I can vouch for it. The list includes Amazon and Google as well. But I am not a great fan of the latter two. And forget Facebook for now, please. AMD is a much better choice to go for.
To be honest, keep it simple always, diversification helps, but not always required.
What I personally like about Apple and Microsoft is the stock charts. Simple!
Do not invest one time and fret! You’ll be bored then if the market swings. Instead, invest a chunk periodically. With Apple and Microsoft, you’ll get regular dividends too. That’s free money in your TFSA, you can withdraw or re-invest back to buy more stocks and hold for the long term.
So here’s what I would do, if I were you, again keeping it simple and neat, just keep Dollar-cost averaging into Apple and Microsoft stocks, just these two every bi-weekly, monthly or quarterly with whatever you can. Even $100 is fine. You’ll eventually grow.
And stop worrying about the price swings on a daily basis. Just remember, flat lines in the stock market are always good. When the move or the rally begins, you will have good fun, and it will happen, might not be today, or this year but it will! Do not read a lot of everyday news – such as iPhone sales in China going down, it’s useless. iPhone’s cannot be replaced and so is Microsoft’s Windows or Office subscriptions. It will not go down. Even if it does, it will eventually rise back up. Invest and enjoy, unless any major news once in a while.
Thanks for reading let me know your thoughts and comments below.
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Sagar Sridhar is a personal finance blogger from Canada. His genuine passion for personal finance coupled with his unique style of writing is what stands out. Professionally, he is a computer engineer, agile certified and has a master’s degree in Project Management. His writing has been featured or quoted in the leading Canadian publications such as Credit Canada and many other personal finance publications. While he is juggling between his day job and blogging, he is the main author on this blog and has miles to go before making the final pit stop.