“We’re not selling.”
RiskHedge Chief Analyst Stephen McBride sent a special alert to his premium Disruption Investor subscribers on Friday.
In it, he updated their "blueprint” for investing through the war now raging in Eastern Europe.
If you own disruptor stocks, you’ll want to pay close attention.
Because while Stephen’s overall message is to not sell…
There’s a certain type of stock you SHOULD sell tomorrow morning, if you own it.
I’ll explain in a minute. First, let’s recap where we are…
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War, as you know, is underway in Eastern Europe.
On Thursday, Russia invaded Ukraine. On Friday, Russia continued its attack on the capital city of Kyiv—meeting greater resistance than expected.
Over the weekend, more and more countries were economically drawn into the conflict.
Per CNN:
The latest barrage of sanctions came Saturday, when the United States, the European Union, the United Kingdom, and Canada said they would expel some Russian banks from SWIFT, a global financial messaging service, and "paralyze" the assets of Russia's central bank.
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The war—and the economic response to it from powerful western nations—sent shockwaves through markets…
Russia’s currency, the ruble, has tanked to a record low. In a matter of days, it plunged as much as 40% against the US dollar. To stop the bleeding, Russia’s central bank closed the Moscow Exchange for stock trading today.
Oil, on the other hand, is soaring. Russia produces over 11% of the world’s oil. Last week, brent crude oil topped $105 a barrel for the first time since 2014.
And global stocks are on a roller coaster ride. On Thursday, the Nasdaq plunged 3%... only to finish the day up 3%. A stunning one-day reversal not seen since 2008.
On Friday, stocks were up big again. Today, US markets are down about 1.5% as I write.
Keep in mind, stocks were struggling before war broke out. The Nasdaq dropped 9% in January—it’s worst start to a year since 2009.
Add a hot war to the long list of troubles weighing on markets, and we can’t blame many investors for wanting to throw in the towel on stocks for now.
Stephen expects more volatility as emotions run high. Here’s his guidance:
This will likely be the most significant war in Europe (where I live) for decades. It’s going to take a sad toll on millions of people. As a dad who wakes up every day and just wants what’s best for his kids, it’s heartbreaking to think about all the soldiers who will die.
But you pay me for expert investment guidance. And the evidence is clear: Wars like this one tend to be great buying opportunities.
He continued:
The last five major military conflicts were Vietnam, the Gulf War, Afghanistan, Iraq, and Crimea. Markets plunged at the onset of all five.
But four of those times, markets bottomed within weeks or months, then staged multi-year rallies. On a long-term chart, these conflicts are barely blips.
The only exception was Afghanistan. That coincided with the dot-com crash, so it’s not a useful comparison.
You should expect stock prices to keep swinging around wildly for a few weeks. Don’t let the emotions or fear get to you. The worst thing you can do here is panic and sell.
(Stephen will dive deeper into this in Thursday’s RiskHedge Report, sharing clear data and analysis on the pattern stocks often follow in wartime.)
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In Disruption Investor, Stephen and his subscribers own some of the best businesses in the world…
If you own these businesses, the right move here is simple. As long as they’re firing on all cylinders, continue to own them… and consider buying more at the low prices now presenting themselves.
As a specific example, consider payment disruptor Block (SQ).
Here’s Stephen:
On Thursday after market close, Block released blowout earnings results and shared a great outlook for 2022. The stock soared as much as 30%.
Quarterly profits jumped 47% to a record $1.18 billion. More than 44 million folks now use Block’s Cash App at least once a month. Block also handled $46 billion worth of transactions last quarter, a 45% jump over the past year. That’s impressive given 2020 was also a year of massive growth.
Block shows no signs of slowing down. Block’s CFO mentioned payment volumes jumped another 35% in the first two months of 2022.
But despite its great business results, Block’s stock has struggled lately. Fellow payment disruptor Adyen (ADYEY) is in a similar situation. Stephen again:
Adyen jumped double digits when it announced earnings a few weeks back…
Adyen processed a record €300 billion worth of payments in the second half of 2021, a 72% jump over 2020. Full-year revenues also topped €1 billion for the first time ever. That was helped by a 74% spike in US revenues. That’s impressive growth in a region Adyen only recently broke into.
Here’s a disruptor that used to grow revenues by 30% per year. Now it’s accelerated growth to 50%. Yet… its stock is down 35% in the past few months on broad market weakness.
I’m showing you these examples to make an important point. The price of a stock is very different from its fundamentals.
Right now, many stock prices are falling while their businesses are hitting home runs.
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So, here’s what we recommend:
If you own a stock in this situation, don’t sell just because the stock price is down.
Instead, do this…
Take a hard look at your investments.
Don’t focus on the price. Or how much you’re up or down over the past few months.
Prices, as Stephen says, are subject to emotions, panic, and the whims of investors.
Instead, ask:
How is the business doing?
Does the war meaningfully change its outlook? Is it losing customers… not executing… bleeding cash… or most important, no longer disrupting?
If the answer to any of these is “yes,” sell it tomorrow morning.
But if it’s firing on all cylinders like Block and Adyen… and the recent stock price is the only reason you’re tempted to sell…
Don’t.
That’s it for today. If you’d like more expert guidance from Stephen, check out his most recent free presentation. In it he breaks down an investment phenomenon called the “Power Law.”
Chris Reilly
Executive Editor, RiskHedge
