Why now isn’t a time to be selling your holdings
6th October 2022 |
It’s easy to get caught up in a spiral of fear when markets are volatile. When you’re bombarded from all sides with news that things are looking dire, it’s easy to think… things really are dire.
But they’re not. And they won’t be. If they do get worse, it won’t be forever. And it’s in bear markets and recessions that real wealth is made.
That’s why we are optimistic about the direction of not just the wider markets but the stocks in our buy list.
Our mission here at Frontier Tech Investor is to uncover the most exciting small-cap, tech-focused stocks on the London Stock Exchange with explosive growth potential.
In markets that punish high-growth, forward-looking companies, the risk on such stocks tends to be significantly elevated.
This explains why, when you take a look at the Frontier Tech Investor buy list and see several stocks deeply in the red, your initial instinct might be to hit the Sell button and stem the bleeding.
Don’t do that.
If we believe at any stage that we should exit a position, you’ll be the first to know. For now, we’re not moving on any of our positions, and our conviction and strategy of investing in the innovators of tomorrow listed right here in the UK are unchanged.
We’re of the view that real wealth is created in volatile, fear-driven markets like these, so long as you keep investing prudently and manage your risk tolerance and strategy.
It can be hard to see how some stocks come out of a market that has seen values peel off to such a degree, so let’s look at some examples that show how you can be on a paper loss and still emerge strongly the other end.
ConocoPhillips (NYSE: COP), one of the world’s largest crude oil producers, lost 60% of its value between 17 January and 19 March 2020. It’s now trading at a 331% gain from its 19 March 2020 low.
Pharmaceutical giant Novavax (NASDAQ: NVAX) surged from $6.31 on 7 February 2020 to $290.18 around a year later, reflecting a whopping 4,498% gain.
Closer to home, the FTSE 100 faced its biggest single-day loss since 1987’s Black Monday on 12 March 2020, when it plummeted an incredible 10.87%.
However, the index returned to its pre-pandemic level on 29 December 2021, and has even flirted with all-time highs this year.
Its current valuation of 7,053GBp is still a 44% increase on its March 2020 low.
It stands to reason that companies and stock markets do recover after setbacks, and sometimes with flying colours. As one would expect, economies grow over time, with advancements in technology, population expansion and other macroeconomic and demographic factors.
So, the major companies fueling this growth will inevitably grow, too.
A closer look at the FTSE 100 over the past 20 years reflects this.
Source: Koyfin
You can see the major pullbacks during the financial crisis of 2008, and the pandemic in 2020. After this, an upward trajectory is resumed.
The current bear market pullback has already started. How long it will last is anyone’s guess. It could be months. It could be years.
Some companies won’t survive. Some will, and will see the crisis as an opportunity.
Naturally, riskier, tech-focused stocks in the Frontier Tech Investor buy list will falter as this environment endures. Given the companies’ limited earnings history and track record, investors can be expected to flock to safer stocks that have stood the test of time.
However, this is no time for panic. The stocks in our buy list make up part of a world-changing industry, are at the very heart of innovation and progression, and we believe in each of them. Here are three:
Pod Point Holdings (LSE: PODP) is one of the UK’s leading electric vehicle (EV) charging networks and is driving the transition towards EVs.
Argo Blockchain (LSE: ARB) is arguably the world’s most sustainable bitcoin miner, and owner of more than 1,000 bitcoin, which could be worth billions in the years to come.
Yellow Cake (LSE:YCA) is a hoarder of one of the most valuable ingredients – uranium oxide – in the world’s accelerating clean energy transition.
Some of our companies are showing glimpses of huge potential. We will bring these to your attention in the next couple of weeks in our top-to-tail buy list review. Stand by for that.
Of course, some aren’t performing in the way that we’d hoped, and “risk-off” sentiment is adding to their existing structural issues.
For example, Aston Martin Lagonda (LSE: AML) is navigating a difficult period, facing a £1 billion debt burden. You may recall that it has undertaken a right issue to help generate capital, backed by the Saudi Public Investment Fund (PIF). The stock is 90.06% down in the buy list.
Nevertheless, we believe the backing of the PIF will allow Aston to get back on track.
After revealing that it would have lower production volumes this year, printed circuit board (PCB) manufacturer Trackwise Designs (LSE: TWD) has been hurt by issues with one of its key EV customers. This helps to explain why it’s reflecting a 96.78% loss.
Long term, we’re confident that the market for PCBs will continue to grow as EVs seek further ways to improve efficiency. With Trackwise, more patience will be required than first expected.
Finally, Mode Global Holdings (LSE: MODE) has been in a transition period following a change of CEO earlier this year. Its trading volumes have also been affected by an evolving investor appetite for crypto assets due to the current economic backdrop. Mode is 91.25% down in the buy list.
We accept that we will lose in some instances. That’s investing, and seeking perfection will only trigger paralysis, particularly during times like these.
While a number of stocks are struggling in this market, it’s also worth looking at the sharp bounce in many others. This serves as a reminder that, when the appetite for risk comes back, and growth stocks return to favour again, the market can turn hard and fast . If you’re caught napping – or, worse, out of the market – the effect on long-term performance can be devastating.
We tend to stay in our positions because trying to time and sit out of the market ends up being the least favourable option in the long term.
And, given the tailwinds behind our stocks’ world-changing industries, our positive long-term view on them remains intact.
We expect these winners of tomorrow to offset, and exceed, the losses being borne by some of the stragglers.
If anything, we think now is an excellent opportunity to get into positions at hugely discounted levels.
Rest assured that we are still looking to bring the best stock recommendations to you at these times. As stated, we are taking a more flexible approach to introducing new stocks, and are adjusting to news flow as well as we can.
Please ensure that you stick to the current BUY and HOLD recommendations in the buy list.
As ever, we will keep you up to date with any action that you need to take.
Look out for the buy list review over the next couple of weeks, where we will justify our position in each of the stocks, and hopefully reassure you about their long-term potential.
Sam Volkering
Editor, Frontier Tech Investor
Elliott Playle
Analyst, Frontier Tech Investor
