Friday 26 February 2021

What have you added to your portfolio these past few day? | What I added to my portfolio

Last night was another correction where we saw a drop of in the stock market. This is definitely a good time to be adding companies that you have on your watch list especially so when their prices have been too high or you felt that they have been overvalued.

So why is this correction happening now? I have seen videos from MeetKelvin and also Graham Stephan, they both pointed out that surge in US Treasury yields is hurting the stock market. For me, I am not a finance student and haven't really went in depth in this so do pardon any mistakes or if I am not able to do deep analysis.

So first, let's define our terms, treasury yields are the total amount of money you earn by owning U.S. Treasury bills, notes, bonds or inflation-protected securities. Government bonds, which are largely viewed as a lower risk, lower reward investment than equities, tend to garner more demand during times of economic uncertainty. And with US treasury yields remaining well below historic levels, in recent times, a rapid move up has analysts warning of a quick end to the rally in U.S. equities.

From the diagram, you can see the grey line as the Treasury yield and periods with an inverted yield curve (below 0) are reliably followed by economic slowdowns and almost always by a recession.

There might also be other factors involved for this correction where maybe people are thinking that stocks are currently overvalued. For me, I have added a few positions namely:

  • Tesla
  • Ether (Crypto)
  • Palantir

In dollar amount, I did not add much but I hope to be adding more positions over time if prices continue to dip. I also have my regular saving plan which will buy in on 8th of every month, having Tesla in my portfolio does see it fluctuate quite large as the drop and gains from Tesla is pretty huge. But I am currently comfortable with it and would in the next few months add more if I do have the capital to do so. Just a short update on what has been happening. Today is the last day of CNY, Happy 元宵節!

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  1. It's more to do with the accelerated speed that longer-term yields are jumping by. If sustained, this will impact stocks as (1) lower-risk & higher-yielding treasuries offer an alternative, and (2) tighter credit conditions for companies.

    - Both the 10-yr Treasury and S&P500 average dividend yield are at 1.5%, making it more palatable for investors to rotate some portion of their stock holdings into treasuries. The formerly below-1% yield of treasuries was what resulted in many people calling the death of the 60:40 portfolio. If bond yields can stay substantially above stock yields, then balanced portfolios can become attractive again.

    - The past couple of years have seen trillions of corporate debt being taken out by companies on ultra-low interest. Most have been rated as BBB but in previous decades wouldn't have really qualified to be BBB at all. This easy debt regime will come to a screeching halt if 10-yr treasury yields jump too much too soon & stay there. Many companies will have trouble rolling over their loans & bonds.

    - Too fast of rising bond yields also spell trouble for yield-alternatives such as REITs, utility companies, and other dividend paying stocks.

    Not so much to do with inverted yield curve --- that one played out in 2019 ... which proponents say predicted the 2020 recession, LOL, even though that was a black swan pandemic event. Thanks to Covid, the inverted yield curve recession predictor has maintained a 100% accuracy since WW2.

    1. Hey! Thanks for the sharing, will be reading up more to understand this whole treasury yield thingy :)