Podcast Summary
Improve communication skills with Think Fast, Talk Smart podcast: Understanding market sentiment is crucial in investing to avoid letting emotions influence decisions.
Communication skills are essential in business and life, and the Think Fast, Talk Smart podcast can help hone these skills. The podcast, which has received nearly 43 million downloads and is the number one career podcast in 95 plus countries, offers expert advice on various aspects of communication, from managing anxiety to being persuasive. Meanwhile, in the world of investing, market sentiment can cause significant swings in stock prices, as demonstrated by Shopify's 24% price increase from a low to a high in one day, which was more a reflection of investor emotions than the company's actual value. This highlights the importance of understanding market sentiment and not letting it cloud your judgment when making investment decisions.
The stock market's volatility and speed make it challenging for investors: Stay informed, diversify with 25+ stocks, and remain patient in a volatile market. Blue-chip stocks like Johnson & Johnson can provide stability.
The volatility and speed of the stock market have increased, making it a more challenging environment for investors. This is due in part to the influx of hot, FOMO money in recent years, which can lead to quick turns in the market. Despite advancements in technology and access to information, this influx of money may not necessarily make us collectively better or smarter at stock picking. It's important for investors to stay informed and have a diversified portfolio, with at least 25 stocks, to mitigate the risks of market volatility. For example, having a stable blue-chip stock like Johnson & Johnson, which reported $94 billion in overall sales for their fiscal year, can provide a sense of stability in an otherwise unpredictable market. The market's speed and volatility may continue to increase, so it's crucial for investors to remain patient and disciplined in their investment strategies.
Johnson & Johnson's complex 2-year split process in healthcare industry: Johnson & Johnson's strategic 2-year split focuses on core healthcare businesses amidst regulatory scrutiny and optimism for future
Johnson and Johnson's decision to split off their consumer products business into a separate entity is a complex process due to the heavily regulated nature of the healthcare industry. This split, which includes their drug discovery and medical devices businesses, is expected to take two full years to complete. Despite some initial surprise at the lengthy timeline, it's important to remember the rigorous regulatory scrutiny involved in every step of the process. Johnson and Johnson had a successful quarter, with only about 5% of their revenues coming from COVID-19 vaccine sales. Their new CEO, Joseph Duarte, joined the role during this quarter and expressed optimism about the company's future. The split is a strategic move to streamline operations and focus on their core healthcare businesses. It's a testament to the stringent regulatory environment that companies like Johnson and Johnson must navigate, ensuring consumer safety and efficacy at every stage.
Embracing Change and Adaptability: Legacy brands like American Express adapt and thrive by embracing changes and leveraging technology, aiming for mid-teens earnings per share growth, and viewing Fintech as an opportunity rather than a threat.
Even seemingly minor changes or events, such as those at Mondelez with Chips Ahoy? or American Express' record spending, can have larger implications and involve complex processes, like FDA regulations or market dynamics. This was highlighted during the discussion about Berkshire Hathaway's portfolio, specifically with the recovery of American Express following its rough patch with Costco. Despite being a legacy brand, American Express has managed to adapt and thrive by embracing changes and leveraging technology, aiming for mid-teens earnings per share growth and looking at Fintech as an opportunity rather than a threat. The stock's 40% increase over the past year is a testament to its resilience and adaptability.
Exploring Different Perspectives on Managing Investment Risk: American Express invests heavily in marketing to maintain its high-end image and customer perks, while managing risk in investments is a complex issue with different approaches, from being risk-averse to embracing potential losses for long-term gains.
American Express has successfully positioned itself as an exclusive, high-end financial product with excellent customer service and perks for its cardholders, despite facing potential challenges. The company has doubled down on marketing, spending nearly half of its revenues on this segment, and it appears to be paying off based on their data-driven approach and continued marketing investment. However, managing risk in investing is a complex issue. While some investors prefer less risky investments to avoid potential losses, being too risk-averse could result in losing purchasing power due to inflation. This week, we'll explore different perspectives on risk and how to manage it effectively. Investment risk can be defined as the risk of returns not meeting expectations, and it's important to consider this in the current market climate where the S&P 500 has outperformed its historical averages in recent years. Stay tuned for insights from various investment analysts on their approaches to risk management.
Market volatility as a gift for investors to assess risk tolerance: Volatility in the stock market is a normal part of investing, with potential for major declines but also significant gains. Investors should assess their risk tolerance and keep short-term funds in safer investments.
The current market volatility, with many stocks down significantly from their all-time highs, offers investors an opportunity to assess their risk tolerance. Our resident analyst, Bill Mann, views this volatility as a gift, despite the discomfort it brings. He explains that the stock market has a high standard deviation, meaning its returns can vary greatly from year to year. This volatility is associated with investment risk, as the frequency of dramatic rises and falls in stock prices. While major market declines can last for years, it's generally considered short term in investing terms. Fools advise accepting this volatility as part of investing in stocks and keeping money needed in the next few years in safer investments.
Risk of permanent loss in individual stocks: Only 13% of stocks outperform the market, owning at least 25 stocks and index funds reduces risk, market can experience extended flat returns, diversification crucial for long-term success and minimizing risk
Investing in individual stocks comes with the risk of permanent loss. Most stocks do not outperform and many can result in a loss. According to a study by Morningstar, only 13% of stocks outperformed the Morningstar US Stock Market Index. To mitigate this risk, it's important to be diversified and own at least 25 stocks, in addition to index funds. Index funds offer small chances of permanent loss and provide exposure to the overall market performance. Furthermore, the market can experience extended flat returns, as seen with the Dow and S&P 500 taking over 13 years to reach their previous highs after major crashes. Therefore, maintaining a diversified portfolio with a mix of individual stocks and index funds is crucial for long-term success and minimizing the risk of permanent loss.
Diversify your investments for better returns and risk management: Diversify your portfolio with various asset classes like small caps, REITs, internationals, and cash to minimize risk and increase chances of reaching financial goals. Assess savings rate and investment returns regularly to ensure they're sufficient for your goals.
Diversification is key in investing. While US large cap stocks may have had extended flat returns, other types of investments such as small cap stocks, real estate investment trusts, and international stocks performed better in different time frames. Cash even outperformed the S&P 500 over a 10-year period. Therefore, it's essential to have a well-balanced portfolio to minimize risk and increase chances of reaching financial goals. Another risk discussed was the possibility of not reaching financial goals due to insufficient savings and investment returns. Throughout one's career, it's crucial to assess whether savings rate and investment returns are sufficient to accomplish goals. This can be done with the help of online calculators or financial professionals. Ultimately, one cannot avoid all risks, but can choose which ones to take based on personal financial goals and risk tolerance. Investing in cash to avoid market volatility, for instance, comes with the risk of not meeting financial goals due to low returns. So, it's essential to consider which risks to avoid and which to take. Remember, not investing at all carries a greater risk. Tune in next week for more insights on risk management.
Microsoft's acquisition of Activision Blizzard and the metaverse: Microsoft aims to expand its gaming business and enter the metaverse with the acquisition of Activision Blizzard, but listeners should conduct their own research before making investment decisions.
During the latest episode of MarketFoolery, the hosts discussed Microsoft's acquisition of Activision Blizzard and its potential implications for the metaverse. Microsoft aims to position itself as a major player in the gaming industry and the metaverse, which is a virtual world where users can interact with a computer-generated environment and other users. This acquisition could lead to Microsoft's expansion into new areas, such as virtual events and gaming experiences. However, it's important to remember that people on the program may have personal interests in the stocks they discuss, and The Motley Fool may have formal recommendations. Therefore, listeners should not base their investment decisions solely on the information shared during the podcast. Instead, they should conduct their own research and consider multiple sources before making any investment decisions.
