We start the year with a market correction. SPX hit a high at 4800 and dropped to a low of 4300. It is a good 10% correction. We heard from friends who are highly geared, they suffered from margin calls. There were sleepless nights and finally closed the positions with huge losses. In return, they got their peaceful nights of sleep back. Savings were lost, lots of heart pain but I believe money can be made. Health and well being once lost may never come back.
Leverage that can tolerate a 50% drop is based on the below:
To be absolutely safe, do not exceed the 1.25x equity multiplier.
Lots of microcap and small-cap stocks took a beating because the market is pricing in for interest hikes. Borrowing costs will become more expensive, this may hinder growth due to higher interest expenses. Growth companies’ valuations are revised downwards to be more conservative. Everything falls back to the ground. When nobody wants to buy growth stocks, that is the time we buy.
What did we do during this correction?
Our 9988.HK sell put option was assigned when it dropped to HKD 110 when our SP strike price is HKD 115. Nonetheless, we are happy to pay HKD 57,000 (500 shares x HKD 115). As investors, we need to ask ourselves, did the share price drop for fundamental reasons, or was it due to market perspective? If the company is making lesser profits and its share price reflect this, it is reasonable.
We did not manage to sell any options because the Options account has no more cash. This did not help with the cash flow generation. A high volatile market calls for different options strategies.
We sold 1,150 shares of Shell PLC at USD 55/share and subsequently another 2,000 shares of Shell PL at USD 55.9/share. We return USD 111,800 to the coffer. The remaining 70% of the shares will be sold in tranches later on. We are aiming for USD 60, 65, 70, and 75. Hahaha, that’s pure greed there.
The present fund can be deployed to buy other businesses. We are thinking instead of owning Tencent, will it be better to buy Prosus? Tencent is the VC of China while Prosus is like the mother VC who invests globally in all groundbreaking startups. Speaking of this, recently I spoke with my friend who is a VC partner and she is about to start her early-stage VC fund or Angel fund.
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