I love market downturns.
When a stock drops in price, there can be 3 causes:
There’s an overall market reason
It’s related to a specific sector
It’s the company itself
For each of these 3 reasons, we have to ask ourselves:
Why?
If it’s company-specific, that’s the most troublesome. There might be something wrong with the company you own.
This usually leads to the question: Is it temporary or structural?
If the problem is temporary, then you can wait it out. If it’s structural, now you might have to revisit your thesis.
If it’s the entire sector, which you can easily spot by looking at what the other companies are doing, the question gets a little easier:
What is the long-term trend for the entire sector? And how cyclical is this sector?
If the long-term trend is unchanged, and cyclicality is low, you might want to keep holding your company.
The easiest situation is when the entire market goes down. Now, you know that market forces are at work. High rates? Unexpected higher inflation numbers? Some kind of tariff announcement that creates a global market shock?
This is what you want. Because your high-quality company might just become cheaper because of simple market forces. You only need to assess which market force it is and whether it will really impact your company in the long term.
So let’s do a quick check of our holdings, and I’ll show where I’m adding to my positions based on this analysis.
The charts you see below are created by an agent that analyzes market, sector, and company forces. (You can visit Invest with AI if you want to see how this works).
This is not a full portfolio analysis(will be released later). I’m busy writing updates for Pharmx and ITECH as they just released new information. But I wanted to do this quick analysis because I think it’s useful with everything that is going on.
Pharmx
Primary force that is influencing price: Company information
Market forces: Partly, but that’s not what is driving the price action
Sector forces: None; expected growth is still strong
Company forces: Pharmx released its update, but while the marketplace is growing ahead of its initial target (about 80 million AUD in ARR at the moment), revenue growth is still slow.
The market wanted faster results and punished the company for it.
My stance: I’m going to hold. I’ll release my earnings analysis next week, as they did a webinar 2 days ago. Here is the chart showing that marketplace GTV is ahead of their target. The market is punishing them because revenue isn’t growing fast enough yet.
