I often write on Quora.com, where I am the most viewed writer on financial matters, with over 335.8 million views in recent years.
In the answers below I focused on the following topics and issues:
- How is the omicron virus mutation responsible for the US, and global, stock market falls, seen in the last week or two? Are these falls significantly enough to be considered as a buying opportunity?
- Are financial technology firms a good buy in the stock market, considering how successful Wise/TransferWise, Revolut and Monzo have been in the last decade?
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Source for all answers – Adam Fayed’s Quora page.
How is the omicron virus responsible for the US stock market fall?
Markets are jittery, not only in the US, but globally.
It is actually a buying opportunity for a number of reasons
First, worries about health only tend to briefly affect the stock markets. The fast recovery from the Covid falls of Feb-March 2020 was historically normal.
Stocks have historically done well during health crisis:
The biggest reason isn’t that the previous virus has helped stocks directly, it is more a case of stocks going up despite the pandemics, not because of them.
A pandemic is usually neutral for stocks, or even marginally positive, for several reasons:
- What do governments do during very serious pandemics at least? They stimulate the economy. People worry about inflation and want to buy assets like stocks.
- Interest rates are decreased to stimulate the economy, which means there are fewer places to put your money
- A pandemic can force firms to become more innovative. Take the Covid situation. Firms can now go direct to the consumer and spend less money on business travel. That won’t go back after the pandemic, as firms have worked out how to increase their profits.
- Ultimately, when firms have worked out that they can have as much revenue with less office space and spending on meetings, I doubt they will decide to become less profitable in 2023 or whenever the pandemic ends.
- This doesn’t just apply to pandemics. Bad times create innovation. Any crisis does. The East Asian crisis of 1998, and the 2008 Financial Crisis, did the same. The likes of Revolut and Wise/TransferWise wouldn’t be as big as they are today had it not been for people’s skepticism about the traditional banks after 2008.
The ironic thing is that the one thing that will affect the present bull market is if interest rates rise a lot.
If you can suddenly get 5% in cash and 6% in government bonds, more investors will take some money off the table and buy these assets.
Whereas in today’s world, an increasing number of investors who were say 60%-40% in stocks and bonds, are now 80% or even 100% in stocks.
However, interest rates are more likely to rise more quickly once the economy and pandemic is better.
Any bad news is more likely to result in more stimulus or at least a delay in raising interest rates.
Of course, nobody can know for sure. What we do know, however, is that buying today and holding long-term has always worked out for investors.
Are FinTech companies a good buy in the stock market now?
It depends on how you Fintech.
I will use this definition I found online:
Fintech is a portmanteau of the terms “finance” and “technology” and refers to any business that uses technology to enhance or automate financial services and processes. The term encompasses a rapidly growing industry that serves the interests of both consumers and businesses in multiple ways.
If you use the words in bold, then of course this is a growing area. Technology is taking over our lives.
Even for people who aren’t tech-savvy, they don’t like pointless processes, which is common for traditional banks and financial providers.
We have seen the likes of Monzo, Revolut, Wise, Paypal and many other firms get bigger.
However, I would caution anybody about risk. Stock picking is always risky. Most amateur investors don’t beat the market.
The reality is that stock picking in technology is much riskier than most sectors, compared to buying the Nasdaq or an ETF which tracks the whole industry.
If you buy Coca Cola, Gilette or Pepsi, you might not beat the market, but you probably won’t see it gown down to $0 or even close to that level.
You don’t need to be an expert to work out that most people don’t want to experiment with a $1 drink, which has two big firms (Pepsi and Coke) who dominate.
In technology, it is different because:
- People aren’t as loyal to the brands. If PayPal lowers the prices to compete with Wise, some people will leave and switch. Die-hard Pepsi fans don’t do that.
- Technology can change so quickly. Revolut is cutting edge today, but will it be in 2025?
- Regulators can close firms down more easily
- The very biggest firms can compete more easily. Virgin, run by British billionaire Richard Branson, failed to compete with Coca Cola with the ill-fated Virgin coke. Facebook or Amazon couldn’t easily compete either. In comparison, let’s say they went further into financial technology. In that case, they would at least have a chance to outcompete the biggest firms in the space.
- Governments increasingly want to regulate technology.
So, the space will probably grow, but it is difficult to know who will lead.
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Adam is an internationally recognised author on financial matters, with over 440.2 million answers views on Quora.com and a widely sold book on Amazon
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