The Rio Tinto Limited (ASX: RIO) share price hasn’t been able to stand up against the broader market rout despite announcing a major new partnership with its largest global customer.

Shares in the mining giant are currently down 2.64% to $94.20 apiece. That’s roughly in line with the 2.81% loss in the S&P/ASX 200 Materials Index (ASX: XMJ) and the 2.82% fall in the S&P/ASX 200 Index (ASX: XJO).

It comes as Rio and China Baowu Steel Group Co. Ltd (Baowu) announce they will invest US$2 billion ($3 billion) to develop the Western Range iron ore project in the Pilbara.

The companies have formed a joint venture (JV) where Rio Tinto will own 54% of the entity.

Rio Tinto share price getting swept up in the sell-off

However, the news couldn’t save the Rio Tinto share price from diving in early trade.

The fall also comes despite a more than 1% gain in the iron ore price to around US$104 a tonne.

But Rio Tinto isn’t the only ASX miner slipping this morning. The BHP Group Ltd (ASX: BHP) share price has lost 2.04% to $38.50 and Fortescue Metals Group Limited (ASX: FMG) is trading 3.89% lower at $17.52 a share.

New 25 million tonne JV

The Western Ranges annual production capacity is estimated at 25 million tonnes of iron ore. The investment from Rio Tinto and Baowu will be used to build a primary crusher and an 18-kilometre conveyor system linking it to the existing Paraburdoo processing plant.

The miner said that construction is scheduled to start in early 2023 with first production in 2025. Rio Tinto’s share of the costs ($1.3 billion) is already included in its capex guidance for 2023 and 2024. Rio Tinto is forecasting a capex of around $9 billion to $10 billion in each of those years.

Sales agreement with Baowu

While there is no upfront payment consideration, the JV partners have entered into an iron ore sales agreement. Baowu will buy up to 126.5 million tonnes of iron ore over approximately 13 years at market prices.

The volume reflects the Chinese steel mill’s 46% interest in the project, which is tipped to produce 275 million tonnes of ore over the period.

Rio Tinto’s iron ore chief executive Simon Trott said:

We have enjoyed a strong working relationship with Baowu for more than four decades, shipping more than 200 million tonnes of iron ore under our original joint venture, and we are looking forward to extending our partnership at Western Range.

Long-standing partnership

Rio Tinto and Baowu have been working in partnership in the Pilbara since 2002. It formed another JV, Bao-HI, to develop the Eastern Range deposits in the Hamersley Ranges and Western Range.

Baowu Resources’ chairman Shi Bing commented:

The Bao-HI joint venture has been successfully operating for more than 20 years, leading us to a win-win result, and reaping friendship and trust. We hope that the two parties will deepen the mutually beneficial and win-win partnership, continue to carry forward the spirit of sincere cooperation.

Rio Tinto share price snapshot

The Rio Tinto share price has fallen 12% over the past year while the ASX 200 has declined 8%.

In contrast, the BHP share price has gained 4% while the Fortescue share price has dropped 3% over the period.

The post Rio Tinto share price slides despite new $3bn iron ore project appeared first on The Motley Fool Australia.

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More reading

• Why is the Fortescue share price getting hammered on Wednesday?
• The BHP share price is tumbling today, but here’s why Macquarie is bullish
• Expert predicts stock market will crash 20% lower in the next four weeks as US inflation rages out of control
• Why are ASX 200 shares tumbling like dominos on Wednesday?
• Fortescue’s Twiggy piles $120m into junior miner slated for ASX listing

Motley Fool contributor Brendon Lau has positions in BHP Billiton Limited and Rio Tinto Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Worse than expected inflation numbers released by the Federal Reserve yesterday has sent US stock markets into freefall. Investors are pumping the brakes on the prices of shares, bonds, most commodities and cryptocurrencies, as reported by the Associated Press (AP).

The inflation rate has reportedly slowed down, but not fast enough to meet experts’ expectations. It finished at 8.3% in August and was expected to lower to 8.1% for the month. Inflation peaked for the year at 9.1% in June.

Prices of food, accommodation and medical care were said to push inflation higher, with the cost of goods overall rising 0.1% higher than in July, as reported by The Guardian. This was partially offset by a dip in energy prices such as petrol. A gallon is trading for $3.71 compared with June’s high of $5.

Overall, inflation is the highest the US has seen for decades. This has prompted fears the Fed will continue to pursue its aggressive interest rate hikes when it meets next week. Interest rates are expected to increase by an additional 75 basis points, the same increase seen when the Fed increased rates in July.

More concerning is that it’s becoming less likely that the Fed will be able to get a grip on inflation while not pushing the economy into a recession at the same time. Fed Chair Jerome Powell stated that it will use its monetary tools “forcefully” to get inflation under control.

How the markets responded

The S&P 500 Index (SP: .INX), Nasdaq Composite (NASDAQ: .IXIC), and the Dow Jones Industrial Average Index (DJX: .DJI) have made new lows since July. The AP also notes that the Dow experienced the steepest sell-off in the last two years. All but six stocks in the S&P 500 fell in US trading today.

The S&P 500 Index fell 4.32% to 3,932, while the Nasdaq slumped by 3.53% to 11,633. The Dow fell by 3.94% to 31,104.

Foreshadowing further volatility in the days ahead, the Chicago Board Options Exchange’s Cboe Volatility Index (VIX) surged 14.24% to 27.27, making a new high for the month.

Bitcoin (CRYPTO: BTC) also took a hit, losing 7.89%, which broke the AU$30,000 support zone it has held since July.

All of the sector indices of the S&P 500 are in the red, including defensive sectors such as healthcare and consumer staples. The worst-hit indices included the S&P 500 Information Technology Index, which lost 5.35% and the S&P 500 Consumer Discretionary Index, down 5.22%.

And finally, while the prices of riskier assets cratered, the yields of US treasury notes, the safest of all investments, soared to 3.784%. This is the highest yield since 2007.

The post Why did US stock markets just suffer their worst day in 2 years? appeared first on The Motley Fool Australia.

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More reading

• Rio Tinto share price slides despite new $3bn iron ore project
• Inflation fears crash Pilbara Minerals share price party
• Why Crypto stocks plunged today
• Why is the Fortescue share price getting hammered on Wednesday?
• Why is the BrainChip share price sinking 8% on Wednesday?

Motley Fool contributor Matthew Farley has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Pilbara Minerals Ltd (ASX: PLS) share price has been on a sensational run of late.

However, that run has come to a grinding halt on Wednesday.

In morning trade, the lithium miner’s shares are down 7% to $4.41.

Is the Pilbara Minerals share price party over?

Investors have been selling down the Pilbara Minerals share price on Wednesday after US inflation came in hotter than expected.

This has sparked fears that the US Federal Reserve will have to be even more aggressive than expected to bring inflation under control.

This could be bad news for a couple of reasons. Firstly, higher interest rates have an impact on valuations. The higher they go, the less investors are willing to pay to own stocks.

In addition, the higher that interest rates go, the more likely that the US economy will fall into a recession in the near future. This could put consumer spending at risk and lead to less demand for electric vehicles.

If this happens, then lithium demand could soften, potentially putting downward pressure on the price of the white metal.

Is this a buying opportunity?

The team at Macquarie are likely to see the weakness in the Pilbara Minerals share price as a buying opportunity. Last month, the broker put an outperform rating and $5.60 price target on its shares.

This implies potential upside of almost 27% for investors over the next 12 months.

The post Inflation fears crash Pilbara Minerals share price party appeared first on The Motley Fool Australia.

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More reading

• Expert predicts stock market will crash 20% lower in the next four weeks as US inflation rages out of control
• Why are ASX 200 shares tumbling like dominos on Wednesday?
• 3 ASX 200 mining shares that smashed all-time highs on Tuesday
• Why did the Core Lithium share price leap another 6% on Tuesday?
• Runaway train? Pilbara Minerals share price leaps to yet another all-time high

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened 

Today’s inflation report sent the crypto world reeling as a sell-off hit the entire industry. Headline inflation was 0.1% month over month in August, but core inflation (which excludes energy) was up 0.6%. On a year-over-year basis, overall inflation was 8.3%. The market had rallied in recent days on hope that inflation is slowing, but that doesn’t appear to be the case, at least for now. 

Three of the big movers in crypto today are Coinbase Global (NASDAQ: COIN), which fell as much as 9.3% and is down 6.6% as of 2:30 p.m. ET; Silvergate Capital (NYSE: SI), which fell 7.4% and is now down 6.4%; and cryptocurrency Solana (CRYPTO: SOL), which is down 7.2% today. 

So what 

From a trading perspective, the move is pretty simple. Higher inflation likely means the Federal Reserve will increase interest rates for longer than investors were hoping. That results in a lower valuation for assets like stocks, especially growth stocks, and that’s why the Nasdaq Composite is down 4.3% today. Crypto values are generally correlated with stocks, which is why crypto valuations plunged today. 

A drop in crypto prices is generally seen as negative for Coinbase and Silvergate, which offer crypto solutions to their customers. Coinbase’s trading, for example, tends to fall in down markets and that’s where the company generates most of its revenue. Silvergate may not see adoption of crypto and digital banking products increase if crypto values drop. 

As much as the crypto industry would like to think that it’s independent of the broader market, trading has been driven by traditional financial trends like interest rates and economic activity. Given the fact that inflation is still high and the Federal Reserve is likely to act aggressively next week to increase rates, that means lower valuations for crypto and crypto-related companies. 

Now what 

The market is trying to grapple with multiple competing trends right now. Employment is strong and much of the economy is doing well, but inflation is high and interest rates are going up, which generally leads to a recession. 

As these macro factors persist, the crypto market continues to innovate and build, which is a chaotic process. There are days when it seems like crypto could enable great innovations and others that it seems like hacks and scams are more common than real builders. 

I think the crypto industry has a lot going for it long-term, but this is like investing in internet stocks in the 1990s when the industry was very immature. No one knew exactly which companies would win or what business models would be best, but it was clear there was an opportunity.

As painful as days like this are, they can also be great buying opportunities. A few years from now no one will remember a single day’s drop, but investors never forget buying great companies when the market is down because that’s where the big money is made. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why Crypto stocks plunged today appeared first on The Motley Fool Australia.

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More reading

• Why Bitcoin and Solana jumped on Monday
• Why Bitcoin, Ethereum, and Solana were up Thursday morning
• 3 reasons to invest in Ethereum right now
• Why Ethereum, Dogecoin, and Solana lost altitude on Thursday
• Why Ethereum and other cryptos jumped Wednesday

Travis Hoium has positions in Coinbase Global, Inc. and Solana. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Coinbase Global, Inc. and Solana. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Silvergate Capital Corporation. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Fortescue Metals Group Limited (ASX: FMG) share price is one of many ASX shares that are being sold off today. It’s currently down more than 3%. Why?

Well, for starters, it was a bad day on overseas share markets. Volatility is picking up.

The NASDAQ-100 (NASDAQ: NDX) fell by 5.5% and the S&P 500 Index (SP: .INX) dropped by 4.3%.

ASX shares often follow on from what happened in the US share market if there was a major positive or negative movement.

Why did the US share market experience its biggest fall since June 2020? It happened because US inflation in August was up 8.3% year over year, which was 0.1% more than July. According to reporting by CNBC, economists polled by Dow Jones were expecting a month over month decline of 0.1%. In other words, inflation is as strong as ever.

This happened despite fuel prices falling in August. CNBC reported that core CPI inflation, which removes food and energy costs, rose 0.6% month over month from July.

Iron ore price forecast reduced

One of the key elements for Fortescue’s profit-generating efforts is the iron ore price. The higher the iron ore price, the more revenue and net profit after tax (NPAT) that Fortescue can make from the same iron ore shipments. This can also have an impact on the Fortescue share price.

However, according to reporting by the Australian Financial Review, Fitch Solutions has downgraded its short-term iron ore price forecasts due to the economic situation.

Fitch is projecting the average iron ore price for 2022 to be US$115 per tonne, which is a decrease from the last forecast of US$130 per tonne.

The iron ore price has been trading between US$95 per tonne to US$105 per tonne. It was noted that inventories have recovered from the low experienced in June.

It doesn’t think prices will fall or rise a lot from here. Fitch said:

Miners are already beginning to react to recent price declines given their operating costs and capital expenditure costs remain elevated.

As such, we believe that prices will receive some support from supply constraints through the fourth quarter and into 2023 as higher cost miners have in several instances reduced production in response to current price levels.

Fitch suggested that the recovery of inventories and slowdown of the global economy indicate that there may be a limited upside for the iron ore price. Buyers could take advantage of the lower prices and build inventory further.

Fitch Solutions has forecast that the iron ore price will average $US100 per tonne in 2023, $US90 a tonne in 2024 and $US80 a tonne in 2025.

This could have a direct future impact on the Fortescue share price because of how it would impact the profit and cash flow.

Fortescue share price snapshot

Over the past month, Fortescue shares have dropped 8%.

The post Why is the Fortescue share price getting hammered on Wednesday? appeared first on The Motley Fool Australia.

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More reading

• Expert predicts stock market will crash 20% lower in the next four weeks as US inflation rages out of control
• Why are ASX 200 shares tumbling like dominos on Wednesday?
• Fortescue’s Twiggy piles $120m into junior miner slated for ASX listing
• 3 ASX 200 mining shares going great guns on Monday
• Here’s how long I plan to hold my Fortescue shares

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The BrainChip Holdings Ltd (ASX: BRN) share price is having a tough day.

In early trade, the semiconductor company’s shares are down 8% to 92 cents.

Why is the BrainChip share price sinking?

The BrainChip share price is under pressure on Wednesday amid a broad market selloff.

This follows a particularly poor night on Wall Street, which saw the tech-focused NASDAQ index crash 5.2% lower.

Investors were selling down US stocks overnight after the latest US inflation reading came in hot when the market was betting on it cooling. This has sparked fears that the US Federal Reserve will have to aggressively increases interest rates to tame inflation.

CNBC reports:

The report is one of the last the Fed will see ahead of their Sept. 20-21 meeting, where the central bank is expected to deliver its third consecutive 0.75 percentage point interest rate hike to tamp down inflation. The unexpectedly high August report could lead the Fed to continue its aggressive hikes longer than some investors anticipated.

This would not be good news for tech shares such as BrainChip. The higher that interest rates go, the more they squash the valuations of growth stocks.

Though, it’s unclear if anything can really squash BrainChip’s valuation. It is still commanding a market capitalisation of over $1.5 billion despite generating next to no revenue and having largely unproven technology.

Time will tell if the company ever lives up to the hype and justifies this valuation.

The post Why is the BrainChip share price sinking 8% on Wednesday? appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• Have BrainChip shares been a good investment so far in 2022?
• Why did the Brainchip share price blast 6% higher today?
• Megaport share price soars 10% as ASX tech shares trump on Thursday
• What is the highest BrainChip shares have ever been?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Lake Resources N.L. (ASX: LKE) share price is on the move in early trade on Wednesday following a company announcement.

At the time of writing, shares in the lithium explorer are down 18% at $1.04 apiece.

What did Lake announce?

The company updated investors on the progress made on its Pilot Project Agreement, dated for around 21 September 2021 with Lilac Solutions Inc.

Lake says that Lilac will “earn in to the Kachi Project, up to a 25% stake, based on achievement of certain milestones under the agreement by an agreed date”.

Such milestones include completing at least 1,000 hours of operations and producing a lithium carbonate feed totalling at least 2,500 kg from the site.

However, it’s understood that a dispute has arisen with respect to the timing of these milestones.

Whilst work has been continuing at Kachi, a dispute has arisen between Lake and Lilac as to the date by which these milestones need to be achieved, with Lake considering the milestones must be achieved by 30 September 2022 and Lilac considering it has until 30 November 2022 to do so.

To resolve the dispute, Lake has exercised its rights to have the dispute resolved either by agreement of both Lake and Lilac or by arbitration.

If the milestones are not achieved by the required date, then Lake has certain buy back rights under the agreement which it may exercise at its option.

Until the matter is sorted, work continues to progress on the definitive feasibility study (DFS) at the site.

More updates regarding any resolution and the ongoing DFS will be released from Lake in due course.

The post Lake Resources share price slides 18% amid market rout and project dispute appeared first on The Motley Fool Australia.

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More reading

• Why did the Core Lithium share price leap another 6% on Tuesday?
• Are Yamaha and Toyota about to upend the ASX lithium share party?
• Broker tips 100% upside for Lake Resources share price
• Here are the 10 most shorted ASX shares
• Here are the 3 most heavily traded ASX 200 shares on Friday

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Westpac Banking Corp (ASX: WBC) share price has lagged peers and underperformed benchmarks in 2022. The ASX banking share has posted a 16% loss in the past year.

Shares in the banking major join its rivals in what’s been a fairly tumultuous year for the sector.

After starting off with a bang, a mix of tightening monetary policy and the subsequent impact on interest rates has clamped down heavily on ASX banks. The Westpac share price hasn’t escaped the squeeze.

For instance, the VanEck Australian Banks ETF (ASX: MVB) – one proxy to examine movements specific to Aussie banks on the chart – is down 3.5% this YTD.

Underperformance amid inflation turbulence

Following United States CPI (consumer price index) and headline inflation data readouts last night, the ASX and its fellow Australia-Pacific exchanges are set to feel the impulse at the open today.

There’s no denying that 2022 has been a year. The market narrative has been dominated by that of inflation and central bank tightening.

This includes each of the US Federal Reserve, European Central Bank (ECB), Central Bank of Japan (BOJ), the Bank of England (BOE), and the Reserve Bank of Australia (RBA) committing to raising their policy rates in order to tackle inflation.

For Westpac, it has been a serial underperformer up to this year. And trends have remained in situ from January to date.

Despite this, Westpac shares actually have a fairly robust level of buying support, forming the bedrock for the bank to make a turnaround should enough investors pile in.

In his speech to the Anika Foundation last week, RBA Governor Dr Philip Lowe said the recent lift in inflation had come as a “surprise”.

The RBA is now “expecting CPI inflation this year to be around 7.75%” Lowe said – “a very big change and a very large forecast miss”.

Can the Westpac share price turn it around?

Curiously, the Westpac share price has caught a bid in the days following, suggesting the market was at least craving some sort of clarity on the inflation number – even if it was high.

Analysts at Goldman Sachs recognise that Westpac has potential to embark on a turnaround, now with the bank’s cost targeting initiatives, wider net interest margins (NIMs), and current multiples it’s trading at.

“Westpac now offers the most upside of the banks over the next 12 months,” the broker said.

“Beyond this, we note the stock is trading at a 20% discount to peers, versus the historic average 2% discount,” it added.

Meanwhile, Morgan Stanley predicts the bank to push its FY22 and FY23 dividend to $1.25 and $1.30, respectively.

Both brokers rate Westpac a buy, bringing the list to six out of 15 analysts recommending to buy the Westpac share price. That’s up from five in June, according to Refinitiv Eikon data.

The consensus price target from this list is $24.30, suggesting a small amount of upside should the group have it correct.

As for the turnaround story – it remains to be seen what Westpac and its share price will deliver this financial year. It has a mountain to climb, along with the other banking majors, and so it will be an interesting set of numbers to follow throughout the year.

The post Down 16% in a year, can the Westpac share price become a successful turnaround story? appeared first on The Motley Fool Australia.

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More reading

• What will the Westpac dividend be in 2023?
• Billions in liabilities could be set to hit CBA and other ASX banks: expert
• Westpac shares stepped into the green today amid RBA’s softer tone
• Why is the NAB share price diving more than the other big 4 ASX banks today?
• Why rising rates are a ‘sugar hit’ for ASX 200 bank shares: Macquarie

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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It’s a rough day on the market for the BHP Group Ltd (ASX: BHP) share price as the S&P/ASX 200 Index (ASX: XJO) crumbles under the weight of Wall Street.

New York-based indexes tumbled overnight amid the release of hotter-than-expected inflation data.

And their suffering is dragging on the Aussie bourse. The ASX 200 is down 2.72% shortly after open while the S&P/ASX 200 Materials Index (ASX: XMJ) has dumped 2.65%.

The BHP share price hasn’t managed to escape the carnage. It’s trading at $38.52 right now, 1.98% lower than its previous close.

But top broker Macquarie has doubled down on the stock, reportedly upping its price target for BHP shares by 5%. However, others have taken a swing at iron ore.

Let’s take a closer look at what brokers are expecting from the ASX 200 materials giant.

Top broker tops 9% upside for BHP share price

The BHP share price is suffering amid a broader market downturn on Wednesday despite bullish sentiments from a top broker.

Macquarie has upped its expectations of coking coal – otherwise known as metallurgical coal – and companies that produce it, The Australian reports.

The broker is said to have lifted its expectations for the commodity’s value to US$350 a tonne in 2023 and boosted its long-term forecast to US$200 a tonne. Though, it has also reportedly dropped its forecast for the December quarter to US$310 a tonne.

Its bullish outlook is reportedly due to an underinvestment in supply and India’s dependency on coal imports and comes despite falling demand for steel.

BHP’s coal segment brought in US$15.5 billion of revenue last financial year. It saw an average realised price of US$347.10 per tonne of coking coal – a 225% year-on-year improvement.

On the back of its bullish outlook for coal, Macquarie has reportedly lifted its price target for BHP shares 5% to $42. That represents a potential 8.94% upside.

On a less positive note, however, Fitch Solutions has dropped its near-term expectations for iron ore, the Australian Financial Review reports.

The firm is said to have dropped its outlook for 2022’s average iron ore price by US$15 to US$115 a tonne.

That’s expected to fall to US$100 a tonne in 2023, and by an additional US$10 a tonne every year thereafter until 2025.

Its bearish expectations are reportedly due to recovering inventories and slowing growth in major economies.

The post The BHP share price is tumbling today, but here’s why Macquarie is bullish appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Are you ready to be caught with your pants up?

Huh?

Let me explain…

I want to take you inside the tent for a few minutes.

Behind the curtain.

Some of you reading this will be members of Motley Fool services. Others aren’t.

But I’m going to share something that’s usually reserved for members.

The last 12 months or so have been… tough.

See, the market tends to go through cycles.

Up until COVID-19, it was feeling pretty optimistic. Exuberant, even.

Then, after the fastest bear market in history, in March 2020, we had the fastest recovery in history.

And the exuberance returned.

And then, somewhat ironically, almost in tandem with the announcement of a COVID vaccine, the markets shifted gears.

Gone was the love of high-growth companies and online winners, in favour of some old favourites, mostly banks and mining companies.

Then, as rates began to rise, that loss of love became downright disdain.

Some of the high flyers became, well, fast-fallers.

I’ve written before about the vertigo-inducing crash of shares in companies like Zip Co Ltd (ASX: ZIP), currently down 92% from its all-time high less than 18 months ago; and Whispir Ltd (ASX: WSP), down 82% since this time two years ago.

Investors abandoned growth companies because of valuations. Or lack of profitability. Or the time they’d take to become really profitable, given rising rates.

All of these reasons are plausible.

Kind of.

The super-profitable search behemoth, Google, is down 25% in less than a year (I own shares, for the record).

Warren Buffett’s company, Berkshire Hathaway (ditto), is off 20% in less than six months. To say that it’s not known for its tech investments is something of an understatement.

My point?

Well, a few points, actually.

Firstly, some strong, high-quality businesses have lost decent amounts of value recently.

Smaller, less-proven companies have been belted from pillar to post.

Turns out, volatility happens.

(I know… who knew? But more seriously, these are some very significant examples, from all parts of the market and the world.)

Second, every time a share price moves, that movement is one part fundamentals (profits, cash flows, growth, etc) and one part sentiment (how much traders love or hate the company in question, or whole sectors… sometimes even the whole market!).

Those parts, though, aren’t always equal.

I’ve said before that I think Zip’s historical high prices were massively overblown. Like a hang-glider on a good day, the share price flew into an almighty updraft of irrational exuberance. Then, as I cleverly and almost imperceptibly change metaphors, like Icarus, it flew too close to the sun and came crashing back to Earth.

Did the company’s fundamentals change? Not really. Yes, the external environment (inflation and rates) changed, but that can’t explain a $12 share price falling to less than $1.

And those other shares?

Again, perhaps a little bit of fundamental influence, but – I would humbly suggest – probably larger licks of market sentiment. In this case, nervousness, expressed as lower prices.

Now, with hindsight, I can tell you precisely the right times to buy and sell.

I still can’t tell you exactly what traders were thinking or when they might change their minds… but we can see the result in share prices.

But because that future is inherently unknowable… it’s a mug’s game to try to predict it.

Why?

Well, self-evidently because it’s not predictable!

But also because we choose to play a different game – one that’s been very profitable over the long term.

The example I usually use is Amazon (I own shares) – the company whose shares have fallen more than 50% from their highs about two-dozen times since it was listed on the NASDAQ in 1997 – and, in the meantime, has gone from US$0.09 to US$139.00.

An impressive example, no?

But there are others.

Cochlear fell from $80 to $55 after a product recall. It’s now $215.

CBA dropped from $60 to $26 during the GFC. It fell from $90 to $59 during the COVID crash. It’s now $97.

Sure, I’d have loved to sell at those highs and buy back at the lows. The problem, as you’ll know (or work out if you think it through logically), is that there’s no way to know those highs and lows at the time.

And, as I’ve written before, I recommended our members sell Domino’s Pizza Enterprises Ltd (ASX: DMP) (yep, own them, too) in 2013 for a 60% profit.

Which sounds smart… until you realise that was at $13 a share, and they subsequently went to $140. Even at today’s price of $65, I gave up on a five-fold return.

And that last one might be the best example.

Yes, I sometimes sell too late (or not at all, but miss the opportunity to sell at higher prices). But that missed five-fold return could have covered 5 different companies that lost 100% each!

Now, I’ve never had a 100% return. So maybe it could have covered 10 companies that lost 50%. Or 25 companies that lost 20%.

You get the picture.

Yes, selling too late can feel painful. But it’s far, far more costly to miss out on the ones that gain 2, 5 or 10 times in value.

But that can take something really important – and difficult for the impatient investor: time.

So, let’s put that all together.

And put a bow on it, courtesy of a recent email I received from a member.

He was disappointed that our recommendations have lost value over the past year or so.

My inference is that he wanted us to be able to read the tea leaves, trading in and out of companies and sectors with perfect foresight.

Or (I think it was ‘and’, actually) he wanted us to take profits more frequently and to limit losses.

They aren’t unreasonable requests.

But they’re incongruous with the approach we’ve taken here since 2011 and our sister company in the US has taken since 1993.

We are unashamedly long-term focussed investors. Because we think that’s the best way to put the odds meaningfully in our favour.

And we’re slow to sell because we realise that such an approach gives us the best chance of letting those 2, 5 and 10-fold returns happen.

Along the way, we’ll have losses and disappointments. We collectively (and I personally) hate that, on our members behalf.

We’d love to avoid it.

But in our experience, trying to avoid the losers can also rob you of the chance to bank meaningful winners.

(And if you’re wondering, almost every share I own is a Motley Fool recommendation, and my portfolio is also meaningfully down since its highs 12-18 months ago.)

Could we have avoided the falls? Maybe. With a lot of luck. But I don’t think so.

I think Berkshire, Google and Amazon will go on to achieve new all-time highs. And more after that. And more after that.

Sure, I could try to buy and sell, hoping to make a few extra bob with lucky timing.

But would I try it and risk losing out on the compound gains that I think will happen as the companies execute on their plans and the market recovers its confidence?

Not a snowflake’s chance in hell.

That means I need to be patient.

It means I need to accept volatility.

It means there’ll be periods – may be long periods – of underperformance.

But if I can make my peace with that, I think it gives me — and you – the best chance of market-beating returns.

If you’re a Motley Fool member, I hope that both informs and reassures you.

If you’re not, I hope it gives you some insight into how we invest, but also some ideas on how you might invest your own money.

At the end of the day, democratic capitalism’s best days are ahead of it.

Or, more pithily, as Peter Lynch said, “I’m always fully invested. It’s a great feeling to be caught with your pants up.”

Fool on!

The post It’s going to be bumpy… but worth it appeared first on The Motley Fool Australia.

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• Expert predicts stock market will crash 20% lower in the next four weeks as US inflation rages out of control
• Why is the Coles share price tumbling today?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Scott Phillips has positions in Alphabet (C shares) and Dominos Pizza Enterprises Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet (A shares), Alphabet (C shares), Whispir Ltd, and ZIPCOLTD FPO. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Dominos Pizza Enterprises Limited, and Whispir Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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