Beginner investors should focus on truly long-term investing, rather than taking the bait of quick gains that so many meme stock traders are chasing these days. Indeed, the meme trades blew up in a painful way in the first half. With the market stabilizing, meme stocks are starting to heat up again, signaling that risk-taking on the part of investors has returned.
Now, I have no idea if the speculative surge on Monday’s trading session is the start of yet another bubbly run-up like the one endured after the 2020 stock market crash concluded. In any case, I do think many beginner investors have learned a lesson that chasing momentum stocks is not a great way to build wealth over the long run. Investing is a game that’s won by the patient folks who set their sights on the next 10 years rather than the next 10 weeks.
If you don’t need to hit return goals, forget about trying to beat markets over a brief timespan. It’s not just setting yourself up for disappointment (Charlie Munger says the key to a happy life is to set low expectations for yourself!), but you may be taking more risk with investments than you’d be comfortable with. It’s easy for newbies to overestimate their ability to handle market volatility. By taking too much risk, one stands to lose considerable amounts once the tides inevitably turn. So, instead of chasing gains or trying to be popular through the eyes of the Reddit crowd, focus on being as boring (or as contrarian) as possible.
Warren Buffett couldn’t care less about meme traders and what asset is hot in any given week or trading session. He’s 91 years of age, but he’s still invested for the long haul.
In this piece, we’ll check in with one core holding for beginners to consider for their long-term-focused TFSA (Tax-Free Savings Account) portfolios. The stock has felt the waves of volatility in recent weeks. However, this name is still on track to continue beating the market over the long haul.
CP Rail stock is flirting with new highs after a big upside surge of around 17% off its June lows. Grain and fuel were sore spots for CP in its latest quarter. That said, the forward-looking outlook is still bright and that’s what has investors upbeat about the railway with a wide moat.
On a constant-currency basis, second-quarter sales rose 6% year-over-year — pretty much in line with expectations. The operating ratio (expenses divided by sales) took a beating, rising 440 bps to 59.7% (lower is better) due to various headwinds. Though the operating ratio is disappointing, investors expect CP will be quick to turn the tide as the macro picture improves. And while the recent acquisition of Kansas City Southern has added to expenses, longer term CP expects to create synergies and operating efficiencies, and deliver more value per transportation dollar from the creation of the first single-line rail network linking the U.S., Mexico and Canada.
At writing, the stock trades at 35.3 times price-to-earnings (P/E) and 12.1 times price-to-sales (P/S), both well above historical averages. Though investors were quick to forgive CP for its earnings miss, I do think the stock is a tad pricey at current levels. While I wouldn’t sell, I would wait for a meaningful pullback before loading up the TFSA.