1st May 2020

DISCLAIMER
This report by Adam Khoo, Adam Khoo Learning Technologies Group Pte Ltd and Piranha
Ltd. is in no way a solicitation or offer to sell securities or investment advisory services.
Adam Khoo, Adam Khoo Learning Technologies Group Pte Ltd and Piranha Ltd. is not
intended to be a source for professional advice. Participants should always seek the advice
of an appropriately qualified professional before making any investment decisions.

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1 May 2020

Dear Investors and Traders,

I hope you have been staying safe and enjoying quality time with your family during our
‘mandatory vacation’. I also hope that you have seen your investment portfolio make
significant gains in the last 30 days.

The last 30 days has seen one of the largest percentage gains in the history of the stock
market. The S&P 500 rebounded +32.9% in the last 30 days!
Like I said in one of my Youtube videos where I got drenched in Coke, a sharp and fast
decline will lead to fast rebound as well….and indeed it has been lighting fast!
(watch me get wet at www.youtube.com/watch?v=jvgx5SjcfLI&feature=youtu.be).

(no dirty thoughts please ☺)

Bear Market Dies in 18 Days and Bull Market Starts on 6 April 2020

A bull market is defined as an increase of +20% from market lows. On April 6, this milestone
was achieved and the Bear market that started on 11 March officially ended. It was the fastest
bear market in history lasting only 18 days! Since the 6th of April, the Bull market officially
started and the market has recovered 60% of its losses to date. We remain just 15% below the
all-time high of 2,912 points and just -9% down for 2020.
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As Usual, Most Retail Investors Sold in Panic and Professional Investors

Grabbed the Opportunity to Buy Great Companies at Huge Discounts!
As you can imagine, average retail investors would have panicked after reading the doom and
gloom headlines in the mainstream news (Record Job Losses! Unemployment Historical
High, Depression coming, Worst Recession since Great Depression of 1929 etc…).

They would have sold their shares near the bottom just before the Bull Market began. The
moment they sold in fear, they watched in horror as the stock market took off like rocket
without them. I can imagine a lot of them must be really upset right now and watching in
disbelief as the market goes up while the economy goes into recession.

On the other hand, I am super proud of our community of Wealth Academy and
Piranhaprofits students who have learnt that the stock market is NOT the economy. The stock
market moves 6-9 months ahead of the economy. While the economy starts going into a
recession, the stock market rallies upwards, pricing in the eventual economic recovery in the
future.

You can see that on the day the recession officially begins, the market turns bullish!
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If you have been reading my monthly market updates and actively reading my posts on the
Telegram chat groups, you would know that I have been buying stocks aggressively in the
last 2 months as great companies were selling at ridiculous discounts (especially by favorite
stay at home, coronavirus proof stocks like MAGAF: MSFT, AAPL, GOOG, AMZN and
FB).

In my last April report, I shared the strategy of constantly buying shares using dollar cost
averaging and not giving into the short-term emotional instinct to sell. As long as we take a
long-term view and fill our portfolio with high quality companies that meet the value
momentum investing (VMI) criteria, it will only be a matter of time that Mr. Market would
come to his senses and prices will soon reflect their true intrinsic values.

By learning to ignore the mainstream economic news and ignoring the opinions of most
‘experts’ who were bearish, we are now reaping the benefits! Really happy and proud to see
our fellow investing community grabbing the opportunity to build their portfolio!
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Calling the Bull Market Was Not Easy… I Got Death Threats!
On the 3rd of April, I identified the potential bottom of the bear market using advanced
technical signals (Extreme oversold Williams% R below -80 combined with Extreme high
Volatility as shown in the Normalized ATR indicator above 80) and macro-economic signals
(previous market bottoms coincided with spikes in US unemployment rate).

Do watch the videos to learn the specifics of these market bottom signals here…
https://www.youtube.com/watch?v=zf26u-2I1yE&feature=youtu.be
https://www.youtube.com/watch?v=Q73WH09Uc9E&feature=youtu.be

I then announced the official start of the Bull Market on the 10th of April, giving the all clear
BUY signal!

When I announced the start of the bull market, I started to see extremely angry comments
from people. The funny thing is that when you watch the majority of content in the media, it
tends to be extremely negative. When news is negative, people tend to agree with it and bitch
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and complain along. However, when someone like me gives positive and bullish news,
people start to turn nasty. Interesting, isn’t it? Here are some good ones…

Oh.. and by the way, these are the nicer ones. If you want to read the really nasty ones, check
them out on the Youtube comments section…. For adults only (R-21)
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When I read these comments from people getting upset, I really don’t blame them. They have
probably been brainwashed by all the disaster porn fed by the mainstream media. They have
probably sold their shares in panic right at the bottom and are angry that the market has gone
up without them.

Some of them probably even shorted the market and are now losing big as the market goes
up! Like this poor guy…at least he thanks me lah!

When the Majority Thinks One Way, Go the Other Way!

One of the things I have learnt about the market over the years is that it tends to go the exact
opposite of what the majority are expecting. When there are more people expecting the
market to go down (bears) than people expecting it to go up (bulls), the market tends to go
UP instead.

Why does this happen? Is all about understanding demand and supply. When the demand for
shares exceeds supply, prices rise. When supply exceeds demand, prices fall.

When 80% of people are bearish, what does it mean? It means that they have ALREADY
SOLD the shares they own (or they borrowed to short). This means that there is VERY
LIITLE inventory of shares left to be sold. There are very few sellers left in the market since
everyone who wanted to sell HAS ALREADY sold. So, the supply of shares is now LOW.

At the same time, when stocks get ridiculously undervalued (like 4 weeks ago), professional
investors would start to see value and start to BUY aggressively. So, while there is demand
for shares, there is very little supply left. So, demand exceeds supply and prices go up!
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Look at the chart below and you can see that when there are more retail investors who are
NET SHORT (red line) than NET LONG (blue line), the stock market goes up! In early
April, the majority were still very bearish with ratios of net short to net long at 3.83 to 1. As
long as more people are bearish, the market will keep climbing higher.
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As Expected, Coronavirus-Proof Stocks Rebound the Fastest!

As the market rebounds, it is important to remember that NOT ALL stocks will recover. At
the same time, among those that recover, some will recover much faster than others.

Those stocks of businesses with high levels of debt, in very price competitive industries and
whose sales have been slammed by the lockdown will be very vulnerable to bankruptcy.

These include industries like oil and gas, airlines, real estate developers, retailers (brick and
mortar), commodity companies, hotels, outdoor entertainment/sports etc… Some of the
businesses near bankruptcy include AMC (largest move theater chain in the US), Hertz Car
Rentals and Chesapeake Energy. Many more will come. This is why I stay far away from
stocks within these industries. No matter how cheap they look, I will avoid going near
them.

For cyclical stocks like banks (Bank of America (BAC), JP Morgan (JPM), OCBC (O39),
UOB (U11) , DBS (D05)), Industrials (3M (MMM), Boeing (BA)), Financials (Ping An
Insurance 2318) and REITs… as long as we stick to the ones with the strong balance sheets,
we will see great gains as they recover off their cyclical lows. However, they will take a bit
longer to fully recover.

The stocks that rebound the fastest are those whose businesses are NOT AFFECTED much
by the pandemic or the lockdown. These are the stay-at-home stocks whose products we must
use every day at home.

These are the office software stocks (MSFT, ADBE), Communication stocks (GOOG, FB,
Tencent 700), Online retailers (AMZN, BABA) etc… For details, do watch my Youtube
video published on 9 March 2020 at
https://www.youtube.com/watch?v=iAE0Bqqxn5M&t=62s
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You can see from the chart below how these coronavirus proof stocks have outperformed the
S&P 500 index. In fact, stocks like AMZN (one of my core-portfolio stocks) are already
above pre-crisis highs.

In my portfolio, I have allocations of secular growth stocks, cyclical stocks and defensive
stocks… with more allocation going towards the secular growth companies. While my
secular growth stocks (MAGAF stocks) and defensive stocks (MCD, YUM, YUMC, JNJ
etc…) have run up very fast, my cyclical stocks (MMM, BA, JPM, BAC etc..) are still very
much undervalued and I expect them to take longer to rebound.

As far as country allocation is concerned, while my US listed stocks have rebounded the
fastest, I expect my Singapore listed stocks (namely the 3 banks and REITs) as well as Hong
Kong Listed stocks to lag behind.

Where Does the Market Go from Here?

Now that the S&P 500 has risen so sharply, what should we expect? Are we headed to new
all-time highs or are we going to go back down and make a second and lower bottom?

As always, remember that nobody can predict the future with certainty. All we can do is to
look at probabilities of the different scenarios that could play out and have a plan of action
for every single possible outcome.

While it is entirely possible for the market to make a lower double bottom, the probability is
low. It is more likely that the bottom on March 23rd was the final bottom.

Historically, once the S&P 500 is able to recover more than 55% of the bear market decline,
it no longer makes a new low. Watch this video
(www.youtube.com/watch?v=C7rap3X9Mrw&t=1149s)
where I explain how this historical pattern has played out in past bear markets.
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From the S&P 500 (SPX) chart below, you can see that it has broken above the 382.% and
50% Fibonacci retracement levels. As of yesterday’s close (30 April 2020), it is right at the
61.8% retracement level where I expect it to face significant resistance.

S&P 500 Daily candles 1

As investors (or traders), it makes sense to add shares during a pullback (retracement) to a
level of support. Remember that prices do not go up in a straight line. They move in wave
patterns. Looking at the chart below, you have the impulsive wave up (green line) and
corrective wave down (red line). For the last few days, we have been on an impulsive wave
up, so I avoid adding new shares. I am waiting for the next corrective wave down to A or B
support before adding more shares.

There is no way to predict where the corrective wave will end. However, the moment the
corrective wave hits a level of support, it makes sense for me to add more shares. I expect
this to be at previous support levels A and B as shown on the chart below. Again, could the
market go back all the way down to C to create a new low? I think it is unlikely but I am
always prepared for every eventuality.

S&P 500 Day candles 2

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When Should I Add Shares to a High-Quality Stock?

A common question I get from students is when they should add shares of a great company
on their watchlist. As long as the stock is fundamentally undervalued (price is below the
intrinsic value) and the price has retraced/pulled back to a level of support, then it is an
appropriate time to add shares.

As we can never catch the exact bottom, it is important to use a dollar cost averaging
approach and to add shares of a stock in stages until you have a full position. Another
consideration is to ensure that your portfolio is properly diversified so that each stock takes
roughly an equal percentage allocation. If you have 20 stocks in your portfolio for example,
each stock should take up a 5% allocation.

For example, I already have a full allocation of AMZN in my current portfolio. So, even if
AMZN is at an optimal level to add, I will not do so. Instead I will add shares of another
stock that does not have a full allocation yet to my portfolio (e.g Estee Lauder (EL))

At the current price of $176, EL is still below the intrinsic value of $199. However, from the
chart below, you can see that it is at the top of the impulsive wave. I would want to wait for a
corrective wave down to about $160 to $165 to add more to my position
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Stocks Are Fairly Priced Now with Certain Sectors Still Undervalued

With the recent rebound in the markets, I would say that fundamentally, the
market is now slightly above fair value, taking to account that it has priced in an
economic recovery in 6 to 9 months. Stocks are no longer as dirt cheap as they
were a month ago. The current Price-to-earnings Ratio (P/E) of the index is at
19x, above the historical average of 15 times.

However, certain sectors (i.e. cyclical sectors) like financials, industrials

(especially aerospace) and energy remain quite undervalued because of the
uncertainty around its future earnings. Defensive stocks like Health Care and
Consumer Staples are no longer cheap. In fact, Johnson and Johnson (JNJ) and
Veeva (VEEV) are at all-time highs right now and overvalued.

As for secular growth stocks like my favorite MAGAF stocks, AMZN, GOOG,
FB are still slightly undervalued while MSFT is fairly valued and AAPL is still
quite overvalued.

I am secretly hoping for the market to pullback with a healthy correction down
10% to 15% from currently levels so I can load up more shares before they go
to infinity and beyond

Earnings Season in Full Swing!

Do note that earnings season for stocks is in session. While most of the
technology MAGAF stocks have reported strong sales and earnings growth, the
cyclical stocks like Bank of America (45% drop in Q1 earnings) and Boeing
($641 million loss) have reported major drop in earnings or losses.

However, despite losing money, notice that their stocks jumped up when their
earnings were released. This is because the bad results were already expected
way before hand and already priced into the market. So, although the results
were bad… but not as bad as expected, their stocks rallied up in relief.

This to me is actually quote a bullish signal. Despite having to borrow $25

billion to stay afloat and reporting $641 million in Quarter 1 losses, Boeing
shares (BA) have actually jumped up +6%. This is a signal that the worst is over
and the stock has more or less bottomed. However, lots of patience is needed for
this former beauty queen to regain its former glory!
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I am also very happy to announce that we have just launched our brand-new
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Bang Pham Van will be sharing at least 2 compelling trade ideas monthly with
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Live Classes at www.wealthacademyglobal.com

Online Classes at www.piranhaprofits.com
• Value Momentum Investing™ Course
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Stay safe and may the markets be with you

Adam Khoo
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