🍽️ How To Safely Manage Your Appetite For Investing Risk

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What’s on the Menu 🍴

Today’s newsletter is all about taking a good look at some key stocks…

Analyzing new bitcoin ETFs in Asia…

And learning how to manage your risk appetite.

So let’s dig in!

• Starbucks: Buy the Dip or Abandon Ship? ☕️

• Reality Check for Hong Kong's Crypto ETFs

• How To Safely Manage Your Appetite For Investing Risk 🍽️

Today’s newsletter is a 5 minute read.

Starbucks: Buy the Dip or Abandon Ship? ☕️

Starbucks stock (ticker: SBUX) was down 12% in after-hours trading on Tuesday after reporting quarterly earnings that disappointed investors.

Not only did SBUX miss the consensus earnings estimates, the company also experienced its first decline in existing store sales since 2020:

SBUX management called out several pressures on the business including more cautious consumers and severe weather in January.

Revenues at SBUX stores in China also declined 11% due to fierce competition from low price chains as well as a slower than expected economy there.

Competition may have played a role in North America as well.

Two weeks ago we wrote about SBUX and the growing competition from other chains.

We also said that valuation had already compressed a lot, so SBUX might be getting to value levels. We were clearly too early on that!

Investors are now asking two major questions: 1) can Starbucks turn its issues around and 2) is the stock worth owning at this point?

As to the first question, SBUX management believes they can get back to growth via some of the following initiatives:

• Continuing international expansion (India & South America)

• Reducing morning wait times

• Expanding new food item availability

• Keeping some stores open during overnight hours

• Adding guest checkout & more rewards to the app

• New beverage innovations such as textures and no-calorie options

This will take time however, and things could be messy for a few quarters.

That brings us to the second question about whether to buy the dip or abandon the stock.

When it comes to sell decisions, we have a decision tree we use in the Skill Incubator wealth building community to help guide us.

One of the first checks is whether the fundamentals have materially changed or the investment case has been invalidated.

In the case of SBUX, one could argue the fundamentals are undergoing a material negative change.

For many investors who have better places to deploy capital, selling the stock (even at a loss) might make sense.

However, thinking longer term, SBUX has proven over the years that the business is resilient.

Prior declines in 2020 and 2022 were good buying opportunities and the stock is likely to trade at a valuation below those levels now.

Investors do have options such as reducing the position size or waiting longer before accumulating/adding to a position.

Those can be great ways to lower risk while waiting for more clarity and better prices.

It may also help to think about what actions will minimize stress and regret.

For some investors taking a quick loss is better, while other investors enjoy averaging down into dips to ensure a good position if a stock recovers quickly.

Regardless, we’ll keep an eye on SBUX here at the Daily Dough as it navigates a challenging year.

Reality Check for Hong Kong's Crypto ETFs 💸

Hong Kong's financial scene just got a bit more exciting—or did it?

As whispers of spot Bitcoin and Ethereum ETFs buzz around the city, a surprising dampener came with Bitcoin's price dropping on the rumored launch day, April 30th.

Launch day coincided with the close of April’s candle, the first red month we’ve seen after bitcoin’s record-breaking 7 month green streak.

The markets were unimpressed with the initial demand from Hong Kong investors, pushing price into the 100 period moving average on the daily chart:

Here's a bit of cold water for those hyped up expectations:

1. Market Size: Hong Kong's ETF market itself is modest, sitting at about $50 billion. And for now, mainland Chinese investors can't participate, at least officially.

2. Issuer Size: The trio given the approval — Bosera, China AMC, Harvest—are relatively small players.

3. Market Dynamics: Expect inefficiencies. The less liquid, less efficient underlying market ecosystem in Hong Kong could mean these ETFs will face wide spreads and possibly trade at discounts.

4. Cost Concerns: Anticipated fees ranging from 1-2% aren't helping either, especially when compared to the razor-thin fees in the more competitive US market.

A Modest Debut, A Promising Future?

Despite a lukewarm start with Bitcoin's price dip, there's a silver lining. The relative scale of Hong Kong's market did see a commendable first day for the likes of ChinaAMC's Bitcoin ETF, pulling in $123 million—ranking it impressively among recent ETF launches.

Not bad for Hong Kong’s Labor Day holiday week!

Our Takeaway

While Hong Kong's entry into the Bitcoin ETF arena might not turn heads in the US market, it's a significant step for local market evolution.

As the dust settles post-launch and the market gears up post-Labor Day holidays, all eyes will be on the ensuing volume and investor interest.

Will it soar or will it settle?

We’ll be watching closely over the next week!

How To Safely Manage Your Appetite For Investing Risk 🍽️

Risk management is the crux of any investing strategy.

Investing too conservatively could lead to not reaching your goals, but being too aggressive can lead you to losing wealth AND also not reaching your goals.

So it’s important to:

1. Identify your level of risk tolerance.

2. Double check your investing strategy to be sure you’re not going to fall short (by losing too much wealth, or not getting enough return).

Not too surprisingly, a lot of my followers consider themselves aggressive risk takers:

There is nothing wrong with having a high risk tolerance.

However, many financial advisors out there will do their best to “tame the risk beast”.

I think instead of making someone feel guilty for their high risk tolerance, it’s better to find a way to balance those thrilling investments with safeguarding some wealth in order to hit your goals.

We’re trying to find the win-win.

In trading the markets, we practice a strategy called “scaling out”.

It’s where we pull some profits off the table of a winning trade while still keeping some exposure for higher returns.

You can do this in your financial life as well.

I love “locking in” a portion of wealth for meeting your biggest needs and goals, while allowing a percentage of your wealth to be exposed to the risks you want.

Maybe you want to hold a concentrated position in your company stock.

Most advisors will suggest you limit the position to 10% of your net worth. However, I’ve worked with clients in corporations that simply want more exposure to their company stock because they have strong beliefs about the future.

They want to take on the risk.

This is more so with major tech companies that the earlier employees are excited about the opportunity for serious stock appreciation.

There are many other situations (especially for business owners) of having to manage risk-taking for the win-win.

Coming up with the right allocation to higher-risk assets or positions requires a comprehensive look at your entire financial life and your actual risk capacity.

After all, you can have the highest risk tolerance in the world, but, it doesn’t mean a thing if you don’t have the capacity to take that risk on in your life.

So, I really like to think about managing wealth and risk tolerance with a “scaling in and scaling out” mentality.

Consider “locking in” some wealth for certain goals.

It really helps give you the ability to have peace of mind, while still exposing yourself to high returning potential investments if done correctly.

Food For Thought 🧠

"The biggest risk is not taking any risk. In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”
- Nassim Nicholas Taleb

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.