The first trading day of March starts with another ugly session, with the Dow Jones down greater than 1%, S&P down 0.80% and Nasdaq down 0.5%. This comes amid Russia advancing closer to Kyiv, yet the Ukrainians are holding back the Russian troops better than expected. The Russian act of war has led to many sactions from the West, ones that are expected to isolate Russia like North Korea. The sanctions against a big oil producer and exporter have lead to fears about oil supply shortage, thus leading to higher oil prices all around (U.S. oil jups to 7-year high above $104 a barrel). Too high oil prices are perceived to be bad for economic growth, because it increases production costs for industrial companies, that is why you are seeing the Dow Jones Industrial Average underperforming today.

Another reason why the DIA has been underforming is because of major financial companies/ banks. Besides oil exports, another area of the Russian economy that Western countries are targetting is the financial sector. You have heard about major Russian banks are excluded from the SWIFT system that allows banks to transfer money. The Russian currency has also lost so much value. All of these fears of a potential collapse of the Russian financial system have been creeping over to financial stocks in the US. We believe these fears are irrational; major US banks do not have large exposures to Russian economy (with the exception of Citigroup which we don't own). Therefore, we believe this is a buying opportunity for our portfolio financial stocks such as Morgan Stanley or Wells Fargo. 

However, one potential risk that market participants are pricing in is that the Federal Reserve may be hiking interest rates into an economic slowdown ad that will cause a recession. In a recession, most industrial stocks will lose value, whether it be financials or automakers.

With these risks/ rewards laid out, we have been buying financial stocks for the past few weeks. We have also been very disciplined on how we add to our positions, obeying the principle discussed here of not buying willy nilly at any price, but rather define meaningful price levels for action. Take our position in Morgan Stanley (MS) for example:

Since the begining of February, we made 6 separate purchases of Morgan Stanley stock, at different increments. On 11th and 15th of February, theses purchases were made to initiate the MS position (this is for a different, private portfolio that we are managing). On the days afterwards, we made 4 other purchases, with each purchase more than 2% below the previous's purchase. Sequentially, the later purchases occurred at lower levels. To us, this is a good example of building a position.

Given we just bought 15 shares at $89.82 last Thursday, we would not be buying any shares here at $87.85. We would want to place a bid in the low $80s, maybe $82 because that would mean the stock makes another 10% decline. 

The bottom line, in these tought market times, you want to excercise good portfolio management discipline to buy damaged stocks of good companies. We hope today's post shows such example.