It’s not surprising that this roller coaster is continuing… Hong Kong protests, China growth the lowest in 17 years, Yuan currency sinking, nuclear explosions in Russia, trade wars…with todays media I question sometimes if tomorrow will come. Lots of chatter about long-term bond yields crossing below short-term for the first time in a decade. A recession is guaranteed at some point, as we have had more than 10 years of economic boom and prosperity, so if you are risk averse, cannot sleep at night, or need the funds that are invested in the next 3-5 years, it may not be the best time to be fully invested in stocks.
I buy with the intention of holding indefinitely or until the “company” (not the market) stops performing and growth starts to slow, regardless of the sometimes arbitrary stock price. “Beta” is a measure of a stock’s volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. ALL the stocks in my portfolio have a high beta…probably approaching or above 2.0. That means that on days like today, when the whole market is down 2.5%, you might expect to see our portfolio down twice as much. Indeed, at this time it is down 3.77% for the day and it was down 5% earlier as a whole. Correspondingly, on “up” days, you would expect these fundamentally sound and fast growing companies to outperform the market, which is why they are up more than 4x the overall market this year to date. It is difficult to impossible to swim against the tide. A rising tide raises all boats…a falling tide…well, this portfolio will not escape unharmed, but I believe over time it will continue to outperform the overall market, as it has for the past 10 years.
The tough question if you want to try to time it is if the market is going into a recession today, tomorrow or in a few years. I am betting (with my investments) that the uptrend will continue for another 9-12 months. I could be wrong. It could go down from here and also go sideways. I do not try to “time” the tops and bottoms. I keep a safe amount of cash on the side to weather the storms and so I will not need to sell them when they are down. I continue to look for fast growth, great performing companies and I believe that even in a downturn, other companies will continue to invest and use these SaaS companies transformative digital technology, whose software is both less expensive and critical to their success in the digital revolution we are in, companies that are providing the picks and shovels of this digital revolution, and that are no longer sold, but “rented” in long-term multi-year contracts… by the month. Think about how you used to buy Word and Excel and use the software for the life of your computer…and maybe the next computer…sometimes for 10 years, like me. Like Microsoft, all these companies now lease their SaaS solutions by the month and sign multi-year deals that are locked in and recognized over time. For a company going through a hard time and cash flow constrained, it is easier to commit to monthly charges for best in class solutions, than to pay for it all years in advance. This is the beauty of the companies in this portfolio….all have recurring revenues and multi-year contracts that virtually guarantee they will continue to bring in revenue for the foreseeable future. Will the growth slow…eventually that is certain. Will the stock price be hit by a fearful market and external factors, most definitely. Will the market eventually turn around and head back up? Certainly. But its very difficult to time it and when I’ve tried, I’ve missed a larger portion of the upswing than I avoided in the downswing. I hope you are enjoying the roller coaster and learning a bit in the process. Regardless of the overall markets, the US economy remains strong: Unemployment is at historic lows, consumer spending is booming, the financial system is healthy, and if you follow the inversions of yield curves, while they portend the “eventual” coming of a recession (which is inevitable at some point), its also important to recognize that the S&P 500 has rallied 22% on average between the first inversion of the yield curve and the start of a recession. That may or may NOT happen again this time, but I’m staying invested. Cheers!
https://seekingalpha.com/article/4285908-mongodb-incredible-revenue-generator?app=1&dr=1
There always has to be one party pooper!! But I won’t let that get me down today!
https://seekingalpha.com/article/4287149-alteryx-signs-slowing?app=1&dr=1
Trumpageddon…again.
User comment: My portfolio is not a fan of his tweets and sound bites. I will keep my personal political feelings to myself. 😮
