On February 16th last week, I was supposed to board a plane for SE Asia to visit Cambodia, Vietnam and Thailand. When I woke up on the 15th, Vietnam had just quarantined 10,000 people, the virus was spreading outside of China who had already quarantined 56 million people, and several cruise ships laden with passengers infected with the Coronavirus (Covid-19) were docked off shore in all three countries I was supposed to visit. With much consternation and frustration, and at great expense, I canceled the trip (a combination of business and pleasure) and started the laborious process of trying to get credits or refunds on 6 flights and a plethora of hotel and other reservations. Luckily, they were sympathetic and because I had flights through Hong Kong, they were probably happy I was NOT coming to their hotel!!
Global Economic Impact: The companies in our portfolio may not be hurt fundamentally. By that I mean that their internal company performance and growth may continue and may be little affected by the virus or an outbreak, but “technically” (by this I mean the “stock price” now) I considered that the company’s stock prices could get sliced 10 or 30% (or more) in a few days or weeks based on their high valuations alone (EV/S and other relevant measures). While I am not inclined, due to significant short-term tax consequences and also the inability to time these things, to buy and sell these companies in my regular trading accounts (non-retirement accounts) unless the underlying fundamentals of the company itself are damaged or underperforming (such as ZS and TWLO that I’ve written about lately), I am willing on occasion when I feel the overall market (the beta risk) could be in for a sudden or prolonged downturn to raise a little cash and to sell any stocks I’d been considering getting out of anyway.
So for what it’s worth, I want to give a quick update that on Thursday I took the opportunity to sell my PAYC and TWLO positions and raise a little cash (now a total of about 10% cash). A large portion of the gains are tax-free in my IRA, but my Twilio position was up over 200% in my regular trading account and was the last of my position I had not sold (2.5%). I will take a tax hit on it and was planning to sell it anyway, but I’d been waiting because every single day those stocks had been up… TWLO was up 20%+ since Jan 1. I had told myself when the stock surge faltered or the market halted its advance or turned around, I would sell the remaining shares in those two positions. This now gives me a little bit of a safety valve (as I was almost fully invested) and some fresh tinder to light a fire when things settle down and reverse…perhaps at something of a discount. Luckily I had also reduced my put options in CRWD last week also, along with a few other options positions that can be dangerous leverage (in the wrong direction) in tumultuous markets.
The overall markets were down on Thursday and Friday, the volatility spiked and our portfolios took a considerable downturn with the rest of the overall market. The news over the weekend did not improve related to Covid-19 and the FED did not lower rates last week. I certainly can’t predict how the markets will open tomorrow, how much or if investors are finally sizing up the risk of a global pandemic and a slow down in business across the globe, or how long something like this virus will last. For these reasons, I like to have some cash on the side for emergencies and to hold out.
What I do know is that the companies in the portfolio are growing fast, have solid financials, strong balance sheets, 2-3 year contracts and hundreds of millions in deferred revenue…they are fundamentally sound and will more than survive. I also know that eventually this will blow over and they will recover…just like last years drop, similar to SARS, MERS, the financial crisis in 2008, the dot.com bust in 2000 and other market-wide impacting events. Last July 26th, for example, when the portfolio was at an all time high and up 101% YTD2019, many of you witnessed that the portfolio got hit hard, dropping all the way down to only 20% growth over the next three months, but then completely recovering by mid-January 2020 and hitting new all time highs through the middle of February. Will that happen again? Eventually. When? That is impossible to time and I don’t try. Things may get dicey and scary the next few weeks or even months. If you feel more comfortable being in cash or sitting on the sidelines, only you can assess what is right for you. I like the companies I currently hold, I believe they can all 3x themselves over the next few years, and if they succumb to a dropping tide in the overall market, I will try to add to those names with the cash I have on hand. I hope Covid-19 blows over and is a relative non-event in the US, but with over 2000 people already dead in China, outbreaks in several other countries now, quarantines of hundreds of millions of people, airlines canceling all flights through March, schools and factories closing down, and mandatory house quarantines and curfews…I must at least ask the question, “why” and consider the economy will take a hit and things in the market could get worse before getting better. It is very difficult to swim against an ebbing tide, but to be clear. This should be a very interesting week…cheers!
User comment: RE: the masks, hand sanitizer and I’ll add Clorox wipes. I live in Malaysia and those items have been completely sold out for weeks. If you don’t have them, get them now!
User comment: Hey Victor, why N100 vs N95?
User comment: I think he meant N95. As a doctor, I don’t know of N100. We use N95 when needed. They are in very shot supply.
User comment: Ok. Good.
User comment: “Short”! They are probably made in China.
Victor’s response: See below: N95 is more commonly used. N100 is better but a lot more expensive and not necessarily more effective against a virus which is smaller than .3 microns. Mask is more useful to keep you from touching your nose and mouth and protecting others from your cough or sneeze if you are contagious.
Respirator Rating Letter Class:
N – Not oil resistant
R – Resistant to oil
P – Oil Proof
Respirator Rating Number Class:
95 – Removes 95% of all particles that are at least 0.3 microns in diameter
99 – Removes 99% of particles that are at least 0.3 microns in diameter
100 – Removes 99.97% of all particles that are 0;.3 microns in diameter or larger. HE or HEPA quality filter.
User comment: Ok! N95 is what we use for particularly infectious disease. Those with fine droplet aerosol spread. But we are tested for fit every year – we put the mask on, then the put a hood over us and squirt an apparently bitter spray into the hood while we move our head side to side and up and down. We are not supposed to smell anything.
