A very interesting week indeed! I would first point out that our portfolio of stocks on Friday alone was up over +3.1%, while the rest of the market (Dow, Nasdaq and S&P) were down significantly.
For the week, the overall market indexes got absolutely pummeled…and then thrown out with the bathwater! Frankly, it was a bloodbath, posting 15%+ losses for the week (on top of the prior Thursday and Friday) and registering the fastest “correction” (defined as a decline > 10%) in recorded history!! That is saying quite a lot when you consider the Great Depression, the 1987 & 2000 crashes and the 2008 Financial meltdown! The markets endured several 1000+ point drops in the Dow, and the overall stock market indexes on average ended last week DOWN 10.3% YTD [This is the average of 5 indexes since January 1, 2020 that I track and average together to see the overall market, which includes the Dow, Nasdaq, S&P 500, Russell 2000 to take into account large cap, mid-cap, small-cap, tech and the broader market).
Now let me contrast that with our portfolio of 10 well selected, high growth companies. On 2/19/2020, the portfolio posted an all-time high and clocked a whopping 34.67% gains YTD 2020. Alas, by the end of the month of February, the portfolio had dropped to only 22% gains for the year (YTD 2020). While that is quite a significant drop, it is still an incredible return for any ANNUAL gains (much less only 2 months). As a bench mark, I like to compare the overall market average (described above) that is now negative and down -10.3% YTD to our portfolio that is up +22% and ascertain that we are handily beating the overall market by +32% points amidst the chaos and turmoil.
The combination punches of Covid-19 and perhaps Bernie Sanders becoming the democratic candidate leader (viewed as the socialist, independent ticket by Wall Street and not particularly positive for the stock markets) and many companies announcing major supply chain breakdowns across the globe (Apple, Microsoft, automakers, etc) have combined to create the perfect storm.
Will it continue? Who knows and impossible to predict. The next month is sure to be volatile and uncertain. Covid-19 news will certainly get worse and we’ve now seen our first death in WA state this weekend. That will certainly impact the markets negatively tomorrow morning and this week…and there are many more deaths and cases to be announced in the US, as the media piranhas continue their frenzy of stories and coverage that is instilling a great deal of panic in the markets and the public. Again, it is always difficult or impossible to swim against an ebbing tide.
It’s important to remember that market corrections are normal and healthy. Could this be worse…even Armageddon? It is impossible to know, but the odds are strongly against it. One day we will certainly turn the corner and find ourselves in a recession and we have certainly not seen our last Bear market; however, acting like impending doom is around every corner is not only exhausting, but utterly and completely useless. It’s been proven repeatedly that market timing is impossible long-term, so I don’t even try. I simply remain focused on the things I can control, rather than being distracted by the never-ending cacophony of kneejerk proclamations. Remaining calm in the midst of chaos and confusion is a practiced art. This porfolio experienced ~30%+ drops at the end of 2018 and again from July-September 2019. I repeat, “normal and healthy”. Many of us have not only survived both of these short-term downturns, but have actually rebounded and surged to new all-time highs (me as recently as February 19, 2020). These solid companies in our portfolio are not going to go bankrupt or self-destruct any time soon. Our challenge is not to jump out the window because of the cacophony of frenzied news story blitzes that would imply the world is ending. And in the unlikely event it is actually ending, I would argue none of these investments matter, so why worry!
To summarize: I regret correctly predicting a “10-30% correction in a few days”. It is never easy to watch your portfolio lose 13% of its value. And I never could have imagined it would happen so quickly. Its been difficult, as always, to hold to my convictions and not sell, seLL, SELL, as everyone panics around us and runs for the exits, but I feel very good about the companies I own and they have boasted quite incredible quarterly earnings calls in the midst of the panic. TTD (TradeDesk), in particular last week on Thursday, while the Dow was down over 1000+ points, TTD was UP +15% in one day after announcing spectacular results! I will summarize their call shortly, but was very glad to own them while the sky was seemingly falling all around.
Last week I took very little action, except to watch the turmoil like a horror/thriller movie. As written, I had already raised about 12% cash (now 15% after the drop) and reduced most of my options leverage just a day or two before the decline; I had sold 2 companies (mentioned in a prior text) based on fundamentals of those companies (not because of the market, or beta risk). The one other sale I did make last week was in my tax-free IRA account (meaning it had no tax consequences), in which I sold about half of my Zoom (ZM) position (representing about 1% of the portfolio) at around $115/share. The stock price had kept going up every day on the Coronavirus news and was up 20% in the last week alone in anticipation of people using the Zoom conference calls to work remotely, study, go to school, etc. It was $68 on Jan 1, 2020. When it exceeded a $31B company valuation on Thursday this week, with only $540m in annual revenues, I simply felt it was way too high to sustain such a valuation, was overhyped and took the opportunity to raise a little more cash and count myself lucky to have ridden it up so high. On Friday it rose as high as $120 and then dropped back to $100/share. 20% fluctuation in a single day are never comforting. I could be wrong about the price and it could go back to $120 or even $200. No regrets here. As to the overall portfolio, I will now monitor the Covid-19 situation and take whatever opportunities I can to add to my remaining company positions selectively and in small increments, if and when I see the market starting to turn around.
CAUTION: I want to strongly reiterate that I can hold on to these stocks without selling them and without the need for the cash invested in them for at least 2 or more years. If I needed this money in the next few years, it would probably NOT make sense to be invested in these companies, or perhaps in the stock market at all right now in the midst of the uncertainty and pandemonium. I only know my personal situation and circumstances, my own risk profile, and I certainly do NOT make any recommendations or presumptions on anyone else’s behalf. I simply am trying to experience share in a Gestalt manner what I have benefitted from over the years and share a bit of the psychology of investing and lessons I have learned the past 30 years…sometime the hard way. If you have the advantage of time, though, I strongly believe in this portfolio of companies and have personally benefited the past 5-years from the power of selectively investing in a dozen or so fast growing, low or no debt, strong balance sheet and solid management SaaS companies taking advantage of a digital revolution that is sweeping the planet and will continue to do so for the foreseeable future, with or without COVID-19 or Bernie Sanders (absolutely no offense intended here and no political statement at all, except the potential negative impact to business and the overall stock markets if he is elected and based on his own campaign promises, as viewed through the lens of CNBC and the pundits of the business world which are obviously one sided, but DO impact the stock market).
OKTA and ZM will release earnings this week…no doubt, another cliff hanger in the markets! Cheers! Stay healthy! AND WASH YOUR HANDS OFTEN!! 😉
User Comment: Great post! Thx Victor.
Friday was a high beta day where we ended on the positive side which felt good given the previous several days.
User Comment: Thank you Victor! Very insightful take on all of the recent hype around Covid-19. Let’s hope it passes without much effect like some of the other past pandemics. (sars, etc.)
