Make sure your restraints are in their full upright positions!
09.28.21
To quote my dear friend, the doctor, “Today is certainly not a day for the faint of heart!” These are certainly the days that test the conviction you have in the (hopefully) great companies you own. I have recently written about the benefits of long term investing vs. short term trading several times in previous posts on 07.30.21 (click here) and on 03.24.21 (click here) , when our portfolio dropped almost 40%. As of last Friday, the same portfolio was up almost 110% just since that drop in March. I’m certainly glad I did not sell my great investments, as I would not have been rewarded with anywhere close to 110% gains. I would also encourage you to read the post from just two weeks ago on 09.09.21 (click here)…remember that roller coaster I was describing!? ;).
September and October are notoriously & historically the worst months for the overall market. While we’ve had an incredible ascent for the past 4 months, it would not surprise me to see some temporary descents. I must reiterate: I don’t try to time the overall market, which means I don’t exit any of my core 10 positions based on the overall market or sector rotation. I may de-leverage after an incredible run like we have had by slightly trimming some positions I have less conviction in, especially when the portfolio has risen so quickly and dramatically and the macro economic environment is inflated , frothy, or tumultuous, as it has been recently. To be clear, though, this simply means that I might be only 90-95% fully invested and that I’ve taken the opportunity reduced much of the options leverage I had added during the last major drop (March – May of this year). To understand more fully, just two short weeks ago I wrote the following on 09.09.21:
“The portfolio and the market has been screaming higher and almost all the companies in my portfolio have repeatedly hit ATH’s. When the market dropped in March and April this year, I added a great deal of leverage to my portfolio (shares, options, no cash position) and loaded up on my favorite companies in which I had the highest conviction: CRWD, DDOG, NET & DOCU. Correspondingly, at these repeated new heights, I have reduced that leverage now, taken some profits off the table and prepared myself for buying opportunities to come. I have done that by reducing options exposure and leaving a small percentage of the proceeds from reducing NET and CRWD to have a 10% cash position with which to pay the upcoming quarterly taxes I will owe, to maintain an appropriate measure of safety and living expenses, as well as to have the tinder to invest when the market gives me great opportunities again in the future…like they did in March & April. What I have NOT done is sell my fundamentally sound investments in all these amazing companies and leave it all in cash. I can not time the market and try to remain close to fully invested (minus living expenses and large tax bills) most of the time.”
We are now seeing this turbulence predicted above over the past week. It could be very short lived, but I expect it could continue for a few weeks or months. Macro-economically, Inflation fears, budget ceilings that could cause debt payment defaults, political turmoil, Chinese political crackdowns on businesses and a massive company failure in China (Evergrande bankruptcy might be the biggest in history), Covid delta fears and the notoriously tough months of September and October, among many factors, all coincide to make people very nervous right now…and nervous people (and traders/traitors) tend to sell their positions and try to time the market. I personally usually view these periods as incredible opportunities to buy and I might have missed out on 110% returns the past 4 months if I’d sold on the last downturn. Warren Buffet famously said: ““Be fearful when others are greedy and greedy when others are fearful.”
What companies am I looking to add to my position?? As stated in my 09.09.21 post (click here), I am still looking to add to my positions in LSPD, DDOG and AFRM. I have already built up a 26% UPST position as high as I need or want it to be at this point and it remains my highest conviction company right now. Indeed, I’m even a bit uncomfortable with it being this high, however, it has literally more than quadrupled since my original purchases in the $80s way back in uhhhh….April!! Just 5 months ago. Since that post, I have also built my AFRM position into a 4% position the past two weeks, while UPST has grown to almost a 26% position without adding to it just based on the surge in the stock price alone. While UPST was down today about 6%, it is still trading at an incredible $312/share. Why incredible? Well when I was asked on 07.30.21 by an investor if they should buy UPST on that day at $122 or wait, I posted the following response “here”, suggesting that the company could double, triple or 5x itself long-term. While I could not have predicted the stock price would almost triple in just a few months, I still believe they can double again from here. The point: I certainly don’t care now at $312 whether I got into it at $120, $122 or $126/share.
Back to today: I am sitting tight this morning and have neither bought or sold, as I have solid full positions that I’m content to hold long-term, without needing the funds for several years, and because I expect to have more opportunities to add to my positions or add leverage in the form of options over the next 4-6 weeks if/when the drop continues. That being said, however, if I did want to “start” a new investment position in a company and to build it long-term, today might be a great day to seize the opportunity to start it by buying one-third or one-fourth of the desired position in a company or adding to a company in which you already have a small position. I can’t time these things perfectly, so I don’t try. And I don’t give advice or recommendations, I simply share my own experiences and what I am doing or would do.
One last note: I want to let everyone know that “for better or worse” I chose to sell my entire ROKU position last week. I may be dead wrong and the company could easily turn around and go back up $100. Indeed, it remains a strong, solid company; however, I wanted the funds for other investments and felt the least conviction for it out of the 10 companies I hold in the portfolio. I strive to hold only 10 companies in total, which forces me to really focus, compare and invest in only the 10 very best, without straying. Darwin’s “survival of the fittest” and the “tip of the spear”, so to speak.
Enjoy the rollercoaster ride, both the “Ups” and the “Downs”…out of chaos and pandemonium usually emerges many great opportunities if you are mentally prepared for them.
As Louis Pasteur famously said: “Chance favors the mind that is prepared for it.”
Cheers!
-Poleeko
