US Markets: First Half Review.
The S&P500's more than 21% plunge was its biggest first-half fall since 1970. Its second quarter was the worst since the first quarter of 2020. And while the S&P500 just entered in a bear market, the Nasdaq, the tech stocks symbol, has taken an even bigger hit and has plunged more than 30% since its peak last November.
- $NFLX: -69.88% YTD (the worst performer in the S&P).
- $COIN: -80.47% YTD. Representative of the H1 crypto turmoil.
- Even megacaps like $META (-52.73%), $AMZN (-35.7%), and $AAPL (-23.67%) haven’t been spared.
From a style/factor point of view, only US high dividend paying stocks ($HDV) are "up" 0.18% YTD. Value ($VLUE) is down -16.2% YTD, Quality ($QUAL) fell by -22.72% YTD, and Growth ($IUSG) experienced the biggest drop of -27.48% YTD.
The tightening of monetary policy worldwide to fight inflation and leading to a probable recession has been the main driver the negative performance. This downward trend was intensified by Russia's invasion of Ukraine, which increased pressure on the supply chain and geopolitical issues.
Add a comment…
Granted they are from overextended ATHs anyway, the decline YTD of some of these "household" names never fails to amaze me.
I try to think about my portfolio in terms of the strategy I had in mind at the beginning of the year. On 1/3/22, I had large positions in Cathie Wood stocks like $TDOC, $COIN, and $TWLO. We all know what happened to Cathie’s stocks. They have been the worst performers. COIN being the worst, down 70%. I still hold them, however. I haven’t completely lost faith.
Earlier in the year, I stated that I wanted to build heavier positions in MSFT, GOOG, and META because I did not think they would be affected as much by the economic downturn. I did indeed build up heavier positions in $MSFT, $GOOG, and $META as can be seen on the chart. META would be in a higher position but is down significantly on the year. I do believe that META is attractively priced right now.
Another thing I mentioned earlier in the year is how I was heavy in ecommerce and fintech. My ecom and fintech holdings are down significantly. I haven’t sold, still holding on. I am slowly accumulating. $ETSY and $UPST are some of my favorites for these areas. Also, like $RVLV.
I did add what I consider to be safer positions to my portfolio in an effort to preserve value. These types of additions included $UPS, $UNH, and $CNC. I am either up a little or down a little on these. They’ve done the job I’ve asked of them.
Back in January, I also said I would slowly keep buying Chinese stocks. Interestingly, these are my best performers for the year. $FUTU up 38%. $VIPS up 19%. $PDD up 27%.
A few weeks ago or so, I did some panic trading. It was hard to think clearly with all the down days. I was in and out of a few stocks over a period of a few days. I’m at a better place mentally now. I’m going to stick to my convictions. Will my strategy work? I don’t know, but I’m enjoying the process of learning and growing as an investor. Green days inspire hope. Red days are instructive and build discipline.
Portfolio and Macro Update
Welcome to the second half of the year.. and good riddance with the first half!
Portfolio Update: During tough times like these I go into auto-pilot. I let all of my dividends continue to DRIP (dividend reinvestment programs) helping me systematically DCA (dollar cost average) and take advantage of the down turn. I have not made any material changes with the exception of selling out of my $Y position as the company is being acquired and it was more or less a mission accomplished situation for me. I rolled the proceeds into existing positions consolidating my portfolio a bit.
Personal Strategy: Less is more. While it certainly hurts watching some of my favorite stocks get beaten down this is no time to panic. I intend to hold firm and weather this economic storm like the ones that have come before it and the ones that have yet to come.
- I believe we are in the midst of a recession already. It may take a few more months for the talking heads to admit it / come to terms with it but I believe we are already there.
- Inflation is the key driver here but I am of the opinion that it is a supply side issue meaning the Fed's rate increases will not materially affect the root cause. Raising rates decreases demand by constricting the money supply but does not increase the supply of the goods, namely energy and food, that are driving the inflation in the first place.
- Energy - We have entered a new phase of the problem. Where crude supplies have been the main focus over the past few months, refining capacity is going to be the next area that needs to dramatically increase before we see relief at the pump. Additionally, there is hope among many that OPEC+ will be able to increase capacity but they have been missing their production goals already so I am of the belief that they simply do not have a lot of spare capacity to tap into.
- Food - Food inflation has been the second most important issue for many on main street. As the war in Ukraine continues to rage on, this crisis will continue to exacerbate as both the Ukraine and Russia are normally large bread baskets for the EU and other Mediterranean countries. This will not have a quick fix either as wheat harvests should be taking place now but are not due to the war. Even if they were to harvest, the blockade of Odessa and the mining of the Black Sea have the grain reserves essentially land locked.
- Economy - We are starting to see some cracks. The housing market is cooling as rates rise, major companies are internally preparing for a downturn via proactive layoffs and hiring freezes. To me, seeing companies like $TSLA, $META, and other mega caps slowing down is indicative that the problem is more widespread than we may believe.
Key Take Away / What To Do: The current macro backdrop is rather bleak and there are no quick fixes to the root causes driving the rampant inflation. Despite this, downturns are part of this game we call investing and if you are in for the long term panic selling at this point is one of the fastest ways to destroy capital. Instead, focus on your core jobs, hunker down and continue to raise cash. Take advantage of any dividends in your portfolio to reinvest and over the coming months / year slowly average into your highest conviction names. With volatility like it is, quick trades may seem attractive but in my experience luck can be easily confused for skill in the short term so I chose to stay steady and consistent vs. trying to time the ins and outs of the wild price movements.
View 3 more comments
Love the update. Agree with all your thoughts. Conviction will pay off. Just relax, invest in your highest conviction names and one day we shall be back
Portfolio end of June '22 (descending order)
Epsilon Net Group $EPSIL.AT
Secunet Security Networks $YSN.DE
Leatt Corp. $LEAT
Grodno SA $GRN.WA
Media and Games Invest $MDGIF
Centrotec SE $CEV.HM
IDT Corp. $IDT
Vow AsA $VOW.OL
Digital Turbine $APPS
Tremor International $TRMR
Passus SA $PAS.WA
Booking Holdings $BKNG
Steico SE $ST5.DE
Unity Software $U
Tencent Holdings $TCEHY
Alibaba Group $BABA
SEA Ltd. $SE
Monster Beverage $MNST
New: $CEV.HM. Sold: $INPST
Yield Guild Games $YGG.X
Bitcoin Cash $BCH.X
View 3 more comments
Nice crypto basket there, how do you tend to view the more obscure ones, as moonshots?
Not a Market Timer? Just Buy $VOO
Pretty much any asset you buy is a form of market timing. For example, if you are buying a value tilted ETF such as $AVUV, you are timing that value will out perform the market in the future time period you will be owning $AVUV. This same principle goes for most secruities. If you buy $META, you are timing that $META will out perform the market in the time period you hold Meta for.
Since we all know how hard market timing is, why not just dollar cost average DCA into $VOO (or equivalent S&P500, total market, total international index fund)?
In the past year Value has outperformed the market
In the past 5 years Growth has outperformed the market
However, you can see in both time periods the market will always be right smack in the middle. Of course, if you invested in growth you would have been lucky and considered yourself a great market timer (until this year), and vice versa if you bought value this year.
My point is don't rely on luck. Just buy the market!
View 7 more comments
$META charges for VR AppStore - charged for “metapocrasy” 🤣
Excerpt from today’s [Ft.com](Ft.com) article:
“Don’t confuse marketing with reality — it’s good marketing to pick on Apple. But it doesn’t mean Meta won’t do the exact same thing,” Seth Siegel, global head of AI and cyber security at Infosys Consulting. “There is no impetus for them to be better.”
The “Quest Store” for Meta’s Oculus Quest 2, by far the most popular VR headset on the market, takes a 30 per cent cut from digital purchases and charges 15-30 per cent on subscriptions, similar to the fees charged by Apple and Android.”
(C) [Ft.com](Ft.com) - 28 June 2022
Time to buy META
Now I’m not a chart guy and I have no idea what the chart is telling me and I much rather learn the business then look at a chart but at what point do people realize that the hate Facebook is getting is overblown. Mark built Facebook from nothing and turned it into something people use everyday. The company is far from dead and the numbers show that. Mark is betting his company on the metaverse and I respect it, that’s conviction. He is betting what he built on the metaverse. I think at some point you have to respect that. Yeah he may be early, yeah we may not know his plans for the metaverse fully but this could be an investment of a lifetime if he pulls it off. And yeah I know what about Apple glasses, all I can say is there we will wait and see. No threat as of now $META
View 1 more comment
I continue to own Meta, but I think it might be dangerous to hold it FOR the vision of the metaverse, which is really just an enhanced version of the internet.
The old saying, “history does not repeat itself, but it often rhymes” is something I think about. Back in the 1990s, most people appeared to ‘know’ or have some vague idea about what the internet would be. More astute observers had a richer understanding, related to how this ‘thing’ would ultimately shape the world’s communication, commerce, and connectivity. I am not here to discuss the overzealous sentiment for internet stocks and the ensuing 2000 bubble, however.
Back in this period, the term ‘information superhighway’ was coined to refer to the opportunity that would come from digital communication and internet telecommunications. This superhighway, constructed of telephones, computers, satellites, and other communication devices, would allow users to transport themselves and goods through a global network. It was oft-cited in media, as you can see from the below Time Magazine cover, dated 1993.
Or this 1994 front cover of Popular Mechanics Magazine, outlining how “you’ll shop, bank, learn, be entertained, and more via interactive TV”.
What actually happened, however, was quite different. The internet was originally assumed to be a business model for this highway, but after the explosive growth of the web, the internet essentially became the information highway. The narrative was enough to help people digest it.
With the popularisation of ‘Web3’ and ‘the Metaverse’, had me considering the similarities between 1990 and today. Some suggest that Web3 is simply a rebrand of ‘crypto’, to help VCs, others seem to mistakenly believe that the ‘metaverse’ is some digital oasis (like Ready Player One) and that humans will suddenly become a zombified race of VR headset-donning plebs.
The reality will probably, as it has in the past, be something quite different. I guess my point is, although what was promised of this highway in 1990 (shopping, banking, communicating) all came to fruition, it didn’t come to fruition in the way that was catching headlines. These terms; metaverse, web3, really have no meaning and are more so reflective of where the world might be heading, not necessarily how it gets there.
Back in 2003, during this same period of ‘early internet’, the people at San Fran-based studio, Linden Lab, created a game titled “Second Life”. Launched three years after the ‘Sims’ game, another game that pioneered this passive living social experience game mechanic, Second Life marketed itself to be more than just a game, with founders proclaiming “There is no manufactured conflict, no set objective".
The project was created in 1999, with founder Phillip Rosedale seeking to create hardware that would allow users to become engulfed in a virtual world. With weak demand for the prototype, he later shifted course and settled for a software adaptation. Second Life promised escapism, avatars, its own currency, its own economy, and the ability to be whoever you wished to be in this new… second…life. Gaining popularity in 2005, the world soon had 1M users, before dwindling into the abyss. We could go down the wormhole here, but the point I wanted to make is that it’s eerily similar to what Facebook is attempting to do with their Reality Labs division. More specifically, Horizon Worlds.
The difference is that now we have the technology, the awareness and the demand to allow hardware to be a larger part of the equation. Since Second Life was born, the mobile phone became ‘the’ screen, and immersive experiences have slowly begun to migrate towards AR and VR, with some suspecting they could supplant the mobile as the new screen. The idea of ‘the metaverse’ is something which has existed for decades, in my opinion. We lead digital lives simply by presenting an alternate version of ourselves on Social Media. We build communities and meet friends on Reddit, on Twitter, through gaming, and even through apps like Tinder and Hinge. Meta’s vision simply accentuates that with VR, bringing the connectivity and interaction to a new, oft richer, level.
Is that good for humanity? Like the initial explosion of Facebook blue, and Instagram it’s easy to find flaws and consequences. But it’s also easy to underappreciate just how seismic of an impact it had on humans and their ability to connect, communicate, and form communities across the world. I feel that, if VR/AR ever does amount to a similarly explosive S-Curve of adoption, then it comes with its own unique set of foibles and benefits.
Commonstock is a social network that amplifies the knowledge of the best investors, verified by actual track records for signal over noise. Community members can link their existing brokerage accounts and share their real time portfolio, performance and trades (by percent only, dollar amounts never shared). Commonstock is not a brokerage, but a social layer on top of existing brokerages helping to create more engaged and informed investors.