Portfolio update
March 1st, 2022
Return since Jan 2019
Portfolio: 39.4% vs 18.24% $SPY
YTD
Portfolio: -1.27% vs -8% $SPY
Late 2021 and 2022 thus far brought about volatility and correction in the stock market. Looking at $SPY’s return prior to this correction, it was hovering around 25% for three years when the long-term average return of the index is about 8-9%, at some point reversion to mean had to catch up and the year 2022 happened to have the perfect trifecta of higher valuation, higher expected inflation and geopolitical turmoil.
In the month of February, I tried to start a few positions but got stopped out due to increased volatility in the market, albeit with a minimal loss which led to loss of around 1.27% of my portfolio so far this year.
I was lucky enough to stumble on a few books that are shaping my investment strategies and helped be exit the market at right time. Based on the learnings of these books, I was able to exit the stock market before major corrections happened, thus preserving my capital. I have to admit I am work in progress. This is first time I have gone into cash. During prior corrections, I was always fully invested. But following books truly shaped me as an investor/trader/speculator. If you don’t find consistency in my process, please forgive me given I am a mere mortal trying to learn from my experiences and evolve as an investor or trader.
These books are:
Safe Haven: Investing for financial storms. Mark Spitznagel
How to make money in stocks: A Winning System in Good Times and Bad. William O’Neil
Think and Trade like a Champion. The Secrets, Rules and Blunt Truths of a Stock Market Wizard. Mark Minervini
Trade Like a Stock Market Wizard: How to Achieve Super Performance in Stocks in Any Market. Mark Minervini.
The Perfect Speculator. How to Win Big in Up Markets and Lose Nothing in Down Markets. Brad Koteshwar
The Perfect stock. Brad Koteshwar
The Rule: How I Beat the Odds in the Markets and in Life - and How You Can Too. Larry Hite
Stan Weinstein’s Secrets for profiting in Bull and Bear Markets. Stan Weinstein.
If I have to sum up few things that I learnt from these books are (in principles):
Buy and hold is not the only strategy that can win big in the stock market.
Always respect the risk.
Bet when odds are in your favor.
Stock charts and volume actions give your clear, on the ground picture of what the big investors are thinking and doing. And how you can leverage those clues to increase your odds.
The stock market always gives us signals and the direction it is heading, and we should be skilled enough to decipher those signals and position ourselves to benefit from it.
Stock market doesn’t tank or crash out of the blue. It is usually months and weeks in advance in making.
Whether one is a trader or investor, it pays dividends to learn the technical health of the market, aka technical analysis.
The best strategy to execute investment decisions should be based on both fundamental and technical analysis.
Market outlook
I believe we are in the midst of a cyclical bear market within a long-term bull market. This is a mid-cycle rotation from high valued, high growth tech stocks to cyclical/commodities stocks which tend to do well in rising rates and inflationary environments.
At this time of writing, all three major indices are trading below 200 D, 50 day and 20 day moving averages. Technically the major indices are in good correction and NASDAQ is hovering around bear market territory. While SP500 is holding better than NASDAQ, which is mainly because SP500 index has also cyclical/commodities type business representation.
The reason I still believe this is cyclical correction is that the secular bear market usually occurs after yield curve inversion which happens after the Federal reserve has completed tightening monetary policy. In the present context, the Fed has just announced it is going to start tightening.
The yield curve still looks steep.
Chart showing SPX price below all key short term, medium term and long term moving averages:
How should we proceed from here?
I suggest that we proceed with utmost caution. Inflation is still a big elephant in the room. Past winners may not be future winners. Stock market is the ultimate forecasting mechanism. People forecast with their money in the stock market. Two things need to be right for hyper growth unprofitable companies to shine again: inflation should tamper, and the Fed should signal that they will slow down the pace of rate hike. Barring that, I still see huge risk in those companies, and they may continue to underperform as a group going forward. Cyclicals as well as commodities will continue to do well. Until trend reverses on short term, medium term and long-term moving averages, risk is more to downside than upside on major indices.
Hi Anil. Do you still hold TMDX? How has the company performed business wise since August of last year, and whats your take on it?
Nicely articulated. Great article