Have you become numb from seeing wave after wave of red days in your portfolio? Are you unsure whether it’s the right time to buy or to sell as you’re buffeted by the market? Then maybe it’s time for some stock therapy!
After a fantastic start to the year, our model portfolio has turned south, along with the majority of high-growth stocks as investors run to the ‘safe haven’ of value stocks. In this week’s pod, we talk about what’s happened to growth stocks in the last few months, the possible reasons why, and more importantly what we can do about it. Long-time listeners will already know the answer, but it feels good to get it all out!
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Transcript
Luke: Hi, this is Luke.
Albert: And this is Albert.
Luke: Today is Monday the 17th of May.
Albert: And welcome to the Telescope Investing podcast.
Intro
Luke: This week, Alb and I are going to give a bit of a reflection on current market conditions. I think we’re actually calling this episode stock therapy.
Albert: And the reason why we’re calling it this is because a lot of our stocks have done so badly, it’s starting to wear us down.
Luke: It can be emotionally draining to have your portfolio battered by wave after wave of red days. It’s pretty grim.
Albert: Obviously, we’re saying this a bit tongue in cheek because we always advocate investing for the long term, and the short-term fluctuations shouldn’t bother us that much, but we can’t help but feel a bit down when you see your whole portfolio in the red.
Luke: And I feel some accountability, right? We’ve only been running the podcast since middle of last year, coming up for about eight or nine months, and maybe over that period, an investor that started investing with us at the beginning, they’re probably feeling the pain much harder. So what we thought we would do today was have a bit of a reflection on current conditions, talk a little bit about what’s actually happened and why it’s happened, and then what you can do about it. And we’ll also get into some detail about what we’ve actually done. We’ve seen this story time and time again, so this isn’t our first rollercoaster. So we’re ready for the dip when it does come and we’ll chat at the end of the episode about how we’ve responded in this tough market.
Mailbag
Albert: But before we get there, we got an email from one of our listeners, Toby, and a quite interesting question. He said that he has done some research into some of the companies that we have talked about and he’s ready to start investing, that for a start is a good thing. But one thing that I’m unsure about is when starting out, if I have £300 to invest each month, would I buy £300 of shares in one company each month or spread that across multiple companies? That’s a great question, Toby. What do you think, Luke?
Luke: Yeah, it’s a great question, and I think the key thing is, like good job, Toby, getting started is actually the hardest thing. So when you make that decision, I think you probably want to be biased to minimising your fees because if you pay with fees, that’s money that’s not compounding and not growing for you.
Albert: Well, just to illustrate that with an example, if you’re buying £100 worth of stock and it costs you £10 to do that trade, the cost of that trade is 10% of the trade value. And what that means is that that stock has to increase by 10% before you even break even. And if you want to sell, it’s even worse. It has to increase by 20% because you need to pay the fees on the way out as well.
Luke: And so when Toby’s buying £300 worth of shares, if his trading fee is, say £10 as you illustrated, that’s 3%. So that’s decent, but let’s still quite a heavy burden to overcome before you in a profit.
Albert: But if you have commission-free trading, obviously those restrictions don’t apply, but here you still don’t want to buy too many stocks and the reason is time commitment because it takes a lot less time to choose one or two stocks than it does to choose five or six.
Luke: And the fact that Toby’s asking this question in pounds tells us he’s a British investor, so that means he should be using his ISA allowance, individual savings account allowance, and there’s no commission-free trading in ISAs.
Albert: But when you’re starting off, having one or two stocks is quite scary because the stock market is quite volatile and we recommend getting to around 15 to 20 stocks as soon as possible. And that’s quite difficult to do when you have no stocks to start with, so one thing you can do is to invest in low-cost index funds at the beginning and get instant diversification.
Luke: And that’s exactly what you and I did, Albert. We both invested in index funds, actually for me, for a couple of years until I built up enough invested capital that I could start to pivot out of indexes and into individual stocks.
Albert: Most of my portfolio was in index funds for about 10 years until about 2010, at which point, I started shifting to individual stocks.
Luke: And that’s what we’d recommend to you, Toby, and really to anybody else in the same position. There’s nothing wrong with indexes. It’s a great way to get started.
Albert: And one thing we also recommend is something called buying in thirds, which means building up a position bit by bit by buying one third of your total position in one month and maybe another third a few months later. This allows you to do dollar-cost averaging as you build up a position over time.
Luke: Yeah, exactly. The key to successful investing is not to do stuff quick. Take it slow, have a plan, and then migrate to that plan over a fairly long period of time, and it’s going to even out any fluctuations in the market.
Albert: So we hope that’s helped you, Toby, and good luck with your investing.
Luke: Yeah, absolutely. And hopefully, the Telescope Investing website is going to be helpful to you too on your investing journey.
Mid-ep promo
You know, we usually pick it up at the end, but I’m going to say it upfront this time. We love hearing from our listeners. It was great to get that email from Toby and we do actually get a fair few questions over email and on Twitter. We’d love to encourage our listeners to spread the word. If you’re getting value out of our podcasts and our website, tell a friend. If every one of our investors just told one other person they thought would enjoy the podcast, we would double our listener base overnight.
Albert: And we say this at the end of the episode, we are on Twitter, and feel free to send us a message or a tweet.
Luke: Yeah, you can email us at feedback@telescopeinvesting.com just like Toby did, and then hopefully, we will able to give a bit of an answer on the show.
Growth stocks down
Albert: So Luke, I think you’re well aware, growth stocks have tumbled in the last few months. They were riding high back in January, but since then, a lot of the names that we’ve been invested in are down 30 or even 50%.
Luke: Some stocks getting wildly smashed in the market. I saw a brilliant tweet from @caleb_investTML on Twitter the other day. He responded to the question “What stock do you know best?” and his reply was $PAIN. I’m feeling that $PAIN purchase!
Albert: The overall stock market has not fallen. In fact, it’s doing quite well. Broad market indexes are at all-time highs. For example, the S&P 500 is up 11% year to date, which is pretty good after five months, but the NASDAQ, which is quite heavy in tech stocks, is only up 1% year to date. And a common example of how badly growth stocks have done recently is that the ARK Innovation Fund, their flagship fund, is down 16.3% year to date. And this is even worse when you look at their all-time highs back in February; they’re down a massive 33% since then.
Luke: Yeah, they’ve taken a complete battering just as we have though. If we look at our own model portfolio, we launched that on the 27th of January and it’s down 13.6% from the start. And from its all-time high, which is also the 12th of Feb, it’s down nearly 30%. Those are big declines and our model portfolio strategy is very similar to ARK Invest’s so it’s no surprise.
Albert: Well, growth-focused portfolios, like our model portfolio and the ARK Innovation Fund, you do expect market downturns to have a bigger effect on the overall portfolio value. I am quite surprised because I thought that having 15 stocks across multiple sectors would guard against some of that volatility.
Luke: We diversified the portfolio when we built it by sector, risk and size. It’s interesting though, you know, even our low-risk stock picks like Shopify, Twillio, Disney, even they still had a pretty high valuation multiple when we picked them. They suffered less but they’re down 3.8% compared to 35% for our high-risk picks. Everything’s down, everything’s in the red. I guess one thing you can take away is at least our risk ratings were correct.
Albert: In fact, our hyper-growth portfolio is doing even worse, albeit it only contains two stocks, CuriosityStream and Nano-X Imaging. Overall, it’s down around 41%.
Luke: We always knew this was going to be highly risky, highly speculative, and a long-term play.
Albert: We’re not overexposed, at least I’m not. It currently represents less than 1% of my portfolio.
Luke: Yeah, it may have been more than 1% of mine. It’s definitely less than 1% now.
Albert: Well, for my overall portfolio, I’m down around 8.4% year to date, but it’s the drop from mid-February that’s the kicker. I’m down 22.9% since then.
Luke: Yeah, and my real number results, probably a little bit worse, I’m down 10.6% year to date and I’m down 22% from my all-time high. I think we’ve established that everyone’s feeling Caleb’s $PAIN and probably many of our listeners too if they’re in some of these growth picks, but why has this happened?
Pandemic ending
Albert: Well, one reason that I’ve read is that the pandemic is coming to an end, or at least people think it is, and there’s less need for work-from-home stocks and there’s increased industrial output. Basically, people think the world and the economy is going back to normal.
Luke: That’s a good thing though, right? End of the pandemic, reinvestment, shops and restaurants reopening, society reopening. Surely that’s going to be a good thing.
Albert: You would think so. A lot of these work-from-home stocks increased in value a lot last year, probably too much.
Luke: Yeah, I totally buy that. And many of our picks like say, DocuSign – when people experience DocuSign’s workflow, they’re not going to go back to the old way of working, but it’s fair that the pandemic has brought forward a lot of this growth. So many of these stocks have taken a battering.
Stock rotation
Luke: Another theory is that there’s been a rotation from growth stocks to value stocks. I’m sure this is true to some extent. It’s a normal part of the stock market as momentum shifts from one type of investment to another.
Luke: Another theory is that there’s been a rotation from growth stocks to value stocks. I’m sure this is true to some extent. It’s a normal part of the stock market as momentum shifts from one type of investment to another.
Albert: But obviously, if you could reliably predict when stock rotations are going to happen, you’d be a billionaire already.
Luke: And I’m sure you’ll find plenty of pundits out there will say that they predicted it, but for me, right, that’s the lottery fallacy in action. On any day, you’re going to find a range of opinions. You’ll find some commentator is saying things are going to go up tomorrow and someone else who says things are going to be down. Someone’s got to be right and in the grand scheme of things, someone’s going to be a right very frequently. There were thousands and thousands of other commentators who got it wrong.
Crypto
Albert: Another reason I think this is happening is that I think that speculators are moving out of stocks and into cryptocurrencies. I actually do think this is part of it. People are seeing the huge profits some people are making with cryptocurrencies and FOMO is kicking in and they want some of the action.
Luke: Yeah, you’re right. If my stocks are going up to 10 or 20%, that’s pretty boring if I can make 10 times or 20 times returns on some random crypto coin.
Albert: I saw a quote recently from the CEO of GSR Markets, which is a market maker in crypto assets. A guy called Trey Griggs and he said, “All the fun that used to be had 30 years ago in the commodity markets is no longer fun. That fun is now in crypto.”
Luke: Yeah, people are treating this like a video game. That’s not the right way to approach the market. Investments should not be a source of entertainment. There should be a little bit of work and then a lot of patience. You know, Albert, anyone who did make that rotation into cryptos probably feeling a bit of pain just in the last 24 hours. Crypto’s down a fairly big chunk after Elon Musk may have revealed that Tesla are selling their entire Bitcoin stash.
Albert: Yeah, I read that tweet this morning and all I could do was just smile.
Luke: You know, he’s now known as the Dogefather after his pushing Dogecoin.
Albert: So when I look at cryptocurrencies, I often think about Tulipmania when in the 17th century, the value of tulips shot up because people were willing to pay for them and no other reason apart from that. And if you’re not familiar with Tulipmania, it is worth reading up about.
Luke: There is something to crypto. For transparency, I’ve now got maybe one and a half percent of my portfolio in a mix of coins, mostly Ethereum. I do think there’s a chance that one of the coins is either the future of money or the future of the internet and processing. I certainly wouldn’t invest much more, but if it grows into a bigger piece then so be it.
Retail investors
Albert: Let’s get into some of the wilder theories about why this is happening, and one of them is that Wall Street is shaking out retail investors. Apps like Robinhood and commission-free trading have brought many retail investors on board and was probably responsible for some of the rise in the stock market last year. And with the stock prices at all-time highs, the professionals are getting out, making some profit at the expense of the retail investor.
Albert: Let’s get into some of the wilder theories about why this is happening, and one of them is that Wall Street is shaking out retail investors. Apps like Robinhood and commission-free trading have brought many retail investors on board, and was probably responsible for some of the rise in the stock market last year. And with the stock prices at all-time highs, the professionals are getting out, making some profit at the expense of the retail investor.
Luke: Some of those professionals are hedge funds, right? But they can still get caught short. Look at what happened to Archegos Capital, Bill Hwang’s fund. They’ve literally broke themselves in March after getting way too leveraged thinking they were too smart for their own good.
Albert: But in general, hedge funds can handle the losses much better than most retail investors. Amateur investors, especially those new to investing, are more likely to get scared into selling out.
Luke: Yeah, you got to keep your cool. This is definitely how you lose money in this kind of market, by selling in a panic. I think SPACs and SPACmania is a good example of where investors perhaps are getting out on a limb, trying to chase a quick buck, and just throwing their money at anything without doing proper due diligence.
They’re a great example of buying a dream without actually having the fundamentals to back it up. By definition, many of these companies coming to market through a SPAC, you don’t have that transparency and all the public records of their returns and how they’ve managed their funding. They might be good companies, but you’re basically placing a bet on roulette and hoping that the wheel comes in your favour.
Albert: I remember a few months ago that a lot of SPAC companies were gaining in value even before they announced which company they were going to acquire. They were just hoping they would acquire a good company and become a successful stock.
Luke: You don’t even know what you’re buying. You’re literally relying on the SPAC manager to make a smart choice. That’s not investing.
Albert: Yeah, we only have one SPAC company in our portfolios, CuriosityStream, and we did not invest because it was a SPAC. We looked into the business and we thought that it had a good future.
Luke: Yeah, exactly and we invested post-SPAC. It had come to market and it had some results, and we could treat it like any other normal stock, albeit a highly volatile, speculative pick because it’s in the hypergrowth portfolio.
You know, the other thing that I saw that made me laugh on Twitter. Some retail investors are investing in some seriously dubious investments. A guy called Josh Wolf called out the shame on anyone funding or encouraging investment in this particular stock, Sanctuary, a New York-based app offering on-demand astrology, tarot, and psychic readings, who raised $3 million in seed financing led by Bitkraft Ventures. What the hell is this stuff? Why are these guys promoting this kind of witchcraft and nonsense?
Albert: He said in his tweet, “No doubt there is demand, but this isn’t peddling entertainment, it’s encouraging slippery slope, snake oil, flapdoodle.”
Luke: Well said, Josh. Anyone chucking $3 million at a company that does tarot readings on demand, they’re either very exploitative or they’re very gullible.
ARK Invest
Albert: Another theory for the stock market crash in growth stocks I’ve seen doing the rounds on Twitter is that hedge funds are going after ARK Invest. We mentioned ARK Invest earlier in the episode, and they’ve become quite famous since they had amazing results last year. I think their flagship fund, the ARK Innovation Fund, was up 152% in 2020. That’s amazing for a fund.
Luke: In the vein of the astrology company, maybe there’s a bit of conspiracy theorism around us, but it is possible, I guess. If this was the case, it certainly worked. As Cathy Wood’s fund starts to lose value then their investors panic, run for the exits, there are big drawdowns, and that becomes a vicious circle as Cathy has to sell positions, sell her stocks, to generate capital to give back to the investors, and that just throws fuel on the fire of fear.
Albert: I don’t know, Luke, like most conspiracies, I find this hard to believe, but even harder to believe is that hedge funds would put vindictiveness over profit.
Luke: Well, maybe there was some of that. The Wall Street Bets GameStop versus the hedge funds, which happened a few months ago as well. Maybe there’s a bit of games playing on both sides. They tried to play some massive game of chicken in the financial markets.
Albert: People like to frame the GameStop story as the retail investor versus hedge funds, but when you look into it, it was actually hedge fund versus hedge fund. Some hedge funds gained, whereas other hedge funds lost, and the retail investor was caught in the middle.
Luke: We mentioned Bill Hwang’s Archegos earlier in the episode. He’s also linked to the ARK Invest Cathy Wood story. I didn’t realize this until we did the research for today’s show, but apparently, Archegos were a major investor to get ARK Invest off the ground and provided a lot of their seed capital. So if Bill’s fund was holding a ton of ARK Invest stock, when they started to get really impacted in March, that’s probably forcing him to exit many of his positions, including huge sales of ARK Invest. Yeah, maybe that’s another factor to this domino effect potentially is hurting ARK Invest and bringing them down with him.
Albert: But as far as I know, ARK Invest is not leveraged and they can’t implode in the same way that Archegos imploded.
Luke: But only to the extent that they have to sell because they’re having to refund investors who are trying to exit the fund. So they are leveraged in that respect.
Growth stocks overvalued
Albert: But those theories are wild and I don’t believe them. A more plausible theory is that growth stocks were just overvalued back in January. After 100% or more growth in many of these stocks in 2020, investors got too excited and started to chase returns, expecting this to continue. That was unrealistic.
Luke: Yeah, I think this is the reason, I totally agree. Price-to-sales multiples on most of our stocks were skyrocketing. I’ve still got stuff in my portfolio that’s valued at 50 times, 60 times sales. Those are pretty wild valuations and you’ve got to have a lot of that future revenue baked in for that valuation to make sense. Even saying that today, knowing that some of my stocks are still wildly overvalued, I’m pretty chill about the situation, right? As a long-term investor, as results coming in quarter after quarter, it might take years, but these things are going to catch up.
Albert: Yeah, the stock prices of our stocks haven’t done very well, but if you look at the earnings for many of these companies, the earnings are fantastic and the outlook hasn’t changed much since the last quarter.
Luke: Yeah, exactly. In that price-to-sales ratio, the price is now sky-high but actually, as you say, the sales are increasing as well, and that’s going to balance the equation. We just needed to give a chance for real results and fundamentals to catch up with where the prices are at.
Albert: And when stock prices are high, people get more nervous and any bad news is likely to send the prices shooting downwards. And we’ve had quite a lot of bad news this year economically. For example, there was that ship that blocked the Suez Canal back in March.
Luke: Historically high valuations like we have today, they make the market fragile and reactive, and investors are just getting nervous and twitchy. And as you say, when any minor thing happens or even a major thing, like the Suez Canal, that can get people scared. Fear, uncertainty and doubt, and the market doesn’t like uncertainty.
Albert: Yeah, another thing that happened recently was the oil pipeline getting hacked last week. I saw some ridiculous photos of people filling plastic bags with gasoline and loading them into the back of their cars.
Luke: That’s objectively dangerous and these same idiots have got garages full of toilet paper from the last panic, so they’ve now got toilet paper and gasoline. That’s basically two key ingredients for a bomb.
Rising inflation
Albert: Another reason for the stocks going down is that people are seeing inflation going up, and this might cause interest rates to go up as well. And usually, when interest rates go up, people move out of stocks and into bonds.
Albert: Another reason for the stocks going down is that people are seeing inflation going up, and this might cause interest rates to go up as well. And usually when interest rates go up, people move out of stocks and into bonds.
Luke: Explain that one in a bit more detail, Albert, because I think you’re right, there’s some science there that isn’t obvious.
Albert: For a start, when interest rates go up, the bond yields become more attractive because bonds will now have to offer a yield to compete against government bonds, but another reason is that stock prices are generally based on future cash flows discounted to the present day. And higher interest rates lowers the value of those future cash flows, and that gives you a model that gives you a lower price for many stocks.
Luke: And those higher interest rates are also just causing institutional investors to switch out of equities and more heavily into bonds and fixed income. These are companies like pension funds who have tens of billions of dollars at their disposal.
A perfect storm
Albert: But the truth is probably that it’s due to a number of factors. You could say it was the perfect storm to cause stock prices shooting downwards.
Luke: We’re all like Mark Wahlberg in our little fishing boat having our enthusiasm extinguished by wave after wave of destruction as we keep seeing these red days. But you’ve got to remember, right, the storm ends at some point and it will be fishing season again eventually. Just make sure you didn’t sell your fishing rod while things were rocky.
Albert: I think that film was made just because they worked out how to do water using CGI and no other reason.
Luke: It was a great movie. I’m not sure I’m in a hurry to rewatch it. As you say, maybe we’ve all experienced the perfect storm of macroeconomic factors and crazy run-upped valuations, and perhaps some other strange things happening with Archegos and crypto wild investment, but at some point we are going to come out of the end of this storm. What can an investor do to protect their capital at times like this and get ready for fishing season again when it reopens?
What can you do?
Albert: I think one of the main things you can do is diversify your portfolio holdings, have stocks in different sectors, also have a blend of growth and value stocks if that’s your investing strategy. For example, if you had 50% of your portfolio value in say, Teladoc Health, I think you’d be pretty upset by now as Teladoc is now down around 50 or 60% from its all-time highs. But Teladoc is around 2% of my portfolio, so it’s not something I want to see but it hasn’t hurt my portfolio that much.
Albert: I think one of the main things you can do is diversify your portfolio holdings, have stocks in different sectors, also have a blend of growth and value stocks if that’s your investing strategy. For example, if you had 50% of your portfolio value in say, Teladoc Health, I think you’d be pretty upset by now as Teladoc is now down around 50 or 60% from its all-time highs. But Teladoc is around 2% of my portfolio, so it’s not something I want to see but it hasn’t hurt my portfolio that much.
Luke: Yeah, I was probably more committed to Teladoc. Maybe at peak, I was up to about 4.5-5%, and that’s down to maybe 3.5% now. So it’s painful but, as you say, in the round, don’t get overexposed to any one thing, diversify to protect.
Albert: My dividend stocks are actually doing quite well. Maybe that’s one reason why I’m outperforming ARK. Their portfolio is entirely growth stocks.
Luke: The other thing you can do is just think longer term, have an extended time horizon. We’ve done this before. We’ve seen these market impacts in 2000, in 2008, and now in 2021. Every time things have taken a battering in the past, eventually they recover. It might take years to get there, but the market will come back.
Albert: Yeah, it seems that investors have a very short memory. The last time the market took a dump was just last year, literally 12 months ago.
Luke: That was a pretty short-lived crash, right? And literally a month or two later, things were climbing back and I had my greatest annual return of my life in 2020, over 100% just in that year. So no surprise that we’re back to maybe October valuations now.
Albert: 2020 was quite a strange year – a new virus, a global pandemic. This is not usual. The stock market returns of 2020 are unlikely to happen again in 2021. You just have to temper your expectations. The stock market returns average around 10% per year compounded, not 100%.
Luke: Yeah, you got to think about periods like now when the market is down as a buying opportunity. If you’ve been sitting on a bit of a cash position, it’s a chance to put some of that cash into play at better values. A pretty smart market participant is Beth Kindig and she had quite an interesting tweet thread last week. She was talking about whether growth tech investors should rotate out of growth stocks and into value, and the conclusion she shared isn’t what I’ve really thought about hard.
She said the important question is whether we’re in a secular bear market. Her fund believes in the long-term buy and hold except in secular bear markets and long economic recessions. They don’t want to hold positions at a loss during a really extended period of time. So she’s tried to answer the question in her fund as to whether this is a quick correction or we’re in one of those bear markets. And really, unless you’re a day trader, which we’re not, all investors are better off holding through these quick corrections rather than try to time their way out and back into the market.
I don’t know what her models are based on, but her IO Fund anticipate strength going into the summer with a high consumer savings rate, strong GDP, dovish monetary policy from the Fed. Beth says these are all excellent signs for a strong recovery. So I guess they’re holding tight and just waiting for the storm to pass.
Albert: Well, another way to see it is that historically, after a stock market crash, stocks perform the best long term. It makes sense really when you think about it. You’re getting stocks at bargain prices and they will tend to do better over time.
Luke: And just to come back to that topic of what else can you do about it, stop looking, right? Stop checking the stock market every day.
Albert: Well, that’s difficult to do when you have a podcast to prepare for.
Luke: In times like this, I would literally just like to shut down the portfolio, ignore it for six months, and then just come back and see where we are. But you’re right, we have to keep it looking at this stuff because we’re releasing an episode every week, but I’d love to stick to Brian Feroldi’s excellent advice where he tweeted the other day, “99% of good investing is doing nothing.” Spot on, Brian.
Albert: One thing that we’ve seen other investors do during times like this is to hedge their positions, and if the market does go down, they won’t go down as much. I think we mentioned this in earlier episodes. Generally, we don’t hedge using shorts or options or anything like that. I think our hedge is just having a cash position so that we’re not forced to sell at bad times.
Luke: Yeah, which we did. That’s worked out well for us, I agree. Again, I’m going to lean on Twitter. Greg Capital @phoenixvalue said, “Note to self: lesson relearned, sharp sell-offs are a lot more fun when you have cash to deploy.” Totally agree, Greg.
Albert: Yeah, and I know that you had more cash to deploy than I did. I’ve been quite jealous of your cash position in the last few months.
Luke: It was hurting me for a while. I was definitely carrying too much cash during the last quarter of last year and probably missed out on some of the gains that you enjoyed, but that’s paid off I think now that the market has taken a battering. That’s a nice sort of segue into what have we actually done, Albert. Let’s share with listeners some of the strategies that we actually employed over the last six months or so to weather this storm.
What have we done?
Albert: Well, speaking for myself, the way I’ve been investing hasn’t changed all that much. I’ve been doing what I usually do, which is investing a little bit each month.
Luke: And let’s come back to that cash point. At the start of January, I was 20% cash and today I’m 6% cash in my main investment portfolio. And a bit like you, a little bit each time. I’ve tried to restrict my trading to one day a month, just to avoid the temptation of fiddling too much and destroying long-term value. So one trading day a month, and I’m generally investing around 2-4% on each of those days.
Albert: Actually, because the market has been down, probably investing a little more than usual. I try to take advantage of the lower prices and invest in stocks in which I have the highest convictions in. So this year I’ve been adding to the model portfolio stocks that will be identified at the start of the year, stocks like CrowdStrike, Cloudflare, Teladoc, and Magnite.
Luke: And I said I did my one trading day a month, so to actually articulate what I did. In January, I added to Disney and Square and I bought CrowdStrike. In February, I added to Fiverr and I bought Magnite. In March, I bought Cloudflare and Twilio, CuriosityStream and I added to Magnite. That was a pretty heavy month, but again, all on one day. In April, I added to Square and I bought Starbucks, but also Nanox. And then just the other day, for my May trades, I added to CrowdStrike. A little bit each month, two or 3% a month and that’s taken my cash position down from 20% to six.
Albert: And we’ve also sold some stocks that no longer fit our portfolios or stocks that we no longer believe in. For example, I sold Electronic Arts, StitchFix, Vertex Pharmaceuticals, and Costco, which I mentioned last week.
Luke: Yeah, same. I cleared out some of the weeds. I sold Exelixis. NXP Semiconductors, ExOne which you keep reminding me of because 3D printing might now be making a comeback. I also sold 3D Systems and Illumina.
Albert: Yeah, so overall, I would say that our investing behaviour hasn’t changed all that much. We’re still investing each month. We’re not really buying the dips, we’re just investing as we normally do. Another thing that I’ve done is I switched off more. I just check my portfolio less. I actually spend less time on Twitter. I find Twitter to be quite triggering when people are just talking about stocks all the time. It makes you want to act and the last thing you want to do in this kind of market is to act out a panic.
Luke: Absolutely. Go reference our episode on managing your emotions. Markets like we’re having at the moment are, as you say, very triggering for the emotions. And even as long-term investors like ourselves, right, you still feel the FOMO of not being in a particular stock or fear that a position is going to take your battering. You just got to keep a steady hand on the tiller. Don’t do anything quickly, have a plan, and stick to it. In 2, 3, 4, or 5 years’ time, we’re going to be higher than we are today.
Key takeaway
Albert: Luke, as we bring this episode to a close, is there a key takeaway for our listeners?
Luke: Yeah, there is and I think we have to give the last word to the excellent Brian Feroldi. His tweet last week I think sums the whole thing up – the secret to dealing with volatility is to not mind when it happens.
Wrap
Albert: Well, that’s all for this week. Thanks for listening.
Luke: If there’s a future topic you’d like us to cover, you can message us on Twitter. I’m @LukeTelescope.
Albert: And I’m @AlbertTelescope, or you can email us at feedback@telescopeinvesting.com.
Luke: If you enjoyed today’s episode, you can find more content at our website, telescopeinvesting.com, where you can leave us a comment or a review.
Albert: And if this is your first time tuning in, perhaps consider subscribing to the website so that you’re the first to hear about new articles and episodes as they drop.
Luke: Thanks, Albert.
Albert: Thanks, Luke.
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