Will hopes of a return to normal evaporate any time soon ? If so, the bull trap will have closed – maybe a couple of days ago. Next on the agenda would then be fear and capitulation, and it is possible that equity markets still have a long way to fall.
Portfolio activity has been subdued. However I did give Gilead a good look through before buying a holding. Their strengths are in anti – virals and I did not see any lifestyle drugs in their portfolio – so a serious drug research company much like Glaxo and Astra in earlier days. Their drug that helps some coronavirus victims to recover quicker was originally developed for ebola.
I also looked at Marks and Spencer – but decided not to buy just now because the food business needs to prop up the clothing lines and gas station shops. Maybe clothing will begin to do better – after the administrators and receivers of other clothing retailers that have gone bust have disposed of stock.
I have also taken out a few small positions on the LCG platform this year. You do usually need to be quick to take profits on shares – ran a very small position in M&S while it rose 9p – now short of the S&P 500 which you can do in 10p (12.5cent) multiples per point – so if you are unsure of potential tops and bottoms and looking at Fibonacci levels you can get your exposure in bits ( e.g. 10 x 10p = £1 ). Helps to alleviate the boredom but care is needed.
The pandemic arrived just as I was changing hosts for this blog. And stock markets were making new highs too. Eventually there was a downturn in markets, but as I write markets have retraced part of their losses and it seems that many investors still believe that they are “buying the dip”. As a reality check I looked at movement by indices since 31st December, to find that the Dow is off 16.6% and the S&P has fallen by 13.3%. The FTSE 100 has had a larger fall of 22.5% reflecting the large oil and mining content.
After much reflection I decided to go liquid, so at the time of writing I just have a few holdings left – including Alibaba and Bango. As things stand my valuations have fallen by 6.3% so far this year.
The rationale for disengagement is that the pandemic is already causing a massive economic downturn and it is best to wait this one out. There will not be much help from analysts – who will be fearful for their jobs – or corporate managers – who will withdraw guidance and be fearful about their stock options and possible class actions.
If my caution proves to be well founded, there will be opportunities to buy most equities at prices ranging from slightly lower to substantially lower. If I am wrong and the world returns to normality – which looks increasingly unlikely day by day – I have cash and only need a 7% return to get back to 31st December levels.
I am reminded that Bernard Baruch sold most of his holdings prior to the 1929 crash and gave credit to a 19th century book – Extraordinary Popular Delusions and the Madness of Crowds !
Noticed as well that Warren Buffet and Charlie Munger appears to be holding a lot of cash and sitting this one out. This is confirmation that some of the best minds around are uncertain in the present situation. Government policies, often relying on dodgy science, will determine whether the landscape improves or withers away.
As outlined in previous posts the season for taking tax losses ends on 31st December in the United States. The S&P 500 Index was up 28.9% in 2019, so it does not come as a surprise to find weakness in tech stocks that are well down from recent highs, and strength in similar stocks that are up near their highs.
The “weak” stocks were ROKU 133.90, MDB 131.61, WDAY 164.45, ZM 68.04, PINS 18.64, and WIFI 10.95.
The “strong” stocks were BABA 212.10 and MSFT 157.70. There was also a gain on SNAP 16.33. Funds also gained with IJR 83.85, SHCD 57.92, VIG 124.66, and Findlay Park 137.16.
Funds in the UK and Europe were generally a bit stronger and the Buffetology fund was up from 343 to 351.
The adjusted total returns for the year on the portfolios will not match the S&P as cash buffers are in place. The actual numbers need to be worked out on a mainframe, so will wait and see.
During the second half of December the remaining holding in BAT was sold at 3179p. Standing a bit higher today, but overall strategy is to exit tobacco shares and not get involved in fossil fuels – although BP or Royal Dutch might be considered from time to time.
I previously noted that I would not be buying US small caps and bought an ETF instead. However this ETF could not get approval for my ISA account, so was left with a smaller overall holding than planned.
Today I bought a smallish holding in Boingo @ $10.84. This company provides WiFi services – notably in airports – that are a lot quicker than free services. The interesting development is the company’s expertise in capturing WiFi signals, bearing in mind that 5G signal capture is a whole new ballgame. As the shares were double the current level earlier in 2019, and the tax loss sale season is coming to a close, I thought a purchase before the year was a good idea. Boingo is a small cap with a chart going back to 2011 , so not a unicorn.
Superdry published results a few days ago. The item that stood out was that the turnaround/reorganisation will take about two years. Also noticed a few unfavourable comments about the former CEO (now taking the job at Saga) relating to his management style. The shares popped up on the Election result so took profits @ 510p. The cost back in May was 452.76p.
Nvidia has recently made intra day lows of >200 in late November and again in early December. Clearly the shorts have not got it right yet apart from a few potential scalping trades. As I am uncertain about the future trajectory – 225 seems like resistance – and I would prefer to be holding more cash right now, I decided to sell my entire position and received 223.33. The cost of 80% of the combined holding was 166.49 from November 2018, and the remaining 20% was added at 141.19 end May 2019. Not at all bad for my first chipmaker investment, but may have a few losses to cover if markets peak soon then weaken on something unexpected.
Both Barron’s and Knox Ridley have been writing about US Small Caps during the past week. As Findlay Park started as a US Small Cap fund before changing to an unconstrained portfolio I thought that this would be a good area to consider at the present time. I do not like the idea of buying a few small cap stocks as the risk is very high, so I looked at the funds mentioned in Barron’s.
I prefer ETFs over managed funds for additional investment in the U.S. , mainly because mutual funds pay local taxes and spin off tax credits to holders. I am investing tax free funds, so the tax credits have no value.
The ETF which I decided to buy is iShares Core S&P Smaller Companies and 320 of these went into my pension fund yesterday @ 82.50. I will also add another 180 to my ISA account whenever fund is approved by my ISA managers – as long as the price is close to 82.50.
Prior to quarterly results I made a decision to sell Slack (WORK) as the stock had been underperforming and there might be better opportunities to reacquire when valuation looks more reasonable in relation to growth. The sale went through at 22.09 giving a loss on all accounts except the ISA.
Also noticed that Knox Ridley intended to add to Zoom (ZM) following a price drop after their quarterly results, so increased my holding – buying 200 for my ISA @ 63.38
The point has been made that both companies face competition from big tech, notably Microsoft. My feeling is that Zoom could be the better opportunity of the two because it has more of a global reach. Big tech will also be constrained from seeking monopolies by politics – it’s better to have at least one competitor at present to avoid anti trust actions, and try to increase the size of the overall market.
As things turned out November was a surprisingly good month for most of the technology stocks in the portfolios. The three with negligible changes were WORK 22.82, SNAP 15.25, and PINS 19.48.
BABA finally went ahead with their HongKong listing and the ADR price improved from 176.67 to 200 even. My best guess is that Beijing decided that a mega listing would help restore confidence in HK as a financial centre despite the protests and riots. Notable gains were also made by NVDA 216.74, MSFT 151.38, ROKU 160.37, MDB 148.70, WDAY 179.12, and ZM 74.50.
In the real world the general strength in US equities was reflected in Findlay Park American – up from 129.81 to 134.60, SCHD up from 55.52 to 57.09, and VIG up from 119.61 to 122.54.
U.K. funds and investment trusts were generally a bit firmer. However SSON up from 1202 to 1302, and the Buffettology fund up from 322 to 343 stood out as gainers while FEET lost a bit from 1177 to 1138. There is a U.K. General Election on 12th December and Sterling has remained reasonably strong. Once again the result is unpredictable despite opinion polls showing this and that. Theresa May experienced this last year.
People in general are sick and tired of the whole political class.
The two main disrupters of e-commerce dominated by Amazon and E-Bay at the present time are Pinterest and Shopify. On October 31st after hours Pinterest posted quarterly figures which disappointed many analysts, although still showing reasonable growth.
I wrote that the price looked more like 20 than 25 yesterday, before Wall Street opened. In the event the stock started trading either side of 19 and a best order secured a small position @ 19.13. The stock closed at 20.86 but it is very difficult to predict which way the wind will be blowing next week.
From a technical perspective there remains a big gap to fill, but this is going to take time. For the moment I will look to either trade this small position or build on further weakness.
It is useful for me to have a timeline on month end prices that I can look at just like that.So the list starts with US tech, then funds, then U.K. investment trusts and funds.
BABA 176.67, NVDA 201.02, MSFT 143.37, ROKU 147.20, WORK 22.00, SNAP 15.06, MDB 127.77, WDAY 162.16, ZM 69.89
Findlay Park 129.81, SCHD 55.52, VIG 119.61
SSON 1202, FEET 1177, Ab Euro Inc 94, Johcm inc 188, Laz Globalinc 107, Trojan X inc 105, Thread U.K. inc 144,( Buffettology 322p on 1/11)
There is not much on my watchlist. Pinterest just had a disappointing quarter so chances are the price will be more like 20 than 25 with many people stopped out.
Some older small holdings are gradually being disposed of to generate cash.