A few more thoughts

And it’s OT, but I must say that it’s awfully nice to have my entire portfolio rise 16.1% in a day, with my top four positions rising an average of 19.0%.

That’s why I’m not partly in cash (except for cash that’s for emergencies and permanently out of the market). Who would have expected this and known that inflation dropping 0.3% would do this?

And if you were 100% in cash now, would you buy back in or wait for the market to come back to where it was yesterday to get yesterday’s wonderful prices (which may never again happen). And then if it opened up tomorrow what would you do? Buy some before it goes up more? But then, as soon as you bought it would start down again. You are panicked. “Bear Market bounce!” So you sell back. But it finishes tomorrow up 5% more. Then what?

You see, I spare myself all of that by holding great companies and not trying to guess the market.

And this is off topic and I’m not trying to start a long thread. Contact me off board if you must.

Saul

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To piggy back on what Saul said about cash, I want to agree: It’s impossible to perfectly time the market. Friday 11/4 was so awful for our stocks that I got down to less than 5% cash, buying as fast as I could. So imagine how much FOMO I was feeling not being able to buy (much) more on Monday and then Wednesday when we were dropping EVEN MORE.

I even thought Wednesday, “did I deploy my cash too soon?” and “How long will this pain continue?” and “Man, it would have been great if I could have sold last November and I had all that cash to buy with today! I could have way more shares of everything than I have now!”

But obviously that is beyond a fairy tale. Yes, days like Wednesday are so difficult, because just when you think we can’t go much lower, we sell off another 5 or 7% in a day. Days like Friday are tough, because it seems like we’re in freefall and there’s no bottom. But days like yesterday remind us, No one knows what’s coming! Who in the entire world was predicting a 10%, 15%, 20%, or 25% pop for our stocks in a single day, or the best day for the indexes in like 3 years??? No one.

Investing this year has been excruciating. But every time I zoom out, I don’t know what we could have done differently. I hold the companies I think are the best! And I believe long term, these companies are perpetually undervalued, not only when they trade at a trailing PS of 15, but even when they trade at a trailing PS of 30. Maybe it’s reasonable to hold more cash when they’re at 50 and 60 and higher, but that’s what I did. Other than that, and the trading around the edges that I’m already doing, there’s really not much to do but wait – and as Saul has said in the past, enjoy the [wild!] ride.

It hasn’t been enjoyable this year, for anyone who invests in anything (even bonds!). But we have to know our limitations as humans. We can look back and do Monday morning quarterbacking, but if we think we could have seen this coming we are fooling ourselves.

Anyway, I’m not trying to start a long thread either, as I’m really just pointing out the obvious. Hopefully this is in some way encouraging. I have no idea if we’ve seen peak pessimism and are headed back for PS ratios of 30 or higher, or if this bounce is just a slight reprieve and we could be in this mess for another year or more. Maybe/hopefully something in between. But whatever the case, my strategy remains the same:

Hold the best companies. …and don’t expect to be able to predict the future.

Bear

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And here, for instance is Cloudflare, which had been sold off horribly early in the week. By Wednesday we were all in shock! I certainly was. And in the last two days it rose 42%! In two days, 42%!!!

If you were out, would you have gotten back in in time? NO WAY!!!

Sorry, but trying to time the market will drive you crazy, and won’t work.

Saul

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I hope you will allow a brief counter-perspective on this. I think it depends entirely on your stage of life, and your goals.

It is entirely possible that high-growth stocks go sideways or down for years in the current environment. I’m not predicting that or promoting it - but it is a realistic possibility that people should understand.

If a person has enough saved up for retirement, and they don’t want to risk major losses, there is nothing wrong with having a large amount in cash. You can get a risk free CD with 4% - 5% returns right now.

I personally have over 50% in cash, CDs and money market funds. SoFi bank has 3% interest on cash at the moment. Money market is around 3%. CDs are over 4% depending on duration.

Again, I’m not saying this is the “best” or most profitable strategy. But IMO you don’t need to swing for the fences and put 100% in high growth.

And yes, I know I’m not matching inflation with the 3% returns on cash. But growth stocks have not been either in the last year.

Hopefully this will not be deleted. This is not meant to start a discussion/debate on this topic - but I thought there should be at least one dissenting opinion. I will not reply further. Thanks.

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Analog, what you seem to be saying is that if someone already has enough money for retirement it’s okay for them to put that aside in cash to never be invested, and just invest what is excess of retirement money. I have no argument with that. It’s what I do now.

On the other hand, if you are saying that everyone, even those who are younger and just starting out, should keep 50% in cash, that’s not what this board is about, and maybe you should be posting on another board.

Best,

Saul

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Counter perspectives are encouraged! But we are probably veering into portfolio management, so let’s please end it with this note of agreement:

If a person has enough saved up for retirement, and they don’t want to risk major losses, there is nothing wrong with having a large amount in cash. You can get a risk free CD with 4% - 5% returns right now.
I agree, unequivocally. Everyone has to decide how to structure their own finances and portfolio.

On the non-portfolio management side (but maybe also off topic dealing with market timing), I do think there’s something interesting to say briefly.

It is entirely possible that high-growth stocks go sideways or down for years in the current environment.
I don’t know that I agree with “years.” Because even if valuations go sideways or down, stocks of companies with (rapidly) improving fundamentals (revenue profits etc) will rise as the fundamentals overwhelm the downtrend in valuations. Example: Datadog’s PS multiple was down 80% from its peak, but importantly, the stock was “only” down around 65%. That’s crazy and bad obviously, but the point is that a specific stock won’t fall as hard as “growth stocks” overall, if the underlying company is rapidly becoming fundamentally more valuable.

Yes, going down less isn’t rising. Yet. Eventually multiples will bottom. And sure, I guess there’s a chance “growth stocks” multiples drop another 80%…but is that likely when current PS ratios are 18 or 20 (vs 60 or 70 last year)? When multiples bottom (and it’s possible they already have), fundamentals will drive the stock price – and if multiples rise again after the bottom, we might just see some huge gains. We certainly did Thursday and Friday.

Just a reminder, because I don’t know if we’ve spelled that out in a while. Now, if we pick the wrong companies, all bets are off.

Bear

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