It’s really been an amazing first half of June. I can hardly believe how much my portfolio has risen. At the end of May my portfolio was up 55.8% and just 2 weeks later it’s now up 76.9%! I have people asking me if I’m going to cash out. Hmmm. What’s going on?
The “market” (S&P500) is up less than 4% YTD. This is after 40 year low unemployment, subdued inflation, very strong economic growth and growth projections, very high EPS growth in the S&P500, and earnings projections point toward continued EPS growth. Looking ahead to the 2nd half of 2018, I think the results could be even better.
The tax cuts have yet to drive the overall “market” higher.
Companies have yet to take advantage of the opportunity to immediately expense 100% of CapEx spending. I believe that companies are going to strive to spend as much as possible in 2018 because they will want those instant tax deduction (immediate recognition of the CapEx in year 1 with no depreciation spread out over multiple years).
FOMO is not yet back. People are still afraid of stocks. 2000 and 2018/9 are still front and center in the minds of people. They fear a crash more than they fear the FOMO. FOMO will return, and when it does we will see an explosion in the stock market similar to what we saw in 1998-2000.
Technology is growing exponentially and most people can’t see it. Being invested in companies that will benefit from this is important. Being investing in mega trends and secular growth companies is key. Even if the “market” drops, the companies that are growing revenue 50-70% cannot be held back because the stocks must eventually reflect this success.
So when someone asks me if I’m going to cash out, I think I’d be a fool to do so. You can’t look at your increase to make that decision; that would be looking back. You must look forward. Are the companies that I’m invested in going to continue to growth this fast? Are the companies that I’m invested in overvalued?
Now there’s alway the possibility of a big shock. It would be a big geopolitical shock, it could be an unforeseen war, it could be another financial crisis. But if one worries too much about such things one would never invest and miss the great bull market that we are in. Yes, there’s a bull market but the overall “market” has not yet shown the growth in 2018 that we saw in 2017. Will our stocks continue to rise once the market takes off higher. I tend to think so. Below is a link to my portfolio update from January 3. I had some thoughts about the 2017 and what I thought was likely for 2018. Those thoughts still hold true for me today:
2017 was a phenomenal year. Some people say this can’t be repeated in 2018. I wouldn’t go so far to make that statement. Will 2018 be a repeat performance for the stocks that we have picked? I really have no idea. But I think it’s feasible and I think it’s certainly possible. It might even be somewhat likely. I know that I tend to be optimistic, but here are some things to consider:
1) If you look at my stock picks, you will see that 9 of 11 are in tech (or at least related to tech). The other 2 are biotechs that have some pretty interesting pivot events likely in 2018. Techs were sold off in December 2017. I think that a bunch of institutional investors rotated out of tech. I think it’s highly likely that there will be (maybe it’s already started in the first 2 trading days of 2018) a rotation back into tech. Investors will look for growth and growth is in these companies.
2) Tax reform has passed and the analysts (and the companies) have not yet have time to revise their earnings forecasts. This will happen soon. Cramer also said this today, and I agree with him. I think it’s highly likely that we will see a rally into earnings and during the earnings reports (late January through February).
3) The Fed raised rates in December. Will they raise 3-4 times in 2018? The real question is whether there will be evidence of inflation. Maybe we will see some movement there or maybe it will be less than the Fed and economists think (due to the deflationary pressure of technology). I’ve posted about my view of inflation and how people over estimate inflation and underestimate the speed with which technology advances. Technology advancement is happening faster and faster every day and it continues to accelerate. This is difficult to observe. Yes, the Fed has increased rates a few times….the pressure on the gas pedal has been lighted but with current rates the gas is still being pressed and the brakes have not been applied. Monetary policy is still VERY favorable to stocks and to growth stocks specifically. Now, with tax reform, fiscal policy will give stocks a very big boost in 2018.
4) Will there be additional fiscal policy that will favor large corporations? That might be infrastructure spending. I think it will be more difficult to get through than the tax reform. However, an infrastructure bill would further fuel growth.
2018 should be really interesting. I’m excited to see what happens. Good luck to everybody!