Portfolio Activity is Down, Opportunities Will Inevitably Show Up

Ephesians Chapter 6 verses 12-13 state, "For our struggle is not against flesh and blood, but against the rulers, against the authorities, against the powers of this dark world and against the spiritual forces of evil in the heavenly realms. Therefore put on the full armor of God, so that when the day of evil comes, you may be able to stand your ground, and after you have done everything, to stand."

There is no denying the clear action for Christians from what the Bible says. As a Christian, I need to heed God's word, but also recognize that I am by no means perfect, let alone close to it. It is during moments in life, that the stand for God is a measure of myself. Do I compromise and deviate from God's word, or do I stand faithful to His truth? I wish I could say that I always do what I should, but it just isn't the case. I do always know that God's word is a direct extension of His love, which is meant to protect me. My emotions are the primary culprit at upending my clarity, however, through God's grace, I am always able to continue to stand (and in some cases, get back up!).

I find these words inspiring for the topic at hand. Investing to me is a challenge. I don't take the time that I do to perform in a good fashion, but to win. In order to win, I need to consistently meet my goals and objectives. In reality, I recognize that it won't always be this way, so like God's guidance to continue to stand, I must be committed to the task at hand whether things are working out well, or not.

This year is turning out to be lackluster with respect to activity, which is atypical for the portfolios I have managed over the past decade. I feel really good about where the financial models are, and how this relates to actionable Portfolio Moves. But the market has taken an interesting position in 2021 by very selectively targeting certain growth industries and companies, with all other major indices witnessing moderate to strong positive performance.

As an example, the Russell 2000 as I write is up 13%, and has been a key driver for the portfolio movements with correlation being strong of late, yet the portfolio remains down below 4% - a roughly 17 percentage point difference. This is interesting as more than half of the holdings fall outside of small/mid-cap EVs, which is what the Russell 2000 index is made up of. Contrastingly, to the "rotation" speak, the Russell 2000 is based on stronger growth companies, and yet is the leading performer against the Dow Jones, S&P 500, and NASDAQ. All are positive right now, so essentially we have two primary growth indices performing well, while the portfolio under management (which is growth-oriented), remains down. Holding 50 companies affords diversification, so it isn't a simple fact where I only own 5 or so companies, and simply picked losers.

What this tells me is that growth is not necessarily out of favor - the "rotation" is not comprehensive against growth. But rather, certain companies that are growth-oriented have become targets. Upon further review, many are some of the stronger performers during last year, as the pandemic impacted global economies. Many naysayers have emerged believing that last year's robust gains for these companies would revert backwards, and/or that growth would stall. Many of these earlier concerns have already been debunked by Q4 2020 results and estimates for 2021. However, in some cases, the narrative continues to shift further out over the next few years, echoing similar concerns.

There are many other variables, EVs for example, have witnessed a strong narrative suggesting that traditional OEMs will become leaders versus newer market takers like Tesla, Inc. (TSLA), Lucid Motors (CCIV), Fisker, Inc. (FSR), Lordstown Motors (RIDE), among many others. This has led to a similar "rotation" case where companies like General Motors (GM) and Volkswagen AG (VWAGY) have seen explosive SP movements of late, similar to and in some cases, much greater than aforementioned market takers, which have conversely declined.

On a side note, I've written a little bit on this topic, and continue to believe that this is highly misguided and that traditional OEMs will continue to lose market share against newer entrants and not necessarily benefit from the "marketing sensationalism" leading to actionable innovation and battery technology achievements. Companies like GM and VW are not even close to companies like Tesla and Lucid Motors, and yet they tout the future having greater technology and efficiency. It's a farce built on the fact that they will make millions of less efficient vehicles, and rely heavily on government subsidies to allocate infrastructure to hopefully level the playing field. The other major challenge as we've seen from Ford Motor Co. (F), is that certain models (Mach-E Mustang) are not even capable of resembling the exterior quality of what consumers have grown to love. There is not a clear uniform skateboard EV platform conducive for all existing internal combustion engine, ICE, makes and models. Traditional automotive OEMs face an equal amount of risk for the future, and in some cases, even more than technology leaders.

The other dynamic to note is the quick correction that did occur for the NASDAQ over the past few weeks. It was very temporary, but was used by the naysayers to punish select growth stocks. This recent activity is a major reason why the portfolio is not performing in-line, let alone standing out amongst peers. Companies like Chewy, Inc. (CHWY), CrowdStrike Holdings (CRWD), MercadoLibre, Inc. (MELI), Opendoor Technologies (OPEN), Palantir Technologies (PLTR), Peloton Interactive (PTON), Roku, Inc. (ROKU), ServiceNow, Inc. (NOW), Shopfiy, Inc. (SHOP), Teledoc Health (TDOC), The Trade Desk, (TTD), Twilio, Inc. (TWLO), and Zoom Video Communications (ZM) have been especially hit. Most of these companies witnessed substantially strong results for last year, and provided increased guidance for the upcoming year.

I've been investing long enough to have seen these type of manipulations happen before, notably within the Transportation Sector, and within freight industries. As long as the economy continues to expand, many of these growth-oriented plays left out of favor will return to parity with broader indices. I am already seeing this happen with companies like Roku, which dipped from nearly $470 to $292, before returning above $370 per share today. I missed my limit by order by $2-$3 per share at $290 just recently, which was rough (I missed pretty much all of my limit orders by similarly close amounts), but it is clear that Roku will is an indication of how other holdings will likely follow suite.

I still believe that we could see further volatility down the line leading to a correction, but we also know that the current administration will do everything in their power to keep the economy expanding. This is a harbinger of increasing taxes on the horizon for corporations and consumers. COVID remains completely unclear as far as data and information is concerned (there never was any accuracy), but if economies open nationally without issue, then this will be highly positive. We could see the ten note break through 2% which could be a catalyst for further growth-based declines, but I suspect that it would continue to remain selective as to the biggest impacts.

With the volatility from the portfolio's high to low equating to 33 percentage points, there is still a good chance that without any major Portfolio Moves, the portfolio can make up serious ground and still contend being a top performer as has been the case the past couple years. The portfolio has outperformed 98% of over 23,000 investment options (ETFs/ETNs, Mutual Funds, Indices) the past two years. Even with this year's performance to date and from a total return perspective since 2017, the portfolio has outperformed over 96.5% of these investment options.

I will continue to remain patient looking for another correction opportunity before averaging any of the portfolio's holdings. Since performance has been improving the past couple of weeks, there aren't many companies on the radar for accumulation. The only companies trading below a 10% premium to their Maximum Action Price are Affirm Holdings (AFRM) and Chewy, however both are still above 9%. As such, I will remain patient and disciplined continuing to focus on newer opportunities on the horizon, namely Coinbase Global (COIN) and UiPath, Inc. (PATH).

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