Psalm Chapter 62 verse 1 states, "Truly my soul finds rest in God; my salvation comes from him." Life is full of challenges that tend to be connected to different phases or stages. When I was single and younger, I was mostly concerned about things that impacted only me. As I now have a family, there are plenty of other things to worry about. The verse above is very true, in the midst of any storm, I only truly find rest or peace with God, as His word provides all wisdom for any topic.
Today is a great example of dealing with frustrating challenges stemming from the markets. Over the past 20 months or so, things have gotten out of hand with respect to schizophrenic and contrary actions. It's during these times that I tend to rely on this same verse above, and I sure did today. I am not responsible for any of the extreme gyrations occurring, but I am accountable to navigate them in a prudent fashion for my portfolio. Patience is required as is sound judgment to execute.
It's now pretty clear that Wallstreet is expecting all pandemic plays from last year to experience a summer swoon that will impact Q3 2021 results. Stocks like Chewy, Inc. (CHWY), Coupang, Inc. (CPNG), MercadoLibre, Inc. (MELI), Roku, Inc. (ROKU), Shopify, Inc. (SHOP), Teladoc Health (TDOC), The Trade Desk, Inc. (TTD), Wayfair, Inc. (W), and Zoom Video Communications (ZM) are all examples within the portfolio, that are being selectively targeted based on this logic. Aside from these names, there are others as well.
So the questions are, have those using Chewy and Wayfair declined use and gone back to brick-n-mortar stores; have those in South Korea and Latin America stopped using Coupang and MercadoLibre as a result of doing more activities; has the summer turned many away from streaming affecting advertising and use of Roku and The Trade Desk; have people reduced using Teladoc at an accelerated pace; and is Zoom no longer relevant because everyone is back in the office? My answer to all of these questions is a resounding no!
The fact of the matter is, the pandemic highlighted the strongest business models and everyone piled into them. It distorted a more balanced rising tides lifting all boats, which made a lot of investors and legacy companies uneasy. Since late fall last year, Wallstreet has been pushing the rotation mantra, that has come to fruition, but not in a logical fashion. The aforementioned companies in the portfolio have all been targeted throughout the year based on "concerns" for their future business models and growth trajectories, which is simply FUD.
My conviction tells me that Wallstreet is simply skewing the game to areas of opportunity. This isn't directly correlated to the best investments per fundamentals and/or financial strength, but simply greed to make a quick buck. That's how Wallstreet works. Their problem is that we are in a paradigm shift and they have no control over this, so their time is finite and when the tables turn faster, there's going to casualties.
As earnings season for Q3 2021 approaches, I expect top aggressive growth leaders to continue to "confound" everyone with outperforming growth. I am anticipating a highly robust Q4 2021 and view the recent dips into the fall as buying opportunities. I continue to selectively accumulate on the weakest positions that offer the most upside potential based on extreme market mispricing.
While those seeking alternatives to aggressive growth may not like the fact that these companies were huge winners during the pandemic, the reality is that many of the strongest growth leaders will continue to be even larger winners over the future. Investors should be expecting an inflection at some point as Wallstreet's greed is fickle.
Warren Buffet's saying, "buy when others are fearful" sounds nice. But a better statement is buy the strongest companies when others are pushing a false narrative. The problem is that Wallstreet has taught retail investors two terrible lies. The first, that there are many many companies worth investing in; the second that there are many many ways to value these companies. Investing is very straight forward. An investment return is defined by a company's Cash Flow, a company's Cash Flow is defined by their margin and ability to grow Revenue. There are adjustments to consider amongst sectors, industries and peers, but aside from that, there are no exceptions. Deconstructing this against the 7,000 or so public companies for investors in the U.S., and there aren't many viable options, 5-10% at best. This substantially reduces the exponential variables that Wallstreet has to play with 7,000+ companies, and is why most Wallstreet firms don't have very strong performance track records. Either you will be the best trader beating everyone at the game, or you will be the best stock picker - those are the only ways one can win big over time.
I by no means am perfect, far from it, but I do rigorously scrutinize companies by the models I have built. And I have strong conviction for the aggressive growth companies within the portfolio, being capable and having substantial potential to afford some of the best investment returns over the mid- and long-term. My track record for managing a purely aggressive growth portfolio is not very long (Inception as of January 2020) and will speak for itself over time.
Investors need to understand that in today's mixed-up world where public news are mostly lies and propaganda to influence societies behavior, Wallstreet and markets are no different. The key is that like government, Wallstreet has no control over societies freedom (even when they think they do). That's the trump card that will win every time. Keep focused on high conviction opportunities, and keep a level-headedness to continue to resist the false reality that today's manipulators hope to instill on us all. Here's to a continued volatile fall, and discernment on making calculated and strategic decisions.