Choppy Markets Shouldn't Deter You
Portfolio at all-time highs, but for how long?
In our last presentation, we talked about the longer high implied volatility persists, the more likely it’s going to deter investors. That’s a good thing for those who take the opposite stance.
Right now, our portfolio is at all-time highs, while the Nasdaq and S&P-500 sold off 12.5% and 8.1% respectively since launching our Substack. Some argue that this is just a pullback in large cap Tech, but even the equal-weight S&P is down 4.6%.
As we explained two weeks ago, because we were looking for more directional exposure, it’s to be expected that our returns will become a more choppier. This is the outcome reflects our strategic decision to take a more bullish stance on companies that we believe demonstrate relative strength in a market shaped by stagflation, tariffs, and other challenges. And because our portfolio didn’t go down with the market this year, it’s more comfortable to take on more risk now vs. three months ago.
Still, the question becomes: for how long can we maintain the streak of winning when the markets down double-digits and could keep going down? We now have more directional risk on, so it’ll become inevitable to keep a flattish/slightly positive monthly return as the market keeps going down. No one has a crystal ball, but we’ll stick to the script. In the end, it boils down to a repetitive approach that’s somewhat contrarian: being prudent when everyone’s bullish and volatility low.
Next week could see a surprising relief rally when the tariff uncertainty is cleared; that is: which companies will be impacted and which ones could even benefit (pricing it through, thereby increasing margins over the mid-term)? Investors will then look for resilience and rotate into these winners, just like they did during 2018, 2019 and 2022.
Let’s take a closer look.
The presentation’s transcript and slide deck can be downloaded below.