In March I started a growth portfolio. It looked to me that growth stocks had just seen a major correction with some of those shares down even 50%. I thought this was the correction, and we could see a rebounce.
As usual I was wrong, and my stocks kept dropping. The higher my conviction was in the stock the bigger it dropped. No stock has gotten a bigger beating then Palantir. I stock I really believe in and where I keep buying the dip.
But its not easy to watch when your growth portfolio is down 15%. One thing I am absolutely convinced about is that I am horrible at timing the market. Pretty much every single stock and ETF has dropped right after I bought it.
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But I have one advantage, and that’s when I buy, I buy for the long run. I buy stocks I absolutely believe in. Maybe some people can predict when markets will go up and when they will go down, but I can’t. One thing I do know, I am bad at timing but I am very good at holding!
Its not easy to hold when you speculate but when you buy a stock and it drops 20% that doesn’t mean that the stock suddenly became bad. Have a look at Amazon right before the dotcom bubble:
One amazon share was valued 107 EUR in december 1999. And what happened a year later?
The stock pretty much CRASHED all the way to 7 USD
I am sure a TON of people sold back then, and regretted it now, because those that would have held would have seen the amazon stock go back all the way to its current price of 3300$! Meaning even if you bought in at the high of 107 EUR you would have seen an 3200% upside!
So what really made the stock crash back then? Well nothing! Amazon had not really changed all that much. The inside of the company pretty much was the same at 107$ as at 7$. What changed was the market. It did take Amazon 8 years to recover, but once it did it shot up like there was no tomorrow!
The same thing happens here to a lot of these stocks. In the short term or long term most of the stocks from my portfolio didn’t change. A few did get bad news, but almost all of them have no reason why they wouldn’t outperform.
Palantir for example is currently trading at 127 times earnings, which is considered high, but if it can keep growing at 30% per year, then in 10 years it would be trading at 8 times earnings which is incredibly cheap. So its unlikely that in 10 years Palantir will not be trading at least triple of what it is now, and that still leaves room for a 15% upside per year, meaning it will be outperforming the market. Everything at this point does depend of how much faith you have in the stock.
I personally think they will have an accelerated growth in the commercial sector, especially when their SAAS solution is ready in a few years, so they will be able to keep up the 30% growth and more!
Some voices say that the current downtrend of the market will continue until Autumn. As the saying goes leave in May but remember come back in September.
So should you pack up and leave? Everyone has to make their own decisions, however in my opinion: absolutely not. Its true exponential growth stocks have seen a major downturn, and it could continue for some months, especially if inflation hits, which is said can greatly affect growth.
Some light points at the end of the tunnel
#1 10 year US rates
Generally governments try to maintain an inflation of about 2%, if inflation is going higher then rates are going up. Another reason why rates would go up is unemployment. Low unemployment means a healthy economy and this leaves room for rates to rise.
Now in the US the unemployment figures just came out. And what do we see? Instead of unemployment to drop as expected it actually even rose a bit!
As it turns out the low-income class jobs such as restaurants, hotels, .. have not recovered at all. The only thing that is improving is the high-income class unemployment, this actually went down.
Weirdly enough this is actually a good thing for investors, because that means that the federal reserve plans to keep the rates low so loaning remains cheap and company’s can continue to invest, which should lead to more jobs.
For my mostly US based growth portfolio this is good news that growth stocks will be able to continue to loan cheap. A lot of these companies still loan a lot for growth as most of my portfolio does not take a profit yet.
To be honest I think its not certain at all low-income jobs will improve quite fast. In Belgium restaurants and bars have been closed for 7 months! Its hard to imagine that this will not have changed people’s habits.
I personally went to bars several times a week before, now I am filling my evenings with running, swimming, tennis,.. instead. While for sure I will be going out and enjoy a drink on a terrace, its really hard to imagine will go back to the habits I had before.
Same thing with hotels and air travel. Over a year ago I was a full time traveler for work. In some months I spend almost 10.000 EUR on hotels and plane tickets. This time will not be returning. Big customers are selling their offices, betting high on remote working. Again there is a low of low-income jobs in these sectors.
While for sure companies were overvalued in February as tech stocks just witnessed the biggest bull run since the dotcom bubble after some of these stocks have been cut in half in my opinion their valuations are much closer to what they are actually worth.
Where in February institutional investors were responsible for most of the selling, I would say right now its more retail investors, at least in some stocks. Take Palantir for example. With only 10% institutional ownership, its pretty clear that the price is controlled by retail investors.
Have a look at Snowflake for example:
While the buying pressure can’t really be compared with Q1 of last year yet, what we can see is that the inflow is exponentially higher then the outflow. Meaning that if this stock is dropping it must be the retail investors driving the price down.
But its still very very little inflow compared to Q1. There is two reasons for this. The first being the rotation into value stocks but the second reason is the fact earnings still need to happen for most of these stocks and then I come to #3.
If you bought into stocks you must have a good conviction in them. Especially with stocks that recently had their IPO the first earnings are really important. If you have good earnings this is the place where stocks can take off or where they can be dumped at a fast pace.
Earnings are not everything. $LYFT reported some amazing earnings, far above expectations, but the sale of their self-driving package caused the shares to dump. $LYFT changed strategy stating there is now plenty of car companies that will have a self driving car, so there is no need for them to invest into self-driving. They do still have their self-driving partnership with Motionless.
I admit, all this bad news about $LYFT makes me the most uncertain about this stock of all my stocks. But at this point I believe its better to hold and stay tuned if their strategy will work out.
$ROKU on the other hand reported amazing earnings and the stock shot up 11% last Friday. $ROKU had been sold off before after Netflix showed it was slowing down a lot in growth, but it seems the opposite is true for $ROKU and the company is far from losing its momentum.
The question is of course if great earnings will be enough to make $ROKU go to new heights in this market.
Now next week will be an exciting week because we will have earnings reports on Coinbase, Alibaba, Palantir & Beam Therapeutics.
My expectations? I believe Unity will outperform, Beam will probably have not much to report on in terms of Financials, Coinbase I hope the rumors of their amazing Q1 earnings will be re-confirmed and lastly so much to look out for Palantir.
For Palantir I would like to hear why they purchased a share in this EV Helicopter company and this company that does cancer research. They must think their technology brings incredible added value to these companies.
I also hope they will be saying something about the sales of stocks by CEOs. We suspect this is related to taxes, but we would like to see some confirmation on this.
Palantir’s government contracts are public, and we know there has been a strike of good news there. But what we need to watch most of all is their commercial sales. In Q4 last year they only reported a 4% growth there. Palantir now made a few changes to boost commercial sales: they allow for payments for contracts to be spread out more, and they made Foundry free so I think that will boost sales long term.
If they can boost their commercial contracts this could be a great catalyst for their shares. I will like anything above the 4% but I am secretly hoping the growth will become more exponential.
Time to move out of tech?
Given that the volumes are down massively compared to Q1 and retail investors could be nervous when they don’t see big price jumps in the short term. There is a chance that some stocks will keep seeing a downturn for another few months.
At the same time the long term prospects remain great for most of my portfolio. I am most uncertain about $LYFT but I want to stay invested for now and see how their new strategy will play out.
I actually consider to add extra positions in stocks that report next week that I have the highest conviction about: Unity, Snowflake & Palantir. I will also consider Beam Therapeutics even tough I don’t expect much movement there until their pipeline is more mature.
If you believe in a company pre-earnings is the time to add. After earnings you could miss a big jump the stock might do on earnings day. In any case, remember invest for the long term, because you could end up with a dip or a bear market as you can see on my portfolio, and in this case being invested long term is a lot easier to hold.
If you are not yet invested into tech, and especially the newer tech stocks, this might be a good time to consider taking a starting position into some of these high growth stocks. Just remember: I am not a financial advisor and investing remains risky.
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