Portfolio Update 8/25/20

“Stock market bubbles don’t grow out of thin air. They have a solid basis in reality, but reality distorted by a misconception.” – George Soros 

I’ve never felt so lost investing these last few weeks. I’ve questioned my skill and I’ve questioned the viability of discretionary, active management as a personal career path.

I’ve questioned whether I can be this different (and wrong) for this long.

Backstory: I had a killer 2020 going. I came into the year with Tesla as my largest position and Amazon not far behind. I bought stocks hand over fist in March; I had a great thing going. 

The year went on and I sold too early. I sold or trimmed almost everything too early. I sold my last shares of Apple and Tesla in July and I trimmed Amazon, Microsoft, and Facebook all too soon. Additionally, I sold some $VT/$VTI/$SPY (multiple for nimbleness & tax reasons) short at the end of April. 

I grew my hedge larger and larger as the market climbed higher and higher, resulting in a 24% net long position now.

While everything needed to give me conviction in this trade has formalized, it doesn’t matter. The market could double for no reason. There doesn’t have to be a reason for anything. This could be 1998 instead of 1999. Even worse, it could be 1996. I doubt it, but who knows? That’s the point. 

The economy is in shambles for poor people, but it’s okay for affluent people. For Q2 2020, the blended earnings decline for the S&P 500 is -33.8%. -33.8% marks the largest year-over-year decline in earnings reported by the index since Q1 2009 (-35.4%).  

This, while the S&P 500 large-cap index trades at 22.5 forward estimated earnings and has a Shiller P/E of 31.75. The current 2.1 PEG ratio is the highest in modern times. 

The market’s bid is relentless. The President is obviously going to do anything he can to stoke markets into the election. Volume is anemic. Many retail investors and just about all staunch democrats are bearish. Counter-sentiment tells me the market is going much higher, at least in the short term.

How long can I maintain this position into a large rally? Do I cut some of my losses? Do I go to zero net exposure and try and to eke out anything positive without much downside risk? 

I’m going to set a limit on my hedge. I will not go to negative net exposure. I’m an optimist, that makes no sense to me. I’m open to trying a fully hedged strategy because I disagree with this market completely, especially if the market climbs further. 

Note: this is only referring to my discretionary PA. I have long stock exposure various other ways.

Disclaimer: This is not financial advice. I know nothing.

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