I’ve gotten quite a few notes from people in recent months asking what I am buying and selling during this crazy time. So here it is.
My portfolio is up 12% on the year. That feels strange to say given we’re in the midst of both a health epidemic and a large shock to the real economy. I used the word “real” in that sentence to distinguish between the actual economy and the stock market. While the Nasdaq is positive for the year and the S&P is only off 12%, the real economy has seen jobless claims spike to 30 million and tons of companies have seen their revenues cut 80-100% overnight. And all the while 250,000 people have died globally, with 80,000 of those in the US.
This disparity between the real economy and the stock market doesn’t make sense to me; it doesn’t feel right. There is a narrative that low interest rates and money printing yields higher asset prices, and I imagine there is some truth to that. Nonetheless, I still feel uneasy.
At the end of the day, I find investing to be more about psychology and emotion, than it is about intelligence or financial analysis. As such, I needed to do something to ensure that I could keep my emotions in check and fight off the cognitive dissonance.
I decided to sell 20% of every position. I chose to do it across the board to embrace my own ignorance. I have no idea what will happen in the future, so I didn’t want to pretend I knew what stocks to hold and which to sell. So I sold a bit of everything. My hunch is that there will be better opportunities to put that capital to work in the not too distant future. Perhaps that plays out, and perhaps it does not, but there are worse things in the world than having more cash on the sidelines, especially if it helps me sleep better at night and keep the emotions at bay.
So that covers the selling side of things.
Of course, massive selloffs are also a great time to buy. It’s not every day that your favorite companies go on sale for 25-40% off. So in mid-late March when the panic felt palpable, I was busy putting capital to work in one of the largest themes in my portfolio: e-commerce. E-commerce has been a steadily growing trend over the last 20 years and the current moment serves to accelerate the trend. As such, Amazon at $1,729 a share felt too good to pass up. Same for Shopify at $326 and MercadoLibre at $509.
Finally, I’ll end by calling attention to a stupid mistake. I decided to buy shares in Carnival Cruise Lines when they hit $27. I promptly sold them a few weeks later at $17 for a quick 40% loss. Ouch!
But it was a good lesson, and an important one. Sometimes things sell off because of fear and panic. And other times things sell off due to a fundamental impairment to the business. I put a bunch of money into Shopify when it fell from $535 to $326 because nothing changed about the underlying business. If anything, the proposition of e-commerce only got stronger. By contrast, Carnival stock fell 85% due to a fundamental impairment. Revenue likely fell by that same amount, and there’s no way to tell how long that impairment will last.
Lucky for me, my good decisions during this period have more than compensated for the bad, at least for now.