Investing Update: Did the Market Bottom?
What I'm buying, selling & watching
With not really getting any catalyst or big news, the market had its largest two-week gain since late 2020.
In my last Investing Update on 3/12, I wrote the following;
I feel that when the market turns back upward that you will first see an upward trajectory turn in what first led the market lower, the high growth tech stocks that right now nobody wants to own. But the window for not wanting to own, means what? A month, six months, a year? They will be in favor again and now is the time to start watching and nibbling at any you like long-term. They’ve been sold off at first due to interest rate hike worries, then it was the growing inflation and now due to the Ukraine and Russia war. Of course they can go even lower, but I feel some are bottom bouncing at these current prices.
Below is the market from the market close on Friday March 11th.
I had indicated that I bought Peloton at $22 and Shopify at $550. From those levels Peloton is up 26% and Shopify is up 22%. Sizable gains that could evaporate as fast as they rose. But this is what I mean when I feel high growth tech leads us higher. They will need to hold those gains for the market to hold gains and make new highs.
The big debate has been if we hit a bottom or if this is just a relief rally. Will these gains hold? Has this been a repositioning out of bonds and into stocks? Thus driving stocks higher? Something I think a lot are considering is do you sit in cash or fixed income with bonds returning so horribly and inflation at 7.5% and rising?
Fund flows are showing that people are now selling bonds and buying stocks and gold. Money is always going somewhere and right now it’s going into stocks and gold.
What Is Going on With Bonds?
We are in the midst of the worst three-month return for bonds since the early 80s. Being down 5% is awfully rare.
People are not used to losing money in bonds. What’s even more odd is people are losing money in bonds when stocks are also down.
When you see a repositioning of money back to stocks you start to wonder why more weren’t positioned this way prior with inflation at 7.5%. Real returns if you’re in cash is already at -7.5%. Fixed income just isn’t appealing. I feel my best hedge against inflation is owning stocks.
Your options minus fixed income then is stocks, gold or real estate. Gold is more for a store of value. Stocks have been sold off and real estate is currently in a wild wild west moment with extraordinarily high prices, unprecedented demand, low inventory and rising mortgage rates. That doesn’t make real estate very enticing to investors. Which explains why it has been a rotation out of bonds and into stocks.
Over the past five years we’ve seen the S&P 500 (SPY) return 92.03% and the Total Bond Index (BND) return -2.91%.
A Question Answered
Do you have a Roth IRA? What are your thoughts on them?
I started a Roth IRA when I was 18 years old. At that time all the mutual funds and stocks that I bought were under that Roth IRA. I haven’t been able to contribute for many years because once you earn over a certain income you can no longer contribute to one.
All the money that I contributed which bought those stocks and mutual funds is all going to be tax free upon withdrawal after age 59 1/2. So my winning stocks that have been up 500% plus (Apple, Amazon etc.) all were bought under a Roth IRA. They’re still under it, so all the gains are tax free. I can still buy and sell within that Roth IRA. I just can’t contribute any new money.
Needless to say I’m a big fan of these and the benefits. For years they’ve been saying how the government will eventually change them, but nothing has been done. Once my kids turn age 18 or start earning income, I’m going to be opening Roth IRAs for each of them.
Here are a few articles if you want to read more about Roth IRAs.
5 Top Benefits Of A Roth IRA - Bankrate.com
4 Great Roth IRA Benefits - Forbes Advisor
Moves I’ve Made
T. Rowe Price New Horizons Fund (PRNHX) On Monday I made a contribution to my long time mutual fund PRNHX. I’ve owned this fund since 2004. The returns of this fund have been fantastic.
3 Year Return: 33.57%
5 Year Return: 26.66%
10 Year return: 21.04%
Since Inception 6/3/1960: 12.48%
It invests in mid-cap growth companies. Many of the companies they invest in are at the earlier stages and they invest in areas of growth I’m not strong in or follow. When I look at their largest holdings it’s usually companies I’ve never heard of. It makes for a great fit in my overall portfolio.
When there are large selloffs or crashes in the Nasdaq, I will add more money to this fund. That’s what I did on Monday. The last time I had contributed to this fund was during the COVID selloff.
What I’m Watching
In my last Investing Update, I said I was watching the companies below. I’m continuing to watch these. They’re still down significantly from their highs. If the market holds and we climb higher, I still believe these will lead us upward and you’ll see significant gains in this group.
Next to each of these stocks I’ve indicated what they’re up from 3/11 and then how far they’re still down from their highs.
Twilio (TWLO) +16.86% / -62.22%
Upstart Holdings (UPST) +3.69% / -73.39%
SoFi Technologies (SOFI) +5.38% / -62.29%
Sea Limited (SE) +27.55% / -68.36%
MercadoLibre (MELI) +30.80% / -40.31%
Snowflake (SNOW) +21.83% / -45.31%
Dutch Bros (BROS) +12.54% / -27.97%
Airbnb (ABNB) +15.21% / -19.30%
In addition to this group, I would lump in CrowdStrike (-24.30% from high), Shopify (-59.81% from high) and Peloton (-77.52% from high). I have positions in these companies currently, so I didn’t include them above.
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Disclaimer: This is not investment advice. You should not treat any opinion expressed as a specific inducement to make a particular purchase, investment or follow a particular strategy, but only as an expression of an opinion.