- Capital Contrarian
- Posts
- Rain Check for Tech
Estimated read time: 4 minutes and 28 seconds
In this week’s newsletter:
Market recap
Skills & data used this week
Top holdings: what I am buying & selling
Market Recap
YTD returns:
S&P 500: -18.15%
Nasdaq: -29.04%
Russell 2000: -17.77%
Top holding position US Dollar ($UUP): +16.19%
Let's headline chase some Tech earnings reports, shall we?
"Shares of Google-parent Alphabet dropped 9.1% after the tech giant missed expectations on the top and bottom lines. Alphabet also reported a decline in YouTube ad revenue, which spurred investors to deliberate the outlook for other tech companies that rely on ad spending." - CNBC
"Meanwhile, Microsoft declined 7.7% after the tech giant reported weaker-than-expected cloud revenue in its latest quarterly results, despite beating earnings and revenue estimates. The company also issued current-quarter revenue guidance that fell short of expectations." - CNBC
"Amazon misses on holiday forecast and cloud growth, profit; stock plunges 20%" - MarketWatch
"Meta's value has plunged by $700 billion. Wall Street calls it a "train wreck."" - CBS News
No, I do not start my day by reading headlines nor do I waste my time listening to what the media has to say. I'm entirely focused on the data and rate of change of said data.
But when I want a good laugh they're tough to ignore...along with the memes.
After their decline post earnings (-24.56% on Thursday), Meta is no longer in the top 20 most valuable companies. The company has lost $730 BILLION in market cap this year.
Was everyone aware that Meta is down -70% YTD? SEVENTY PERCENT.
If you held the bag on Meta this whole time, you would need it to return +333% to get back to your original investment - if that doesn't make sense, go back to math class.
It only took 5 years after its IPO to get that kind of return, and that was back when it held the first spot in the beloved FAANG portfolio as 'the hottest new tech stock'.
And don't get me wrong, by no means am I a Zuckerberg hater; Meta (formally FB at the time) was one of by best, most profitable trades of 2021.
But on 6/24 I started shorting Meta - because I knew an economic environment of slowing growth was not favorable for them. It's not favorable for anyone in tech!
And this is coming from someone who has a Quest 2 VR headset!
If you haven't seen the Cramer clip explaining how he "got Meta wrong", borderline choking up on national television, that should really sum all of this up. Those tears taste so good, Jimmy!
(go Phillies, I know he's an avid fan and we have that in common. The Fightins, baby.)
Here's something you can stick in your pipe and smoke on: wait until you see what these companies report for Q4 2022 earnings at the beginning of next year.
If these Tech giants, who are massive enough to survive a recession, are puking earnings...what do you think is going to happen to the AMCs of the world who are depleted of cash, have copious amounts of debt, and can't turn a profit....
(hint: growth will continue to slow and they will die)
Skills & Data Used This Week
It's not uncommon to discuss 401K performance between peers. Seeing as most Americans are fortunate to contribute towards one, it's a popular 'bonding' experience to celebrate the wins whenever the market is booming, but also cope when it's tanking.
Depending on your age, I'm willing to bet I can guess exactly what your 401K is invested in.
That's because 95% of you are in a 'target fund' - a fund designed to invest based on your intended year of retirement. For those with a target date approaching soon, your 401K is viewed as "safe". This is your typical 60/40 stock v. bond setup.
Those with retirement 40+ years down the road are able to take on more risk since they are unable to withdraw their contributions + gains until age 60 (technically 59 1/2). These funds likely have more stock exposure and less bonds.
So I'll pause for a minute and let you look up your 401K YTD return; or if you want to save the time I'll just defer you to the top section for the answer.
That's because whether you're retiring next year or in 40 years, all of your equity exposure is in Mega Cap Tech FAANG stocks (I guess it's MAANG now?).
I could only find a chart that goes up to 2020, but we all know this was just another bubble like we saw in the early 2000s. Big tree(s) fall hard....
Here's the beauty of it all though - you're not forced into investing in jack s*** if you don't want to.
What do I mean by that? Simply put, why would anyone invest in an asset (tech) that has a high probability of sucking for the next few months, quarters, year?
You work hard enough to earn the right to contribute towards retirement; the last thing you would want is to invest it in something that's going to lose money.
And no, I'm not saying don't contribute at all - take advantage of a tax-free gateway like a Roth 401K and hopefully get a company match as well.
But be comfortable sitting on the sidelines for a bit to wait for things to cool off!
What is my 401K currently invested in? Here's a rundown:
25% is invested in a 2005 target fund
Yes, 2005 already passed. No, I'm not retired. It's mostly bonds, and risk level is the lowest out of all target funds
75% is invested in an 'interest income fund'
That just means cash
As my investment outlook changes, so does my investing strategy. But when my investment outlook sees 1) Tech companies guiding down AND missing earnings while 2) the Fed continues to raise interest rates I will 3) happily contribute to retirement in peace knowing it's safe and sound from losing its value
In The Account | my top holdings
$UUP - US DOLLAR
If you were not BTDD (buying the DAMN DIP) in $UUP this week, well I just feel sorry for you
On The Radar | positions I want to build / sizing up
NOTHING
The VIX #IYKYK
Off The Grid | removed positions / short selling opportunities
TECH - $XLK, $QQQ
FINANCIALS - $XLF, $KRE
BASIC MATERIALS - $XLB
INDUSTRIALS - $XLI
RETAIL - $XRT
HIGH BETA - $SPHB
CRYPTO - $BITO, $MSTR
I pressed the tech shorts pretty aggressively ahead of earnings, and that paid off perfectly. I sold some and allocated it to Financials. Retail is up there as my next play if the opportunity presents itself.
Until next week....
-BW
DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.