Indices dropping and signs of a bull market (NOTW#33)
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The indices were down again this week, but we are still seeing signs of a (raging?) bull market. One sign is people “YOLOing” their net worth into single-stock portfolios. I discuss this topic, among other things, in my market commentary.
Without further ado, let’s get on with it.
Articles of the week
I published two articles this week, albeit I’ve published 5 since the last News of the Week (two weeks ago). Both of this week’s articles were earnings digests. The first one was Deere’s earnings digest. I analyze the earnings and discuss the valuation after the 40% run it has enjoyed over the last year.
The second article of the week was Zoetis’ earnings digest. The market did not like the company’s earnings, and the stock has dropped significantly from where it was before reporting these. I explain whether the drop is justified and take a look at the current valuation.
Market Overview
The indices did not enjoy a great week. The S&P 500 was down more than 1.5%, and the drop was especially felt on the Nasdaq, which dropped more than 2%:
I do not know why the indices are dropping, but I also believe the drop is nothing unusual. If you’ve read my NOTW over the past couple of weeks, you’ll know that I shared that worse market corrections should be expected, even though many are unprepared for them. I mean, the S&P 500 and the Nasdaq are (*checks notes*) 2.1% and 2.5% off all-time highs, respectively. If history is any guide, stocks do go up over the long term, but history also shows that they don’t tend to go up in a linear manner! Many people are suffering from recency bias (starting to believe this is the most prevalent bias in the market) and believe that a market correction is impossible, but this is probably what makes it likely.
I shared the following on X this week:
The problem with going 150% into a position and winning big is that the probabilities of doing the same thing (maybe with more leverage due to overconfidence) and making a mistake are pretty high.
Doesn’t matter how much wealth you’ve amassed if you zero it by betting big again.
Certain people are betting all their net worth on single-stock portfolios (and no, not in Berkshire). While this is a key trait of a bull market (I don’t think it ever happens in bear markets), I believe it’s a recipe for going broke eventually (in most cases). No matter how much conviction one has in a single idea, there are always things one can’t control, and betting everything on a single investment makes absolutely no sense from a risk-management perspective.
Despite simply doing it being pretty dangerous, the most dangerous thing is doing it and winning big. Very few people will successfully bet all their net worth on a single investment and stop there because that kind of behavior is probably inherent to them. My good friend Matt Cochrane replied the following to the post, and I couldn’t agree more with him:
Getting rich and staying rich are two different skill sets. Not everyone good at the first one is good at the second one.
Despite the drop in the leading indices, some portfolio companies performed exceptionally well and were positive during the week. The company that performed the best was Texas Instruments, which rose by 10%. If you’ve read my Capital Management Update on the company you’ll know that I started adding again to my position after the stock had retraced to the $180 area. Unfortunately, it didn’t last long, but I look forward to future opportunities.
No surprises in the industry map: most of the market was generally red except some industries like Healthcare, energy, and others…
The fear and greed index dropped to fear territory:
This is all for the free content this week, the rest of the content containing my portfolio movements and news of the week is reserved for paid subscribers.