The Rotation Continues in USA's Birthday (NOTW#98)
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It was a short week in the markets due to the 4th of July weekend. This, however, did not stop the ongoing rotation. I talk about this and other topics in the brief market commentary.
Without further ado, let’s get on with it.
The IRR of the next in-depth report
I am currently working on the next in-depth report. It will feature a company that has been caught up in two narratives, both of which I believe are wrong. I’ve been working on the model and (as it stands) this is the IRR I get to using somewhat conservative assumptions:
Considering that it’s a company that has a solid competitive positioning and is resilient through industry cycles, I view the risk/reward as extremely enticing. Of course, it’s not free of risks, and I’ll discuss those in the report as well.
An update on my 4 buys a month ago
Around a month ago I released the following article discussing the 4 companies that I was going to buy and making 2 honorable mentions.
The result (up to today, as I still believe a lot of these are cheap), is the following:
+1%
-7%
+24%
+1%
The honorable mentions have done even better (both of these are among the last 5 additions to the portfolio):
+30%
+12%
An equal weight of these positions has increased in value by 10% vs a drop of 1.3% for the S&P 500 during the same period. Granted that it’s very early, but I expect the results over the long term to be even better.
Articles of the week
There were no articles this week as I continued to work on the next in-depth report that I’ll publish as soon as possible (I also don’t want the stock to run up on me). Next week you can expect the sixth edition of “On The Radar” with three new companies that I’ve been reading about lately.
Without further ado, let’s see what the markets did this week.
Market Overview
It was a short week in financial markets because markets were closed on Friday despite the 4th of July being a Saturday. The S&P (SPY) was basically flat whereas the Nasdaq (QQQ) was down more than 1.5%:
Over the past couple of weeks I’ve been throwing the word “rotation” around. We had a bit more of it this week as capital left the “frothy” sectors (like semis) and continued flowing into the non-frothy sectors like healthcare and software. The IGV (software ETF) and the XLV (healthcare ETF) were both up this week whereas the SOXX (semiconductor ETF) was down quite considerably:
I have been positioning my portfolio for such a scenario (the portfolio’s return this week was 3.4%), although I have not taken my semis exposure to 0. Over time I’ve realized that “betting everything” into any given company, factor, or sector is a good recipe for making emotional decisions. This is the reason why I am pretty much always exposed to trends that I find appealing (regardless of the fact that it’s unlikely that all will “go up” simultaneously) and I simply move around the weights depending on what I feel is more attractive at the time.
So, for example, I deem a good chunk of the healthcare industry to be very attractive, which shouldn’t be a surprise if you’ve been following my work. This is the reason why 30%+ of my portfolio is in this industry, but this doesn’t mean that there’s no space for semiconductors or AI-related stuff. There is, but today at a significantly lower weight than it was a couple of months ago. It’s also worth noting that semis/AI now make up a considerable chunk of the indices and are considerably larger than other non-frothy industries. This means that we likely don’t need a full-on rotation for other things to work well.
I also published the following on X (as a joke although I have trimmed my ASML position a couple of times), and I was somewhat surprised with the replies:
In case you don’t know, I published an article a year ago on the topic of never-sell.
I believe it’s a very good framework for long-term investors but that it shouldn’t be taken to the extremes (like pretty much nothing in life).
The industry map was a reflection of what I discussed earlier: semis red with pretty much everything else green:
Source: Finviz
The fear and greed index improved a bit to fear territory:
Source: CNN