August 2021 Update - A Small Experiment

 



Background:

Dividend Portfolio - Dividend Growth Stocks.

Speculative Portfolio - Good companies that are richly valued high growth companies.

Both portfolios were started with 10% of my liquid assets each on Jan 1st 2021.

August Update:

I love to think about what it means to be rational (more in the Long Read section).  The biggest breakthrough in terms of how I think about my life came when I realized how deeply irrational I actually am.  In the face of this, rationality seems more like an ideal than a practice.  With Markets, I am reminded often that irrationality rules the day, while rationality wins in the end.  However, they also say that the markets can be irrational longer than you can be solvent.  I have accepted this as a fact.  I don't speculate too much on things like "the market is too high", or "it is due for a correction".  Both of my portfolios are meant to ride the waves (larger waves in the case of speculative portfolio).  And yet...  And yet, it is worthwhile looking at where we are today:


The Shiller P/E is at 40.  It is well above 2x its long term average.  And yet...  And yet... if you wanted to wait for it to be close the historical average before investing, then the last time you put money into the market would have been 2008!

While there are daily gyrations in the stock market, there are underlying trends that seems long lived.  The trick seems to be in identifying these trends early in their cycle.  Aswath Damodaran had a long series at the beginning of COVID where he showed money pouring into capital light, high margin companies (mostly software) and out of pretty much every company that made stuff.  That trend seems to have lasted a full 2 years.  FANGs received a second boost of life.

One sector that did very well was SEMI.  Sovereign concerns, as well as explosion in demand led to this.  When I look back at January of this year, risk appetite was sky high.  My speculative portfolio shot up 30% in just 3 months.  However, things abruptly changed since then.  The speculative portfolio has gone down almost 40% from its peak and is showing very little signs of life.  In the mean time, the Dividend Portfolio has also stagnated.  Neither of these data points would be apparent from just looking at the headline number for the S&P, which has had a scarily steady, uninterrupted climb through the entire year.


There is a trend that is happening now.  I just don't know what it is!  It is quite maddening.   This is also the first month in which S&P 500 surpassed performance on my stock picks.  The power of simply indexing is aparent.  While I feel like I am learning a lot by buying and selling stock, I am also glad on this day that most of my money is in


Stock of the month:

ETSY - This is a mundane pick compared to the esoteric companies I usually spotlight in this section.  I bought this after my 13 year old daughter told me that she "browses for things on Pinterest and then buys them on Etsy".  The stock is up 15% this month.

Numbers since Jan 2021:

S&P 500: 22.21% (UP from 15.25% end of June)

Nasdaq Composite: 20.17% (UP from 14.09% end of June)

Dividend Portfolio: 22% (UP from 17.68% end of June)

Speculative Portfolio: -7.78% (DOWN from 0% end of June)


Long Reads for the month

Why Is It So Hard to Be Rational? | The New Yorker

The realities of rationality are humbling. Know things; want things; use what you know to get what you want. It sounds like a simple formula. But, in truth, it maps out a series of escalating challenges. In search of facts, we must make do with probabilities. Unable to know it all for ourselves, we must rely on others who care enough to know. We must act while we are still uncertain, and we must act in time—sometimes individually, but often together. For all this to happen, rationality is necessary, but not sufficient. Thinking straight is just part of the work.

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