A Bull Market Masks Many Sins

It is easy to attribute strong returns to one’s own skill & greatness, but any day some crazy event like an earthquake or war could massively tank the markets.

When the stock market goes up broadly momentum stocks work, but then when the market is really strong overall sometimes there isn’t even a lot of sector rotation & anything that falls also gets bid back up.

It certainly looks like the bottom is in on CVS & WBA. Today Bernstein initiated coverage on CVS at outperform, causing the stock to jump over 3 percent. And that is after a couple days of strong performance.

I sold out of a bit of Coca-Cola & Google I have been holding for a while, both at tiny losses. I also sold out of Weyerhaeuser on Monday at a decent gain & went in and out of Kroger a couple times over the past few days during the post-earnings swoon for small gains.

The tough part about the stock market isn’t making small gains repeatedly & winning on average, it is the constant sort of sucking in of attention. There is always another story to read, another topic to think about. And then are you actually learning something that gives you an edge, or are you busy engaging in a game of confirmation bias?

I’ve been reading Howard S. Marks’ Mastering the Market Cycle and it is certainly easy to feel like you are able to see the capitulation stage on stocks like CVS last week (though one can of course catch a falling knife a bit early!), but the broader market is an area that feels a bit less certain to me today.

The broader trend is clearly up right now. But there hasn’t been more than a few days of pullback since the December bottom & it feels like risk is accumulating as price goes up. As of writing this, so far today only 5 stocks in the S&P 500 are down a percent today – that’s opposed to 99 that are up that much or more. The only strong recent pullback is Boeing, but even after the pullback they are still up almost 300% since early 2016.

An escalation of the trade war, another sort of impeachment threat, etc. … the market seems to sort of shake off and ignore these types of stories for now, but any day the response to negative stimuli could turn the other direction.

Sometimes when you see growth stocks go up there is a rotation out of bonds & bond proxy stocks like dividend aristocrats, utilities, telecom, REITs & other assets that are frequently negatively correlated with an up day in the broader market like gold, miner stocks & plays like Virtu. But today almost everything is up.

  • Smallcap, midcap, or largecap, * value, core, or growth … up up up, up up up, up up up.
  • Brexit uncertainty in the UK? GBP up, Euro up, UK stock market up, European stock markets up
  • Commodities up
  • MercadoLibre announces a secondary stock offering that dilutes existing shareholders 4.7% … stock up 3% on the news. why not?

About the only tangible^ things that are down today are the Dollar, volatility & VIX.

I guess today I’ll deploy patience. I still think CVS has a bit to run, but I will stay mostly in cash until something slides a bit. Better to have a bit of cushion on an entry point rather than doing like I did where I bought Google about a day before the WSJ announced Google had a security issue with Google+ & then before they recovered from that there was the Federal Reserve induced year end swoon driven by the October comment about being a long way from neutral. After the market slid the Fed changed their tune, but that Google stock was dead money for almost a half year.

In December Google announced a second security issue with Google+ & Google is perhaps about to eat some #MeToo movement in the near future for their executive compensation practices colloquially known as their golden furry handcuffs policy.

^ and then there is Pinduodu, the Chinese version of a socialized Groupon 2.0 that slid about 15% today after announcing wider than expected losses. They are still valued at about $30 billion – roughly 15x what Groupon is valued at – so I can’t say I see that one as an opportunity, particularly as they are still losing money & are trading at something like 10 times sales in a low-margin industry. Total pass. Yuck. And – as a bonus – they did a secondary offering last month knowing the results of the quarter they just reported.

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