Stock Talk@stocktalkweekly
Everyone knows momentum trades eventually unwind, but differentiating between a prolonged unwind, and a brief pullback in momentum is always challenging, as they look similar technically, at first. Even more challenging, is transitioning a portfolio from momentum into cash and/or other categories at the perfect time, at the perfect speed. Hindsight is always 20/20 in markets, and most of the reflective opinions you see in times like this are pure hindsight.
This market has, for 3-years straight, rewarded trend + momentum riding. The best performers have attached themselves to that trend for years, rightfully so. Instead of managing risk on dips, traders & investors (including myself) have gotten conditioned to double-down on risk in these moments. This is the first momentum sell-off over that extended period where that risk has not been rewarded.
I've given back a huge amount of gains from this year, now down to just +160% YTD, but perspective helps. My past 1-year performance at +584%, and my past 2.5-year performance (since I started sharing the consolidated portfolio publicly) is still at +3,000%. This gives me confidence in my ability to recalibrate and adjust if the market regime does change for a longer period. My biggest mistakes over this period were A) violating simple technical rules about single-stock risk (which I usually follow) and B) getting increasingly greedy with leverage during the best 1-year sprint of my career. In a way, both of those mistakes are intimately related.
If you've been struggling these past 2 months, just know you're not alone! Yes, the S&P-500 has barely budged, but most of us on this platform are trading & investing single stocks, the best of which have seen absolute carnage over the past 4-8 weeks. This is the biggest 1-month drawdown for momentum stocks in history, according to both the Morgan Stanley & Goldman Sachs momentum indexes. It's important to remember that momentum stocks are the inherently the best performing stocks in bull markets, but they bite back hard when sentiment & speculative enthusiasm roll over.
The bottom may be near for several stocks (at least temporarily), but the volatility will likely continue until we get a more stable macro backdrop. In the background, yields are pushing 5%, oil is pushing $100/barrel & tariffs are resurfacing. In the foreground, we have live recalibration of strategy & rethinking of narrative happening in the most important industry in the world (and the market).
I appreciate all of you who take the time to read & engage with my posts, and listen to my Spaces. It sincerely means a lot to me to have earned your ear over the years. But, I know a big part of that is transparency, and so I don't want to be one of those who hide or go quiet during times like this. Markets are not easy, and fast regime-changes and steep pullbacks are when the important lessons are learned, and when transparency is most important of all!
Keep your head up! Have a great weekend friends. and get some rest. Cheers 🍻
