So the US stock market has really rallied from its April lows, in apparently one of the biggest V-shape recovery in history, gaining 20%+ in just a couple months.
Of course my portfolio has benefitted greatly especially since I’ve bought all the way down since Feb.
However, looking back at these 3 months, most of my biggest positions have underperformed the market – even though tech stocks is suppose to outperform the market during run-ups.
Unfortunately that wasn’t the case and I’ll break it down more below.
Big Tech underperformance
For simplicity sake it’s Aug2 now and I’ll take the 3 month return from TradingView to compare the returns in my portfolio:
Index/funds:
- QQQM: +14.6%
- GRNY: +19.2%
Big Tech:
- TSLA: +8.1%
- META: +26.7%
- AMZN: +12.7%
- GOOGL: +17.9%
- AAPL: -3.2%
Smaller positions
- VST: +51.1%
- CEG: +46.8%
- TSM: +36.1%
- IBKR: +47.3%
So the smaller position has the best return but that’s normal since they have higher volatility too so that’s fine.
The problem is big tech.
The only real out-performer is META. GOOGL recovered okay but it was just really beaten down previously.
AMZN was doing alright until the Q2 report which pushed it down 8%.
TSLA is abysmal and AAPL surprisingly was even more abysmal.
GRNY beat all of them but one, and even QQQ beat all but two.
So I don’t want to sell just the losers into weakness, and I’ll rotate everything just a bit into mostly GRNY and some QQQM too. Also will maybe start trying the IVES and bit and see how it performs in the next 3-6 months maybe before allocating more. (And also giving it time to grow more AUM and liquidity)
Difficulty of “stock picking”
So looking back just a few months, choosing the wrong stock can be detrimental.
If it’s over months and years of riding too much of the portfolio on the wrong stocks, the return can really diminish.
IF I could pick the right stocks, of course I can get much higher return – like META or some of the smaller energy plays.
But in reality, I really don’t know which.
I just followed the simplest advice previously – pick the stocks that I am familiar with.
However, for example, AAPL is still dominating in my everyday life – iphone, mac, ipad, watch etc … but is this company really going to grow and thrive in the next 5-10 years?
I’d like to think so but I can’t be sure. I have been wrong about them for the past 6-12 months anyways.
TSLA same story … sure probably a good long-term bet but then not really necessarily either.
And even if it turns out to be higher return … meanwhile I am experiencing the volatility and low return in the short term, which really crunches my liquidity and drags down potential gains.
On the other hand if I just use a fund that gives decent return and lower volatility – producing a higher sharpe ratio than many of the big tech, then I can allocate more without reducing liquidity and get better return after all.
It’s hard to pick the best stock with the highest sharpe – for example NVDA had great sharpe coming into this year, then completely broke down during the sell-offs earlier this year with -40% drawdown … has recovered greatly of course and unfortunately I missed it.
But then I guess it’s not really unfortunately because it’s not necessarily going to continue to produce good sharpe moving forward, even though that it has in the past.
Moving Forward
So in conclusion, allocating more to index or funds that I trust is probably going to be the better way to go – less stressful, less volatility, and overall most likely better sharpe ratio as long as I pick the good funds.
QQQ is good and I will add allocation to that. but a bit too diversified. The sharpe ratio is not bad but not great, probably lags the Mag7.
I don’t really want to buy the MAGS though since it doesn’t rotate out the companies.
I really like GRNY and trust Tom Lee for his macro analysis and stock pickings.
I think IVES can be a good one too but it’s too new so I’ll give it a little bit to try.
I will still have big positions in individual stock but just a small rotation.
To-do on the opening of Aug 4th:
- sell TSLA, META, AMZN, AAPL, GOOGL – a little each
- buy 1/3 QQQM
- buy 2/3 GRNY
- start 1% IVES