This will be a post that is about portfolio management and macro.
Edit, I started this memo about a week ago, November 20, today we have a mini crash. In my list of risks I did not include a new variant and new economy destructive actions from neo communistic governments, but they are coming.
There are two huge areas of concern for me.
1-This market is driven by irrational exuberance of the highest degree: US cloud tech, US EV stocks are in a complete bubble and have no fundamentals to support their valuations. This market is 100% speculative, like 1999. The investors are collectively retarded, and their outcome will be the same as Cisco stock holders from 1999 to 2019. They already started correcting.
FAANG is sort of alright, and could even be good value for some of them. And crypto.. it is just another madness on top of that.
2-The central bank responses in Europe and the USA are gigantic, the public deficits enormous and the debt load is reaching a point where it will create at best stagnation and at worst depressions, and possibly inflation.
These two stimulus supported growth in consumer spending and booms in valuations.
As a response to these, I position my portfolio more on the defensive than on the offensive.
Firstly, I avoid nearly all tech stocks that are overvalued. I still believe that the FAANG are investible. Many compounder bros stocks outside of tech are also overvalued at over 40-50 PE ratios, driven mostly by momentum and chartism. All the people who got good performance from 80% multiple expansion and 20% business growth could get hurt badly.
Secondly, I avoid many value stocks that are cyclical: Autos, construction related. They depend on customer demand and this is potentially shaky. A lot of this customer demand was driven by work from home, lockdowns, and public support. Value stocks in consumer cyclical industries seem too risky for me in this environment. I can keep an eye on them for when they are in a cyclical through.
What is recommendable in such treacherous market
1-Consumer goods, nearly 50% of my portfolio. Consumer goods company can suffer from rising input costs but it will be minor, manageable, and temporary.
2-Healthcare, about 12%, can resist any crisis.
3-Energy. still a small part of my portfolio, is defensive in case of energy crisis, and a good dividend source in case of normal environment.
4-Some tech, not a lot due to prices
5-Some industrials in secular growth emerging markets.
With this, i know i can endure a terrible recession in industries such as construction, travel, consumer spending, and (Edit nov 26), economy destructive closures by governments.
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