Performance in January 2022

My guardian angel every time I make an investment call...

We started the blog at the beginning of 2022. Investment discussions are worth anything only if they are verified by reality. We are learning from both correct and incorrect calls. Unfortunately, "you cannot win 'em all".

To understand the rights and wrongs, we assess the performance of investment ideas on a monthly basis and compare our high conviction ETFs and individual stocks to the performance of the S&P 500. Starting next month, we will also calculate performance from the beginning of the year. In this exercise we assume that when money is not invested or after investments are sold, the portfolio will hold cash with 0% return. This simplified approach seems "directionally correct" and meets the purpose.

January 2020 was a difficult month for the S&P 500. The benchmark entered correction territory (dropped by more than 10%) and somewhat recovered after that, still losing 5.9% by the end of January. In the post "The end of free money is in sight!", we indicated potential in the Energy and Travel and Leisure sectors (hotels, airlines, cruises). Our high conviction ETFs have been Vanguard Energy ETF (VDE) and Defiance Hotel, Airline & Cruise ETF (CRUZ) which we discussed on January 5. Since that date and until the end of the month (we measure performance starting the next business day after publication) these two funds returned 7.9% and -1.6% respectively, much better than the benchmark.

We have had high conviction in individual stocks Schlumberger (SLB) and Delta Airlines (DAL), which since the times of our blog posts to the end of January returned 4.1% and -1.5% respectively; also better than the S&P 500 overall.

Based on our tactical call that between January 31 and February 20, the end of Beijing Olympics, oil prices are likely to take a breather. We will replace VDE and SLB in our model with cash at 0% return from Februauntil February 20th. So far, oil prices are going up without stopping, but we still have time.

This blog does not provide investment advice. Please do your own research and talk to professionals before investing.

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Light at the end of the tunnel

Is the light at the end of the tunnel a sun or a train? Today the S&P 500 entered correction territory as it broke through the magic 4,300 level, or 10% down from its peak . It remained there for the most of the day before recovering in the last hour. This was different from the few previous sessions when strength during the day was replaced by a selloff before closing (bearish sign). The volatility and fear indicator, VIX, during the day came close to 39 (with normal values below 20) pointing towards panic selling and increased pressure from margin calls, before closing around 30 (still high). As Warren Buffet once said, “be fearful when others are greedy, and greedy when others are fearful.” We believe the time to start carefully buying certain names (for a long-term) has arrived. However, catching a falling knife still a risk, as the market could continue its freefall or rebound in a short-term and fall further into a bear market territory (more than 20% down from the...

Santa and the first week of 2022

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Reopening names are flying

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ATVI: Votes of Confidence From Buffet and Gates

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February: Is the bull in charge?

February bull against the January torero... January was a tough month. Santa Claus failed to deliver a rally. Omicron continued its deadly spread, and inflation went up and decided to stick around. Fed confirmed its commitment to tapering and indicated a more aggressive approach to higher rates. S&P 500 went down and broke the 4,300th level , (a drop of 10% from the highs indicates correction). This correction made safe-heaven mega caps in the Tech sector fall like old trees in a forest. However, the 10% drop was quickly bought and, by the end of the month, the S&P 500 somewhat recovered. The heavy lifting during the recovery was done mostly by retail investors, with institutional money remaining risk averse. As retail investors are momentum driven and much faster than the institutions, this trend points to more volatility ahead. We believe that the Fed's recent announcements regarding tightening and future increases in rates are priced in. We do not expect more unwelcome ...

The Reopening: Online Travel Companies

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Ready, Set... January

Over the last 24 years, January has commonly had massive inflows of money to the stock markets through mutual funds and ETFs. On average, it saw more inflows than any other month of the year excluding November. The ' Sell in May and Go Away' approach is supported by the chart posted by Themarketear.com . In the second half of an average year, returning to investing in September seems sensible. Outflows bottom in August, providing a good entry point for capturing increasing investment activity in November – another month of massive inflows. Why does January see fund inflows? We identify two major contributing factors: Bonuses are paid and reinvested (Wall Street recently started talking about 8 digit annual compensations) Fund managers are setting up their positions for the new year Where will the money flow in 2022? We expect the following two sectors to benefit: Travel and Leisure . Omicron, though dangerous and fast spreading, is beginning to be compared to a bad flu by ...

Oil: too far too fast?

Today, the Brent crude futures exceeded $90/bbl, for the first time in the last 7 years. From the beginning of 2021, the oil price went up by about around 67%. At the end of last year JP Morgan forecasted that in 2022 oil price will reach $125 a barrel. T he rally is likely to continue in the long-term due to the limited supply and the roaring post pandemic return of global demand. At the same time, after going too far and too fast, the oil prices are likely to take a breather in the short-term. Below are some thoughts explaining why we believe this. However, only time will tell if at least some of the ideas reflect reality. According to the the agreement with the US, China is going to release some oil (quantities unknown) from its strategic reserves close to the Lunar New Year holidays between January 31 to February 6. This is part of the coordinated international plan to limit growth in oil prices. Chinese government asked its people not to travel from b...

Under the plateau

The historical data summarized by DataTrek Research indicates that the years when S&P500 gains are more than 20%, the following January is likely to be flat. Though there are high chances that the S&P will have a strong first week, it is likely that the upside will diminish by the beginning of February. At the same time, statistically, the years when the S&P gains above 20% are followed by a 12 month period that produces more than a 10% average return (based on the data collected since 1945 by the Centre for Financial Research and Analysis). However, Omicron was absent during those years, as well as its potentially devastating impact on global economies. Even thought Omicron represents a threat to economies and financial markets, its relatively light symptoms and low hospitalization rate may allow investors to look past the negative effects of the new variant. More optimistic views on Omicron, strong January inflows and the expectation of solid annual returns,...

The S&P 500: Is 3,800 the next stop?

Stay Cool... Yesterday, the S&P 500 broke the critical level of 4,300 once again. Today, it drifted further down. In our previous posts from the end of January, we wrote about buying the correction and the possibility of the S&P 500 falling further into bear market territory (more than 20% down from the peak) after a rebound in the short-term . The S&P 500 charts formed the "head and shoulders" pattern that in 93% of cases results in a bear market . It seems possible that if the S&P 500 does not recover above 4,300 soon, it could drop by another 10%. This will get it to around the 3,800 level. Similarly to the beginning of this year, major contributors to the S&P 500 fall would be formerly "safe haven" Tech stocks (Facebook, Amazon, Apple, Netflix, Microsoft, Google) and shares of the smaller growth companies with a limited visibility of cash flows. Unfortunately, if investors start running to the doors, the sell-off might bring down share...

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