Here are questions I’ve received from MarketWatch readers over the past couple of weeks.
Question: Big Tech — Apple, Amazon, Facebook and Google (Alphabet) — are off their highs by 17%, 15%, 6% and 5%, respectively. I hear that portfolio rotation, higher interest rates, etc., are hurting these stocks. I know you like Facebook. Do you feel the others will get hurt badly going forward or will there be only modest pullbacks?
Answer: I know it’s apparently common knowledge among the talking heads that “higher interest rates are bad for tech stocks,” but I don’t understand that logic at all. Is anybody out there really selling their tech stocks because they want to buy Treasuries that are still only yielding 1.5%-ish. I mean, other than the people who are saying that on TV and those who are listening to them, I don’t think anybody really sits around shifting allocation strategies because Treasuries went down a little bit in the last few weeks.
So maybe there has been a self-fulfilling rotation out of tech stocks and into “reopening/value” stocks, but I’m not sure that will last. I mean, remember that I also do a lot of work on valuation, and I try to buy what I call our Revolutionary tech stocks when they are good “values.”
Anyway, if we are in a pullback (or even a burgeoning bear market) phase of the market, then I don’t think most tech stocks will be fine. There could, and most likely would be, 5%-15% potential downside in even the biggies that you mention.
Q: With the recent rotation pullbacks, what are your top five stocks at these levels?
A: Last week, I’d answered it this way: “Favorite stocks at this moment, though I’m not pounding the table on any of them right now, would probably be: Facebook
Vector Acquisition/Rocket Labs
SPDR Gold Shares
in that order.” This week, I’d answer it the same way.
Q: It sounds like the space revolution you write about is like your picks of Apple at 20 cents or Tesla at $50. Is this accurate?
A: I hope so, but it’s a much riskier bet because these companies are still startups and valuations are going to be a while before they make “sense” for a lot of people.
Q: How long could a bear market last? Do you foresee a rotation out of tech as a real threat to our positions? When will you sell DELL as it goes to expiration on our calls?
A: A bear market can last 10 years or more. In this day and age, I’d expect the markets would overcorrect to the downside in a matter of months because we live in a day of Kurzweil rate of change. Yes, a rotation out of tech and into “reopening/value” stocks could mean that tech stocks underperform for a little while, but longer-term valuation-minded Revolution Investing in secular growth industries will probably continue to outperform all other approaches.
I’ve trimmed some DELL
calls along the way as they’ve tripled and quadrupled in value, but I still hold some April and July Dell calls that are also up like that already.
Q: Cathie Wood (of ARK Investment Management) recently suggested that Chinese tech could outperform in the markets moving forward. What’s your read on it? And if you agree, what percentage of your portfolio would you think is a reasonable allocation to it?
A: No way do I think an even more corrupt system of technology and government in an outright communist regime in China will ever outperform over the long term. I’ve always said that I don’t want to bet very much on the companies that are able to succeed in that system. Nothing’s changed, has it?
Q: Does gold look like it can squeeze the shorts big time? It’s been quiet and congested for several months now.
A: I don’t know if there’s enough shorts in gold to squeeze, but it does look to me like gold is a relatively safe place to have some money right now.
Q: Any thoughts on the WeWork merger? (See story here.)
A: I can’t believe that company still exists. No thanks on the stock for me.
I leave you with a picture of antelope in a dust storm I took from the car last week. It reminds me of us during this current market environment. (There are no filters on this shot):