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The Tarantino Market

Markets are constantly changing and adapting, but a timeless law is that money will always chase performance, leaving us a step behind.

Over the last six months, four stocks (MSFT, AAPL, NVDA, GOOGL) have generated almost 70% of the S&P 500's return.

Meanwhile, many of the retail investing favourites continue their precipitous decline.

In what has now been dubbed the Tarantino Market, the hottest stocks from last year are quietly getting killed in the basement while everything continues as normal in the front room.

  • Docusign, Square, and Twilio have all lost between 20% and 35% YTD

  • Teledoc, Zoom, Beyond Meat and Zillow have lost roughly 50% YTD

  • StoneCo, Pelaton and Lemonade are down between 65% and 80% YTD

ARK Innovation ETF, The poster child of the high growth sector has fallen close to 40% from the highs as these growth tech names remain out of favour.

Source: YCharts

The S&P 500 Index is up almost 25% this year, relentlessly hitting all-time highs in December while growth names crumble in the background.

A reminder that Stock picking is hard, and nothing lasts forever.

I repeat, stock picking is hard.

Statistically impossible

For tech growth stocks that had produced record growth numbers in recent times, the endless upward trajectory was unsustainable, and those who assumed a perpetual state of hyper-growth are now beginning to sober up. A lesson learned.

It's easy to get drawn in by the enticing narrative that these mammoth growth rates create, but these growth rates will never persist; it's a statistical impossibility. 100% revenue growth is an impressive but manageable task if your total revenue is 100k. Doubling your revenue from $500million to $1 Billion is a much more arduous endeavour. Trees don’t grow to the sky.

Don't get too attached to the hyper-growth story. The rate of growth is guaranteed to slow down over time, and much of this future growth is already baked into the price.

Ensure you have other areas of conviction that you can assign to the company. Every company can have a hyper-growth story at some time or another. You need to have enough conviction to stay the course as the narrative changes and companies encounter inevitable growing pains.

You will never expose yourself to the exponential returns these companies offer in the long run if your only metric is price. Focus on finding companies you believe in with strong moats, inspirational founders, innovative IP. Companies that correspond with your vision of the future. Focusing on understanding what your invested in and why you are invested in it makes it a lot easier to ignore the guaranteed price fluctuations over time.

With that said, markets, companies and people change, so make sure to objectively assess your positions at regular intervals to ensure your original investment thesis still applies.

Momentum is a powerful force in today's market and making investments simply because a stock has gone up in price and you are looking to get in on the action can be a rewarding strategy in the short run.

Still, without understanding what you own and why you own it, you are in for a painstaking investment experience laced with perpetual uncertainty.

Make A Plan

The recent losses across the popular retail investor names has highlighted the need to stay focused on the core principles of long-term investing.

  • Don't get caught up on short-term moves. Focus on your long-term time horizon

  • Make sure you have adequate diversification

  • Be patients: There WILL be periods where markets fall over 10%, that is a guaranteed

  • Stay committed to the companies you believe in; conviction is everything

  • Be an opportunist: Use market corrections to build out positions in your favourite stocks.

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