I made a decision to reduce my exposure to large-cap tech a few months ago. The decision wasn’t an easy one… these are great stocks. For example, did I sell prematurely? The answer will be more obvious in 6-12 months when the cycle has had sufficient time to play out. For now (as was the case when I sold) – I think the downside risks meaningfully outweighed further upside gains. In this post, I explained how selling is a way of managing your risk. I was ensuring I banked the appreciable gains realized over the past few years. In light of the rotation out large-cap tech we’ve seen this week – I thought it was opportune to share some thoughts on (a) how I calibrate my portfolio in a changing environment; and (b) when to be aggressive and when to play defense. It all comes back to understand the economic cycle…
Divergent Signals
The market is wildly enthusiastic about all things “AI”. If you’re a company – and you don’t have an AI narrative – the market doesn’t want to know you. However, I also think this is potentially a blind spot. AI will undoubtedly be important and will change the way we do things (as we effectively re-wire tech) – but it’s a tool. For example, whilst Wall Street celebrates that an iPhone might be able to better answer our questions – Main Street sees things very differently. Do you think the majority of consumers understand the optimism on Wall Street? And similarly, do you think Wall Street understands why consumers are complaining?
‘AI’ Trumps the Fed, Inflation and the Economy
The Artificial Intelligence (AI) narrative continues to dominate sentiment. Whether it was Google, Meta or Microsoft… the (AI) earnings script was similar. Mega-cap tech companies so far have reported impressive earnings and revenue growth with respect to their AI strategies (across online ads, cloud and search). It was music to investor’s ears. However, strength in tech earnings isn’t necessary conflating to strength elsewhere. To that end, there is a strong bifurcation with earnings… and that raises some questions.
Apple: Ready to Take Another Bite?
Apple is ~15% off its all time high as it lags its large cap peers. Concerns of iPhone growth and China have rattled investors. However, it’s not unusual for this stock to pull back. Since 2107, we have seen 11 retraces – offering patient investors buying opportunity. From my lens, Apple is a reasonable long-term buy around $165. And if you can get it cheaper – add to it. Over the next 3 years – I think it will be well over $200 as earnings top $8.00 per share.
For a full list of posts from 2017…