WARNING: the bull market in large-cap tech has only just begun
Large-cap tech stocks have once again provided the basis for the Pilane Capital portfolio to outperform the S&P 500 last week.
Here’s a chart that visualises how this played out:
On Twitter, I bemoaned the fact that the tech trade was looking shaky.
News that Apple was forced to stop selling its watches due to a copyright infringement during the holiday season – the most prolific for consumer brands – made me do a double take.
This news plus the fact that Apple makes up a significant portion of the portfolio started to make my right eye twitch.
Google also came out with news that it is to pay out $700 million to settle an antitrust lawsuit brought by a group of states.
By Thursday, traders were profit-taking after the huge run-up in tech and the S&P 500 ended up looking like this:
You can imagine my surprise when after crunching the numbers the portfolio did better than the market.
A few weeks ago I asked: how strong is the rally in tech stocks?
This past week tech stocks simply paused, then resumed their outperformance v the rest of the market.
This proves that when stocks are strong they tend to stay stronger for longer.
The tech rally in stocks is still strong off the back of the Fed’s hint at rate cuts in 2024, plus the AI trend has only just begun.
I’m still long.
The large-cap tech trade; it’s not actually a trade
Buying large-cap tech stocks at a discount to their intrinsic value and then resisting the urge to trade in and out of them is like buying an old Ford Mustang that needs a bit of work, then trying not to total it once it’s fixed and you’re let loose behind the wheel.
As irritating as it is to listen to the day trading gurus talk about how their course will teach you to ‘show Wall Street that you don’t need them’, it is comforting to know that buying and holding stocks is less stressful than staring at charts, managing short-term positions, and watching your margin in leveraged broker accounts.
Confession: I once tried day trading and it was a complete disaster.
Largely because I like playing sports, restaurants, and spending time with friends – I like having a life.
Plus when you learn how to interpret news flow, value listed businesses, and understand portfolio management the process becomes, well, a process.
Charts ARE helpful if only to build out a rounded picture of the markets and investment thesis, but they are never an end unto themselves.
There are skillful and accomplished day traders, it’s just that I don’t do stress, just capital gains.
But because of the extremely shady characters in the online stock market and investment space, I’ve decided to develop a stress-free trading strategy that is also based on common sense rather than dopamine hits, more on this below.
Weekly portfolio update
This week’s results are as follows:
S&P 500: 0.74%
Pilane Capital: 1.02%
Small weekly outperformance v the S&P 500 builds-up over time; time is one of the factors that is required for a long-term investing strategy to work, and work well.
Over the past three weeks, the excess return* v the S&P 500 has been as follows:
1.71%
-2.17%
0.28%
*Excess return refers to the performance of the Pilane Capital portfolio v the S&P 500 expressed as a percentage.
It measures whether I’m winning or losing.
Large-cap tech is still the trade to be in and there is no obvious reason to trim any positions which is what traders decided to do this past week.
Any obvious reason to get out of stocks should be a fundamental reason backed by technicals.
Both the S&P 500 and the NASDAQ 100 are near their all-time highs at a time of year when Wall Street closes for the holidays.
If you are a DIY investor then closing for the holidays is not what to do because governments and businesses try to sneak out bad economic news when they think everyone is drinking eggnog.
A decline to between 4500-4600 for the S&P would not be a surprise under such circumstances.
So whilst waiting for your turn at Monopoly, remember to refresh your news app to see if there’s anything you might miss.
Market outlook
Next week markets will be closing for Christmas Day on Monday and there is a reduced timetable for economic news announcements.
The most important of which are the weekly initial jobless claims, scheduled for Thursday 28th December.
Just because it’s Christmas, no need to give up following what the Fed may or may not do with interest rates in the new year.
What else would there be to discuss over Christmas dinner?
I’m using the increased downtime to begin trading tech stocks as well as investing in them for the long term.
This new approach, in tandem with the long-term portfolio, will rely on charts to a much greater extent.
You can catch all the trading action, fundamental and technical analysis on the short-term trades I’m in, the stocks on the watchlist, and more on Substack.
Cheers for now and have a very merry Christmas.