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📝 Yep, it’s still better to be long than wrong, especially with big tech

Dec 27, 2023

Howdy! 👋

The markets are split as the S&P 500 flirts with an all-time high and just three trading sessions to go in 2023. Yesterday's gain puts the S&P 500 within 0.5% of the record high of 4,796.56 set January 2022.

Makes sense.

The US 10YR is down to 3.844% which means the cost of leverage continues to decrease for big, levered-up-to-their-eyeballs traders. Predictably, they’ll go shopping.

Which is why, of course, you and your money want to be ahead of that.

Here’s my playbook.

1 – Be long, not wrong

People couldn’t believe it when I said that it would be better to be “long than wrong” this time last year, especially when it comes to big tech. Some called me a few choice names, even.

No matter.

Investing is like that.

You can worry about being right at moments in time (which is what I lot of people do) or you can focus on being profitable over periods of time (which is what the world’s most successful investors do and I encourage wholeheartedly).

If the numbers hold - and I think there is a good chance they will - the S&P, the Dow and the Nasdaq will close 24%, 13% and 44% higher than they started this year, respectively.

People are calling this a Santa Klaus rally but that’s really a misnomer.

What’s really happening is that a) the markets are lining up with the rise of AI and other multi-trillion-dollar themes we talk about frequently in our research and b) the cost of capital as measured by the 10YR is coming down.

History is very clear about what happens next.

Hence the expression, it’s better to be “long than wrong.”

2 – War is a growth industry (unfortunately)

Houthi attacks and US counter strikes are adding to concerns over a broader conflict in the Middle East. (Read)

Defense stocks are still a no brainer under the circumstances.

If you’ve got this covered, that’s awesome! And if you’d like some help in the company of like-minded investors, I’ll be here.

Either way, buying stocks nobody seems to want can be a smart move.

3 – Not every EV’s a winner; in fact, most won’t be

First, Ford does an about face on EVs and hits the brakes on $12B worth of EV spending, saying that they’re not selling as well as expected. Then Honda said nope to plans for affordable EVs, citing a lack of charging stations. Mercedes CFO Harald Wilhelm even went so far as to call EVs a “pretty brutal space” noting that he cannot imagine the status quo is “sustainable for everybody.”

Now, it’s GM’s turn.

The company has paused Chevy Blazer EV sales because of software issues. (Read)

This isn’t rocket science.

Customers are balking because EVs are just too darn expensive to buy and to operate. The technology, as great as it is, isn’t ready for prime time.

With two exceptions.

Pairs Trade Idea: Long Tesla and short any American automaker simultaneously. Better yet, long NIO, which I just spoke about during an appearance on Fox Business, and short GM. (Watch)

4 – Is SoftBank finally a buy?

Shares of Japanese tech conglomerate SoftBank jumped 5% when news broke that it would receive ~$7.5B worth of T-Mobile stock at no additional cost. (Read)

I’ve watched SoftBank for a long time but held off owning it because Masayoshi Son seemed more lucky than savvy when it came to the late-stage start up bets he favoured. Like, ahem, WeWork, for example.

Shares are trading at a discount of nearly 50% to net asset value and on the move.

What to do?

I’m still gonna avoid it.

This is a windfall gain based on conditions set out in the merger agreement between T-Mobile and Sprint. Not management genius.

Son’s game is all about leverage, which is why, perhaps not surprisingly, the company’s stock has returned 2.86% YTD versus 24.36% from the SPY over the same time frame.

There are better stocks to own and bigger fish to fry!

5 – Cytokinetics: 10-bagger or bag-holder?

Cytokinetics (CYTK) surged 41.1% to log a record 1-day gain in pre-market action following news that Aficamten, a drug it’s developing as a treatment for obstructive hypertrophy cardiomyopathy, achieved positive results in Phase 3 trials. (Read)

While this is great, I’m always leery of parabolic moves.

For one thing, they’re FOMO-bait.

For another, the serious traders are often in at dramatically lower prices which means the big move higher is usually their exit.

If anything, buying a few well-placed ATM putskies seems like the better bet here.

To be fair, I can imagine CYTK as a takeover target so there could be some upside but at what cost and when? I’d rather own half a dozen “must have” companies that are changing consumer behaviour and growing consistently than risk my money on a one-shot wonder. But, hey, it’s a free country and that’s just me.

MyPOV: Many investors will read a headline about big gains overnight and think to themselves, “gee, I gotta get some” but pros look at it as an exit because they know that FOMO-driven folks will pay damn near anything for a piece of the action if the feel like they’re missing out.