Originally published February 6, 2022
Portfolio Update
It’s been another good month for the portfolio versus my benchmark, however, I am still slightly negative for the year. There has been a lot of volatility in the markets and most of it is playing in my favour as it relates to my more defensive positioning. My over-weighted energy and financial sectors sit at number 1 and number 2 spots for monthly performance while communications and technology sit at second to last and third to last. It’s difficult to say if this trend will continue.
I sold half of my Activision Blizzard position as it had a one-day gain of 25% after Microsoft announced it was buying it. It’s a complex buy because of the potential for anti-competitive laws that could simply not allow it. So the stock remains about 10% below Microsoft’s purchase price. By selling half I guarantee a large chunk of the sale premium and if the sale goes through I get an additional premium. This position is up in total for about 67%… not too bad for a recent pick.
I bought Netflix after its 25% fall due to a lackluster earnings report. Bill Ackman who is a renowned stock market player bought 1 billion dollars of the stock shortly after the report. Bill is right 80% of the time. My stake along with Bill’s stake will provide him with some ability to influence the company to make more money. That is the theory in any case. He still has not returned my calls.
I re-bought Alibaba and then some. There are few companies that on paper look as good as Alibaba. It’s been in the dog house for a while and the stock price reflects that. I am not sure how you can lose on this one in the long run. Time will tell.
I bought more Verizon. This brings my communications sector up to 10% which is in line with the market weight. Nothing fancy here, good dividend, and Warren Buffet also owns it.
About the Financial Periodic Table
I often refer to the financial periodic table (below). No, it’s not exactly science, but it helps investors understand that stocks are based on supply and demand. They go up and down like fashion, something is hot something is not. Sometimes leaders are based on earnings or expected earnings and sometimes ithey are based on human emotions like fear and greed. Either way, it gives you the big picture of how sectors change leadership over time.
Some of my more interesting observations from these are:
- In the long run, there are no ‘best sectors’ for the investor. They all take turns at or near the top. This is why diversification across the economy is important.
- Sectors for the most part, over the very long run, have annualized returns somewhere between 6-9% give or take. As you can see below, the last decade has seen a strong and long bull run, not entirely normal with exaggerated positive returns. Certain sectors like technology have overperformed. It was in the number one position in 2017, 2019, and 2020 and although it placed fourth in 2021 it was a very strong return.
- Reversion to the mean requires that technology place much lower in the future in order to average down its return to historical levels. Maybe it’s different this time? “When will it happen?” is the better question. It’s the main reason I am a little underweight in tech with more defensive positions.
Looking Forward
I continue to believe that there will be lots of volatility in 2022 (and maybe opportunity). There are so many moving parts that it’s difficult to say where it will all end up. Certainly, a reversion to normal returns as stated above will make its way to the market one day, but likely not this year. Likely some rotations from strong sectors to weaker sectors will continue to occur. There is so much money in the system that it’s hard to believe that the market could go negative for any real length of time.
For the Record
I continue to be underweight in technology and utilities and overweight in financials and energy. The other sectors are normally weighted, including communications, which was underweight till this month. I am also underweight in US positions and overweight in Canadian and international positions. I sense that at some point energy will max out with the price of oil, at which time it will be time to underweight it.
Happy investing.
Marc’s Monthly Moves
| Buy | Sell |
| Verizon (VZ), more Netflix (NFLX) Alibaba (BABA) | Activision Blizzard (ATVI), half |
Marc’s Portfolio YTD Performance
- Portfolio return -1.1% (Including currency gains)
- Portfolio return -2.1% (without currency gains)
- S&P 500 return -5.57%
The portfolio overperformed the S&P 500 by 3.5%.
Money with Marc 