It’s been a difficult start to 2022 for growth-oriented investors. Most growth stocks have been falling since the minutes from the December Fed meeting were released in early January. These took a more hawkish tone than expected and fears of runaway inflation and rising interest rates appear to have taken over.

More falls in growth stocks were not wholly unexpected. The last 15 years have consistently favoured growth and a sizeable cohort of US technology businesses has become clearly overvalued. Arguably valuations have been due a reset for some time. Interest rate rises was the obvious catalyst.

My portfolio was down almost 10% for January which qualifies as one of its worse months. Despite this, it was also one of my portfolio’s better performances against my ‘buy and hold’ benchmark (holds all the shares on my watchlist), which was down over 15%. I take some solace from the fact that this suggests my portfolio orientation towards the cheaper shares on my watchlist and holding some cash were good moves. However, in hindsight it clearly would have been better to have moved more decisively.

As I mentioned in my last post, I still think the current sweet spot is investing in more reasonably-valued, lower-growth yet still high quality businesses. Many more speculative stocks still seem superficially expensive and could probably fall further, especially if concerns about inflation get worse. On the other hand cheaper, lower quality businesses aren’t really a safe haven in an inflationary environment as the ability to maintain profitability becomes even more important. They are also vulnerable to many other macroeconomic concerns for that matter and it feels like there is a lot of uncertainty about how strong the economy really is at the moment.

Quite a few of the shares on my watchlist have fallen 30-50% and are looking significantly more attractively valued. I have taken advantage over the past week by reinvesting a small part of my cash balance in some of my existing holdings but am keeping some powder dry for now.

After a few weeks of selling the market is due a bounce, in the short term at least. This already seems to be underway but it’s uncertain how long it will last and after that I’m none the wiser about what might happen. To me it seems equally possible that we have either hit peak fear for the time being and growth stocks are about to regain their mojo or alternatively that further inflation concerns are yet to come. Either way I’m feeling cautious about stock market prospects over the next few years, so if we did get a big rally here I might well take the opportunity to raise a bit more cash.

For my January trades I sold out of Inmode and Pinterest and replaced them with Etsy & Lululemon. I benefited somewhat from making my sales nearer the beginning of the month and my purchases after the recent falls. I’ve written short notes about both companies previously (see Etsy and Lululemon).

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