Portfolio review: July 2021

2021 has been an OK year so far investing-wise. My portfolio is currently near its highs and has clocked in at a 16.7% return at the half way point. This is above most of my benchmarks and more or less in line with my long term CAGR. However, after the excitement of last year and given how well the UK market has been doing in general, progress has felt a little pedestrian. Overall I’m happy, though keen to identify any weaknesses in my strategy or whether I could be doing anything differently.

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Summer lull

The summer feels like it has kicked off. A spell of decent weather and the pubs and restaurants opening has contributed to a festival atmosphere, at least round where we live. It’s great to be catching up more with friends and family even if my social skills have got a bit rusty. The stock market seems to be rocking to a more languid vibe. Volatility seems to have come down again since the ups and downs of the first quarter. My portfolio has been idly shuffling backwards and forwards. The main challenge at the moment is to restrain myself from making unnecessary trades driven by boredom and post-pandemic mania. I’m rather struggling with this challenge and have quite a few trades to update on from the last month or so.

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ATVI bought

I’ve been starting to think that there may now be relatively more return from me digging a little deeper into the long term fundamentals in choosing investments. While I still think the overall strategy is the most important thing to get right, at this point it feels like there are diminishing returns to continuing to tweak my approach from a top-down perspective. We are at a point in the cycle where I’m starting to feel more wary about following momentum and want to focus more on holding the investments where my long term conviction, given current valuations, is highest.

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Weather-proofing

In my last post, I decided it was time to start taking some evasive action in response to increasing signs of impending trouble for more highly-rated growth businesses. I sold off some of my most expensive holdings, converting about a quarter of my portfolio into cash. Since then I’ve been thinking more about what my next move should be.

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Trouble coming?

As we near the anniversary of the fastest market crash in history, things are starting to look pretty dicey again. After a fairly spectacular first two months, my portfolio has been hit by another rather savage rotation from growth to value. This has been prompted by a sell off in long term treasury bonds, which in turn seem to have been driven by rising expectations of rapid economic growth following the reopening of the economies. So is this another short term rotation from value to growth, imminently due to reverse when the Fed steps in again, or the beginning of the long-awaited bursting of the ‘bubble’? I’ve been considering whether it’s time for me to take some evasive action.

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Meme investing

A few people I know seem to have started to show an interest in investing lately. I’ve been shown several fairly hilarious videos on investing from my wife’s TikTok feed, which seems a bit like the modern day equivalent of hearing stock tips from the shoeshine boy ie probably not a good sign. In the meantime my news feed is filled with talk of ‘rampant speculation’ by retail investors in various bizarre stocks or cryptocurrencies. Interesting times.

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Back to the races

January seems to have got off to a flying start with stock markets resuming their bull run. I’m currently basking in the warm glow from a rash of positive trading updates issued by several of my larger holdings, including Boohoo, Games Workshop, Gamma Communications, Liontrust and most notably Best of the Best (notwithstanding rather perverse reactions from Boohoo and Games Workshop). Nice as this is, it’s hard to ignore the current speculation that we are in a bubble and that impending doom is lurking somewhere round the corner. It does feel that way. After discussing this in my last few posts, I don’t have much new to say about the bubble. I set out my plan of action in my January review.

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Bubble forming?

The continued strength of the stock market is being embraced by some investors, eagerly anticipating the long-awaited resumption of normality after the Covid era. Many others of a more skeptical disposition are watching in disbelief as they see a bubble of historic proportions continue to grow. This latter view is also being stoked by some apparently egregious examples of excessive speculation in certain technology stocks: the inexorable rise of Tesla and the DoorDash and Airbnb IPOs this week to name a few.

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Regime change

We’ve had a lot of important news over the last couple of weeks. Biden has been declared victorious in the US elections, though Trump is yet to concede defeat. On Monday we also had the groundbreaking news that Pfizer’s Covid vaccine is claimed to be 90% effective. These changes have resulted in a lot of stock market volatility. This hasn’t been great for my portfolio so it seems important to take stock of the situation.

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