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.

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.

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.

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.

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.

The pace of my output has slowed considerably in recent months. This is partly just a case of losing a bit of momentum as work and life events get in the way and partly because the Covid-related disruption has changed my routine. I haven’t had my two hours of commuting each day to spend jotting down my investing thoughts and haven’t yet found the discipline to consistently set aside other time. That said I’ve got quite a few half-baked blog posts on the go and hope to be able to share them soon. Anyway, here’s a brief update on my latest thoughts on what’s happening in the markets and my latest trades…

Back in March I thought that the prospect of my portfolio reaching new highs again within three months was outside the realms of possibility. This resilience in the face of a very severe economic contraction likely has something to do with expansionary government policies, in particular the huge injections of liquidity into financial markets by central banks. But has this really ‘solved’ the issue? 

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The Coronavirus rally continues, though has perhaps started to show signs of slowing down over the past few weeks. I’m still feeling bearish overall but my perspective on how the stock market might behave is slowly becoming more nuanced. 

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I’m about as bearish as I’ve been on the medium term prospects for the stock market. Like many others, I feel that the stock market isn’t fully reflecting the risks to the economy from the lock-down measures currently implemented around the world. It is already evident that the magnitude of the economic shock is unprecedented. And that’s even if we manage to lift the lock-down measures soon. It seems unlikely that we will to do so fully given the high probability of the dreaded ‘second wave’. In the meantime the economy will continue to suffer. Why then does the stock market seem to be defying gravity at the moment?

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I have now fully recovered from Covid-19, assuming that is what I have had over the past week. The main symptoms were severe fatigue and shortness of breath. This was debilitating enough to excuse me from doing any work or household chores but almost imperceptible if I remained completely immobile, say reading Twitter or watching Netflix in bed. My lungs felt like they took a pounding but have recovered quickly. So all in all not the worst virus I’ve had the pleasure of hosting by any means. I’m thankful to be getting off relatively lightly.

Given the extraordinary times, I’ve updated again below with my latest thoughts on the economic outlook and what this means for my game plan. I’ve also updated on my purchases from last week.
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