TOP STOCKS APRIL 2021 - PORTFOLIO UPDATE
Corrr, I'm glad to see the back of March!
After temporarily surpassing 40% for Q1, many areas of the market suffered a huge correction bringing our gains for the year to around 24%.
Despite a negative month in March, if you had told me at the start of January that I would have grown our portfolio by an average of 8% per month in Q1 then I would have happily accepted that! Yes, the recent broad market sell-off has been sharp but I’ve been here before (2016,18 & 20) and I believe that this will once again be nothing more than a standard blip on our journey to reaching our long-term financial goals!
Let’s quickly cover why the market may have pulled back and what changes we are making to capitalise on the recent activity!
WHY THE RECENT DROP?
Well first of all, the market goes through three 5-10% corrections like this per year. This one has been slightly bigger but that is to be expected after such a profitable year for most investors.
It seems like this recent correction was triggered by a combination of 3 or 4 things:
1) MARKET ROTATION
There has been a rotation out of expensive growth stocks into “value” names within retail, restaurants, airlines & Energy. Many believe that these industries had become undervalued given the upcoming reopening of the economy.
2) RISING BOND YIELDS
With bond yields recently rising to 1.7%, this has enticed some low risk funds & private pensions out of stocks and into the safe 1.7% interest rate of bonds.
3) TAX SELLING
The end of the tax year is approaching (April) and many investors will use March as an opportunity to sell certain positions to reduce their Capital Gains Tax (This is extremely common).
4) RETAIL TRADERS
Retail investors continue to pour into the market and a lot of them are here to gamble! Many of these "investors" are often over leveraged, under researched & impatient. A lot of them cannot handle a standard 5-10% correction and they quickly fold which further exacerbates any sell-offs.
I am not too worried by any of the 4 points above! Firstly, value investors will be itching to switch their outperformers within retail, restaurant & oil & gas for our industry leading stocks within gaming, biotech & clean energy! Secondly, the 1.7% interest that 10 YEAR bonds offer is not something that will attract the majority of investors away from stocks in my opinion! The time to sell for Capital Gains has now passed and lastly, the weak hands that are giving away their shares in the likes of Unity & Doyu at $90 & $10 are without doubt making a big big mistake.
WHAT'S THE PLAN?
Yes I would love to have sidestepped this correction, but even the greatest investors have given up trying to do this!
Every single month (even week!) the media speculates about why the market is about to crash... Greece, Brexit, Trump, War with North Korea... Russia... Iran, China, Covid, Record Debt, Unemployment... Basically the media will always find something for you to worry about!
If you sold up and sat on the side-lines every time there was cause for a crash then you would just end up missing out on significant gains. For example, if I had switched defensive in January when stocks were supposedly at their "most expensive" then I would have watched in horror as my stocks roared another 40% higher before the eventual correction. By remaining invested and slowly building a small cash position as the markets rose I am entering Q2 24% better off than if I had tried to outsmart the market!
The only problem with remaining invested is having to get used to watching your investments drop once or twice a year but this is something you will 100% have to get used to if you wish to successfully invest in stocks. That’s why it’s important that you only invest what you can afford to lose and you only consider stocks that match your risk tolerance.
For me personally, I’m happy to invest aggressively in growth stocks that I believe will outperform over 2-5 years knowing that they will almost certainly experience 20-30% corrections along the way. I am not however confident in my ability to handle fluctuations greater than 30% and therefore my portfolio is somewhat diversified with a mixture of small, medium and large cap tech stocks to try and limit the volatility! If you struggled to handle the recent turbulence then perhaps you should look at a safer and more diverse portfolio or ETF.
Lesson over, here are the major changes that I made to my portfolio in March:
Crispr Therapeutics (CRSP) - One of the top gene-editing stocks and the leader within the Crispr space. When the stock dropped 40% from it's all time high, I took this as an opportunity to broaden our exposure to the gene-editing sector.
22nd Century group (XXII) - XXII offers investors a different way of gaining exposure to the growing cannabis market. This biotech company is currently famous for using patented technology to grow nicotine free tobacco and they’re waiting for regulatory approval to use their plant-based biotechnology to genetically modify hemp and cannabis plants to improve breeding techniques, cultivation and thc control... Watch this space!
Spotify (SPOT) - The music streaming giant was trading 30% off from it's all time high when Tencent Music (TME) was near it's peak back at the start of March. Therefore I decided to trim my position in TME and diversify my allocation to the music streaming space by adding a small position in Spotify.
Check out my blog post: 3 CANNABIS STOCKS TO BUY NOW
Lemonade (LMND) - After a huge share price correction, this leading Insuretech company is now more fairly priced for the years ahead. For more information on Lemonade CLICK HERE!
Orsted (ORSTED) - The largest energy company in Scandinavia now pays more than a 1% dividend after it's recent correction. It's not easy to find a safe and secure dividend within fast growing industries so this looks like a good long term opportunity.
Doyu (DOYU) - The Twitch of China has been hammered recently on regulatory concerns about their proposed merger with Huya. The stock is now incredibly cheap based on its revenue growth and is approaching a strong support level. Check out my post on WHY DOYU IS A TOP GROWTH STOCK!
Netflix (NFLX) - I think Netflix has the potential to 4X in the long term - HERE'S 5 REASONS WHY!
Take Two (TTWO) - Other than my large position in Unity, I have a lot less exposure to the gaming sector than usual after taking profits as the industry boomed during lockdown. The recent broad market sell-off was an opportunity to regain exposure to my favourite video game publisher.
Mastercard (MA) - The payments provider is trading at multi-year highs based on it's multiples. The switch from cash to card is accelerating but I worry that innovation in the payments space may disrupt Mastercard & Visa's duopoly.
Easyjet (EZJ) - I first added Easyjet to the portfolio when the stock fell to $500 during the pandemic. Now that it has almost doubled, I am exiting my position in the stock and reallocating the funds to some bruised tech stocks.
As you can see, I took the recent sell-off as an opportunity to buy shares in stocks trading at a steep discount to where they were valued a weeks ago! Having been through many corrections in the past, I have learnt that this type of selling is temporary and can be exploited. The stat's don't lie and they show us that the market experiences an average of 3 corrections per year (5-10%).
Therefore as much as it hurts to watch your stocks fall, this is just part of the process and you have to get comfortable with this if you want to invest successfully in the stock market. If you find this difficult then take a second and check out my post on the most common mistakes that all investors make and my top 10 tips on how to avoid them by clicking HERE!
So after a month that has involved many more trades than usual, I believe that our portfolio is beautifully balanced to somewhat protect the gains that we've captured in Q1 whilst ensuring that we are well positioned to continue benefiting from the mega growth trends for many years to come!
Continue to trust in our portfolio & trading strategy and I assure you that we will continue to grow our savings faster than almost every other method out there for many years to come!