When Reality Gets Bent

I remember reading a nonfiction book by Michael Crichton called Travels; Crichton describes being in some odd situation where people were learning to bend spoons with their minds. There's every reason to be skeptical of this and yet Crichton was a credible witness and there have been many reports (seemingly credible) of this phenomenon. It makes one question reality. Are we in the real world or in The Matrix?

Some days the pandemic still seems unreal. The invisible threat. 

Parts of the stock market also seem unreal as entire sectors have rocketed back to all-time highs while other sectors are on the brink of bankruptcy or nationalization. Many of the winners are paradigm shift stocks that I think of as "new tech."

And then, there are stocks like Moderna (MRNA). I first bought MRNA in January 2019 at $14. It was doing fine and then it drew the pole position in the race for a Covid vaccine and it went parabolic. In late February it was still around $18 and just a couple days ago the company reported positive news and the stock hit $87. Then it was hit by negative financial news (not really negative vaccine news) and it's closer to $67. Ten and twenty dollar moves have been common.

What I've been thinking about is not so much the specifics of MRNA, but rather the process of what one should do when one is lucky enough to hold a stock that has gone parabolic. 

Looking at my portfolio a couple weeks ago I realized MRNA accounted for nearly half my gains, my position was up more than 200%. So I sold 1/3 of the position. To me this is investment discipline because stocks that go way up quickly can also go way down quickly. Selling a portion allowed me to take some gains and continue holding the rest with less risk (and of course potentially less reward).

Last night I sold another 1/3 because when a stock goes parabolic, negative news can quickly snowball and all the gains can disappear. I can let the final third run with very little to lose, and my entry price was so good that if MRNA becomes the next Amgen, I'll still be happy. If MRNA becomes the next Enron, I'll be relieved that I took profits.

I would not necessarily always trade a stock like this. If MRNA had risen like this over a period of 2-3 years, perhaps it would be a secular growth story and the gains would be repeatable, sustainable, and more predictable. I could hold a bigger position with confidence. But a stock going up 380% over 2-3 months on the possibility (not the presence) of a successful vaccine is not that kind of story. It's lightning in a bottle. It's a bent spoon. It's cool but you can't eat from it on a daily basis. 

Other portfolio thoughts:
  • With the MRNA sale, biotech is no longer my biggest sector. 
  • Gold miners and metals are on top, and I added to my Silver position today. 
  • I also added slightly to my energy position. I want some exposure to value stocks that tend to rally when the hot stocks are resting. Energy companies are adjusting to low prices and the good ones have the levers to survive and pay their hefty dividends. 
  • I'm 35% cash in my trading account and 90% cash in my long term retirement accounts. I don't like the risk/reward right now for the simple indexes. 
I need to start thinking about what I want to sell in my trading account when/if the bear market resumes. It could be days, weeks, or months, but I still think there will be more scary selloffs as we shift from a pandemic story to a recession / unemployment / stock bubble / debt problem story. It's worth remembering that even without the pandemic, stocks were in a precarious position due to valuation alone. Ironically, the pandemic may have delayed the more natural end to the bull market.

What I'm Reading: The Great Alone by Kristin Hannah

What I'm Watching: Bundesliga

Stoic / Mindful Thought: Today it helped me to remember that someday I'll wish my boys were still 8 and could get so excited about simple pleasures like going to the park and having a popsicle. They like coloring to 90s Alternative / Grunge rock which is my personal coming of age music. Funny. 


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