Thinking Through A Noisy November

It's November in the strangest year of my lifetime. And yet, if one stops reading the news for a few days, normalcy is almost possible. We've been eating out and doing our own version of hybrid school and, as the Brits say, simply carrying on. 

It's a massive understatement to say a lot is going on. It's all very interesting and/or annoying but from the perspective of stoicism and daily life, most of the noise can and perhaps should be ignored. Other than to make small talk. 

The virus is continuing to spread like a fashion trend -- in Europe, then the American coasts, then the rest. The 2nd wave will probably follow this pattern. We will keep on with figuring out school, we will keep working a somewhat modified schedule, we will be careful without being paranoid. The continued significance of the virus is that, well, it's disruptive and you don't want to get really sick. However, we are healthy people and treatments have improved. Practical steps can and should outweigh fear. It's a grind but it's not the end of the world.

What about the election? As I write this the outcome is determined if not fully accepted. There will be noise around the process and the transition. But it's a done deal. Those making noises might want to save their breath and their energy.

If it seems like I'm discounting the most significant events of the age, in some ways I am. There will always be pandemics and elections. These are externalities. The trick is to live in the midst of such events and seek positivity, connection, and goodness. I'm not a geopolitical pawn or a biological experiment -- I'm a married guy with two kids and a cat. Right now that cat is napping next to my laptop. Life isn't bad.

FINANCIAL UPDATE

Managing finances during a pandemic is not easy. There have been a lot of unexpected savings and unexpected expenses. On the savings side: travel and entertainment and restaurants, primarily. On the expense side, for us, we rented a house for 5 weeks, we moved (saving money on rent but bought more furniture), and we are basically paying for a year of private school. 

Early in the pandemic I adjusted finances for maximum flexibility. I moved a lot of money to cash, cut retirement savings, and moved to more liquid / accessible investments. Pleasant surprise: these changes have net/net paid off. We're on track for our best year of investing, by far. As a result, cash flow management (making sure we have enough money in our checking account) has been challenging, but net worth has been growing. And net worth is the ultimate goal. 

I expect more short term turbulence. We will be increasing private school costs in the spring because public schools remain closed (virtual only) and the kids need as much time at school as possible. Private school is offering what public is not. Unfortunately.

On the bright side, a positive career development is going to help us financially, starting in 2021. In addition to a modest raise, I will be relocating internationally, and my employer will be paying for a lot of our expenses. The position will last for 3 years, and we should experience significant savings. We just need to get through the spring. 

INVESTMENT UPDATE

Investing in this environment is not easy. All the noise creates volatility, and volatility brings more noise. 

I've been writing about the importance of secular trends in investing. For these trends, the fact of the pandemic is quite important. Work from anywhere, shop from anywhere, entertainment from anywhere, and innovative medicine (perhaps from anywhere). Or, new tech, new retail, gaming, and biotech / life science.  

As you can see, I'm heavily concentrated across these sectors. I remember back in May, when I wrote Technology Is Not A Sector, I was making the case for identifying secular trends and investing in them, even though stocks had already rallied quite a bit. 

To do this, I had to shift my portfolio significantly. I was in Gold and Energy and other random positions, and I had a lot of cash on hand. 

In short, finding secular growth has paid off. In some ways I had to even ignore timing -- buying on dips, sure, but not always waiting for a big decline. Analysis of my winners shows that New Retail and New Tech have positively impacted returns.

• The Y Axis (vertical) is cost basis -- so the higher the bubble, the bigger the investment.
• The X Axis (horizontal) is profit -- so the farther to the right, the bigger the gain.
• The bubble size represents % return -- so the bigger the bubble, the better the return.

What's remarkable is that I did not buy PINS, for example, until the end of May, and it's by far my biggest winner. Same with TDOC, which was formerly LVGO. I just started buying MELI and SE this summer, and they are already top 10 in terms of gains.

Here's what I've learned. The stock market, overall, can be in trouble. Valuations are high.  It's noisy. But secular growth is secular growth. PINS is executing. CRWD is executing. The pandemic actually helps their businesses accelerate, and the end of the pandemic won't change that. 

In terms of strategy going forward, I plan to add to companies that are performing. Therefore, PINS, TTD, TDOC, SE should all start moving up the Y axis. The idea is that winning companies will keep winning, and bigger gains will come from continuing to invest in quality. Every stock does not need to be a big winner. If the clump of stocks over to the left start outperforming and the bubbles get bigger, I'll add to them as well. 

Stick with what's working, in life and investing. Move on from what isn't working.