Valuation Reset

Dormammu, I've Come to Bargain
The month of April is characterized by the Great Valuation reset. A lot of the highly priced growth stocks had their prices and multiples reset back to 2020 BC (Before Covid), and this is a particular painful period for newly minted investors. Certain speculative /highly priced growth stocks and managed funds / ETFs had their losses up to 50%++, and even the high flyer blue chip SandP companies (Netflix, Facebook) are not spared from this bloodbath.

Although I did not average heavily into the more high priced growth stocks throughout the course of last two years, certain holdings I held like Coinbase and Paypal registered heavy unrealized losses despite having their long term fundamentals remain intact (in my biased opinion). Nonetheless, per the latest quarter earnings release from various companies, a lot of the growth from the pandemic lock-down has tapered off and there is no certainty if it will return.

Specifically for Paypal, the CEO has guided more conservative user growth estimates and to focus on higher GTV per user rather than higher user growth rate, to combat against lower quality users whom are just there to churn / gamify the signup rewards then uninstall the app. For Coinbase, some notable short sellers have asserted that the transaction fees (margins) of coinbase will face downward pressure in the long run and the company may be overvalued on this basis, and the launch of the NFT marketplace /Social media platform came at a bad time when NFT is having a huge bear market from the bad actors  in this space. (Coinbasedotcom abusing staking mechanics to rip off users, Solana DDOS attack on its centralised blockchain system (in favour for faster and lower cost transactions), BAYC Apecoin rugpull, and influenzas cashing out from their pump and dumps / rug pulls / ponzis / pyramid schemes). Even companies that do not have their potential future cash flows impacted per their quarter earnings, traded at lower valuations.

I believe this is a great time to buy and bargain with Mr Market. Unfortunately, I have averaged down my warchest since Last dec and do not have huge funds to capitalise on the margin of safety. I noted a lot of astute investors have started to action during this downturn. Despite their high level of competence and knowledge, there was a fair amount of astute investors catching falling knifes like me (Bill Ackman buying then selling Netflix within one Month (user growth thesis change and user loss may cause operational leverage to act against Netflix), Monish Pabrai on SeritageGrowthPropeties (misunderstood the debt levels and the complexity of the business, and Charlie Munger on Alibaba (potential conversion from US ADR to the HK underlying share, or actual sale for tax-loss harvesting). Despite their heavy losses, this rude awakening is a good reminder for me to religiously track the investment thesis of each company, so I can decisively sell off the position / cut loss if the company has any permanent impairment. 

On a positive note, Berkshire has finally decided to utilize its huge warchest of USD 128 Billion and I am certain this is a good time to buy, amid with caution and trepidation after the volatile earnings season (end April), and the nagging worry that NATO/US is threading dangerously close to antagonizing Russia to deploy their tactical nuclear weapons for decisive strikes. As I have no crystal ball on how the next 6 months to 1 year will play out, I will abandon the illusion of false precision and will try to space out my buy trades for the months ahead, as my salary replenishes my coffers.

Portfolio Decisions for April
I have not made any Buy / Sell actions throughout April

As my warchest is very low, I will need to space out my buy trades on a 2 month / three month interval throughout the year. I have been going through the earnings release of the various companies and try to shortlist the higher quality candidates that meets my criteria. 

I dont have any compelling reason to sell any company in my portfolio as of now. However, I may change my decision to unlock some capital if I see any compelling hugely mispriced opportunity to buy, or I do not think the company has any good upside potential for the next 3-5 years and beyond.

In the Berkshire Hathaway Annual Meetings, Buffett brought up his 1977 piece on <How inflation swindles the Equity Investor> and I believe this is a very valuable article to reexamine. Younger investors like me have not gone through the period of hyperinflation and stagflation. Although Buffett's past experience will not be able to predict on future outcome with 100% accuracy for the challenges that are about to come, History often rhymes and I believe it is good to form a base case on what to expect and what to avoid.


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