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In praise of a 15% Stop Loss. Meantime, a dearth of hot opportunities. Sorry.

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I mulled. How have all those “hot” stocks performed? The ones we loved.

This is a random collection of high fliers over the past year.

What caused them to crash?

Some of them were a function of the pandemic. When it was over, they were over. Not completely, obviously. But their growth and hype ended. Two obvious examples — Peloton and Zoom.

Some of them were a function of “the world changed.” China’s Xi killed capitalism. Bye, bye Alibaba and other Chinese loves.

Some of them were a function of the overhyping of fintech. When you started searching for real benefits they were offering people like you and me, it was hard to find any. Examples include PayPal and Robinhood.

Some of them were just what we do best in America: Create a fantastic new industry — e.g. streaming video — and then kill it with a million imitator competitors. For example, Netflix and then Disney, and Peacock and and and.

The overwhelming reason for cratering has been the Fed. It’s taking the punch bowel away. It’s killing the economy to kill inflation. It can’t control the skyrocketing price of housing. It can’t do price controls. But it can contract demand by raising interest rates. A $1,000 a month mortgage payment now buys less house. That restrains housing prices — though not yet. There’ll be more rate increases from the Fed and that will continue to dampen share prices.

There are lessons from these charts:

+ When the world changes dramatically — PayPal, China, etc. — you need to get out instantly, if not sooner.

+ Don’t fall for “desperations” — like crypto. Bitcoin and the 1,000 others reflect the fact that too many people are too desperate to get rich too quickly.

+ When the Fed arrives slashing and burning, get out even faster.

+ When you stock falls 15% from its high, sell.

+ Beware of parabolas. Stocks go parabolic because lazy investors get on the bandwagon. No company grows to the sky. Even the most successful ones slow down — e.g. Amazon, Apple, Google, Costco.

+ Above all, don’t keep loving your old loves. Save your love for your family, not for your stocks. They’re just inanimate bits of paper… Oops, they’re not even that any more.

Today we’ll have a bounce. But bounces are common in bear markets.

In short, very little is “working.” Which means you should own very little.

Even the erstwhile hot energy stocks are likely to suffer from a drop in oil prices as the economy ebbs helped along by the Fed’s efforts to kill inflation.

In the meantime, better find something else to give you pleasure. Tennis? Walking? Reading? Watching great streaming?

Skim these charts and be thoroughly depressed. I’ll talk about alternatives — like bonds and real estate — later today.

How have ETFs done?

This is a heat map of ETFs for the ytd. You can find a more readable larger version here.

Ronald Reagan tells Soviet jokes

Tasteless cartoons

See you shortly. I’m off to play tennis. — Harry Newton