While the wide world and my private world were in turmoil, something unexpectedly positive happened in 2020. In the last six months since my mid-year semi-annual portfolio review and exercise my portfolio rose by a factor of 2.7. Since the beginning of 2020 it has risen by a factor of 4.0. What had been a few months of living expenses is now over a year’s worth. The irony, and a fine insight into the stock market, is that my good news from my stocks’ good news, had almost nothing to do with news of any sort from the companies. Yes, they had good news, but nothing as startling as a major product announcement, or a declaration of profitability. That’s the way the market works. That’s why I am glad but also cautious. There’s chaos under heaven and at least this aspect of this situation may be hinting at excellence.
Let me put this in perspective. Historically, a portfolio performance of about 10% is worth celebrating. Stocks rise and fall. Portfolios can be well or poorly positioned. How many stocks and portfolios were drastically surprised by Covid-19? My stocks didn’t rise because of Covid-19. But, up 170% in six months and 300% in a year? That’s news, and there are reasons for that.
As long-time readers know, my portfolio fell apart when I was hit by My Triple Whammy. At that time, about nine years ago, a few folks pointed out that I had a perfect storm of bad luck. Within about six months back then, my portfolio dropped 80%. The companies seemed to be doing fine with fundamentals and near-term catalysts, but three of the major ones were hit by news that sent conspiracies swirling through the message boards. It wasn’t until this year that I learned that it wasn’t bad luck. Two of the biggest holdings, stocks about to help me re-retire, were undermined by acts that have now been proven in court to be illegal, felonies, and not a matter of chance. Unfortunately, stockholders’ losses aren’t compensated. Something like justice happened, but it is doubtful anyone went to jail.
As long-term readers also know, I buy stocks for the long-term. My portfolio only has four stocks left, but all lead back to original purchases from about 2000. I’d like to say it is proof that I have excellent patience, but the reality was that the stocks fell so far that it wasn’t worth selling them. One purchase dropped so far that its worth as a tax loss would be enough for about six month’s living expenses. It only makes sense to sell that holding when I have similar profits. That seemed silly last year. It is less silly this year.
The stock market is not rational. Emotions, psychology, and whim are important, too. There’s a herd out there and it doesn’t always know why it is moving and where it is going. While a company and its stock can be valued by objective criteria, innovative companies can have so little financial data available that investors become speculators as projections are made from guesses. Irrational exuberance happens, as does irrational pessimism.
It is reasonable to surmise that these old startups have been living with irrational pessimism. They have been making progress in the last two decades, so their intrinsic value should have been rising even as the stock prices were falling. As they attract attention, even rising to a nominal valuation can require significant stock appreciation. That may be what is happening. My biotechs (GERN, LCTX) are proceeding through clinical trials. MVIS continues to juggle suggestive press releases about possible buyouts and possible technical advances. NPTN was impacted by impetuous trade wars, which may soon abate. Each have reasons to rise, though none have revenue projections I consider reliable. And yet the stocks rise and I don’t mind.
MVIS’ story has been the most dramatic. I wrote about it two weeks ago because the stock had risen from a low of $0.15 in March 2020 to $4.00. Then the stock kicked in to hit $9.74 just before Christmas (Santa Claus rally, but really Santa on a rocket). Now, it is all the way back down to ~$5. Check your perspective. Is it up a phenomenal amount, or has it dropped dramatically? The right answer may be Yes. I ran a poll on Twitter (hence very unscientific), and most votes were for the rise being speculation about a buyout rather than a product launch. If there is a buyout in negotiation, then we’ve just tested a wide range of price points. That story isn’t over.
The stories for the other stocks aren’t over, either. NPTN is grinding along as the only one with an established product line. The biotechs are making progress, but unless the FDA does something with a compassionate approval, they have years of trials to complete.
I certainly won’t complain if my portfolio rises a factor of 4 again in the next twelve months. I’m not planning on it. Considering the subjective nature of the news surrounding these companies, I also won’t be surprised if their prices retreat. But I also recognize that each of these companies is probably not valued properly as each has been either overlooked for years, or has stories attached to it that affect subjective sentiment rather than objective valuations.
As I said above; “There’s chaos under heaven and at least this aspect of this situation may be hinting at excellence.”
The following links are to the various discussion boards I follow. Many of the independent investors who contribute to the discussions provide in-depth analyses that either aren’t available elsewhere, or would cost too much to buy. The other advantage is the diversity of perspectives. Unfortunately, I don’t engage as much as I did before. Some discussions have degraded due to lack of moderators, or too many immoderate voices. Some boards are effectively ghost towns, or feel like cavernous empty warehouses. I suspect some of the tensions are associated with a stressful year, and the subsequent delay in product announcements, program developments, and general business conservatism that is waiting for better news about the pandemic. Regardless, here are the sites I continue to visit, even if it is only to lurk and listen.
I encourage you to tune in, because more voices (as long as they’re mature) make for a better conversation. Maybe I’ll read you there.
The Motley Fool