I love this scene from Succession1:
I’m at the point of the bull market where success doesn’t interest me anymore either. I’m sick of hearing about all of the money people have made in tech names.
Failure during a bull market is far more interesting to me.
The U.S. stock market is doing fine right now. It’s up almost 10% on the year, nearly 20% in the past year and within spitting distance of all-time highs.
But underneath the surface there are a ton of stocks that are in massive drawdowns.
There are plenty of big market cap, name brand tech stocks getting killed at the moment:
Fashion comes and goes. The same goes for apparel brands:
As someone who grew up with Nike being one of the most dominant brands on the planet, it’s hard to grasp the fact that the stock market is leaving this company for dead.
But I get it.
Tastes change. Mistakes were made. The market moves on.
Speaking of mistakes…
There are a whole host of pandemic darlings that were bid up as investors tried to figure out how the world was changing in real time.
This is the other side of that:
Absolute wreckage.
I could continue ticking off names. Quantum computing and software stocks come to mind.
If you’re a bottom-fisher this is an interesting environment. Maybe you’re overexposed to the AI trade like everyone else. Maybe you want to diversify. Or maybe you just enjoy dumpster diving and buying when the streets are full of blood.
Take Netflix as an example. The stock has offered investors phenomenal gains over the long haul — 30% per year for the nearly 25 years it’s been a public company.
What a run.
But there have also been a number of bone-crushing drawdowns that would caused a world of pain:
There have been drawdowns of 63%, 76%, 44%, 56%, 82%, 76% and now around 50%.
There are two ways of looking at a company like Netflix right now:
1. This is a wonderful buying opportunity. Every time the stock has crashed in the past it has come roaring back with a vengeance.
Each crash was a gift to investors who could plug their nose and wait.
Maybe this is yet another one of those glorious opportunities.
2. This time is different. Netflix seems to be transitioning from a growth play to a more mature company. The best days for the company could be behind them.
And this is what makes stock-picking so hard.
I don’t know! Both cases are rather compelling depending on how you feel about the company.
Netflix won the streaming wars. But it’s possible it’s like Russell Crowe at the end of Gladiator. He won but at what cost?
This is the agony and ecstasy of stock-picking.
Sometimes buying stocks that are crashing can lead to enormous gains.
Other times stocks never come back from the dead to reach previous highs.
Pick your poison.
Michael and I talked about Netflix, bottom-fishing and much more on this week’s Animal Spirits video:
Subscribe to The Compound so you never miss an episode.
Further Reading:
Picking the Losers it Easier Than Picking the Winners in the Stock Market
Now here’s what I’ve been reading lately:
Books:
Podcast book tour:
1There are a lot of people in tech who became fabulously wealthy at a young age who this character was obviously based on.
This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.
The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.
References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.
The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers
Please see disclosures here.
