Jinxed – Software Partying – 1999

I came into work today and Optimum’s phone, cable and internet were all down in the office. While most people complain about how bad Optimum is, we have been down less than one day per year. I figured it was just a blip and ran over to Starbucks where there was not a single person in the drive through line, something that never, ever happens in Woodbridge. I mentioned it to the woman who took care of me and she said, “Paul, it’s your lucky day!” DOH! The jinx!!

Back to the office and no Optimum service. I called customer service and landed in a foreign country where I could not understand the rep. My hearing is pretty good. All I got was “planned maintenance” which is absurd for business service. So I did what any modern day American would do; complain on social media. Optimum said that the outage would be fixed by Noon which is a joke for business service. Alas! 12:44pm and we have service.

First, let’s go into software which collapsed from Q4 to Q1 due to perception that AI was going severely hinder the entire industry. That was a load of crap. Our Unloved Gems portfolio owned too much at the peak last year, something I knew would happen. We didn’t overbuy. Our position size grew because of capital appreciation and I did not pare enough back. During the plunge, the strategy added to the highest conviction names. Over the past week, the software sector has surged, mostly from short-covering and not from organic buying. No matter, we have used the surge to lighten up on names that have become too heavy in the portfolio, like MDB and SNOW. That is good, sound portfolio management.

And before someone asks the astute question about what I would have done had software not bottomed and continued lower, I would have recognized being wrong and lightened up on the first rally.

Next, because I am getting the same questions from clients, I know that some, many or most of you are thinking the same way. I have a list of client questions sitting on my daily notebook and I am going to do a video answering these along with some important back office items and another deep dive into our aggressive growth suite which always garners strong interest during market surges.

While price has and continues to surge, there are a growing number of concerns I have. Let me be crystal clear. Price is the final arbiter. Divergences and warning signs can and have perpetuated for weeks, months, quarters and even years as we saw from 1998-2000. The longer they persist without being repaired, the worse the punishment will be. I do not have high conviction right now when the highest risk point will be although I do not believe it is right now.

I will continue to strongly believe that this is absolutely not 1999. I lived through the Dotcom boom and bust. This ain’t a repeat folks. This market looks more like 2021. And if I am wrong which I have been countless times in 38 years, then this is late 1997 to early 1998.

The stock market looks a little tired in the short-term. It’s been a relentless assault. Another 1-3 day pause or minor pullback would be healthy and welcomed.

On Monday we bought more MQQQ, more JNK, more WMT, more QLD, more XLC, more BXFYX, more AHTFX and more BXHYX. We sold AGG, PTH, some NUGT, some MDB and some SNOW. On Tuesday we bought more NUGT, more IYR, more XLRE and more JNK. We sold some DG.