Bubble Dragon Daily 18-12-2024
Below is what I wrote to my fellow investors today. Since the market was quite volatile yesterday, you might be interested in my views, so I'm posting it here for free for your reference.
18-12-2024
Portfolio return: 91%
Trades: Shorted ALAB calls, opened a position in MRVL
• Portfolio return: 91%, two consecutive days of significant drops. This aligns closely with my earlier expectations—I was afraid of a correction but didn’t know when it would happen. My goal was to avoid it, but unfortunately, I couldn’t, so I had to endure the pain.
• There’s a saying: "Profits and losses share the same source." I’ve mentioned this often—simply put, the way you make money is the same way you lose it. For example, someone might get rich by using margin leverage, but they can also lose big because of it (a real-life example from my past).
• This time is no different. If you want to ride a big wave, it’s hard to jump off suddenly. People who constantly think about taking profits and avoiding corrections often miss out on the next big wave. This time is the same. It’s impossible to always reduce positions at the peak before a major correction (though there are a few geniuses out there, but we’re talking about average investors).
• Honestly, this time I also felt the rise was too fast and steep, and I was scared of a correction. Last week, I kept reminding everyone to be cautious, manage risks, avoid adding positions, and avoid leverage. Though I wasn’t perfect—I didn’t significantly reduce positions—at least I didn’t get more aggressive. In hindsight, I just made a bit less, and my returns rolled back to a few weeks ago. Not a big deal.
• Now, about the market situation and my take. After the Fed’s rate decision last night, the market dropped sharply. But after reviewing the details, there wasn’t anything particularly surprising—it mostly aligned with my expectations: the pace of rate cuts will slow. If you’ve been paying attention, U.S. economic data has shown some slowdown over the past two months, and inflation has ticked up slightly. Even as a non-professional investor, I’ve already expected that rapid rate cuts won’t continue next year. The market must know this too.
• So, I think this is more about the market having risen too much and using this as an excuse for a correction. When everyone has made too much profit too quickly, it’s easy to trigger profit-taking. In just two months, many stocks have doubled—does that seem reasonable to you?
• Stocks aren’t pure gambling where you can get 20 straight wins—heads or tails don’t matter. Stocks reflect the underlying companies. A stock at $10 and the same stock at $100 have completely different implications—the investment thesis could be entirely opposite. So when stocks rise too much too fast, corrections often follow, and some stocks may have already peaked.
• That said, as I mentioned earlier, this is just a correction using the Fed as an excuse. Slower rate cuts aren’t the end of the world—a healthier market will emerge after this adjustment. So I don’t think further position reductions are necessary after today (unless you’re using leverage). If you’re underweight, you should actually add positions.
• I don’t know how deep the correction will go, but last night’s drop was significant—many stocks fell 5-10%. That’s already a substantial correction. If it continues for another day or two, we’ll likely hit the bottom. Of course, if you think this isn’t a correction but a peak and reversal, then the strategy should be the opposite: clear positions or even go short. That’s a personal judgment call.
• Now, about my holdings and trades. Overall, since I don’t think the market is done, I’ll be adding positions, not reducing them. My target is to reach 100% allocation.
• Last night, I sold ALAB covered calls. I also wanted to short RDDT calls, but Longbridge restricted it. I also opened a small position in MRVL and plan to add more tonight to bring it above 10%.
• As for other stocks, they dropped a lot last night, especially SHOP, which fell 8%. But at this point, there’s not much to do—just hold.
• For new investors, consider building positions—I’m aiming for 100% allocation myself. For individual stocks, if you’re unsure, just follow the portfolio.
• Finally, for beginners following the portfolio, try to mirror the trades. I’ve seen some ask about NBIS—they bought it but didn’t sell when I did. Well, I cut losses because I no longer liked it. Of course, I could be wrong, so it’s fine to have your own view. But if the stock drops afterward, ask yourself why you didn’t follow—did you genuinely believe in it, or just dislike cutting losses? Reflecting on this will help your future decisions.
The above is personal opinion, not investment advice.
$SoFi Tech(SOFI.US) $Tesla(TSLA.US) $NVIDIA(NVDA.US) $Shopify (SHOP.US) $Broadcom(AVGO.US)
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