Investment Update - 03/09/2020¶
Investment Update is a series we are doing to give updates on our investment thesis as well as on our current and future positions.
Our assessment of the current market situation (-19% drawdown, extremely volatile) is we are heading into a moderate recession. Two forces in action -
Crude/China demand induced manufacturing recession, similar to late 2015- early 2016 - peak to trough drawdown about 15%;
Covid19 uncertainties and potential dent to consumer confidence. Depending on the policy response (both policy and fiscal, don’t expect it to have a lasting effect of more than two quarters) past episodes imply a negative 10-15% drawdown.
Two effects are not additive. They can partially offset each other. Lower energy price means less inflation pressure, room for loose monetary policy, savings for consumers. They can also compound each other just through worsen sentiment and reflexivity. Our conservative guess right now is a 20-25% market wide drawdown with high volatility and potential to undershoot. No system wide liquidity crisis in sight at the time of writing, so we are not calling for a “sky is falling” >50% draw down distressed scenario.
Our current portfolio holdings of Semis are relatively well positioned. China supply chain is estimated to go back to full capacity by end of March. HPC and cloud capex should be counter cyclical. Gaming/PC demand might weigh on the revenues and earnings a bit.
- AMD - add around $40, ~x25 normalized earning with some downside protection
- NVDA - add around $200-220, again ~x25
- TSM - add around $48-50, ~x18
- Cut SPY and PM gradually to raise cash
- Tencent and DG - hold
- Uber - wait a bit to see if the support range $25-$28 holds
- Redfin and HD, do nothing now, don’t go against the cyclical headwind
Watch list (more details on valuations to follow, ordered by priority):
- AAPL - add around $220-$250, x18
- GOOGL - add around $1000-$1100
- VISA: - add around $140