Buffett cut Apple, Baron cut Tesla: billionaire market lessons on selling tech and growth stocks

If a stocks expert had said in early 2021 that it was time to leave Tesla and join Exxon Mobil, many investors might have looked for another source of market advice. However, for an emotionless stock trader, this seemed like the right move after the massive start of growth stocks into the new year and a rotation in the stock markets due to large-cap growth that had already gained momentum in the fourth quarter of 2020.

Tesla shares have been knocked down this year as traditional fossil fuel companies like Exxon Mobil continue to hit lows seen during the worst of the pandemic and as oil rebounded due to greater economic confidence. The gap between energy and technology stocks is the largest since 2002, as last week’s Nasdaq sell off essentially wiped out the tech-heavy index’s gains for the year despite the strong rebound on Friday. The Nasdaq 100 is now down 1.7% year over year.

Warren Buffett loves Apple but reduced his stake in the fourth quarter. Ron Baron believes Tesla is headed for $ 2,000 but sells 1.8 million shares. While it would be a mistake for most individual investors to believe that their portfolio planning resembles billionaires’ decision making, or that those billionaires are not going by those particular names in a time of violent stock selling and market volatility in the long run, it is worth considering how these investors feel about their biggest winners.

Bubbles against violent stock sales

You don’t have to believe that a massive bubble is here to worry that the market won’t end with a more violent “digestion” of the winners.

Nick Colas, co-founder of DataTrek Research, recently surveyed several hundred investors, including institutions, registered investment advisers and high net worth individuals, and found no concerns about systemic risk to the market, but a third of investors believe the US can do with large-cap stocks experience higher pressures due to assets.

This is not another tech bubble in his view, but the amount of capital in technology stocks is so high that there is cause for concern that more money will “rotate violently and rapidly”.

He looks at some of the cyclical games, some of which are already above pre-pandemic and five-year levels, such as financial data. “I think we’re seeing a lot more rotation. You can’t just be in Tesla anymore. You can’t be in speculative tech names anymore. This money is going looking for more leverage in the real world,” Covid’s reopening is accelerating says.

Apple and Big Tech have also seen pressure this year, and that could continue.

“Those trillion-dollar stocks were huge parking lots for capital last year. All investors, from individual investors to institutional investors, understood the business models and were the right place for this brief moment,” said Colas. “When these rotations happen, they don’t necessarily make sense. Tesla will still do well, but people say they have to be elsewhere. … Apple is a great company with great management, and maybe you will make 10% Apple the next Year, but how about 30% energy? “

The Fed, inflation and market rotations

The sale of the market’s biggest winners is an indirect effect of confidence in the economic recovery and the type of companies that will show the best earnings surprises over the next 12 months. This supports the financial metrics – the Financial Select Sector SPDR ETF is now at its five-year high – and the stimulus package passed by the Senate over the weekend, which is expected to be signed by President Biden, will be big and help consumers and be successful in the spring as more and more companies reopen.

While he believes that small caps as a whole, represented by the Russell 2000, have been moving too fast since the fourth quarter of 2020 to see high short-term value in a broad index bet, Colas believes that some sector-specific small-cap Games continued to have the market rotation momentum.

“If we see ‘XYZ Company’ beating estimates by 50%, it won’t be Tesla or Apple. … The surprise will be small-cap energy or banks, small banks, even small industrial companies. We will “Look at airlines, and maybe hotels, if not immediately,” says Colas.

Much of the recent volatility in the market has been triggered by concerns that the Federal Reserve is losing control of the bond market and having to hike rates sooner than telegraphed, and how this makes some stocks less attractive when bond yields rise while inflation rises above In addition, investors reassess the future value of their holdings.

But Colas says that fighting the Fed may be pointless for stock investors who want to focus on this year and keep operating in the market. He recalled a comment made decades ago by hedge fund manager Leon Cooperman to a group of young Wall Streeters: “You don’t want to live in a world where the Fed can’t control the markets, and good night, if you think so the.”

If you believe that, “you can’t be into risk-weighted drugs at all,” says Colas.

Inflation means pricing power, at least in the short term, for many companies that have not seen this dynamic for a long time. “Short- and medium-term inflation is good for stocks,” he said.

However, Colas also warns that investors should not assume that there will be no more sales.

“When someone remembers what happened in 2000, the sell-off wasn’t particularly violent and people were defending their positions and buying referrals for months and months.”

This is not the dot-com bubble, and the technology sector is much more developed.

“We had hardly any internet and no smartphones.”

However, investors who want to be tactical rather than long-term auto-piloting their portfolio can get stuck with certain stocks for too long.

The psychology of billionaire investors

His advice: “Let the market prove to you that the sell-off is over.”

If Tesla is below $ 600 last week, don’t assume there will be an instant buy. “They want Tesla to stabilize. These sales don’t have a V-bottom. … Just be aware that you are still buying a very highly valued company and Tesla will not magically return to 800.”

He says there was a saying in the years he worked at Steve Cohen’s SAC Capital, “Don’t close a new high or buy a new low. You wait.”

While obsessing over the moves of the biggest players in the market – billionaires like Steve Cohen, Warren Buffett, and Ron Baron – is a mistake for the average investor, they offer a few simple lessons for volatile markets.

No. 1: You make unemotional decisions and always look ahead rather than backwards.

“You spend zero seconds saying, ‘I have tremendous profit and I will stick with it,” said Colas. “SAC has had an internal shrinkage to break people from psychology, take losses, or hold profits to the Never let the decision-making process cloud. “

One of the hardest lessons for investors to learn is that the market doesn’t care what price you bought at and that the price is re-set every day, even though you may think about it. “That’s hard to learn,” said Colas.

The trades that got an investor through 2020 aren’t necessarily the winners now.

“There’s a new game and the cycle is turning.”

Ron Baron is among those Tesla shareholders who have seen Elon Musk grow in value, but it’s process driven. Always thinking of worldly changes in the industry, Baron believes in the shift in transportation – and has invested in more than just Tesla (e.g. GM Cruise) – but as an investor, he must also manage position size. “He can’t go to a customer and say 30% of your net worth is now Tesla. That’s not good money management. And every investor should take that to heart,” said Colas.

Buffett has always been good at investing based on the premise that there is a finite amount of capital and “it must always be used optimally,” says Colas. If he circumcises Apple – even as he sings his praises, and even though his rating was not in the same neighborhood as Tesla and has shown leverage on profits through the pandemic – there may be better opportunities now and in the near future for these dollars 12 months elsewhere.

“If you want to take lessons from the billionaires, just try to think the way they do position size, diversification, and best capital,” says Colas. “These are omnibus lessons.”

And remember that if the money continues to spin out of the growth and technology of large caps, the always forward-looking investor will at some point remember that the next big rotation could come for cyclical reasons. “This is how rotations work,” he says.

There is a good argument that there is more room to work with traditional energy right now than with EV, but there will be a day in the future when commerce may shift again from Exxon Mobil to Tesla.

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