May 2020, Chicken Little Portfolio Performance

On March 23, 2015 the Dow was just over 18,000. Five years later the Dow was almost exactly unchanged at 18,591. Stock market investors spent five years without making any money while bonds, gold, real estate, and crypto soared. Stocks were the worst investment. Amidst pandemic, people sold huge amounts of stock in March 2020. Then, the Dow rallied almost 40% in 9 weeks. Pain! Perhaps worse than the losses, is the fact that stock market may be teaching us the wrong lesson.  

Time to leave your equity wingman? 

Stocks sending the wrong message?

For those who follow markets, the recent period is likely to have created incredible pain. For example, I have changed my mind from negative on Tesla to positive on the cars (I love my Model 3), and neutral on the stock. I could have bought Tesla stock at $350 a few weeks ago; now it is close to $1,000. Similarly, I have gone back and forth on owning crypto. Bitcoin was $3,800 a few weeks ago, and now it is almost $10,000.

I feel stupid, stupid, stupid.

The recent volatility has provided life-changing opportunities. A senior Goldman, Sachs & Co. executive wrote me in anguish, "I have missed most of this rally," to which I replied, "I have missed all of it." Furthermore, the rally seems obvious in hindsight. The Fed announced some of its most aggressive e-printing measures precisely on March 23rd, the day of the low. Finally, Covid-19 seems to be under control in many parts of the world suggesting better days ahead.

What is the lesson of market turbulence? In the words of the immortal Maverick, it seems to be, "never leave your wingman." After being chewed out for leaving his wingman, Maverick delivers the message to Goose with emotion, "I will never leave my wingman again." Later in the movie, Maverick successfully applies the lesson, stays with Iceman and wins the day. Lesson learned and applied.

Buy stocks and be Iceman's wingman

The lesson of 2020 seems to be "never sell your stocks." Stocks always go up. This "Stocks for the long-run" message has worked for US stock investors throughout history. Every dip in the stock market has been a buying opportunity.

This time might be different. There are few investing phrases fraught with more pain. However, Chicken Little continues to believe that this is the mother of all bear market rallies, going on for longer and going higher than seems possible amidst unemployment and protest. Last month, Chicken Little wrote, "If this rally is the mother of all bear market bounces it can go much higher, and go on for much longer. "  Chicken Little has been correct so far. 

Chicken Little believes the stock market will rally until the bears capitulate, and then the market will go below the March 23, 2020 level of 18K on the Dow. So the prediction is persistent rally, then crash ahead. 

What is a chicken to do? Sit back and watch the market soar, or buy and cause it to crash immediately? This chicken is not buying, and waiting for the rally to end.

May 2020 performance

The Chicken Little Portfolio gained 0.12% in May 2020 while the Dow Jones Industrial Average gained 4.71% (the bounce since March 23 is the best since the 1930s). As noted in last month's report, "Chicken Little is hiding in cash, waiting for the storm to subside and trying not to get hurt financially." By hiding in cash, Chicken Little missed the stock market rally, but accomplished the goal of not getting hurt financially. 

May 2020YTD 2020
Chicken Little0.12%6.34%
Dow Jones Industrials4.71%-10.06%

May 2020 was a good month for financial risk-taking with gains of 2-5% across major asset classes. Year to date, the best investments remain the safety trades of Treasury bonds, Gold, and cryptocurrencies. 

AssetSymbolMay 2020YTD 2020
Dow Jones IndustrialsDIA4.71%-10.06%
Non-US StocksEFA5.43%-14.11%
Emerging Market StocksEEM2.97%-15.91%
US Long-Term BondsTLT-1.75%21.43%

June 2020 portfolio positions

Chicken Little remains almost entirely in cash and relatively short-term Treasury obligations. Chicken Little continues to believe that government actions that are purported to protect the economy are making a bad economic situation far worse. 

Chicken little has re-initiated a chicken's position in cryptocurrencies. Sitting entirely in cash, Chicken Little's biggest risk is a return to inflation. Scaling in over time into crypto could provide some insurance against e-printing caused inflation. We will see. 

Chicken LittleDow Jones Industrials
2020 (through May)6.34%-10.06%
2015 (April through Dec)-2.49%-0.27%
since inception (3/31/15)17.42%59.97%

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