Darling? How much higher can you go?

You might find this interesting that the On Pointe WM we wrote this time last year was all about inflation.

(To read last year’s On Pointe HERE)

The markets were wobbly, no consistent trends, and banks were struggling to make up a challenging 2023.

Fast forward and the markets are completely different.

Inflation is mostly under control. Market trends and individual stock trends are consistent and strong. Banks aren't fully out of the woods with the commercial real estate markets undergoing a contraction, but generally holding up.

So, what are the conversations we're having with clients?

Should we buy more Nvidia? When will the market crash? Will my wealth plan survive a recession? What else should we be doing?

A bit funny how I've been invited to more cookouts this summer. Could it be that market performance since Oct. 2023 has been on a tear (I'm writing this in June of 2024)? Improving portfolios and investments can make people happier... maybe happy enough to invite their advisor over for a cookout and cocktails!

I was kindly invited to a bourbon tasting a few weeks back on one of the nicer, summer Maryland evenings with virtually no humidity (which is rare)! The moon was even out, and it was clear as crystal.

I settled in and met some new?friends, going through introductory formalities. This was a high-caliber crowd in the Maryland Tech scene, mostly cyber, gov con, and data centers. To round out the crowd, most of us are entrepreneurs in some form or fashion... my kind of people!

As everyone's comfort level increased with familiarity, this question popped up... "What do you think of Nvidia?" A cyber founder asked.

I've encountered quite a few questions like this... and it wasn't always Nvidia. Substitute "Nvidia" with "Amazon", for "Qualcomm" with "Pfizer" or "Intel" any "darling stock" when they were making their runs.

The short answer... It's a darling stock and darlings captivate traders and investors because darlings are beautiful in their ability to defy gravity. They seem to "do no wrong". This is the current state of Nvidia's stock.

While I have to be careful to not give out advice because I did not know this person's full financial picture, he was expecting a response.

"Well... it's got a positive trend." I said trying to answer his question neutrally.

But here's what I wanted to say... "It's a darling now, and it won't be forever… so what’s your game plan?"

And… I’d need to add the following…

There are periods when the stars align and all the positive (and in some cases greedy) forces culminate in less than a handful of names.

Earnings miss or revisions don't seem to have much effect. Global economies don't seem to shake them either.

Over the past 50 years, darling stocks have often been at the forefront of technological innovation and industry disruption. From IBM and ExxonMobil in the 1970s to Apple, Amazon, and Tesla in recent years, these companies have captivated investors with their growth stories and market dominance.

However, darlings don't last forever and will go through their ebbs and flows in market price.

The real question is not "what do I think" about a stock. The question I want to be asked is "How do I manage my stock position?"

While a stock can represent a public company, its real function is to present its value through the process of buying and selling. In other words, it is trading as a proxy of value that is determined by the markets.

The stock represents a value, but not a complete proxy for the company’s performance. There can be a difference.

If there are many more buyers than sellers, you will see prices rise to attract more sellers. In the case of a darling... there are so few sellers, so the stock price?continues to rise.

This is classic economics at play here, demand and supply.

Under this premise, in some cases, I don't care about the name or the company, I look at the price action. That is it.

Not earnings, news events, or opinionated talking heads... it is the price action that dictates trends.

I generally treat stocks as commodities with little to no emotional attachment. Perform, you get to stay in our portfolios... if it's changing trends that don’t contribute to the portfolio then we deploy our exit strategies.

So, does this philosophy apply to darlings? Yes. But…

As I mentioned earlier, darlings do have their cycles... sometimes pushing the limits on either the up or downside. They can be more volatile as well.

But, if you have a game plan and a strategy, then use it similarly as you might any other stocks, with some minor tweaks. You may have looser stop losses, but you still have stops. You still obey changes in trends but might start slowly selling small portions of the stock to help reduce risk and pocket profits. This is one of the many tactics one can use.

In all of this, you need to ask these questions... why am I invested in this stock? What are my objectives? What is my tolerance for risk/volatility? Am I caught up in the hype?

Well, as you can see, this On Pointe will be a lot to take in at a cocktail party. But I simply can't give a simple answer to a question that is loaded with so many other questions and thoughts.

Darlings are great, fun to watch, and perhaps even to invest in as long as you've got a process that addresses the many questions you need to answer.

Enjoy grilling season and take care,

James S. Gibbons CPFA?

Alpha Pointe Capital-Founder/Wealth Manager

[email protected]

www.alphapointecap.com

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