Nick Hodge,
Publisher
May 24, 2022
Publisher’s Note: Please enjoy the excerpt below from this month’s issue of Foundational Profits. After locking in tech profits in December, we’ve witnessed an epic crash of high-growth and high-short-interest companies, known as ‘memestocks’ to the novice investors who just collectively lost trillions of dollars.
Enjoy,
—Nick
The slowing growth has been pronounced in some formerly high-flying sectors of the market.
Meme-stocks, cryptos, and sudden-star asset managers and investors have had a particularly rough go of it.
Cathy Wood’s Ark Innovation Fund (NYSE: ARKK), which is tech and crypto heavy, was a darling of the market right up until the NASDAQ peaked in November 2021. The fund has now lost over 70% of its value since last February.
That fund owns Coinbase (NASDAQ: COIN), itself down more than 70% since its April 2021 IPO.
And while Bitcoin may very well be a cornerstone of the future financial world, for now it is down 55% from its recent highs, and is threatening to fill the gap all the way down below $25,000.
Part of this was bubbles badly needing some air let out. Part of this was fueled by Fear of Missing Out (FOMO) that was doused with easy money in the form of stimulus checks — and fanned by novice “traders” at home with too much time on their hands. Bloomberg reported in early May: “Nursing losses in 2022 that are worse than the rest of the market’s, amateur investors who jumped in when the lockdown began have now given back all of their once-prodigious gains, according to an estimate by Morgan Stanley. The result has been a lumbering bear market in speculative companies that surged when the stimulus started flowing in March 2020.”
I don’t know what percentage of people still use their Peloton (NASDAQ: PTON) exercise bike, but I know the stock is down more than 90% from its pandemic peak. Not only did it have to recall one of its treadmills after it killed a child, its profits are dying as well. The company lost $751.1 million in the quarter it just reported, up from an $8.6 million loss last quarter.
Collective trillions have been wiped from market caps in recent weeks. I told you it wasn’t going to end well after we sold some stock for profit to rabid Redditors early last year, telling you in the February 2021 issue (click for access) that:
I don’t need to rehash the Reddit saga. Suffice it to say the masses are pissed off at the institutions. It’s par for the course for this Fourth Turning. There were marches in the street much of last year. Now, the ire is turning once again to Wall Street crooks instead of crooked cops. The hive is alive. And now they know about zero commissions and penny stocks. It feels like a top.
Where does money go when it goes to heaven?
Well if you stuffed the ashes from your meme-stock investments into an urn you’d be doing better than most of late. The dollar index (DXY) is the strongest it’s been since the dotcom era.
It was the correct move, then, to lighten up on equities in general heading into the year and to be holding dry powder that now gives you even more firepower.
With both economic and earnings growth slowing, high-growth and high-short-interest companies are historically unfavored. The dankest meme can’t delay the market’s cycles just as the longest summer day can’t delay the coming of winter.
It is no longer time to “buy the dip” in what worked before. It is time to sell the rallies if you haven’t already.
Click here for premium portfolio guidance.
Nick Hodge
Publisher, Daily Profit Cycle