Picking Stocks in a Bloodbath

I love this scene from Succession¹:

I’m at the point of the bull market where success doesn’t interest me anymore either. I’m sick of hearing about all of the money people have made in tech names.

Failure during a bull market is far more interesting to me.

The U.S. stock market is doing fine right now. It’s up almost 10% on the year, nearly 20% in the past year and within spitting distance of all-time highs.

But underneath the surface there are a ton of stocks that are in massive drawdowns.

There are plenty of big market cap, name brand tech stocks getting killed at the moment:

Fashion comes and goes. The same goes for apparel brands:

As someone who grew up with Nike being one of the most dominant brands on the planet, it’s hard to grasp the fact that the stock market is leaving this company for dead.

But I get it.

Tastes change. Mistakes were made. The market moves on.

Speaking of mistakes…

There are a whole host of pandemic darlings that were bid up as investors tried to figure out how the world was changing in real time.

This is the other side of that:

Absolute wreckage.

I could continue ticking off names. Quantum computing and software stocks come to mind.

If you’re a bottom-fisher this is an interesting environment. Maybe you’re overexposed to the AI trade like everyone else. Maybe you want to diversify. Or maybe you just enjoy dumpster diving and buying when the streets are full of blood.

Take Netflix as an example. The stock has offered investors phenomenal gains over the long haul — 30% per year for the nearly 25 years it’s been a public company.

What a run.

But there have also been a number of bone-crushing drawdowns that would caused a world of pain:

There have been drawdowns of 63%, 76%, 44%, 56%, 82%, 76% and now around 50%.

There are two ways of looking at a company like Netflix right now:

1. This is a wonderful buying opportunity. Every time the stock has crashed in the past it has come roaring back with a vengeance.

Each crash was a gift to investors who could plug their nose and wait.

Maybe this is yet another one of those glorious opportunities.

2. This time is different. Netflix seems to be transitioning from a growth play to a more mature company. The best days for the company could be behind them.

And this is what makes stock-picking so hard.

I don’t know! Both cases are rather compelling depending on how you feel about the company.

Netflix won the streaming wars. But it’s possible it’s like Russell Crowe at the end of Gladiator. He won but at what cost?

This is the agony and ecstasy of stock-picking.

Sometimes buying stocks that are crashing can lead to enormous gains.

Other times stocks never come back from the dead to reach previous highs.

Pick your poison.

Michael and I talked about Netflix, bottom-fishing and much more on this week’s Animal Spirits video:



Subscribe to The Compound so you never miss an episode.

Further Reading:
Picking the Losers it Easier Than Picking the Winners in the Stock Market

Now here’s what I’ve been reading lately:

Books:

Podcast book tour:

¹There are a lot of people in tech who became fabulously wealthy at a young age who this character was obviously based on.