2021 Q2 Review: Inflation Woes and Risk Management

Q2 2021 Portfolio Update Review

Hey what’s up guys! It’s that time of the year again, the Quarterly Update for Q2 2021!

As usual, we’re gonna look at how my portfolio did as a whole and some individual moves that I made that I thought were good and others that I would regret and learn from looking into the future.

Before we go any further, all views and stocks mentioned in this article are not financial advice and should not be construed as such. They are not recommendations to buy or sell. Please do your own due diligence before making any financial decisions.

Portfolio Returns

If you remember the last update, we had experienced quite a wacky first quarter, with the GME debacle in Jan with some ridiculous movement on plenty of high-growth names, before entering a sharp correction in March which sent most growth names down almost 30% while reopening stocks soared, with the Dow Jones Industrial Average soaring more than 10% in the weeks that followed!

DJIA YTD Performance

In that last post, I also predicted a breakout of the Nasdaq-100 (NDX) and that the bottom was likely passed for the index.

The good news is, I was right that the Nasdaq had seen its bottom.

NDX YTD Performance

The bad news was, my portfolio doesn’t track the Nasdaq HAHA.

ARKK YTD Performance

My portfolio continued to dip pretty hard (following ARKK’s path actually) and eventually only rebounded in mid-May. From top to bottom, my portfolio lost more than 30% in value from March to May.

This was still largely driven by the inflation narrative, in which many large players and institutions were expecting inflation to set in after a year of increase in monetary supply and the economy slowly returning back to normal. Bond yields were still wreaking havoc on the stock market and growth/tech investors were left sucking their thumbs.

Fortunately, the rebound has been strong and growth came back, with a vengeance. Many growth stocks rebounded up 20% and some even more. One of my favourite stocks, UP Fintech Holdings (NASDAQ: TIGR), soared up more than a 100% from their lows although it has come down a bit since then.

And so, the number that we’re all waiting for!

My YTD return as of 30 June 2021 is…

22.37%! 

Sorry no proper graph this time because some holdings are in another account, but here’s the one from IBKR anyways and since most of my holdings are still here, it’s pretty darn close.

Q2 review portfolio update

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Bad Trades

This quarter was much less eventful than the last for sure. Markets went down for pretty much one and a half months. And after a while I did actually run out of spare funds to ‘buy the dip’. So this quarter, I took fewer trades than the last, but nevertheless, we still have our good and bad trades to look at.

Well, I would say a mistake I made this round was actually being too eager. In the last quarter, the market raged on from December to February, with many stocks breaking new highs freely. This created a mentality, popularly known on Reddit and investing forums as BTFD, or Buy The F*cking Dip.

btfd meme

In essence, investors were starting to buy at the slightest sign of a dip. This was good when the markets kept going up as dips often rebounded quickly the next day or the day after. But when we entered this two and a half month dip, things changed.

I made my first purchase in early March, almost 3 weeks from when the Nasdaq began its initial fall. But within those few days, I had already fired off half my funds, expecting a quick rebound.

Eventually this meant that most of my positions initiated at this time are still in the red despite the strong rebound that we’ve had from the bottom. On the bright side, these are stocks that I do feel strongly about and whose fundamentals I believe in, so with a long horizon, I was pretty sure they’ll be alright!

That said, moving forward I came up with a better plan to handle dips. I don’t claim credit for this plan (I think I might have seen it on InvestingNote) but here it goes. Essentially, you allocate a larger and larger portion of your portfolio into your stocks based on the percentage the index has fallen. Say if the Nasdaq falls:

  • 5%: Fire off 10% of your funds
  • 10%: Fire off 20% of your funds
  • 20%: Fire off 30% of your funds
  • 30%: Fire off 40% of your funds

Generally, market corrections don’t go past 30% declines, although crashes have been known to see 50-80% declines in the serious cases. However, with such a plan, capital can be allocated more effectively as the majority of your funds are deployed closer to the bottom!

Good Trades

Fortunately, not all was lost despite the early failures.

As the markets fell further and further, I’ll admit that I started to lose confidence in my own stocks. I began to wonder:

“What if I was wrong?”

“What if it never stops falling?”

In investing circles, this is close to what they term as capitulation, where investors give up and sell it all. It is, interestingly, also where the market bottom would be as everyone had sold and there was no longer anymore selling pressure.

Fortunately, strong support allowed me to trust the process, as they say, and to hold tight. It allowed me to clear my thoughts and think carefully without letting my losses overcome rational thought.

In late April, I noticed that in many public forums and chats, many people seemed to be terribly demoralised and the sentiment was heavily bearish on tech. This gave me the confidence to purchase more with the remainder of my funds into stocks that I felt were a steal at that point.

One of these stocks was UP Fintech Holdings (NASDAQ: TIGR) as I mentioned earlier in this article, which I managed to catch at a sweet price of $14 a share. It has since doubled and more.

Another stock I doubled down on was Digital Turbine (NASDAQ: APPS), another one of my favourite companies, which has since risen almost 20%. Not as much as I would have liked, but of course, good things take time and with their amazing recent earnings, I’m certain the future is bright for them.

digital turbine stock analysis

Market Outlook

Overall, while we seemed to have rebounded strongly, many stocks are still far from their all time highs. Some good examples are Teladoc and Fiverr, both of which fell more than 50% from their highs at one point.

That said, inflationary fears are still in play and the market seems to be moving rather choppily. Especially on the Nasdaq, the large moves that we saw earlier in June have slowly become smaller and smaller. There are also increasing occurrences of flat days, where the index opens and closes around the same region (as observed by the last few candles, which are known as dojis in technical analysis).

Nasdaq Outlook

Do expect to see more volatility in the weeks to come and don’t get too complacent!

Closing Thoughts

As this quarter comes to a close, it is important to always stay grounded and remember that the market can turn on a whim. Things may look rather rosy for now but it won’t always be so. I’m not dishing out financial advice, but, I’ve reloaded a bit of cash from some profits and I’m preparing for another dip.

Invest safe, and see y’all next quarter!

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