Investing Update: Why I'm Buying Google
2021 recap; What I'm buying, selling & watching
The S&P 500 finished 2021 with a 28.7% gain. If you are a passive investor and have just held the index you’ve had a great run. The past three years have produced returns of; 31.5%, 18.4% and 28.7%. Quite a remarkable three years.
Below are some excellent year end tables from Charlie Bilello.
The best performing stocks in the S&P 500.
The worst performing stocks in the S&P 500.
Here is how all of the 30 companies that make up the DOW fared in 2021.
This is my favorite one. The asset class returns over the past ten years. Interesting to see how different the returns have been.
To start the year we’ve seen a drastic selloff in the high growth, high multiple tech stocks. A large number of stocks that make up the Nasdaq have been more than cut in half. With the looming hike in interest rates coming, the shift has accelerated into the value stocks.
You’re seeing financials, energy and cyclicals do very well to begin 2022. It’s signaling a flight to safety. Some stocks that I think will see a benefit from this is the FANG stocks and large cap mega tech stocks. These companies are so diversified and leaders in so many businesses that growth investors view these as safe stocks in a rising interest rate environment.
Moves I’ve Made
Google (GOOGL) : I’ve owned Google in the past. Looking back I never should have sold it. It was a learning experience for me. I had hit a 200% return and thought I needed to sell it at the time. This was chalked up to my live and learn experience with buying stocks. In hindsight I should have sold what I put in (my cost basis) and let the rest ride.
I’m back in it now and don’t plan on selling it again. Google is the leader in so many business categories. They have over a billion users in; Search, Gmail, YouTube, Android, Maps, Chrome, Play Store, and Photos. I’m probably even missing some. The competition among these categories is minimal.
If there is one company that can overtake Apple as the most valuable company in the world, its Google. It’s very hard to find many companies that can compete with their balance sheet along with the prospects for growth and innovation by one of the best companies in the world.
Square (SQ): This sold off so fast with the growth stock sell off that it first hit my stop loss to trim, then my stop loss to close my position. It’s fallen even further since then. Square is a pure growth stock which has gotten hammered and will continue to be with the rising interest rates coming. I will get back in to this stock once growth stocks stabilize. Still really like this company long term.
Shopify (SHOP): Very similar to Square, Shopify took a drop straight down. My stop loss hit at the point for my maximum drawdown. I thought when I bought in that it was a good price. With growth socks falling out of favor Shopify fell right with it. This will continue to fall further and like Square I will get back in this down the road.
What I’m Watching
High Multiple Growth Stocks: I’m going to be watching the price levels in the highest multiple growth stocks relative to what interest rates do. Many of the big winners of the past few years have really come down. Since these type of growth stocks are not profitable, you’re paying for future earnings at a later date. The higher the multiple, the more value investors are placing on future earnings growth. Valuations will need to come in before people start buying these again. As interest rates rise this really affects growth and momentum based stocks that are not making money.
A way to monitor this is to watch how Cathie Wood’s Ark complex of funds performs. I usually focus on the Ark Innovation Fund (ARKK).
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Disclaimer: This is not investment advice. You should not treat any opinion expressed as a specific inducement to make a particular purchase, investment or follow a particular strategy, but only as an expression of an opinion.