The Most Important Thing

Identifying the ‘Primary Theme’ is the most important thing. Nothing comes close.

Stock pickers disagree with this. 

It has taken me longer than I’d like to admit to fully appreciate the power of identifying the primary theme.

Markets are hard.  Don’t overcomplicate it Amol, I tell myself.

I hold on to my core positions, but the rest are negotiable.

Here is a recap of the ‘primary theme’ for the past few years.

2019:  Deflation

Global growth was slowing, and inflation was falling.  Rates were negative in Japan and Europe. 

In a low-growth environment, growth should do well. It did. Growth at any price did even better.

If rates are negative, Gold should outperform.  It did.

In a slowdown, staples should do well.  They did. 

2020: Covid was an outlier year

The guts of the stock market were screaming caution in late February 2020.  It was so extreme, that I made a video urging caution!  VIDEO.

In 2020, I got more things right than wrong.  However, the big mistake was not owning Tesla.  I came very close to buying it during the depth of Covid but never initiated a position.  What a huge mistake!  Tesla was a 10x!

The 2020 year-end recap has links for reasons to own Ecommerce, Software, and Payments.  These themes were massive winners in 2020. Recap LINK .

2021: Helicopter $

The amount of money sloshing around was staggering.  Economic and earnings acceleration was inevitable.

Inflation also accelerated in the 2H.

By 4Q, it was clear that inflation was a problem.  A Fed that was behind the curve was a bigger problem.

2022: Draining the punch bowl

I wrote Draining The Punch Bowl in early January 2022.  It was an easy theme to identify.   

The war exaggerated the inflation problem.  The accelerated pace of rate increases created even greater uncertainty.

2023:  High and falling inflation is good for stocks

As I exited 2022, my confidence in ‘this is not the 70s’ and ‘inflation will fall faster than most believe’ was rising.  I wrote Did Powell Slay The Inflation Dragon? In January 2023 and Goldilocks in February 2023.

The failure of SVB, the slowdown in credit, and the corresponding rise in unemployment claims made me deeply question my assumptions.  The probability of a recession had risen dramatically.

However, the market internals were resilient.  Remember, the guts of the stock market is ALWAYS the best economist!

The more I immersed myself in AI - and understanding the oncoming benefits of Infrastructure -  the more bullish I became.  I still am.

The Nvidia earnings call in late May was ‘the shot across the bow’ for the Bears.

While the start of student loans and the rate shock in 3Q got many worried, consumer data was resilient.  I was tactically hedged but stayed positive and searched for opportunities.

Cybersecurity!  Strong fundamentals and relative strength are always a winning combination.  Zscaler and CrowdStrike were big winners.  Link to Cybersecurity.

Lululemon was also a big winner.  I wrote a post on X LULU is a coiled spring. 

Despite all the noise, understanding that inflation was falling, and stocks do well when inflation is high and falling was the key issue in 2023.  If you missed it, here is the link.

I was brave enough and confident enough to write this when the recession crescendo was at its highest in mid-October.  

The rest is history.

This brings me back to where I started.

What is the primary theme for 2024? 

I have narrowed my list down to three.  Two need to go.  Who will be the last theme standing?

If you have the primary theme for 2024, please share it with me. 

I will share mine in January. 

Enjoy the last days of 2023!