Over the last week since our first Flip “fireside” chat the Market has continued to grind as suspected. The political and vaccine landscape, and the latter more so, continue to dominate the direction of the market. We all know that the tug of war for new highs is a function of recovery. That being said, I think it’s worth talking a little bit on, “What does recovery look like”?
In my mind, again not AI-wise, recovery looks like stocks that are based on demand recover lost ground in their market cap i.e. recovery stocks go higher in price .. Below are two examples that are found in the Red Oil SmartFolio (XOM) and SPY I (CHEF) respectively. XOM fell from ~70 to a low of 30 at the peak of the pandemic in march. That’s a 57% price decrease. However, they kept the dividend which is now ~ 10.25%/year. Notice how it recovered in June to the 50’s and then fell back to the low 30’s. This is a stock that no AI can trade directly because it’s cyclical … but in the context of a portfolio, it is highly advantageous.
The same is true with CHEF. Chef is a restaurant supplier in the Northeast where the current pandemic initially shut down every restaurant. Most people likely have never heard of this stock, but when a stock that otherwise would be boring but nonetheless needed moves down from 40 to 4, it’s certainly worth looking at. Moreover, in the context of a portfolio, A.I. SmartFolio is valuable in managing the risk of owning it now at 20 for it return to say 30 it’s desirable. This current stock is found in the SPY I SmartFolio.
The point to take away here is that recovery means a ‘return to normalcy in terms of human behavior”. Now that the vaccine is out, it’s just a matter of time. Risk and reward here remain advantageous for the math to work as expected.
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