Well, it’s been about a week since I embarked on this journey to challenge the Intern for portfolio building bragging rights, and so far the results have been a little underwhelming.
My portfolio, comprised of just Amazon (for now), is down 0.90%. Since we started with $1,000, I’ve lost about $90 in value. Over that time the S&P 500 has dropped about 0.35%. The Intern’s portfolio is suffering a little more than mine. He’s down 1.17% or $117.
But as I mentioned last week, my strategy is to look to the long-term, and not focus too much on short-term trends. At the end of the day, I’m super confident that Amazon will continue to add value to their shareholders (read: me) and I’m increasingly interested in how Jeff Bezos will integrate the Washington Post and their team of journalists into AMZN’s strategy.
That brings us to this week. While it’s clear that I’m bullish on owning AMZN, I need to add a few more stocks to my arsenal to balance out my portfolio.
The problem is, in general, I’m not incredibly bullish on the economy from a macroeconomic perspective. Meaning, in the short-term, I think the market will contract slightly. And strangely enough, I think the market will drop as a result of a series of positive factors.
1. The market has never been higher.
Literally. On August 2nd, the Dow Jones Industrial Average and S&P hit 15,658 and 1,709, respectively. Both these numbers are the highest in history. I think Newton may be lurking around here…
2. Jobless claims are dropping by the second.
A jobless claim is another way of thinking about unemployment. If you are unemployed, you “claim” that you’re “jobless” (In fact, claims are counted as total unemployment benefits, but technically it amounts to the same thing). In any event, jobless claims are now at their lowest peak in 6 years.
3. Homebuyer confidence is rising.
Another good sign right? Homebuyer confidence is now at it’s highest point since 2005! More consumers are buying homes now than at any point in the last 8 years, despite the fact that mortgage rates are beginning to rise.
So with all these positive signs, why do I think the market will regress?
Simple. Don’t forget that the economy is “artificially” inflated by the US stimulus package. Meaning, the US government is committing to buy billions of dollars of bonds per month, pumping that money into the economy. Moreover, they’ve been keeping interest rates down to discourage saving and encourage spending. What does this have to do with points 1 to 3? With the economy showing signs of recovery, there is some talk that the Feds will stop the stimulus package. And I think it’s already starting: the S&P has dropped almost 2% in the last 5 days.
And while I’m not 100% sure this is true, it is a worrying sign.
Which leads me to…
Stock Pick #2: McDonald’s
Surprised right? Last week I told you I invest almost exclusively in Tech stocks. But considering the analysis above, I’ve decided to adapt my strategy a bit and buy McDonalds. Here’s why:
Junk Food is “Recession Proof”
Junk food is probably the most “recession proof” sector in the economy. And with a stock market that could be headed for a bit of a pullback, I’ll add some McDonalds to my portfolio.
Let’s rewind back to the last recession back in 2008. Housing bubble, subprime mortgages, the financial crisis…yada, yada, yada. From March 2008 to March 2009, the S&P dropped 47%. One of the worst periods in market history.
During that same period, McDonald’s lost only 4%. Check out the chart below. McDonalds in blue, S&P in red.
So while I’m not totally sure what’s going to happen in the market, I’m sure McDonalds will protect me (and I’ll feel better the next time I eat a Big Mac).
Without further ado.
Ok, so now I’ve got 7 shares of Amazon and 20 shares of McDonalds in my WSSIntern Portfolio. Any thoughts or comments for me? Let me know below!