Eugenio Catone @CatoneEugenio: "Hello everyone, I suppose you..."

Italy

Hello everyone, I suppose you have noticed that November is slightly in red, so I would like to explain what is happening. After years of strong growth due to the disruptive power of AI, the market is beginning to sense some signs of weakness in the trend. In reality, this is not the first time this has happened. In fact, it also happened at the beginning of the year when Chinese AI DeepSeek questioned the billions spent by American giants. Its LLM was quite competitive and generated through an investment of a few million compared to the billions spent by AMZN, GOOG, META and MSFT. Even today, it is believed that China is closing the technology gap and doing so with much less money invested. Could it be that the big American tech companies are wasting billions on low ROI investments? This is the question the market is asking today, and one to which we cannot give a definite answer. What is certain is that everyone is going all-in on this new technology, so it better work. Although Amazon and Meta generate hundreds of billions of dollars in operating cash flow per year, they recently announced their intention to issue tens of billions of dollars in bonds. So, not only are they investing everything they earn, but they want to go even further. Clearly, the market can only be optimistic up to a point. It's fine to invest, but is it worth risking so much? Without knowing the return on these investments, it seems difficult to trust them blindly. Then there is Michael Burry, who predicted the great financial crisis and believes that another one is on the horizon. He is convinced that big American tech companies are improperly increasing their profits through a systematic overvaluation of the useful life of their assets. We will have more information on this on November 25. In all this, the shutdown has delayed the publication of important data such as unemployment and inflation. As we all know, more uncertainty means more nervousness on the markets. Among other things, tomorrow will see Nvidia's quarterly results, and it will be very interesting to see how investors react. Finally, there is a historic divergence between the S&P 500 and job openings. Usually, the latter follow the stock market trends, as a growing economy has more jobs available, but the opposite is happening. One of the two is supposed to close the gap, and it could be the stock market. What do I think about all this? I think there is some truth to the market's concerns, which is why I have not increased the number of technology companies in my portfolio. Let me be clear, I have no intention of selling them as they are exceptional companies, but I do not want to increase them at current prices either. I want to maintain a more cautious approach, which is why I am shifting toward other sectors. The position in Novo Nordisk has become huge, and I strongly believe in its potential. So, what to do after this 3% correction in our portfolio? Well, I believe that 3% is an almost insignificant decline given the volatility of the stock market. For those with a long-term view, what is happening today will happen many more times throughout your investing life. You could even do absolutely nothing; nothing serious is happening at the moment. What I will probably do in the coming weeks is deposit a significant amount of cash (about 10% of the portfolio) and keep it invested in risk-free assets, such as a T-Bills ETF. The goal is to further reduce the volatility of the portfolio at a time of market nervousness and earn a small return from the coupons. Eventually, this sum of money will then be used to buy cheap equity. In short, this 3% correction does not worry me in the slightest, and I still strongly believe in the companies I have invested in. My investment style includes constant investment on the downside, and that is what I will do. Clearly, you are free to do what you think is best; I cannot give you financial advice. I wish you a great day, Eugenio Catone $SPX500 $NSDQ100 $GOOG (Alphabet) $META (Meta Platforms Inc) $NVO (Novo-Nordisk A/S SPONS ADR)

Not investment advice. The author may have financial interests in the mentioned instruments.