Stock Market Bottomed? Google in Trouble?

Summary

In this video, Adam discusses the recent market fluctuations, attributing the initial sell-off to the unwinding of the Yen carry trade and subsequent panic selling. He advises viewers to focus on business fundamentals, using market panics to buy high-quality stocks. Adam shares his own successful trading strategies during the volatility, including selling put options for profit. He also addresses Google's antitrust lawsuit, expressing confidence in the company's ability to overcome legal challenges and highlighting Google's undervalued stock as a buying opportunity.

Takeaways

• 📉 The US markets experienced the fifth largest point drop in the S&P 500's history, causing panic among many investors.
• 📈 The market rebounded after the initial sell-off, benefiting those who held or bought more shares during the dip.
• 💹 The initial sell-off was triggered by the unwinding of the Yen carry trade due to a sudden increase in Japanese interest rates.
• 🌐 The Yen carry trade involved borrowing in Yen at near 0% interest rates and investing in US stocks or emerging market stocks.
• 💸 Investors scrambled to sell stocks to convert back to Yen and repay loans, leading to a liquidity crisis and significant market drop.
• 📊 The market recovered as the Japanese government backtracked on further interest rate increases and positive economic data emerged.
• 📉 Market volatility can create opportunities to buy high-quality stocks at lower prices, unrelated to the fundamentals of the business.
• 🤑 The speaker capitalized on the market panic by buying more stocks and selling put options for profit when the market rebounded.
• 📊 The speaker's portfolio has nearly recovered to its all-time high, demonstrating the potential for strong returns following market corrections.
• 🗳️ Despite the potential for further market drops, the speaker suggests that the current market conditions indicate a likely bottom for the recent correction.
• 📉 The speaker predicts that the market may reach new highs, but warns of possible choppiness and pullbacks before the end of the year.

Q & A

What was the significance of the drop in the S&P 500 at the start of the month mentioned in the script?

The drop was significant as it was the fifth biggest point drop in the S&P 500's entire history, causing a lot of panic among investors.

Why did many retail investors sell at the bottom of the market before it rebounded?

The panic caused by the significant market drop led many retail investors to sell, fearing further losses, instead of holding or buying more shares as advised in the video.

What is the Yen carry trade and how did it contribute to the initial selloff in the markets?

The Yen carry trade involves borrowing Japanese Yen at near 0% interest rates, converting to other currencies, and investing in stocks. The selloff was triggered when the Japanese central banks increased interest rates, causing a spike in the value of the Yen and forcing traders to unwind their positions by selling stocks.

Why did the Japanese government backtrack on increasing interest rates after the market drop?

The Japanese government backtracked due to the panic and market instability caused by their initial decision to increase interest rates, which led to the unwinding of the Yen carry trade and a significant market drop.

What factors indicated a potential market bottom after the initial drop?

Factors included the unwinding of 75% of the Yen carry trade, the Japanese government's decision to stabilize the market before further interest rate increases, and improved economic data such as dropping unemployment claims and better-than-expected retail sales.

How did the speaker capitalize on the market volatility during the panic?

The speaker bought shares of high-quality stocks, added to positions in companies like Lululemon, and sold cash-secured puts or put credit spreads to profit from the increased premiums during high volatility.

What was the outcome of the US antitrust case against Google over their search dominance?

Google lost the antitrust case, with the Department of Justice arguing that Google engaged in anti-competitive practices to maintain its monopoly, particularly through payments to be the default search engine on various platforms.

Why is the speaker not concerned about the implications of Google losing the antitrust case?

The speaker is not concerned because similar cases have been overturned on appeal in the past, such as with Microsoft, and because even if Google were forced to change its practices, it could still maintain its dominance due to user habits and the quality of its search algorithm.

What are the potential outcomes if Google is forced to change its practices as a result of the antitrust case?

Possible outcomes include Google no longer being the default search engine on devices, which may not significantly impact its market share due to user habits, or being forced to break up its company, which could potentially increase shareholder value.

Why is Google considered undervalued by the speaker, and what valuation method did they use?

The speaker considers Google undervalued based on a discounted free cash flow valuation, using conservative growth rates and a 5.7% discount rate, which resulted in an intrinsic value of $237 per share, compared to the market price of $162.

What advice does the speaker give to investors regarding Google's stock in light of the antitrust case and market conditions?

The speaker advises investors to hold their Google position, as the uncertainty surrounding the antitrust case is already priced into the stock, and to stay invested despite potential short-term fluctuations.