I hope you are well and enjoyed your weekend. Over the weekend, Berkshire Hathaway held their annual meeting, this time live, with an audience for the first time in 3 years. Both Warren Buffett and Charlie Munger were present and talked about the state of the market and their business moving forward. One of the key items that grabbed my attention from the meeting was the fact that Buffett and Berkshire have been net buyers over these past few months of volatility. They have added to their positions on Chevron (CVX), Activision (ATVI), and Apple (AAPL). Their net $41.5 billion purchase of equities is the most they have done since 2008.
The Big Picture
As seen in the chart below tracking economic sentiment versus investor bullishness, overall sentiment remains uncertain and very hard to navigate. The put to call ratio for the 3 major indices set out in the table that follows well demonstrates the hedging and overprotection taking place in the market right now.
With the majority of indices being extremely choppy, I believe we are entering a season of primarily range-bound trading.
The probability of a 75 bps rate hike in June remains very high as well. We are experiencing a tightening cycle twice as fast as the one we saw in 2018 (and we all certainly remember closing red in 2018!).
Option Trades for the Week
The key to surviving a volatile market like we have today is to make sure you are running a beta neutral book. You want to have both long and short plays in your portfolio to hedge against any drawdowns. I do not have many open trades going into this week. Since it’s an earnings week, I will be actively trading stocks such as Shopify and Block. Below you will see my only 2 open trades going into the week.
Tweet of the Week
This week’s tweet of the week goes to Ben Carlson who shared some facts about market drawdowns in years past and how the market then finished up the year. While it is very tempting to fall into the trap of looking at “data” like this, it is important to understand that this type of data and accompanying observations do not have any statistical significance. The drawdown cycle of 2022 is far different than it was in 2008 (or for that matter any other year). Each year is unique with a very different set of circumstances. I still believe there is hope that the S&P can close the year green, but that of course all depends on what happens with inflation and the current geopolitical uncertainty.
One Last Thing:
I am also now on twitter! Let’s connect there as well for more of a dialogue.
To your success,