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The month that was:
November was a bumpy month. The Nasdaq went down by about 1.5%, while the S&P 500 and the Dow each ended the month about flat. It was the Nasdaq's first losing month since March.
On November 12th, the government shutdown finally ended after 43 days, the longest shutdown in U.S. history. But the biggest story of the month was a growing worry that AI stocks had become a bubble. A bubble is when prices go up much faster than the real value of the companies, because people are excited and keep buying. Investors worried that tech companies are spending hundreds of billions of dollars on AI data centers, often using borrowed money, before they know if AI will make enough profit to pay for it. On November 19th, Nvidia reported excellent earnings, and its stock jumped at first, but by the next afternoon it had reversed and closed lower, and the Nasdaq fell more than 2%. Near the end of the month, a Fed official said that the Fed could cut rates again in December, and the market recovered.
I don't know if AI is a bubble. AI is clearly a real technology that many people and companies are already using. But even real technologies can have bubbles. In the late 1990s, the internet was real and changed the world, but many internet stocks crashed by 80% or more in 2000 and 2001, because investors had paid too much for them. That's why I want to own companies whose profits can support their stock prices.
This month, I also tried a leveraged ETF for the first time. An ETF, or exchange-traded fund, is a fund that holds a basket of stocks and trades like a single stock. A leveraged ETF uses borrowed money and special contracts to try to move two or three times as much as the stocks it follows, every single day. I bought SOXL, which tries to move three times as much as an index of chip stocks. If chip stocks go up 2% in a day, SOXL goes up about 6%. But if chip stocks go down 2%, SOXL goes down about 6%. I bought SOXL the day before Nvidia's earnings, and when chip stocks fell the next day, I lost about 9% in one day.
Leveraged ETFs are very risky, and they are designed for short-term traders, not long-term investors. Because they reset every day, they can lose money over time even if the stocks they follow end up flat. I learned that lesson quickly.
I traded excessively this month and do not have time to list all my trades. I traded in and out of Accenture, Adobe, Allison Transmission, Copart, Carlisle, Equifax, FactSet, Gartner, and Novo Nordisk. Almost all of these trades ended in losses of 1% to 7%.
Looking back at this month, I made far too many trades. I traded more than 10 different stocks, and I lost money on most of them. The trades that made money were usually the ones where I was patient, like Thermo Fisher and UnitedHealth. I want to make fewer trades, be more careful about buying right before earnings reports, and keep any leveraged ETF trades very small.
Thanks for reading my newsletter!