I've been a proponent of the aggressive growth-stock trade for the past few months (I refrain from calling them "momentum stocks"), and it goes without saying that Wednesday was an unhappy day for me because I am long a few of them, but I wanted to offer a little bit of perspective in the midst of the bloodbath.
Every once in a great while, investors begin to dream, and when they dream, they dream big. They dream of an electric-car company or a solar company that can virtually eliminate carbon emissions, social networks that allow people to communicate instantaneously across the globe, and biotech companies developing new lifesaving medicines. And there is a lot of space in between, where people do more sensible things like buy sleepy railroad stocks and insurance companies. I'm still bullish, but the more the market rallies, the more "low quality" the rally is going to be.
I used to pathologically try to short these stocks (after all, they were low quality) and I am probably one of the few people in the world to make money being short Chipotle (CMG) in the early part of 2008. The stock is now 500% higher.
So it's important to have a little perspective when the aggressive-growth trade takes a drawdown like this. The catalyst this time was finding out that Tesla (TSLA) might take longer than a quarter to sell 500,000 cars a year, but it could have been anything.
So here's the age-old question to the active trader: Do you add or pull the rip cord?
I do not consider myself an active trader -- actually, I typically measure my holding period in months or years. I have what I like to call a bias to inaction, operating under the belief that generally I do more harm than good when I trade. The aggressive growth trade had been getting choppy for a couple of weeks (as noted by some people on this site) and I had to ask myself what this drawdown was going to look like in the context of what I think could turn into a bubble in aggressive growth stocks sometime in the future.
I'm not the oldest guy on Real Money, but I'm a stone's throw away from 40 and I've been in the business long enough to observe a couple of cycles. Two pieces of wisdom I have acquired: There is no such thing as a soft landing, and bull markets end when they end and not a moment sooner.
A friend of mine likes to taunt the top-pickers on Twitter (TWTR), which makes me laugh. I'm not an Internet troll, at least not to that extent, but I have to tell you, I learned the entirely wrong lesson from shorting CMG at $120 and buying it back at $90 on the way to $500. I never want to do a trade like that again. I'll leave the suicide missions to the guys with DeMark Indicators.
I'm long TSLA, SolarCity (SCTY) and Zillow (Z), and I'm happy with all of those positions -- for the long term.
