Jan 2023 - Market Euphoria - a reason for concern?
Right out of the gate, 2023 is working hard to make us forget last year’s financial horrors. Markets have rallied across the board and sentiment has instantly changed from endless negativity to hope and cautious optimism. While I am grateful and happy to see my holdings recover I do worry things might have moved a bit too fast too quickly.
Overview
Unlabeled on the chart: Alphabet (1.6%) and Adobe (0.9%).
Moves
A small automatic buy order of the Danish Invest Denmark Index ETF went through on the 9th.
Performance
My overall holdings increased 17.69% in the month of January, comparing very favorability against The Dow Jones World Index.
Dividend overview
| Name (Ticker) | Received | Amount (USD) |
| Broadcom (AVGO) | Jan 2nd | $23.37 |
| Realty Income (O) | Jan 16th | $13.72 |
| Taiwan Semiconductor Manufacturing Company (TSM) | Jan 24th | $44.63 |
| Bank of Nova Scotia (BNS) | Jan 30th | $46.16 |
| Total | Jan 2023 | $127.88 |
I received my first dividend from Bank of Nova Scotia (BNS) this month, which with its 5.6% payout ratio makes a big difference to the overall story, but also Taiwan Semiconductor Manufacturing Company (TSM) contributes a significant sum. I received a total of $127.88 in dividends before taxes for January 2023, compared to $54.87 last year, which marks a YoY increase of 133.06%.
Commentary & Review
It seems investors were eager to start the new year afresh. When the first rumors of the Fed easing interest rate hikes a little made the rounds, we saw an explosive positive reaction in the markets. Sentiment went from fear to extreme greed, despite this earnings season looking like a mixed bag overall. Tech layoffs are at an all-time high with Alphabet (GOOGL) laying off 12.000 employees, and Microsoft (MSFT) laying off 10.000 - Investors are eager to reward a more conservative approach to growth going forward.
My month started off well with TSMC delivering strong earnings when expectations were low. While they do forecast a weak Q1 they expect demand to soon pick up, once stock at their biggest customers has cleared up a little. It was revealed that the company’s CEO has been on a personal shopping spree of the stock, ever since Buffett made TSMC a top 10 hold late last year. Considering the environment I could not have asked for a better report and I am glad to feel rewarded for recently doubling down on this semiconductor play.
Microsoft on the other hand delivered what was clearly a weak quarter for what they usually deliver. While the stock is still recovering from its lows (rightfully so) there is no doubt that the drop in both enterprise and consumer spending, alongside forex, is hurting core parts of their business. But what I think is keeping the momentum up around Microsoft is its clear new focus on AI, powered by its investment in OpenAI. Microsoft was an early investor in the company and has now made another, much larger $10 billion further investment. They have also publicly announced their plans to integrate GPT4 (which powers ChatGPT) into many of their products, including Office and Bing. I will be keeping an eye on this development as I do believe proper integration of these AI tools in search, could hand over long-wanted market share from Google to Microsoft and possibly challenge my other investment there. My investment in Alphabet (Google) is however based largely on their lead in AI, so I do expect a quick reaction to this move.
3M (MMM), alongside Microsoft also delivered a disappointing earnings report. But unlike Microsoft, 3M does not have much else good going on. Lawsuits are still weighing heavy on the stock and a way out seems a continued challenge. Johnson & Johnson (JNJ) is in a similar situation and had their own appeal to spin off the troublesome parts of their business denied this month, just like 3M was told in court a few months ago. As I have said before, I hold onto my shares in 3M for now, but am not looking to buy more until the matter looks resolved.
But the earnings highlight of the month was of course Tesla (TSLA). I listened in live on the call and could not help but smile as any doubts or concerns were wiped away. After its much-discussed and controversial sudden product price drops in December, the company has seen demand go through the roof. Musk described it as ‘more than twice of current production capabilities’. Tesla’s energy storage business is finally getting dedicated battery production allocation, Semi truck production is doing well and expanding and Cybertruck is still on schedule for production this year.
While I consider all my current holdings to be high-quality businesses, well deserving of recovering in value after a horrific last year, I noticed how that has been the case across the board, even for companies not quite deserving of that title. I do worry that a recovery this big this fast will mean a repeat of recent history, leading to mindless market euphoria. I do believe reality will hit hard sooner or later, and all I have wished for over the last couple of years - even in good times, is stability in the form of lower volatility. On that note, 2023 did not start off well, but naturally, it is difficult to complain when things go the right way. But for now, I advise caution.
Research & Goals
I have been quite business with my exams in January, so outside of following earnings for my biggest holdings, I have not had the time to do much else. As mentioned in my 2022 Year in Review my investment strategy has shifted slightly, based on all that I have learned. That is part of why I in this journal now show my returns on a single chart, rather than having it split between the Growth and Dividend portfolios. I am still working on the investment framework I aim to follow for the time being and in time this site will begin to reflect that. For now, do not worry too much if things look different or change slightly - all will be explained in time.
Instead of sharing research of my own this time around, I leave you instead with a recent video published by TechAltar - one of the best creators making content on the overlap in technology and business. The video does a great job of summarizing much of the learnings I have made myself in understanding TSMC’s geopolitical situation.
The Watch List will return in a new and improved form soon, more in line with my new overall strategy. For now, I thank you for reading along and wish you a continued great year in the markets - although I do hope most for lowered volatility.
Disclaimer: I am not a financial advisor, the opinions expressed in this article are entirely my own – always invest at your own risk.
