Q1 2025 Updated Interest List
Additions, Deletions, and Q1 performance overview
As most subscribers know I work on individual stock ideas and tend to avoid making many comments related to the general condition of the overall stock market (there are countless and better sources for those), but I believe characterizing the market in Q1 as volatile wouldn’t be too much of a stretch. Though the Dow (DJI) may have managed to avoid much of a loss, the same can’t be said for both the tech-heavy large-cap NASDAQ 100 (NDX) or the more diversified smaller-cap Russell 2000 (IWM) which lost in the neighborhood of 10% after being up close to 5% for much of the quarter.
This sort of backdrop can make anyone pitching Short Ideas look like a genius, myself included. Though I am always looking for ideas that I can see declining 50% or more over a 2-year period of time regardless of what the market does, I do realize that if the overall market likewise declines 50% then the value I add may be somewhat limited. The above scenario is why I actually prefer pitching Short Ideas in a bull market where the value I am adding is much easier to spot.
The following table, in chronological order, highlights all of the names on which I have commented (some names received multiple comments so only the first is highlighted) over the past quarter along with a couple of names I will be removing from my interest list and their relative performance. For comparison purposes, I am adding the IWM (Russell 2000 index ETF) as a benchmark rather than the Dow, NASDAQ, or S&P simply because my names tend to be similarly sized. I am also introducing a simplified measure of Alpha for some comparison as well.
Of the 6 new names I highlighted over the last quarter (those names are in BOLD), 4 are currently outperforming (have a negative simple alpha) to some degree, 1 is down but slightly underperforming, and the most recent idea is actually a bit higher. Some names can take time for the thesis to play itself out, especially the most recent name that has a regulatory element involved. All of the older names are down.
The “Simple Alpha” I use (a measure of performance over a benchmark) is a simplified version of the widely-used performance measure and is for illustrative purposes only since it fails to account for either a company’s Beta or a risk-free rate. The calculation I use is simply the performance of the highlighted idea less the performance of the IWM benchmark over the same time period.
(Since I am writing about Short Ideas, a negative number is considered Outperformance while a positive number is Underperformance. In my case, a big negative number is desired.)
As an example, let’s use the oldest name on the list, Fluence Energy (FLNC). It was an $18 stock back on 12/22/2022 when I first mentioned the name, and on that date the IWM closed at a (dividend adjusted) price of $168.68. So since that date, shares of FLNC are down -73% while the IMW is up 18% leading to a simple alpha or outperformance of the benchmark of -91% (not annualized). As is often the case, if you had much better timing than me and simply ignored me chatting about this name for the first couple of years but rather chose to tune in and act when I commented that another one of their installations went up in smoke earlier this year, you could have captured most of the move in a fraction of the time and without the intervening heartache.
But that’s just how it sometimes works.