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It’s not often that we highlight our trading proceeds. We mainly invest, but throughout the year we do a consistent job managing risk and capitalizing on profitable opportunities.

Last week $AVGO gave us the trade of the week!

• Recent news on $AVGO if you were sleeping under a rock.

  • Earning Insights

  • Broadcom hits trillion-dollar valuation on lofty forecasts for AI demand - more here.

There has been great success with other trades and investments that were alerted in our Discord.

$CHWY $20 to $32
$PLTR $18 to $80
$SMCI $18 to $45

to name a few! JOIN OUR TRADING DISCORD.

While trading is great, when unique investment opportunities become available it’s important to check it out!

Add a piece of the energy sector to your portfolio.

• Access to 300 million barrels of recoverable oil reserves

• Royalty-based investment model reducing operational risks

• Projected 25+ years of potential royalty income

Join the Raise

Our friends at The Motley Fool had a great read on the state of the market. I really want to reiterate a few things.

Key Insights

1. A Historical Warning

• The Shiller P/E ratio (CAPE Ratio), which adjusts earnings over a 10-year inflation-adjusted average, is currently at 38.55, far above the historical average of 17.19.

• Historically, when this ratio surpasses 30, it has preceded significant market declines:

  • 1929: Dow dropped 89%.

  • 2000: Nasdaq fell 78%.

  • 2020: COVID crash saw the S&P 500 fall 33%.

• Current Scenario: The ratio has been above 30 since November 2023, indicating the potential for a market correction.

2. Long-Term Market Resilience

• Despite short-term warnings, historical data from Crestmont Research shows all 105 rolling 20-year periods from 1900-2023 delivered positive returns.

• Nearly half of these periods yielded annualized total returns between 9% and 17.1%, beating other asset classes like gold, bonds, and real estate.

What This Means for Investors

• Short-Term Risk: Elevated valuations suggest caution for those focused on near-term gains. Market corrections after Shiller P/E peaks have been unavoidable.

• Long-Term Opportunity: Investors with a 20-year horizon have consistently been rewarded. Market dips may represent buying opportunities for quality assets.

Is Nvidia undervalued?

How could Nvidia, the largest company in the world, with a staggering $3.4 trillion market cap, powering the most transformative technology the world has ever seen, be undervalued?

For billionaire tech oracle Masayoshi Son, the answer is actually quite simple: “Because the future is much bigger.”

But here’s the thing - AI is more than Nvidia. That’s really just the tip of the iceberg. The real story is a massive web of interconnected companies driving innovation from every angle:

• Energy giants feeding AI’s insatiable appetite 

• Semiconductor stalwarts building the foundation 

• Tech innovators adapting AI to transform industries

In 2005, The Motley Fool saw the writing on the wall when they recommended Nvidia. Since that recommendation, Nvidia is up 85,277% as of 12/12/24. AKA life-changing money. 

And now, to pinpoint the prime opportunities in AI’s phase two, Motley Fool Stock Advisor put together their most expansive AI research bundle yet - a collection of four exclusive reports detailing their favorite artificial intelligence prospects to invest in right now, including fourteen unique stock recommendations.

Get access to The Motley Fool’s AI research bundle here.

Our Approach at Simplify Wall Street

In markets like the one described above, where valuations are stretched and the risk of a downturn looms, balance and understanding your key levels are critical for managing investments and protecting your portfolio. Here's how you can approach it:

Focus on Balance: Allocating Cash, Investments, and Hedging

1. Avoid Timing the Perfect Bottom

   • Waiting for the "absolute bottom" can leave you sidelined and missing out on recovery opportunities.

   • Instead, adopt a tiered buying approach: Identify key levels at which you’d like to invest incrementally, ensuring you’re participating if the market rebounds sooner than expected.

2. Standard Allocation Strategy (customize based on risk tolerance):

   • 30% Cash Reserve

     • Use this for emergencies, opportunities in alternative investments, or as dry powder to deploy if markets drop significantly.

     • This cash reserve is also critical for exploring options like commercial real estate, private investments, or starting a business during economic downturns when asset prices are often more favorable.

   • 40% Long-Term Investments

     • Allocate for quality stocks or index funds that you plan to hold for 10–20 years.

     • Focus on dividend-paying stocks, large-cap growth companies, or sectors with secular growth trends (e.g., AI, green energy).

     • Buy incrementally at your predefined price levels rather than all at once.

   • 20% Trading and Hedging

     • Use this for short-term trades, options strategies, or hedges like inverse ETFs (e.g., SH or SQQQ).

     • Hedging can help offset some losses in a downturn while keeping you involved in market movements.

     • Keep these trades disciplined, avoiding emotional decisions.

3. 10% Opportunistic Allocation (Optional)

   • Set aside funds for alternative opportunities that may arise:

     • Commercial real estate: Post-downturns often bring property values to attractive levels.

     • Business ventures: Starting or acquiring a business during recessions can offer favorable terms.

     • Precious metals or bonds: Diversify into lower-risk asset classes that perform well in turbulent times.

Steps to Prepare for a Market with Elevated Risk

1. Define Your Key Levels

   • Set price targets for adding to your long-term positions based on valuation metrics or technical levels (e.g., support zones or historical averages).

   • Volume profile is very useful and understanding moving averages.

2. Maintain Liquidity

   • Cash isn’t just for buying the dip—it’s for flexibility. Keep enough cash to:

     • Cover 3–6 months of expenses for personal security.

     • Take advantage of non-equity opportunities that arise during downturns.

     • Add to investments or fund hedging strategies.

3. Diversify Across Asset Classes

   • Avoid putting all your resources into stocks. A balanced portfolio includes:

     • Equities: Core holdings, balanced between growth and defensive sectors.

     • Fixed Income: Bonds or Treasury bills, particularly if yields rise during downturns.

     • Alternatives: Real estate, commodities (e.g., gold), or private equity.

4. Plan Your Entry Points

   • Use a tiered system to invest incrementally as prices decline, rather than all at once. For instance:

     • Allocate 20% of your investment budget at a 10% dip, another 20% at a 15% dip, and so on.

     • Keep a portion available for further dips, but don’t over-wait for a mythical bottom.

5. Stay Hedged and Balanced

   • Incorporate strategies like put options or inverse ETFs to hedge against sharp drops.

   • Alternatively, focus on defensive stocks (e.g., healthcare or consumer staples) that tend to hold up better in downturns.

Additional Considerations for Prepping in Today’s Market

• Volatility Is Opportunity: Higher volatility often means better pricing for long-term assets. Use this to your advantage without overextending.

• Review Your Asset Allocation Regularly: Rebalance your portfolio to maintain your target allocations, especially after large market moves.

• Be Patient but Prepared: Balance optimism for a recovery with realistic expectations of short-term turbulence. Stick to your plan.

Catch Up On Readings Here.