THE STOCK MARKET IS ABOUT TO DO THE "UNTHINKABLE"

SUMMARY

Brandon, a seasoned investor, analyzes current stock market volatility and emphasizes the importance of focusing on earnings per share growth and intrinsic value. He advocates for disciplined, long-term investment strategies, highlighting opportunities in quality companies despite widespread market fear.

MAIN POINTS

• Retail investors are panicking as the market shifts from greed to extreme fear despite only a minor pullback from all-time highs. [1:00]
• Historical data shows that midterm election years typically see market weakness in June, but July and August are often stronger, with post-election periods providing more clarity for rallies. [4:00]
• The S&P 500's current earnings per share growth rate is 23%, more than double the historical average, justifying higher valuations and supporting a bullish long-term outlook. [7:00]
• Brandon details his current portfolio allocations, including sold puts on Micron and Google, and stresses patience and risk management even when positions are temporarily in the red. [10:00]
• He reviews his stock sheet, identifying undervalued opportunities like Google and Meta, and explains his scoring system for growth, moat, and execution risk. [13:00]
• Brandon concludes by reiterating the importance of buying quality companies at good prices, maintaining long-term positions, and not overreacting to short-term volatility. [15:00]

DETAILED ANALYSIS

Market sentiment has shifted rapidly from greed to extreme fear following a modest pullback from recent all-time highs, a pattern that often leads retail investors to make poor decisions by selling during volatility. Despite the emotional reactions seen across social media and financial news, the current correction is characterized as a healthy breather after a significant rally of over 30% in just a few months. Historically, such volatility is common during midterm election years, with June typically being weak but July and August offering stronger performance, and further clarity and potential rallies emerging after the election concludes.

Analysis of the S&P 500 reveals that, while the index remains slightly above its long-term earnings per share (EPS) growth trend, the gap is narrowing. The EPS growth rate for the S&P 500 currently stands at 23%, more than double the 50-year average of 10%. This robust growth helps to justify current valuations, with the forward price-to-earnings (P/E) ratio at around 20, only marginally above the 10-year average.

The implication is that the market is not excessively overvalued, especially when considering the strength of underlying earnings growth. Short-term market fluctuations are often driven by emotion, but over the long term, stock prices tend to follow EPS growth, creating opportunities for disciplined investors during periods of fear-driven selling.

Brandon provides transparency into his own portfolio, which includes large positions in major technology stocks such as Tesla, TSMC, Micron, Google, Microsoft, Meta, and Nvidia, as well as index ETFs like the S&P 500 and NASDAQ. He employs options strategies, particularly selling puts on companies he deems undervalued or fairly valued, such as Micron and Meta. For example, he sold long-dated puts on Micron at a $490 strike, collecting significant premium while maintaining a conservative risk profile.

He emphasizes that these are portfolio-secured puts, not cash-secured, allowing for efficient use of capital without undue margin risk. Even when some positions are temporarily in the red, he remains patient, focusing on the long-term growth prospects and intrinsic value of his holdings.

A detailed review of his stock sheet shows a clear preference for companies with strong growth, durable moats, and reasonable valuations. He avoids overvalued or speculative stocks, as indicated by his low scores for companies like Nike and Nokia. Instead, he highlights opportunities in Google, which is currently trading below his estimate of intrinsic value, and maintains bullish positions in Meta, Nvidia, and Microsoft.

He also maintains a modest allocation to bonds for diversification. His scoring system evaluates growth potential, competitive moat, execution risk, and economic context, guiding his allocation decisions.

Brandon's overarching message is to avoid overcomplicating market volatility and to resist the urge to react emotionally to short-term swings. He advises investors to focus on acquiring quality companies at attractive prices, using long-duration options strategies, and maintaining proper risk management ratios. He remains cautiously optimistic, rating his current market outlook at 6.8 out of 10, and is prepared to increase allocations if the market corrects further toward fair value.

Ultimately, he stresses that long-term discipline and adherence to fundamentals are key to successful investing, regardless of short-term market noise.

LINKS

• 10 Day Stocks & Options Transformation and Discord access
• Video explaining how stock options really work
• Brandon's X (Twitter) profile
• Weekly investing newsletter subscription

KEYWORDS