In this market environment, beware of reckless speculating; AppLovin is down 40% in two weeks; The importance of getting eight hours of sleep
1) The vast majority of the time, I avoid making big market calls...
It's usually only a few times a decade when I decide the market is so ripe for a fall – or rebound – that I do so.
But one thing I always preach is: Don't recklessly speculate.
It's so tempting to try to get rich quick, but it's the surest way to get poor quickly.
This is especially true today, when markets are richly valued and there's so much uncertainty in the world.
Here are two recent examples of how speculators have gotten burned...
The first is in a recent Bloomberg article: Wall Street Gamblers Get Crushed as Leveraged ETF Losses Hit 40%. Excerpt:
They were all the rage on the way up: high-risk, high-return exchange-traded funds, minted in bulk by Wall Street product managers in the euphoria of the post-election bull market.
Now these speculative products are dealing their owners a gut punch after a series of disappointing economic reports and anxiety over U.S. trade policy have put a brake on risk tolerance across the markets.
From leveraged bets on highly-valued tech companies to esoteric option plays and all manner of cryptocurrency flyers, the selloff that has sent major U.S. stock indexes down for four straight days is being felt the most in fringe ETFs that have been popular among retail traders.
In one stark example, two levered ETFs tied to Michael Saylor's Bitcoin-hoarding company Strategy, which were together worth more than $5 billion at one point, are down about 40% in three days. Leveraged funds, promising two times the daily performance of Nvidia Corp., Tesla Inc., Amazon.com Inc. have tumbled. Triple-leveraged bets on innovation and semiconductor stocks have slid 20%.
And look what has happened to those who bought silly cryptocurrency "meme coins" (charts courtesy of Charlie Bilello's recent Week in Charts blog post):
2) Don't speculate in frothy stocks, either...
For example, I warned my readers about software maker AppLovin (APP) in my February 3 e-mail (the stock closed at $365.44 per share that day):
There are three reasons why my "spidey sense" leads me to this snap judgement...
First, the totally stupid name: AppLovin?! Please... (For another example, see the U.K. online retailer in the FT chart above targeted by ShadowFall: Boohoo.) Just about every company I've ever seen with a goofy name has been a failure – the only exception I can think of is Lululemon Athletica (LULU).
Second, the stock chart: Two years ago, this stock was around $10. It closed last Friday at $369.59... That just screams "bubble!"
And as I continued regarding the stock's wild valuation:
After its more than 3,500% gain in two years, AppLovin trades at 30 times trailing revenues, 64 times enterprise value to EBITDA, and 112 times earnings per share. As of last Friday, its $124 billion market cap is higher than that of Starbucks (SBUX), Nike (NKE), Lockheed Martin (LMT), and United Parcel Service (UPS)...
I would bet a lot of money that those four blue-chip stocks end up outperforming AppLovin.
Soon thereafter, AppLovin reported strong earnings and the stock spiked to more than $500 per share. This led to some readers giving me flak, but I wasn't deterred...
As I wrote in my February 18 e-mail, when AppLovin peaked at nearly $520 per share:
With the stock now trading at 37 times revenue, I feel even more strongly that it's one to avoid.
Sure enough, in just over two weeks since then, the stock has crashed by nearly 40% to close yesterday at $318 per share.
Now trading at 24 times revenue, it's still wildly overvalued. Continue to avoid it...
3) Running for mayor of New York City is the most stressful thing I've ever done – though mostly in a good way. I love meeting people, learning, developing ideas, and sparring with the media and other candidates.
But it's intense – and definitely affecting my sleep.
So that's why, now more than ever, I'm monitoring my sleep – and I'm always seeking out more articles and information on how to improve it.
In past e-mails, I've written at length about the importance of getting at least eight hours of sleep each night. And I feel even more strongly about this after reading this 2021 New York Times article about a study linking a lack of sleep to dementia, especially since there's a history of this terrible illness in my family: Sleeping Too Little in Middle Age May Increase Dementia Risk, Study Finds. Excerpt:
For years, researchers have pondered this and other questions about how sleep relates to cognitive decline. Answers have been elusive because it is hard to know if insufficient sleep is a symptom of the brain changes that underlie dementia – or if it can actually help cause those changes.
Now, a large new study reports some of the most persuasive findings yet to suggest that people who don't get enough sleep in their 50s and 60s may be more likely to develop dementia when they are older.
The research, published Tuesday in the journal Nature Communications, has limitations but also several strengths. It followed nearly 8,000 people in Britain for about 25 years, beginning when they were 50 years old. It found that those who consistently reported sleeping six hours or less on an average weeknight were about 30 percent more likely than people who regularly got seven hours [of] sleep (defined as "normal" sleep in the study) to be diagnosed with dementia nearly three decades later.
I also enjoyed this article, I Once Tried to Cheat Sleep, and For a Year I Succeeded. It's written by a guy who, in graduate school, adopted a "polyphasic" sleep schedule. He restricted himself to only 4.5 hours of sleep per day: 3.5 hours at night plus three 20-minute naps. As he explained, it worked initially:
The extra time was proving to be a wonderful benefit: I finished my first-year thesis; successfully defended it; decided that after finishing my doctorate I didn't want to be in academia for the rest of my life; got a chance to explore Oxford University's wonderful offerings without sacrificing on lab time; started exploring other career options, including writing, which eventually led me to become a journalist.
There were other gains. I found myself waking up fully refreshed after a nap. Quite often, before the alarm began ringing. The best bit was that I was benefitting from that superb early-morning blank mind four times a day instead of just once.
Others who've tried polyphasic sleeping had mentioned similar benefits. But what really surprised me was that I had managed to do something that seemed impossible going in.
But eventually he abandoned it, for reasons I think are sound:
Would I do it again? Perhaps, if I can find enough motivation for a large, well-defined project, such as writing a book. But I won't do it for more than a few months, because there is a biological purpose of sleep that has only become clear in the last few years.
All the cells in our body require nutrients and produce waste. Blood vessels supply these nutrients throughout the body, and lymphatic vessels collect the waste from all parts of the body except the brain.
That waste, recent studies have shown, is cleared by the cerebrospinal fluid, which acts like the lymphatic system but does the job more effectively in the tight space inside the skull. What is more important, however, is that this waste clearance only happens while sleeping.
This is the most compelling answer to the question why sleep is so important to the normal functioning of the brain. Until I see studies that say that a polyphasic pattern does not affect this waste clearance system, I won't be returning to polyphasic sleeping on a long-term basis. But I don't regret the experiment I ran fueled with my youthful spirit.
Lastly, here's an interesting and troubling article from 2021 about how sleep deprivation especially afflicts the poor and minorities: The great sleep divide. Excerpt:
On average, the poor live less healthy lives and are more than three times as likely to die prematurely as the rich. That's true for many well-documented reasons, including less healthy diets with too much processed food, polluted neighborhoods and a lot more toxic stress. In recent years, however, researchers have added one more factor to this mix: It turns out that the poor, as well as socially disadvantaged racial minorities, sleep much less well on average than the rich, which can take a major toll on their physical and mental health.
"We used to think that sleep problems were limited to Type A professionals, and they certainly aren't immune, but low-income individuals and racial minorities are actually at greatest risk," says Wendy Troxel, a senior behavioral and social scientist at the RAND Corporation, who coauthored an analysis of socioeconomic disparities in sleep and health in the 2020 Annual Review of Public Health.
And as the article continues:
Inadequate sleep among low-income adults and racial minorities contributes to higher rates of illnesses, including cardiovascular disease and dementia, both of which are more common among these groups, Troxel and her coauthors point out. One study they cite attributes more than half of the differences in health outcomes between whites and Blacks, for example, to differences in quantity or quality of sleep. You might think of this as the great sleep divide.
So make sure you're getting enough sleep, especially as you get older!
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.