TQQQ: Patience Is A Virtue

BeanKounter Capital profile picture
BeanKounter Capital
3.82K Followers

Summary

  • The last week has been a wild one, filled with earnings reports and wild swings for several of TQQQ's largest holdings.
  • Facebook and Amazon both had double-digit moves in a single day.
  • Google announces a 20:1 split.
  • Investors with TQQQ on their watchlist should be patient and wait until they see blood in the streets.

time is ticking - hourglass on the table with copy space

ronstik/iStock via Getty Images

I wrote my previous article on TQQQ (NASDAQ:TQQQ) when it was close to all-time highs. I mentioned that I'm planning to buy a small piece of TQQQ in 2022 and was waiting for a significant correction. Since that article, TQQQ is down over 30% and QQQ is just over 10% off all-time highs. I still haven't seen the panic and hysteria that would be the buy signal I'm looking for. I have been watching the big tech companies report earnings recently, and I wanted to touch briefly on several big tech earnings reports and some of the wild double digit moves that followed.

Amazon: Technically A Beat

Amazon (AMZN) had a huge beat on earnings, primarily driven by its stake in Rivian (RIVN). Not really sure what investors see in Rivian right now, as I've never actually seen one of their cars in person, and they are basically a pre-revenue company with a market cap over $50B. One piece of news that I found interesting was the Prime price hike, which is definitely something you like to see as a shareholder. Anyway, some algorithms or programs decided Amazon's beat was a reason to buy, buy, buy, and shares were up over 13% today. That's a move of well over $100B in market cap, but we are basically back to where we were a couple weeks ago with the share price.

Facebook: A Complete Dumpster Fire

As I'm sure many of you have seen over the last week, Facebook (FB) reported disappointing earnings proving that it's at risk of becoming social media for old people. I have coached a couple high school age teams for several years, and from talking with my players, they don't have a Facebook at all, or have one and simply don't use it. They favor Snapchat (SNAP) or TikTok.

Facebook can pitch the Metaverse all they want, but at the end of the day, Facebook is the most replaceable big tech company. Investors woke up to that fact abruptly, sending shares off the cliff by more than 26%, wiping over $200B off the market cap in a day. Instagram could be the saving grace for the company, but I don't think Facebook is a buy or a sell right now. In my opinion, Facebook doesn't do itself any PR favors either, with a history of questionable businesses practices at best. I'm not going to call Facebook a value trap, but I don't think it's worth over $800B.

Google: A Big Swinging 20:1 Split

Google (GOOG) (GOOGL), the other half of the Silicon Valley advertising duopoly, reported blowout earnings and a 20:1 split. Everyone knows that this doesn't actually do anything to the value of the company, but splits tend to send the shares up, and Wednesday was no exception for Google. We might see increased options volume, but the split doesn't do anything for the fundamentals. Shares were up over 7%, and the market cap is approaching $2T. Google is still printing money, and the valuation isn't absurd, but it's not cheap either. I won't own it, but it definitely fits in the quality and/or growth at a reasonable price category.

The Rest

I won't go into as much detail on the rest, but you have Apple (AAPL), Microsoft (MSFT), Tesla (TSLA), Nvidia (NVDA), Adobe (ADBE), and PayPal (PYPL) rounding out the top 10. All of these companies are trading at rich valuations, with some more extreme than others. They might not all be sells, but Tesla is fully detached from reality and the rest are very expensive. I think that prudent investors should keep TQQQ on the watchlist but continue to exercise patience.

Conclusion

I don't really want to put money into TQQQ when you have trillion-dollar companies trading like volatile cryptocurrency alt coins. I'm not bullish or bearish, but 3x leveraged ETFs are a double-edged sword that investors should only make a small allocation to, ideally when there is already blood in the streets and fear in the mainstream business media. I think it will happen at some point in 2022, but we aren't quite there yet. Patience is a virtue, and investors interested in TQQQ should stay on the sidelines for now.

This article was written by

BeanKounter Capital profile picture
3.82K Followers
CPA and former Big 4 auditor. I break down investments in qualitative and quantitative terms, and I look for investments that will compound my money over the long term.

Disclosure: I/we have a beneficial long position in the shares of AMZN either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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