looking at a chart of Roku (ROKU)

I’ve just been looking at a chart of ROKU. I had a ROKU box years ago and own a tv with Roku installed. Otherwise, I know very little about the company.

The stock was $160 two years+ ago, in early November 2019. It entered 2020 at $121, before falling to $87 during the worst of the covid market panic in March.

It exited 2020 at $389 and peaked–intraday–at $490 in July 2021, less than half a year ago.

It’s $107 as I’m writing this, down 26% on the day, after reporting disappointing earnings overnight. That’s a total fall of 78%, during a time the S&P is off by about 5% and NASDAQ a bit less than 10%.

The issues, which I probably don’t understand fully, are that: there’s a supply chain-related slowdown in the manufacture of tvs with Roku inside them; advertisers of consumer goods, faced with similar shortages, think (duh!) that it’s foolish to advertise to create extra demand for the goods they don’t have to sell; and other streaming tv services are parts of conglomerates that can prop them up in bad times, whereas Roku is out there alone as a pure play.

None of this is exactly news.

Why, then, is the stock falling so sharply?

Part of this, I think, is the way AI works, that it increases selling speed and power until it meets resistance. Potential buyers have learned to step out of the way and let the steamroller eventually run out of fuel.

Perhaps a more important part is how the discounting mechanism works across a market cycle. In good times, when economic skies are blue and stock prices are rising, investors become increasingly willing to factor into today’s prices earnings that will only come years in the future. In an average market, investors in the US tend to begin to look at next year’s earnings in June or July. At market highs, investors typically are willing to look two or even three years ahead.

In a bad, i.e., downtrending, market, this process shifts into reverse. At or near market bottoms, investors are no longer interested in the future (unless it’s bad) and are therefore only willing to discount yesterday’s earnings into prices. As estimates turn into actuals, stocks get pounded again, even on small shortfalls. No credit any more for possible future plusses; punishment, however, for future minuses. The latter are discounted and re-discounted repeatedly.

I started out as a portfolio manager being a value investor–good at down markets and not so great in up ones. After migrating to international markets, I found I’d somehow turned into a growth investor, i.e., good in up markets and not so hot in down ones. This is a preface to–how to defend yourself in a down market.

First of all, my assessment is that it’s too late (maybe this is my hope) for a serious overhaul of holdings. For what it’s worth, and for future reference, though, there are several simple defensive things one can do:

–get the portfolio to look more like the market, meaning reducing concentration by having exposure in most/all sectors, and by having more positions to lessen the pain from the inevitable stock-specific blowups

–gravitate away from startups and toward larger, more mature companies

–on an individual company basis, the risks of negative cash flow or earnings and also of high financial leverage, are greater in stormy economic waters. All other things being equal, then, positive cash flow and lower financial leverage should be prioritized

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