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DISCLAIMER
This report by Adam Khoo, Adam Khoo Learning Technologies Group Pte Ltd and Piranha
Ltd. is in no way a solicitation or offer to sell securities or investment advisory services.
Adam Khoo, Adam Khoo Learning Technologies Group Pte Ltd and Piranha Ltd. is not
intended to be a source for professional advice. Participants should always seek the advice
of an appropriately qualified professional before making any investment decisions.

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information, is obtained from sources which we, and our suppliers believe reliable, but we do
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imply that past results are an indication of future performance. Neither we nor our
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Various factors could cause actual results or performance to differ materially from those
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as to accuracy, completeness, or results obtained from any information presented in the
report and its accompanying course material.

8 JUNE 2023
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7 June 2023

Dear Investors and Traders,

S&P 500 Confirms Bull Market and Breaks Out

Investors who listened to the old saying “Sell in May and go away” and got out of the
markets are no doubt kicking themselves. The month of May turned out to be another very
bullish month as a debt ceiling crisis was resolved in time. A strong US jobs report (May
Non-Farm Payrolls soared to 339,000, way above the 195,000 estimate) and better than
expected consumer spending data allayed fears of a possible recession.

The S&P 500 finally broke above the significant 4,200 level of resistance and closed more
than 20% above its 2022 October lows, officially confirming the Bull market. With the
Nasdaq 100 and S&P 500 in an official bull market, all that’s left is the Dow Jones Industrial
Index to join the party.

Recall that last year it was the Nasdaq 100 that entered the Bear market first followed by the
S&P 500 and finally the Dow Jones. So, it is befitting that they enter a bull market in the
same exact sequence.

S&P 500 Weekly Candles

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Year to date, the Nasdaq (NDX) has been the best performing index up +34%, followed by
the S&P 500 (SPX) which is up +10.9%. The Dow Jones is the worst performing major
index, up +1.29%.

Remember that it was a completely opposite scenario last year. In 2022, the Nasdaq 100 was
the worst performing index followed by the S&P 500 and the Dow Jones was the best
performing index. This is why investors should never make investment decisions by looking
at the rearview mirror and thinking in a linear fashion.

Many investors often make the mistake of buying what has recently performed well and
selling what has recently performed badly. This is called ‘chasing performance’. Many
amateur investors made the huge mistake of selling Nasdaq stocks (i.e. tech stocks) at the end
of last year after a bad performance and buying into Dow Jones stocks (i.e. financials, energy,
consumer staples, healthcare) which performed relatively better. The result? They get stuck
with a +1.29% return on the Dow this year while the tech-heavy Nasdaq 100 skyrockets
+34%!

The lesson to learn is to think in a cyclical fashion and not a linear fashion when it comes to
investing. Often times, the sectors that perform the worst in a bear market tends to perform
the best in the following bull market (e.g. Technology, Consumer Discretionary,
Communications). Conversely, the sectors that perform the best in a bear market tend to
perform the worst in the following bull market (e.g. Energy, Utilities, Consumer Staples).

Nasdaq 100, S&P 500 and Dow Jones Industrials Index Year to Date
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Patience and Confidence in High Quality Stocks Pays Off

For those of you who entered the stock market for the first-time last year, I can understand
that it was a shocking baptism of fire. It was not psychologically easy to see even the high
quality stocks you own decline by 20% to even 70% (like Meta). When you do not
understand the underlying businesses of the stock you own or understand their intrinsic
values, it is easy to panic like everyone else.

Many untrained and ignorant investors were influenced by the prophets of doom to get out of
the markets. They were told that the markets would crash even further and would take years
to recover because of the inverted yield curve, inevitable recession, bank crisis, commercial
real estate crash, rising interest rates, sticky inflation and collapsing money supply blah blah
blah.

I’m very proud of all of you in the community who learnt to ignore the ‘macro noise’ and
continued to hold and add more shares of the high-quality businesses we invested in. You
kept the faith and stuck to your investment plan, and today you can see the rewards of staying
invested! Great to see everyone sharing their investment experiences in the community!
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Can Stocks Continue to Run for the Rest of the Year?

After a 10% gain, does the S&P 500 still have room to run for the rest of the year? As usual,
experts are divided. While I cannot predict the short-term direction of the stock market any
better than you can, I like to study history to look at probabilities.

From the table below (Source: Carson Research, Factset), you see that
After a negative year (S&P 500 was down -19.3% in 2022), the probability that the following
year will be positive is 80%. The average return is 15% on the year after a negative year.
So, it is very possible that we have another 5% more gains for the rest of the year. The fact
that this is the 3rd Year of the US Presidential Term (Pre-Election Year), increases the bullish
odds.

The S&P 500 has also gained over 20% since the bear market lows in October 2022. In the
table below, you can see that over 14 similar occurrences (since 1950), the S&P 500 was up
11/14 times (78.5%) 6 months later, and up 13/14 times (92%) 12 months later. So, historical
probabilities suggest that we have a higher chance staying and going up than reverting back
down.
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Healthy Corrections Should be Expected

While there are likely more gains to come for the rest of the year, remember that prices do
not go up in a straight line. They move in wave up (impulsive) and wave down (corrective)
patterns. After pushing higher, prices tend to correct back down to support levels /moving
averages before the next up thrust.

These corrections/pullbacks are healthy and give us a chance to add shares of our favourite
stocks and to sell cash secured puts (if it is part of your strategy). We can never predict for
certain when the corrections will occur or how long they will last. We just need to be patient
and take action when they do occur. As long as prices are waving up, I just sit tight and do
nothing. I avoid chasing and adding shares like what most amateurs do.

Note: The green line drawn is purely for illustrative purposes and not meant to be any sort of
prediction of future price movement.

Some of the mega-tech stocks that have been the best performers so far this year (e.g. META,
AAPL, GOOGL, MSFT, NOW etc…) have moved far above their moving averages
(20EMA, 40EMA) and do seem ripe for a pullback soon.

Alphabet (GOOGL) Daily Candles

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Staying Invested in High Quality Stocks

through the Ups and Downs Allows you to Outperform the Market Over time

It seems tempting to sell stocks when they are extended with the hopes of buying them back
when they have corrected back down to support. However, the problem is that there is no
way to predict for certain where the top is or when to get back in before they start flying back
up again.

There were many instances in the past when I sold high quality stocks that were overextended
and overvalued, hoping to buy them back when they got cheaper after a correction. However,
before I could get a chance to re-enter at a lower price, they would move up rapidly without
me.

Looking back, had I simply held onto high quality stocks like Apple (AAPL), Microsoft
(MSFT), Meta (META), Adobe (ADBE) etc…over the last 10-20 years, through the ups and
downs, I would have experienced much higher gains in my portfolio. Trading in and out of
these stocks with the hope of selling high and buying back low actually reduced the returns of
my portfolio over the long run.

As a result, I continue to hold onto high quality stocks even though they may be extended or
slightly overvalued in the short-term. When they do correct downwards, I add shares to
further build my position if I do not yet have a full position.

Although META is up +125% year to date and extended above the 20EMA and 50MA, I am
not selling any of my stocks. This is because it is still undervalued (my intrinsic value range
is $285 to $319) and I believe that is still a long runway for this business in the future.

Meta Platforms (META) Daily Candles

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Although META is up +125% year to date and extended above the 20EMA and 50MA, I am
not selling any of my position. This is because it is still undervalued (my intrinsic value range
is $285 to $319) and I believe that is still a long runway for this business in the future.

AAPL is also technically overextended and slightly overvalued by 19% (my intrinsic value is
$150). While I do expect a healthy correction in the next few months, I am holding onto my
position. I will add more to my position if the price can get back below $150 (when it
happens is something I am unable to predict).

Apple (AAPL) Daily Candles

But… I Will Sell When Stocks Get Extremely Overvalued

However, when a high-quality stock gets extremely overvalued (more than 50% to 100%
overvalued) and overextended, I will sell at least half my position. This is the case with
Nvidia (NVDA). My most optimistic valuation for NVDA is $220 (assuming a 37% growth
rate). The excitement in AI has driven the market price of NVDA to $420 (90% overvalued)
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On 31 May, I sent an alert to UIP subscribers that I was selling my first tranche at $410. On 6
June, I sold another tranche at $390. At an average purchase cost of $150, it was a nice
+160%++ return in less than a year. In total, I have sold slightly more than half my position
and still holding on to the other half.

Even though a stock like NVDA is 90% overvalued, it does not mean that it cannot keep
going even higher in the short-term. Remember that in the short term, stock prices are driven
by emotions and not logic.

During times of fear (last year), prices can get ridiculously undervalued (e.g. META got
70%+ undervalued in 2022). These are the times we take advantage of huge mis-pricings and
buy aggressively. We can never predict the absolutely bottom and that is why we buy slowly
in tranches to average in our position. As long as we buy high quality stocks when
undervalued, we have done our job as investors. If prices go lower in the short-term, we must
have no regrets. Eventually, prices will start to move up and reflect the true value of the
business. Eventually shares will be worth many multiple of what we have paid.

Conversely, in times of excitement, prices can get ridiculously overvalued as more and more
people jump onto the bus from the Fear of Missing Out (FOMO). Even though NVDA is
90% overvalued, nothing says it could not get 200% overvalued.

I can never pick the top of a bubble and that is why I slowly scale out in tranches when prices
get extremely overvalued (50% to 100% overpriced) and when prices go parabolic. As long
as I follow these rational rules, I have done my job as an investor. Even if the price goes
much higher in the short-term, I will have zero regrets. Over time, prices will revert back to
their moving averages and nearer their fair values.
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The Seasonally Weak May to October Period

In last month’s newsletter, I pointed out that we will be entering the seasonally weak May to
October period, hence the old saying “Sell in May and go away”. However, if you look at the
actual historical data, you will notice that the weakness actually tends to be in the month of
June, August and September. Markets then tend to rally strongly from October to the end of
the year.

Remember that this is just a seasonal pattern and does not always play out exactly every year.
This should not be used to time or predict the markets. It is information to help us get an idea
of what may happen. So, when we do see the market go through a correction in the coming
months, we know that it is part of the cycle and we can use these opportunities to load up on
stocks in our portfolio/watchlist if we do not yet have a full allocation.

Legendary Trader Larry Williams (who specializes in market cycles) shared his 2023 Cycle
Road map recently shown below. The red line is the 2023 forecast and the black candles are
the actual prices of 2023. So far, it’s been pretty close. Will be interesting to see if his cycle
forecast plays out… weakness from June to Mid-July, then bullish all the way to year end.
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Are There Any Bargains Left?

The majority of 2023 gains have come from 3 sectors, technology, communication services
and consumer cyclicals (discretionary). We loaded up these 3 sector stocks in 2022 when
they were huge bargains. This year, they are the sectors that are driving the majority of our
gains.

To look for bargains, we need to look at sectors/specific stocks that have not yet participated
in this rally. We can start to add them to our portfolios before they join the party. Eventually,
as the bull market continues, the rest of the sectors will play catchup.

From the table above, you can see that the underperforming sectors this year are energy,
utilities, consumer defensives and healthcare. Personally, I do not like to invest in energy
and utility stocks (for reasons explained in the Value Momentum Investing Course and
Wealth Academy Masterclass). So, my focus has been on adding Healthcare and Consumer
Defensives (Staples).

This is NOT a recommendation to buy/sell any of the mentioned securities. Every investor has
different investment objectives, investment timeframes and risk tolerances and must always
do their own research before making any investment decisions.

These are some of the healthcare stocks I am watching:

Elevance Health Inc (ELV). Intrinsic value range $548 to $582

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Thermo Fisher Inc (TMO). Intrinsic value range $554 to $619

Abbott Laboratories (ABT). Intrinsic value $111

As taught in the Value Momentum Investing Course and Wealth Academy Masterclass, my
strategy is to add shares in 3-4 tranches when price is undervalued (below the intrinsic value
line in green) and retraces to support levels (black lines). I add in tranches until I have a full
position in the portfolio. For example, a full position would be a 5% allocation for a 20-stock
portfolio.
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Remember that you can subscribe to the Ultimate Investors Playbook (UIP)
(insight.piranhaprofits.com) to get monthly reviews and updates to intrinsic values and
support levels for all the stocks in my portfolio and watchlist. You can also access my deep
dive research into all the top 1% of stocks in the US markets.

These are some of the Consumer Defensive (Staple) stocks I am watching:

Proctor & Gamble (PG). Intrinsic value $146

Pepsico (PEP). Intrinsic value $179

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Small Cap Stocks Going to Play Catchup!

In last month’s May Investment newsletter, I also highlighted that small cap stocks were very
cheap, relative to the large cap stocks found in the S&P 500. There were many great bargains
we could find within the small cap stock universe (stocks with Market Capitalization below
$10 billion) and we could buy them before they catch up with the rest of the market.

I also shared that we should only look for small cap stocks with the following attributes…

1) Revenue, Net Income and Free Cash Flow Growth at least 10% over last 5 years
2) Narrow economic moat at least
3) Strong balance sheet (Debt/EBITDA less than 3, Debt/Equity less than 1 for small caps)
4) ROE and ROIC above 12%

A screen on Gurusfocus.com showed all the potential stocks below that met these basic
criteria.

Upon further deep dive research by our UIP research team, we found that one of the highest
quality names was Winnebago Industries (WGO). The intrinsic value I calculated was $123
and at the time, the stock was selling at $58+, a 50% discount!
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So, I sold all my YUM Brands stock (which was quite overvalued) and reinvested the
proceeds into WGO at $58.89 as well as Pool Corp (POOL), another undervalued industrial
stock (but this is a large cap).

You can see my intrinsic value calculation for WGO using a discounted free cash flow
method with a very conservative growth rate of only 5.3%. There are many more bargains in
the market and I will be having a lot of fun with my research team to find more of these high-
quality bargains!

For those of you who have taken my Value Momentum Investing Course or Wealth Academy
Investor Course (Next Batch will be starting NEXT WEEK!), keep applying the skills you
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have learnt to find the highest quality stocks in the market and share your findings in our
community!

Next Wealth Academy Investor Master Class

Stay the Course and May the Markets Be with You!

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