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Don’t Get Too Bearish

I have started to believe that the market is always speaking to us, we have to learn how to listen.

In my opinion, large institutions, who control most of the capital in the market, have played their hand by expressing a strong desire to buy stocks. This can be traced back to observing the extremely strong price action in stocks since April. Price appreciation, particularly in AI stocks, has been relentless.

Until this changes, I believe that longer term, we are still in a bull market (likely powered by the growth in AI, similar to how the Internet powered the 90s bull market).

Shorter term, we seem to be in a range bound consolidation.

Historically, this time of year has seen weak price action.

As a result, I believe we are simply experiencing a normal pullback, after quite a powerful post Liberation Day fiasco rally.

Also, despite the recent pullback, so far we’re not seeing heavy volume selling.

And many leading stocks have been hanging out near their 50 day moving averages, a well-regarded area of support.

We will see whether that holds.

Since I was expecting choppiness during the current seasonally weak months, I lightened up our options exposure in July. (As you may have noticed, I began to include long term call options in our Coffee Can portfolios. Although options are not necessary to beat the market, I do believe small option bets in a diversified coffee can portfolio can generate alpha, and this has been the case so far.)

With options, since they expire well before our 3 year holding period, we must manage these bets more actively.

On July 7, 2025, we sold our Disney calls for a large +171% gain (in Coffee Can 13).

On July 29, we sold many of our remaining open option bets, for a large net gain.

I’ve been sending free same-day notifications of my buys/sells to folks on the Playing For Doubles Alerts Waitlist. If you’re interested in receiving these alerts, join the waitlist here.

As coffee can investors, we own stocks for multiple years at a time. So we are simply not going to avoid volatility (just look at the max drawdown column of the stocks I’ve picked). But paying attention to the “tape” gives me a better understanding of the state of the market.

I’m comfortable with what we own in our Coffee Cans, and am pleased with the progress of our active coffee cans.

Good Assets & Long Holding Periods = Good Outcomes

I have come to appreciate that holding onto good assets for long periods pf time usually leads to good outcomes.

We are seeing this play out in real time with Alibaba ($BABA).

Alibaba was up >15% in just 2 trading days, post earnings.

The market clearly honed in on the potential of the company’s Cloud/AI segments:

• Earnings showcased that growth at Alibaba’s cloud computing unit accelerated

• And AI-related revenue “maintained triple-digit year-over-year growth”

As of Tuesday Sep 2, our Alibaba P&L was:

The BABA thesis that I had outlined a little over a year ago, was pretty simple:

That’s it.

No complex algorithms.

No insider knowledge.

No novel insights.

The reason I share this is to highlight that an investment thesis doesn't need to be very complex or even novel for that matter.

What's more important, if you’ve done your research and believe in a thesis, is taking action (buying) followed by long periods of inaction (holding).

How many times have you either come up with or come across an investment idea that made sense to you, but you did nothing?

It happens all the time.

With Alibaba, the hard part was not in understanding the thesis, but rather, buying and then resisting the urge to sell.

For a while now, the long term thesis has been pretty well known.

Even today, it's more or less unchanged.

Dare I say, the thesis is actually a commodity...

So how do we get ourselves to take action and hold on?

That’s where the Coffee Can approach comes in.

Recall that the Coffee Can approach is an "active passive" investment strategy.

You actively research and select individual stocks, then passively hold them for years like “stuffing them in an old coffee can and forgetting about them.”

This bias towards holding onto our stocks for longer rather than shorter, is by design.

Why? Because not holding onto stocks long enough is often the most common (and perhaps the most expensive) regret investors have.

The Coffee Can approach solves many of the behavioral problems we as investors face.

For example,

• We're great at identifying opportunities but we don’t always act on them.

• And when we do, we are terrible at holding them long enough to realize big gains.

To combat this, here are a few Coffee Can Rules (for individual investors)

1. Only buy what you're willing to hold for 3+ years (minimizes impulse buying)

2. Size Positions For Acceptable Downside If Wrong (manages risk & maintains upside)

3. No selling unless the thesis fundamentally breaks (not just because price moves)

4. Build at least 1 Coffee Can Portfolio per year (minimizes timing risk)

If we do this, and we target investing in good assets, we are likely to outpace index fund returns. In fact, you can see this in my Investment Scorecard.

Question:

• Did you buy Alibaba stock?

• If not, what has kept you on the sidelines?

• If yes, do you plan to keep holding? I certainly do! After all, it’s only been ~1 year since we first bought it.