This stock market makes me angry. But do you know why it makes me angry? Because I like it.

Yesterday morning, as I was having a work meeting, Microsoft (MSFT) -- one of the biggest positions in our portfolio -- pre-announced a shortfall in earnings (see chart below). For a company as rich in valuation as Microsoft, an earnings shortfall is a recipe to disaster. However, this was entirely related to currency, as the USD has move up extremely strong this quarter, something that Microsoft's management couldn't foresee when they last reported earnings and gave forward guidance. Like Salesforce the other day, both companies revised down their guidance solely because of the dollar. Also like Salesforce the other day, both companies quickly re-cooped early losses because investors could find out that weaker guidance was not due to demand weakening, but due to foreign exchange rates that are totally out of their controls. 

This is hard stuffs. First you have to know the information (previous guidance). Then you have to know the mis-information (downward revision). Then you have to make a correct interpretation of the mis-information. Then you have to be patient and wait for the correct interpretation to seep into the market. In the case of Salesforce or Microsoft, the correct interpretation was made rather instantaneously -- their stocks traded down, but ended the trading session much higher. But how many of our stocks will have to cut numbers? Procter & Gamble (PG) probably, because they have a gigantic overseas operations that have become less valuable when converted to the US dollar. Alphabet (GOOGL) has 50% of business in Europe, and the US dollar has been much stronger than the Euros. Are you ready for when they trade down? I am. 

Why keep being drawn to the market when the facts change so violently? It is because we have plenty of stocks in our portfolio where investors and traders have anticipated just these challenges. The fact is, even though the US dollar has been so strong versus other currencies, neither buyers of Microsoft nor Salesforce products seem to care: they are willing to pay, even with higher prices. Enterprises everywhere need digital products, be it the hardware and software that Microsoft sells, or the customer-relation management software that Salesforce offer. And that makes me confident: demand is what matters, not currency.

I think we're playing around the bottom of the price action. We'll go higher this summer, although we'll likely re-test current lows comes the Fall due to election uncertainties. What does that make me? How about a bull in a china shop, one of those "you break, you buy" kind of places. I don't want to break anything, but unfortunately it's not up to me who breaks things beyond my own stock picks: it's up to President Putin, President Xi, and Fed Chair Jerome Powell. 

Putin has to stretch out the Ukraine war until the winner comes. He knows he has the reigns on Europe, because the entire continent is so dependent on Russian oil and gas. The German auto manufacturers, in particular, are powerless without Russian natural gas, so let's hope Germany doesn't break the Western anti-Russia coalition. Let's hope Europe doesn't bow down to Russia.

President Xi has something up his sleeve for not letting the Chinese people take the effective Covid-19 vaccines that the West has developed. If he can conquer Covid with this current nutty way, then he's staying for another term, and that's when we have to worry whether he will conquer Taiwan -- where the majority of our important semiconductors are made. If he keeps failing against Covid like he currently is, we will have to keep dealing with shortages all over the place. 

If Powell thinks inflation is still raging higher, he will keep raising interest rates and that will hurt stocks' valuation. Now, Powell is whom I place my trust in. I believe Powell will only have to raise rates enough to cool down inflation, allow the economy to catch up with itself, before expanding again. I believe we will make a ton of money with the stocks in our portfolio. 

As crazy as it seems, I like the odds. The odds even increased when I heard Fed Vice-Chair Lael Brainard -- resident dove -- said on TV that the Fed is looking for a string of soft economic numbers in order to change its current hawkish tunes. The Fed will stop the brake once the economy cools down a bit, let the expansion phase happen again. I am not concerned, because I have endlessly high-grade the portfolio. I now believe we have a portfolio that can withstand any of the bad scenarios, but also enjoy the run-up once these uncertainties clear. 

What makes me so confident? Because we own not just good companies, we own great companies with smart CEOs who give me the confidence to say to you: even with a recession, provided it's not a disaster, we will come out happy on the other side as long as we stay the course. Our companies can weather the economic hurricanes that many are forecasting, but remember, weather forecasters get it wrong all the time. No portfolio is bullet-proof, but what we have crafted here is one that has gotten so cheap, with price-to-earnings ratio for next year being so small, that we will make a lot of money if the economy experiences a minor recession. 

However, I have so much faith in Fed Chair Powell that I don't think we will have a recession. It's right that we haven't had this level of inflation in 40 years (bad). But we haven't had this low level of unemployment in 40 years (good). We've never had the Federal Reserve's, and the whole nation's balance sheet of this size (bad). But we've never had the consumers with a better balance sheet (good). The labor market is so tight, that we have more job openings than unemployed people. If any big unemployment wave happens at all, you would see it filled up rather rapidly, or else the Federal Reserve would pivot to save the labor market. Meanwhile, stock multiples of retailers, technology, financials, healthcare have moved to levels that reflect a recession has been priced in. There's so many fear when you talk to anybody. 

What's also good? The supply and demand picture of stocks. The supply of new stocks has dwindled down to almost nothing: no new IPOs, no new SPACs. Yet, the demands for stocks have risen so much. Investors, due to their strong balance sheet, are looking to put money in the market as prices have come down. Companies themselves, because of huge cash flows and amazing balance sheet, are paying huge dividends and announcing big buy-backs. 

Why don't we talk about the stocks themselves so you know what I am talking about.

1. Apple (AAPL) — Apple is not cheap, but it’s a foundational part of our portfolio for the long term. A company this great is worth owning through any near-term pain, which for Apple includes its large China exposure. 

2. AbbVie (ABBV) — Defensive stock that’s right to own during an economic slowdown. We think it’s cheap and like it’s nearly 3.9% dividend yield.

3. Advanced Micro Devices (AMD) — Its most recent quarter was fantastic, and the stock has been solid in recent weeks. It’s up another $7 per share Thursday, and so even though we’re believers in stock over the long term, we don't recommend buying right here; wait for a pullback.

4. Costco (COST) — Costco is one of our consumer staples stocks that we believe can be owned through a recession. Retail normally struggles during economic downturns, but Costco’s membership strategy and reputation for low prices provides a buffer. We remain on the outlook to a hike in the membership fee and a possibly a special dividend.

5. Salesforce (CRM) — Salesforce is a buy. After months of selling pressure, the stock is cheap relative to its historic valuation and the company’s growth rate. We have a long-term view on this stock and can own it through near-term weakness.

6. Cisco Systems (CSCO) — Supply chain challenges continue to be an issue, preventing the networking company from obtaining key parts it needs to fulfill orders. We believe that will get fixed, and we’re willing to own the stock for its roughly 3.3% dividend yield while we wait.

7. Coterra Energy (CTRA) — A natural gas company we’ve added to the portfolio this year. We recently sold the stock because it has gotten extended to the upside, but we're waiting for a big downturn to get back in. 

8. Chevron (CVX) — Another energy stock. One of the best-run industrial companies in the world, and we love the way it returns capital to shareholders with its large buyback and dividend. We think oil is in a higher for longer price situation, benefiting Chevron.

9. Danaher (DHR) — Danaher is the right kind of stock for this environment, because life science is not cyclical.

10. Disney (DIS) — Trading around $109 per share Thursday, Disney is likely the single best bargain in our portfolio. Its balance sheet maybe a bit messy due to a suboptimal acquisition of Fox made by the prior management. However, Disney has iconic franchises, its theme park business is booming, and we think some creative things could be done with ESPN.

11. Devon Energy (DVN) — Another winner for us this year, which we have recently sold out of. Devon has a very low breakeven price per barrel of oil and a strong commitment to returning cash to shareholders with its dividend. We're waiting for every chance that we can to get back in.

12. Ford Motor (F) — Ford is trading at just under 7 times forward earnings. That’s so low it is suggesting that the automaker’s earnings will be cut in half next year. We’re nowhere near that pessimistic, so we’re holding onto the stock here. The chip shortage appears to be improving, and we’re believers in CEO Jim Farley’s electric vehicle strategy.

13. Meta Platforms (FB) — We think the Facebook parent is cheap compared to both the broader market and the company’s growth rates. We remain confident in CEO Mark Zuckerberg’s strategy to fend off TikTok, even as his longtime No. 2 executive, Sheryl Sandberg, is departing the firm.

14. Alphabet (GOOGL) — Like Meta, we think Google trades at attractive levels considering where the overall market is and the tech giant’s own growth. The stock could fall further in the near-term, but our investment horizon here is not short term.

15. Johnson & Johnson (JNJ) — We just added the drug-maker to our portfolio, part of our high-grading strategy. We like management’s plan to split the company into two next year, believing it will unlock value to separate the pharmaceutical and consumer product divisions. We’d be buyers here, and buyers again soon if J&J revises guidance due to currency headwinds, causing the stock to fall.

16. Eli Lilly (LLY) — We remain bullish on Eli Lilly’s innovation pipeline, namely its recently FDA-approved diabetes drug that also shows promise as an obesity treatment. This stock has done well for us, but we see further upside ahead and would buy shares here.

17. Morgan Stanley — Worth buying some shares here. This is one of the cheapest stocks we own on a price-to-earnings basis.

18. Microsoft (MSFT) — The initial sell-off Thursday morning on Microsoft’s lowered revenue guidance was an overreaction because the revision was due to currency headwinds. This stock is not cheap, even after its nearly 19% decline this year. However, along with Apple, Microsoft is such a good company that we must own it for the long term and accept the temporary pain that comes with it.

19. Procter & Gamble (PG) — If you’re fearing a recession, P&G is a top name in the S&P 500 to buy. Its products have very little economic sensitivity, and consumers trust their brands so we’re not concerned about trading down. The strong dollar is a risk, but any weakness in the stock due to currency headwinds is an opportunity to buy.

20. Wells Fargo (WFC) — Regulatory risk remains a main overhang on this stock, as there are still more problems that need to be fixed. However, we think the company is undoubtedly in much better shape now than it was in 2018, yet the stock hasn’t reached its highs from that year.

To close out the first monthly letter, we want to thank you for staying with us, we want to weather through the headwinds with you, and I will write to you again next month.