Good afternoon and welcome Investing Club members. Let me first welcome you and tell you that this club will be nothing like what you have experienced before.

We created the club to help all investors build long-term wealth in the market, but our mission is much larger than that. Our goal is to provide you with an unfiltered look behind the scenes into how portfolio managers think, learn, analyze the market, and ultimately, apply those strategies into investments.

We will help you, members of our investing club, make sense of the vast amount of news and moving pieces in the market. The biggest headlines of the day. The most important calls on the stocks you own. The stories you want to hear more about will be accompanied by actionable insight with analysis to support our decisions. Communication about what we think and how we got to our conclusion is essential to what we are trying to achieve every single day.

In short, we are trying to teach you how to be a better manager of your own money. To do this, I welcome you to follow alongside the methodologies we use to manage the stocks owned in my charitable trust. Learning from the investments we make, both good and bad, and continuous self-improvement are at the heart of what this unique club is all about.

Let’s take a look at how the markets are performing today. The week is off to a sluggish start, with all three major averages trading in the red. There is some bifurcated action going on under the hood, with some of the more cyclically oriented sectors — think financials, energy, and industries — performing better than technology, which investors are continuing their rotation out of as the yield on the 10-year Treasury marches higher.

This type of rotation is not a new phenomenon. In fact, we think one of the best ways to sum up the investment year is by characterizing it as heavy rotation. Due to the back and forth nature of a rotational market, where one day’s leader could find itself as the next day’s laggard, we have found that the best way to play offense and defense against whatever the market throws our way is by maintaining a portfolio barbell.

What do we mean by barbell? We have dedicated about one-half of the charitable trust to cyclically oriented stocks that perform best in a reopened economy running a little bit hot. This group is filled with banks, the industrials, and stocks tied to travel & leisure. Meanwhile, the other half of the portfolio is levered towards secularly growing stocks that benefit most from some of our favorite long-term structural changes. For this part, think tech stocks that are gaining business from increased adoption of artificial intelligence, digitization, 5G technologies, and the cloud, among many other themes.

With tech underperforming by a wide margin, that’s where we want to turn our attention to. The selling in the group is widespread right now, but one of the worst performers today is Facebook, a stock we own for the charitable trust. Shares are falling in response to increased scrutiny around the company’s business practices after last night’s “60 Minutes” interview with a Facebook whistleblower, and how the recent privacy changes Apple made to its iOS operating system will impact ad performance.

So what do we do with Facebook today? There are three options:

Buy more on the weakness
Do nothing
Or do we ring the register?

Here is our thinking:

Facebook has been in the charitable trust for years with a very low average cost basis in the $60s. We have battled negative headline after negative headline before, however, this latest story strikes us as different. The culture needs to change at Facebook, and if they cannot fix themselves then we would expect to see even more calls, louder calls, for increased regulation on the platform, and regulation is never good for business.

Meanwhile, it would not surprise us to see one more call for users and advertisers to boycott the platform, adding even more risk to earnings estimates which may already have been challenged due to Apple’s new privacy setting.

The one saving grace about 'FB' is that the stock is already cheap with a very reasonable multiple on earnings. But if the growth rate is poised to decelerate significantly due to the challenges mentioned above, then we see the stock heading straight to the market’s “penalty box” for the foreseeable future. For how long? Facebook's already precarious reputation just received another black eye, and this story is not going away anytime soon.

So where do we come away?

Our position in Facebook may be one of the smallest we have in the entire charitable trust, but this story is so challenging that we are currently leaning towards exiting our position altogether. We simply feel that there are cleaner areas of the market we would rather invest in, especially at these prices with the S&P 500 more than 5% off its highs and the tech-heavy Nasdaq even lower.

Earnings season is quickly approaching too, and we like the idea of freeing up room in the portfolio for a new name and increasing our cash position for flexibility.

The trust cannot make a move on Facebook in the near term due to our trading restrictions—we cannot buy or sell any stock Jim mentions on air for three full days—but we are troubled by what’s happened with the company and want to see changes made.