Portfolio – Paul Vs The Market

The Freedom Portfolio – January 2023

March 13, 2023 paul.essen Comments 0 Comment

A January recap! Released in mid-March… After skipping the October 2022 and December 2022 recaps…

Yeesh. And to make matters worse, I completely missed the 4th anniversary recap! How embarrassing. Not sure which is worse:

How late this quarterly recap is
My portfolio’s performance over the past year plus
My 2022 bold predictions
My fantasy investing 2022 performance
My fantasy football teams for 2022 (3 leagues, missed the playoffs in each of them)

That last one is largely irrelevant, and I’ve already touched on #3 and #4 in previous posts, so let’s get rolling discussing #2. What better place to start than the performance since inception?

I tried writing up my thoughts on my investing performance, but then I went back to read what I had written in the last quarterly recap I had finished (8 months ago) and found that I wouldn’t change a single word and probably couldn’t say it any better. Here is what I wrote:

I know I sound like a broken record, but despite the really horrid results lately, I haven’t been shaken out of my belief that I can beat the market long term. In fact, I’m excited about getting a second chance to buy shares in some of my favorite companies at prices I never dreamed would return. Much like how 2020 and 2021 saw share prices get irrationally high, I believe we’re seeing share prices in many companies that are irrationally low right now.

Why do I say that? Because even though the share price of many of the Freedom Portfolio holdings is lower than it was pre-pandemic, the companies are almost universally much better off. Short term, share prices can go all over the place, but over the long term they will track business performance.
The Freedom Portfolio – July 2022

The past year has seen unprecedented rises in interest rates by the Fed in response to inflation levels that the country hasn’t seen in a long time. The swiftness of the rise has caused issues all around: from the real estate market screeching to a halt, to big tech companies having big rounds of layoffs, to the shocking and sudden collapse of Silicon Valley Bank. It’s no wonder that the high growth companies I like to invest in have had a hard time abruptly switching gears to go from a cheap cash environment to one where suddenly everybody is looking for profitability.

Some of my investments have been exposed as poorly run companies or at the very least ones that didn’t have quite the moat or tailwinds that I anticipated. I have been attempting to slowly and methodically prune those over the past year. The proceeds from those sales have gone into companies that I believe have proven their mettle during this challenging time and have shown that not only can they survive, but they will come out of this even stronger than before.

With that said, here have been the changes that I have made since my last update:

Changes in the Portfolio

All done in September of 2022.

Sold some of Tesla (TSLA): I feel like a bit of a broken record at this point. This trimming of my Tesla position marks my seventh sale of Tesla shares over the past two and a half years. Each sale has been for the same mix of reasons that all revolve around the fact that I was uncomfortable with how high the stock had skyrocketed in such a short amount of time. As much as I love the company and its potential (still!), it was hard to deny that the valuation had gotten incredibly out of control and that it had grown to an uncomfortably large percentage of my portfolio considering some of the concerns that I have over the company (the aforementioned valuation, Musk distraction, competition coming, etc). Even after this most recent trim, though, the company remains a top 4 position in my portfolio, so I still have a pretty high degree of confidence. I just felt better locking in some gains and diversifying into other positions.

Bought more Axon Enterprises (AXON): Axon has been a sneaky good performer (as a stock, but more importantly as a company) over the past year or two when basically the entire rest of my portfolio has been falling apart. The more I follow the company and learn about it, the more impressed I become. Axon is a company that has grown far beyond the taser and has some pretty lofty aspirations. It also seems like they still have plenty of room left to grow as well.

Bought more Nubank (NU): Speaking of room to grow, Nubank has that in spades. Not only do I love the demographic trends of Latin America (growing populations which are increasingly online), but Nubank has still barely scratched the surface in terms of saturation in their non-Brazil markets. On top of all of that, Nubank has a number of financial products that they are in the early innings of in terms of cross-selling to their members. It’s been a rough life as a public company so far for Nubank, but I remain super excited about the growth possibilities ahead of the company.

Bought more Redfin (RDFN): I might have a problem. I’m not sure if there is any other company in my portfolio that I have added to more often than Redfin. Has the company made some missteps? Undeniably. Have they navigated an absolutely insane roller-coaster of a real estate market over the past few years about as well as they can be expected to? I think so. I’m a bit worried about how closing their iBuying business weakens their complete real estate offering, but their acquisitions of Bay Equity and RentPath seem like they would more than make up for that. They’ve survived a complete shut down of the real estate market during COVID, an insanely fast and furious re-opening right afterwards, and are now in the process of weathering a rocketing of interest rates. The stock has cratered along with the real estate market, but as the wise man Buster Moon once said: “You know what’s great about hitting rock bottom, there’s only one way left to go, and that’s up!”

Bought more Sea Limited (SE): Sea has encountered a number of speed bumps over the past year or so. The popularity of their Free Fire game has waned at the same time around the same time that they shut down operations in a few of their markets, including the high potential Indian market. Those are no doubt disappointments, and I wish management had been a little more prudent in terms of not expanding in too many directions at once, but I still love a lot of the growth potential with this company and the stock is far more reasonably priced now (ie, it’s a lot lower). Incredibly, their most recent earnings report showed that they can shift to profitability faster than most people thought was possible. Assuming they can keep on track with that while still maintaining their growth potential, this seems like a winner going forward.

The Freedom Portfolio – January 2023

Here is where the Freedom Portfolio stands now. Need a reminder of what these terms mean? Check out: Defining my Terms.

Ticker	Company Name	Allocation
MELI	MercadoLibre	Babylon 5
SHOP	Shopify	Babylon 5
SE	Sea Limited	Enterprise
TSLA	Tesla	Enterprise
NVCR	NovoCure	Enterprise
TTD	The Trade Desk	Enterprise
AXON	Axon Enterprises	Enterprise
ETSY	Etsy	Serenity
SQ	Square	Serenity
SWAV	Shockwave Medical	Serenity
RDFN	Redfin	Serenity
SNOW	Snowflake	Serenity
FVRR	Fiverr	Serenity
TDOC	Teladoc	Serenity
CELH	Celsius Holdings	Serenity
ROKU	Roku	Serenity
ZM	Zoom Video	Serenity
NU	Nubank	Millennium Falcon
FUBO	FuboTV	Millennium Falcon

Once again, apologies for being so behind with updates. I feel pretty good about the next quarterly update not being nearly as late and I even feel pretty good about getting some more consistent posts out in the coming months.

Thanks, as always, for following along. May all of our positions avoid the fate of Silicon Valley Bank.

The Freedom Portfolio – July 2022

August 25, 2022 paul.essen Comments 0 Comment

In my last quarterly recap, I wrote: “the first quarter of 2022 is likely the worse investing quarter than I have had (and hopefully ever will have)”.

Well, the second quarter would like to have a word.

As bad as the first quarter of 2022 was for performance of the Freedom Portfolio, the second quarter has been worse. It was so bad, it took me nearly two full months to write this quarterly recap!

Thanks to supply chain disruptions, the war in Ukraine, soaring inflation, abrupt federal reserve moves to raise interest rates, or whatever other thing people want to blame, the first half of 2022 was the worst for the market in 50 years. As bad as the market has been, the Freedom Portfolio has been even uglier:

Yes, after crushing the market for two years, my returns have fallen back below the returns of the S&P.

Woof.

Here’s the details:

Ticker	Quarterly Change
SWAV	-8%
TSLA	-38%
CELH	11%
AXON	-33%
TTD	-42%
MELI	-48%
SNOW	-41%
NU	-54%
ZM	-9%
NVCR	-21%
ETSY	-42%
SQ	-54%
SE	-45%
SHOP	-55%
TDOC	-55%
ROKU	-35%
FVRR	-55%
RDFN	-53%
FUBO	-62%

I would be lying if I said this wasn’t frustrating and disappointing. I knew valuations had gotten a bit out of control in 2021 and we were due for some flat years or even some pullbacks, but I didn’t quite expect this degree of resetting.

I know I sound like a broken record, but despite the really horrid results lately, I haven’t been shaken out of my belief that I can beat the market long term. In fact, I’m excited about getting a second chance to buy shares in some of my favorite companies at prices I never dreamed would return. Much like 2020 and 2021 saw share prices get irrationally high, I believe we’re seeing share prices in many companies that are irrationally low right now.

Why do I say that? Because even though the share price of many of the Freedom Portfolio holdings is lower than it was pre-pandemic, the companies are almost universally much better off. Short term, share prices can go all over the place, but over the long term they will track business performance.

Let’s briefly look at two notable Freedom Portfolio holdings and how they look now versus pre-pandemic (I chose February 2020 to represent “pre-pandemic”).

Business performance vs share price:

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Shopify (SHOP): In February of 2020, Shopify shares were around $46 (split-adjusted). They currently trade for around $33 a share. While a roughly 30% drop is pretty notable, that undersells the dramatic fall Shopify stock has had of late. Under a year ago Shopify shares were as high as $150, which would make the current drop almost 80% from those highs. Yet the business has been growing stronger in all sorts of ways. During that time they announced new products like Shopify Audiences and Shopify Collabs and have formed partnerships with companies like JD.com, Spotify, and Youtube. Their quarterly revenue more than doubled, from $470 million to $1.2 billion. Their Gross Merchandise Volume has similarly more than doubled, going from $17.4 billion to $43.2 billion. Shopify the stock might look pretty sick right now, but the company has never been healthier.

Redfin (RDFN): It’s a remarkably similar story with Redfin. The stock was sitting around $27 a share pre-pandemic and is now at close to $10 a share despite having seen an incredibly red hot housing market in between. Also like Shopify, that decline looks even worse when you realize Redfin stock was at $75 about a year and a half ago. And yet, just like Shopify, Redfin’s business is much more fleshed out and robust now than it was pre-pandemic. They acquired RentPath to get a foothold into the rental market and Bay Equity to strengthen their mortgage segment. They saw significant missteps from competitors like Zillow while they avoided blowing up their balance sheet by being prudent and conservative with their iBuying initiative despite a roller coaster of a housing market. They continue to slowly but sure take market share, going from 0.93% of houses sold to 1.18%. Their revenue more than tripled over the past two years. In almost every way Redfin is a stronger, healthier, more robust company than it was 2 years ago, regardless of what the share price might imply.

I could write a recap like this for almost every position in the Freedom Portfolio and they would all hit similar notes. This gets at the heart of why I’m not overly concerned with what I see as a temporary pullback in my portfolio. Eventually sentiment will change and innovative, growing companies will once again be in favor. When that happens I expect the share prices for these companies to more closely match the reality of how the business has performed over the past few years.

Until then, it may sound boring, but I intend to hold tight to my strongest conviction positions.

Changes in the Portfolio

That doesn’t mean holding onto everything, though. When the thesis gets busted or is no longer relevant, then it’s time to cut ties and move on. Here are some moves I made in the previous quarter:

Cutting some losers to add to other losers

The Freedom Portfolio – July 2022

Here is where the Freedom Portfolio stands now. Need a reminder of what these terms mean? Check out: Defining my Terms.

Ticker	Company Name	Allocation
MELI	MercadoLibre	Babylon 5
SHOP	Shopify	Babylon 5
SE	Sea Limited	Enterprise
TSLA	Tesla	Enterprise
NVCR	NovoCure	Enterprise
TTD	The Trade Desk	Enterprise
AXON	Axon Enterprises	Enterprise
ETSY	Etsy	Serenity
SQ	Square	Serenity
SWAV	Shockwave Medical	Serenity
RDFN	Redfin	Serenity
SNOW	Snowflake	Serenity
FVRR	Fiverr	Serenity
TDOC	Teladoc	Serenity
CELH	Celsius Holdings	Serenity
ROKU	Roku	Serenity
ZM	Zoom Video	Serenity
NU	Nubank	Millennium Falcon
FUBO	FuboTV	Millennium Falcon

That’s the recap of the Freedom Portfolio for the second quarter of 2022. Apologies for it being so late. I’ll try to do better next time. Last quarterly update I signed off with: “Here’s hoping the next quarter is a better one. It can’t be much worse.” Obviously I was tempting fate with that, so I’m not going to say anything about next quarter and just thank you all, as always, for following along.

The Freedom Portfolio – April 2022

May 2, 2022 paul.essen Comments 4 comments

In my July 2020 quarterly recap, I had written: “This might be the best investing quarter that I will ever have.”

Well, the first quarter of 2022 is likely the worse investing quarter than I have had (and hopefully ever will have).

On the heels of a tough 2021 which initially saw my portfolio soar to incredible all time highs (only to eventually give all of it and more back), the first quarter of this year was absolutely brutal. At one point my portfolio was down 50% for the quarter alone and I was getting close to having my total returns since inception start to lose to the market after being up over 170 percentage points around a year earlier. Here’s the visual representation:

As you can see, my portfolio recovered a bit before the end of the quarter, but it’s still been quite the fall from grace.

I know I’m going to sound like a broken record, but my confidence in my investing style and my ability to beat the market remains unshaken. I have been investing for nearly 20 years and lived through many bear markets and recessions and have seen long term results despite short term setbacks.

At the same time, I strongly believe that it is important to always be learning and growing and getting better and it would be the height of arrogance to look at the chart above and conclude that there is nothing to be learned from such a change in fortunes.

The obvious question to ask is: Why couldn’t I have seen the last year plus of under-performance coming for my portfolio? Many of the stocks in my portfolio had appreciated tremendously over the past few years, often times far outpacing the actual growth of the underlying companies (even though that growth was often also very impressive). Valuations had gotten absolutely insane and it was clear that COVID had pulled a lot of growth forward for many companies. Even if remote work was here to stay, there was no way Zoom was going to keep growing like it had in 2020. At the same time, it was clear that a combination of stimulus checks, easy access to low and no fee trading, and abundant free time by people who might otherwise be gambling on sports or actually be working had caused some pretty crazy activity in the stock market (Gamestop, anybody?).

Simply put, stocks don’t always go up, and they most certainly don’t just keep doubling and tripling year after year. I knew there was bound to be choppiness in my portfolio in the near future. Did I know it would be this extreme? No. Did I know it would happen this fast or all at once? No. Most importantly: Did I have any idea when this pullback was going to happen? Absolutely not.

One of the clearest lessons I have learned in the many years I have been investing is that I simply have no ability to time the market and any attempt to do so is only likely to hurt my returns. When I first started out investing I passed on Google (GOOG) because I thought it had run up too much and was too expensive and wanted to wait for it to get cheaper. That caused me to miss out on a 20 bagger plus. I sold Netflix (NFLX) way too early because I thought it had run up too much too fast and wanted to lock in some gains before there was a pullback. That ended up being a $1 million+ mistake. I’m still making the same mistake even now as I have sold shares of Tesla (TSLA) six times over the past year and a half and only one of those sales was for a price higher than it sits at now (most were significantly lower).

In retrospect, do I wish I had sold a bunch of my high-fliers which have dropped 50, 60, 70 percent and more over the past few months to a year? Of course. However, I also realize that there was no way to tell exactly when those drops were going to occur. Many of my biggest winners, the same stocks that have been cut in half, have looked incredibly overpriced for months or even years. If I were to sell whenever I suspected an investment was overvalued and due for a big pullback, I would’ve sold most of these big winners way too early and missed out on big gains… and I still might not have accurately pegged the best time to sell.

So as unbelievable as it may sound, I don’t necessarily think the right takeaway from the past few months is: “Try to time the market better”. I’ve been investing for long enough to know that I just don’t have the ability to reliably do that and any attempts to try is likely to just make my returns worse. I didn’t see the beginning of the great recession coming, and there were multiple times I thought it was ending and we had bottomed and I was wrong most of those times. Likewise with this first quarter of 2022. On at least three different occasions I thought the bottom might be in and I’ve been proven wrong each time so far.

But there must be something I feel like I can learn from this pretty dramatic pullback. Yes, I believe there is. While the market, and my portfolio, were soaring to new highs, I’m pretty sure I started to relax my standards in terms of what companies to invest in. Instead of staying close to the ~20 positions that I wanted to keep my portfolio to, it started getting closer to 30. I started to invest more in companies that I knew less about or ones which seemed to have more red flags (or at least yellow flags). I had more new investments based more on “somebody else likes it” rather than “I have developed my own conviction in this company based on my own research”.

And while plenty of my high conviction investments are down an incredible amount from their recent highs, those lower conviction picks were often down even more. What is doubly damning is that, because I had lower conviction in them, I’ve sold those positions so they won’t even have a chance to recover. Why is that important? Because many of those previously mentioned high conviction picks, while down over the short term, are still beating the market over the long term. Would that have happened with these lower conviction picks? Maybe, but I likely won’t be around to find out.

I’ve been trying to remedy this over the past few months by trimming those lower conviction positions in order to add to high conviction ones. The big question is: will I be able to stick to this when the market turns around? Time will tell, but maybe it would be helpful if I printed up this quarterly recap to keep on my desk the next time I am justifying adding a 29th position to the Freedom Portfolio.

As is the custom, here’s the damage from last quarter:

Ticker	Quarterly Change
TMDX	32%
CRWD	14%
SWAV	8%
NVCR	3%
NU	-6%
AXON	-10%
TSLA	-10%
MELI	-11%
DIS	-13%
DMTK	-16%
SQ	-17%
TTD	-23%
TDOC	-24%
CELH	-27%
FVRR	-31%
SNOW	-31%
NNOX	-32%
ZM	-36%
ETSY	-41%
ROKU	-46%
SE	-46%
SHOP	-50%
RDFN	-54%
FUBO	-59%

Typically at this point, I would discuss some of the best and worst performers of the previous quarter. However, in line with the point above, I thought I would do something a little different and discuss what freedom portfolio positions I am considering trimming or liquidating to further focus the portfolio.

Reevaluation list:

Nanox Vision (NNOX): Nanox has always been one of the higher risk companies in my portfolio, so I’m not as concerned about the precipitous drop in stock price. What concerns me is that the company has seemingly struggled to execute. FDA clearance keeps getting pushed back and the company has consistently failed to meet goals that they have set for themselves. The founder is no longer the CEO (which admittedly could be a good thing considering the previously mentioned struggles). There are enough red flags that it’s worth wondering if the upside of Nanox is worth the risk at this point.

Zoom Video (ZM): Zoom has been a painful position for me. I resisted buying for the longest time because I couldn’t see how Zoom could succeed in a world where deep-pocketed tech companies like Microsoft (MSFT) and Alphabet (GOOG) already offered established video chatting for free. Even if they were better, how long would it take for the smart engineers at these big tech companies to bring their offerings up to snuff? Since I was a little late to the party, I missed a lot of the run-up in stock price. By the time I finally relented and decided that they did have some sort of moat which protected them to some extent from the obvious competition and there was still unclaimed opportunity in things like remote work, remote board games hangouts, etc, COVID related lock-downs were wrapping up and people were ready to unleash their pent-up desire to get out of the house.

How much of the remote work trend will stick around? Will people still be willing to take remote classes or do frequent video calls with family and friends? Will Zoom be able to capture any of the opportunities that I thought they would? The future looks a lot cloudier now and I am once again starting to doubt their moat.

Disney (DIS): This hurts to admit. Disney is my longest held position and is much older than the Freedom Portfolio. I first bought shares in 2013 and the position has doubled for me, which sounds really nice until you realize that the S&P is up close to 160% since then, making Disney a significant under-performer over that time. When I bought shares of Disney, I did so because I thought they had an absolutely unmatched catalog of content (Pixar, Marvel, Lucasfillm, ESPN, etc) and were one of the few players that I thought had a great chance to launch a streaming service to challenge Netflix worldwide. That thesis has largely played out, with that content bringing home major money at the box office and helping to drive Disney+ to be a major success.

And yet despite all of that, Disney stock has not been impressive. At the same time, the future of Disney is looking murkier. Legendary CEO Bob Iger has stepped down as chairman and CEO. Disney+ growth is beginning to slow down. And new CEO Bob Chapek has gotten Disney embroiled in a political controversy with Florida Governor Ron DeSantis. I mentioned before when I talked about my reasons for selling Twitter (TWTR) that I hate it when companies get involved in politics. Having an almost universally beloved brand like Disney wading into politics strikes me as supremely bad idea that will serve as a distraction and ultimately leave a large section of their customer base unhappy. Right now, Disney seems to have less upside than any other time in the past 9 years while having a lot more risk. It might be time to reevaluate my longest held position.

Changes in the Portfolio

Just one round of portfolio changes in the recent quarter. I think we might be seeing a little more than that in the coming months.

January 2022 portfolio changes

The Freedom Portfolio – April 2022

Here is where the Freedom Portfolio stands now. Need a reminder of what these terms mean? Check out: Defining my Terms.

Ticker	Company Name	Allocation
TSLA	Tesla	Babylon 5
MELI	MercadoLibre	Babylon 5
SHOP	Shopify	Babylon 5
SE	Sea Limited	Enterprise
TTD	The Trade Desk	Enterprise
NVCR	NovoCure	Enterprise
SQ	Square	Serenity
ETSY	Etsy	Serenity
RDFN	Redfin	Serenity
TDOC	Teladoc	Serenity
SWAV	Shockwave Medical	Serenity
FVRR	Fiverr	Serenity
SNOW	Snowflake	Serenity
DIS	Walt Disney	Serenity
ROKU	Roku	Serenity
AXON	Axon Enterprises	Serenity
ZM	Zoom Video	Serenity
FUBO	FuboTV	Millennium Falcon
CELH	Celsius Holdings	Millennium Falcon
NNOX	Nano-X	Millennium Falcon
NU	Nubank	Millennium Falcon

That’s the recap of the Freedom Portfolio for the first quarter of 2022. Here’s hoping the next quarter is a better one. It can’t be much worse. Thanks, as always, for following along.

The Freedom Portfolio – January 2022

January 20, 2022 paul.essen Comments 1 comment

My January quarterly recaps tend to unfortunately not be as long and in-depth as some of my other quarterly recaps. The reasons are pretty obvious: Not only do the holidays take up a lot of time but I’m also busy focusing on my recklessly bold predictions and setting up the new fantasy investing season. It’s a shame, too, because the January quarterly recap would be an excellent time to reflect on the previous year and do some examination of the Freedom Portfolio’s performance during the year and not just the past quarter. Perhaps something to consider for next time. For now, though, I apologize if this recap is a little shorter than usual. I’ll try to do better next time.

I’ve mentioned a couple of times in the past about how incredible 2020 was for me in terms of my investments and how it would probably end up being the best year of my investment life. It’s entirely possible that 2021 might go down as the worst year of my investment life, not only in terms of absolute returns but particularly in relation to the S&P. Take a look at a tale of two years:

In some ways, in retrospect, it’s not too surprising that such a poor year would follow such an incredible one considering my style of investing where I stubbornly hold onto quality, innovative, disruptive, “growth” companies regardless of how overpriced they might seem to be getting. It’s not normal for any stock, no matter how well the company is executing, to quadruple or more over the course of a single year like so many Freedom Portfolio positions did in 2020. While I never would have tried to predict if or when a pullback would happen (companies like Tesla and Shopify have held up relatively well… so far), it’s also not something surprising or even overly concerning.

That’s not to say I haven’t been feeling the recent terrible performance of my portfolio.. The Freedom Portfolio has been cut nearly in half since the highs of February 2021 and no matter how much confidence I have the things will work out in the long term…. I am only human and it’s stomach churning to lose that much money. My emotions over the past few months have been an interesting mix of pain / anxiety / disappointment over giving up all of those gains from 2020 to excitement whenever I am able to add to some of my high conviction names at prices I couldn’t have dreamed of just a few months ago.

Anyway, the damage to my portfolio has been ongoing over most of 2021, but how did it specifically look in the last quarter? Check it out below:

Ticker	Quarterly Change
TSLA	36%
TTD	30%
SNOW	12%
ETSY	7%
SHOP	2%
SWAV	-11%
DIS	-12%
AXON	-12%
CRWD	-18%
MELI	-19%
CELH	-21%
RDFN	-25%
ROKU	-27%
TDOC	-28%
SE	-30%
ZM	-31%
SQ	-33%
NVCR	-35%
FUBO	-36%
NNOX	-36%
FVRR	-38%
TMDX	-41%
DMTK	-50%

Now let’s dig into some of the outliers from last quarter:

The Best Performers:

Tesla (TSLA): 36% gain: This may be one of the most painful “best quarterly performers” ever. Why? Because despite being a shining beacon of positive gains in a sea of red, Tesla has been a position that I have been consistently trimming for the past 15 months, from $400 onward. Apparently I hadn’t learned my lesson fully with Shopify about letting my winners run and instead have been cutting back on perhaps the one stock in my portfolio that has best weathered this recent storm. I guess I can look on the bright side and say that at least I didn’t sell all of it? Still, it hurts to think just how much better my portfolio would’ve performed had I just held onto my Tesla shares.

The Trade Desk (TTD): 30% gain: I had to double check my math on this one since, in the time it has taken me to write up this recap, the Trade Desk has given up a lot of these gains from Q4. For whatever reason, the Trade Desk has been pretty volatile to both the upside and downside recently. I suspect it has something to do with people trying to figure out just where the company stands in the new privacy normal ushered in by iOS 14.5 and the restriction on usage of unique identifiers from mobile phones. My money is on the Trade Desk being a winner coming out of this, but time will tell.

Snowflake (SNOW): 12% gain: This one surprised me a bit as Snowflake is notorious for its pretty high valuation and the market seems to be providing the biggest haircuts to the companies with high valuations right now. Perhaps people are starting to believe that some of Snowflake’s growth rates can continue on for longer than previously thought? That’s what I am betting on, as I believe their usage based model can help them continue to surprise people with their growth.

The Worst Performers:

DermTech (DMTK): 50% loss: I’ve mentioned before that during times where my portfolio is struggling, I tend to sell my lower conviction names to buy higher conviction names on sale. DermTech is on track to be one of those companies I sell. I thought there was a chance that their unique skin cancer detection system might have a chance to disrupt things, but it just doesn’t look like it is catching on for whatever reason. I still think there’s potential, but maybe not enough to be investable for much longer.

TransMedics Group (TMDX): 41% loss: Pretty much everything I said for DermTech above goes for TransMedics. Perhaps I am a sucker for the sci-fi looking medical technology. Perhaps I am guilty of ignoring the small market opportunity for transporting organs. Seems like really cool technology, but that doesn’t necessarily make it a great business to invest in.

Fiverr (FVRR): 38% loss: My opinion on Fiverr is pretty much the exact opposite of the above. Yes, it has had a very dramatic drop over the past 6 months. Yes, perhaps I was a little too quick to build up a very large position in a stock that had basically grown 10x in about a year. And yes, I would be lying if I said the comments around “seasonality” in a recent earnings call didn’t have me at least a tiny bit worried, but I am nowhere near ready to bail on my Fiverr investment yet. I still think we’re in the midst of a large change in how people work and I still believe Fiverr can be a big beneficiary of that change and think that this could easily be a company that is 10 times larger 5+ years down the line.

Changes in the Portfolio

Just one round of portfolio changes in the recent quarter. I think we might be seeing a little more than that in the coming months.

Another exciting fourth quarter

The Freedom Portfolio – January 2022

Here is where the Freedom Portfolio stands now. Need a reminder of what these terms mean? Check out: Defining my Terms.

Ticker	Company Name	Allocation
SHOP	Shopify	Babylon 5
TSLA	Tesla	Babylon 5
MELI	MercadoLibre	Babylon 5
SE	Sea Limited	Enterprise
TTD	The Trade Desk	Enterprise
ETSY	Etsy	Serenity
SQ	Square	Serenity
RDFN	Redfin	Serenity
NVCR	NovoCure	Serenity
TDOC	Teladoc	Serenity
FVRR	Fiverr	Serenity
SNOW	Snowflake	Serenity
ROKU	Roku	Serenity
CRWD	CrowdStrike	Serenity
FUBO	FuboTV	Serenity
SWAV	Shockwave Medical	Serenity
ZM	Zoom Video	Serenity
DIS	Walt Disney	Serenity
AXON	Axon Enterprises	Serenity
NNOX	Nano-X	Millennium Falcon
CELH	Celsius Holdings	Millennium Falcon
TMDX	TransMedics Group	Millennium Falcon
DMTK	DermTech	Millennium Falcon

That’s the recap of the Freedom Portfolio for the fourth quarter of 2021. Let’s hope 2022 is a bit kinder than 2021 was. Thanks, as always, for following along.

The Freedom Portfolio – October 2021

November 15, 2021 paul.essen Comments 1 comment

Happy 3rd birthday to the Freedom Portfolio!

Yes, it’s been 3 years since I launched the Freedom Portfolio to document my ongoing battle with the S&P 500 for investing supremacy. To celebrate, I thought I might forgo the usual quarterly recap and instead do a little three year retrospective. But before diving into that, I wanted to make one thing very clear:

I am not trying to avoid or hide the fact that the performance of the Freedom Portfolio in the third quarter was subpar or that the performance over 2021 as a while has been pretty bad. I completely own it. In the third quarter, the Freedom Portfolio was down 9% while the S&P was flat. For the year, the Freedom Portfolio is essentially flat while the S&P is up nearly 16%. Two out of the three quarters of 2021 the Freedom Portfolio has lost to the market. I’m losing to the market so far this year and there’s a good chance 2021 will end up being a losing year overall. Not only am I not trying to hide it, but I want to be clear to everybody that this is happening.

Why? Because I want everybody to understand that I don’t stress over the short term and I have my eye on the long term. When you invest in the types of companies that I invest in and hold for long periods of time, it’s almost a certainty that you will experience severe periods of under-performance. After the incredible run-up in many of the companies in my portfolio in 2020, not only was the current under-performance in 2021 not a surprise, but it was almost expected. I’ve been investing for 20 years now. I’ve seen my fair share of market crashes and had my periods of under-performing the market. 2021 is looking like one of those years. 2022 could also be one of those years. It doesn’t shake my conviction. Why? Because of the chart I share every quarterly recap:

Because over the long term, I have confidence that a properly diversified portfolio of disruptive and innovative companies will beat the market. They won’t all be winners. In fact, many will end up being big losers. However, the wonderful thing is that it only takes a handful of big winners, held tenaciously, to more than make up for the losers.

To that end, in place of a quarterly recap of winners and losers, I wanted to take some time to acknowledge some of those big winners that I’ve held since the inception of the Freedom Portfolio. Those companies (and their performance over the past 3 years) are below:

Ticker	October 2018	October 2021	Total Return	CAGR
DIS	116.24	176.01	51%	14.8%
NVCR	52.62	116.11	121%	30.2%
SQ	97.28	239.29	146%	35.0%
JD	25.49	70.02	175%	40.0%
RDFN	18.11	50.97	181%	41.2%
MELI	332.49	1667.6	402%	71.2%
SHOP	163.42	1350.76	727%	102.2%
TSLA	62.14	775.22	1,148%	131.9%
S&P 500	5782.37	8994.44	56%	15.9%

The returns listed above (and below) are based on the end of the third quarter, not the most recent numbers. That often wouldn’t be a huge deal, except for the fact that it has taken me nearly a month and a half to get this quarterly recap done (sorry!) and during that time Tesla decided to go absolutely bonkers and rise roughly 50%. So Tesla’s numbers above are even higher. I felt like that was worth pointing out in case anybody was checking my work.

With that said, let’s dive into my thoughts on these veterans.

The Veterans:

Disney (DIS): 51% gain, -5% versus the S&P: I officially started tracking the returns of the Freedom Portfolio in October of 2018, but my portfolio still existed before then. Disney is actually my longest held holding. I first bought shares back in 2013. It’s been a wild ride that has seen the value of my shares more than double, yet that hasn’t been enough to keep it from losing to the market. It’s pretty amazing that despite an incredible box office run, massively successful launch of their Disney+ streaming service, and ever increasing prices at amusement parks, the stock has managed to underperform. Is the slow demise of ESPN really that much of a weight on the company? I continue to remain bullish on the company, but there’s no denying that their recent box office success will be difficult to top, streaming is getting more and more competitive, and there might be practical limits to how much even the most magical place on earth can charge. I have no plans for selling Disney, but my conviction in the company being a big outperformer going forward is beginning to slip some.

Teladoc (TDOC): 51% gain, -5% versus the S&P: On one hand, this one isn’t surprising at all. The poor performance of Teladoc as a stock since the Livongo merger has been well documented. On another hand, it’s quite shocking to see the company now trading for around the same value as it was prior to the pandemic AND at a market cap of $22 billion just a year after acquiring Livongo in a deal that valued that company at over $18 billion. I’m still a big believer in Teladoc going forward, but there’s no doubt it has been a big loser for me so far. The next year should be very telling in terms of if it can execute their vision and provide a service that differentiates itself from other telemedicine providers.

Novocure (NVCR): 121% gain, +70% versus S&P: This feels a little disappointing considering the stock is down around 50% over the past 4 months. Novocure has had a good run so far, but I think there’s a lot of upside left and less risk than before. Their trial results for cancers outside of glioblastoma have been very encouraging and there’s good reason to think they should be able to unlock a much larger TAM in the coming years. It’s hard for me to see how this isn’t a company that doubles over the coming 24 months.

Square (SQ): 146% gain, +95% versus S&P: Square is an interesting story in the importance of optionality. For over a year after the inception of the Freedom Portfolio, Square was basically flat. Then, during the midst of a pandemic which slammed many of the small and mid-sized businesses that relied on their point of sale product…. the stock took off, Why? Because of the Cash App and the growth that it saw during that time. Jack Dorsey is an eccentric guy who does a lot of things that I don’t necessarily agree with, but I love his embrace of bitcoin and the chances he has taken by acquiring companies like Tidal. If I had to bet on one horse to lead the United States into a digital banking future, it would be Square.

JD.com (JD): 175% gain, +124% versus S&P: I was a little surprised to see JD.com this high. Part of that is undoubtedly recency bias as I think of how JD has fallen as of late over concerns about China’s crackdown on certain companies as well as rumblings over Evergrande setting off a chain reaction which will bring down the entire Chinese (and perhaps world?) economy. I still like JD, but I would be lying if I said the recent actions of the Chinese government didn’t concern me. Additionally, the rise of Sea Limited (SE) seems to cap the upside in international expansion some and the rise of competitors within China like Pinduoduo likewise has me a little concerned. Lastly, I never like to see a founder step down like Richard Liu recently did. There’s still a ton of upside with JD, but if the time comes when I want to concentrate my portfolio further, JD could be on my list of potential sells.

Redfin (RDFN): 181% gain, +130% versus S&P: What absolutely won’t be on my list of potential sells is Redfin. Yes, the stock is down fairly substantially over the past eight months, but I remain as excited about the future of the company as ever. Glenn Kelman’s decision to treat iBuying as a complimentary piece to provide more options to the customer as opposed to laser focusing on it as the inevitable future of real estate is looking mighty smart after the news of Zillow pausing their iBuying due to too big of a backlog. The real estate market might be cooling off some, but as long as Redfin continues to take market share (and I believe they will) then I will remain a happy shareholder.

Mercado Libre (MELI): 402% gain, +351% versus S&P: Now we’re talking. Mercado Libre has been one of my biggest winners and it remains one of my strongest convictions going forward. There’s a lot of geopolitical risk in Latin America, but there’s a lot of potential upside as well. Mercado Libre is well poised to not only be the leader in ecommerce, logistics, and digital payments in Latin America’s biggest markets, but also to make serious inroads in advertising and credit solutions. This story still feels like it is just getting started.

Shopify (SHOP): 727% gain, +676% versus S&P: Taking into account performance pre-October 2018, Shopify is my biggest winner with an incredible >3,000% return since I bought it in 2017. It has taught me many lessons, and I have written about many of them, but for now I want to focus on one: the importance of diversification. Recently, as I have looked through my portfolio and seen some of my smaller positions perform horribly and my larger positions continue to hold up well, I have thought to myself: “Self? Why do I bother with 25+ positions and instead just focus on my top 5-10 positions? Wouldn’t I have better returns then?”

Shopify is a really strong argument against that thinking. For as bullish as I am on the company right now and as much as I believe in adding to my winners, I only bought shares in Shopify in the Freedom Portfolio once. That one time I bought it, it was a tiny part of my portfolio and maybe around my 15th biggest position. One position that I had more conviction in (and was in my top 10) was Activision Blizzard (ATVI) which has not performed well over the past 5 years (and which I no longer own). Shopify is a great reminder to stay humble. My top conviction stocks aren’t always going to be big winners and sometimes it’s my 15th best idea that will turn out to be my biggest holding.

Tesla (TSLA): 1,148% gain, +1,097% versus S&P: While Shopify is my biggest all-time investing winner, Tesla is officially the biggest winner for the Freedom Portfolio on a percentage gain from first buy to now. Unfortunately, the dollar amount gain isn’t quite as impressive. Why? Because even though I originally bought shares in 2015, I kept trimming my position over the years. I own less than half of my original position (accounting for the stock split) right now. Had I simply held onto my shares instead of trimming, Tesla would easily be my top position and I would be a wealthier person today. Just one more piece of evidence for the importance of letting your winners run as long as the thesis remains intact.

Changes in the Portfolio

The theme this quarter in terms of changes to the portfolio was: concentration. It felt like time to drop some underperformers and companies I had lower conviction in in order to add to winners and higher conviction names.

Concentrating the portfolio

The Freedom Portfolio – October 2021

Here is where the Freedom Portfolio stands now. Need a reminder of what these terms mean? Check out: Defining my Terms. Since the theme of this update has been looking back on the “veterans” that I’ve held since the inception of the portfolio, I felt it was only fitting to note how those positions have changed since my first Freedom Portfolio update from 3 years ago:

Disney, JD.com, and Redfin all were Serenity level positions and still are. Considering Disney’s relatively poor performance, I wasn’t surprised it hasn’t moved up much. JD.com was a significantly better performer, having beaten the S&P, although its performance was lower than the Freedom Portfolio overall, which explains why it hasn’t moved much. Redfin is the only surprise to me. Not only did it have pretty strong performance over the three years (although still losing to the Freedom Portfolio), but I also have added to my position a fair bit during that time. I’m still super bullish on Redfin, although it might be time to reconsider if Disney and JD.com belong in the Freedom Portfolio going forward.
Teladoc and Novocure were Millennium Falcon level positions and are now Serenity level positions. Two companies that have been underperformers (relative to the performance of the Freedom Portfolio as a whole), but two companies that I have added significantly to over the past few years. With continued good trial results coming out, I’m even more confident in Novocure now than I was 3 years ago. My conviction in Teladoc has been shaken a bit by some apparent execution challenges and synergies with Livongo that haven’t seemed to materialize yet. I still think there is a huge amount of potential there, though, and am not considering selling at this time.
Mercado Libre was a Serenity level position and is now a Babylon 5 level position. Although I did add a few shares since the inception of the Freedom Portfolio, this is almost entirely due to outperformance by Mercado Libre. Even still, this is just an $80 billion company (less than half the size of Sea Limited) and ecommerce and digital payments still seem like they are in the early innings in Latin America. Still feels like a huge runway ahead for Mercado Libre.
Shopify was an Enterprise level position and is now a Babylon 5 level position (and my largest position). Not sure what else there is to say here. Shopify has been incredible and in a world where Tesla is a $1 trillion company, a $200 billion market cap for such a well-managed leader in the ecommerce space seems pretty reasonable. I’m very happy keeping Shopify as my largest holding right now.
Tesla was Serenity level and is now Enterprise level. Like Shopify, Tesla has been another amazing story. Unlike Shopify, I have been consistently trimming my Tesla position (much to my detriment) as it has grown to a larger and larger percentage of my portfolio. I’ve done so because I just don’t have the conviction in Tesla to have it be a top 3 position in my portfolio. A large part of the reason for that is a valuation which seems a little insane and that has a lot of upside already baked in. So far, all that trimming has been a mistake, but I don’t necessarily regret it. I sleep better at night knowing that I am not too heavily invested in Elon Musk and his often erratic behavior.
Square was Serenity level and is now Enterprise level. I don’t talk too much about Square. Maybe that’s a mistake. It’s been a really solid contributor to the portfolio thus far, despite performance that is slightly less than the average for the Freedom Portfolio. It’ll be really interesting to see how crypto and NFTs affects Square going forward, particularly with Jack Dorsey seeming to be primarily focused on bitcoin. Originally, I thought his belief in and focus on bitcoin was a big positive. Now, it seems like it might be slightly blinding him to possibilities in the crypto space outside of bitcoin. Time will tell.

Ticker	Company Name	Allocation
SHOP	Shopify	Babylon 5
SE	Sea Limited	Babylon 5
MELI	MercadoLibre	Babylon 5
TSLA	Tesla	Enterprise
SQ	Square	Enterprise
RDFN	Redfin	Serenity
TDOC	Teladoc	Serenity
ETSY	Etsy	Serenity
FVRR	Fiverr	Serenity
TTD	The Trade Desk	Serenity
NVCR	NovoCure	Serenity
ROKU	Roku	Serenity
CRWD	CrowdStrike	Serenity
ZM	Zoom Video	Serenity
SNOW	Snowflake	Serenity
JD	JD.com	Serenity
SWAV	Shockwave Medical	Serenity
DIS	Walt Disney	Serenity
FUBO	FuboTV	Millennium Falcon
AXON	Axon Enterprises	Millennium Falcon
NNOX	Nano-X	Millennium Falcon
TMDX	TransMedics Group	Millennium Falcon
CELH	Celsius Holdings	Millennium Falcon
DMTK	DermTech	Millennium Falcon
SKLZ	Skillz	Millennium Falcon

That’s the recap of the Freedom Portfolio for the third quarter of 2021. Thanks for following along. Hope you all have an enjoyable holiday season and I’ll try to get my next update out in a more timely fashion.

The Freedom Portfolio – July 2021

July 10, 2021 paul.essen Comments 2 comments

I struggled a bit with what to write about for my quarterly recap this time around. In many ways, it has felt like the world has been in a bit of a holding pattern over the past few months as it waits to see how things shake out. Will a new COVID variant kick off a second wave which leads to new lockdowns? Will the Federal Reserve continue to keep rates low or will less-than-transient inflation cause them to take action? Will we continue to be seeing supply shortages and what areas might be next? Will surges in remote work and ecommerce during COVID stick around? How quickly will people be going back to cruises and movie theaters and airplanes? How long can Wall Street Bets and retail investors keep the meme stocks going? Are cryptocurrencies the wave of the future or a bubble in the process of bursting? Can the red-hot real estate market continue or are we looking at another housing crash? How will the streaming wars shake out? How does online advertising deal with the privacy changes being enacted by Apple and Google?

In many ways, this was reflected in my behavior during the quarter. I only wrote three posts and fewer changes to my portfolio than is typical. I think a lot of that is because, much like the rest of the world, I’m also waiting to see how things shake out and where certain long term trends go. For many of the questions I posed above, I have companies whose fates are closely entwined with the answers. If COVID lockdowns come back in some form we might see even more growth in ecommerce (SHOP, MELI, SE), and digital payments (SQ), and streaming (ROKU, DIS), and remote work (ZM). Bitcoin recovering from its recent stumble would undoubtedly be bullish for Square. A real estate bubble bursting would spell trouble for Redfin (RDFN). There are a lot of moving parts in the future of advertising which will ultimately determine how companies like The Trade Desk (TTD), Magnite (MGNI), and Roku (ROKU) will end up.

So that seems to be the theme of this past quarter: being in a holding pattern. It seems pretty fitting given my long term focus. There shouldn’t be any rush to make snap judgements on trends that are going to take years to play out.

Speaking of long term trends, here’s the updated Freedom Portfolio performance including the most recent quarter:

As you can see, it’s been a nice rebound from the drop last quarter as the Freedom Portfolio basically doubled the performance of the S&P 500 in Q2 16% vs 8%. The S&P 500 is still well ahead for 2021 as a whole, though, so this might be one of those years where I lose to the market. After the performance I had in 2020, I can’t be too upset with that.

Here are the returns of each of my positions over the past quarter:

Ticker	Quarterly Change
NVCR	66%
CELH	51%
SWAV	44%
FUBO	43%
ROKU	38%
CRWD	34%
SHOP	26%
AXON	24%
ZM	19%
TTD	17%
SE	16%
SKLZ	16%
FVRR	8%
SQ	6%
MELI	3%
TSLA	3%
SNOW	2%
ETSY	-1%
JD	-5%
DIS	-7%
RDFN	-8%
TDOC	-9%
BFLY	-11%
TMDX	-17%
DMTK	-19%
MGNI	-21%
NNOX	-22%

Notable Performers

Best Performers

NovoCure (NVCR): 66% gain: Novocure might have had the most exciting quarter of any other stock in the Freedom Portfolio. Part of it is because it was up a whopping 66% for the quarter, but part of it is also due to the fact that it popped 50% in one day in April due to overwhelmingly good results for its phase 3 trial for using Tumor Treating Fields on non-small cell lung cancer. This is a company which has more than tripled over the past year and sports a market cap over $20 billion, but I think there’s still room for growth. The treatments for which Novocure has FDA approval still tend to be rarer forms of cancer and there are many trials ongoing to study the efficacy of Tumor Treating Fields on more common forms of cancer. Additionally, no other company seems to be developing any similar treatments, so this is a field that Novocure could completely own. I’m happy to continue holding on to my full position despite the big gains.

Celsius (CELH): 51% gain: Celsius is one of those companies well outside my comfort zone. What kind of disruptive innovation can a beverage company provide? What kind of durable moat can it have? Anybody familiar with the story of Monster Beverage (MNST) can certainly provide an answer. For those who don’t know, Monster Beverage (the energy drink company) is one of the best performing stocks of this century, having outperformed such massive successes as Apple (AAPL) and Netflix (NFLX). I’ve done some research (discussions with the younger generation and some first hand beverage consumption) and I think there’s a decent chance that this “healthy” (put in quotes because I’m a bit skeptical of the claim) energy drink could be a decent sized winner going forward.

Shopify (SHOP): 26% gain: Not the biggest percent gain among the Freedom Portfolio, but notable for being such a large jump for my largest holding. Despite having had an exciting journey during that time, Shopify is essentially flat over the past 5 months as people undoubtedly are trying to figure out how much of the ecommerce surge that happened during COVID is here to stay. More than a play on ecommerce, though, I see Shopify as a play on entrepreneurship. For a variety of reasons, I believe people are getting less and less content working a typical 9-5 office job and are looking for something that will give them more freedom. For those who are also interested in being their own boss, I think Shopify has a compelling offering, and I believe that will continue to be a powerful tailwind for the company going forward.

Worst Performers

Nano-X (NNOX), DermTech (DMTK), and TransMedics Group (TMDX): 22%, 19%, and 17% losses: It seemed only fitting to combine these three companies since they represent three out of the four biggest losers during the past quarter and they are in similar situations to each other. All have potentially revolutionary new ways of addressing a medical issue. All of them are early in their life cycle and are either waiting on things like FDA approval or general acceptance from the medical establishment. I expected volatility from all of them so it doesn’t surprise me at all to see them all bringing up the rear in terms of performance this past quarter. If things work out for any of these companies, I fully expect them to be big winners in the coming 5+ years. However, I also think there’s a very good chance things don’t work out, which is why they currently remain small positions for me.

Changes in the Portfolio

Not a ton of changes in the portfolio over the past quarter, but those few changes were pretty seismic as I sold two of the positions that I have held the longest:

Saying goodbye to some old friends

The Freedom Portfolio – July 2021

Here is where the Freedom Portfolio stands now. Need a reminder of what these terms mean? Check out: Defining my Terms. A few notes:

Mercado Libre dropped from being a Babylon 5 level position to an Enterprise level position, largely due to the stock not having rebounded as much as the rest of the portfolio. It’s difficult to tell why. Are investors worried about Sea Limited’s Shopee making inroads in Latin America? Are there concerns over COVID? Political instability? Is it because the stock has more than tripled over the past 16 months? I have no idea, but I remain incredibly bullish on the company.
Teladoc and Square dropped from Enterprise level positions to Serenity level ones. Interestingly enough, those were the exact same two companies which had moved from Serenity level positions to Enterprise level positions during the previous quarter. Apparently the big takeaway is that both companies are right on the edge of Serenity and Enterprise level positions. Maybe they’ll swap again next quarter.
Disney moved from a Serenity level position to a Millennium Falcon level position thanks to some mediocre performance over the quarter (down 7%). With things continuing to open back up and Disney+ continuing to be on a roll in terms of releasing compelling content, I’m not at all worried about Disney going forward. In fact, if the opportunity presented itself, I might consider adding.

Ticker	Company Name	Allocation
SHOP	Shopify	Babylon 5
SE	Sea Limited	Enterprise
MELI	MercadoLibre	Enterprise
TSLA	Tesla	Enterprise
NVCR	NovoCure	Enterprise
TDOC	Teladoc	Serenity
SQ	Square	Serenity
RDFN	Redfin	Serenity
FVRR	Fiverr	Serenity
TTD	The Trade Desk	Serenity
ROKU	Roku	Serenity
ETSY	Etsy	Serenity
JD	JD.com	Serenity
ZM	Zoom Video	Serenity
CRWD	CrowdStrike	Serenity
SWAV	Shockwave Medical	Millennium Falcon
FUBO	FuboTV	Millennium Falcon
DIS	Walt Disney	Millennium Falcon
SNOW	Snowflake	Millennium Falcon
NNOX	Nano-X	Millennium Falcon
AXON	Axon Enterprises	Millennium Falcon
SKLZ	Skillz	Millennium Falcon
TMDX	TransMedics Group	Millennium Falcon
DMTK	DermTech	Millennium Falcon
CELH	Celsius Holdings	Millennium Falcon
MGNI	Magnite	Millennium Falcon
BFLY	Butterfly Network	Millennium Falcon

That’s the recap of the Freedom Portfolio for the second quarter of 2021. Thanks for following along!

The Freedom Portfolio – April 2021

April 10, 2021 paul.essen Comments 3 comments

Sorry about the lateness for this quarterly update. Apparently dealing with the re-starting extra-curricular activities of a 6 year old and an 8 year old while helping to take care of an infant soaks up a lot of time. Who knew?

I had a lot of feelings of Déjà vu during this most recent quarter. The obvious and most recent comparison is to the sudden market crash in February and March of last year. Here is what I wrote during my April update of that year:

Just a month ago, I was watching the Freedom Portfolio have a scorching start to the new decade thanks to the incredible run of companies like Tesla (TSLA). I was even wondering if I might be able to talk about how the portfolio had managed to double over a mere 15 months. That kind of thinking seems patently ridiculous now.
For those unaware, this past month has seen the fastest market drop in history as COVID-19 (aka, Coronavirus) has brought the US economy to a screeching halt. The volatility has been extreme, and it has gotten to the point where I don’t even blink when multiple positions in the Freedom Portfolio are up (or down) 20%+ in a day. Redfin (RDFN) was recently up 20% and 30% in back-to-back days and is still down something close to 50% in the past month alone. So I’ve very quickly had to shift my mindset from one of, “Isn’t the market an amazing way to generate wealth?” to “Don’t panic! This kind of thing happens sometimes”.
The Freedom Portfolio – April 2020

A very similar thing happened this past quarter: The Freedom Portfolio was absolutely on fire early in the year and at one point was up close to 30% in just a little over a month! Then, everything fell completely apart and by the time the quarter was over, the Freedom Portfolio was down 5% from the end of 2020. That doesn’t sound too bad, but it looks even worse compared to the 6% gain for the S&P 500 and it is positively atrocious if you measure the drop from that high of early February. Measured from that high, it’s a drop of almost 30%, which rivals the massive collapse from last year. The big difference, of course, is that it was pretty clear in 2020 that stocks were tanking as a result of the global pandemic and the resulting lock-downs which were devastating segments of the economy. It’s not nearly as obvious what is going on now in 2021.

Which is why this past quarter actually reminds me even more of the very first quarter of the Freedom Portfolio. Before I started the Freedom Portfolio in October of 2018, the companies I had invested in had gone through a prolonged period of performance where they were crushing the market. Then, at almost the exact time that I launched the Freedom Portfolio, and seemingly without any solid reason, those companies started to crash. If you look at a chart of the NASDAQ around that time you can clearly see the dip (although it is also dwarfed by the performance since then. My second post after the initial launch of the Freedom Portfolio was written on October 9th and entitled: A rough start for the Freedom Portfolio – But I’m not worried. The very next day I wrote this: The Freedom Portfolio is down over 5% today – I’m not even thinking of selling anything.

Unlike in 2020, there wasn’t any obvious reason for the big pullback in the tech heavy growth stocks that I favor. There were plenty of theories, though. Some think it’s a rotation from growth to value. Others think it’s due to rising treasury yields. Still others think it’s because many of these stocks will suffer when the economy reopens. Frankly, I don’t really care what the reason is, I just care if the companies that I am invested in are executing and if I continue to have faith that they will execute in the future. Nothing in the past few months has significantly changed my mind about that.

Here is where I normally post an updated chart of my returns versus the S&P 500 since the inception of the Freedom Portfolio. My guess is that your eyes are usually drawn to the right-hand side for the most recent returns, but this time I encourage you to look at the far left, where you might see a slight dip. That slight dip represents that horrible first quarter that I was describing above. It’s pretty incredible how it looks so small and unimportant when you zoom out and look at the long term. I look forward to this quarter also fading into insignificance when I look back years from now.

One more thing: Here are my top 7 holdings from that first quarter along with their returns over that quarter (yes, all of them but Tesla were negative):

Amazon (AMZN): -26%
Netflix (NFLX): -29%
Shopify (SHOP): -17%
Walt Disney (DIS): -7%
Tesla (TSLA): +9%
MercadoLibre (MELI): -15%
Square (SQ): -44% (!)

I still own every single one of those companies. I encourage you to compare those numbers above with the numbers below (particularly the numbers since inception) to get an idea of how even a company that was down 44% after one quarter can still rebound to be a big winner.

Ticker	Quarterly Change	Change Since Inception
FVRR	9%	12%
TSLA	-8%	1003%
SE	14%	627%
MGNI	51%	-16%
ZM	-11%	122%
ETSY	17%	95%
DMTK	12%	9%
CRWD	-9%	89%
SQ	3%	128%
RDFN	-1%	269%
FUBO	-9%	-5%
SHOP	1%	590%
TTD	-16%	206%
SWAV	28%	143%
ROKU	2%	164%
TMDX	118%	25%
MELI	-10%	341%
TDOC	-9%	112%
JD	-2%	225%
NNOX	-9%	-3%
BFLY	-12%	-27%
AXON	22%	91%
NVCR	-18%	153%
AMZN	-3%	55%
NFLX	0%	42%
SKLZ	5%	-16%
DIS	4%	60%
SNOW	-18%	-21%

Notable Performers

This section might get a little boring and repetitive because even though there have been some big moves this past quarter (both up and down), as I noted above, much of it seems to have less to do with how the companies have performed and more to do with outside factors like sector rotations. Still, it’s worth checking in with big winners and losers to make sure the thesis is still intact.

Best Performers

Axon Enterprises (AXON): 22% gain: A 22% gain is nice, but Axon was up roughly 75% just a few months ago. That big gain seemed to be in response to some pretty nice earnings that they reported in the most recent quarter. Why has it dropped since then? I have no idea. Axon shouldn’t suffer at all from the economy re-opening and if anything police body cameras seem like they would be more important to the new Presidential administration compared to the last. I’m just as bullish on this company as ever and fully expect it to be an outperformer in the coming years.

ShockWave Medical (SWAV): 28% gain: It was a surprisingly volatile quarter for Shockwave. Up until a day or two before the quarter ended, Shockwave was virtually flat for the quarter until they provided an update on the launch of their coronary IVL system which caused the stock to pop. Why? Possibly because they are expecting their revenue growth in the first quarter of 2021 to grow triple digits compared to the first quarter of 2020. That’s pretty impressive and indicates the bull thesis remains on track.

TransMedics Group (TMDX): 31% gain: TransMedics group was actually up more than 60% for the quarter, but I didn’t start my position until a month or two ago so I didn’t capture all of those gains. The company is still awaiting FDA approval for its device so there isn’t much to report, although they did recently make some progress on the FDA front. This is one to definitely just hold and not worry about too much until any news comes out on FDA approval.

Worst Performers

Butterfly Network (BFLY): 27% loss: Like TransMedics group, my Butterfly Network position was started mid-quarter, although this time it meant my losses were bigger. There’s not much to say here either. This position is a super speculative (and small) bet on ultrasound devices that could attach to a smartphone and be useful in telemedicine. Big swings in the short term are not only not a surprise, but to be expected. I still plan to hold on to see how this plays out.

Snowflake (SNOW): 23% loss: I really wanted to buy some shares of Snowflake at the IPO but the run-up in price was just insane. After peaking late last year, though, the stock has been on a steady march downward despite the company putting up some pretty solid earnings. After it got back to its immediate post-IPO price (and the lock-up periods look to have all expired), I decided the time was right to dip my toe in. I still think the future is bright for this company, even if the stock price could continue to fall in the short term as the valuation returns to a more sane level.

Changes in the Portfolio

The Freedom Portfolio – April 2021

Here is where the Freedom Portfolio stands now. Need a reminder of what these terms mean? Check out: Defining my Terms. A few notes:

Tesla dropped from being a Babylon 5 level position to an Enterprise level position. Some of this had to do with the stock dropping, but more of it had to do with me trimming the position. I still love Tesla’s future and I hate getting hung up on valuation, but even I had to admit that Tesla’s valuation was getting a little out of control. I feel much more comfortable with it being an Enterprise level position right now.
Amazon dropped from an Enterprise level position to a Serenity level one after I sold half my shares on the announcement that Bezos was stepping down as CEO. I was also starting to get a little concerned with just how much larger Amazon could possibly get seeing as it is getting close to a $2 trillion company. I think it will be a solid performer going forward, but I’m pondering whether I want to free up that cash to use on a company with more upside.
Teladoc and Square moved up from Serenity level positions to Enterprise level positions. Both seemed to have earned it by holding up better this quarter while the overall value of the portfolio went down.
Nano-X, Zoom, and Fiverr moved up from Millennium Falcon level positions to Serenity level positions in much the same way: thanks to sucking a little less than the rest of the portfolio this part quarter.

Ticker	Company Name	Allocation
SHOP	Shopify	Babylon 5
MELI	MercadoLibre	Babylon 5
SE	Sea Limited	Enterprise
TSLA	Tesla	Enterprise
TDOC	Teladoc	Enterprise
SQ	Square	Enterprise
RDFN	Redfin	Serenity
FVRR	Fiverr	Serenity
TTD	The Trade Desk	Serenity
NVCR	NovoCure	Serenity
ROKU	Roku	Serenity
AMZN	Amazon	Serenity
ETSY	Etsy	Serenity
JD	JD.com	Serenity
NFLX	Netflix	Serenity
ZM	Zoom Video	Serenity
DIS	Walt Disney	Serenity
CRWD	CrowdStrike	Serenity
NNOX	Nano-X	Serenity
FUBO	FuboTV	Millennium Falcon
TMDX	TransMedics Group	Millennium Falcon
SWAV	Shockwave Medical	Millennium Falcon
AAXN	Axon Enterprises	Millennium Falcon
DMTK	DermTech	Millennium Falcon
SKLZ	Skillz	Millennium Falcon
MGNI	Magnite	Millennium Falcon
SNOW	Snowflake	Millennium Falcon
BFLY	Butterfly Network	Millennium Falcon

That’s the recap of the Freedom Portfolio for the first quarter of 2021. Here’s hoping the second quarter is a little better.

The Freedom Portfolio – January 2021

January 7, 2021 paul.essen Comments 3 comments

Between the kick-off of Fantasy Investing 2021, my recklessly bold predictions for 2021, and just things like being commissioner of fantasy football leagues which are winding down and enjoying the holidays with my family, the end of December is already a pretty busy time for me even without having to write up a new quarterly recap. Also, I feel like it’s still fair to use the excuse of a newborn baby sucking away time.

Anyway, I apologize in advance that this one is a little short. You can probably expect a little bit more of an abridged quarterly recap in the fourth quarter going forward.

Let’s start out with updated performance:

And here’s a look how each individual position performed over the past quarter and since the inception of the Freedom Portfolio.

Ticker	Quarterly Change	Change Since Inception
NNOX	90%	6%
ROKU	66%	164%
TSLA	57%	1053%
NVCR	54%	227%
MELI	50%	387%
CRWD	48%	114%
DIS	47%	54%
TTD	44%	273%
SWAV	38%	95%
ETSY	35%	67%
RDFN	30%	270%
FVRR	30%	-2%
SQ	29%	116%
AAXN	28%	63%
SE	24%	512%
JD	12%	238%
SHOP	7%	580%
NFLX	3%	44%
AMZN	1%	61%
TDOC	-9%	130%
FSLY	-11%	48%
ZM	-30%	128%

I’ve run out of ways to describe how 2020 was in terms of investing performance for the Freedom Portfolio. It was simply amazing and I don’t expect to ever be able to replicate those results again. So instead of focusing on the positives, I wanted to touch on a few (investing) negatives from 2020.

Magnite (MGNI): I was pretty excited about Magnite (formed by a merger of Teleria and the Rubicon Project) at the beginning of the year, so much so that I made it one of my picks for my fantasy investing 2020 portfolio. At the same time, my conviction in the company was low, so it was a pretty small position for me. Some poor performance earlier in the year along with some management changes shook my conviction and I ultimately sold in June. About 6 months later, the stock now is sitting around 4x where I sold it. It’s possible I was too quick to sell Magnite, and it might be time to take another look at the company.

Jumia (JMIA): Jumia is a very similar story. I had high hopes for the “Amazon of Africa” since many of my other ecommerce companies were thriving during COVID related lockdowns. I sold in September after some mediocre results made me question if the company would be able to seize the opportunity. Since then, the stock has gone up 5x. I’m still not convinced I necessarily made the wrong call, though. Time will tell. I’ll be keeping my eye on it, but have no plans to buy shares again any time soon.

Notable Performers

Just going to briefly touch on the best and worst performer this past quarter.

Best Performer

Nano-X (NNOX) – 90% gain: Interestingly, Nano-X was on my “worst performers” list last quarter. There’s honestly not much to say here. A series of short reports pummeled the stock in Q3 and the stock bounced back from that in Q4 (thanks in part to a live demonstration that was streamed in December). This is still a highly speculative company where so much rests on FDA approval to disprove the majority of the short thesis. I’m still optimistic, but the plan is to hold off making any buys or sells until there is more clarification from the FDA.

Worst Performer

Zoom Video (ZM) – 30% loss: This is almost the reverse story to Nano-X. Zoom peaked a few months ago (shortly after the start of Q4) after some absolutely incredible earnings reports. Since then, it has dropped a fair bit, presumably on positive vaccine news and because people are worried about Zoom’s place in a post-COVID world. I am not worried at all, and Zoom is on my list of companies I am interested in adding to if/when I have cash available.

Changes in the Portfolio

The Freedom Portfolio – October 2020

Here is where the Freedom Portfolio stands going into 2021. Need a reminder of what these terms mean? Check out: Defining my Terms. A few notes:

Mercado Libre moved up to a Babylon 5 level position on the back of an incredible 50% gain over the past quarter
Crowdstrike moved up to a Serenity level position on the back of some additional buys and a nice 48% gain during the quarter
Fastly fell to a Millennium Falcon level position after falling 11% during a quarter where the rest of the portfolio increased almost 30%.

Ticker	Company Name	Allocation
SHOP	Shopify	Babylon 5
TSLA	Tesla	Babylon 5
MELI	MercadoLibre	Babylon 5
SE	Sea Limited	Enterprise
AMZN	Amazon	Enterprise
RDFN	Redfin	Serenity
TTD	The Trade Desk	Serenity
TDOC	Teladoc	Serenity
SQ	Square	Serenity
NVCR	NovoCure	Serenity
ROKU	Roku	Serenity
DIS	Walt Disney	Serenity
JD	JD.com	Serenity
ETSY	Etsy	Serenity
NFLX	Netflix	Serenity
CRWD	CrowdStrike	Serenity
FSLY	Fastly	Millennium Falcon
FVRR	Fiverr	Millennium Falcon
ZM	Zoom Video	Millennium Falcon
NNOX	Nano-X	Millennium Falcon
SWAV	Shockwave Medical	Millennium Falcon
AAXN	Axon Enterprises	Millennium Falcon

That’s the 2020Q4 recap of the Freedom Portfolio. Thanks for following, and here’s to a prosperous 2021 for all!

The Freedom Portfolio – October 2020

October 5, 2020 paul.essen Comments 4 comments

It’s the two year anniversary of Paul vs the Market and the Freedom Portfolio. Like last year, I thought I would take this opportunity to replace my quarterly recap with a little bit of a longer look back where I go over the performance of the Freedom Portfolio since inception.

Last year, on the one year anniversary, I wrote:

“I just wish it could’ve coincided with a better performing quarter. The third quarter of 2019 was brutal, and saw the Freedom Portfolio essentially give back all of the gains from the 2nd quarter. The Freedom Portfolio was down 10.5% for the quarter, compared to the S&P being up around 1.7%. I’m still up versus the market year-to-date 22.9% to 20.5%, but am now back to losing to the market since inception (October of 2018) -4.1% to 3.9%.”
The Freedom Portfolio – October 2019

What a difference a year makes. And what a surprising difference this year has made.

2020 is shaping up to be the best investing year I’ve ever had. I would consider either of those to be amazing returns for a single year.

Quarterly Returns: The past two quarters alone, the Freedom Portfolio saw gains of 73% and 30% respectively compared with gains of 21% and 9% for the S&P 500. (+52 and +21 percentage points for the Freedom Portfolio)
2020 Returns: The Freedom Portfolio is up 115% year-to-date versus 5% for the S&P 500. (+110 percentage points)
Yearly Returns: Since the above quote (ie, October 2019 to October 2020) the Freedom Portfolio is up 146% versus 15% for the S&P 500. (+131 percentage points)
Returns since inception (October 2018): The Freedom Portfolio is up 143% to 20% (+123 percentage points), which is a compound annual growth rate (CAGR) of 55%

For the visual learners, here’s what those returns look like:

As you can see, the past few quarters have been simply amazing for the Freedom Portfolio, and what makes it doubly amazing is that this has happened with the backdrop of COVID-19 and the havoc it has wrought on the economy.

Because I know there are skeptics out there who think the stock market is akin to gambling or that investing in individual stocks is just like throwing darts at a dart board, I always try to be careful with my usage of terms like “luck” when I discuss my investing results. I have a lot of exposure to ecommerce companies in the Freedom Portfolio because I believe ecommerce is a trend that hasn’t played out yet and still has a long way to go, especially in international markets like Latin America and Southeast Asia. It was a conscious decision to be overweight in those types of companies. At the same time, I don’t mind at all admitting that I was fortunate that those ecommerce happened to benefit greatly from the lockdown measures enacted by governments to combat COVID-19.

It wasn’t just ecommerce. Teladoc (TDOC) and Livongo (LVGO) rode the telemedicine wave while Netflix (NFLX), Roku (ROKU), and Zoom (ZM) benefitted from people staying home and working from home respectively. Even companies like Square (SQ) and Redfin (RDFN), while initially seeming like they would be impacted by harm done to small businesses and the real estate market, seem to have rebounded with a vengeance because of their strength in digital payments and virtual home tours. About the only company in the Freedom Portfolio which was really slammed by COVID is Disney, and even they had Disney+ to help keep sentiment relatively positive during this time.

Here’s a look how each individual position performed over the past quarter and since the inception of the Freedom Portfolio two years ago.

Ticker	Quarterly Change	Change Since Inception
TSLA	99%	602%
SHOP	8%	516%
SE	44%	375%
LVGO	86%	359%
ZM	85%	218%
MELI	10%	215%
JD	29%	199%
RDFN	19%	169%
TDOC	15%	152%
TTD	28%	142%
NVCR	88%	111%
SQ	55%	62%
AMZN	14%	56%
FSLY	10%	59%
ROKU	62%	51%
CRWD	37%	39%
SWAV	60%	43%
NFLX	10%	33%
AAXN	-7%	21%
ETSY	10%	15%
DIS	12%	6%
BZUN	-15%	-34%
NNOX	10%	-45%

While Sea (SE), Livongo, and Zoom have been amazing performers over a relatively short period of time and that is awesome, I wanted to talk specifically about the two best winners in the Freedom Portfolio: Shopify (SHOP) and Tesla (TSLA), and how they drive home two important investing lessons for me:

Don’t be afraid to invest in a company which has already run up
Don’t be afraid to hold onto winners as long as your investing thesis still holds true

While the Freedom Portfolio officially started in October of 2018, I actually first bought shares of Shopify back in January of 2017 (the return since then is somewhere in the neighborhood of 2,200%). It’s been a spectacular investment for me, but it also very nearly didn’t happen. I have a very clear memory of thinking that I had missed the boat with Shopify back in 2017. The stock had already nearly doubled and I was wondering how much further it could go. I decided to take a chance with a relatively small position that in less than four years has turned into by far my largest position in the Freedom Portfolio.

I almost didn’t hold on long enough for that to happen either, though. A little over a year ago, I wrote about how I was taking a risk on Shopify because I was concerned over the huge run-up in stock price even though “the investing thesis is stronger than ever”. I ended up not selling, and it’s a good thing I did, because the stock has tripled since then. Tripled!

Lesson confirmed: Don’t be afraid to let your winners run.

Tesla taught a slightly different lesson. I first bought shares way back in 2015, with the total return since then around 680%. You might notice that isn’t too far off from the return since late 2018. That’s because the stock was basically flat for the first 4 years that I held onto it, and was even down from my initial purchase price as recently as mid-year 2019.

During that time, there was a ton of noise surrounding Tesla as a company and as a stock (some of it coming from the CEO himself). Plenty of very smart people were predicting the company would go bankrupt. There were a lot of very legitimate concerns about dilution and margins and valuation and missed deadlines. However, if you believed that electric vehicles were the future and that Tesla possessed a huge advantage over legacy automakers in terms of battery technology, self-driving software, and charging networks, then it was hard to ignore the progress that Tesla was making despite consistently missing deadlines, some erratic behavior from the CEO, and turnover in management. Finally, in late 2019 and early 2020, the market seemed to catch on that the legacy automakers were in real trouble and that it’s entirely possible that Tesla isn’t just some tiny upstart, but might be the future of automobiles (and more?).

The lesson? Sometimes it can take years for the stock price to catch up to how the business is performing. Don’t be impatient. If the company continues to execute and grow and the investment thesis remains intact, then eventually the market will catch on.

Now that that is out of the way, let’s get into some other notable performers for the Freedom Portfolio since inception.

Notable Performers

Best Performers

Sea Limited (SE): Much like with my Shopify story above, I wondered if I had missed the boat with Sea Limited when I first bought shares in 2019 because it had already tripled. At the time the market cap was around $15 billion, which seemed high for a video gaming company just starting to dip its toe into ecommerce and digital payments in a mix of countries where it was up against competitors backed by deep pockets such as Alibaba (BABA).

I’m so glad I did.

As mentioned earlier, COVID has obviously helped to accelerate ecommerce and digital payment adoption around the world, but Sea has also done an incredible job of executing across the myriad of countries that they operate in and have seemingly started to pull away from their competitors across the board. Their gaming business also continues to impress as it makes inroads into Latin America and India.

Sea is probably the company where my conviction in it has increased the most over the past quarter. Here’s a fun fact: Out of all the current holdings in the Freedom Portfolio, Sea is the company on which I have spent the most money buying shares as I have been adding to it on the way up over the past year or so. It has become a large enough position to where I probably won’t be adding to my position anymore going forward, but I am really looking forward to seeing how they execute in the coming quarters and years.

Livongo (LVGO): Livongo has been a wild ride. I hadn’t bought shares until early this year and yet in that short amount of time it has already returned roughly 360%. I was so thrilled to see how this company was growing and riding the wave of remote healthcare.

Then the announced merger with Teladoc happened.

Initially, I was crushed, and not just because both stocks dropped on the news. It seemed like such a bad fit and I couldn’t understand why Livongo was getting acquired at such a low premium. It stung all the more since it happened right as they announced an incredible quarter that I expected to cause the stock to pop even more.

Now that I’ve had more time to digest the news, I’m warming up to the merger, though, and can understand why it was done and how the companies complement each other. In fact, I’m starting to get excited about the prospect of the newly merged company being a true powerhouse in the future of remote healthcare.

I’m holding off on making any decisions in terms of buying or selling shares of either company until the merger goes through and we get some insight into how the newly combined entity is performing, but I am cautiously optimistic.

Worst Performers

Nano-X (NNOX): This comes with a major astericks considering that just two days after the close of the third quarter, Nano-X surged more than 50% on news that it was going to offer a live demonstration of its Nanox.ARC System later in the year. Now that I have sold Jumia (JMIA) and Kushco (KSHB), Nano-X is easily my most speculative investment.

The Muddy Waters short report on Nano-X is concerning to me, since they have a pretty good track record in sniffing out problems with companies. At this point, I think I will just be sitting on my position (neither buy or selling) until we get any news on FDA approval. Hopefully this works out, but if it doesn’t, the position is small enough that I am comfortable with the idea of the stock going to zero.

Baozun (BZUN): Baozun has been a baffling investment for me. It has been a perennial under-performer in the Freedom Portfolio. Not only is it down 17% since inception, but it is down even more compared to the S&P 500 during that same time period. The US/China trade war has undoubtedly been a problem, but the company has also been in the midst of transitioning to higher margin products and away from a more capital intensive distribution model. Despite all of this, the company continues to grow.

To be honest, my conviction in the company is starting to waver. However, I don’t want to make any hasty decisions (see my comments about being patient with Tesla above), and the growth story is still intact. I plan on holding on for a few more quarters to see how the transitions play out and to see if US/China tensions ease. But if an exciting new opportunity comes along, Baozun might be one of the first companies that I consider selling.

Disney (DIS): It’s no surprise why Disney has struggled over the past year or so. Despite it being a very diversified company, almost every single major revenue generator for the company has been completely shut down by COVID-19. Obviously theme parks and cruises have been hugely impacted. Their movie business has also been put on hold as theaters are largely shut down and the Mulan experiment in releasing their blockbusters straight to digital has seemingly flopped. Even ESPN has been affected by the postponement and cancellation of sports. About the only positive for Disney during this time has been Disney+, their streaming service, and that doesn’t generate nearly as much revenue as their other business lines. And all of this happens right after Disney took on a lot of debt in order to purchase a lot of Fox assets. Frankly, I’m a little surprised Disney isn’t down even more.

I’m still a big believer in Disney. I believe their theme park and movie businesses will rebound. I believe they have a ton of growth left in Disney+ and a huge international opportunity in front of them. Yes, they might not have the same amount of upside as many of the other companies in the Freedom Portfolio, but there’s nothing wrong with the occasional slower and steadier grower.

Changes in the Portfolio

In the past, I had written about the buys and sells of the previous quarter in my quarterly recaps. With this quarter, I tried something new and decided to write up short posts soon after I made any changes to the Freedom Portfolio. As a result, there’s nothing additional to share here, so I will simply link to the posts that I wrote detailing my buys and sells during the quarter:

The Freedom Portfolio – October 2020

So here is where the Freedom Portfolio stands at two years. Need a reminder of what these terms mean? Check out: Defining my Terms.

A few notes before moving on to the full breakdown:

Teladoc and Livongo are on track to merge. While I have no reason to think the merger won’t go through, they are currently still separate companies, so I am treating them as such. If I treated them as a combined entity, they would be an Enterprise level position.
Since last quarter, Tesla has moved from an Enterprise level position to a Babylon 5 level position. That’s what tends to happen when a stock doubles in 3 months.
Likewise, MercadoLibre moved from a Babylon 5 level position to an Enterprise level position. It’s not MercadoLibre’s fault. It was up 10% for the quarter, which is a perfectly respectable gain. The rest of the portfolio just did a little better.
Baozun dropped from a Serenity level to Millenium Falcon level position. While this was mostly due to poor performance, it also perfectly mimics my lessening confidence in the company (as described above).
Lastly, Fastly (see what I did there?) moved from a Millenium Falcon level position to a Serenity level position, largely because I added to my position as I got more confident in the business.

With all that being said, here is the Freedom Portfolio as of October 2020:

Ticker	Company Name	Allocation
TSLA	Tesla	Babylon 5
SHOP	Shopify	Babylon 5
AMZN	Amazon	Enterprise
SE	Sea Limited	Enterprise
MELI	MercadoLibre	Enterprise
LVGO	Livongo Health	Serenity
JD	JD.com	Serenity
RDFN	Redfin	Serenity
TDOC	Teladoc	Serenity
TTD	The Trade Desk	Serenity
NVCR	NovoCure	Serenity
SQ	Square	Serenity
FSLY	Fastly	Serenity
ROKU	Roku	Serenity
NFLX	Netflix	Serenity
DIS	Walt Disney	Serenity
ZM	Zoom Video	Millennium Falcon
CRWD	CrowdStrike	Millennium Falcon
SWAV	Shockwave Medical	Millennium Falcon
AAXN	Axon Enterprises	Millennium Falcon
ETSY	Etsy	Millennium Falcon
BZUN	Baozun	Millennium Falcon
NNOX	Nano-X	Millennium Falcon

That’s the two year recap of the Freedom Portfolio! While 2020 hasn’t been the greatest year in many ways, it has at least been a pretty great run for the Freedom Portfolio. More than ever, I am excited to see what the future holds for the companies I have invested in. Thanks, as always, for following me on my journey to beat the market.

The Freedom Portfolio – July 2020

June 30, 2020 paul.essen Comments 4 comments

Wow.

2020 has been such a crummy year in so many ways, but when it comes to investing returns, I don’t know if I’ll ever see a quarter quite like the second quarter of this year.

This might be the best investing quarter that I will ever have.

The Freedom Portfolio was up 73% this past quarter alone. That is a ridiculous return for a whole year, let alone a single quarter. Granted, some of that is coming off of the Coronavirus-induced lows, but that’s just a tiny part of it. The Freedom Portfolio is still up 64% year-to-date and is now up 81% since inception, for a nearly 40% annual return. During that same time period, the S&P 500 is up only 10%, giving the Freedom Portfolio an outperformance of 71 percentage points.

For those who prefer visuals, here’s what it looks like:

Two years is still a pretty short period of time in the grand scheme of things, and I’m sure that gap will narrow at some point in the coming years, but at the same time I do believe evidence is starting to emerge that it is possible to beat the market… and that I’m doing it.

Here is the performance broken down by position over the past quarter:

Ticker	Percent Change
RDFN	169%
LVGO	163%
SE	144%
SHOP	128%
TTD	116%
TSLA	106%
SQ	100%
MELI	99%
JMIA	86%
YEXT	61%
JD	48%
FSLY	43%
SWAV	41%
AMZN	40%
BZUN	38%
ROKU	33%
AAXN	31%
TDOC	22%
NFLX	21%
SPOT	19%
DIS	15%
CRWD	1%
NVCR	-13%

Notable Performers

Best Performers

Not to brag (too much), but this list was nearly impossible to trim down. Two companies had stocks that appreciated over 150% this quarter alone. Another six appreciated 100% or more. Amazon (AMZN) had an incredible quarter that saw it gain 40% and yet it was (relatively speaking) a disappointment compared to the rest of the Freedom Portfolio and in fact dropped from a Babylon 5 level position to an Enterprise level position.

Anyway, to avoid going on for too long, I’m going to just stick to a top 3:

Livongo Health (LVGO): I first bought shares in this company last quarter and I am really glad I did. Livongo seems to be riding the telemedicine wave in the wake of Coronavirus, but I honestly thought this was an impressive company even before the pandemic. Their growth rates were incredible before and their model of health nudges and delivering medical supplies directly to the consumer should only benefit from a new normal that sees people visiting doctors and pharmacies less often. Few companies have gained my trust in terms of future performance more than Livongo over these past few months.

Sea Limited (SE): Although if any company could challenge Livongo’s claim to that title, it would be Sea. I’ve had my eyes opened to the potential of the Southeast Asia region and I was already a big fan of eCommerce and digital payment companies in developing regions (see, Mercado Libre (MELI)). Sea is following a slightly different path with their gaming business, and the competitive landscape is a little different with Alibaba looming, but I’m still really excited to see if Sea can become the dominant player in eCommerce and digital payments in Southeast Asia over the coming decade.

Redfin (RDFN): One of my favorite investments, and finally the performance is catching up to my conviction in the company. Early in 2020, Redfin looked to be on track for having a great year, before the stock got whacked hard by Coronavirus. I was confident that the short term challenges would be a long term gain for Redfin, though, as they had an advantage with virtual tours and low mortgage rates could heat up the housing market. It looks like I was right, and I’m thrilled to see people are finally realizing what a great investment Redfin can be.

Worst Performers

Again, not to brag too much, but it’s hard to find any contenders here. Only four positions under-performed the S&P, and two of those (Crowdstrike (CRWD) and Spotify (SPOT)) were only owned for a few weeks so it’s an unfair comparison. Thus, the only companies it makes sense to write about are…

Disney (DIS): It’s not at all a surprise that Disney hasn’t been the best performer this past quarter considering how almost all of their business lines have taken a major hit from Coronavirus induced lockdowns. Amusement Parks and Cruises are shut down. Movie theaters are shut down. Live sports are shut down. Short term, things will be messy for Disney, but assuming life ever gets back to some semblance of normality (which I believe it will), then I still like the long terms prospects. Disney+ is still killing it and they still have an amazing library of IP to pull from.

Novocure (NVCR): It makes some sense that Novocure is down a tiny bit this part quarter, as it sounds like Coronavirus is causing some delays in the clinical trials that were hoped to show how their Tumor Treating Fields could be effective with other types of cancers. I’m absolutely not worried at all, and even added to my position, as I see this as purely a short term speed bump and no challenge to the long term thesis.

Changes in the Portfolio

It was an unexpectedly active quarter for the Freedom Portfolio, as I closed out some lower conviction positions and added some new positions as well. Stock prices were also so volatile that there were some instances where I both added to my position AND trimmed some in the same quarter (Sea Limited).

Going forward, I’m hoping to try to write short pieces explaining my trades within a week of me making them, instead of saving them all up for the quarterly recaps. So if you don’t see this section in the next recap, that will be why.

Sells

KushCo (KSHB): It was long past time to sell. Too many things had happened to ruin the bull case and the company had gotten reduced to issuing more stock at depressed prices just to stay solvent. I don’t regret the initial investment because I thought it was worth the risk, but I do regret having held on for so long.

The Rubicon Project (RUBI): You might be asking yourself where this company came from since it wasn’t in the Freedom Portfolio last quarter. Teleria merged with the Rubicon Project and the combined entity took on the latter’s name. That’s not the reason I sold, though. The main catalyst was that the former CEO of Teleria, who had become the COO of the combined entity, ended up leaving the company soon after the merger was completed. That was enough of a red flag for me to exit for now, although I will keep an eye on the company to see how it executes going forward.

iQiyi (IQ): This one hurt for a few reasons. The first reason is that selling my entire iQiyi position effectively breaks up The JIB. The second reason is that just a few weeks after selling my shares, the stock popped big on news that Tencent (TCEHY) was planning on investing in the company, which makes it a lot more interesting. I have no plans to buy back into the company yet, but I will keep an eye on it.

Invitae (NVTA), Guardant Health (GH), CRISPR Therapeutics (CRSP), and Editas Medicine (EDIT): I group all of these together because my reasons for selling them were pretty similar. I was looking to reduce the number of positions that I have, and all of these were lower conviction holdings because they score so low on the “Understanding” level of my P.A.U.L. scoring system. I personally find it difficult to grasp what kind of advantages and moats and optionality these companies possess, and so I felt it was better to re-deploy those funds to companies I had higher conviction in.

I can’t help but note that Invitae made sure to get a parting shot in at me, though. One month after I sold, they announced an acquisition which caused the stock to jump 60% in two days. That hurt, but I consoled myself by remembering that I used the proceeds to buy shares of Sea Limited, which had almost doubled in that same month.

Trimmed the following positions: Teladoc (TDOC), JD.com (JD), Shopify (SHOP), and Sea Limited (SE). I trimmed all of these positions because many of them had appreciated a ton and I wanted to free up some money for some new ideas. Selling shares of Shopify really hurt, though. Why? Because up until then, I hadn’t sold a single share from my original purchase at $44.55 a share despite watching it skyrocket and increase by 1,800% (that’s not a typo). Because of my past experience with Netflix, I had sworn I wouldn’t sell my winners too early again, and I am worried I might be doing that here. Still, Shopify was approaching 20% of my portfolio and I only sold a small percentage of my position (less than 10%), so I resigned myself to trimming a little bit.

Buys

Axon Enterprise (AAXN): I kept hearing good things about the moat that this company has from some investors I really respect on Twitter, so I started digging into it more. This company is basically the old “Taser” company, although the exciting part of their business now appears to be body cameras and the fees they charge police departments to store the video generated by those cameras. I spoke to a friend who is familiar with the product and they gave a fairly glowing review, so I decided to dip my toe in with a small position. We’ll see how it performs in the coming years, especially in the current “defund the police” environment.

Zoom Video Communications (ZM): It sounds bad, but I feel like I was basically begrudgingly pulled into this position. I struggle so much seeing what kind of moat this company can possible have when so many other huge tech giants also offer video conferencing (and have been for years), but I also know a lot of investors I really respect really believe in the company, so I decided to start a small position. It’s already up 70%(!) from where I bought it two months ago, so I guess I have been proven wrong so far.

Spotify (SPOT): I keep darting into and out of a position in Spotify because I really like the moves they are making in acquiring deals with major players in the podcast space, but I also struggle with how they are going to successfully monetize them. I decided to jump back in after hearing about the deal they made with Joe Rogan. I’m going to try really hard to just hang on for at least a year this time to see how this podcast experiment plays out.

Fastly (FSLY) and Crowdstrike (CRWD): Much like some of the companies above, I’ve been hearing a lot of good things about these companies from investors that I have a lot of respect for, so I decided to open some small positions while I do some further research. I’m looking forward to learning more so that my conviction can grow and I can become just as bullish on these companies as they are.

Additions to already existing positions: Disney (DIS), Livongo Health (LVGO), Novocure (NVCR), Redfin (RDFN), Sea Limited (SE), The Trade Desk (TTD), Yext (YEXT), Roku (ROKU).

The Freedom Portfolio – July 2020

Obviously a lot of this is influenced by the incredible performance this quarter, but I’m really excited where the Freedom Portfolio sits right now. A couple of positions (Shopify and Tesla) have seen huge run-ups and will likely see periods of under-performance over the coming quarters and maybe even years, but I really like a lot of the Serenity level holdings I have and am looking forward to them taking off and being the next big growers in my portfolio.

Ticker	Company Name	Allocation
SHOP	Shopify	Babylon 5
MELI	MercadoLibre	Babylon 5
AMZN	Amazon	Enterprise
TSLA	Tesla Motors	Enterprise
TDOC	Teladoc	Serenity
RDFN	Redfin	Serenity
NFLX	Netflix	Serenity
SE	Sea Limited	Serenity
LVGO	Livongo Health	Serenity
DIS	Walt Disney	Serenity
TTD	The Trade Desk	Serenity
SQ	Square	Serenity
NVCR	NovoCure	Serenity
JD	JD.com	Serenity
ROKU	Roku	Serenity
BZUN	Baozun	Serenity
YEXT	Yext	M. Falcon
ZM	Zoom Video	M. Falcon
AAXN	Axon Enterprises	M. Falcon
SWAV	ShockWave Medical	M. Falcon
FSLY	Fastly	M. Falcon
SPOT	Spotify	M. Falcon
CRWD	CrowdStrike	M. Falcon
JMIA	Jumia Technologies	M. Falcon

Thanks, as always, for reading. I hope you’ve been having as much fun following along with me as I’ve had doing this so far.