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Cutting some losers to add to other losers

Cutting some losers to add to other losers

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It’s been a bloodbath in my portfolio for many months now, and I finally got around to shaking things up a little bit. These transactions happened a few weeks ago. Sorry for the delay getting this written. Who knew that 5 day a week swim and dive practice for two kids would be such a time sink? Also, some COVID in the family didn’t help. It does help to put things in perspective, though. Alpha is nice, but health is better. Anyway, here are some of the moves I made in my portfolio lately, along with my rationale.

As a reminder, if you like the insights you see in the visuals below, consider checking out Stockcard.io. VIP members can follow the Freedom Portfolio there to get greater insight into my portfolio. There’s a 14 day free trial and you can get 10% off using the promo code “paul”.

Sells

Sold entirety of Disney (DIS): Another long time holding bites the dust after nine years. Disney has been such a frustrating holding. Despite nearly doubling my money, Disney fell well short of the roughly 140% gain of the S&P during the same time period. Every time it felt like the company started gaining momentum with massive box office receipts and blowing away Disney+ subscriber numbers, it was followed up with a momentum breaker like a cash reserve draining acquisition or a global pandemic that shut down many of their main revenue generators.

So why sell now, with things opening back up and the acquisition in the rear view mirror? Simply put: the thesis is busted. When I first invested in 2013, I thought Disney had huge potential to create a strong streaming solution to rival Netflix and dominate the box office with the newly acquired Lucasfilm (Force Awakens was still over a year away) and red hot Marvel Cinematic Universe (the first Avengers film had just been released and Thanos was still a very distant threat). Now? Disney is the clear number two video streamer and 10 of the top 15 grossing movies of all time are Disney related. Additionally, the video streaming market went from basically just Netflix to oversaturation.

Speaking of oversaturation, I’m worried that might be happening with Disney+ and the avalanche of MCU and Star Wars shows. Initially, there was a huge novelty seeing something like The Mandalorian and I used to wake up early every Wednesday to watch new episodes of WandaVision and The Falcon and the Winter Soldier to avoid getting spoiled throughout the day. Now? Not only has the novelty worn off, but it almost feels like there’s too much to keep up with. I’m sure I’m not the only one who feels that way.

Lastly, it’s worth noting that the CEO change is a point of concern as well. Bob Iger was a greatly respected, long time CEO who made a number of big and bold moves to transform Disney during his tenure. The jury is still out on Bob Chapek, but I think it’s fair to say that the results have been mixed so far. He seems to have rubbed many people the wrong way and I believe his decision to wade into Florida politics was an absolutely terrible one. It’s hard not to see the CEO change as a net negative, at least thus far.

So, with many of the catalysts I was banking on for Disney as an investment having played out, now seems to be the time to look for better opportunities for my money.

Sold entirety of Nanox (NNOX): This one is pretty simple. Nanox was always a high risk / high reward pick and it looks like the risk didn’t pay off. Management just keeps on failing to execute. Founder Ran Poliakine is out as CEO. FDA clearance keeps getting delayed. I’ve lost patience and see better opportunities to deploy my capital elsewhere.

Buys

Added more Redfin (RDFN): The past 30 months or so have been some of the most chaotic that I’ve ever seen in my lifetime for the real estate market, and that includes the housing bubble bursting during the great recession. At least in that case it was a relatively straightforward up and then down. The past two and a half years have seen an almost instantaneous collapse of the real estate market during the COVID lockdowns of the first quarter of 2020. That was immediately followed by an incredible comeback as low supply, low mortgage rates, remote work, and the great migration led to a red hot real estate market. Now we’re seeing the brakes get slammed on again with some of the fastest rising mortgage rates ever. Throughout it all, Redfin has handled it about as well as can be reasonably expected. They’ve continued to grow market share (although it has been decelerating, which is a concern) and continued to build out there complete offering by acquiring Bay Equity and RentPath. Their cautious approach to iBuying allowed them to avoid completely blowing up their balance sheet (looking at you, Zillow) and their reduced commission business model should be particularly appealing during a slowing market where buyers are more cautious.

I like Redfin the company now as much as I ever have while the shares have almost never been cheaper.

Added more Roku (ROKU): I can understand why Roku has been hammered along with other “COVID” stocks. Growth in video streaming services seems to have stalled out, which seems like a big warning sign for Roku. I think the market is overreacting, though. Chord cutting and the migration to video streaming services doesn’t seem like a temporary thing that is going to get rolled back. Roku is a dominant player in the space, and is also well positioned to benefit from the increasing shift of ad dollars to connected TV. I’m happy to lower my cost basis on Roku here.

Added more Sea Limited (SE): Sea has had a few minor setbacks over the past few quarters. They seemed to have scaled back their ambitions in terms of expanding outside of the Southeast Asia area. Freefire seems to be losing popularity some. And India seems to be getting more hostile to them making inroads. However, the main reasons I was initially bullish on the company still remain in place. There is a massive opportunity in Southeast Asia for ecommerce and digital payments and I think Sea is well positioned to take advantage of that opportunity. Still a happy shareholder, and excited to add to my position at these levels.

Added more Shopify (SHOP): The extreme turn in sentiment for Shopify is a bit hard for me to explain. Did the stock get overly expensive? Definitely. Did people get overly optimistic about the company and misjudge how much of the shift to ecommerce would stick around post-COVID? Apparently. But an 80% drop is still pretty extreme. I continue to believe Shopify is well positioned to be the #2 option in ecommerce behind Amazon and that it will continue to benefit from trends that started before COVID, even if COVID accelerated them.

Those are my recent portfolio moves. What do you all think? What do you disagree with? Is Disney too high quality to sell? Should I have given Nanox more time? Or cut my losses earlier? Am I being too stubborn with Redfin or Roku or Sea? Let me know in the comments!

January 2022 Portfolio Changes

January 2022 Portfolio Changes

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What a start to 2022.

Not only is the Freedom Portfolio down 25% for the year (as of this writing), but the volatility has been crazy. It hasn’t been uncommon for my portfolio to be up 5% the day after a 5% fall. I don’t like to make snap decisions when it comes to my investments, so I’m always cautious making any moves during extreme volatility like this, but when I see some of my top conviction companies getting cut in half, then it gets hard not to take action.

In the past few weeks, I made a couple of changes to the Freedom Portfolio to discard some lower conviction companies or companies I was beginning to worry about in favor of some of the aforementioned beaten down companies. Below are the changes I made, along with a brief description of my thought process.

As a reminder, if you like the insights you see in the visuals below, consider checking out Stockcard.io. VIP members can follow the Freedom Portfolio there to get greater insight into my portfolio. There’s a 14 day free trial and you can get 10% off using the promo code “paul”.

Buys

Added more Redfin (RDFN): I feel like a broken record talking so often about how much I love Redfin. Here’s an interesting fact: Redfin the company currently in the Freedom Portfolio that I have added to my position the most times without ever selling any shares. Technically, it’s actually tied with Nano-X, which was quite a surprise to me considering my conviction on Nano-X is so much lower.

The reason for adding to Redfin is simple. The stock keeps falling as the macro environment worsens for the company (cooling real estate market and rising interest rates), but the positioning of the company just seems to keep getting better and better in my opinion. Zillow’s epic misstep in iBuying lessens them as a competitive threat and vindicates Glenn Kelman’s caution on iBuying. The acquisition of Bay Equity Home Loans should supercharge their mortgage business and strengthen their ability to offer customers a unique whole real estate process. The next few quarters might be rough as rising interest rates put a damper on the real estate market, but I have confidence that Redfin will continue to take market share and emerge as a stronger company a few years down the line.

Added more Sea Limited (SE): Take a look at the stock chart for Sea:

That is a pretty epic collapse in stock price. I’m not sure I’ve ever seen a more dramatic fall in such a short amount of time where there was basically no negative news for the company. Did the stock have an amazing run-up before then? Yes. Was the valuation a little crazy? Sure. But it’s still pretty strange to me to see sentiment shift so quickly. Just a few months ago I was kicking myself over not having bought more shares of Sea back when it was between $100-$200 a share in late 2020. Looks like I got my wish, and I’m not going to pass up this opportunity.

Started position in Nubank (NU): Nubank first showed up on my radar when I learned that Federico Sandler, the awesome former head of investor relations for Mercado Libre, had left the company. I was interested in what position could’ve lured him away and learned that it was a (at the time) private company called Nubank. Nubank is, as it sounds, a new kind of bank that focuses more on technology and mobile apps over the physical branches that traditional banks are focused on. The company is headquartered in Brazil and has a lot of exposure to Latin America. As I’ve mentioned before, I’m a big fan of fintech companies and also a big fan of exposure to developing markets like Latin America and Southeast Asia. Whenever I can invest in a company that combines both, I’m doubly interested. Nubank IPO’d late last year and pretty quickly dropped below IPO price. I couldn’t help but dip my toe in with a starter position.

Sells

Sold entirety of CrowdStrike (CRWD): Crowdstrike had been a pretty solid performer for me, but despite that I found myself getting increasingly nervous about my investment in the company. Cyber-security is an ever evolving space with new competitors (and new threats) constantly emerging. And due to the nature of the business, it only takes one breach for trust to be shattered and the brand to be tarnished. I had gotten burned before thinking a cyber-security company had a durable advantage and didn’t feel confident enough in my knowledge of the space to say for sure that Crowdstrike was in a better position than its competitors. Throw in a rich valuation and I just found myself not loving the risk / reward and wanting to deploy the capital elsewhere.

Sold entirety of Dermtech (DMTK): Dermtech seems to have a technology in their Smart Sticker which is clearly much better than what currently exists. Who wants to get cut with a scalpel? Yet for whatever reason Dermtech hasn’t seemed to be able to capitalize. Maybe COVID has suppressed the number of people getting checked for skin cancer and once things return to normal the company”s prospects will improve? Maybe, but I’m not sure I want to stick around to find out. I would rather have my money in some of the companies listed above in the “buy” section.

Sold entirety of TransMedics Group (TMDX): I love the idea behind TransMedics and what they’re trying to do with their Organ Care System, but I always had some concerns over how big of a market there was for transporting organs and if they were going to be able to meaningfully disrupt that market. I’ve only grown more doubtful recently. It was always a low conviction position for me, and with so many higher conviction companies on sale, it seemed like now was the time to make a move.


Another exciting fourth quarter

Another exciting fourth quarter

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I launched the Freedom Portfolio in October of 2018. It effectively happened right as the market was taking a very sudden and very pronounced dip (especially so in growth/tech stocks) right at the end of the year. Sound familiar? That dip seems to have been largely forgotten now, and if you look at a chart of the S&P500 it can even be hard to identify it. That drop is burned into my memory, though, because it caused me to have to write this in my first quarterly recap of the Freedom Portfolio:

Ouch.

It’s hard to think of any other way of describing the start to the Freedom Portfolio. It’s also hard to think of a better way of describing the performance of the stock market over the past month. As of the time of this writing, the all-time high for the S&P 500 was September 20th, 2018. That was about a week and a half before the official start of me tracking the performance of the Freedom Portfolio. I couldn’t have picked a worse starting time if I tried.

The S&P 500 opened at 2926.29 on October 1st and closed at 2506.85 on December 31st. That’s a return of -14.3% over the quarter, which is a pretty extreme downturn. During that same time, the Freedom Portfolio is down 22%, which is obviously even worse.

The Freedom Portfolio – January 2019

So a little end of year Christmas crash doesn’t really phase me much anymore.

One thing I have noticed about myself during times like these, though, is that it tends to motivate me to concentrate my portfolio into my higher conviction picks. It’s easy to want to own anything and everything when the market is soaring and a high tide is lifting all boats. But when the going gets tough, it’s a lot easier to sleep at night when your investments are all in companies you know very well that you have high confidence in.

To that end, recent events have convinced me that it’s time to make some further tweaks to my portfolio to circle the wagons around companies I feel strongly about. The end result is cutting two companies entirely and beefing up my position in some high conviction picks that have been particularly beaten down lately. Check out my thoughts below:

Added to Novocure (NVCR): For those with a short term investing horizon, I can understand why you might be selling Novocure right now. Their recent earnings weren’t great, and showed some signs of slowdown in their core business of treating glioblastoma. However, for those willing to look out a year or more, it’s hard for me to find a company that seems like a more obvious big winner than Novocure. They’ve had nothing but great results for their trials for treating other forms of cancer so far, and those other cancers will explode their total addressable market far beyond where it is now. Just 6 months ago, Novocure was trading over $220 a share (it’s at $90 a share now). Assuming they are able to execute at all on these new opportunities, this feels like a big winner in 2022 and beyond.

Added to FuboTV (FUBO): I understand the short term bearishness with Novocure. I totally don’t understand it for FuboTV. Their recent earnings looked pretty great to me as they continue to grow at a rapid pace. The gambling side of the business seems to be slowly but surely getting set up while ad revenue has been skyrocketing as well. I’m a bit confused what people might have seen in the earnings report which would make them want to sell. I’m a happy shareholder, and happy to pick up some shares on sale.

Added to Sea Limited (SE): It’s been awhile (over a year) since I have added to my position in Sea. Part of the reason has been because I have a general rule of not adding to positions that get to be Babylon 5 level positions and Sea has largely been hanging around that level for awhile. However, this recent pullback caused it to drop below that level and I could resist getting shares around 30% cheaper than they were just a month ago. Sea is one of my highest conviction holdings over the next 5 years and it’s hard for me to imagine this not seeming like an absolute steal years down the line.

Added to Mercado Libre (MELI): Pretty much everything that I said about Sea could be said about Mercado Libre as well. The biggest difference is that Mercado Libre’s drop had been going on for a bit longer (~4 months) and had been even more extreme (~40% off highs). Maybe people are concerned about the political situation in Latin America, but Mercado Libre has proven that they have been able to expertly deal with any problems that have arisen in the past so I am not overly concerned. Once again, this seems like a great opportunity to get shares of one of my favorite companies at a big discount.

Trimmed Tesla (TSLA): I generally find that as one of my positions grows, so does my conviction. I also very rarely worry about valuation when it comes to companies and hate using that as a reason to sell. Tesla has been an exception to both of those rules, and unfortunately it has been much to my detriment. For whatever reason, Tesla as a trillion dollar company makes me incredibly nervous. It seems like too much upside is already priced into the company. Over the past 14 months, I’ve trimmed my position 5 different times (not counting this trimming) and every time it has been a mistake. Had I simply held onto all of those shares, Tesla would easily be my top holding right now and would have even surpassed Shopify (SHOP). My portfolio performance would’ve also been much better. So I’ll probably regret this trimming as well, but I remain undaunted. I simply sleep better at night knowing that Tesla remains a significant portion of my portfolio, but not the biggest position.

Sold entirety of JD.com (JD): This was a tough one to sell. JD was the last remaining member of “the JIB” and was one of the 8 veterans that I wrote about in the most recent Freedom Portfolio update that had been around since I started tracking my performance on this site. It has even been a pretty great performer, having solidly beaten the S&P during that time.

So why did I sell it? In a word: uncertainty. It had always been difficult for me, as somebody who doesn’t live in China, of judging how well JD.com was doing against its competition. Was Alibaba eating their lunch? How about Pinduoduo? Are newcomers disrupting them? I had previously thought iQiyi had a chance to be the Netflix/Youtube of China, but overestimated their position in the space. I was worried about doing the same with JD. Adding to the uncertainty was founder Richard Liu stepping back from day-to-day operations, perhaps as a precursor to stepping down as CEO entirely. Finally, it’s no secret China has been cracking down on tech companies and CEOs who were seen as becoming too powerful. Would Richard Liu and JD.com be in their cross-hairs next?

It all added up to a bit too much uncertainty for me. I still think JD.com can be a winner going forward, but there were other companies I felt that offered a better risk / reward for my money, which is why I sadly had to say goodbye to my JD position.

Sold entirety of Skillz (SKLZ): I consider myself to be a bit of a hardcore gamer, but I also realize there is a huge market for more casual style of games. I can remember when Myst and Deer Hunter would bafflingly sell more copies that games that I thought were far superior, like Starcraft. So I thought there could be a lot of opportunity for Skillz to capitalize on that casual gaming audience with their platform. Unfortunately, because those types of games aren’t in my wheelhouse, I never got overly passionate about the company and it always stayed as a lower conviction pick (and one that I knew less about than my other picks). Combine that with some mediocre returns and this was an easy choice to drop (far easier than selling JD).

Note: Enjoy those graphics above? Make sure to check out stock card.io. With a VIP membership, you can even get more in-depth information about my portfolio. Use promo code: “paul” for a discount.

Concentrating the Portfolio

Concentrating the Portfolio

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I don’t have a hard and fast limit on the number of positions that I have in the Freedom Portfolio, but in general I prefer to try to keep a more concentrated portfolio focused on my best ideas. I’ve generally found that around 20 positions seems to be the sweet spot of providing enough diversification to allow me to get in early on companies like Shopify (which was at one point was around my 15th largest position) while not having so many companies to follow where it gets difficult to keep track of things. Keeping the number of positions that low can be a challenge, though, as at any given time there are usually 30-40 companies that I find intriguing for one reason or another. It takes constant vigilance to prune out lower conviction positions in order to prevent the number of positions in my portfolio from getting too bloated. For the past few quarters, the number of positions in the Freedom Portfolio have hovered closer to 27 / 28 instead of 20, so it has felt like long past time to focus on concentrating the portfolio a bit.

To that end, here are some changes I have made to my portfolio over the past few months. Interested in getting more immediate feedback on when I make changes to my portfolio? Consider following the Freedom Portfolio on Stockcard where VIP members can see portfolio changes that I make on the same day that I make them. There’s a 14 day free trial and you can get 10% off using the promo code “paul”.

With that out of the way, let’s talk portfolio changes.

Sold entirety of Magnite (MGNI) for a loss of 44%: I had really rotten timing with Magnite, formerly Rubicon Project, and also formerly Telaria. I first bought shares before the Telaria / Rubicon merger after getting enticed by the idea of getting more exposure to connected TV advertising and perhaps finding a cheaper Trade Desk (TTD). I ended up selling shortly after the merger pretty much right before the stock took off in late 2020. Eventually I fell for the FOMO and re-bought right around the top this past February. I’ve been reconsidering my investment thesis for Magnite recently and I came to the conclusion there were better places for my money. Why? Simply put, why own Magnite when I could own The Trade Desk? There seem to be more advantages to being a leading demand side platform versus a supply side platform, and I have more faith in Jeff Green (the CEO of The Trade Desk) than I do in the management of Magnite. It felt increasingly like keeping a “second best” position. That, combined with the poor performance, convinced me that it was time to sell.

Sold entirety of Butterfly Network (BFLY) for a loss of 48%: I’ve had a fair amount of luck recently with medical device companies like Novocure (NVCR) and Shockwave (SWAV). Perhaps that is why I got a little trigger happy and bought shares of Butterfly Network a little earlier than I should have. I’m still intrigued by the promise of increasing accessibility of ultrasounds, but I should’ve been more patient with a newly public company and waited a bit to see how it performed. I’m leaving open the possibility of restarting a position at some point, but for now, I have higher conviction positions that I want my money in. Such as….

Added to Redfin (RDFN): I didn’t think it was possible, but I recently listened to a Glenn Kelman interview on Twitter spaces which increased my conviction in the company even more. I really really love the long term outlook for this company and, as an added bonus, the stock is down nearly 50% from recent highs so shares are on sale. I think the stock is suffering from perceived weakness in the housing market relative to earlier in the year, but the company has been executing well and taking market share. I would be shocked if this wasn’t a significantly larger company in 5-10 years, which is my intended holding period.

Added to Zoom Video (ZM): I believe the death of video calls and remote work is being greatly exaggerated. Anecdotally, I’ve seen companies more and more listing fully remote positions and video meetings being more tightly integrated into regular work. New business areas like virtual murder mystery parties and virtual comedy shows are cropping up while existing businesses are working in virtual options for things like exercise classes. Will growth see a slowdown? Absolutely. But Zoom stock is back to where it was in June of 2020 despite putting up some of the best earnings reports I have ever seen since then. I’m happy to add here.

Saying goodbye to some old friends

Saying goodbye to some old friends

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Note: This post was started a few weeks ago, so some of the numbers quoted below may be slightly off now, but the overall sentiment remains the same.

The past few months have been rough for the Freedom Portfolio. The S&P 500 is up, the NASDAQ is roughly flat, but the Freedom Portfolio has lost about a third of its value. I’m not at all panicking. I’ve been through periods like this before and despite this being the second such drop of a third in value in the past 17 months, my portfolio is still up 2.5x in that same time period.

What I am feeling, though, is a great sense of envy. I’m seeing a bunch of companies I am really bullish on that are on sale. Teladoc (TDOC) and Fiverr (FVRR) for 50% off? Redfin (RDFN) at 40% off? Mercado Libre (MELI), Etsy (ETSY), Zoom (ZM), and Square (SQ) 30% off? Yes, please.

The problem is that, because I don’t try to time the market, I am fully invested at all times. I don’t have “dry powder” to deploy to take advantage of these dips in some of my favorite companies. If I want to buy shares in something, I need to sell shares in something else. I spent weeks going over my positions and mentally tallying pros and cons and re-evaluating my investing theses (hopefully that’s how you spell the plural of “thesis”). Eventually, I came to the unavoidable truth:

It was time to say goodbye to my positions in Amazon (AMZN) and Netflix (NFLX).

Selling the rest of my shares in these incredible companies was emotionally very difficult (hence why it took me weeks to compose my thoughts to get this post finished). These two companies, along with Disney (DIS), are/were my longest tenured positions at 7-8 years. It was just 3 years ago that I wrote a few thousand words confidently explaining why Amazon was my largest holding. Netflix was the subject of one of my favorite things that I have written, along with an integral part of one of the most important investing lessons I have ever learned. Until a few months ago, I couldn’t have conceived of selling the rest of my shares.

However, as much as it may have been emotionally difficult, I do think it was logically the correct decision. Another way to think about nostalgia for these companies is to consider it anchoring bias. The investing thesis that I had for these companies 7 and 8 years ago isn’t nearly as relevant now and lots of things have changed. Amazon is no longer the only name in ecommerce and cloud computing, just as Netflix is no longer the only game in town for streaming original content. In fact, it was pretty remarkable how similar the reasons were for why I could convince myself that it was time to part ways with these companies:

  • Both companies recently had their trailblazing founders step down as CEO. Reed Hastings and Jeff Bezos would probably both be on my Mount Rushmore of innovative entrepreneurs of my lifetime and both were huge reasons why I was bullish on both companies continuing to be innovative in the future. In fact, in my write-up of Amazon, I had specifically mentioned Jeff Bezos stepping down as my #1 worry about the company (I also feel the need to pat myself on the back and point out that 3 years ago I said, “it wouldn’t completely shock me to see him step down to a smaller role in the next 5 years”). I have no doubt that Andy Jassy and Ted Sarandos can keep both companies executing well, but I do have serious concerns regarding whether they will be willing to make the same big, bold moves as their predecessors. That was a major red flag for me.
  • Both companies just had incredible years where they likely pulled forward a ton of business. Netflix made no secret that their incredible growth in 2020 was undoubtedly aided by COVID induced lockdowns which left people with little else to do but binge watch shows. Amazon likewise saw crazy ecommerce growth for obvious reasons. I would be shocked if we ever saw the kinds of revenue growth for Amazon and subscriber growth for Netflix in the future that we saw in 2020.
  • Both are seeing increased competition. Microsoft Azure has proven to be a very formidable competitor to AWS and has won some major contracts over AWS. Netflix is seeing the old media companies coming out swinging with impressive offerings like Disney+.
  • Both companies are starting to change from the types of companies they were just a few years ago. Amazon famously had the mission statement of: “We seek to become Earth’s most customer centric company”. Yet their recent push into advertising threatens that mission statement. Netflix used to be a “subscriber growth at all costs” kind of company, which served it well for becoming the dominant video streaming force in most of the countries on the planet. However, now that a lot of the low-hanging subscriber fruit has been picked, it seems to be slowly transitioning to a company slightly less concerned with growth and slightly more concerned with making money. That’s not a bad thing at all, but it is a significant change from my original investment thesis.

Those are just a few of the reasons. I could go on. I don’t know if it helps to dwell on the past, though. And that’s what Amazon and Netflix have become now: the past. Instead, let’s talk about the future and the positions I added to (or started) with the funds freed up from closing out my Amazon and Netflix positions:

Added to Snowflake (SNOW): I wanted to buy shares of Snowflake at IPO, but the price had a crazy run-up in the days before and on IPO day itself. As a result, I decided to pass and wait to see if a better opportunity presented itself. Now, with shares trading below where they did on the day of IPO, the valuation seems much more palatable. Happy to add some more at this level and might be looking to add even more since even with this add it is still a Millennium Falcon level position.

Added to Redfin (RDFN): Redfin is down nearly 50% from recent highs and yet I am just as bullish as ever on the company. They continue to execute well and all of their growth metrics continue to look great. Their comprehensive suite of services means they can offer a clear better solution to many of their competitors. They still only have a little over 1% of the fragmented real estate market and is still around 1/5th the size of Zillow (Z). There is still a ton of upside left with this company and I think it still has 10x potential.

Added to Teladoc (TDOC): Teladoc is down more than 50% from recent highs and is now trading close to pre-pandemic levels. That seems crazy to me, especially considering that they merged with Livongo since then. There’s a lot of pessimism around Teladoc’s future growth prospects and how much of a moat they have, especially in light of companies like Amazon (AMZN) entering the space, but my conviction remains unshaken. I believe telemedicine is not just a flash in the pan that will fade away post-pandemic, and I think the Livongo acquisition will help Teladoc offer a unique way to help patients between doctor’s visits. Thrilled to be able to add at these levels.

Added to Etsy (ETSY): Etsy is down about a third from recent highs. Some of that is a reaction to some perceived disappointing growth forecasts from their recent earnings report. I can understand the concern, as there’s still an open question of whether Etsy will continue to be a major player in a post-pandemic world and if they can attract customers outside of holidays and special events. I think they can, and are well positioned to play an “anti-Amazon” role of offering personalized and unique products. Etsy is still just a tiny bit over 1% of the size of Amazon, which seems crazy.

Added to Nano-X (NNOX): This comes with a bit of an asterisks. I added to my Nano-X position prior to earnings when it was down over 50% from recent highs despite having announced FDA approval for its single source digital X-ray. After my add, there was a handful of disappointing news that came out during earnings which had me regretting my buy. I’m not selling right now, but I’m also not adding anything else. I need to see a little bit better execution before I increase my position size.

Added to Skillz (SKLZ): Skillz is down almost 2/3rds from recent highs. As near as I can tell, the biggest reasons seem to be that there have been some short reports and some concerns over a CFO transition. The CFO transition bears some watching, but assuming the company isn’t an outright fraud, then the growth numbers seem solid and the investment thesis remains intact for me. This seemed like a good opportunity to buy shares at a big discount from where I first started my position. It’s still a relatively high risk position, but I’m comfortable with it since it is also still a small Millennium Falcon level position for me.

Added to Fiverr (FVRR): Fiverr is down almost 50% from recent highs. Fun fact: of all my current positions, Fiverr is the one where I have lost the most money in absolute dollar amounts. That might cause some to question the wisdom of increasing the position. I am undeterred. Fiverr just recently put up an incredible earnings report and the platform looks as healthy as ever. I remain incredibly excited about the future of the company and, at only a $6 billion market cap, I think there’s still a long runway for growth ahead of it.

Added to Axon (AXON): Axon is down by about a third from recent highs (notice a pattern yet?). Like many of the above, Axon just reported great results and there’s no clear business reason for such an extreme drop. I’m happy to add more at these levels.

Started position in Celsius (CELH): This might seem like an odd addition. Really? An energy drink company? How exciting is that? Well, let me introduce you to one of the best performing stocks of this century, a company that has outperformed companies like Apple, Google, and Amazon with a 70,000% return. Interested? That company is Monster Beverage (MNST). Clearly Celsius doesn’t quite have the same upside at this point seeing as it has already been a 10 bagger and is already a $4 billion market cap, but the point stands that amazing returns can come from unexpected places. This is a favorite among many people I follow on Twitter and I’ve heard encouraging first hand accounts from people I know. Celsius is growing fast, but still has a tiny percentage of the market. Monster Beverage has a market cap that is 10x larger, so it could be argued there is still 10x potential for this company despite how far it has already grown. Excited to start a position and possibly add more if the opportunity presents itself.

So, those are the big changes in my portfolio. I’m sad to say goodbye to Amazon and Netflix, although I am excited about the companies I added to (and the prices I added them at). And who knows? Maybe one day I’ll buy shares of Amazon and Netflix again. Never say never.

Rapid Fire Earnings

Rapid Fire Earnings

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Lots of Freedom Portfolio positions have reported earnings over the past two weeks, a time period which has coincided with a pretty sharp drop in many of those same companies (despite some pretty incredible earnings). Let’s go quickly through some:

Earnings Quick Hits

  • Shopify (SHOP): Firing on all cylinders. A simply incredible quarter on all fronts. The only concern going forward is if this rate of growth can continue when the economy opens back up. I think it can.
    • Share of U.S. Retail eCommerce Sales in 2020: 8.6% (2nd only to Amazon and higher than Walmart)
    • Revenue growth: 94% year over year
    • Gross Merchandise Volume growth: 99% year over year
    • Gross Profit growth: 89% year over year
  • Square (SQ): Mixed results, but Cash App is a bright spot. A continued rise in the price of bitcoin and re-opening of small and mid-sized businesses should provide some tailwinds going forward.
    • Gross Profit growth: 54% year over year (but only 1% quarter over quarter)
    • Cash App Gross Profit growth: 162% year over year (but down quarter over quarter)
    • Cash App Customer Acquisition Cost of less than $5
    • Gross Profit per monthly transacting active Cash App customer reached $41, up 70% year over year
  • Roku (ROKU): Strong growth benefitting from what appears to be an accelerating trend towards online streaming.
    • Gross Profit growth: 89% year over year
    • Active accounts growth: 39% year over year
    • Streaming hours growth: 55% year over year
    • Average revenue per user up 24% year over year
    • In 2020, 38% of all smart TVs sold in the U.S. were Roku TV models
  • Fiverr (FVRR): Continued strong growth with expectations for it to continue into 2021. Network effects should help the company grow and (continue to?) establish a moat going forward.
    • Revenue growth: 89% year over year
    • Active buyer growth: 45% year over year
    • Spend per buyer growth: 20% year over year
    • Outlook for FY 2021: 46-50% year over year growth
  • Redfin (RDFN): Seasonality and pandemic related swings make comparisons difficult, but Redfin seems primed to ride this real estate boom. Would’ve liked to have seen slightly stronger numbers considering what we saw from Zillow, but still like the long term story.
    • Website visitor growth: 44% year over year
    • Market share grew from 0.94% to 1.04% year over year
  • Teladoc (TDOC): Early innings of integrating Livongo, but strong results regardless. Looking forward to seeing where this company is a couple of quarters from now (and a year removed from the Livongo acquisition).
    • Revenue growth: 145% year over year
    • Total visit growth: 139% year over year
  • Novocure (NVCR): Long term thesis intact with many clinical milestones upcoming over the next few years. Still early innings
    • Net revenue growth: 45% year over year
    • Active patient growth: 17% year over year
  • Etsy (ETSY): Riding the same tailwinds as Shopify and creating their own network effects. This is the type of growth that should continue to compound in the coming quarters.
    • Gross Merchandise Sale growth: 118% year over year
    • Revenue growth: 129% year over year
    • Net Income growth: 375% year over year
    • Active seller growth: 62% year over year
    • Active buyer growth: 77% year over year
  • Axon Enterprise (AXON): Not quite the same levels of growth as Etsy and Shopify, but really solid nonetheless. The nature of the business means that these gains should be fairly sticky going forward, too.
    • Revenue of $226 million grew 32% year over year
    • Gross margin of 62.5% improved 860 basis points year over year

Transactions

Sold Tesla (TSLA): Nothing new here. Tesla has been a huge winner for me and I’ve been pretty open about how, while still being bullish on the company, I’ve gotten a little concerned over the valuation getting a bit out of hand. I trimmed a bit more to bring the position size more in-line with my conviction. It remains an Enterprise level position.

Started positions in Butterfly Network (BFLY) and TransMedics Group (TMDX): Two companies that had been on my radar for a bit. Finally decided to open up some small, speculative positions in both. If they show they can execute, I will consider adding more.

Started position in Snowflake (SNOW): I’ve been wanting to own some Snowflake since before their IPO, but the insane run-up in price during the IPO dampened my enthusiasm. After seeing it drop from the high 300s to the mid 200s, I decided it was time to start a small position. I’m interested in seeing where it goes after the lock-up expires in March. Might add more then.

End of an Era at Amazon

End of an Era at Amazon

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I spent way too long trying to come up with some clever way of discussing this topic (Jeff Bezos has less in common with Wonder Woman than you might think), which is why this is so late. Honestly, I think part of it is also coming to grips with the news that Jeff Bezos is stepping down as CEO of Amazon (AMZN) (although he is sticking around still as Executive Chairman). It shouldn’t have been surprising, but it still shocked me to hear. Amazon and Bezos have always been nearly inseparable in my mind.

A little over two years ago, I wrote about why Amazon was my largest holding. It’s no coincidence that the first “Pro” was about the leadership of Jeff Bezos and the first “Con” was the risk of him stepping down. Here is what I wrote then:

Just as Bezos’ leadership is a big benefit for Amazon, it’s only fair to also count the possibility of him someday leaving as a potential risk as well. Bezos is only 54 years old, which is relatively young (especially compared to 88 year old Warren Buffett), and he has shown no indications that he is thinking of stepping down anytime soon. However, Bill Gates stepped down as CEO of Microsoft at the age of 45, so being young is no guarantee against leaving a business. Bezos also notably has other interests, such as space flight company Blue Origin, the Washington Post, and now also his Day One Fund. I don’t see Bezos leaving Amazon anytime soon, but at the same time, it wouldn’t completely shock me to see him step down to a smaller role in the next 5 years. Will Amazon continue to be as relentlessly innovative when that happens? Hard to imagine it will.

Why Amazon is my Largest Holding

Looks like my quasi-prediction of him stepping down to a smaller role came true.

Its worth noting that Bezos stepping down actually overshadowed some pretty incredible results from Amazon for the quarter:

  • Earnings per Share (EPS) was $14.09, blowing away analyst estimates of a $7.26 and representing a 118% year-over-year increase.
  • Revenue was $125.6 billion, which was an increase of 44% year-over-year. For a company the size of Amazon to be able to increase revenue 44% year-over-year is simply amazing.

What a note to go out on as CEO.

I understand Bezos will be sticking around and will still be involved with Amazon and that Andy Jassy is really well thought of, but it’s hard for me not to see this as a hit to Amazon’s prospects going forward. Bezos would be my pick for the most successfully innovative entrepreneur of my lifetime (although Elon Musk is giving him a run for his money). That’s not something easily replaceable, even if we’ve seen some great results from CEOs like Tim Cook (replacing an innovative force that was the face of a company) and Satya Nadella (former head of cloud taking over for a large tech company).

Speaking of Musk, he has a lot in common with Bezos, including a bunch of side projects (one of which is space exploration). I wonder if this compels Musk to step down in the near future?

But I digress. On to some tweaks to the Freedom Portfolio:

Sells

Sold part of Amazon (AMZN): A part of this is absolutely in deference to Jeff Bezos. I don’t care what anybody else says, him stepping down as CEO makes it seem like it is no longer Day 1 at Amazon. But another part of it is an acknowledgement of just how big Amazon has gotten and how the law of large numbers would imply that continuing to grow at the pace it has been will be difficult going forward. The company has performed incredibly well in the past and the stock has almost doubled, and yet it is actually in the lower quartile of performers in the Freedom Portfolio during that time period. Since I created the Freedom Portfolio, it has gone from my undisputed top holding to a Serenity-level holding.

I still think there’s a lot of growth ahead of the company in cloud, advertising, and internationally, but my expectations are for growth to be slowing somewhat in the coming years. That’s why I am cutting my position roughly in half.

Thanks for the returns, Amazon. You’ve been an amazing contributor to the Freedom Portfolio over the years.

Sold part of Roku (ROKU): Nothing fancy here. I wanted to free up some capital for some other purchases (including another CTV play) and Roku stood out as something that had run up a ton lately and had overshot my levels of conviction a bit. I trimmed the position in order to add to some of the below.

Buys

Started position in Magnite (MGNI): The CTV play mentioned above. I spend a lot of time patting myself on the back for my successes. Here, I want to talk about a major mistake. You may not realize it, but actually owned Magnite previously back when the company was known as The Rubicon Project. The idea was that they were setting out to become the sell-side counterpart to the Trade Desk’s (TTD) demand-side platform in the CTV space. About 7 months ago, I got spooked when some executives left and made me worried about the company’s commitment to the CTV space and sold at $7.27 a share.

I just started a new position at $51.41 a share.

Obviously it hurts to have missed out on those big gains, but I didn’t want that to prevent me from rectifying my mistake. I’m dipping my toe back in.

Started position in DermTech (DMTK): Started a small, speculative position in a company that aims to be able to test for melanoma by using a painless sticker instead of having to cut into a person’s skin using a scalpel. If they can do what they claim to be able to do, this feels like it could be a big winner.

Added to Etsy (ETSY) and Fiverr (FVRR): Both of these companies are riding the same trends of entrepreneurship and side hustles and ecommerce and remote work. The more I read about them, the more excited I get about their future. It feels fitting to redeploy some of the capital I raised from Amazon to these two companies.

Jan 2021 Portfolio Tweaks

Jan 2021 Portfolio Tweaks

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Looks like the stock market in 2021 is picking up where the 2020 stock market left off. Maybe one day I’ll write about the day I almost bought some $7 Gamestop (GME) calls in August of 2020 and do the math to figure out exactly how much of a gain I lost out on. Maybe it will top my previous biggest investing mistake that I made with Netflix (NFLX) which at last check was at $2.3+ million.

I’ve made a few tweaks to the Freedom Portfolio over the past few weeks and wanted to briefly outline my thought process below:

Sells

Tesla (TSLA) – Tesla has been so difficult for me to deal with. I strongly believe in letting my winners run and doing so has paid off handsomely with companies like Shopify (SHOP) and not doing so has been incredibly painful (see: Netflix example above). At the same time, I find the current valuation to be completely indefensible and am having an incredibly difficult time seeing how there can still be a significant amount of upside left at these levels. And yet, every time I have trimmed my position, the stock continues to go up. The simple fact of the matter is that I am uncomfortable letting Tesla grow to be too big of a position in my portfolio, which is why I have continued to trim. It still remains a Babylon 5 level position (RIP, Mira Furlan), but I intend to keep trimming for now to avoid letting it get to be too large.

Fastly (FSLY) – I haven’t felt like I’ve had the time to do any deep dives into any of my holdings lately and, as a result, I haven’t mentioned the P.A.U.L. System recently. However, I absolutely have still been using my system to mentally score my positions. When it came to Fastly, I had been getting more and more concerned the “Understanding” score. Put simply, I found that I couldn’t articulate why Fastly was better or even different from Cloudflare (NET), one of its main competitors. Without that level of understanding, it’s hard to have high conviction, and so I decided it was time to redeploy that capital into higher conviction picks.

Buys

Zoom (ZM) – Over the past 3 months, Zoom has fallen around 30% from its all time highs. Presumably the reason is because people think that once everybody is vaccinated and COVID is “over”, that Zoom won’t be nearly as ubiquitous. I think that could be short-sighted and an over-simplification. I believe that the lockdowns have permanently altered some business behavior and that a certain level of video conferencing that didn’t exist before is here to stay, and I believe Zoom is the primary beneficiary of that. For that reason, I wanted to take advantage of the dip in price.

Etsy (ETSY) and Fiverr (FVRR) – I initiated these positions last year based on the idea that a growing “side-hustle” movement and maturing ecommerce space would greatly benefit these companies. The more research that I do, the higher my conviction has grown on these two companies and I wanted to increase my position size. Both companies are now solidly Serenity level positions.

Nano-X (NNOX) – Despite being excited about the potential with Nano-X, I had decided to not add to my position because a series of short reports had me wondering if there was a possibility that the company was a fraud. The jury is still out, and likely will continue to be out until FDA approval either comes or doesn’t. A decision is expected in the first half of 2021. Until then, though, I’m becoming less and less concerned over the idea that the company is a complete fraud. As a result, I added slightly to my position, although it remains a Millennium Falcon level position.

Skillz (SKLZ) and fuboTV (FUBO) – Two new positions that I have added to try to get additional exposure to live sports streaming and online gambling. Both are tiny positions and if my conviction grows (or the position does), then I might consider writing more about what excites me about the companies. For now, though, I just wanted to get a little skin in the game.

The JIB is down to one

The JIB is down to one

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A little over two years ago, I wrote about three Chinese companies that I was very bullish on. At the time, talk of FANG stocks and BAT stocks were all the rage, so I cheekily dubbed my three companies “the JIB”. Here are how those baskets of stocks have performed since I wrote that article (numbers from December 3rd):

The JIB (up an average of 110%)

  • JD.com (JD): Up 292%
  • Baozun (BZUN): Up 22%
  • iQiyi (IQ): Up 17%

FAANG (up an average of 98%)

  • Facebook (FB): Up 99%
  • Apple (AAPL): Up 152%
  • Amazon (AMZN): Up 95%
  • Netflix (NFLX): Up 69%
  • Alphabet (GOOG): Up 76%

BAT (up an average of 64%)

  • Alibaba (BABA): Up 87%
  • Baidu (BIDU): Down 20%
  • Tencent (TCEHY): Up 127%

Not too bad, if I can be permitted to toot my own horn for a moment. I did end up selling my position in iQiyi earlier in the year, though, so my own personal return on the JIB is slightly different than what is laid out above. Still, I’m fairly proud of how the JIB has managed to hold up against the much more highly touted FANG and BAT stocks.

But as you may have noticed, the gains for the JIB were a bit uneven, with both Baozun and iQiyi returning less than 25% while JD.com did the heavy lifting with a nearly 300% return. As mentioned before, I sold iQiyi earlier in the year when it looked like their competition was getting to them and I think it has become time to say goodbye to Baozun as well. The hope with Baozun was that it could be the “Shopify of China” and benefit from riding the same trends that Shopify has. For whatever reason (trade war, bad execution, etc) that just hasn’t quite come to pass. Growth has been okay, but nothing near what other ecommerce companies have seen during COVID, and recently I’ve found myself wanting more and more to redeploy those funds into a new idea.

That new idea is Fiverr (FVRR), and I now have a new Millennium Falcon level position in it. I’ve used the service in the past to find an artist to illustrate my book, Penny Invests, and was pretty impressed by the wide variety of services provided. I believe they are well positioned to ride the trend of entrepreneurship, the gig economy, remote work, and people looking for side hustles.

A few other tiny shifts to the portfolio to report (none of these changes affect what size of a position they are):

  • Sold a small bit of Tesla (TSLA) – I’m still a huge believer in the company, but the valuation is getting a little ridiculous even for me and even with the addition to the S&P coming up, I feel like this stock has a lot of optimism baked in already. I wanted to take a tiny bit off the table to bolster a few other positions, such as:
  • Buying a bit more of Zoom (ZM) – Zoom has nearly doubled since I originally bought it earlier in the year, but it is also down almost 30% from recent highs from a few months ago. I’m beginning to see the optionality still ahead of Zoom even after the pandemic is over and the recent pullback seems like a bit of an overreaction to vaccine news. I think Zoom survives just find in a post-pandemic world and still has room to thrive and flourish.
  • Buying a bit more of Crowdstrike (CRWD) – Crowdstrike recently had a pretty impressive earnings report and it reminded me that I wanted to add a little bit more to my position. Sometimes it is as simple as that.
  • Buying a bit more of Nano-X (NNOX) – Nano-X recently did a live virtual demonstration of their technology and while I didn’t quite think it was the same slam dunk as many did, I was suitably impressed and think the chances of it being an outright fraud are lower than before. It felt like a safe time to add a bit to my position.
A new investment distracting me from earnings season

A new investment distracting me from earnings season

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I’ve been a little quiet here recently despite a ton of earnings reports coming out. Over the past few weeks, there’s been some pretty spectacular earnings reports from major holdings in the Freedom Portfolio:

  • Shopify (SHOP)
  • Mercado Libre (MELI)
  • Square (SQ)
  • Sea Limited (SE)

And a bunch more. So why the radio silence? Because I’ve been a bit distracted by a recent investment of a different type.

Earlier this month, we were blessed to welcome our third daughter to our family. All things considered, she’s been a pretty mellow baby, but anybody who has every dealt with a newborn before can tell you that they are incredible drains on free time and sleep. So even though I have continued to keep my eye on the companies in the Freedom Portfolio, I have struggled to find the time to write about them as much. I didn’t want to have this earnings season pass without anything written, though, so here’s a few thoughts on recent developments:

Great companies dropping in the immediate aftermath of amazing earnings. One theme I have noticed this earnings season is how often stocks have dropped despite really strong earnings being reported. It happened previously with Shopify and Mercado Libre and it happened yesterday with Sea Limited. I’m not at all concerned and would go even further and say it even makes sense. Shopify and Mercado Libre has more than doubled this year. Sea Limited has more than quadrupled. That’s really strong performance which drove up the valuation (and expectations) for those companies. It seems perfectly reasonable for those stocks to “take a breather” to let the financials catch up to the valuation. I still strongly believe in all of those companies going forward and, if anything, my conviction is strengthened by seeing them put up these great numbers. I wouldn’t be surprised to see some of these companies be flat for a few more months or quarters, but I remain really excited to see where these companies are 5+ years down the line.

Tesla to the S&P 500. News broke a few days ago that Tesla (TSLA) was getting added to the S&P 500 index in December. In the two days since, the stock has popped, leading to a few near spiffy pops for me. I get the reason for the short term stock movement, and it will be interesting to see how the stock reacts to so many index funds being required to add so many shares of Tesla in the coming months, but I honestly don’t know if this impacts the company itself very much. I love the company whether it is in the S&P 500 or not.

Buying more Etsy. The Teladoc / Livongo merger went through recently. As part of it, my Livongo shares got converted to some Teladoc shares but I also got paid out some cash for them as well. I used those proceeds to add a bit to my Etsy (ETSY) position after it dropped a bit on the positive COVID-19 vaccine news. I didn’t add much. It remains a Millennium Falcon level position. Coincidentally, I saw my first Etsy commercial just a few days after adding to my position. I know Etsy has had a great 2020 so far, but I really think they can keep their momentum going with the upcoming holiday season and can expand their business beyond just birthdays and anniversaries. Really interested in seeing how the company performs over the coming quarters.