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.

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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.