The 2022 fantasy investing season is under way! We have slightly fewer contenders than last year, but still a strong group of 10 intrepid souls willing to challenge the market for investing dominance. The picks range from massive companies like Amazon (AMZN) to smaller companies like Perion Network (PERI) to SPACs (CFVI) to Index Fund ETFs (VV) and even some cryptocurrencies (Cardano).
You can follow along by clicking on this link. There are currently some issues with tracking the daily performance of portfolios containing cryptocurrencies, but the total return should still be correct.
Best of luck to everybody. Hopefully 2022 is a better year for us contenders than 2021 was.
Fantasy investing was inspired by fantasy football: a game I have enjoyed playing with my friends for decades now. In 2009, I started up a keeper league which is still ongoing. We even got a trophy with the winner of each year engraved on it. Even though I usually participate in half a dozen NFL related fantasy games a year, that keeper league is by far the most important to me. This past week was the semi-finals, and I was fielding a strong team with the #2 overall seed. I was even facing the exact same team I had beaten the previous week. This past weekend was a roller coaster of emotions as I jumped out to an early lead, saw it all evaporate to a wicked Burrow+Higgins stack, then saw hope spring anew courtesy of a lackluster Tyreek Hill performance. All I needed was 2.5 points from Davante Parker, a player who hadn’t score less than 6 points in any game he has played this year.
Parker ended up with 0, which means that trophy that I so covet will spend another year in the possession of another. Last night, I briefly considered tweeting out: “Lessons from 2021: I suck at fantasy football and I suck at investing”. It felt like an appropriately rueful joke about my performance in both this year, but I ultimately decided against it because I was a little worried people might take it too seriously.
Because while I don’t shy away at all about how much my fantasy investing performance has sucked this year (losing to the S&P by around 41 percentage points and not even top 10 among 17 players), I’m also a big believer in keeping perspective and looking and the long term.
So what do my long term results look like?
Played 6 seasons of Fantasy Investing in one form or another and beat the market 5 out of 6 of those seasons
Averaged a 46% return over those 6 seasons
Won my 10 team fantasy football keeper league in 2 out of the 13 seasons it has been going, including making the playoffs most years
So clearly not utter dominance (especially with fantasy football), but certainly respectable.
Anyway, thanks for filling in as therapists for me and letting me vent about my bad fantasy football break last night.
If I had to sum up the story of the 2021 fantasy investing season (current results can be found here) in one poorly made movie reference, it would be: “Revenge of the Market”. We had 17 participants choosing individual stocks to try to beat the market and, if the results hold, the S&P500 is set to trounce all of them. If you fancy yourself a stock picker, it looks like there’s a decent chance 2021 wasn’t a good year for you.
Even in a year where the market reigned supreme, there is still a winner in fantasy investing. There are still a few more days for things to change, but if the results hold, a hearty congratulations goes to Adrian, who is on track to win with a very respectable +18% return thanks largely to his unorthodox picks of URA (+61%) and UPRO (+102%). Congrats on the win!
And now it’s time to look ahead to 2022. Like a tardy Santa, I’m making a list (of stocks) and checking it twice in anticipation for the kick-off next week. This post is coming out a little later than I was hoping, so if you’re interested in participating, please don’t delay! The new season kicks off next Monday, January 3rd, which leaves you around 5 days to get your portfolio in. Let me know what your picks are in the comments below, and hopefully we all have better luck in 2022!
It’s that time of year again! Going in to 2021, I was feeling pretty good about my track record with my bold predictions. After all, I got the majority of my predictions (3.5 out of 5… don’t ask how I get a prediction half right) right for 2020. In fact, I was feeling so good that I felt like maybe my predictions weren’t bold enough.
Well, I can safely banish that thought. 2021 is here to put me back in my place. Not only have my 2021 predictions uniformly not panned out, but some of them have missed in a big way. I need to keep score in good times and in bad, though, so let me hold my nose and go through what I predicted might happen in 2021.
Note: As normal, I am scoring these a few weeks before the end of the year so I can get my 2022 picks in on time. There’s still some time for the numbers to change, but considering how far off I am on most of these, I feel like it’s safe to call them now. The numbers below are from market close on December 10.
2021 Predictions
Shopify (SHOP) will become 1/8th the size of Amazon (AMZN)
In retrospect, this wasn’t a terribly bold prediction considering Shopify started at 9% the size of Amazon and simply had to get up to 12.5% the size of Amazon. As a result, it’s not surprising that this was the closest of my 2021 picks to end up being right. Both Amazon and Shopify are up in 2021 YTD and Shopify is currently outperforming Amazon, so I was at least directionally right, even if Shopify has fallen a bit short currently at 11% the size of Amazon. I still believe the future for Shopify is bright, though, and look forward to it continuing to outperform Amazon in the coming years.
Etsy (ETSY) will grow to 3% the size of Amazon
Another one where I was directionally right, although just barely. When I made my prediction, Etsy was 1.5% the size of Amazon. This prediction would’ve looked a lot better had I been able to score Etsy a month ago, but sadly the last 30 days still count and right now Etsy is barely holding on against Amazon and is currently 1.6% the size of the Everything Store. Like Shopify above, though, I think Etsy has more upside going forward and look forward to it outperforming Amazon over the coming years.
Mercado Libre plus Sea Limited market caps combined to $300 billion
Another big miss, and my largest yet (but the biggest is still to come). A year ago the combined market cap was $187 billion. Now? $190 billion, or $110 billion short of my prediction. Not much to say here. Not only have Mercado Libre and Sea Limited not had the good 2021 that I thought they might, they’ve actually had a very rough past month or two. None of this shakes my confidence in both of those companies going forward. If I didn’t have a general rule against re-using predictions, I would totally predict that both of these companies hit a combined market cap of $300 billion next year. There are a lot of tailwinds for both of those companies, and both seem to be executing at a very high level.
Either Fiverr or Redfin will double
Here it is. This is by far my worse prediction this year. Not only did neither company double, but both companies almost got cut in half. Redfin is down 51% for the year and Fiverr is down 43%. Hard to miss worse than that. I still believe strongly in both of these companies long term, but there’s been no doubt it has been a challenging 2021 for both companies.
Somebody will acquire Teladoc
Nope. I’m actually pretty surprised this hasn’t happened considering the whole of Teladoc is now worth considerably less than it had paid to acquire Livongo a year ago. Seems like it would be an attractive acquisition target for some deep-pocketed company. I hope it doesn’t happen, but I remain surprised nonetheless.
Okay, now that all of that ugliness is behind us, let’s look forward to 2022. Hopefully I can manage to do at least a tiny bit better.
2022 Predictions
It’s the three year anniversary of the Freedom Portfolio, so why not kick things off with a trio of predictions for companies I think will triple in the coming year?
Novocure (NVCR) will triple
Any prediction of a stock tripling over the course of a year may seem bold, but for Novocure I don’t think it’s very bold at all. Why? Because tripling wouldn’t be much higher than where it was just about 6 months ago. Earlier this year Novocure jumped 50% in a single day and eventually hit a high of around $220 a share after some extremely positive results in one of their trials. Since then, it’s been a consistent march downward over concerns over their earnings report and slowdowns in growth in their core treatment. I remain extremely bullish that getting approved to treat new forms of cancer will more than make up for any struggles in the glioblastoma space and think Novocure has an excellent chance to reclaim those highs it reached in 2021 in 2022.
Redfin (RDFN) will triple
Similar to Novocure, a triple for Redfin wouldn’t require it to get much higher than where it was earlier in 2021. Redfin had an incredible run from mid-2020 to early 2021 as it rode a red-hot real estate market higher. Since then, however, despite the business continuing to execute well, the stock has gotten punished by a number of factors outside of their control. The first was a housing market slowdown and the second was Zillow blowing up their iBuying program. It’s bizarre to me that the latter would be a knock on Redfin in any way since CEO Glenn Kelman had always consistently communicated that he believed that iBuying was only a part of a more comprehensive whole suite of services to offer customers and not something to get overly aggressive into. As a result, Redfin has been more cautious with iBuying and the disaster with Zillow seems to be a complete vindication of him. I think 2022 might be the year that investors realize that Redfin, and not Zillow, is the best bet for being the one to disrupt the real estate market and be a leader going forward.
Teladoc (TDOC) will triple
You might notice a recurring theme with my predictions because, like Novocure and Redfin, a Teladoc triple would just bring it slightly higher than where it was back in January 2021. I honestly can’t figure out why the market has soured as much on Teladoc as it has. Perhaps it thinks telehealth will completely disappear once the pandemic is over? Perhaps it’s because they see no moat with Teladoc and that anybody can kick off a Zoom meeting to do telehealth on their own? I have no idea, but my thesis in Teladoc as an investment hasn’t changed even as the stock has plummeted. I predict 2022 will be a much better year for Teladoc.
FuboTV (FUBO) or Nano-X (NNOX) adds $22
How about a “22”-themed prediction for 2022? FuboTV the business has had a pretty impressive 2021 in terms of growth, even if FUBO the stock has been doing awful. A $22 gain from here would be more than a double, but it would also be short of the highs from earlier in 2021. As for Nano-X, the business hasn’t been executing nearly as well as Fubo with multiple delays and dialed back expectations. I do still believe the upside is there and with a new CEO, 2022 could be the year Nano-X finally starts to live up to its potential. Like with FuboTV, a $22 gain would be more than a double for Nano-X, but it would still be far short of where the stock was earlier in the year. I think there’s a decent chance both stocks hit the mark in 2022, but for my official prediction, I’ll just go with one of them making it.
Annual Inflation Rate for 2022 is > 8%
Typically I make a random prediction of an acquisition here, but I couldn’t think of any interesting sounding ones for 2022. So instead, I’ll go with another oddball pick in terms of inflation rate. Full disclosure: I have a really bad track record of predicting big increases in inflation that never quite pan out (something I did a lot in 2008-2012). Never let it be said that I am one to learn my lesson, though. I don’t think inflation will be quite as transitory as we’ve been told. I think a combination of federal reserve and US government actions are going to lead to some levels of inflation that people my age or younger really haven’t experienced before. If I’m right, it will be very interesting to see how people react.
So what do you think? Can I do better in 2022 than I did in 2021? Which prediction is my worst? Which ones might actually happen? Let me know in the comments below!
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.
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).
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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:
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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.
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.
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.
Five months ago (I can’t believe it has been that long), I started a series that I called, “Estimating Upside” where I would I tried to estimate roughly how much upside the companies in the Freedom Portfolio had over the next 5 years.
I divided the companies into three groups:
Slow Growers: Companies that can 2x to 3x over the next 5 years – a 15% to 25% compound annual growth rate (CAGR)
Medium Growers: – Companies that can 4x to 7x over the next 5 years – a 32% to 48% compound annual growth rate (CAGR)
Fast Growers: – Companies that can 8x to 10x over the next 5 years – a 52% to 58% compound annual growth rate (CAGR)
I previously wrote about those first two groups. You can find the slow growers here and the medium growers here. Somehow I let three months go by between that last post and now. You would think that writing about the fast growers would be the most exciting part of this whole exercise! Anyway, it’s time to finally get around to finishing this series up.
Before we dive in, I wanted to note two things:
The market caps listed below are as of August 24th
Enjoy the data and graphics associated with the widgets below? Then I encourage you to check out stockcard.io where you can check out the same data on many more companies. You can save 10% on a VIP subscription by using my promo code: “paul”
I believe the COVID lockdowns have shown that ecommerce has become big enough that it is no longer just Amazon (AMZN) dominating everybody else and sucking up all the oxygen in the space. Additionally, I believe that the hard times encountered by many during COVID will see an increase in people looking for “side hustles” or to start up their own business. Etsy should be well positioned to capitalize on both. They’ve also been aggressively looking to expand both the areas they operate in and also internationally with their recent acquisitions of Depop (a global fashion resale marketplace) and Ello7 (the “Etsy of Brazil”). Finally, just check out that market cap. $25 billion is roughly 2% the size of Amazon (AMZN) and half the size of Ebay (EBAY). It seems like there’s plenty of room for Etsy to become a major player in ecommerce right now.
Verdict: Etsy is one of my favorite “new” ideas (if you can consider a company I started investing in a year ago “new”). They had huge growth during COVID, aren’t resting on their laurels, are growing and strengthening their network, and appear to have a long runway ahead of them for growth. Looking to hold this company for many years.
For Etsy, I mentioned an increase in people looking for “side hustles”. What better company to capitalize on that then Fiverr? If your answer was Upwork (UPWK), then my response would be that Upwork seems to be more geared towards contractors versus the side hustles I am thinking about, but I also don’t see why there can’t be multiple winners in this space. Like Etsy, Fiverr appears to be doing a great job of strengthening its network of buyers and sellers as well and starting to move “upstream” with Fiverr Business to capture some of that freelance work for businesses. The traditional employer / employee dynamic seems to be shifting. More people are demanding flexibility in terms of remote work and worker shortages seem to be putting employees back in the driver’s seat. I believe Fiverr will thrive in this new era.
Verdict: In case it wasn’t obvious, I’m also very excited about the future prospects for Fiverr. The recent large drop in the stock price after a slight decrease in future projections doesn’t have me worried at all. Looking to hold on for many years.
Real estate is highly fragmented and Redfin currently has a market share of just around 1%. That market share has been rising slowly, but steadily, and I think the stickiness of the business and the value proposition that it offers means that those gains could accelerate over time. I think it’s very reasonable to think they could triple or quadruple their market share over the next 5 years. It’s a different business model, but competitor Zillow (Z) has a market cap of $40 billion right now, so it’s not at all unreasonable for a real estate company to reach those heights. Between their brokerage, mortgage, title, Redfin Now and Redfin Direct, they have a ton of areas they can grow into.
Verdict: I’m obviously super bullish on Redfin and love the risk/reward with this company. I do think it could take many years for the advantages that Redfin possesses to become obvious to the market, but I am quite content to hold onto my shares in the meantime.
Netflix and other streaming services can offer plenty of scripted content for people looking to cut the cord and leave cable, but live sports is a bit harder to come by. Fubo has the chance to be the go-to for people looking to fill that void. Additionally, there is a good chance Fubo can add on a compelling gambling offering as well. DraftKings (DKNG) is another gambling play with a market cap of $25 billion and Netflix obviously is much larger with a market cap of $260 billion. I believe video streaming will be big enough to have multiple winners, and while Fubo is a risky play right now, I do believe getting to the same market cap as DraftKings (and 1/10th the size of Netflix) is very achievable if they can execute.
Verdict: A few years ago, there was a lot of hype over marijuana legalization, but I thought that was overshadowing that sports gambling was becoming increasingly legal and accepted. I believe Fubo can benefit from that growing trend in addition to the obvious transition to streaming video. Excited to see where this company will be a few years from now.
ShockWave Medical (SWAV) – Now: $7 billion – Then: $56 to $70 billion
I’ll be honest, when I first created these categories and ranked Shockwave here, it was a $4 billion company. Unfortunately, it took me so long to getting around to writing this that it has already almost doubled. At the time, I thought a $32 to $40 billion market cap was attainable, but even I have to admit that $56 to $70 billion is a bit of a stretch. It’s obviously not unheard of for a medical device company to get that large, but a lot of the companies that I think are most similar tend to be under $50 billion.
Verdict: Even though I might not believe ShockWave can be a 10 bagger in the next 5 years, that doesn’t dull my excitement for the company. They still have an innovative solution for a problem that doesn’t seem like it will be getting any smaller anytime soon.
Nano-X Imaging (NNOX), DermTech (DMTK), and TransMedics Group (TMDX)– Now: $1 billion – Then: $8 billion to $10 billion
I started writing up descriptions for each of these companies separately when I realized that I kept repeating myself. So, to avoid unnecessary redundancy, I decided to just put them all together since they are all very similar companies (medical devices in the early stages of attempting to revolutionize their particular area) with similar market caps.
The case for any of these companies going up 10x should be an easy case to make after the above. If ShockWave can get to a $7 billion market cap, then Nano-X / DermTech / TransMedics can most certainly get to at least that large based on the potential they have to upend medical imaging / skin cancer diagnoses / organ transportation around the world. The reason for the lower market cap is undoubtedly because of the increased risk, as these companies are generally earlier along on the FDA approval process. Any of these could be huge winners, but there’s also an increased chance of
Verdict: That wide range of outcomes is why I am happy keeping all of these companies to a smaller position size for now. I love the upside, but there’s plenty of potential pitfalls as well. If/when the risk on these companies goes down some, there will be plenty of time to add to my position.
Your Thoughts
What do you think? A jump of 8x to 10x over 5 years is pretty extreme. Which of these have virtually no chance? I love to hear reasons why I am wrong so please let me know!
I consider access to a wide variety of information to be one of the most important factors for investing success and I’m always on the lookout for great sources of investing information. I’ve mentioned in the past how useful resources like Twitter, The Motley Fool, and Seeking Alpha have been for me in terms of generating investment ideas and helping me to do research. I’m happy to announce that I have found another one: Stock Card
What is Stock Card? Put simply, it’s a site that combines clean visuals with easy to understand stock research. For example, check out this Stock Card widget for my largest position and biggest winner: Shopify (SHOP):
And that’s just the widget. If you go to their page on Shopify, then there is a lot more information available there as well. They also have screeners, filters, and alerts to help investors stay up to date with their positions. It’s a really neat resource that I look forward to using more and incorporating into the blog.
In addition to all of that, Stock Card also has multiple portfolios and stock picks from successful investors where they track the performance against the S&P 500.
Sound familiar?
Hopefully it does, because I am excited to announce a collaboration between Paul vs the Market and Stock Card where the Freedom Portfolio will be included on their site. Want to check it out? You can see it here.
Full access to the portfolios on the site is restricted to VIP subscribers. If you want to check it out, they offer a 14 day free trial. If you like what you see and want to continue past the 14 day free trial, then you can get 10% off your subscription by using promo code “paul”.
Going forward, I’ll be updating the Freedom Portfolio on the Stock Card site in addition to providing my normal transactional posts and quarterly updates here. In the meantime, if you are looking for a good investing resource tool or for new stock ideas, I encourage you to check Stock Card out.
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:
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!
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.
