Estimating Upside: Part 2 – The Medium Growers

Estimating Upside: Part 2 – The Medium Growers

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A few weeks ago, I wrote a post called: Estimating Upside: Part 1 – The Slow Growers. It was the first part of a three part series where I attempted to give my best guess on the reasonable upside for the positions in the Freedom Portfolio if my investing thesis plays out. I divided all of the positions 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)

The slow growers were already covered in part 1, so now it is time to over the medium growers. For each company, I will list the current-ish market cap as well as what that market cap would look like 5 years from now after a potential 4x to 7x. Market Caps are as of April 26th (yes, it really did take me this long to write this).

Shopify (SHOP) – Now: $144 billion – Then: $577 billion to $1 trillion

There are a lot of ecommerce companies in this “medium growers” group, starting with Shopify. COVID induced lockdowns in 2020 seemed to supercharge ecommerce growth and also, I think, showed that ecommerce was big enough that Amazon (AMZN) couldn’t dominate it all. Many brands wanted to break free and control their own destiny rather than relying on Amazon’s marketplace, and Shopify was glad to accept the mantle of the “rebellion” bravely fighting against Amazon’s “evil empire”. I think the transition from brick-and-mortar to ecommerce is going to continue and I inside the area of ecommerce I think Shopify continues to take market share from Amazon as their incentives are better aligned with their customers and they aren’t trying to compete with them. There’s also plenty of opportunity for overseas expansion. Combine these opportunities with a management team which has proven they can execute and I think hitting that $1 trillion market cap isn’t such a crazy thought.

Verdict: I love Shopify. It’s my top holding and best performing investment. I’m just as thrilled about the future for this company as I was years ago. Happy to hold for years to come.

JD.com (JD) – Now: $114 billion – Then: $458 billion to $801 billion

There are obviously differences in their businesses, but Alibaba (BABA) is a similar enough company to provide a glimpse into the upside that JD still has. Alibaba has a market cap of over $600 billion. It seems perfectly reasonable to think that JD could approach those levels over the coming years considering the different growth initiatives they are undertaking in China and their ambitions to expand outside of China.

Verdict: The ecommerce space in China seems a bit crowded, but with over a billion people, there’s room for plenty of winners. I would be lying if I said I wasn’t concerned over what has gone on with Jack Ma over the past few months, though. Richard Lui has had his own run-ins with the law in the past, so it’s not inconceivable that something could come up between him and the Chinese authorities. I like the upside with JD, but I am closely watching things and won’t hesitate to trim or sell completely if it looks like things are going south.

Sea Limited (SE) – Now: $141 billion – Then: $565 billion to $989 billion

The run of ecommerce companies continues with Sea Limited. With a population twice that of the United States and a GDP that is forecasted to grow at twice the rate of the United States, Southeast Asia is a really interesting area to invest in. While there is a lot of competition here as well, Sea appears to be currently leading the pack in the race to become the top ecommerce company in Southeast Asia. Assuming they can keep that lead, there’s a massive opportunity in front of them. That’s not even counting the fact that they are actually primarily a gaming company and have one of the most popular games in the world right now (Free Fire). The game is helping them make inroads in digital payments both in their domestic markets AND in areas like Latin America. Founder Forrest Li seems to have a lot of ambition and if they can capture even half of that, then hitting a $500 billion market cap seems pretty reasonable.

Verdict: Sea Limited is one of my top holdings and, with the possible exception of Shopify, is possibly the company which I am most excited about in the coming years. There seems to be incredible amounts of upside paired with what seems like an acceptable amount of risk. It’s hard for me to imagine not holding all of my shares for many years to come.

Mercado Libre (MELI) – Now: $81 billion – Then: $324 billion to $567 billion

The run on ecommerce companies wraps up with Mercado Libre. Latin America also has around twice the population of the United States. However, unlike Southeast Asia, the Latin American region seems to have a little more geopolitical uncertainty around it. Between socialism in Venezuela and corruption in Argentina, there’s a lot of negative headlines that have often been coming out of Latin America. In some ways, though, I think that can be framed as a potential positive for Mercado Libre. They have been able to put up incredible growth numbers despite the chaos that has sometimes roiled the markets they operate in. If those situations were to stabilize or even improve, then just imagine what Mercado Libre could do then. Why couldn’t the ecommerce leader of Latin America grow to a $500 billion company a few years down the line?

Verdict: Just like with Sea Limited, Mercado Libre is a top holding for me with high conviction. I imagine there could still be some bumps in the road ahead but I’m ready to weather those short term storms and excited about where the company can go long term.

Skillz (SKLZ) – Now: $8 billion – Then: $34 billion to $59 billion

It’s hard to come up with a great parallel for Skillz to try to judge how large it could reasonably grow. However, if companies like EA and Activision Blizzard can reach $40 billion and $70 billion market caps respectively then a 4x to 7x for Skillz seems reasonable if the bull case plays out. There’s still a ton of risk, though, and I suspect there’s almost as big a chance that it gets cut in half (or worse) over the same time period. Time will tell.

Verdict: I think the potential upside outweighs the downside right now, but I intend to have a short leash on this position. There’s a lot of ways things can go wrong, and I reserve the right to change my mind pretty quickly on this one if it looks like management is unable to execute.

Axon (AXON) – Now: $10 billion – Then: $40 billion to $70 billion

Speaking of hard to find parallels, where is the competition for Axon? More so than most of the other companies in this post, this guess is a complete shot in the dark. However, they recently raised guidance for 2021 and seem to be riding a wave of desire for monitoring police interactions with the public. At the same time, their business is transitioning away from a focus on selling tasers to a stickier and recurring revenue from body cameras, which should help juice their numbers over the coming years. Can the potential leading provider of cloud services for the majority of US police departments be worth $40 – $70 billion a few years down the line? It seems reasonable to me.

Verdict: Axon isn’t the sexiest company, and I doubt they’ll ever put up eye-popping growth rates, but this seems like a really good bet for consistently strong growth for the foreseeable future. If a strong competitor shows up, it might be time to reevaluate, but until then I’m happy to hold for years.

Teladoc (TDOC) – Now: $29 billion – Then: $117 billion to $205 billion

Anybody who follows politics at all knows that one of the hot political topics of the past decade or two has been about the sheer amount of money Americans spend on healthcare and how quickly it has gone up. One of the things that has me excited about Teladoc is because I believe it can ride that desire of saving money in healthcare. There are a lot of big $90+ billion market cap health insurance companies out there, with United Healthcare tipping the scales at over $370 billion. If Teladoc can truly save people time and money on healthcare, then reaching the levels of those big boys seems well within reach.

Verdict: It’s been a rough 10 months or so for Teladoc the stock, but I still believe they are excellently positioned to be the major player in telemedicine in the United States, and I also believe telemedicine isn’t just going to go away once COVID has faded into the background. I’m very content to hold onto my shares for now to see how the company handles the next year or so.

ROKU (ROKU) – Now: $47 billion – Then: $189 billion to $331 billion

We started with a string of ecommerce companies. Now, it’s time for a string of connected TV companies. Roku is first up, and they’ve certainly been flexing their muscle as the operating system of connected TVs lately. They won a battle of wills with HBO and are currently standing up to YouTubeTV. They’ve dipped their toe into original content and are building out their advertising business. The trend of cable cutting seems inevitable, but also is still in the early innings with plenty of runway left. Comcast is a $260B company. It seems reasonable to think that Roku could approach those levels after another half decade of cable cutting.

Verdict: Every once in awhile I will see news about some of the big TV manufacturers and how they have their own impressive smart TV operating system and I get a little concerned over Roku’s future. Then I look at the massive opportunity in connected TV and remind myself that Roku is far more than simply a hardware company. They are in a really strong position to benefit from the move to streaming and I’m looking forward to being along for the ride.

The Trade Desk (TTD) – Now: $36 billion – Then: $142 billion to $249 billion

Advertising is a big business. Alphabet and Facebook are basically just advertising companies. At the same time, there’s a lot of interesting battles being waged right now both between the big tech titans (Apple’s IDFA changes to attempt to hurt companies like Facebook) and between the advertisers who want to break free of the “walled gardens”. The Trade Desk seems well positioned to capitalize on these changes. How big can they get? Facebook and Alphabet are $900B and $1.5T companies respectively, so it doesn’t seem completely unreasonable to think that the Trade Desk could get to around a tenth of their size.

Verdict: Jeff Green seems like a really smart leader and the perfect CEO to lead the Trade Desk through this uncertain advertising future. Whatever advertising looks like 5 years from now, I feel pretty confident that the Trade Desk will be a strong player.

Magnite (MGNI) – Now: $5 billion – Then: $19 billion to $33 billion

I’m not an expert on advertising. I don’t have any good way to determine if a demand side platform (like The Trade Desk) has a higher upside than a supply side platform (like Magnite). But if I’m putting a lot of chips on the “connected TV” trend, then it makes sense that a supply side platform like Magnite would benefit. If the Trade Desk is $36B now, then why couldn’t Magnite get to that level in 5 years?

Verdict: Magnite is a relatively low conviction holding for me right now. It’s still small enough that if my conviction grows, I have plenty of time to add more. As it is, I’m happy to leave it at this size for now.

Zoom (ZM) – Now: $99 billion – Then: $395 billion to $692 billion

There’s really no precedent for a company that solely does video calls getting to a half a trillion dollar valuation. I would also venture to say there’s little precedent for a worldwide pandemic forcing lockdowns and large swaths of the workforce to work remotely. I do think a lot of things will return to normal. The office isn’t completely dead. Business travel isn’t a thing of the past. But I also think a lot has changed. I think plenty of managers have realized that remote work can be effective work, and deals can still be done without a physical handshake. I think families have gotten accustomed to keeping in touch with relatives living far away not with a simple phone call, but with a video call. I think the idea of taking a class remotely is a lot less ridiculous of a proposition than it was just a few years ago. And I think Zoom is excellent positioned to take advantage of this new normal. Zoom has become a verb, and I think that’s a good sign of the prominent position it holds in the minds of consumers and the future prospects for the company.

Verdict: There seems to be a very wide range of outcomes for Zoom over the next 18 months or so. On one hand, life could get mostly back to normal and Zoom gets overtaken by a horde of video conferencing competitors and never again reaches the heights that they reached during the pandemic. On the other hand, they could become the go-to option for a new normal of remote work and reduced business trips while also expanding into areas like remote learning and remote experiences. I tend to think the latter is more likely than the former, but time will tell.

Snowflake (SNOW) – Now: $69 billion – Then: $275 billion to $480 billion

Snowflake is sitting at the intersection of a lot of interesting trends. They seem well positioned to benefit from the explosion of big data and the continued migration to the cloud. If a company like Oracle can be a $200B+ company now, why can’t Snowflake reach about that size in 5-10 years?

Verdict: Eight months after its IPO, Snowflake the stock is still sitting right around the same level it was at post-IPO. The business has continued to grow nicely that entire time, however. I wanted to buy at the IPO but couldn’t stomach the crazy valuation. Now, it is a little more palatable. If Snowflake can continue to put up the nice growth numbers that they have been, and I think they can, then I think that this company can be an impressive out-performer over the coming years. Happy to hold for a long time.

Crowdstrike (CRWD) – Now: $50 billion – Then: $201 billion to $352 billion

It’s a little hard to predict the upside for Crowdstrike because it already seems to be larger than most of its competitors, which was a little surprising for me. Still, cybersecurity seems like it will only get more important in the coming years. If advertising companies can be worth hundreds of billions of dollars, and Apple can make big waves by touting how seriously that they take their customer’s privacy, then why couldn’t a company helping to keep private information safe get to hundreds of billions of dollars as well?

Verdict: I’m high on Crowdstrike right now but I also have it on a bit of a short leash. I got burned badly by FireEye (FEYE), another cybersecurity company, awhile back. I have a hard time personally judging how good of a moat any cybersecurity company has while also being keenly aware that all it takes is one massive security breach for confidence, and any moat they might have, to be completely shattered. If the company should stumble in any way (note: I mean the company’s execution and not the stock price), I would probably give some serious consideration towards trimming the position or selling entirely.

Your Thoughts

What do you think? Am I too optimistic on the above companies? Is a 4x or 7x just patently absurd? Please let me know in the comments if you agree or disagree and, more importantly, why. Thanks!

Don’t Panic

Don’t Panic

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It’s amazing to me how short of a memory some people seem to have. It was just a little over a year ago when the market had one of the quickest and most severe drops of all time. At the height of the carnage, my portfolio was down by over a third from recent highs. However, for those who have a long term investing mindset, March of 2020 proved to be an amazing time to have bought shares of some of those high quality companies that had been beaten down. And even if you didn’t have dry powder to deploy, simply not panicking and holding onto your shares instead of selling them proved to be a very lucrative strategy.

Right now, my portfolio is again down by over a third from recent highs. There are a lot of differences from 2020, though. There is no clear catalyst for this drop, no pandemic starting to ravage the world and no lockdowns threatening so many businesses. The drop this time around also seems to be far more concentrated in “growth” stocks while the broader market seems to be largely unaffected. We’re also seeing many companies drop big in the aftermath of earnings that weren’t just good, but oftentimes incredible.

But perhaps the biggest difference to me is when you zoom out and look at some of the performances over the past 18 months. Here are some of my largest positions in my portfolio. All of these are down by at least 25% or more over the past few months. Some are down a lot more. But take a look at what happens when you zoom out just a little bit and look at their performance over the past 18 months (even counting the recent drops):

  • Shopify (SHOP) +240%
  • Mercado Libre (MELI) +180%
  • Sea (SE) +640%
  • Tesla (TSLA) +900%
  • Square (SQ) +245%
  • Teladoc (TDOC) +80%
  • Redfin (RDFN) +200%

Many of these companies have had absolutely incredible and unsustainable runs recently. It is not at all surprising to see them have a bit of a pullback. Volatility is the price of admission for superior returns. In order to outperform the market over the long term, you need to be able to tolerate times like these and keep a level head. Yes, seeing all this red day after day can be unsettling, but I am no more deterred to deviate from my investing strategy now than I was in March of 2020 or the fourth quarter of 2018. I remain fully invested, and the majority of my portfolio remains unchanged from the beginning of the year. Last quarter was a bad quarter. This quarter is shaping up like a bad quarter. All of 2021 could be a bad year, but I remain confident that by staying the course and investing for the long term, that 5+ years down the line I will be very happy with my decisions today.

Don’t panic.

The Freedom Portfolio – April 2021

The Freedom Portfolio – April 2021

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

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

Just a month ago, I was watching the Freedom Portfolio have a scorching start to the new decade thanks to the incredible run of companies like Tesla (TSLA). I was even wondering if I might be able to talk about how the portfolio had managed to double over a mere 15 months. That kind of thinking seems patently ridiculous now.

For those unaware, this past month has seen the fastest market drop in history as COVID-19 (aka, Coronavirus) has brought the US economy to a screeching halt. The volatility has been extreme, and it has gotten to the point where I don’t even blink when multiple positions in the Freedom Portfolio are up (or down) 20%+ in a day. Redfin (RDFN) was recently up 20% and 30% in back-to-back days and is still down something close to 50% in the past month alone. So I’ve very quickly had to shift my mindset from one of, “Isn’t the market an amazing way to generate wealth?” to “Don’t panic! This kind of thing happens sometimes”.

The Freedom Portfolio – April 2020

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

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

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

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

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

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

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

TickerQuarterly ChangeChange Since Inception
FVRR9%12%
TSLA-8%1003%
SE14%627%
MGNI51%-16%
ZM-11%122%
ETSY17%95%
DMTK12%9%
CRWD-9%89%
SQ3%128%
RDFN-1%269%
FUBO-9%-5%
SHOP1%590%
TTD-16%206%
SWAV28%143%
ROKU2%164%
TMDX118%25%
MELI-10%341%
TDOC-9%112%
JD-2%225%
NNOX-9%-3%
BFLY-12%-27%
AXON22%91%
NVCR-18%153%
AMZN-3%55%
NFLX0%42%
SKLZ5%-16%
DIS4%60%
SNOW-18%-21%

Notable Performers

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

Best Performers

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

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

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

Worst Performers

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

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

Changes in the Portfolio

The Freedom Portfolio – April 2021

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

  • Tesla dropped from being a Babylon 5 level position to an Enterprise level position. Some of this had to do with the stock dropping, but more of it had to do with me trimming the position. I still love Tesla’s future and I hate getting hung up on valuation, but even I had to admit that Tesla’s valuation was getting a little out of control. I feel much more comfortable with it being an Enterprise level position right now.
  • Amazon dropped from an Enterprise level position to a Serenity level one after I sold half my shares on the announcement that Bezos was stepping down as CEO. I was also starting to get a little concerned with just how much larger Amazon could possibly get seeing as it is getting close to a $2 trillion company. I think it will be a solid performer going forward, but I’m pondering whether I want to free up that cash to use on a company with more upside.
  • Teladoc and Square moved up from Serenity level positions to Enterprise level positions. Both seemed to have earned it by holding up better this quarter while the overall value of the portfolio went down.
  • Nano-X, Zoom, and Fiverr moved up from Millennium Falcon level positions to Serenity level positions in much the same way: thanks to sucking a little less than the rest of the portfolio this part quarter.
TickerCompany NameAllocation
SHOPShopifyBabylon 5
MELIMercadoLibreBabylon 5
SESea LimitedEnterprise
TSLATeslaEnterprise
TDOCTeladocEnterprise
SQSquareEnterprise
RDFNRedfinSerenity
FVRRFiverrSerenity
TTDThe Trade DeskSerenity
NVCRNovoCureSerenity
ROKURokuSerenity
AMZNAmazonSerenity
ETSYEtsySerenity
JDJD.comSerenity
NFLXNetflixSerenity
ZMZoom VideoSerenity
DISWalt DisneySerenity
CRWDCrowdStrikeSerenity
NNOXNano-XSerenity
FUBOFuboTVMillennium Falcon
TMDXTransMedics GroupMillennium Falcon
SWAVShockwave MedicalMillennium Falcon
AAXNAxon EnterprisesMillennium Falcon
DMTKDermTechMillennium Falcon
SKLZSkillzMillennium Falcon
MGNIMagniteMillennium Falcon
SNOWSnowflakeMillennium Falcon
BFLYButterfly NetworkMillennium Falcon

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

Estimating Upside: Part 1 – The Slow Growers

Estimating Upside: Part 1 – The Slow Growers

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I’ve said it many times, but I’ll say it again: 2020 was a hell of a year for the Freedom Portfolio. The portfolio as a whole was up 175% with a number of individual positions tripling or more. That’s many years of growth all squeezed into a short period of time. As a result, it felt like time to try to take a step back and see if my investment thesis for these companies still holds. For many of my positions, the upside that I am looking for is a 5-10 bagger over the next 5-10 years. However, with some of those companies already doubling or tripling, is that upside still there, or should I be looking for better opportunities?

To answer this question, I’m planning on going through each of my holdings over the coming weeks/months. For each holding, I intend to figure out what I think is the maximum reasonably upside that could be expected from the company over the next 5 years. Why 5 years? Because I am a long term investor who always enters a position with the intention of holding it for 5+ years (even if that sometimes doesn’t happen) and because trying to project out any further than 5 years seems way too difficult at the current pace of innovation.

For each position, I decided to place it into one of 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)

Part 1 is dedicated to the slow growers, with the plan for parts 2 and 3 to be released in the coming weeks/months. For each company, I will list the current-ish market cap as well as what that market cap would look like 5 years from now after a potential double or triple.

Note: There’s been a fair amount of market volatility lately, so it feels worthwhile to note that these market caps were pulled on March 11th.

Let’s go.

Amazon (AMZN) – Now: $1.5 trillion – Then: $3 to $4.5 trillion

It’s a little hard to wrap my head around how much larger a $1.5 trillion market cap company can get. On one hand, it’s already massive with big expectations of growth already baked in. On the other hand, it still feels like there’s a lot of runway left with cloud computing, ecommerce and advertising and Amazon seems to have a really strong advantage in all three of those business lines. A 15% to 25% CAGR might seem a little conservative for such a relentless innovative and strong business like Amazon, but it would also represent them adding 5 Walmarts (WMT) or 10 Exxons (XOM) worth of market cap, which feels pretty significant.

Verdict: Amazon is so large that it’s hard to imagine there’s a tremendous amount of upside left in it, but at the same time there might not be a company out there which I am more confident will be a market beater going forward. I’ve already trimmed some of my position after Bezos stepped down as CEO. I don’t see any reason to sell any more in the near future.

Tesla (TSLA) – Now: $650 billion – Then: $1.3 to $1.9 trillion

Again, this is hard to wrap my head around. A mere car company with a market cap over $1 trillion? As any Tesla bull will be quick to say, Tesla is more than just a car company and is poised to be a major player in not just all sorts of transportation (EVs, autonomous, taxis, ride-sharing, etc), but energy as well. I think Tesla is well positioned to be a leader in a lot of those areas, but what is that worth? Even if you combine the market caps of the top car manufacturers AND Uber and Lyft AND toss in an Exxon for good measure, you don’t get to $1 trillion right now. Even if Tesla disrupts transportation and multiple other areas like I think they could, it feels like a stretch to say they can grow much beyond a low-to-mid $1 trillion market cap over the next five years.

Verdict: I’ve mentioned a few times that, despite still being bullish on Tesla, even I couldn’t justify the valuation over the past few months. I’ve trimmed a decent amount recently and feel much more confident with the size of my position now and see no reason to change it any more in the near future.

NovoCure (NVCR) – Now: $13 billion – Then: $27 to $40 billion

Seeing the market cap of NovoCure was a bit of a surprise to me. When I first bought shares of NovoCure in 2017 at about $18 a share, it was a much smaller company. I knew it had been a pretty great performer, but it still surprised me to see that it had grown to such a large market cap. I still think there’s a big opportunity in front of NovoCure to use their Tumor Treating Fields to treat a wide variety of cancers and, importantly, the treatment can be used in addition to others so competition should be less of a factor. Still, it’s a little tough to see them growing much beyond the $30-40 billion range unless they find a way to expand TTF beyond cancer treatment, which I don’t quite see happening.

Verdict: Novocure has some pretty clear catalysts that are also on a pretty clear timeline. I love the technology, but I could see a scenario in the coming years where I start to redeploy capital to other companies unless they discover new potential uses for TTFs.

Disney (DIS) – Now: $357 billion – Then: $714 billion to $1 trillion

I continue to be amazed by how Disney stock has not only held up during a pandemic which has obliterated virtually all of their main revenue drivers, but has actually hit new highs. Obviously a lot of that has to do with how incredibly fast their streaming services have grown both domestically and internationally. I have no doubt that Disney will be the strong number two to arise globally in the coming years. Still, it seems like a lot of optimism is already baked in to the share price. What happens if park re-openings take longer than expected, the movie pipeline takes some time to get replenished, and Disney+ growth slows down?

Verdict: I love Disney, but there’s no doubt it has lower upside than a lot of my other companies. As a result, I actually recently trimmed my position some (see below) to add to some companies that hopefully have more upside.

Netflix (NFLX) – Now: $232 billion – Then: $463 to $695 billion

A double or triple over 5 years is really strong growth, but it almost feels like an insult to predict it for Netflix seeing as it has gone up nearly 6 fold over the previous 5 years. It does feel like it’s finally time for their growth to slow down some, though. Netflix long ago saturated the US market and it feels like it has snagged most of the low hanging international fruit as well. There’s still some growth to be had, but much of it will be coming from cheaper plans in countries like India. Additionally, their competition has finally gotten serious about transitioning to online streaming which will undoubtedly limit their ability to raise prices as much as they have been. The rumors of them cracking down on password sharing is one more sign that they’re looking for other levers to pull to get some growth. Still, Netflix remains the global leader in a streaming trend that is still yet to fully play out and that doesn’t seem likely to change. This still feels like an easy market beater going forward.

Verdict: I won’t lie: nostalgia plays a huge role in why I continue to hold Netflix. It was one of my first purchases and has been one of my biggest winners. I almost feel a sense of loyalty to the company. That’s not the only reason I hold it, but I would be lying if I said it didn’t play a role. I could see myself selling some more in the future, but it’s hard for me to imagine ever selling all of my shares.

Square (SQ) – Now: $110 billion – Then: $220 to $330 billion

Like NovoCure, the market cap of Square surprised me a bit. When I first purchased shares in 2018 at $58 a share, the market cap was around $20 billion. My hope then was that Square could grow beyond just being the little dongle for swiping cards for small and mid-sized businesses and could become a major player in digital payments with the Cash App and move into many banking services as well. The former seems to have arrived and the latter looks to be getting closer. Even though Square has grown a ton, I still feel like there’s decent upside left. PayPal, Visa, and Mastercard have market caps between $300 and $500 billion and if bitcoin continues to show strength, there’s no reason why Square can’t double or triple from here.

Verdict: This is one I will be keeping a close eye on. It feels like Square has a lot of potentially huge catalysts (Cash App moving into banking services, bitcoin, NFTs through Tidal) and I do think Dorsey is brilliant, but he’s also eccentric and undeniably distracted. If some of those moonshots look like they’re not panning out or taking longer than expected, I might consider trimming my position some.

Transactions

Sold some Disney (DIS): As mentioned earlier, there’s been a ton of volatility recently and a lot of my positions have seen some pretty massive haircuts. I always remain fully invested and don’t keep cash around, so if I want to “buy on the dip” I need to sell something else first. Because Disney has held up fairly well during this volatility, I decided to trim some so that I had cash to deploy elsewhere.

Bought more Fiverr (FVRR) and FuboTV (FUBO): I’ve made no secret how much I have been loving Fiverr lately and so when it dropped nearly 40% recently I took the opportunity to add more shares. FuboTV was a smaller position that saw a move that was almost as big so I decided to add a bit to FUBO as well.

Your Thoughts

What do you think? Am I too pessimistic on the above companies? Or is a potential double or triple still too optimistic? Please let me know in the comments if you agree or disagree and, more importantly, why. Thanks!

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.

Gamestop

Gamestop

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Roughly five months ago, I started getting mildly interested in a company that I was familiar with because of my hobbies (namely video games), but had never been on my investing radar: Gamestop (GME).

The reason I had started getting interested wasn’t because of the normal reasons I get interested in investing in a company. I didn’t see Gamestop as some kind of disruptive and innovative company which would see huge growth over the next 3+ years. To the contrary, Gamestop seemed like a bit of a dumpster fire. It was a brick and mortar retailer primarily dealing with goods (video games) which were quickly making a transition to digital. Few companies seemed worse positioned to deal with the future.

So why was I interested? For three main reasons:

  • While the business was undoubtedly in decline, the company wasn’t in danger of imminent bankruptcy. They weren’t saddled with huge amounts of debt that were about to come due which they couldn’t pay off. They had cash on the balance sheet and were still making money.
  • There was a console refresh (new versions of the Playstation and Xbox consoles) in the upcoming holiday season (December of 2020) which typically provides really good results for Gamestop. Consoles, unlike games, still largely are bought in store.
  • There was an insane level of short interest (over 100% of the float).

That last point was the most important. Basically, for as bad of a position as Gamestop seemed to be in, the sentiment looked to be a little too negative. I thought there was a potential opportunity to make a short term bet (and I stress that this would’ve been a bet, and not investing, which is what I typically like to do) that the stock might see a little pop and maybe even a short squeeze after they reported holiday season results.

I looked in to doing some options, but ran into some issues getting permissions set up with my broker and by the time I was able to make my bet, the stock had gone from around $5 a share to around $8 a share. I thought I had missed my opportunity.

Obviously, I was wrong.

Despite that, I have absolutely no desire to come anywhere close to touching Gamestop stock right now. The stock price is completely detached from reality right now and the wild swings have nothing to do with business fundamentals and instead everything to do with a fight between a bunch of retail investors and hedge funds. What is going on is very interesting and even pretty important, but I have no desire to try to profit off of it in any way.

In my opinion, taking any sort of position in Gamestop at this point is not very different from playing a roulette wheel. Maybe you get lucky and it works out, but you’re just as likely to get unlucky and get burned. I’m happy it has worked out for many people, but I worry that plenty of others are going to get burned and are going to swear off “investing” forever, even though taking a position in Gamestop right now is the opposite of investing to me.

This blog wasn’t intended to giver personalized advice and I never have wanted to tell people what to do, but I do want to stress to everybody to please, please, please be careful with anything involving Gamestop or any of the stocks making crazy moves right now (looking at you, AMC). There is a very good chance that these stocks return back to the levels they were at a few weeks ago (or even lower) and it can happen a lot faster than you might think.

Related: I’ve had a few people ask me what is going on, and after writing it out a few times over emails and discord channels, I figured I might as well write something here that I could instead point people to.

What’s the TLDR? What happened to Gamestop shares is the mother of all short squeezes plus a really fascinating battle between a bunch of retail investors who decided to pick a fight with some hedge funds.

For more detail, we have to understand what a short squeeze is first:

What is shorting?

Shorting can be thought of as the opposite of “regular” investing. Here is the “normal” order of operations for a hypothetical investment:

  1. Buy shares of a company for $5 a share
  2. The price per share of the company goes up to $10 a share
  3. Sell the shares for $10 a share and make $5 profit for each share ($10 made from selling minus $5 paid to buy)

Here’s how short selling might work for a hypothetical investment:

  1. Sell shares (that you don’t own) of a company for $5 a share by borrowing shares from somebody else
  2. The price per share of the company goes down to $1 a share
  3. Buy shares for $1 a share so you can return the shares that you borrowed and make $4 profit for each share ($5 made for selling minus $1 paid to buy)

The cool thing about “normal” investing (often called being “long” as opposed to being “short”) is that your downside is limited but your upside is unlimited. For example, if you buy a share for $5, then the most money you can lose is the $5 you paid for the share. But if the share price goes to $100, you can make $95. If the share price goes to $1,000 then you can make $995. That kind of asymmetrical risk/reward is part of what makes investing so appealing to me.

Shorting is the opposite. In the example above, if you short a $5 stock then the most money you can make is $5 a share. But the most money you can lose in theoretically unlimited. If the stock doesn’t go down, but instead goes up to $100, then you have lost $95 on your $5 investment. That kind of asymmetry is a lot more dangerous and is why I never consider shorting.

What is a short squeeze?

Short squeezes happen because of the danger of potentially unlimited losses. Go back to the example above. If somebody shorts a stock at $5 and the stock price goes up to $10, they have now lost $5. The more the price goes up, the more that position loses. So if the price goes up enough, some short sellers might throw in the towel and decide to take their losses and run. In order to close their position out, they need to buy shares in the company to return to the person they originally borrowed shares from (see #3 above in the short example). When those people buy shares to close out their position, that buying activity drives the share price up more. So instead of that ideal short situation that was described above, here is what happens instead:

  1. Instead of going down like shorts expect, shares of a company go up
  2. Some people who were short the stock panic over losing money and close their position out by buying shares
  3. The act of buying shares causes the share price to go up even more, causing more shorts to panic and close out their position
  4. Go back to #3

As you can see, this can snowball in a hurry and cause a major increase in share price very quickly. That’s called a short squeeze.

So what happened?

As mentioned before, the short interest on Gamestop was crazy high. At one point it was over 100%. This caught the attention of a group of investors. There were a couple of different names being used to describe them: Wall Street Bets (WSB), Robinhood investors, retail investors. The important thing is that they were coordinated. They noticed the opportunity for a short squeeze in Gamestop and decided to try to trigger one by buying a bunch of shares. Their motivation seems to be two-fold: to make money, but also to stick it to hedge funds that they see as having manipulated the market and hurting the little guy in the past.

They seem to have been wildly successful so far.

As the short squeeze was being triggered, it seems like the hedge funds underestimated their opponent at first. After all, if you thought Gamestop was a compelling short at $5 and nothing fundamentally has changed in their business, then it has to be an incredible short opportunity at $50 and higher! So instead of cutting their losses, it looks like some hedge funds might have doubled down. The thing with doubling down on short positions, though, is that if the price keeps going up, then it just ultimately worsens the short squeeze.

And remember the asymmetrical risk/reward with shorting? A hypothetical hedge fund with a $1 million short position in Gamestop at $5 a share, if they still held their short position, would now be looking at tens of millions of dollars in losses. That is something many of them might be having trouble weathering, and there are rumors flying about some hedge funds needing to raise money, sell shares in some of their long positions, or even facing bankruptcy.

This is only scratching the surface, and isn’t even getting into all the funny business around brokerages like Robinhood preventing people from buying (but not selling) shares of Gamestop yesterday. The story is still playing out, and it is a fascinating one.

But it is also one I am very content watching from the sidelines.

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 Freedom Portfolio – January 2021

The Freedom Portfolio – January 2021

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

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

Let’s start out with updated performance:

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

TickerQuarterly ChangeChange Since Inception
NNOX90%6%
ROKU66%164%
TSLA57%1053%
NVCR54%227%
MELI50%387%
CRWD48%114%
DIS47%54%
TTD44%273%
SWAV38%95%
ETSY35%67%
RDFN30%270%
FVRR30%-2%
SQ29%116%
AAXN28%63%
SE24%512%
JD12%238%
SHOP7%580%
NFLX3%44%
AMZN1%61%
TDOC-9%130%
FSLY-11%48%
ZM-30%128%

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

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

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

Notable Performers

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

Best Performer

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

Worst Performer

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

Changes in the Portfolio

The Freedom Portfolio – October 2020

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

  • Mercado Libre moved up to a Babylon 5 level position on the back of an incredible 50% gain over the past quarter
  • Crowdstrike moved up to a Serenity level position on the back of some additional buys and a nice 48% gain during the quarter
  • Fastly fell to a Millennium Falcon level position after falling 11% during a quarter where the rest of the portfolio increased almost 30%.
TickerCompany NameAllocation
SHOPShopifyBabylon 5
TSLATeslaBabylon 5
MELIMercadoLibreBabylon 5
SESea LimitedEnterprise
AMZNAmazonEnterprise
RDFNRedfinSerenity
TTDThe Trade DeskSerenity
TDOCTeladocSerenity
SQSquareSerenity
NVCRNovoCureSerenity
ROKURokuSerenity
DISWalt DisneySerenity
JDJD.comSerenity
ETSYEtsySerenity
NFLXNetflixSerenity
CRWDCrowdStrikeSerenity
FSLYFastlyMillennium Falcon
FVRRFiverrMillennium Falcon
ZMZoom VideoMillennium Falcon
NNOXNano-XMillennium Falcon
SWAVShockwave MedicalMillennium Falcon
AAXNAxon EnterprisesMillennium Falcon

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

Fantasy Investing 2021 Kickoff

Fantasy Investing 2021 Kickoff

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Welcome to the Fantasy Investing 2021 kickoff! Before we touch on the new season, I wanted to offer a hearty congratulations to David for winning the 2020 Fantasy Investing season with an incredible 185% return for the year. Tesla (TSLA) was the main engine of his success with a 731% gain, but the rest of his portfolio was no slouch either. I came in a distant second with a (still respectable) 156% gain powered by a trio of stocks which had over 200% gains (RDFN, SQ, MGNI). Joe got the bronze medal with a still impressive 125% return largely thanks to Jumia (JMIA). Most importantly? Everybody except for the two indexers (Daniel and Matt) beat the S&P for the year. Great job everybody! I would have liked to have won, but I can’t complain too much about a 156% return. Maybe 2021 will be my year?

Speaking of which, let’s talk about the 2021 season.

Last year our number of participants increased to 7 from 5 two years ago. I’m thrilled to announce that for the 2021 season we have seen increased growth in participation and have hit 15 participants! A lot of the new participants were obtained through my posts on CommonStock, a new platform I have been increasingly using over the past few months. I encourage you to check it out if you have interest in investing and reading about what other smart people are investing in.

I tweaked the spreadsheet I used to track returns last year. The 2020 competition is now a separate tab and the 2021 competition is in a new tab. The spreadsheet can be found here. Please let me know if you notice any problems or mistakes, as this is still a very manual process. I also tweaked the 2020 tab so we can continue to track the portfolio returns past the December 31, 2020 cut-off in case that is interesting to anybody. As always, please let me know if you have any suggestions on improvements.

I’m really looking forward to this season. The competition should be intense. Good luck to all of the participants. Thanks for following along.