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.