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Fantasy Investing 2022 Kickoff

Fantasy Investing 2022 Kickoff

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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.

Recklessly Bold Predictions for 2022

Recklessly Bold Predictions for 2022

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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!

Saying goodbye to some old friends

Saying goodbye to some old friends

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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!

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.

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!

Recklessly Bold Predictions for 2021

Recklessly Bold Predictions for 2021

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One year ago, I made a set of bold predictions for what 2020 would bring.

I, like the rest of the world, had no idea what was coming.

Had you told me in advance that we would be seeing a worldwide pandemic that would be leading to months long lockdowns across the globe that would devastate parts of the economy, then I would have told you that my predictions were going to be laughably wrong. Perhaps the only thing more unexpected than the pandemic was how markets have seemed to react to it. Somehow, against all odds, I had an incredible hit rate on my overly bullish predictions.

Note: I know there’s still a little over a week left in 2020, but I generally run my bold predictions from mid-December to mid-December so it doesn’t overlap with my quarterly recaps and fantasy investing so I’m going to call most of these a little early. Some of these numbers were pulled a few days ago and thus might be slightly out of date by the time this post is published.

2020 Predictions

Disney and Netflix both gain 20%+

The Prediction: Disney (DIS) goes from $144.63 to $173.56 and Netflix (NFLX) goes from $323.57 to $388.28.

Mixed: With COVID-induced lockdowns leading to a lot of people stuck at home, Netflix was able to pull forward a lot of growth and had no problem at all blowing past my 20% prediction, ending up with a roughly 60% gain for the year. The bigger shocker is Disney. Despite the pandemic wrecking most of their main business lines (movies, theme parks, live sports, cruises), Disney is somehow still in the running at an 18% gain as of this writing. That’s technically a loss for now (although I’m totally counting it if Disney crosses the line before the end of the year), but considering everything that has happened this year, this feels like a moral victory at least. I’ll take an 18% gain after the year Disney has had.

I’m just as excited as ever about Disney going forward. Their theme park and live sports businesses should eventually rebound and while movies is still a bit of a question mark, their Disney+ initiative has been a monstrous success and presents them with a powerful alternative way to monetize their movies and IP. I was especially impressed by the volume of content they are preparing for the coming years and their plans to expand the Star brand internationally and incorporating the Fox content into Disney+. As for Netflix, I’m ever so slightly less bullish on their prospects for strong growth going forward, which is why I trimmed my position some this year. I just worry about how much more they can expand internationally and how much more they can raise prices. I still think they can be a market beater going forward, which is why I still own shares, but I just don’t feel like they will be beating the market as much as they have in the past.

Square will add $20 to its share price

The Prediction: Square (SQ) goes from $62.56 to $82.56.

Win: This one wasn’t even close. Square went crazy in 2020 and ended up adding $170 to its share price… or 8.5x more than I predicted.

It’s pretty incredible to see a company which is probably best known for its terminals utilized by small and mid-sized food establishments do well during a pandemic which has hit those businesses hard. It makes sense, though, once you realize that Square also has a strong play in the digital wallet space with its Cash App. I remain bullish on the company going forward, but the stock has obviously run up a lot and there’s a lot of optimism baked in at this price so I’m clearly not seeing a repeat of this performance in 2021 and wouldn’t even be surprised if it underperformed the market for a stretch while the business fundamentals catch up to the valuation.

Redfin will add $20 to its share price

The Prediction: Redfin (RDFN) goes from $21.14 to $41.14.

Win: Another one that wasn’t that close. Redfin added $60 to its share price in 2020, or 3x my original prediction. That 270% gain is almost as good as Square’s 280% gain for the year.

Again, a company whose mission is to “Redefine real estate in the consumer’s favor” might not seem like an obvious beneficiary lockdowns put in place in reaction to a global pandemic, but it’s not too hard to see why Redfin was a big winner once you look a little deeper. Real estate is being disrupted, and the old model and incumbents are facing serious challenges from new competition that can offer things like lower commissions, virtual tours, instant offers, concierge service, and much more. Between OpenDoor and Zillow, there’s a lot of competition in this space, but I still think Redfin is the most complete challenger and should continue to benefit from low mortgage rates and the migration of people out of cities and into the suburbs as remote work gets more common.

Bonus Prediction #1: Bitcoin to $20k

The Prediction: Bitcoin will hit $20k (duh).

Win: After crashing with the rest of the market in March of this year (so much for a store of value that is uncorrelated with equities), bitcoin had a slow but steady march upward for the rest of the year. It hit the $20k threshold with plenty of time to spare on December 16th and currently stands at a little over $23k.

It’s hard to say anything too intelligent about where something as speculative as bitcoin might go in the future. What I can say is that between historically low interest rates and increases in the monetary supply, it has been fairly unprecedented times for the Federal Reserve, the US economy, and the dollar. I worry a lot about inflation and the future of the US dollar as a reserve currency, and as a result I see a lot of potential in bitcoin. It might never get to a place where it can serve as a currency, but at this point I don’t believe it has to in order to provide a decent return. Bitcoin can still absolutely go to zero, but I also think the sky is the limit as well.

Bonus Prediction #2: Somebody will buy Nintendo

The Prediction: That Nintendo would get acquired by another company in 2020.

Loss: You can’t win ’em all. With the upcoming console cycle refresh and the big emphasis put on gaming by a lot of the tech giants (Alphabet, Amazon, Apple, Microsoft, etc), I thought there could be a ton of interest in acquiring Nintendo and their unmatched gaming IP. I don’t think it would be a stretch to say that any of those above companies that managed to acquire Nintendo would instantly become a gaming powerhouse and potential leader in the space. It didn’t happen in 2020, but I still think there is a chance this gets done in the coming years.

2021 Predictions

Shopify will become 1/8th the size of Amazon

If you’ve been following this blog at all this year (or even just read the results above), you should have a pretty good sense of what a ridiculously good year this has been for the holdings in the Freedom Portfolio and even the market in general. As a result, I’m a little gun-shy predicting any big absolute gains in 2021 and am more keen on making some predictions on relative gains (ie, one company vs another).

For all the crazy run-up that Shopify has had over the past 2 years, it’s still “only” around a $145 billion market cap, which is around 9% the size of Amazon. Shopify is fond of casting themselves as “arming the rebels” against the “Empire” that is Amazon.

Amazon has lots of other business lines (AWS and advertising in particular) that help set it apart from companies like Shopify, but I do believe 2020 showed that ecommerce is too big for Amazon alone to own. I suspect Shopify continues to aggressively take ecommerce market share away from Amazon and grows to become 1/8th the size of Amazon. Assuming no growth in Amazon at all in 2021, that would equate to a roughly 40% gain for Shopify in the coming year. Obviously, if Amazon grows at all, that’s even more growth required out of Shopify.

Etsy will grow to 3% the size of Amazon

This is piggy backing on the same concept above. Again, understanding that Amazon goes well beyond just ecommerce, I was still shocked to discover just how much smaller than Amazon Etsy was. Etsy is currently 1.5% the size of Amazon. Put another way, Amazon is over 60 times larger. As mentioned before, I think 2020 is the year we find out that ecommerce is larger than a single company, and I believe Etsy is one of the big beneficiaries. Etsy getting to be 3% the size of Amazon sounds reasonable, but it would mean the stock doubles in 2021 (assuming Amazon stays flat). I look forward to seeing if that can happen.

Mercado Libre plus Sea Limited market caps combined to $300 billion

The ecommerce trend continues. I still believe we are in the early innings of the transition to ecommerce and I believe that is especially true for some of the more developing markets in Latin America and Southeast Asia. Both markets have large populations with growing middle classes where internet access is also growing. Bonus? Both companies are also moving strongly into digital wallets and other business lines.

Right now, the market cap of both companies combined is around $187 billion. I believe the combined market caps of both companies can reach $300 billion in 2021, which would be an average of a 60% gain. That’s a pretty strong gain for a year, but it also pales in comparison to the nearly 400% and 200% gains respectively that Sea Limited and Mercado Libre for 2020. Regardless of where they end up in 2021, I believe the future is bright for both companies.

Either Fiverr or Redfin will double

Redfin and Fiverr are companies that both had a particularly ridiculous 2020. Redfin has more than tripled and Fiverr is up over 9 times. At the same time, both companies still seem very small to me compared to their total addressable markets. I believe both companies are capable of doubling in 2021, but for the purposes of this particular bold prediction, I am just predicting that one of them will double. Both companies currently have market caps of under $8 billion, so even after potentially doubling they would still be a fairly reasonable size.

Somebody will acquire Teladoc

Teladoc is certainly no stranger to acquisitions to fuel its growth, most recently with their acquisition of Livongo. And yet despite all of that growth, Teladoc is still a dub $30 billion company. At the same time, there are a bunch of deep-pocketed technology companies like Amazon and Apple that have indicated a desire to get into the healthcare space. Both companies could easily afford to get a huge head start by acquiring Teladoc. There are also companies in the healthcare space which would love to get a boost in telehealth.

I think the odds are probably against Teladoc getting acquired, but as a bold prediction, I think it fits pretty well.

What do you all think? Do you like my picks, or did I completely miss the mark? Do you have any bold predictions of your own? Let me know in the comments!

The JIB is down to one

The JIB is down to one

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

The JIB (up an average of 110%)

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

FAANG (up an average of 98%)

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

BAT (up an average of 64%)

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

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

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

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

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

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

Volatile earnings; Trimming Tesla to add to Teladoc

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The past week has been a bit hectic (and the coming week looks to be even more so), so I haven’t been able to cover earnings season as much as I would have liked, but I wanted to get something quick out even if it was entirely too short and inadequate.

A number of Freedom Portfolio companies reported earnings this past week and while there were a few blemishes (looking at you, Fastly (FSLY)), I was ultimately very pleased with what I saw at of those companies. I was particularly encouraged by the incredible results from the eCommerce plays: Shopify (SHOP), Amazon (AMZN), and Etsy (ETSY). I’m really looking forward to seeing what these companies can do over the coming holiday season.

So why did nearly all of the companies which reported great results drop on earnings and fall a ton on Friday? It’s always hard for me to predict short term market movements, but some of it is undoubtedly due to pessimism surrounding the increase in Coronavirus cases around the world and the new lockdown measures being enacted. I believe some perspective is also in order:

  • Shopify (SHOP) is up roughly 140% YTD
  • Novocure (NVCR) is up roughly 40% YTD
  • Teladoc (TDOC) is up roughly 140% YTD
  • Livongo Health (LVGO) is up roughly 350% YTD
  • Fastly (FSLY) is up roughly 200% YTD
  • Etsy (ETSY) is up roughly 170% YTD
  • Amazon (AMZN) is up roughly 60% YTD

That is incredible performance across the board for under a year. It is not at all surprising to see some profit taking after even the best of earnings reports after run-ups like that. Contrary to popular belief, stocks don’t always go up and I am absolutely not concerned to see some of these stocks pull back a bit after the amazing run they have had. Not only is the long term thesis still intact, but I think these earnings reports have largely confirmed them.

Between Coronavirus, the US Presidential election, and the holiday season, I expect a lot of volatility in stocks over the coming months. My plan is to be laser focused on what the companies I have invested in are doing and to do my best to tune out the noise. I do not plan on doing any buying or selling based on who wins the election or weekly Coronavirus numbers or other macro conditions. If something happens that fundamentally changes my investment thesis in one of my companies, then I will act.

With that being said, I do have one tiny allocation change to report on. I am trimming my position in Tesla slightly (it remains a Babylon 5 level position) in order to add slightly to my Teladoc position (keeping it at a Serenity level position, although with the merger with Livongo going through, the joint company will be an Enterprise level position). It is a small tweak, with the change in allocation representing roughly 1% of the portfolio. My thinking was largely based around valuation. I love the optionality and runway for Tesla, but the valuation is somewhat crazy right now and it seems to already be priced for total domination of the car market. I still think it will be a market beater going forward, but wouldn’t be surprised if the growth was a little more muted in the coming years.

Originally, I hated the Teladoc / Livongo merger, but I have done a complete 180 after being convinced by some very smart people on Twitter who had some great insight into how the companies can complement each other going forward. Despite the growth that both companies had already seen in 2020, I think much of that momentum can and will continue over the coming years. As such, I wanted to slightly increase my position. I’m not thrilled over a lot of Livongo management leaving the newly combined company, but I also don’t think it is a deal breaker and I do trust Teladoc management to be able to integrate the new acquisition. Really interested in seeing what kind of growth numbers the newly combined company can put up in the coming quarters.