AMZN – Page 2 – Paul Vs The Market

The Freedom Portfolio – October 2020

October 5, 2020 paul.essen Comments 4 comments

It’s the two year anniversary of Paul vs the Market and the Freedom Portfolio. Like last year, I thought I would take this opportunity to replace my quarterly recap with a little bit of a longer look back where I go over the performance of the Freedom Portfolio since inception.

Last year, on the one year anniversary, I wrote:

“I just wish it could’ve coincided with a better performing quarter. The third quarter of 2019 was brutal, and saw the Freedom Portfolio essentially give back all of the gains from the 2nd quarter. The Freedom Portfolio was down 10.5% for the quarter, compared to the S&P being up around 1.7%. I’m still up versus the market year-to-date 22.9% to 20.5%, but am now back to losing to the market since inception (October of 2018) -4.1% to 3.9%.”
The Freedom Portfolio – October 2019

What a difference a year makes. And what a surprising difference this year has made.

2020 is shaping up to be the best investing year I’ve ever had. I would consider either of those to be amazing returns for a single year.

Quarterly Returns: The past two quarters alone, the Freedom Portfolio saw gains of 73% and 30% respectively compared with gains of 21% and 9% for the S&P 500. (+52 and +21 percentage points for the Freedom Portfolio)
2020 Returns: The Freedom Portfolio is up 115% year-to-date versus 5% for the S&P 500. (+110 percentage points)
Yearly Returns: Since the above quote (ie, October 2019 to October 2020) the Freedom Portfolio is up 146% versus 15% for the S&P 500. (+131 percentage points)
Returns since inception (October 2018): The Freedom Portfolio is up 143% to 20% (+123 percentage points), which is a compound annual growth rate (CAGR) of 55%

For the visual learners, here’s what those returns look like:

As you can see, the past few quarters have been simply amazing for the Freedom Portfolio, and what makes it doubly amazing is that this has happened with the backdrop of COVID-19 and the havoc it has wrought on the economy.

Because I know there are skeptics out there who think the stock market is akin to gambling or that investing in individual stocks is just like throwing darts at a dart board, I always try to be careful with my usage of terms like “luck” when I discuss my investing results. I have a lot of exposure to ecommerce companies in the Freedom Portfolio because I believe ecommerce is a trend that hasn’t played out yet and still has a long way to go, especially in international markets like Latin America and Southeast Asia. It was a conscious decision to be overweight in those types of companies. At the same time, I don’t mind at all admitting that I was fortunate that those ecommerce happened to benefit greatly from the lockdown measures enacted by governments to combat COVID-19.

It wasn’t just ecommerce. Teladoc (TDOC) and Livongo (LVGO) rode the telemedicine wave while Netflix (NFLX), Roku (ROKU), and Zoom (ZM) benefitted from people staying home and working from home respectively. Even companies like Square (SQ) and Redfin (RDFN), while initially seeming like they would be impacted by harm done to small businesses and the real estate market, seem to have rebounded with a vengeance because of their strength in digital payments and virtual home tours. About the only company in the Freedom Portfolio which was really slammed by COVID is Disney, and even they had Disney+ to help keep sentiment relatively positive during this time.

Here’s a look how each individual position performed over the past quarter and since the inception of the Freedom Portfolio two years ago.

Ticker	Quarterly Change	Change Since Inception
TSLA	99%	602%
SHOP	8%	516%
SE	44%	375%
LVGO	86%	359%
ZM	85%	218%
MELI	10%	215%
JD	29%	199%
RDFN	19%	169%
TDOC	15%	152%
TTD	28%	142%
NVCR	88%	111%
SQ	55%	62%
AMZN	14%	56%
FSLY	10%	59%
ROKU	62%	51%
CRWD	37%	39%
SWAV	60%	43%
NFLX	10%	33%
AAXN	-7%	21%
ETSY	10%	15%
DIS	12%	6%
BZUN	-15%	-34%
NNOX	10%	-45%

While Sea (SE), Livongo, and Zoom have been amazing performers over a relatively short period of time and that is awesome, I wanted to talk specifically about the two best winners in the Freedom Portfolio: Shopify (SHOP) and Tesla (TSLA), and how they drive home two important investing lessons for me:

Don’t be afraid to invest in a company which has already run up
Don’t be afraid to hold onto winners as long as your investing thesis still holds true

While the Freedom Portfolio officially started in October of 2018, I actually first bought shares of Shopify back in January of 2017 (the return since then is somewhere in the neighborhood of 2,200%). It’s been a spectacular investment for me, but it also very nearly didn’t happen. I have a very clear memory of thinking that I had missed the boat with Shopify back in 2017. The stock had already nearly doubled and I was wondering how much further it could go. I decided to take a chance with a relatively small position that in less than four years has turned into by far my largest position in the Freedom Portfolio.

I almost didn’t hold on long enough for that to happen either, though. A little over a year ago, I wrote about how I was taking a risk on Shopify because I was concerned over the huge run-up in stock price even though “the investing thesis is stronger than ever”. I ended up not selling, and it’s a good thing I did, because the stock has tripled since then. Tripled!

Lesson confirmed: Don’t be afraid to let your winners run.

Tesla taught a slightly different lesson. I first bought shares way back in 2015, with the total return since then around 680%. You might notice that isn’t too far off from the return since late 2018. That’s because the stock was basically flat for the first 4 years that I held onto it, and was even down from my initial purchase price as recently as mid-year 2019.

During that time, there was a ton of noise surrounding Tesla as a company and as a stock (some of it coming from the CEO himself). Plenty of very smart people were predicting the company would go bankrupt. There were a lot of very legitimate concerns about dilution and margins and valuation and missed deadlines. However, if you believed that electric vehicles were the future and that Tesla possessed a huge advantage over legacy automakers in terms of battery technology, self-driving software, and charging networks, then it was hard to ignore the progress that Tesla was making despite consistently missing deadlines, some erratic behavior from the CEO, and turnover in management. Finally, in late 2019 and early 2020, the market seemed to catch on that the legacy automakers were in real trouble and that it’s entirely possible that Tesla isn’t just some tiny upstart, but might be the future of automobiles (and more?).

The lesson? Sometimes it can take years for the stock price to catch up to how the business is performing. Don’t be impatient. If the company continues to execute and grow and the investment thesis remains intact, then eventually the market will catch on.

Now that that is out of the way, let’s get into some other notable performers for the Freedom Portfolio since inception.

Notable Performers

Best Performers

Sea Limited (SE): Much like with my Shopify story above, I wondered if I had missed the boat with Sea Limited when I first bought shares in 2019 because it had already tripled. At the time the market cap was around $15 billion, which seemed high for a video gaming company just starting to dip its toe into ecommerce and digital payments in a mix of countries where it was up against competitors backed by deep pockets such as Alibaba (BABA).

I’m so glad I did.

As mentioned earlier, COVID has obviously helped to accelerate ecommerce and digital payment adoption around the world, but Sea has also done an incredible job of executing across the myriad of countries that they operate in and have seemingly started to pull away from their competitors across the board. Their gaming business also continues to impress as it makes inroads into Latin America and India.

Sea is probably the company where my conviction in it has increased the most over the past quarter. Here’s a fun fact: Out of all the current holdings in the Freedom Portfolio, Sea is the company on which I have spent the most money buying shares as I have been adding to it on the way up over the past year or so. It has become a large enough position to where I probably won’t be adding to my position anymore going forward, but I am really looking forward to seeing how they execute in the coming quarters and years.

Livongo (LVGO): Livongo has been a wild ride. I hadn’t bought shares until early this year and yet in that short amount of time it has already returned roughly 360%. I was so thrilled to see how this company was growing and riding the wave of remote healthcare.

Then the announced merger with Teladoc happened.

Initially, I was crushed, and not just because both stocks dropped on the news. It seemed like such a bad fit and I couldn’t understand why Livongo was getting acquired at such a low premium. It stung all the more since it happened right as they announced an incredible quarter that I expected to cause the stock to pop even more.

Now that I’ve had more time to digest the news, I’m warming up to the merger, though, and can understand why it was done and how the companies complement each other. In fact, I’m starting to get excited about the prospect of the newly merged company being a true powerhouse in the future of remote healthcare.

I’m holding off on making any decisions in terms of buying or selling shares of either company until the merger goes through and we get some insight into how the newly combined entity is performing, but I am cautiously optimistic.

Worst Performers

Nano-X (NNOX): This comes with a major astericks considering that just two days after the close of the third quarter, Nano-X surged more than 50% on news that it was going to offer a live demonstration of its Nanox.ARC System later in the year. Now that I have sold Jumia (JMIA) and Kushco (KSHB), Nano-X is easily my most speculative investment.

The Muddy Waters short report on Nano-X is concerning to me, since they have a pretty good track record in sniffing out problems with companies. At this point, I think I will just be sitting on my position (neither buy or selling) until we get any news on FDA approval. Hopefully this works out, but if it doesn’t, the position is small enough that I am comfortable with the idea of the stock going to zero.

Baozun (BZUN): Baozun has been a baffling investment for me. It has been a perennial under-performer in the Freedom Portfolio. Not only is it down 17% since inception, but it is down even more compared to the S&P 500 during that same time period. The US/China trade war has undoubtedly been a problem, but the company has also been in the midst of transitioning to higher margin products and away from a more capital intensive distribution model. Despite all of this, the company continues to grow.

To be honest, my conviction in the company is starting to waver. However, I don’t want to make any hasty decisions (see my comments about being patient with Tesla above), and the growth story is still intact. I plan on holding on for a few more quarters to see how the transitions play out and to see if US/China tensions ease. But if an exciting new opportunity comes along, Baozun might be one of the first companies that I consider selling.

Disney (DIS): It’s no surprise why Disney has struggled over the past year or so. Despite it being a very diversified company, almost every single major revenue generator for the company has been completely shut down by COVID-19. Obviously theme parks and cruises have been hugely impacted. Their movie business has also been put on hold as theaters are largely shut down and the Mulan experiment in releasing their blockbusters straight to digital has seemingly flopped. Even ESPN has been affected by the postponement and cancellation of sports. About the only positive for Disney during this time has been Disney+, their streaming service, and that doesn’t generate nearly as much revenue as their other business lines. And all of this happens right after Disney took on a lot of debt in order to purchase a lot of Fox assets. Frankly, I’m a little surprised Disney isn’t down even more.

I’m still a big believer in Disney. I believe their theme park and movie businesses will rebound. I believe they have a ton of growth left in Disney+ and a huge international opportunity in front of them. Yes, they might not have the same amount of upside as many of the other companies in the Freedom Portfolio, but there’s nothing wrong with the occasional slower and steadier grower.

Changes in the Portfolio

In the past, I had written about the buys and sells of the previous quarter in my quarterly recaps. With this quarter, I tried something new and decided to write up short posts soon after I made any changes to the Freedom Portfolio. As a result, there’s nothing additional to share here, so I will simply link to the posts that I wrote detailing my buys and sells during the quarter:

The Freedom Portfolio – October 2020

So here is where the Freedom Portfolio stands at two years. Need a reminder of what these terms mean? Check out: Defining my Terms.

A few notes before moving on to the full breakdown:

Teladoc and Livongo are on track to merge. While I have no reason to think the merger won’t go through, they are currently still separate companies, so I am treating them as such. If I treated them as a combined entity, they would be an Enterprise level position.
Since last quarter, Tesla has moved from an Enterprise level position to a Babylon 5 level position. That’s what tends to happen when a stock doubles in 3 months.
Likewise, MercadoLibre moved from a Babylon 5 level position to an Enterprise level position. It’s not MercadoLibre’s fault. It was up 10% for the quarter, which is a perfectly respectable gain. The rest of the portfolio just did a little better.
Baozun dropped from a Serenity level to Millenium Falcon level position. While this was mostly due to poor performance, it also perfectly mimics my lessening confidence in the company (as described above).
Lastly, Fastly (see what I did there?) moved from a Millenium Falcon level position to a Serenity level position, largely because I added to my position as I got more confident in the business.

With all that being said, here is the Freedom Portfolio as of October 2020:

Ticker	Company Name	Allocation
TSLA	Tesla	Babylon 5
SHOP	Shopify	Babylon 5
AMZN	Amazon	Enterprise
SE	Sea Limited	Enterprise
MELI	MercadoLibre	Enterprise
LVGO	Livongo Health	Serenity
JD	JD.com	Serenity
RDFN	Redfin	Serenity
TDOC	Teladoc	Serenity
TTD	The Trade Desk	Serenity
NVCR	NovoCure	Serenity
SQ	Square	Serenity
FSLY	Fastly	Serenity
ROKU	Roku	Serenity
NFLX	Netflix	Serenity
DIS	Walt Disney	Serenity
ZM	Zoom Video	Millennium Falcon
CRWD	CrowdStrike	Millennium Falcon
SWAV	Shockwave Medical	Millennium Falcon
AAXN	Axon Enterprises	Millennium Falcon
ETSY	Etsy	Millennium Falcon
BZUN	Baozun	Millennium Falcon
NNOX	Nano-X	Millennium Falcon

That’s the two year recap of the Freedom Portfolio! While 2020 hasn’t been the greatest year in many ways, it has at least been a pretty great run for the Freedom Portfolio. More than ever, I am excited to see what the future holds for the companies I have invested in. Thanks, as always, for following me on my journey to beat the market.

Closing out Jumia and Yext; Starting positions in Nano-X and Etsy

September 9, 2020 paul.essen Comments 0 Comment

Over the past week, I made two changes in the Freedom Portfolio involving closing out two Millennium Falcon level positions and redeploying the cash to open up two new positions.

Jumia (JMIA) – I really love ecommerce companies in developing markets and have largely had success with them in the past with companies like Mercado Libre (MELI) and Sea Limited (SE). So when I heard about a company that some were calling “The Amazon of Africa”, I was intrigued. In retrospect, I think I probably got a little too carried away in IPO hype and jumped in before seeing if the company could put up consistent growth and show a path towards profitability. I was prepared to be patient with Jumia as long as it looked like they were moving in the right direction, but that no longer seems to be the case. Plenty of other ecommerce companies have flourished during Coronavirus related lock-downs, but Jumia has continued to struggle. Previously I had dismissed concerns that Jumia, while operating in Africa, wasn’t even an African company (they are based in Europe). Now I am beginning to wonder if there is something to that.

Either way, I had lost my conviction in Jumia. I’ll be keeping an eye on it, but for now, I am closing my position.

Yext (YEXT) – Chalk this one under “you can’t borrow conviction”. I often had a hard time seeing what people were so excited about when it came to Yext as an investment. Growth seemed unimpressive and the total addressable market didn’t seem as big to me as some others thought it was. Still, since I knew so many investors who I respect who really liked the company, I had decided to start a small position. The hope was that my conviction would increase as I learned more about the business. But that never happened, and so after about a year of middling returns, I decided to cut bait.

Nano-X (NNOX) – This is a small, purely speculative position which in my mind replaces the small and purely speculative position that Jumia once filled. Nano-X (or Nanox, it’s a little unclear the proper spelling) has a vision for completely re-imagining X-rays and helping to make them more available throughout the world to help improve preventative care. They believe they have a radical new way to reduce the cost of X-rays by an order of magnitude and are aiming for a 1 x 1 x 1 plan which would provide a least 1 X-ray scan per 1 person every 1 year to help improve medical outcomes across the globe. If they are successful, the upside would be incredible, but there also remains substantial risk that they simply won’t be able to achieve what they hope they will be able to. I’m starting this one off as a Millennium Falcon level position, but will be keeping a close eye on it and will not hesitate to add to my position if I see solid progress.

If you are interested in learning more, I encourage you to check out the short video on their website.

Etsy (ETSY) – As I mentioned before, I love me some ecommerce companies. The problem has always been that I largely viewed them as winner-take-all situations in most regions. For the longest time, it seemed like Amazon (AMZN) was the big winner in the United States and that nobody would ever be able to compete with their size and scale. That appears to be starting to change. Not only are traditional retailers like Walmart starting to be able to compete with Amazon online, but so are other ecommerce companies like Wayfair (W) and Etsy (ETSY).

I see three things going in Etsy’s favor right now:

We’ve seen Shopify have tremendous success playing the role of the “Rebels” to Amazon’s “Empire” as more and more merchants are growing weary of relying on Amazon’s marketplace to sell their goods and, in some cases, even competing with Amazon’s own products or competitors paying more to advertise their products. I believe the idea that Amazon is the only place to go to find things online is beginning to be questioned by more and more people. I think Etsy can take advantage of that.

I have also seen some push back lately in terms of fake reviews and cheap knock-offs being passed off as the real thing on Amazon. Etsy seems to have the air of being more authentic as it seems like the items are being sold by more trustworthy mom and pop business instead of faceless mega-corporations trying to cut corners whenever possible.

Maybe it is my imagination, but there also seems to be more and more a movement towards side hustles and entrepreneurship lately. I think that movement also benefits Etsy as more and more people try their hand at starting their own business and selling things online. More sellers attract more buyers and the network effect strengthens.

For all of those reasons, I have started a Millennium Falcon level position in Etsy as well.

Amazon: A $1.5 trillion company growing revenue 40%

August 4, 2020 paul.essen Comments 0 Comment

Amazon (AMZN) announced 2020 Q2 earnings last week and they were incredibly impressive for any company, let alone a company the size of Amazon.

Revenue rose 40% year over year (40%!)
Amazon Web Services revenue rose 29% (a deceleration)
“Other” revenue (mostly ad sales) grew 41% (another deceleration)

The 40% rise in revenue is obvious amazing, although a lot of that can probably be attributed to COVID. Web Services and Advertising continues to grow, although at a slower pace. One interesting thing to note is that international e-commerce turned a profit this quarter. If Amazon can start turning those overseas investments into sources of profit, that could be huge for their continue growth.

One other possible avenue for growth in the future? Internet satellites.

To wrap things up, I want to leave you with a statement that Jeff Bezos recently made to Congress. As you may have heard, the CEOs of some of the largest tech companies were recently summoned before Congress to testify on a number of issues. As part of that testimony, Jeff Bezos released a statement that I consider to be one of the best defenses of the company as a force for good and an inspirational defense of America and capitalism in general. I highly suggest checking it out. You can read it here.

The Freedom Portfolio – July 2020

June 30, 2020 paul.essen Comments 4 comments

Wow.

2020 has been such a crummy year in so many ways, but when it comes to investing returns, I don’t know if I’ll ever see a quarter quite like the second quarter of this year.

This might be the best investing quarter that I will ever have.

The Freedom Portfolio was up 73% this past quarter alone. That is a ridiculous return for a whole year, let alone a single quarter. Granted, some of that is coming off of the Coronavirus-induced lows, but that’s just a tiny part of it. The Freedom Portfolio is still up 64% year-to-date and is now up 81% since inception, for a nearly 40% annual return. During that same time period, the S&P 500 is up only 10%, giving the Freedom Portfolio an outperformance of 71 percentage points.

For those who prefer visuals, here’s what it looks like:

Two years is still a pretty short period of time in the grand scheme of things, and I’m sure that gap will narrow at some point in the coming years, but at the same time I do believe evidence is starting to emerge that it is possible to beat the market… and that I’m doing it.

Here is the performance broken down by position over the past quarter:

Ticker	Percent Change
RDFN	169%
LVGO	163%
SE	144%
SHOP	128%
TTD	116%
TSLA	106%
SQ	100%
MELI	99%
JMIA	86%
YEXT	61%
JD	48%
FSLY	43%
SWAV	41%
AMZN	40%
BZUN	38%
ROKU	33%
AAXN	31%
TDOC	22%
NFLX	21%
SPOT	19%
DIS	15%
CRWD	1%
NVCR	-13%

Notable Performers

Best Performers

Not to brag (too much), but this list was nearly impossible to trim down. Two companies had stocks that appreciated over 150% this quarter alone. Another six appreciated 100% or more. Amazon (AMZN) had an incredible quarter that saw it gain 40% and yet it was (relatively speaking) a disappointment compared to the rest of the Freedom Portfolio and in fact dropped from a Babylon 5 level position to an Enterprise level position.

Anyway, to avoid going on for too long, I’m going to just stick to a top 3:

Livongo Health (LVGO): I first bought shares in this company last quarter and I am really glad I did. Livongo seems to be riding the telemedicine wave in the wake of Coronavirus, but I honestly thought this was an impressive company even before the pandemic. Their growth rates were incredible before and their model of health nudges and delivering medical supplies directly to the consumer should only benefit from a new normal that sees people visiting doctors and pharmacies less often. Few companies have gained my trust in terms of future performance more than Livongo over these past few months.

Sea Limited (SE): Although if any company could challenge Livongo’s claim to that title, it would be Sea. I’ve had my eyes opened to the potential of the Southeast Asia region and I was already a big fan of eCommerce and digital payment companies in developing regions (see, Mercado Libre (MELI)). Sea is following a slightly different path with their gaming business, and the competitive landscape is a little different with Alibaba looming, but I’m still really excited to see if Sea can become the dominant player in eCommerce and digital payments in Southeast Asia over the coming decade.

Redfin (RDFN): One of my favorite investments, and finally the performance is catching up to my conviction in the company. Early in 2020, Redfin looked to be on track for having a great year, before the stock got whacked hard by Coronavirus. I was confident that the short term challenges would be a long term gain for Redfin, though, as they had an advantage with virtual tours and low mortgage rates could heat up the housing market. It looks like I was right, and I’m thrilled to see people are finally realizing what a great investment Redfin can be.

Worst Performers

Again, not to brag too much, but it’s hard to find any contenders here. Only four positions under-performed the S&P, and two of those (Crowdstrike (CRWD) and Spotify (SPOT)) were only owned for a few weeks so it’s an unfair comparison. Thus, the only companies it makes sense to write about are…

Disney (DIS): It’s not at all a surprise that Disney hasn’t been the best performer this past quarter considering how almost all of their business lines have taken a major hit from Coronavirus induced lockdowns. Amusement Parks and Cruises are shut down. Movie theaters are shut down. Live sports are shut down. Short term, things will be messy for Disney, but assuming life ever gets back to some semblance of normality (which I believe it will), then I still like the long terms prospects. Disney+ is still killing it and they still have an amazing library of IP to pull from.

Novocure (NVCR): It makes some sense that Novocure is down a tiny bit this part quarter, as it sounds like Coronavirus is causing some delays in the clinical trials that were hoped to show how their Tumor Treating Fields could be effective with other types of cancers. I’m absolutely not worried at all, and even added to my position, as I see this as purely a short term speed bump and no challenge to the long term thesis.

Changes in the Portfolio

It was an unexpectedly active quarter for the Freedom Portfolio, as I closed out some lower conviction positions and added some new positions as well. Stock prices were also so volatile that there were some instances where I both added to my position AND trimmed some in the same quarter (Sea Limited).

Going forward, I’m hoping to try to write short pieces explaining my trades within a week of me making them, instead of saving them all up for the quarterly recaps. So if you don’t see this section in the next recap, that will be why.

Sells

KushCo (KSHB): It was long past time to sell. Too many things had happened to ruin the bull case and the company had gotten reduced to issuing more stock at depressed prices just to stay solvent. I don’t regret the initial investment because I thought it was worth the risk, but I do regret having held on for so long.

The Rubicon Project (RUBI): You might be asking yourself where this company came from since it wasn’t in the Freedom Portfolio last quarter. Teleria merged with the Rubicon Project and the combined entity took on the latter’s name. That’s not the reason I sold, though. The main catalyst was that the former CEO of Teleria, who had become the COO of the combined entity, ended up leaving the company soon after the merger was completed. That was enough of a red flag for me to exit for now, although I will keep an eye on the company to see how it executes going forward.

iQiyi (IQ): This one hurt for a few reasons. The first reason is that selling my entire iQiyi position effectively breaks up The JIB. The second reason is that just a few weeks after selling my shares, the stock popped big on news that Tencent (TCEHY) was planning on investing in the company, which makes it a lot more interesting. I have no plans to buy back into the company yet, but I will keep an eye on it.

Invitae (NVTA), Guardant Health (GH), CRISPR Therapeutics (CRSP), and Editas Medicine (EDIT): I group all of these together because my reasons for selling them were pretty similar. I was looking to reduce the number of positions that I have, and all of these were lower conviction holdings because they score so low on the “Understanding” level of my P.A.U.L. scoring system. I personally find it difficult to grasp what kind of advantages and moats and optionality these companies possess, and so I felt it was better to re-deploy those funds to companies I had higher conviction in.

I can’t help but note that Invitae made sure to get a parting shot in at me, though. One month after I sold, they announced an acquisition which caused the stock to jump 60% in two days. That hurt, but I consoled myself by remembering that I used the proceeds to buy shares of Sea Limited, which had almost doubled in that same month.

Trimmed the following positions: Teladoc (TDOC), JD.com (JD), Shopify (SHOP), and Sea Limited (SE). I trimmed all of these positions because many of them had appreciated a ton and I wanted to free up some money for some new ideas. Selling shares of Shopify really hurt, though. Why? Because up until then, I hadn’t sold a single share from my original purchase at $44.55 a share despite watching it skyrocket and increase by 1,800% (that’s not a typo). Because of my past experience with Netflix, I had sworn I wouldn’t sell my winners too early again, and I am worried I might be doing that here. Still, Shopify was approaching 20% of my portfolio and I only sold a small percentage of my position (less than 10%), so I resigned myself to trimming a little bit.

Buys

Axon Enterprise (AAXN): I kept hearing good things about the moat that this company has from some investors I really respect on Twitter, so I started digging into it more. This company is basically the old “Taser” company, although the exciting part of their business now appears to be body cameras and the fees they charge police departments to store the video generated by those cameras. I spoke to a friend who is familiar with the product and they gave a fairly glowing review, so I decided to dip my toe in with a small position. We’ll see how it performs in the coming years, especially in the current “defund the police” environment.

Zoom Video Communications (ZM): It sounds bad, but I feel like I was basically begrudgingly pulled into this position. I struggle so much seeing what kind of moat this company can possible have when so many other huge tech giants also offer video conferencing (and have been for years), but I also know a lot of investors I really respect really believe in the company, so I decided to start a small position. It’s already up 70%(!) from where I bought it two months ago, so I guess I have been proven wrong so far.

Spotify (SPOT): I keep darting into and out of a position in Spotify because I really like the moves they are making in acquiring deals with major players in the podcast space, but I also struggle with how they are going to successfully monetize them. I decided to jump back in after hearing about the deal they made with Joe Rogan. I’m going to try really hard to just hang on for at least a year this time to see how this podcast experiment plays out.

Fastly (FSLY) and Crowdstrike (CRWD): Much like some of the companies above, I’ve been hearing a lot of good things about these companies from investors that I have a lot of respect for, so I decided to open some small positions while I do some further research. I’m looking forward to learning more so that my conviction can grow and I can become just as bullish on these companies as they are.

Additions to already existing positions: Disney (DIS), Livongo Health (LVGO), Novocure (NVCR), Redfin (RDFN), Sea Limited (SE), The Trade Desk (TTD), Yext (YEXT), Roku (ROKU).

The Freedom Portfolio – July 2020

Obviously a lot of this is influenced by the incredible performance this quarter, but I’m really excited where the Freedom Portfolio sits right now. A couple of positions (Shopify and Tesla) have seen huge run-ups and will likely see periods of under-performance over the coming quarters and maybe even years, but I really like a lot of the Serenity level holdings I have and am looking forward to them taking off and being the next big growers in my portfolio.

Ticker	Company Name	Allocation
SHOP	Shopify	Babylon 5
MELI	MercadoLibre	Babylon 5
AMZN	Amazon	Enterprise
TSLA	Tesla Motors	Enterprise
TDOC	Teladoc	Serenity
RDFN	Redfin	Serenity
NFLX	Netflix	Serenity
SE	Sea Limited	Serenity
LVGO	Livongo Health	Serenity
DIS	Walt Disney	Serenity
TTD	The Trade Desk	Serenity
SQ	Square	Serenity
NVCR	NovoCure	Serenity
JD	JD.com	Serenity
ROKU	Roku	Serenity
BZUN	Baozun	Serenity
YEXT	Yext	M. Falcon
ZM	Zoom Video	M. Falcon
AAXN	Axon Enterprises	M. Falcon
SWAV	ShockWave Medical	M. Falcon
FSLY	Fastly	M. Falcon
SPOT	Spotify	M. Falcon
CRWD	CrowdStrike	M. Falcon
JMIA	Jumia Technologies	M. Falcon

Thanks, as always, for reading. I hope you’ve been having as much fun following along with me as I’ve had doing this so far.

Earnings Recap – Week of 5/3/2020: Part 1

May 6, 2020 paul.essen Comments 3 comments

This is a crazy week for earnings, with 5 of the top 10 positions in the Freedom Portfolio reporting earnings on the 5th or 6th and another 3 major positions reporting on the 7th. Here are some quick numbers and some thoughts from me about the first batch.

Disney (DIS)

Disney+ has reached 54.5M subscribers
Shanghai Disneyland will re-open within the week
Prior to the closure of domestic parks and resorts, volumes and guest spending were higher compared to the prior-year quarter
The summer dividend is being skipped, which will save the company about $1.6 billion
View Earnings Report Here
My thoughts: I was actually a little disappointed in the Disney+ subscriber numbers considering they had announced over 50 million a month ago. Still, Disney+ has been an unqualified success considering they are hitting their subscriber numbers 4 years early. Every other segment of their business is getting hammered, but Disney has plenty of cash available and should be able to weather this storm assuming theme parks / movie theaters / professional sports starts gearing back up in the not-too-distant future.

MercadoLibre (MELI)

Net revenue was up 70.5% year-over-year on an FX neutral basis
Total payment volume (TPV) through Mercado Pago was up 82.2% year-over-year on an FX neutral basis
Off platform TPV grew 139.5% year-over-year on a FX neutral basis
Mobile wallet saw 299.2% year-over-year growth on a FX neutral basis for the full first quarter 2020
Their new asset management product, Mercado Fondo, is now available in Argentina, Brazil and Mexico
View Earnings Report Here
My thoughts: What an amazing earnings report. Look at all of those massive growth numbers. It’s no surprise why the stock jumped around 20% after these earnings. Despite the big run-up, I think MercadoLibre’s growth is just beginning. Latin America as a region should have a long runway of growth ahead of it, and if Venezuela ever gets its act together or foreign currency headwinds turn into tailwinds, that could really help the company soar as well. Many people think of MercadoLibre as the eBay (EBAY) or Amazon (AMZN) of Latin America, but I think that comparison is increasingly inaccurate and selling them short. With their booming digital payments business, they are looking more and more like the Square (SQ) or PayPal (PYPL) of Latin America as well.

Shopify (SHOP)

Revenue of $470M beat estimates by $27.08M and was up 46.7% year over year
Gross merchandise volume (GMV) of $17.4B beat estimates of $16.83B and was up 46% year over year
Non-GAAP EPS of $0.19 beat by $0.36
GAAP EPS of -$0.27 beat by $0.50
Subscription Solutions revenue grew 34% to $187.6M
Merchant Solutions revenue expanded 57% to $282.4M, driven primarily by the growth of GMV.
View Earnings Report Here
My thoughts: Shopify’s numbers were fairly impressive (especially in how they beat some pretty high expectations), but the numbers don’t seem to tell the whole story here. Shopify seems to be the company for the current Coronavirus / social distancing moment in that they are ideally positioned to help companies adjust to selling things online. This is on top of already being the “rebels” to Amazon’s “empire”. The stock has been on a ridiculous run, and the valuation is getting very pricey, so it’s almost impossible for it to keep growing at this pace for much longer. Still, I considered selling Shopify back in June of last year when it was around $300 a share and can’t imagine how much I would’ve regretted it had I done it then. I don’t like to sell based on valuation concerns alone, so I’m sticking with Shopify to see where this story goes.

The Freedom Portfolio – April 2020

March 31, 2020 paul.essen Comments 2 comments

I don’t know how to start this quarterly update.

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”.

After some consideration, I decided that I wanted to get one main point across with this quarterly update: That I am completely and utterly unfazed by what the stock market has done this quarter.

I laid out most of my thoughts in my previous article: Don’t Panic (and also: COVID-19 Update: What a month), but the short version is this: I was investing during the Great Financial Crisis. I know that markets often go down and the drop is often much faster than when it goes up. Volatility like this is the price paid for superior long term returns. I don’t know where the market will go over the coming months or even year, but I am very confident that over the next 5+ years (which is my investing time frame), that the market will be up from where it is now. Throughout this entire market drop, I only sold one position and immediately re-allocated those funds to another (new) position. I stayed invested in stocks the entire time and even increased my 401(k) contribution and shifted some of my emergency fund money from CDs to the market. I am not calling a bottom, but I am absolutely convinced that stocks are on sale right now for anybody who has a 5+ year time horizon like I do.

Before I get to the results for this past quarter, I want to make a very important note. The market has been extremely volatile lately, and it hasn’t been uncommon for the market to move more in a single day than it has in some previous months or years. I saw one stat that said, “In 2017 the S&P had daily moves of more than 1% 8 times. In the last 27 trading days it’s happened 21 times.”

All this is to say that the numbers contained below are very tentative and could easily be out of date by the time you read this. I typically like to write these quarterly updates a week or two in advance, and most of these numbers will be coming from March 26th/27th, but who knows how things might change by the time April 1st comes along. If things change too much, I suppose I can always write this article off as an April Fool’s Day joke.

So basically, treat the numbers below as very tentative.

With that being said, it looks like the Freedom Portfolio will end up down around 6% for the first quarter of 2020. That’s not good, but still far better than the S&P 500, which is down roughly 21%. Since inception, the Freedom Portfolio is now convincingly beating the S&P with a positive return of 4% versus a negative return of 11% for the S&P. That’s an outperformance of 15 percentage points over a year and a half.

In terms of beating the market, that’s a pretty great quarter for the Freedom Portfolio. Obviously, it’s a bit of a mixed bag because my portfolio has lost tens of thousands of dollars over a mere 30 days, which is almost certainly the biggest loss of wealth I’ve ever experienced in my life in that short of an amount of time, but I am pleased that my portfolio has held up better than the market overall during these trying times and has opened up a convincing lead. Here’s hoping the Freedom Portfolio can expand that lead as the market rebounds.

Here is the performance broken down by position over the past quarter:

Ticker	Percent Change
TDOC	80.7%
TSLA	24.0%
JD	17.3%
SE	13.2%
SHOP	13.1%
NFLX	9.9%
AMZN	4.2%
MDB	0.5%
NVTA	0.0%
IQ	-7.0%
LVGO	-7.0%
SQ	-11.4%
GH	-11.4%
BZUN	-12.1%
RDFN	-14.7%
MELI	-16.6%
NVCR	-20.2%
TTD	-20.9%
SWAV	-23.0%
YEXT	-23.2%
DIS	-27.6%
CRSP	-28.4%
TLRA	-29.2%
EDIT	-30.0%
ROKU	-32.2%
KSHB	-34.2%
JMIA	-51.6%

Notable Performers

Best Performers

Teladoc (TDOC): It should be no secret why Teladoc had an amazing quarter. I don’t want to make light of a situation which is killing people and obviously Teladoc management would never want to phrase it this way, but you couldn’t have written up a better script for Teladoc than a highly contagious pandemic where the government is encouraging people to practice social distancing. I had invested in Teladoc because I thought telemedicine would be big in the future and COVID-19 seems to have only accelerated that future to now.

Tesla (TSLA): Tesla shows up as a big winner, but it almost feels like a loser to me. Why? Because just around a month and a half ago, Tesla was above $900 a share and absolutely crushing it with early Model Y deliveries and promises of shoring up their balance sheet with secondary offerings and actual profit. Now, the stock is barely above $500 a share and factories are (begrudgingly) being shut down. It has still been an amazing run for the company over the past six months, though, and the future still looks bright.

JD.com (JD): It’s probably a surprise to most people, but China’s stock market has been one of the best performing (if not the best performing) market in the world in 2020. JD.com was basically born during the SARS epidemic when its founder decided to take advantage of the opportunity to sell things online and it sounds like it has been able to come through this COVID-19 crisis stronger as well.

Worst Performers

Jumia Technologies (JMIA): Another quarter, another appearance on the “worst performers” list. I’ve run out of things to say about Jumia. It has flat out been an awful investment so far. I’m probably holding on for now, especially since it has shrunk to such a small position, but I’m definitely not looking to add any more shares.

Kushco Holdings (KSHB): Everything from above can be said for Kushco as well. There’s a possibility of a rebound if/when vaping bounces back and/or marijuana becomes legalized at the federal level in the United States, but those hopes aren’t big enough to buy more shares. Like with Jumia, I am tempted to close out this position.

Roku (ROKU): I’m not sure I understand why Roku has sold off as much as it has this quarter. My best guess is that it has less to do with the company itself and more to do with the sector it is in: connected TV and advertising focused companies. Not only was Roku down big this quarter, but so were companies like The Trade Desk (TTD) and Teleria (TLRA). Perhaps the market is concerned that there will be less money spent on advertising during a recession? Regardless, I’m unconcerned about this drop so far.

Disney (DIS): While it’s a mystery to me why Roku is down big, it’s no mystery at all why Disney has been crushed in the wake of COVID-19. Their amusement parks have been shut down to help prevent the spread of the disease and movie theaters have also been shut down, meaning they can’t release movies like Mulan and Black Widow. Even their TV properties are likely struggling with ESPN having so little professional sports to cover. Maybe they’re seeing a slight bump in Disney+ adoption due to social distancing, but it’s not nearly enough to offset the damage being done elsewhere. No wonder Bob Iger jumped ship early. Disney is going to have some tough earnings reports coming up (especially compared to the incredible year they had last year), and the timing is rough since they just spent a ton of money acquiring Fox and ownership of Hulu, but I still believe in Disney over the long term. I’m holding tight.

Changes in the Portfolio

It’s worth noting that the majority of the moves below were made before the market tanked. Since February 21st, the only moves I have made are the MondoDB sell and the Livongo Health buy. All of the other changes were made earlier in the year and were mostly focused on trying to concentrate my portfolio down into fewer positions (something I alluded to wanting to do in my previous quarterly recap).

Sells

Abiomed (ABMD): I was beginning to lose hope in the promised turnaround and was beginning to wonder if the damage had already been done and would ever fully get reversed. Once the seed of doubt is planted that a medical device might be unsafe, how many studies is it going to take to remove that doubt? Does Abiomed have a second act to rely on? I had lost my conviction in the company, and decided that meant it was time to sell.

StoneCo (STNE): I had bought StoneCo because I loved the idea of buying the “Square of Latin America” and also liked seeing that Berkshire Hathaway had a position in the company. However, I kept struggling with the fact that I hardly knew anything about the company outside of earnings reports. Also, one of the main reasons I love Square is their Cash App, which is something that StoneCo doesn’t seem to have (but possible competitor and other Freedom Portfolio holding Mercado Libre (MELI) does have). This was a lower conviction holding, and I felt like the money was better invested in another company I had a higher conviction in.

MongoDB (MDB): There’s a saying that I like that says, “you can’t borrow conviction”. MongoDB was increasingly feeling like a stock where I was trying to borrow conviction from others. A lot of smart investors I know are high on MongoDB, which is why I had dipped my toe in with a small position. However, I always struggled to understand what gave it an advantage over similar offerings from Amazon (AMZN). It has eternally languished as one of my lower conviction positions and this year I finally decided to close it out to put the funds to better use in higher conviction picks.

Alibaba (BABA): One of my initial reasons for investing in Alibaba was because I liked a lot of the opportunities they seemed to have expanding their eCommerce operations outside of China (specifically Southeast Asia). With my recent purchase of Sea Limited (SE), that itch has been scratched, and there was one less reason to invest in Alibaba. I liked the Chinese exposure that I was getting from the JIB stocks, so it felt like the time to put those funds to better use somewhere else.

Buys

Livongo Health (LVGO): This is a buy from last quarter’s watchlist. I was really interested in their business model, which uses AI to provide “nudges” to people dealing with chronic diseases like diabetes and high blood pressure. It’s a subscription model that appears to be growing nicely and has some good data to back up how it helps improve health outcomes and also save money. They also have held up surprisingly well over the past month for some reason, which is a nice bonus.

Additions to already existing positions: Roku (ROKU), Teleria (TLRA), Yext (YEXT).

Watchlist

I’ve been pretty inactive in terms of buying and/or selling positions in the Freedom Portfolio during this COVID-19 induced market drop because I don’t like to make rash decisions. However, seeing a lot of my positions losing 30%, 40%, or even 50% of their value has really illuminated which companies I really believe in (and want to buy more of) and which have me worried (and make me want to sell). There’s a decent chance I purge some of those companies in the coming quarter in order to load up on some of those companies that I believe i more. In addition to possibly adding to positions I already have, here is what is on my watchlist to buy or sell in the coming quarter:

Luckin Coffee (LK) – China has a lot of people, and they’re not nearly as obsessed with coffee as Americans are… yet. I’m intrigued by this China-based, mobile app / kiosk focused coffee company. The stock is down about 50% from its recent highs, and I’m tempted to dip my toe in now. If it drops more (presumably after some pretty bad earnings reports due to China’s lockdown) then I’ll be even more tempted.

Spotify (SPOT) – Spotify used to be in the Freedom Portfolio, but I sold because I lost conviction in it. I never stopped being intrigued by the company, though, and continue to be impressed by the moves they are making to become the Netflix of audio. Purchasing The Ringer (and their stable of popular podcasts) could be huge and could give them something that differentiates them from things like Amazon Music and Apple Music. I’ll be watching with interest to see what their next moves are.

KushCo and Jumia – See above. These two companies have been awful performers over many quarters, and I’m not sure I can see daylight at the end of the tunnel anymore. I have no plans to sell right now, but the thought has crossed my mind a few times.

Crispr (CRSP) and Editas (EDIT) – It’s really hard for me to have that strong of conviction when it comes to areas I know so little about. Everybody tells me that CRISPR is going to be huge, and I believe them, but I don’t have a strong sense of how to judge which companies are best positioned to take advantage or even how to measure how progress is going. Since I am trying to concentrate my portfolio on my higher conviction picks, then, these two have to be under consideration for being on the chopping block.

Guardant Health (GH) – Similar to the above, I’m far from a healthcare expert, and so it’s hard for me to judge just how good of a moat Guardant Health has and how susceptible they are to disruption. Another company I might consider selling to raise funds to buy something else.

The Freedom Portfolio – April 2020

Due to the incredible volatility in the market the past month or so, the Freedom Portfolio has seen more change than usual. Former Babylon 5 sized position Mercado Libre has shrunk back to an Enterprise level position. Former Serenity sized positions Teladoc, Tesla, and Netflix have surged into Enterprise level positions, and there has been a lot of switching up between Serenity and Millenium Falcon sized positions as well. Will things return to normal once everything related to COVID-19 settles down? Or will Tesla and Teladoc be permanent fixtures among the Enterprise and above levels? I guess we’ll find out.

Ticker	Company Name	Allocation
SHOP	Shopify	Babylon 5
AMZN	Amazon	Babylon 5
MELI	MercadoLibre	Enterprise
TDOC	Teladoc	Enterprise
TSLA	Tesla Motors	Enterprise
NFLX	Netflix	Enterprise
SQ	Square	Serenity
DIS	Walt Disney	Serenity
NVCR	NovoCure	Serenity
JD	JD.com	Serenity
RDFN	Redfin	Serenity
BABA	Alibaba	Serenity
IQ	iQiyi	Serenity
CRSP	CRISPR Therapeutics	Serenity
BZUN	Baozun	Serenity
TTD	The Trade Desk	Serenity
ROKU	Roku	Serenity
TLRA	Telaria	Serenity
YEXT	Yext	M. Falcon
NVTA	Invitae	M. Falcon
SE	Sea Limited	M. Falcon
EDIT	Editas Medicine	M. Falcon
SWAV	ShockWave Medical	M. Falcon
GH	Guardant Health	M. Falcon
JMIA	Jumia Technologies	M. Falcon
KSHB	KushCo	M. Falcon

Thanks, as always, for reading. I hope you all manage to stay safe during these extraordinary times. And remember: Wash your hands.

COVID-19 Update: What a Month

March 24, 2020 paul.essen Comments 0 Comment

Wow, what a month, huh?

The historic bull market that we were in came to an end in one of the most dramatic ways possible: with one of the fastest pullbacks in history. On top of all the craziness with the stock market is the even bigger story of COVID-19 (a.k.a. Coronavirus) and how it has shut down so many economies around the world.

Before we go any further, let me just say I hope everybody out there stays safe. Please be diligent washing your hands, practicing good hygiene, and avoiding any unnecessary trips and/or social gatherings.

I’ve been relatively quiet here recently. Sorry about that. There’s been a couple of reasons. In no particular order:

I’ve been busy. The shutdown of schools and office spaces have left me and my family scrambling (along with many others) coming up with ways to arrange for our kids to still learn at home while staying out of my hair as I try to get work done. Additionally, rumors of lock-downs have led to us doing our best to stock-pile medications, food, and other staples in case extensive self-quarantine is needed at some point.

In addition to helping out with the kids, during my free time I’ve been working to publish some podcasts for Paul vs the Market’s sister site: Rampant Discourse. The hope was to provide some content for people to enjoy while stuck at home. You should check it out, we published 3 podcast episodes and one article last week alone!

Lastly, because I still stand by what I wrote before, think it is absolutely still relevant, and couldn’t think of much to add. As I’ve mentioned before, I don’t believe in trying to time the market and keep the Freedom Portfolio 100% invested in stocks at all times. So if I want to buy something, I need to sell something else first. Also, I try my best to not make knee-jerk trades based on (what I hope are) short term situations.

So despite the incredible volatility in the market and the Freedom Portfolio dropping by about a third from its high around 30 days ago, I haven’t done much at all in the Freedom Portfolio. Since February 21st, the only moves that I made were to close out my position in MongoDB (MDB) and use the proceeds to buy Livongo Health (LVGO), a stock which I had had my eye on since the last check-in and was on my watch-list.

Note: I’m not sure when the official start of this pullback was, but since my birthday was February 21st and that seems close to the peak (and is an easy day to remember for me), I’m choosing that day to measure from.

It’s a shame, too, because the Freedom Portfolio was having a ridiculous first month and a half of 2020. I was already prepping my first quarter recap and was eager to brag about how much I was crushing the market (somewhere close to 20 percentage points). Interestingly enough, even though I find my stocks tends to underperform the market during pullbacks, the Freedom Portfolio has been hanging in there and is still beating the market by around 10 percentage points. Some of it are large positions like Amazon (AMZN), Netflix (NFLX), and JD.com (JD) declining less than the market, but a huge amount of it is from Teladoc (TDOC) not just not declining, but actually being up around 25% since February 21st.

So the Freedom Portfolio has been pretty boring, but that doesn’t mean I haven’t been trying to find other ways to take advantage of what I think is the best opportunity to buy stocks at a discount since the Great Recession. Here are some moves that I’ve made outside of the Freedom Portfolio:

Increased my 401(k) contribution – Just a week or two into this pullback, I put in a request to bump up my 401(k) contribution by a few percentage points. It’s unlikely to make a huge difference, since the additional contributions aren’t a ton of money, but the nice thing is that it should allow me to effectively dollar cost average into the lowered market. In theory, one of those slightly higher 401(k) contributions shouldn’t be much further than 2 weeks away from the market bottom.

Withdrew money from CDs – I wrote previously about certificates of deposit (CDs) and CD laddering. I had some of my emergency funds investing in a ladder of CDs ranging from 12 months to 15 months in lengths with APRs ranging from 2.3% to 2.85%. With the Fed slashing interest rates, new CDs have rates closer to 1.5%, which just didn’t seem worth the hassle. I had one CD maturing in March that I cashed out upon maturity and decided to cash out two other CDs early (paying a slight penalty in terms of forfeiting some earned interest). With the proceeds, I bought some shares of companies outside of the Freedom Portfolio.

Square (SQ) – Understandably been hammered, since many of their clients are likely the kind of small and mid-sized brick and mortar stores that are going to get hardest by this shut-down, but the Cash App has been on fire and just got approved for a banking license.
Redfin (RDFN) – Also understandably getting punished, but they just had a back-to-back monster quarters and before this all started they had put a lot of work into virtual house tours and other efforts which should pay off handsomely during this time. I think they pick up market share and emerge stronger from this.
Roku (ROKU) – What are people stuck inside likely to do when looking for entertainment? How about binge watch some shows they didn’t have time for previously? Video streaming services (and the companies directly related to them) are some of the ones that might actually benefit from this shut down.
Teleria (TLRA) – See above. Teleria is in the connected TV advertising space and was having a really strong first quarter until COVID-19 hit. I expect them to rebound and then some.
Livongo Health (LVGO) – A subscription based health-care company that I had my eye on before the recent pullback. It seemed to be holding up pretty well so it seemed like a good candidate for buying some more shares of.

Note: These purchases were made over the past two weeks and many of those positions have already had days where they have gone up or gone down by double digit percentages. None of this was an attempt to call a bottom or time the market. I was merely trying to buy, at a discount, more shares of quality companies that I intend to hold for many years.

Does shifting money from a CD to the stock market introduce more risk to my emergency fund? Without a doubt. This wasn’t a decision that I took lightly. I did my best to make sure that they money invested wasn’t money that I expected to need in the next year or more… even in these uncertain times. As always, my intention is to invest for the long term.

5 CEOs I admire

February 20, 2020 paul.essen Comments 0 Comment

President’s Day was this past Monday and so this seemed like as good a time as any to make a brief list of some of the CEOs of companies in the Freedom Portfolio that I most admire. Why? I’ve long thought that we as a society spend too much time and energy admiring (or possibly hating) the President and oftentimes give them far too much credit for things like the economy and the stock market and even larger things like our standard of living. On the flip side, I think we don’t spend nearly enough time appreciating the entrepreneurs and business leaders who take risks and are constantly driving innovation forward.

Who has done more to improve the life of the average American? President Obama? Or Steve Jobs, without whom you might not have a tiny portable device that serves as a camera, GPS, handheld gaming system, phone, and also provides access to the entirety of humanity’s knowledge at your fingertips? President Bush? Or Jeff Bezos, who helped drive down prices, changed 2 day (and now 1 day) shipping from a luxury to something expected, and turned voice assistants from something out of Star Trek into reality? Who will do more to save the planet? President Trump? Or Elon Musk?

An argument can be made for both sides, but I personally skew a little more towards the CEOs. With that being said, here are five CEOs from companies in the Freedom Portfolio that stand out to me (alphabetical by last name):

The Five

Jeff Bezos: Founder and CEO of Amazon (AMZN) – Notwithstanding some questionable moves in his personal life, it’s hard to find a more impressive entrepreneur and innovator alive today than Jeff Bezos. He turned a tiny online seller of books into a $1 trillion company that now sells almost anything (and allows others to sell almost anything) and can deliver it all in just a few days. Oh, and they’re also the leader in cloud computing and the third largest online digital ad platform in the US. I love his “Day 1” philosophy and how he seems to be determined to never stop trying new things no matter how large Amazon gets. Truly an incredible leader.

Reed Hastings: Founder and CEO of Netflix (NFLX) – It takes a lot of guts and foresight to start a business as crazy sounding as sending DVDs through the mail and allowing people to keep them as long as they want (or on the flip side, churn through as many as they want). If that is where the story stopped, it would be impressive enough, but not only did Reed Hastings start a company which has revolutionized how we consume media, but he has also reinvented it multiple times in the process.

The first reinvention was having the guts to pivot the DVD-by-mail business into online streaming before it was obvious that it was the future. The second was having the foresight to start investing in original content so that the company wasn’t so reliant on content producers. The third is having the grand vision to not just be content with the US market, but to try to become the leader internationally as well.

Bonus points for being humble enough to be able to admit when you were wrong and to reverse course (*cough*qwikster*cough*).

Bob Iger: CEO of Disney (DIS) – I wish I had a clever pun to make involving Iger and King Midas, but it really feels like everything he touches turns to gold. Just look at the acquisitions made under his watch:

Pixar
Marvel
LucasFilm
21st Century Fox

That’s an incredible amount of content that has achieved huge box office success, critical acclaim, or oftentimes both. While the jury is still out on the last one, I’m very excited about the future potential of Hotstar and there’s little doubt that acquisition helped strengthen the appeal of Disney+ and Hulu. And that brings us to what might best define Iger’s legacy at Disney: the bold entry into streaming with Disney+, Hulu, and ESPN+. Like I mentioned with Reed Hastings previously: it takes a lot of guts to move into streaming. While the creation of Disney+ didn’t require as much foresight since the path had already been charted with Netflix, it probably did take even more guts to disrupt an even more established company and move away from what had been a pretty lucrative arrangement. I think it’s clearly the right move, although only time will tell.

Glenn Kelman: CEO of Redfin (RDFN) – Earnings calls can sometimes be dull affairs, so it’s refreshing to hear a CEO drop phrases such as “It’s on like Donkey Kong”. Those are the kinds of small gems you often get from the self-described “goofy” CEO of Redfin. From the few interviews I’ve read, he also seems like a genuinely humble, honest, and down-to-earth guy. In a world where many CEOs are often described as abrasive or hard to work with or even jerks, that’s a nice change of pace.

But all that would be unimportant if he couldn’t also walk the walk. Luckily, I’ve also been impressed by how visionary and focused on the customer Glenn Kelman has been as CEO of Redfin. They’ve gone from simply a low fee brokerage paired with a well designed website to attempting to fundamentally disrupt the real estate market with things like Redfin Now, Redfin Direct, Redfin Mortgage, Redfin Concierge Service, and much more. There are so many different ways for Redfin to win and grow moving forward and I’m excited to see how it all plays out.

Tobias “Tobi” Lütke: Founder and CEO of Shopify (SHOP) – Obviously, the fact that his company has grown 10 fold while I have been a shareholder endears me to Tobi Lütke more than a little bit. I love his vision as CEO of Shopify of “arming the rebels” against the Empire that is Amazon (despite also being an Amazon shareholder) and also love the bold initiative of creating a fulfillment center network to compete with Amazon.

The admiration goes beyond that, though. Lütke is accessible in a way that many other CEOs of his stature aren’t. He is active on Twitter and has on more than on occasion even live-streamed himself playing Starcraft on Twitch. He even offered an internship to a professional Starcraft player based on their gaming achievements alone. As somebody who still plays Starcraft despite its waning popularity, I can’t help but love that. But even beyond that, he seems to have a pretty healthy idea of work/life balance and that 80 hour work weeks aren’t necessary for success. In a world where it seems like we sometimes over-deify those who put in long hours, it’s nice to see an example of the other side.

Honorable Mention

Elon Musk: CEO of Tesla (TSLA) – Musk is obviously an incredible entrepreneur and innovator and as Tesla shareholder I am extreme grateful for what he has managed to do. However, even I have to admit that his behavior sometimes leaves a lot to desire and flirts with the lines of legality and ethics. That’s why I couldn’t quite put him on this list.

Jack Dorsey: Found and CEO of Square (SQ) and Twitter (TWTR) – Look at that title. Not only did Dorsey help start two incredibly successful companies in Twitter and Square, but he’s currently serving as CEO of both. That’s very impressive. So why didn’t he make the list? For starters, he has a bunch of odd behaviors that I have trouble relating to, like only eating one meal a day (or fasting entirely on weekends) and taking ice baths. Some have even taken to calling them disorders. But the larger issue is that I still have a little doubt regarding his abilities as CEO. Twitter still lags badly behind Facebook in most metrics despite being a highly relevant platform and Square has seemingly floundered a bit since high regarded CFO Sarah Friar left. Maybe both companies would be better off without a part-time CEO?

Mercado Libre 2019 Q4 results show it’s still growing like crazy

February 11, 2020 paul.essen Comments 0 Comment

Mercado Libre (MELI) announced their fourth quarter earnings yesterday after market close and put up some pretty incredible growth numbers. As a reminder, Mercado Libre is an eCommerce and digital payments company based in Latin America with most of their business happening in Mexico, Brazil, and Argentina. You could think of them as a combination of Amazon (AMZN), eBay (EBAY), PayPal (PYPL), and maybe even Square (SQ) of Latin America.

Here are the highlights. Since the company does business in numerous countries with different currencies, all numbers are in local currency unless otherwise specified.

Net revenue grew 84% year over year
For digital payments: Total payment volume grew 99% year over year, which was an acceleration from the previous quarter
- This includes a huge 176% increase in off-platform payments
Gross Merchandise Volume (GMV) was up 40%
- 109% growth in Argentina

Additionally, the company continues to make steady progress expanding their fulfillment network and growing their credit service, mobile point of sale (mPOS) and wallet initiatives. There are a lot of different ways for this company to grow.

The stock is currently down slightly, although it’s hard to see why. Margins dropped a bit due to the company spending a lot on growth, which is exactly what you would hope a company like this would be doing. I loved pretty much everything about this earnings report, as it shows that Mercado Libre is executing really well and has a lot of avenues for growth ahead of it. Digital Payments and eCommerce should continue to grow, as should the overall wealth of Latin America in general. Mercado Libre is already a Babylon 5 level position which is up 77% over the past year, otherwise I would consider adding to my position here. I love the potential of this company over the next 10+ years.

Netflix, Tesla, and Amazon crush earnings season

February 3, 2020 paul.essen Comments 0 Comment

Over the past two weeks, three companies that make up a combined 23% of the freedom portfolio reported earnings. Here are some quick hits for each:

Netflix (NFLX)

Netflix reported earnings on January 21st and as of the time of this writing is up 5% since then. It has been the laggard of this group.

The Good: One of the most closely watched numbers when it comes to Netflix’s earnings report is their subscriber growth. In this area, they didn’t disappoint, adding 8.76 million paid subscribers, easily beating their forecast of 7.6 million. They also beat on earnings estimates. And for all the hype around the new Disney+ original The Mandalorian, Netflix was able to present some impressive numbers showing how popular their new show The Witcher was as well. Perhaps most importantly? It looks like 2019 might have represented peak cash burn for Netflix, as they are forecasting a smaller loss in 2020. The path to profitability is beginning to come into focus.

The Bad: While overall subscriber growth was great, domestic subscriber growth actually fell short of expectations. We now have a few data points indicating that, whether due to the market being saturated or the increasing presence of competition, US subscriber growth has come to a grinding halt. International subscribers more than made up for it, but the margins on international subscribers are worse (due in small part to lower cost mobile only plans in India) and there’s an open question on how much pricing power Netflix has overseas (as well as how much they have in the US now that there is increased competition).

The Future: There are two big questions facing Netflix going forward. First, can they take their foot off the gas in terms of burning through cash to produce new content while still putting up strong growth in subscribers? Secondly, how will the introduction of lower-cost competition both domestically and abroad (Disney+ is expected to launch in many additional markets in 2020) affect churn and depress Netflix’s pricing power? I think Netflix is in a pretty strong position with a huge slate of original content and a first mover advantage worldwide, but only time will tell.

Tesla (TSLA)

Tesla reported earnings on January 29th and the stock immediately popped more than 10% the next trading day. It has continued to climb and with today’s big rise is now around 30% higher than it was a few days ago.

The Good: The company beat expectations on both revenue and earnings per share while also reporting some strong numbers in terms of deliveries. To top it all off, they company also moved forward the expected launch date for the Model Y. It was a little surprising to see such a big jump after the stock had already more than tripled over the past 8 months, but I guess that’s what happens when a stock is so heavily shorted and the company starts to release positive information.

The Bad: But it’s not all sunshine and rainbows. While the company was profitable, they still have a massive debt load which they will have to deal with at some point. The Chinese Gigafactory is online but now they will need to spend big to get the German Gigafactory assembled. Model 3 sales are doing great, but they appear to be cannibalizing the more expensive Model S and Model X sales, which is pressuring margins.

The Future: Tesla seems to have answered the question of if they can scale up production while also being profitable. The next big question for me is if demand keeps up over the coming quarters and years. Has Tesla unlocked some hidden desire for electric vehicles among the population? Or have they mostly been dealing with pent up demand from their passionate fan base? The other big question is just how close Tesla is to full self driving capability. Also, the Model 3 seems to have been a big hit. Can the Model Y and Cybertruck and Tesla Semi continue that streak? Will Tesla take advantage of their high stock price and have a stock offering to raise money to pay down debt? One thing is for sure, Tesla will certainly continue to be an exciting stock for the next few years.

Amazon (AMZN)

Amazon reported earnings after market close on January 30th. The stock initially popped over 10% after hours before getting dragged down by the overall market concerns over coronavirus. As of the time of this writing, it is up around 8%. That may not sound impressive, but it’s an incredible move for such a large company and represents tends of billions of dollars of added market cap (even more than Tesla added).

The Good: Everything? It was a blowout earnings report by almost every measure. Revenue was up 21% year-over-year to $87.4 billion, beating wall street estimates of $86 billion. Operating income was $3.88B compared to the $2.7B consensus. Amazon also reported an earnings per share (EPS) of $6.47, which crushed the consensus estimate of $3.98. Amazon Web Services (AWS) revenue was up 34% and “other” revenue (which is largely made up of their ad business) was up 41%.

Lastly, they reported that they now had over 150 million prime users, which is a nice base of recurring subscription revenue to rely on.

The Bad: As alluded to before, there wasn’t much to criticize in the earnings report. Amazon continues to spend a lot of money to invest in their cloud infrastructure, one day shipping, and international expansion, but given their history these seem like good bets to pay off over the long term.

The Future: It’s going to be interesting to continue to watch the competition in the cloud computing space. Can AWS maintain its lead over Azure and others? Will Amazon’s advertising business continue its incredible growth, or will concerns over harming the customer experience and hurting relationships with clients cause them to take their foot off the gas? The biggest thing I will be keeping my eye on, though, is how their efforts to expand into India are going. It’s a potentially massive opportunity that Amazon has spent a lot of money on but they appear to be getting some push back. If they can become a major player in India, then the next decade could be incredibly positive for Amazon.