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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.

Jan 2021 Portfolio Tweaks

Jan 2021 Portfolio Tweaks

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Looks like the stock market in 2021 is picking up where the 2020 stock market left off. Maybe one day I’ll write about the day I almost bought some $7 Gamestop (GME) calls in August of 2020 and do the math to figure out exactly how much of a gain I lost out on. Maybe it will top my previous biggest investing mistake that I made with Netflix (NFLX) which at last check was at $2.3+ million.

I’ve made a few tweaks to the Freedom Portfolio over the past few weeks and wanted to briefly outline my thought process below:

Sells

Tesla (TSLA) – Tesla has been so difficult for me to deal with. I strongly believe in letting my winners run and doing so has paid off handsomely with companies like Shopify (SHOP) and not doing so has been incredibly painful (see: Netflix example above). At the same time, I find the current valuation to be completely indefensible and am having an incredibly difficult time seeing how there can still be a significant amount of upside left at these levels. And yet, every time I have trimmed my position, the stock continues to go up. The simple fact of the matter is that I am uncomfortable letting Tesla grow to be too big of a position in my portfolio, which is why I have continued to trim. It still remains a Babylon 5 level position (RIP, Mira Furlan), but I intend to keep trimming for now to avoid letting it get to be too large.

Fastly (FSLY) – I haven’t felt like I’ve had the time to do any deep dives into any of my holdings lately and, as a result, I haven’t mentioned the P.A.U.L. System recently. However, I absolutely have still been using my system to mentally score my positions. When it came to Fastly, I had been getting more and more concerned the “Understanding” score. Put simply, I found that I couldn’t articulate why Fastly was better or even different from Cloudflare (NET), one of its main competitors. Without that level of understanding, it’s hard to have high conviction, and so I decided it was time to redeploy that capital into higher conviction picks.

Buys

Zoom (ZM) – Over the past 3 months, Zoom has fallen around 30% from its all time highs. Presumably the reason is because people think that once everybody is vaccinated and COVID is “over”, that Zoom won’t be nearly as ubiquitous. I think that could be short-sighted and an over-simplification. I believe that the lockdowns have permanently altered some business behavior and that a certain level of video conferencing that didn’t exist before is here to stay, and I believe Zoom is the primary beneficiary of that. For that reason, I wanted to take advantage of the dip in price.

Etsy (ETSY) and Fiverr (FVRR) – I initiated these positions last year based on the idea that a growing “side-hustle” movement and maturing ecommerce space would greatly benefit these companies. The more research that I do, the higher my conviction has grown on these two companies and I wanted to increase my position size. Both companies are now solidly Serenity level positions.

Nano-X (NNOX) – Despite being excited about the potential with Nano-X, I had decided to not add to my position because a series of short reports had me wondering if there was a possibility that the company was a fraud. The jury is still out, and likely will continue to be out until FDA approval either comes or doesn’t. A decision is expected in the first half of 2021. Until then, though, I’m becoming less and less concerned over the idea that the company is a complete fraud. As a result, I added slightly to my position, although it remains a Millennium Falcon level position.

Skillz (SKLZ) and fuboTV (FUBO) – Two new positions that I have added to try to get additional exposure to live sports streaming and online gambling. Both are tiny positions and if my conviction grows (or the position does), then I might consider writing more about what excites me about the companies. For now, though, I just wanted to get a little skin in the game.

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.