In my last quarterly recap, I wrote: “the first quarter of 2022 is likely the worse investing quarter than I have had (and hopefully ever will have)”.
Well, the second quarter would like to have a word.
As bad as the first quarter of 2022 was for performance of the Freedom Portfolio, the second quarter has been worse. It was so bad, it took me nearly two full months to write this quarterly recap!
Thanks to supply chain disruptions, the war in Ukraine, soaring inflation, abrupt federal reserve moves to raise interest rates, or whatever other thing people want to blame, the first half of 2022 was the worst for the market in 50 years. As bad as the market has been, the Freedom Portfolio has been even uglier:
Yes, after crushing the market for two years, my returns have fallen back below the returns of the S&P.
Woof.
Here’s the details:
Ticker
Quarterly Change
SWAV
-8%
TSLA
-38%
CELH
11%
AXON
-33%
TTD
-42%
MELI
-48%
SNOW
-41%
NU
-54%
ZM
-9%
NVCR
-21%
ETSY
-42%
SQ
-54%
SE
-45%
SHOP
-55%
TDOC
-55%
ROKU
-35%
FVRR
-55%
RDFN
-53%
FUBO
-62%
I would be lying if I said this wasn’t frustrating and disappointing. I knew valuations had gotten a bit out of control in 2021 and we were due for some flat years or even some pullbacks, but I didn’t quite expect this degree of resetting.
I know I sound like a broken record, but despite the really horrid results lately, I haven’t been shaken out of my belief that I can beat the market long term. In fact, I’m excited about getting a second chance to buy shares in some of my favorite companies at prices I never dreamed would return. Much like 2020 and 2021 saw share prices get irrationally high, I believe we’re seeing share prices in many companies that are irrationally low right now.
Why do I say that? Because even though the share price of many of the Freedom Portfolio holdings is lower than it was pre-pandemic, the companies are almost universally much better off. Short term, share prices can go all over the place, but over the long term they will track business performance.
Let’s briefly look at two notable Freedom Portfolio holdings and how they look now versus pre-pandemic (I chose February 2020 to represent “pre-pandemic”).
Business performance vs share price:
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Shopify (SHOP): In February of 2020, Shopify shares were around $46 (split-adjusted). They currently trade for around $33 a share. While a roughly 30% drop is pretty notable, that undersells the dramatic fall Shopify stock has had of late. Under a year ago Shopify shares were as high as $150, which would make the current drop almost 80% from those highs. Yet the business has been growing stronger in all sorts of ways. During that time they announced new products like Shopify Audiences and Shopify Collabs and have formed partnerships with companies like JD.com, Spotify, and Youtube. Their quarterly revenue more than doubled, from $470 million to $1.2 billion. Their Gross Merchandise Volume has similarly more than doubled, going from $17.4 billion to $43.2 billion. Shopify the stock might look pretty sick right now, but the company has never been healthier.
Redfin (RDFN): It’s a remarkably similar story with Redfin. The stock was sitting around $27 a share pre-pandemic and is now at close to $10 a share despite having seen an incredibly red hot housing market in between. Also like Shopify, that decline looks even worse when you realize Redfin stock was at $75 about a year and a half ago. And yet, just like Shopify, Redfin’s business is much more fleshed out and robust now than it was pre-pandemic. They acquired RentPath to get a foothold into the rental market and Bay Equity to strengthen their mortgage segment. They saw significant missteps from competitors like Zillow while they avoided blowing up their balance sheet by being prudent and conservative with their iBuying initiative despite a roller coaster of a housing market. They continue to slowly but sure take market share, going from 0.93% of houses sold to 1.18%. Their revenue more than tripled over the past two years. In almost every way Redfin is a stronger, healthier, more robust company than it was 2 years ago, regardless of what the share price might imply.
I could write a recap like this for almost every position in the Freedom Portfolio and they would all hit similar notes. This gets at the heart of why I’m not overly concerned with what I see as a temporary pullback in my portfolio. Eventually sentiment will change and innovative, growing companies will once again be in favor. When that happens I expect the share prices for these companies to more closely match the reality of how the business has performed over the past few years.
Until then, it may sound boring, but I intend to hold tight to my strongest conviction positions.
Changes in the Portfolio
That doesn’t mean holding onto everything, though. When the thesis gets busted or is no longer relevant, then it’s time to cut ties and move on. Here are some moves I made in the previous quarter:
Here is where the Freedom Portfolio stands now. Need a reminder of what these terms mean? Check out: Defining my Terms.
Ticker
Company Name
Allocation
MELI
MercadoLibre
Babylon 5
SHOP
Shopify
Babylon 5
SE
Sea Limited
Enterprise
TSLA
Tesla
Enterprise
NVCR
NovoCure
Enterprise
TTD
The Trade Desk
Enterprise
AXON
Axon Enterprises
Enterprise
ETSY
Etsy
Serenity
SQ
Square
Serenity
SWAV
Shockwave Medical
Serenity
RDFN
Redfin
Serenity
SNOW
Snowflake
Serenity
FVRR
Fiverr
Serenity
TDOC
Teladoc
Serenity
CELH
Celsius Holdings
Serenity
ROKU
Roku
Serenity
ZM
Zoom Video
Serenity
NU
Nubank
Millennium Falcon
FUBO
FuboTV
Millennium Falcon
That’s the recap of the Freedom Portfolio for the second quarter of 2022. Apologies for it being so late. I’ll try to do better next time. Last quarterly update I signed off with: “Here’s hoping the next quarter is a better one. It can’t be much worse.” Obviously I was tempting fate with that, so I’m not going to say anything about next quarter and just thank you all, as always, for following along.
In my July 2020 quarterly recap, I had written: “This might be the best investing quarter that I will ever have.”
Well, the first quarter of 2022 is likely the worse investing quarter than I have had (and hopefully ever will have).
On the heels of a tough 2021 which initially saw my portfolio soar to incredible all time highs (only to eventually give all of it and more back), the first quarter of this year was absolutely brutal. At one point my portfolio was down 50% for the quarter alone and I was getting close to having my total returns since inception start to lose to the market after being up over 170 percentage points around a year earlier. Here’s the visual representation:
As you can see, my portfolio recovered a bit before the end of the quarter, but it’s still been quite the fall from grace.
I know I’m going to sound like a broken record, but my confidence in my investing style and my ability to beat the market remains unshaken. I have been investing for nearly 20 years and lived through many bear markets and recessions and have seen long term results despite short term setbacks.
At the same time, I strongly believe that it is important to always be learning and growing and getting better and it would be the height of arrogance to look at the chart above and conclude that there is nothing to be learned from such a change in fortunes.
The obvious question to ask is: Why couldn’t I have seen the last year plus of under-performance coming for my portfolio? Many of the stocks in my portfolio had appreciated tremendously over the past few years, often times far outpacing the actual growth of the underlying companies (even though that growth was often also very impressive). Valuations had gotten absolutely insane and it was clear that COVID had pulled a lot of growth forward for many companies. Even if remote work was here to stay, there was no way Zoom was going to keep growing like it had in 2020. At the same time, it was clear that a combination of stimulus checks, easy access to low and no fee trading, and abundant free time by people who might otherwise be gambling on sports or actually be working had caused some pretty crazy activity in the stock market (Gamestop, anybody?).
Simply put, stocks don’t always go up, and they most certainly don’t just keep doubling and tripling year after year. I knew there was bound to be choppiness in my portfolio in the near future. Did I know it would be this extreme? No. Did I know it would happen this fast or all at once? No. Most importantly: Did I have any idea when this pullback was going to happen? Absolutely not.
One of the clearest lessons I have learned in the many years I have been investing is that I simply have no ability to time the market and any attempt to do so is only likely to hurt my returns. When I first started out investing I passed on Google (GOOG) because I thought it had run up too much and was too expensive and wanted to wait for it to get cheaper. That caused me to miss out on a 20 bagger plus. I sold Netflix (NFLX) way too early because I thought it had run up too much too fast and wanted to lock in some gains before there was a pullback. That ended up being a $1 million+ mistake. I’m still making the same mistake even now as I have sold shares of Tesla (TSLA) six times over the past year and a half and only one of those sales was for a price higher than it sits at now (most were significantly lower).
In retrospect, do I wish I had sold a bunch of my high-fliers which have dropped 50, 60, 70 percent and more over the past few months to a year? Of course. However, I also realize that there was no way to tell exactly when those drops were going to occur. Many of my biggest winners, the same stocks that have been cut in half, have looked incredibly overpriced for months or even years. If I were to sell whenever I suspected an investment was overvalued and due for a big pullback, I would’ve sold most of these big winners way too early and missed out on big gains… and I still might not have accurately pegged the best time to sell.
So as unbelievable as it may sound, I don’t necessarily think the right takeaway from the past few months is: “Try to time the market better”. I’ve been investing for long enough to know that I just don’t have the ability to reliably do that and any attempts to try is likely to just make my returns worse. I didn’t see the beginning of the great recession coming, and there were multiple times I thought it was ending and we had bottomed and I was wrong most of those times. Likewise with this first quarter of 2022. On at least three different occasions I thought the bottom might be in and I’ve been proven wrong each time so far.
But there must be something I feel like I can learn from this pretty dramatic pullback. Yes, I believe there is. While the market, and my portfolio, were soaring to new highs, I’m pretty sure I started to relax my standards in terms of what companies to invest in. Instead of staying close to the ~20 positions that I wanted to keep my portfolio to, it started getting closer to 30. I started to invest more in companies that I knew less about or ones which seemed to have more red flags (or at least yellow flags). I had more new investments based more on “somebody else likes it” rather than “I have developed my own conviction in this company based on my own research”.
And while plenty of my high conviction investments are down an incredible amount from their recent highs, those lower conviction picks were often down even more. What is doubly damning is that, because I had lower conviction in them, I’ve sold those positions so they won’t even have a chance to recover. Why is that important? Because many of those previously mentioned high conviction picks, while down over the short term, are still beating the market over the long term. Would that have happened with these lower conviction picks? Maybe, but I likely won’t be around to find out.
I’ve been trying to remedy this over the past few months by trimming those lower conviction positions in order to add to high conviction ones. The big question is: will I be able to stick to this when the market turns around? Time will tell, but maybe it would be helpful if I printed up this quarterly recap to keep on my desk the next time I am justifying adding a 29th position to the Freedom Portfolio.
As is the custom, here’s the damage from last quarter:
Ticker
Quarterly Change
TMDX
32%
CRWD
14%
SWAV
8%
NVCR
3%
NU
-6%
AXON
-10%
TSLA
-10%
MELI
-11%
DIS
-13%
DMTK
-16%
SQ
-17%
TTD
-23%
TDOC
-24%
CELH
-27%
FVRR
-31%
SNOW
-31%
NNOX
-32%
ZM
-36%
ETSY
-41%
ROKU
-46%
SE
-46%
SHOP
-50%
RDFN
-54%
FUBO
-59%
Typically at this point, I would discuss some of the best and worst performers of the previous quarter. However, in line with the point above, I thought I would do something a little different and discuss what freedom portfolio positions I am considering trimming or liquidating to further focus the portfolio.
Reevaluation list:
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Nanox Vision (NNOX): Nanox has always been one of the higher risk companies in my portfolio, so I’m not as concerned about the precipitous drop in stock price. What concerns me is that the company has seemingly struggled to execute. FDA clearance keeps getting pushed back and the company has consistently failed to meet goals that they have set for themselves. The founder is no longer the CEO (which admittedly could be a good thing considering the previously mentioned struggles). There are enough red flags that it’s worth wondering if the upside of Nanox is worth the risk at this point.
Zoom Video (ZM): Zoom has been a painful position for me. I resisted buying for the longest time because I couldn’t see how Zoom could succeed in a world where deep-pocketed tech companies like Microsoft (MSFT) and Alphabet (GOOG) already offered established video chatting for free. Even if they were better, how long would it take for the smart engineers at these big tech companies to bring their offerings up to snuff? Since I was a little late to the party, I missed a lot of the run-up in stock price. By the time I finally relented and decided that they did have some sort of moat which protected them to some extent from the obvious competition and there was still unclaimed opportunity in things like remote work, remote board games hangouts, etc, COVID related lock-downs were wrapping up and people were ready to unleash their pent-up desire to get out of the house.
How much of the remote work trend will stick around? Will people still be willing to take remote classes or do frequent video calls with family and friends? Will Zoom be able to capture any of the opportunities that I thought they would? The future looks a lot cloudier now and I am once again starting to doubt their moat.
Disney (DIS): This hurts to admit. Disney is my longest held position and is much older than the Freedom Portfolio. I first bought shares in 2013 and the position has doubled for me, which sounds really nice until you realize that the S&P is up close to 160% since then, making Disney a significant under-performer over that time. When I bought shares of Disney, I did so because I thought they had an absolutely unmatched catalog of content (Pixar, Marvel, Lucasfillm, ESPN, etc) and were one of the few players that I thought had a great chance to launch a streaming service to challenge Netflix worldwide. That thesis has largely played out, with that content bringing home major money at the box office and helping to drive Disney+ to be a major success.
And yet despite all of that, Disney stock has not been impressive. At the same time, the future of Disney is looking murkier. Legendary CEO Bob Iger has stepped down as chairman and CEO. Disney+ growth is beginning to slow down. And new CEO Bob Chapek has gotten Disney embroiled in a political controversy with Florida Governor Ron DeSantis. I mentioned before when I talked about my reasons for selling Twitter (TWTR) that I hate it when companies get involved in politics. Having an almost universally beloved brand like Disney wading into politics strikes me as supremely bad idea that will serve as a distraction and ultimately leave a large section of their customer base unhappy. Right now, Disney seems to have less upside than any other time in the past 9 years while having a lot more risk. It might be time to reevaluate my longest held position.
Changes in the Portfolio
Just one round of portfolio changes in the recent quarter. I think we might be seeing a little more than that in the coming months.
Here is where the Freedom Portfolio stands now. Need a reminder of what these terms mean? Check out: Defining my Terms.
Ticker
Company Name
Allocation
TSLA
Tesla
Babylon 5
MELI
MercadoLibre
Babylon 5
SHOP
Shopify
Babylon 5
SE
Sea Limited
Enterprise
TTD
The Trade Desk
Enterprise
NVCR
NovoCure
Enterprise
SQ
Square
Serenity
ETSY
Etsy
Serenity
RDFN
Redfin
Serenity
TDOC
Teladoc
Serenity
SWAV
Shockwave Medical
Serenity
FVRR
Fiverr
Serenity
SNOW
Snowflake
Serenity
DIS
Walt Disney
Serenity
ROKU
Roku
Serenity
AXON
Axon Enterprises
Serenity
ZM
Zoom Video
Serenity
FUBO
FuboTV
Millennium Falcon
CELH
Celsius Holdings
Millennium Falcon
NNOX
Nano-X
Millennium Falcon
NU
Nubank
Millennium Falcon
That’s the recap of the Freedom Portfolio for the first quarter of 2022. Here’s hoping the next quarter is a better one. It can’t be much worse. Thanks, as always, for following along.
My January quarterly recaps tend to unfortunately not be as long and in-depth as some of my other quarterly recaps. The reasons are pretty obvious: Not only do the holidays take up a lot of time but I’m also busy focusing on my recklessly bold predictions and setting up the new fantasy investing season. It’s a shame, too, because the January quarterly recap would be an excellent time to reflect on the previous year and do some examination of the Freedom Portfolio’s performance during the year and not just the past quarter. Perhaps something to consider for next time. For now, though, I apologize if this recap is a little shorter than usual. I’ll try to do better next time.
I’ve mentioned a couple of times in the past about how incredible 2020 was for me in terms of my investments and how it would probably end up being the best year of my investment life. It’s entirely possible that 2021 might go down as the worst year of my investment life, not only in terms of absolute returns but particularly in relation to the S&P. Take a look at a tale of two years:
In some ways, in retrospect, it’s not too surprising that such a poor year would follow such an incredible one considering my style of investing where I stubbornly hold onto quality, innovative, disruptive, “growth” companies regardless of how overpriced they might seem to be getting. It’s not normal for any stock, no matter how well the company is executing, to quadruple or more over the course of a single year like so many Freedom Portfolio positions did in 2020. While I never would have tried to predict if or when a pullback would happen (companies like Tesla and Shopify have held up relatively well… so far), it’s also not something surprising or even overly concerning.
That’s not to say I haven’t been feeling the recent terrible performance of my portfolio.. The Freedom Portfolio has been cut nearly in half since the highs of February 2021 and no matter how much confidence I have the things will work out in the long term…. I am only human and it’s stomach churning to lose that much money. My emotions over the past few months have been an interesting mix of pain / anxiety / disappointment over giving up all of those gains from 2020 to excitement whenever I am able to add to some of my high conviction names at prices I couldn’t have dreamed of just a few months ago.
Anyway, the damage to my portfolio has been ongoing over most of 2021, but how did it specifically look in the last quarter? Check it out below:
Ticker
Quarterly Change
TSLA
36%
TTD
30%
SNOW
12%
ETSY
7%
SHOP
2%
SWAV
-11%
DIS
-12%
AXON
-12%
CRWD
-18%
MELI
-19%
CELH
-21%
RDFN
-25%
ROKU
-27%
TDOC
-28%
SE
-30%
ZM
-31%
SQ
-33%
NVCR
-35%
FUBO
-36%
NNOX
-36%
FVRR
-38%
TMDX
-41%
DMTK
-50%
Now let’s dig into some of the outliers from last quarter:
The Best Performers:
As a reminder, if you like the insights you see in the visuals below, consider checking out Stockcard.io. VIP members can follow the Freedom Portfolio there to get greater insight into my portfolio. There’s a 14 day free trial and you can get 10% off using the promo code “paul”.
Tesla (TSLA): 36% gain: This may be one of the most painful “best quarterly performers” ever. Why? Because despite being a shining beacon of positive gains in a sea of red, Tesla has been a position that I have been consistently trimming for the past 15 months, from $400 onward. Apparently I hadn’t learned my lesson fully with Shopify about letting my winners run and instead have been cutting back on perhaps the one stock in my portfolio that has best weathered this recent storm. I guess I can look on the bright side and say that at least I didn’t sell all of it? Still, it hurts to think just how much better my portfolio would’ve performed had I just held onto my Tesla shares.
The Trade Desk (TTD): 30% gain: I had to double check my math on this one since, in the time it has taken me to write up this recap, the Trade Desk has given up a lot of these gains from Q4. For whatever reason, the Trade Desk has been pretty volatile to both the upside and downside recently. I suspect it has something to do with people trying to figure out just where the company stands in the new privacy normal ushered in by iOS 14.5 and the restriction on usage of unique identifiers from mobile phones. My money is on the Trade Desk being a winner coming out of this, but time will tell.
Snowflake (SNOW): 12% gain: This one surprised me a bit as Snowflake is notorious for its pretty high valuation and the market seems to be providing the biggest haircuts to the companies with high valuations right now. Perhaps people are starting to believe that some of Snowflake’s growth rates can continue on for longer than previously thought? That’s what I am betting on, as I believe their usage based model can help them continue to surprise people with their growth.
The Worst Performers:
DermTech(DMTK): 50% loss: I’ve mentioned before that during times where my portfolio is struggling, I tend to sell my lower conviction names to buy higher conviction names on sale. DermTech is on track to be one of those companies I sell. I thought there was a chance that their unique skin cancer detection system might have a chance to disrupt things, but it just doesn’t look like it is catching on for whatever reason. I still think there’s potential, but maybe not enough to be investable for much longer.
TransMedics Group(TMDX): 41% loss: Pretty much everything I said for DermTech above goes for TransMedics. Perhaps I am a sucker for the sci-fi looking medical technology. Perhaps I am guilty of ignoring the small market opportunity for transporting organs. Seems like really cool technology, but that doesn’t necessarily make it a great business to invest in.
Fiverr (FVRR): 38% loss: My opinion on Fiverr is pretty much the exact opposite of the above. Yes, it has had a very dramatic drop over the past 6 months. Yes, perhaps I was a little too quick to build up a very large position in a stock that had basically grown 10x in about a year. And yes, I would be lying if I said the comments around “seasonality” in a recent earnings call didn’t have me at least a tiny bit worried, but I am nowhere near ready to bail on my Fiverr investment yet. I still think we’re in the midst of a large change in how people work and I still believe Fiverr can be a big beneficiary of that change and think that this could easily be a company that is 10 times larger 5+ years down the line.
Changes in the Portfolio
Just one round of portfolio changes in the recent quarter. I think we might be seeing a little more than that in the coming months.
Here is where the Freedom Portfolio stands now. Need a reminder of what these terms mean? Check out: Defining my Terms.
Ticker
Company Name
Allocation
SHOP
Shopify
Babylon 5
TSLA
Tesla
Babylon 5
MELI
MercadoLibre
Babylon 5
SE
Sea Limited
Enterprise
TTD
The Trade Desk
Enterprise
ETSY
Etsy
Serenity
SQ
Square
Serenity
RDFN
Redfin
Serenity
NVCR
NovoCure
Serenity
TDOC
Teladoc
Serenity
FVRR
Fiverr
Serenity
SNOW
Snowflake
Serenity
ROKU
Roku
Serenity
CRWD
CrowdStrike
Serenity
FUBO
FuboTV
Serenity
SWAV
Shockwave Medical
Serenity
ZM
Zoom Video
Serenity
DIS
Walt Disney
Serenity
AXON
Axon Enterprises
Serenity
NNOX
Nano-X
Millennium Falcon
CELH
Celsius Holdings
Millennium Falcon
TMDX
TransMedics Group
Millennium Falcon
DMTK
DermTech
Millennium Falcon
That’s the recap of the Freedom Portfolio for the fourth quarter of 2021. Let’s hope 2022 is a bit kinder than 2021 was. Thanks, as always, for following along.
It’s that time of year again! Going in to 2021, I was feeling pretty good about my track record with my bold predictions. After all, I got the majority of my predictions (3.5 out of 5… don’t ask how I get a prediction half right) right for 2020. In fact, I was feeling so good that I felt like maybe my predictions weren’t bold enough.
Well, I can safely banish that thought. 2021 is here to put me back in my place. Not only have my 2021 predictions uniformly not panned out, but some of them have missed in a big way. I need to keep score in good times and in bad, though, so let me hold my nose and go through what I predicted might happen in 2021.
Note: As normal, I am scoring these a few weeks before the end of the year so I can get my 2022 picks in on time. There’s still some time for the numbers to change, but considering how far off I am on most of these, I feel like it’s safe to call them now. The numbers below are from market close on December 10.
2021 Predictions
Shopify (SHOP) will become 1/8th the size of Amazon (AMZN)
In retrospect, this wasn’t a terribly bold prediction considering Shopify started at 9% the size of Amazon and simply had to get up to 12.5% the size of Amazon. As a result, it’s not surprising that this was the closest of my 2021 picks to end up being right. Both Amazon and Shopify are up in 2021 YTD and Shopify is currently outperforming Amazon, so I was at least directionally right, even if Shopify has fallen a bit short currently at 11% the size of Amazon. I still believe the future for Shopify is bright, though, and look forward to it continuing to outperform Amazon in the coming years.
Etsy (ETSY) will grow to 3% the size of Amazon
Another one where I was directionally right, although just barely. When I made my prediction, Etsy was 1.5% the size of Amazon. This prediction would’ve looked a lot better had I been able to score Etsy a month ago, but sadly the last 30 days still count and right now Etsy is barely holding on against Amazon and is currently 1.6% the size of the Everything Store. Like Shopify above, though, I think Etsy has more upside going forward and look forward to it outperforming Amazon over the coming years.
Mercado Libre plus Sea Limited market caps combined to $300 billion
Another big miss, and my largest yet (but the biggest is still to come). A year ago the combined market cap was $187 billion. Now? $190 billion, or $110 billion short of my prediction. Not much to say here. Not only have Mercado Libre and Sea Limited not had the good 2021 that I thought they might, they’ve actually had a very rough past month or two. None of this shakes my confidence in both of those companies going forward. If I didn’t have a general rule against re-using predictions, I would totally predict that both of these companies hit a combined market cap of $300 billion next year. There are a lot of tailwinds for both of those companies, and both seem to be executing at a very high level.
Either Fiverr or Redfin will double
Here it is. This is by far my worse prediction this year. Not only did neither company double, but both companies almost got cut in half. Redfin is down 51% for the year and Fiverr is down 43%. Hard to miss worse than that. I still believe strongly in both of these companies long term, but there’s been no doubt it has been a challenging 2021 for both companies.
Somebody will acquire Teladoc
Nope. I’m actually pretty surprised this hasn’t happened considering the whole of Teladoc is now worth considerably less than it had paid to acquire Livongo a year ago. Seems like it would be an attractive acquisition target for some deep-pocketed company. I hope it doesn’t happen, but I remain surprised nonetheless.
Okay, now that all of that ugliness is behind us, let’s look forward to 2022. Hopefully I can manage to do at least a tiny bit better.
2022 Predictions
It’s the three year anniversary of the Freedom Portfolio, so why not kick things off with a trio of predictions for companies I think will triple in the coming year?
Novocure (NVCR) will triple
Any prediction of a stock tripling over the course of a year may seem bold, but for Novocure I don’t think it’s very bold at all. Why? Because tripling wouldn’t be much higher than where it was just about 6 months ago. Earlier this year Novocure jumped 50% in a single day and eventually hit a high of around $220 a share after some extremely positive results in one of their trials. Since then, it’s been a consistent march downward over concerns over their earnings report and slowdowns in growth in their core treatment. I remain extremely bullish that getting approved to treat new forms of cancer will more than make up for any struggles in the glioblastoma space and think Novocure has an excellent chance to reclaim those highs it reached in 2021 in 2022.
Redfin (RDFN) will triple
Similar to Novocure, a triple for Redfin wouldn’t require it to get much higher than where it was earlier in 2021. Redfin had an incredible run from mid-2020 to early 2021 as it rode a red-hot real estate market higher. Since then, however, despite the business continuing to execute well, the stock has gotten punished by a number of factors outside of their control. The first was a housing market slowdown and the second was Zillow blowing up their iBuying program. It’s bizarre to me that the latter would be a knock on Redfin in any way since CEO Glenn Kelman had always consistently communicated that he believed that iBuying was only a part of a more comprehensive whole suite of services to offer customers and not something to get overly aggressive into. As a result, Redfin has been more cautious with iBuying and the disaster with Zillow seems to be a complete vindication of him. I think 2022 might be the year that investors realize that Redfin, and not Zillow, is the best bet for being the one to disrupt the real estate market and be a leader going forward.
Teladoc (TDOC) will triple
You might notice a recurring theme with my predictions because, like Novocure and Redfin, a Teladoc triple would just bring it slightly higher than where it was back in January 2021. I honestly can’t figure out why the market has soured as much on Teladoc as it has. Perhaps it thinks telehealth will completely disappear once the pandemic is over? Perhaps it’s because they see no moat with Teladoc and that anybody can kick off a Zoom meeting to do telehealth on their own? I have no idea, but my thesis in Teladoc as an investment hasn’t changed even as the stock has plummeted. I predict 2022 will be a much better year for Teladoc.
FuboTV (FUBO) or Nano-X (NNOX) adds $22
How about a “22”-themed prediction for 2022? FuboTV the business has had a pretty impressive 2021 in terms of growth, even if FUBO the stock has been doing awful. A $22 gain from here would be more than a double, but it would also be short of the highs from earlier in 2021. As for Nano-X, the business hasn’t been executing nearly as well as Fubo with multiple delays and dialed back expectations. I do still believe the upside is there and with a new CEO, 2022 could be the year Nano-X finally starts to live up to its potential. Like with FuboTV, a $22 gain would be more than a double for Nano-X, but it would still be far short of where the stock was earlier in the year. I think there’s a decent chance both stocks hit the mark in 2022, but for my official prediction, I’ll just go with one of them making it.
Annual Inflation Rate for 2022 is > 8%
Typically I make a random prediction of an acquisition here, but I couldn’t think of any interesting sounding ones for 2022. So instead, I’ll go with another oddball pick in terms of inflation rate. Full disclosure: I have a really bad track record of predicting big increases in inflation that never quite pan out (something I did a lot in 2008-2012). Never let it be said that I am one to learn my lesson, though. I don’t think inflation will be quite as transitory as we’ve been told. I think a combination of federal reserve and US government actions are going to lead to some levels of inflation that people my age or younger really haven’t experienced before. If I’m right, it will be very interesting to see how people react.
So what do you think? Can I do better in 2022 than I did in 2021? Which prediction is my worst? Which ones might actually happen? Let me know in the comments below!
Yes, it’s been 3 years since I launched the Freedom Portfolio to document my ongoing battle with the S&P 500 for investing supremacy. To celebrate, I thought I might forgo the usual quarterly recap and instead do a little three year retrospective. But before diving into that, I wanted to make one thing very clear:
I am not trying to avoid or hide the fact that the performance of the Freedom Portfolio in the third quarter was subpar or that the performance over 2021 as a while has been pretty bad. I completely own it. In the third quarter, the Freedom Portfolio was down 9% while the S&P was flat. For the year, the Freedom Portfolio is essentially flat while the S&P is up nearly 16%. Two out of the three quarters of 2021 the Freedom Portfolio has lost to the market. I’m losing to the market so far this year and there’s a good chance 2021 will end up being a losing year overall. Not only am I not trying to hide it, but I want to be clear to everybody that this is happening.
Why? Because I want everybody to understand that I don’t stress over the short term and I have my eye on the long term. When you invest in the types of companies that I invest in and hold for long periods of time, it’s almost a certainty that you will experience severe periods of under-performance. After the incredible run-up in many of the companies in my portfolio in 2020, not only was the current under-performance in 2021 not a surprise, but it was almost expected. I’ve been investing for 20 years now. I’ve seen my fair share of market crashes and had my periods of under-performing the market. 2021 is looking like one of those years. 2022 could also be one of those years. It doesn’t shake my conviction. Why? Because of the chart I share every quarterly recap:
Because over the long term, I have confidence that a properly diversified portfolio of disruptive and innovative companies will beat the market. They won’t all be winners. In fact, many will end up being big losers. However, the wonderful thing is that it only takes a handful of big winners, held tenaciously, to more than make up for the losers.
To that end, in place of a quarterly recap of winners and losers, I wanted to take some time to acknowledge some of those big winners that I’ve held since the inception of the Freedom Portfolio. Those companies (and their performance over the past 3 years) are below:
Ticker
October 2018
October 2021
Total Return
CAGR
DIS
116.24
176.01
51%
14.8%
NVCR
52.62
116.11
121%
30.2%
SQ
97.28
239.29
146%
35.0%
JD
25.49
70.02
175%
40.0%
RDFN
18.11
50.97
181%
41.2%
MELI
332.49
1667.6
402%
71.2%
SHOP
163.42
1350.76
727%
102.2%
TSLA
62.14
775.22
1,148%
131.9%
S&P 500
5782.37
8994.44
56%
15.9%
The returns listed above (and below) are based on the end of the third quarter, not the most recent numbers. That often wouldn’t be a huge deal, except for the fact that it has taken me nearly a month and a half to get this quarterly recap done (sorry!) and during that time Tesla decided to go absolutely bonkers and rise roughly 50%. So Tesla’s numbers above are even higher. I felt like that was worth pointing out in case anybody was checking my work.
With that said, let’s dive into my thoughts on these veterans.
The Veterans:
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Disney (DIS): 51% gain, -5% versus the S&P: I officially started tracking the returns of the Freedom Portfolio in October of 2018, but my portfolio still existed before then. Disney is actually my longest held holding. I first bought shares back in 2013. It’s been a wild ride that has seen the value of my shares more than double, yet that hasn’t been enough to keep it from losing to the market. It’s pretty amazing that despite an incredible box office run, massively successful launch of their Disney+ streaming service, and ever increasing prices at amusement parks, the stock has managed to underperform. Is the slow demise of ESPN really that much of a weight on the company? I continue to remain bullish on the company, but there’s no denying that their recent box office success will be difficult to top, streaming is getting more and more competitive, and there might be practical limits to how much even the most magical place on earth can charge. I have no plans for selling Disney, but my conviction in the company being a big outperformer going forward is beginning to slip some.
Teladoc (TDOC): 51% gain, -5% versus the S&P: On one hand, this one isn’t surprising at all. The poor performance of Teladoc as a stock since the Livongo merger has been well documented. On another hand, it’s quite shocking to see the company now trading for around the same value as it was prior to the pandemic AND at a market cap of $22 billion just a year after acquiring Livongo in a deal that valued that company at over $18 billion. I’m still a big believer in Teladoc going forward, but there’s no doubt it has been a big loser for me so far. The next year should be very telling in terms of if it can execute their vision and provide a service that differentiates itself from other telemedicine providers.
Novocure (NVCR): 121% gain, +70% versus S&P: This feels a little disappointing considering the stock is down around 50% over the past 4 months. Novocure has had a good run so far, but I think there’s a lot of upside left and less risk than before. Their trial results for cancers outside of glioblastoma have been very encouraging and there’s good reason to think they should be able to unlock a much larger TAM in the coming years. It’s hard for me to see how this isn’t a company that doubles over the coming 24 months.
Square (SQ): 146% gain, +95% versus S&P: Square is an interesting story in the importance of optionality. For over a year after the inception of the Freedom Portfolio, Square was basically flat. Then, during the midst of a pandemic which slammed many of the small and mid-sized businesses that relied on their point of sale product…. the stock took off, Why? Because of the Cash App and the growth that it saw during that time. Jack Dorsey is an eccentric guy who does a lot of things that I don’t necessarily agree with, but I love his embrace of bitcoin and the chances he has taken by acquiring companies like Tidal. If I had to bet on one horse to lead the United States into a digital banking future, it would be Square.
JD.com (JD): 175% gain, +124% versus S&P: I was a little surprised to see JD.com this high. Part of that is undoubtedly recency bias as I think of how JD has fallen as of late over concerns about China’s crackdown on certain companies as well as rumblings over Evergrande setting off a chain reaction which will bring down the entire Chinese (and perhaps world?) economy. I still like JD, but I would be lying if I said the recent actions of the Chinese government didn’t concern me. Additionally, the rise of Sea Limited (SE) seems to cap the upside in international expansion some and the rise of competitors within China like Pinduoduo likewise has me a little concerned. Lastly, I never like to see a founder step down like Richard Liu recently did. There’s still a ton of upside with JD, but if the time comes when I want to concentrate my portfolio further, JD could be on my list of potential sells.
Redfin (RDFN): 181% gain, +130% versus S&P: What absolutely won’t be on my list of potential sells is Redfin. Yes, the stock is down fairly substantially over the past eight months, but I remain as excited about the future of the company as ever. Glenn Kelman’s decision to treat iBuying as a complimentary piece to provide more options to the customer as opposed to laser focusing on it as the inevitable future of real estate is looking mighty smart after the news of Zillow pausing their iBuying due to too big of a backlog. The real estate market might be cooling off some, but as long as Redfin continues to take market share (and I believe they will) then I will remain a happy shareholder.
Mercado Libre (MELI): 402% gain, +351% versus S&P: Now we’re talking. Mercado Libre has been one of my biggest winners and it remains one of my strongest convictions going forward. There’s a lot of geopolitical risk in Latin America, but there’s a lot of potential upside as well. Mercado Libre is well poised to not only be the leader in ecommerce, logistics, and digital payments in Latin America’s biggest markets, but also to make serious inroads in advertising and credit solutions. This story still feels like it is just getting started.
Shopify (SHOP): 727% gain, +676% versus S&P: Taking into account performance pre-October 2018, Shopify is my biggest winner with an incredible >3,000% return since I bought it in 2017. It has taught me many lessons, and I have written about many of them, but for now I want to focus on one: the importance of diversification. Recently, as I have looked through my portfolio and seen some of my smaller positions perform horribly and my larger positions continue to hold up well, I have thought to myself: “Self? Why do I bother with 25+ positions and instead just focus on my top 5-10 positions? Wouldn’t I have better returns then?”
Shopify is a really strong argument against that thinking. For as bullish as I am on the company right now and as much as I believe in adding to my winners, I only bought shares in Shopify in the Freedom Portfolio once. That one time I bought it, it was a tiny part of my portfolio and maybe around my 15th biggest position. One position that I had more conviction in (and was in my top 10) was Activision Blizzard (ATVI) which has not performed well over the past 5 years (and which I no longer own). Shopify is a great reminder to stay humble. My top conviction stocks aren’t always going to be big winners and sometimes it’s my 15th best idea that will turn out to be my biggest holding.
Tesla (TSLA): 1,148% gain, +1,097% versus S&P: While Shopify is my biggest all-time investing winner, Tesla is officially the biggest winner for the Freedom Portfolio on a percentage gain from first buy to now. Unfortunately, the dollar amount gain isn’t quite as impressive. Why? Because even though I originally bought shares in 2015, I kept trimming my position over the years. I own less than half of my original position (accounting for the stock split) right now. Had I simply held onto my shares instead of trimming, Tesla would easily be my top position and I would be a wealthier person today. Just one more piece of evidence for the importance of letting your winners run as long as the thesis remains intact.
Changes in the Portfolio
The theme this quarter in terms of changes to the portfolio was: concentration. It felt like time to drop some underperformers and companies I had lower conviction in in order to add to winners and higher conviction names.
Here is where the Freedom Portfolio stands now. Need a reminder of what these terms mean? Check out: Defining my Terms. Since the theme of this update has been looking back on the “veterans” that I’ve held since the inception of the portfolio, I felt it was only fitting to note how those positions have changed since my first Freedom Portfolio update from 3 years ago:
Disney, JD.com, and Redfin all were Serenity level positions and still are. Considering Disney’s relatively poor performance, I wasn’t surprised it hasn’t moved up much. JD.com was a significantly better performer, having beaten the S&P, although its performance was lower than the Freedom Portfolio overall, which explains why it hasn’t moved much. Redfin is the only surprise to me. Not only did it have pretty strong performance over the three years (although still losing to the Freedom Portfolio), but I also have added to my position a fair bit during that time. I’m still super bullish on Redfin, although it might be time to reconsider if Disney and JD.com belong in the Freedom Portfolio going forward.
Teladoc and Novocure were Millennium Falcon level positions and are now Serenity level positions. Two companies that have been underperformers (relative to the performance of the Freedom Portfolio as a whole), but two companies that I have added significantly to over the past few years. With continued good trial results coming out, I’m even more confident in Novocure now than I was 3 years ago. My conviction in Teladoc has been shaken a bit by some apparent execution challenges and synergies with Livongo that haven’t seemed to materialize yet. I still think there is a huge amount of potential there, though, and am not considering selling at this time.
Mercado Libre was a Serenity level position and is now a Babylon 5 level position. Although I did add a few shares since the inception of the Freedom Portfolio, this is almost entirely due to outperformance by Mercado Libre. Even still, this is just an $80 billion company (less than half the size of Sea Limited) and ecommerce and digital payments still seem like they are in the early innings in Latin America. Still feels like a huge runway ahead for Mercado Libre.
Shopify was an Enterprise level position and is now a Babylon 5 level position (and my largest position). Not sure what else there is to say here. Shopify has been incredible and in a world where Tesla is a $1 trillion company, a $200 billion market cap for such a well-managed leader in the ecommerce space seems pretty reasonable. I’m very happy keeping Shopify as my largest holding right now.
Tesla was Serenity level and is now Enterprise level. Like Shopify, Tesla has been another amazing story. Unlike Shopify, I have been consistently trimming my Tesla position (much to my detriment) as it has grown to a larger and larger percentage of my portfolio. I’ve done so because I just don’t have the conviction in Tesla to have it be a top 3 position in my portfolio. A large part of the reason for that is a valuation which seems a little insane and that has a lot of upside already baked in. So far, all that trimming has been a mistake, but I don’t necessarily regret it. I sleep better at night knowing that I am not too heavily invested in Elon Musk and his often erratic behavior.
Square was Serenity level and is now Enterprise level. I don’t talk too much about Square. Maybe that’s a mistake. It’s been a really solid contributor to the portfolio thus far, despite performance that is slightly less than the average for the Freedom Portfolio. It’ll be really interesting to see how crypto and NFTs affects Square going forward, particularly with Jack Dorsey seeming to be primarily focused on bitcoin. Originally, I thought his belief in and focus on bitcoin was a big positive. Now, it seems like it might be slightly blinding him to possibilities in the crypto space outside of bitcoin. Time will tell.
Ticker
Company Name
Allocation
SHOP
Shopify
Babylon 5
SE
Sea Limited
Babylon 5
MELI
MercadoLibre
Babylon 5
TSLA
Tesla
Enterprise
SQ
Square
Enterprise
RDFN
Redfin
Serenity
TDOC
Teladoc
Serenity
ETSY
Etsy
Serenity
FVRR
Fiverr
Serenity
TTD
The Trade Desk
Serenity
NVCR
NovoCure
Serenity
ROKU
Roku
Serenity
CRWD
CrowdStrike
Serenity
ZM
Zoom Video
Serenity
SNOW
Snowflake
Serenity
JD
JD.com
Serenity
SWAV
Shockwave Medical
Serenity
DIS
Walt Disney
Serenity
FUBO
FuboTV
Millennium Falcon
AXON
Axon Enterprises
Millennium Falcon
NNOX
Nano-X
Millennium Falcon
TMDX
TransMedics Group
Millennium Falcon
CELH
Celsius Holdings
Millennium Falcon
DMTK
DermTech
Millennium Falcon
SKLZ
Skillz
Millennium Falcon
That’s the recap of the Freedom Portfolio for the third quarter of 2021. Thanks for following along. Hope you all have an enjoyable holiday season and I’ll try to get my next update out in a more timely fashion.
I struggled a bit with what to write about for my quarterly recap this time around. In many ways, it has felt like the world has been in a bit of a holding pattern over the past few months as it waits to see how things shake out. Will a new COVID variant kick off a second wave which leads to new lockdowns? Will the Federal Reserve continue to keep rates low or will less-than-transient inflation cause them to take action? Will we continue to be seeing supply shortages and what areas might be next? Will surges in remote work and ecommerce during COVID stick around? How quickly will people be going back to cruises and movie theaters and airplanes? How long can Wall Street Bets and retail investors keep the meme stocks going? Are cryptocurrencies the wave of the future or a bubble in the process of bursting? Can the red-hot real estate market continue or are we looking at another housing crash? How will the streaming wars shake out? How does online advertising deal with the privacy changes being enacted by Apple and Google?
In many ways, this was reflected in my behavior during the quarter. I only wrote three posts and fewer changes to my portfolio than is typical. I think a lot of that is because, much like the rest of the world, I’m also waiting to see how things shake out and where certain long term trends go. For many of the questions I posed above, I have companies whose fates are closely entwined with the answers. If COVID lockdowns come back in some form we might see even more growth in ecommerce (SHOP, MELI, SE), and digital payments (SQ), and streaming (ROKU, DIS), and remote work (ZM). Bitcoin recovering from its recent stumble would undoubtedly be bullish for Square. A real estate bubble bursting would spell trouble for Redfin (RDFN). There are a lot of moving parts in the future of advertising which will ultimately determine how companies like The Trade Desk (TTD), Magnite (MGNI), and Roku (ROKU) will end up.
So that seems to be the theme of this past quarter: being in a holding pattern. It seems pretty fitting given my long term focus. There shouldn’t be any rush to make snap judgements on trends that are going to take years to play out.
Speaking of long term trends, here’s the updated Freedom Portfolio performance including the most recent quarter:
As you can see, it’s been a nice rebound from the drop last quarter as the Freedom Portfolio basically doubled the performance of the S&P 500 in Q2 16% vs 8%. The S&P 500 is still well ahead for 2021 as a whole, though, so this might be one of those years where I lose to the market. After the performance I had in 2020, I can’t be too upset with that.
Here are the returns of each of my positions over the past quarter:
Ticker
Quarterly Change
NVCR
66%
CELH
51%
SWAV
44%
FUBO
43%
ROKU
38%
CRWD
34%
SHOP
26%
AXON
24%
ZM
19%
TTD
17%
SE
16%
SKLZ
16%
FVRR
8%
SQ
6%
MELI
3%
TSLA
3%
SNOW
2%
ETSY
-1%
JD
-5%
DIS
-7%
RDFN
-8%
TDOC
-9%
BFLY
-11%
TMDX
-17%
DMTK
-19%
MGNI
-21%
NNOX
-22%
Notable Performers
Best Performers
NovoCure (NVCR): 66% gain: Novocure might have had the most exciting quarter of any other stock in the Freedom Portfolio. Part of it is because it was up a whopping 66% for the quarter, but part of it is also due to the fact that it popped 50% in one day in April due to overwhelmingly good results for its phase 3 trial for using Tumor Treating Fields on non-small cell lung cancer. This is a company which has more than tripled over the past year and sports a market cap over $20 billion, but I think there’s still room for growth. The treatments for which Novocure has FDA approval still tend to be rarer forms of cancer and there are many trials ongoing to study the efficacy of Tumor Treating Fields on more common forms of cancer. Additionally, no other company seems to be developing any similar treatments, so this is a field that Novocure could completely own. I’m happy to continue holding on to my full position despite the big gains.
Celsius (CELH): 51% gain: Celsius is one of those companies well outside my comfort zone. What kind of disruptive innovation can a beverage company provide? What kind of durable moat can it have? Anybody familiar with the story of Monster Beverage (MNST) can certainly provide an answer. For those who don’t know, Monster Beverage (the energy drink company) is one of the best performing stocks of this century, having outperformed such massive successes as Apple (AAPL) and Netflix (NFLX). I’ve done some research (discussions with the younger generation and some first hand beverage consumption) and I think there’s a decent chance that this “healthy” (put in quotes because I’m a bit skeptical of the claim) energy drink could be a decent sized winner going forward.
Shopify (SHOP): 26% gain: Not the biggest percent gain among the Freedom Portfolio, but notable for being such a large jump for my largest holding. Despite having had an exciting journey during that time, Shopify is essentially flat over the past 5 months as people undoubtedly are trying to figure out how much of the ecommerce surge that happened during COVID is here to stay. More than a play on ecommerce, though, I see Shopify as a play on entrepreneurship. For a variety of reasons, I believe people are getting less and less content working a typical 9-5 office job and are looking for something that will give them more freedom. For those who are also interested in being their own boss, I think Shopify has a compelling offering, and I believe that will continue to be a powerful tailwind for the company going forward.
Worst Performers
Nano-X (NNOX), DermTech (DMTK), and TransMedics Group (TMDX): 22%, 19%, and 17% losses: It seemed only fitting to combine these three companies since they represent three out of the four biggest losers during the past quarter and they are in similar situations to each other. All have potentially revolutionary new ways of addressing a medical issue. All of them are early in their life cycle and are either waiting on things like FDA approval or general acceptance from the medical establishment. I expected volatility from all of them so it doesn’t surprise me at all to see them all bringing up the rear in terms of performance this past quarter. If things work out for any of these companies, I fully expect them to be big winners in the coming 5+ years. However, I also think there’s a very good chance things don’t work out, which is why they currently remain small positions for me.
Changes in the Portfolio
Not a ton of changes in the portfolio over the past quarter, but those few changes were pretty seismic as I sold two of the positions that I have held the longest:
Here is where the Freedom Portfolio stands now. Need a reminder of what these terms mean? Check out: Defining my Terms. A few notes:
Mercado Libre dropped from being a Babylon 5 level position to an Enterprise level position, largely due to the stock not having rebounded as much as the rest of the portfolio. It’s difficult to tell why. Are investors worried about Sea Limited’s Shopee making inroads in Latin America? Are there concerns over COVID? Political instability? Is it because the stock has more than tripled over the past 16 months? I have no idea, but I remain incredibly bullish on the company.
Teladoc and Square dropped from Enterprise level positions to Serenity level ones. Interestingly enough, those were the exact same two companies which had moved from Serenity level positions to Enterprise level positions during the previous quarter. Apparently the big takeaway is that both companies are right on the edge of Serenity and Enterprise level positions. Maybe they’ll swap again next quarter.
Disney moved from a Serenity level position to a Millennium Falcon level position thanks to some mediocre performance over the quarter (down 7%). With things continuing to open back up and Disney+ continuing to be on a roll in terms of releasing compelling content, I’m not at all worried about Disney going forward. In fact, if the opportunity presented itself, I might consider adding.
Ticker
Company Name
Allocation
SHOP
Shopify
Babylon 5
SE
Sea Limited
Enterprise
MELI
MercadoLibre
Enterprise
TSLA
Tesla
Enterprise
NVCR
NovoCure
Enterprise
TDOC
Teladoc
Serenity
SQ
Square
Serenity
RDFN
Redfin
Serenity
FVRR
Fiverr
Serenity
TTD
The Trade Desk
Serenity
ROKU
Roku
Serenity
ETSY
Etsy
Serenity
JD
JD.com
Serenity
ZM
Zoom Video
Serenity
CRWD
CrowdStrike
Serenity
SWAV
Shockwave Medical
Millennium Falcon
FUBO
FuboTV
Millennium Falcon
DIS
Walt Disney
Millennium Falcon
SNOW
Snowflake
Millennium Falcon
NNOX
Nano-X
Millennium Falcon
AXON
Axon Enterprises
Millennium Falcon
SKLZ
Skillz
Millennium Falcon
TMDX
TransMedics Group
Millennium Falcon
DMTK
DermTech
Millennium Falcon
CELH
Celsius Holdings
Millennium Falcon
MGNI
Magnite
Millennium Falcon
BFLY
Butterfly Network
Millennium Falcon
That’s the recap of the Freedom Portfolio for the second quarter of 2021. Thanks for following along!
Sorry about the lateness for this quarterly update. Apparently dealing with the re-starting extra-curricular activities of a 6 year old and an 8 year old while helping to take care of an infant soaks up a lot of time. Who knew?
I had a lot of feelings of Déjà vu during this most recent quarter. The obvious and most recent comparison is to the sudden market crash in February and March of last year. Here is what I wrote during my April update of that year:
Just a month ago, I was watching the Freedom Portfolio have a scorching start to the new decade thanks to the incredible run of companies like Tesla (TSLA). I was even wondering if I might be able to talk about how the portfolio had managed to double over a mere 15 months. That kind of thinking seems patently ridiculous now.
For those unaware, this past month has seen the fastest market drop in history as COVID-19 (aka, Coronavirus) has brought the US economy to a screeching halt. The volatility has been extreme, and it has gotten to the point where I don’t even blink when multiple positions in the Freedom Portfolio are up (or down) 20%+ in a day. Redfin (RDFN) was recently up 20% and 30% in back-to-back days and is still down something close to 50% in the past month alone. So I’ve very quickly had to shift my mindset from one of, “Isn’t the market an amazing way to generate wealth?” to “Don’t panic! This kind of thing happens sometimes”.
A very similar thing happened this past quarter: The Freedom Portfolio was absolutely on fire early in the year and at one point was up close to 30% in just a little over a month! Then, everything fell completely apart and by the time the quarter was over, the Freedom Portfolio was down 5% from the end of 2020. That doesn’t sound too bad, but it looks even worse compared to the 6% gain for the S&P 500 and it is positively atrocious if you measure the drop from that high of early February. Measured from that high, it’s a drop of almost 30%, which rivals the massive collapse from last year. The big difference, of course, is that it was pretty clear in 2020 that stocks were tanking as a result of the global pandemic and the resulting lock-downs which were devastating segments of the economy. It’s not nearly as obvious what is going on now in 2021.
Which is why this past quarter actually reminds me even more of the very first quarter of the Freedom Portfolio. Before I started the Freedom Portfolio in October of 2018, the companies I had invested in had gone through a prolonged period of performance where they were crushing the market. Then, at almost the exact time that I launched the Freedom Portfolio, and seemingly without any solid reason, those companies started to crash. If you look at a chart of the NASDAQ around that time you can clearly see the dip (although it is also dwarfed by the performance since then. My second post after the initial launch of the Freedom Portfolio was written on October 9th and entitled: A rough start for the Freedom Portfolio – But I’m not worried. The very next day I wrote this: The Freedom Portfolio is down over 5% today – I’m not even thinking of selling anything.
Unlike in 2020, there wasn’t any obvious reason for the big pullback in the tech heavy growth stocks that I favor. There were plenty of theories, though. Some think it’s a rotation from growth to value. Others think it’s due to rising treasury yields. Still others think it’s because many of these stocks will suffer when the economy reopens. Frankly, I don’t really care what the reason is, I just care if the companies that I am invested in are executing and if I continue to have faith that they will execute in the future. Nothing in the past few months has significantly changed my mind about that.
Here is where I normally post an updated chart of my returns versus the S&P 500 since the inception of the Freedom Portfolio. My guess is that your eyes are usually drawn to the right-hand side for the most recent returns, but this time I encourage you to look at the far left, where you might see a slight dip. That slight dip represents that horrible first quarter that I was describing above. It’s pretty incredible how it looks so small and unimportant when you zoom out and look at the long term. I look forward to this quarter also fading into insignificance when I look back years from now.
One more thing: Here are my top 7 holdings from that first quarter along with their returns over that quarter (yes, all of them but Tesla were negative):
Amazon (AMZN): -26%
Netflix (NFLX): -29%
Shopify (SHOP): -17%
Walt Disney (DIS): -7%
Tesla (TSLA): +9%
MercadoLibre (MELI): -15%
Square (SQ): -44% (!)
I still own every single one of those companies. I encourage you to compare those numbers above with the numbers below (particularly the numbers since inception) to get an idea of how even a company that was down 44% after one quarter can still rebound to be a big winner.
Ticker
Quarterly Change
Change Since Inception
FVRR
9%
12%
TSLA
-8%
1003%
SE
14%
627%
MGNI
51%
-16%
ZM
-11%
122%
ETSY
17%
95%
DMTK
12%
9%
CRWD
-9%
89%
SQ
3%
128%
RDFN
-1%
269%
FUBO
-9%
-5%
SHOP
1%
590%
TTD
-16%
206%
SWAV
28%
143%
ROKU
2%
164%
TMDX
118%
25%
MELI
-10%
341%
TDOC
-9%
112%
JD
-2%
225%
NNOX
-9%
-3%
BFLY
-12%
-27%
AXON
22%
91%
NVCR
-18%
153%
AMZN
-3%
55%
NFLX
0%
42%
SKLZ
5%
-16%
DIS
4%
60%
SNOW
-18%
-21%
Notable Performers
This section might get a little boring and repetitive because even though there have been some big moves this past quarter (both up and down), as I noted above, much of it seems to have less to do with how the companies have performed and more to do with outside factors like sector rotations. Still, it’s worth checking in with big winners and losers to make sure the thesis is still intact.
Best Performers
Axon Enterprises (AXON): 22% gain: A 22% gain is nice, but Axon was up roughly 75% just a few months ago. That big gain seemed to be in response to some pretty nice earnings that they reported in the most recent quarter. Why has it dropped since then? I have no idea. Axon shouldn’t suffer at all from the economy re-opening and if anything police body cameras seem like they would be more important to the new Presidential administration compared to the last. I’m just as bullish on this company as ever and fully expect it to be an outperformer in the coming years.
ShockWave Medical (SWAV): 28% gain: It was a surprisingly volatile quarter for Shockwave. Up until a day or two before the quarter ended, Shockwave was virtually flat for the quarter until they provided an update on the launch of their coronary IVL system which caused the stock to pop. Why? Possibly because they are expecting their revenue growth in the first quarter of 2021 to grow triple digits compared to the first quarter of 2020. That’s pretty impressive and indicates the bull thesis remains on track.
TransMedics Group (TMDX): 31% gain: TransMedics group was actually up more than 60% for the quarter, but I didn’t start my position until a month or two ago so I didn’t capture all of those gains. The company is still awaiting FDA approval for its device so there isn’t much to report, although they did recently make some progress on the FDA front. This is one to definitely just hold and not worry about too much until any news comes out on FDA approval.
Worst Performers
Butterfly Network (BFLY): 27% loss: Like TransMedics group, my Butterfly Network position was started mid-quarter, although this time it meant my losses were bigger. There’s not much to say here either. This position is a super speculative (and small) bet on ultrasound devices that could attach to a smartphone and be useful in telemedicine. Big swings in the short term are not only not a surprise, but to be expected. I still plan to hold on to see how this plays out.
Snowflake (SNOW): 23% loss: I really wanted to buy some shares of Snowflake at the IPO but the run-up in price was just insane. After peaking late last year, though, the stock has been on a steady march downward despite the company putting up some pretty solid earnings. After it got back to its immediate post-IPO price (and the lock-up periods look to have all expired), I decided the time was right to dip my toe in. I still think the future is bright for this company, even if the stock price could continue to fall in the short term as the valuation returns to a more sane level.
Here is where the Freedom Portfolio stands now. Need a reminder of what these terms mean? Check out: Defining my Terms. A few notes:
Tesla dropped from being a Babylon 5 level position to an Enterprise level position. Some of this had to do with the stock dropping, but more of it had to do with me trimming the position. I still love Tesla’s future and I hate getting hung up on valuation, but even I had to admit that Tesla’s valuation was getting a little out of control. I feel much more comfortable with it being an Enterprise level position right now.
Amazon dropped from an Enterprise level position to a Serenity level one after I sold half my shares on the announcement that Bezos was stepping down as CEO. I was also starting to get a little concerned with just how much larger Amazon could possibly get seeing as it is getting close to a $2 trillion company. I think it will be a solid performer going forward, but I’m pondering whether I want to free up that cash to use on a company with more upside.
Teladoc and Square moved up from Serenity level positions to Enterprise level positions. Both seemed to have earned it by holding up better this quarter while the overall value of the portfolio went down.
Nano-X, Zoom, and Fiverr moved up from Millennium Falcon level positions to Serenity level positions in much the same way: thanks to sucking a little less than the rest of the portfolio this part quarter.
Ticker
Company Name
Allocation
SHOP
Shopify
Babylon 5
MELI
MercadoLibre
Babylon 5
SE
Sea Limited
Enterprise
TSLA
Tesla
Enterprise
TDOC
Teladoc
Enterprise
SQ
Square
Enterprise
RDFN
Redfin
Serenity
FVRR
Fiverr
Serenity
TTD
The Trade Desk
Serenity
NVCR
NovoCure
Serenity
ROKU
Roku
Serenity
AMZN
Amazon
Serenity
ETSY
Etsy
Serenity
JD
JD.com
Serenity
NFLX
Netflix
Serenity
ZM
Zoom Video
Serenity
DIS
Walt Disney
Serenity
CRWD
CrowdStrike
Serenity
NNOX
Nano-X
Serenity
FUBO
FuboTV
Millennium Falcon
TMDX
TransMedics Group
Millennium Falcon
SWAV
Shockwave Medical
Millennium Falcon
AAXN
Axon Enterprises
Millennium Falcon
DMTK
DermTech
Millennium Falcon
SKLZ
Skillz
Millennium Falcon
MGNI
Magnite
Millennium Falcon
SNOW
Snowflake
Millennium Falcon
BFLY
Butterfly Network
Millennium Falcon
That’s the recap of the Freedom Portfolio for the first quarter of 2021. Here’s hoping the second quarter is a little better.
I’ve said it many times, but I’ll say it again: 2020 was a hell of a year for the Freedom Portfolio. The portfolio as a whole was up 175% with a number of individual positions tripling or more. That’s many years of growth all squeezed into a short period of time. As a result, it felt like time to try to take a step back and see if my investment thesis for these companies still holds. For many of my positions, the upside that I am looking for is a 5-10 bagger over the next 5-10 years. However, with some of those companies already doubling or tripling, is that upside still there, or should I be looking for better opportunities?
To answer this question, I’m planning on going through each of my holdings over the coming weeks/months. For each holding, I intend to figure out what I think is the maximum reasonably upside that could be expected from the company over the next 5 years. Why 5 years? Because I am a long term investor who always enters a position with the intention of holding it for 5+ years (even if that sometimes doesn’t happen) and because trying to project out any further than 5 years seems way too difficult at the current pace of innovation.
For each position, I decided to place it into one of three groups:
Slow Growers: Companies that can 2x to 3x over the next 5 years – a 15% to 25% compound annual growth rate (CAGR)
Medium Growers: – Companies that can 4x to 7x over the next 5 years – a 32% to 48% compound annual growth rate (CAGR)
Fast Growers: – Companies that can 8x to 10x over the next 5 years – a 52% to 58% compound annual growth rate (CAGR)
Part 1 is dedicated to the slow growers, with the plan for parts 2 and 3 to be released in the coming weeks/months. For each company, I will list the current-ish market cap as well as what that market cap would look like 5 years from now after a potential double or triple.
Note: There’s been a fair amount of market volatility lately, so it feels worthwhile to note that these market caps were pulled on March 11th.
It’s a little hard to wrap my head around how much larger a $1.5 trillion market cap company can get. On one hand, it’s already massive with big expectations of growth already baked in. On the other hand, it still feels like there’s a lot of runway left with cloud computing, ecommerce and advertising and Amazon seems to have a really strong advantage in all three of those business lines. A 15% to 25% CAGR might seem a little conservative for such a relentless innovative and strong business like Amazon, but it would also represent them adding 5 Walmarts (WMT) or 10 Exxons (XOM) worth of market cap, which feels pretty significant.
Verdict: Amazon is so large that it’s hard to imagine there’s a tremendous amount of upside left in it, but at the same time there might not be a company out there which I am more confident will be a market beater going forward. I’ve already trimmed some of my position after Bezos stepped down as CEO. I don’t see any reason to sell any more in the near future.
Tesla (TSLA) – Now: $650 billion – Then: $1.3 to $1.9 trillion
Again, this is hard to wrap my head around. A mere car company with a market cap over $1 trillion? As any Tesla bull will be quick to say, Tesla is more than just a car company and is poised to be a major player in not just all sorts of transportation (EVs, autonomous, taxis, ride-sharing, etc), but energy as well. I think Tesla is well positioned to be a leader in a lot of those areas, but what is that worth? Even if you combine the market caps of the top car manufacturers AND Uber and Lyft AND toss in an Exxon for good measure, you don’t get to $1 trillion right now. Even if Tesla disrupts transportation and multiple other areas like I think they could, it feels like a stretch to say they can grow much beyond a low-to-mid $1 trillion market cap over the next five years.
Verdict: I’ve mentioned a few times that, despite still being bullish on Tesla, even I couldn’t justify the valuation over the past few months. I’ve trimmed a decent amount recently and feel much more confident with the size of my position now and see no reason to change it any more in the near future.
Seeing the market cap of NovoCure was a bit of a surprise to me. When I first bought shares of NovoCure in 2017 at about $18 a share, it was a much smaller company. I knew it had been a pretty great performer, but it still surprised me to see that it had grown to such a large market cap. I still think there’s a big opportunity in front of NovoCure to use their Tumor Treating Fields to treat a wide variety of cancers and, importantly, the treatment can be used in addition to others so competition should be less of a factor. Still, it’s a little tough to see them growing much beyond the $30-40 billion range unless they find a way to expand TTF beyond cancer treatment, which I don’t quite see happening.
Verdict: Novocure has some pretty clear catalysts that are also on a pretty clear timeline. I love the technology, but I could see a scenario in the coming years where I start to redeploy capital to other companies unless they discover new potential uses for TTFs.
Disney (DIS) – Now: $357 billion – Then: $714 billion to $1 trillion
I continue to be amazed by how Disney stock has not only held up during a pandemic which has obliterated virtually all of their main revenue drivers, but has actually hit new highs. Obviously a lot of that has to do with how incredibly fast their streaming services have grown both domestically and internationally. I have no doubt that Disney will be the strong number two to arise globally in the coming years. Still, it seems like a lot of optimism is already baked in to the share price. What happens if park re-openings take longer than expected, the movie pipeline takes some time to get replenished, and Disney+ growth slows down?
Verdict: I love Disney, but there’s no doubt it has lower upside than a lot of my other companies. As a result, I actually recently trimmed my position some (see below) to add to some companies that hopefully have more upside.
A double or triple over 5 years is really strong growth, but it almost feels like an insult to predict it for Netflix seeing as it has gone up nearly 6 fold over the previous 5 years. It does feel like it’s finally time for their growth to slow down some, though. Netflix long ago saturated the US market and it feels like it has snagged most of the low hanging international fruit as well. There’s still some growth to be had, but much of it will be coming from cheaper plans in countries like India. Additionally, their competition has finally gotten serious about transitioning to online streaming which will undoubtedly limit their ability to raise prices as much as they have been. The rumors of them cracking down on password sharing is one more sign that they’re looking for other levers to pull to get some growth. Still, Netflix remains the global leader in a streaming trend that is still yet to fully play out and that doesn’t seem likely to change. This still feels like an easy market beater going forward.
Verdict: I won’t lie: nostalgia plays a huge role in why I continue to hold Netflix. It was one of my first purchases and has been one of my biggest winners. I almost feel a sense of loyalty to the company. That’s not the only reason I hold it, but I would be lying if I said it didn’t play a role. I could see myself selling some more in the future, but it’s hard for me to imagine ever selling all of my shares.
Like NovoCure, the market cap of Square surprised me a bit. When I first purchased shares in 2018 at $58 a share, the market cap was around $20 billion. My hope then was that Square could grow beyond just being the little dongle for swiping cards for small and mid-sized businesses and could become a major player in digital payments with the Cash App and move into many banking services as well. The former seems to have arrived and the latter looks to be getting closer. Even though Square has grown a ton, I still feel like there’s decent upside left. PayPal, Visa, and Mastercard have market caps between $300 and $500 billion and if bitcoin continues to show strength, there’s no reason why Square can’t double or triple from here.
Verdict: This is one I will be keeping a close eye on. It feels like Square has a lot of potentially huge catalysts (Cash App moving into banking services, bitcoin, NFTs through Tidal) and I do think Dorsey is brilliant, but he’s also eccentric and undeniably distracted. If some of those moonshots look like they’re not panning out or taking longer than expected, I might consider trimming my position some.
Transactions
Sold some Disney (DIS): As mentioned earlier, there’s been a ton of volatility recently and a lot of my positions have seen some pretty massive haircuts. I always remain fully invested and don’t keep cash around, so if I want to “buy on the dip” I need to sell something else first. Because Disney has held up fairly well during this volatility, I decided to trim some so that I had cash to deploy elsewhere.
Bought more Fiverr (FVRR) and FuboTV (FUBO): I’ve made no secret how much I have been loving Fiverr lately and so when it dropped nearly 40% recently I took the opportunity to add more shares. FuboTV was a smaller position that saw a move that was almost as big so I decided to add a bit to FUBO as well.
Your Thoughts
What do you think? Am I too pessimistic on the above companies? Or is a potential double or triple still too optimistic? Please let me know in the comments if you agree or disagree and, more importantly, why. Thanks!
Lots of Freedom Portfolio positions have reported earnings over the past two weeks, a time period which has coincided with a pretty sharp drop in many of those same companies (despite some pretty incredible earnings). Let’s go quickly through some:
Earnings Quick Hits
Shopify (SHOP): Firing on all cylinders. A simply incredible quarter on all fronts. The only concern going forward is if this rate of growth can continue when the economy opens back up. I think it can.
Share of U.S. Retail eCommerce Sales in 2020: 8.6% (2nd only to Amazon and higher than Walmart)
Revenue growth: 94% year over year
Gross Merchandise Volume growth: 99% year over year
Gross Profit growth: 89% year over year
Square (SQ): Mixed results, but Cash App is a bright spot. A continued rise in the price of bitcoin and re-opening of small and mid-sized businesses should provide some tailwinds going forward.
Gross Profit growth: 54% year over year (but only 1% quarter over quarter)
Cash App Gross Profit growth: 162% year over year (but down quarter over quarter)
Cash App Customer Acquisition Cost of less than $5
Gross Profit per monthly transacting active Cash App customer reached $41, up 70% year over year
Roku (ROKU): Strong growth benefitting from what appears to be an accelerating trend towards online streaming.
Gross Profit growth: 89% year over year
Active accounts growth: 39% year over year
Streaming hours growth: 55% year over year
Average revenue per user up 24% year over year
In 2020, 38% of all smart TVs sold in the U.S. were Roku TV models
Fiverr (FVRR): Continued strong growth with expectations for it to continue into 2021. Network effects should help the company grow and (continue to?) establish a moat going forward.
Revenue growth: 89% year over year
Active buyer growth: 45% year over year
Spend per buyer growth: 20% year over year
Outlook for FY 2021: 46-50% year over year growth
Redfin (RDFN): Seasonality and pandemic related swings make comparisons difficult, but Redfin seems primed to ride this real estate boom. Would’ve liked to have seen slightly stronger numbers considering what we saw from Zillow, but still like the long term story.
Website visitor growth: 44% year over year
Market share grew from 0.94% to 1.04% year over year
Teladoc (TDOC): Early innings of integrating Livongo, but strong results regardless. Looking forward to seeing where this company is a couple of quarters from now (and a year removed from the Livongo acquisition).
Revenue growth: 145% year over year
Total visit growth: 139% year over year
Novocure (NVCR): Long term thesis intact with many clinical milestones upcoming over the next few years. Still early innings
Net revenue growth: 45% year over year
Active patient growth: 17% year over year
Etsy (ETSY): Riding the same tailwinds as Shopify and creating their own network effects. This is the type of growth that should continue to compound in the coming quarters.
Gross Merchandise Sale growth: 118% year over year
Revenue growth: 129% year over year
Net Income growth: 375% year over year
Active seller growth: 62% year over year
Active buyer growth: 77% year over year
Axon Enterprise (AXON): Not quite the same levels of growth as Etsy and Shopify, but really solid nonetheless. The nature of the business means that these gains should be fairly sticky going forward, too.
Revenue of $226 million grew 32% year over year
Gross margin of 62.5% improved 860 basis points year over year
Transactions
Sold Tesla (TSLA): Nothing new here. Tesla has been a huge winner for me and I’ve been pretty open about how, while still being bullish on the company, I’ve gotten a little concerned over the valuation getting a bit out of hand. I trimmed a bit more to bring the position size more in-line with my conviction. It remains an Enterprise level position.
Started positions in Butterfly Network (BFLY) and TransMedics Group (TMDX): Two companies that had been on my radar for a bit. Finally decided to open up some small, speculative positions in both. If they show they can execute, I will consider adding more.
Started position in Snowflake (SNOW): I’ve been wanting to own some Snowflake since before their IPO, but the insane run-up in price during the IPO dampened my enthusiasm. After seeing it drop from the high 300s to the mid 200s, I decided it was time to start a small position. I’m interested in seeing where it goes after the lock-up expires in March. Might add more then.
Between the kick-off of Fantasy Investing 2021, my recklessly bold predictions for 2021, and just things like being commissioner of fantasy football leagues which are winding down and enjoying the holidays with my family, the end of December is already a pretty busy time for me even without having to write up a new quarterly recap. Also, I feel like it’s still fair to use the excuse of a newborn baby sucking away time.
Anyway, I apologize in advance that this one is a little short. You can probably expect a little bit more of an abridged quarterly recap in the fourth quarter going forward.
Let’s start out with updated performance:
And here’s a look how each individual position performed over the past quarter and since the inception of the Freedom Portfolio.
Ticker
Quarterly Change
Change Since Inception
NNOX
90%
6%
ROKU
66%
164%
TSLA
57%
1053%
NVCR
54%
227%
MELI
50%
387%
CRWD
48%
114%
DIS
47%
54%
TTD
44%
273%
SWAV
38%
95%
ETSY
35%
67%
RDFN
30%
270%
FVRR
30%
-2%
SQ
29%
116%
AAXN
28%
63%
SE
24%
512%
JD
12%
238%
SHOP
7%
580%
NFLX
3%
44%
AMZN
1%
61%
TDOC
-9%
130%
FSLY
-11%
48%
ZM
-30%
128%
I’ve run out of ways to describe how 2020 was in terms of investing performance for the Freedom Portfolio. It was simply amazing and I don’t expect to ever be able to replicate those results again. So instead of focusing on the positives, I wanted to touch on a few (investing) negatives from 2020.
Magnite (MGNI): I was pretty excited about Magnite (formed by a merger of Teleria and the Rubicon Project) at the beginning of the year, so much so that I made it one of my picks for my fantasy investing 2020 portfolio. At the same time, my conviction in the company was low, so it was a pretty small position for me. Some poor performance earlier in the year along with some management changes shook my conviction and I ultimately sold in June. About 6 months later, the stock now is sitting around 4x where I sold it. It’s possible I was too quick to sell Magnite, and it might be time to take another look at the company.
Jumia (JMIA): Jumia is a very similar story. I had high hopes for the “Amazon of Africa” since many of my other ecommerce companies were thriving during COVID related lockdowns. I sold in September after some mediocre results made me question if the company would be able to seize the opportunity. Since then, the stock has gone up 5x. I’m still not convinced I necessarily made the wrong call, though. Time will tell. I’ll be keeping my eye on it, but have no plans to buy shares again any time soon.
Notable Performers
Just going to briefly touch on the best and worst performer this past quarter.
Best Performer
Nano-X (NNOX) – 90% gain: Interestingly, Nano-X was on my “worst performers” list last quarter. There’s honestly not much to say here. A series of short reports pummeled the stock in Q3 and the stock bounced back from that in Q4 (thanks in part to a live demonstration that was streamed in December). This is still a highly speculative company where so much rests on FDA approval to disprove the majority of the short thesis. I’m still optimistic, but the plan is to hold off making any buys or sells until there is more clarification from the FDA.
Worst Performer
Zoom Video (ZM) – 30% loss: This is almost the reverse story to Nano-X. Zoom peaked a few months ago (shortly after the start of Q4) after some absolutely incredible earnings reports. Since then, it has dropped a fair bit, presumably on positive vaccine news and because people are worried about Zoom’s place in a post-COVID world. I am not worried at all, and Zoom is on my list of companies I am interested in adding to if/when I have cash available.
