RDFN – Page 2 – Paul Vs The Market

The Freedom Portfolio – April 2021

April 10, 2021 paul.essen Comments 3 comments

Sorry about the lateness for this quarterly update. Apparently dealing with the re-starting extra-curricular activities of a 6 year old and an 8 year old while helping to take care of an infant soaks up a lot of time. Who knew?

I had a lot of feelings of Déjà vu during this most recent quarter. The obvious and most recent comparison is to the sudden market crash in February and March of last year. Here is what I wrote during my April update of that year:

Just a month ago, I was watching the Freedom Portfolio have a scorching start to the new decade thanks to the incredible run of companies like Tesla (TSLA). I was even wondering if I might be able to talk about how the portfolio had managed to double over a mere 15 months. That kind of thinking seems patently ridiculous now.
For those unaware, this past month has seen the fastest market drop in history as COVID-19 (aka, Coronavirus) has brought the US economy to a screeching halt. The volatility has been extreme, and it has gotten to the point where I don’t even blink when multiple positions in the Freedom Portfolio are up (or down) 20%+ in a day. Redfin (RDFN) was recently up 20% and 30% in back-to-back days and is still down something close to 50% in the past month alone. So I’ve very quickly had to shift my mindset from one of, “Isn’t the market an amazing way to generate wealth?” to “Don’t panic! This kind of thing happens sometimes”.
The Freedom Portfolio – April 2020

A very similar thing happened this past quarter: The Freedom Portfolio was absolutely on fire early in the year and at one point was up close to 30% in just a little over a month! Then, everything fell completely apart and by the time the quarter was over, the Freedom Portfolio was down 5% from the end of 2020. That doesn’t sound too bad, but it looks even worse compared to the 6% gain for the S&P 500 and it is positively atrocious if you measure the drop from that high of early February. Measured from that high, it’s a drop of almost 30%, which rivals the massive collapse from last year. The big difference, of course, is that it was pretty clear in 2020 that stocks were tanking as a result of the global pandemic and the resulting lock-downs which were devastating segments of the economy. It’s not nearly as obvious what is going on now in 2021.

Which is why this past quarter actually reminds me even more of the very first quarter of the Freedom Portfolio. Before I started the Freedom Portfolio in October of 2018, the companies I had invested in had gone through a prolonged period of performance where they were crushing the market. Then, at almost the exact time that I launched the Freedom Portfolio, and seemingly without any solid reason, those companies started to crash. If you look at a chart of the NASDAQ around that time you can clearly see the dip (although it is also dwarfed by the performance since then. My second post after the initial launch of the Freedom Portfolio was written on October 9th and entitled: A rough start for the Freedom Portfolio – But I’m not worried. The very next day I wrote this: The Freedom Portfolio is down over 5% today – I’m not even thinking of selling anything.

Unlike in 2020, there wasn’t any obvious reason for the big pullback in the tech heavy growth stocks that I favor. There were plenty of theories, though. Some think it’s a rotation from growth to value. Others think it’s due to rising treasury yields. Still others think it’s because many of these stocks will suffer when the economy reopens. Frankly, I don’t really care what the reason is, I just care if the companies that I am invested in are executing and if I continue to have faith that they will execute in the future. Nothing in the past few months has significantly changed my mind about that.

Here is where I normally post an updated chart of my returns versus the S&P 500 since the inception of the Freedom Portfolio. My guess is that your eyes are usually drawn to the right-hand side for the most recent returns, but this time I encourage you to look at the far left, where you might see a slight dip. That slight dip represents that horrible first quarter that I was describing above. It’s pretty incredible how it looks so small and unimportant when you zoom out and look at the long term. I look forward to this quarter also fading into insignificance when I look back years from now.

One more thing: Here are my top 7 holdings from that first quarter along with their returns over that quarter (yes, all of them but Tesla were negative):

Amazon (AMZN): -26%
Netflix (NFLX): -29%
Shopify (SHOP): -17%
Walt Disney (DIS): -7%
Tesla (TSLA): +9%
MercadoLibre (MELI): -15%
Square (SQ): -44% (!)

I still own every single one of those companies. I encourage you to compare those numbers above with the numbers below (particularly the numbers since inception) to get an idea of how even a company that was down 44% after one quarter can still rebound to be a big winner.

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.

Changes in the Portfolio

The Freedom Portfolio – April 2021

Here is where the Freedom Portfolio stands now. Need a reminder of what these terms mean? Check out: Defining my Terms. A few notes:

Tesla dropped from being a Babylon 5 level position to an Enterprise level position. Some of this had to do with the stock dropping, but more of it had to do with me trimming the position. I still love Tesla’s future and I hate getting hung up on valuation, but even I had to admit that Tesla’s valuation was getting a little out of control. I feel much more comfortable with it being an Enterprise level position right now.
Amazon dropped from an Enterprise level position to a Serenity level one after I sold half my shares on the announcement that Bezos was stepping down as CEO. I was also starting to get a little concerned with just how much larger Amazon could possibly get seeing as it is getting close to a $2 trillion company. I think it will be a solid performer going forward, but I’m pondering whether I want to free up that cash to use on a company with more upside.
Teladoc and Square moved up from Serenity level positions to Enterprise level positions. Both seemed to have earned it by holding up better this quarter while the overall value of the portfolio went down.
Nano-X, Zoom, and Fiverr moved up from Millennium Falcon level positions to Serenity level positions in much the same way: thanks to sucking a little less than the rest of the portfolio this part quarter.

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.

Rapid Fire Earnings

March 1, 2021 paul.essen Comments 0 Comment

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.

The Freedom Portfolio – January 2021

January 7, 2021 paul.essen Comments 3 comments

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.

Changes in the Portfolio

The Freedom Portfolio – October 2020

Here is where the Freedom Portfolio stands going into 2021. Need a reminder of what these terms mean? Check out: Defining my Terms. A few notes:

Mercado Libre moved up to a Babylon 5 level position on the back of an incredible 50% gain over the past quarter
Crowdstrike moved up to a Serenity level position on the back of some additional buys and a nice 48% gain during the quarter
Fastly fell to a Millennium Falcon level position after falling 11% during a quarter where the rest of the portfolio increased almost 30%.

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

That’s the 2020Q4 recap of the Freedom Portfolio. Thanks for following, and here’s to a prosperous 2021 for all!

Recklessly Bold Predictions for 2021

December 22, 2020 paul.essen Comments 7 comments

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 Freedom Portfolio – October 2020

October 5, 2020 paul.essen Comments 4 comments

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Notable Performers

Best Performers

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

I’m so glad I did.

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

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

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

Then the announced merger with Teladoc happened.

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

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

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

Worst Performers

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

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

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

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

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

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

Changes in the Portfolio

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

The Freedom Portfolio – October 2020

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

A few notes before moving on to the full breakdown:

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

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

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

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

Redfin: A mixed quarter

August 7, 2020 paul.essen Comments 2 comments

Redfin (RDFN) announced second quarter earnings last week, and those earnings really drove home just how crazy the past few months have been in the real estate market. As CEO Glenn Kelman said: “Within the span of a single quarter, year-over-year changes in demand went from -41% to +40%”.

As result, I’m wary of reading too much into Redfin’s results this past quarter seeing as the company basically went from preparing for a cataclysmic collapse of the real estate market (check out Kelman’s excellent blog posts about what it was like to run Redfin through the pandemic) to scrambling to handle a spike in demand when it unexpectedly rebounded. Here are some of the key numbers anyway:

Revenue increased 8% year-over-year
Gross profit decreased 5% year-over-year
Reached market share of 0.93% of U.S. existing home sales by value

That last bullet point is the most concerning to me. Redfin’s market share has always been a little erratic, but the general trend was clearly up. That hasn’t quite been the case lately. Take a look:

Q3 2019: 0.96%
Q4 2019: 0.94%
Q1 2020: 0.93%
Q2 2020: 0.93%

Not only is that not generally trending up, but if anything, it is trending down. I had assumed that Redfin’s strength with things like virtual tours would’ve helped it to gain more market share during this socially distant period, but that appears to not be the case. I’m trying not to make a big deal out of a single metric like this, and I wouldn’t go so far as to say that I’m worried, but I am a little more cautious after seeing those market share gains stall out.

On the positive side, management sounded very optimistic on the call, and I do trust Redfin management a lot. They don’t sound overly concerned about the market share numbers and they also seem pretty optimistic about the direction of the housing market. I still believe Redfin has inherent advantages over its competitors and that those advantages are even greater during times of social distancing, so I remain bullish on Redfin over the next 3+ years despite what is admittedly a mixed report this time around.

The Freedom Portfolio – July 2020

June 30, 2020 paul.essen Comments 4 comments

Wow.

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

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

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

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

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

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

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

Notable Performers

Best Performers

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

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

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

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

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

Worst Performers

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

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

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

Changes in the Portfolio

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

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

Sells

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

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

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

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

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

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

Buys

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

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

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

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

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

The Freedom Portfolio – July 2020

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

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

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

Earnings Recap – Week of 5/3/2020: Part 2

May 8, 2020 paul.essen Comments 0 Comment

The crazy week for earnings continues. Here’s my take on the second batch of companies that have reported this week. Looking for part 1? Click here.

Square (SQ)

Total net revenue up 44% year over year
Gross profit up 36% year over year
Cash App gross profit up 115% year over year
View Earnings Report Here
My thoughts: A large percentage of Square’s clients are the small and mid-sized businesses that are getting hit hard by Coronavirus, so some bad numbers on that front are expected over the next few earnings reports. The key thing I am looking at is their Cash App metrics, which should benefit from Square recently acquiring their banking license, being able to request stimulus checks for users, and presumably the accelerated movement away from cash. The numbers look pretty good on that front, so I’m still excited for the future of Square (especially after we get past Coronavirus).

Livongo Health (LVGO)

Revenue up 115% year-over-year
Enrolled Livongo for Diabetes Members up 100% year-over-year
Livongo Clients up approximately 44% quarter-over-quarter
View Earnings Report Here
My thoughts: I love seeing these triple digit growth rates and there’s still a long runway ahead of them. Livongo reported 328,000 enrolled diabetes members, but there are an estimated 34 million Americans with diabetes. That means that even if they don’t expand much beyond diabetes, this is a company that has a lot of room to continue growing. Even though Livongo has about doubled in the last 5 months alone, I’m still really excited about this company. In fact, I’m looking to “add to my winners” and possibly add to my position if I can find something to sell in order to raise some cash.

Redfin (RDFN)

Revenue increased 73% year-over-year
Reached market share of 0.93% of U.S. existing home sales by value, an increase of 0.10 percentage points year over year
Announced plans to have RedfinNow resume making offers on homes in select markets in May
View Earnings Report Here
My thoughts: Similar to Square’s earnings report, I’m hesitant to read too much into Redfin’s earnings report this quarter because of how much social distancing has affected their business and how lumpy some of their results look due to the ramping up (and subsequent shutting down) of their iBuying through RedfinNow. As a result, I’m not overly focused on the revenue growth and instead am encouraged that they are opening back up RedfinNow. On the surface, the market share gain looks good, but it was also down quarter over quarter. Oddly enough, though, for the past few years their market share metric seems to follow the same pattern of being generally flat for three quarters and then jumping between Q1 and Q2. Here’s hoping that pattern persists for next quarter. I’m still very much holding onto my shares and am excited for where the stock goes once home buying is back to normal.

Shopify Spiffy Pops

May 4, 2020 paul.essen Comments 1 comment

I’ve written a lot about Shopify over the past year or two, and with good reason. Not only has it been the best performer in the freedom Portfolio both since I bought it in 2017 (close to a 1400% increase) and since I started “officially” tracking the Freedom Portfolio returns in October of 2018 (an increase of almost 300%), but it continues to be on fire and has almost doubled just in the past month.

In fact, the performance has been so impressive that, over the past few weeks, Shopify (SHOP) has spiffy popped for me twice. What is a spiffy pop? Put simply, it is “When your stock gains more in one day than you paid for it”. From the Motley Fool website:

Spiffy-pop is a term coined by Motley Fool Rule Breakers that refers to a situation whereby a stock’s price increases more in a single day than the original cost basis.
When a stock in your portfolio becomes a daybagger — gaining more in one day than you originally paid for it — it has spiffy-popped.
Spiffy-Pop

I first bought my shares of Shopify on January 5th, 2017 for $44.55 a share. Over the past month, shares of Shopify have increased by that amount (or more!) in a single day twice. It’s pretty incredible and mind boggling to think that in a single day a stock has returned more to me than I originally paid for it.

Beyond marveling over Shopify’s performance, though, I’ve also been noticing an interesting contrast between it and one of my worst performers: Jumia (JMIA). The amount of money that I have spent buying shares of Shopify and Jumia are pretty similar, with just a little over a 10% difference between the two. But the similarities pretty much end right there.

The biggest and most obvious different is how they’ve performed / where they are now. As mentioned previously, Shopify has gained nearly 1400% and is the largest position in my portfolio (and running away with the title right now). Jumia has lost around 75% and is the second smallest position in my portfolio.

But another interesting difference is that I have only bought shares of Shopify once (my initial purchase in 2017) compared to the five (!) times I have bought shares in Jumia.

I have my reasons for this, although they’re not good ones. When I had bought Shopify, it had been roughly two years after its IPO and the stock had already almost doubled. I remember wondering if I was too late and had missed the growth. On the flip side, Jumia had their IPO in April of 2019. My first purchase was within the first month and all of my Jumia purchases were made within 6 months of IPO. Did I have Shopify in the back of my mind and have fear of “missing out” of that early low IPO price when I bought shares of Jumia so close their IPO? It’s entirely possible.

It’s not just about what happened before my purchase, but also about what happened after. While it had its ups and downs, Shopify largely went up after my purchase and never dropped too far below my initial purchase price. Jumia, on the other hand, has been on a steady march downward since my first purchase, and I’ve just kept on buying as it dropped.

Shopify and Jumia are very different companies and there’s multiple reasons why one has performed so well and the other…. not so well. But it’s hard to imagine a better example of a handful of lessons which I should have already learned (but apparently not well enough to have avoided them here):

Add to your winners / Don’t cut your flowers to water your weeds – This is the big one, but also the most non-intuitive and hardest to follow. After all, we’re constantly told to “buy low and sell high”, right? How can we buy low on something that is up big for us already? Doesn’t it make sense to buy low instead on a company that is cheaper today than it was before? The problem with that thinking is that it assumes some sort of equilibrium that all companies must return to. Great companies must eventually fall back down to earth and terrible companies must rise from the ashes like a Phoenix. That’s not exactly how things work. Instead, great companies tend to continue to excel, and bad companies tend to eventually fade away and disappear. If I hadn’t been so afraid of adding to my winners and instead took the money I invested in Jumia in May of 2019 and invested it in Shopify, I would’ve seem my money more than double instead of lose nearly 80% of its value. I need to learn how to accept that it makes more sense adding to winners than continuing to throw money at company whose stock keeps dropping.
Be very wary of buying immediately after an IPO – There’s often a lot of excitement around an IPO, and most of the stakeholders involved have a vested interest in making sure that the stock of the company does well immediately after an IPO. At the same time, there are things like lock-up periods that can cause a stock to drop in the months following an IPO. I’ve certainly gotten caught up in the excitement around IPOs in the past and wanting to get in early on “the next big thing”, but nearly every time I’ve done that I’ve regretted it. Jumia is the biggest loser of the bunch, but Shockwave Medical (SWAV) was also bought soon after IPO and has generally been a loser so far as well. Even Redfin (RDFN), a company that I continue to love, is basically flat versus the S&P since I bought it about a year after their IPO.
Don’t worry about being too late – This one is easy and obvious. I was worried I was too late to Shopify and it went on to become a ten bagger (and more) for me. Nearly all of my big winners so far were companies that it seemed like I was “too late” on because they had already run up too much. Don’t worry about what happened in the past, focus on what could happen in the future.
One amazing winner can more than make up for a bad loser – I mentioned earlier on that I had invested about the same amount of money into both Shopify and Jumia. My gains in Shopify are about 20 times my losses in Jumia. This is why swinging for the fences can work even if you have some horrible losers: because the winners more than make it up.

Shopify reports earnings the morning of Wednesday, May 6th. I can’t wait to see what they have in store.

The Freedom Portfolio – April 2020

March 31, 2020 paul.essen Comments 2 comments

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

Just a month ago, I was watching the Freedom Portfolio have a scorching start to the new decade thanks to the incredible run of companies like Tesla (TSLA). I was even wondering if I might be able to talk about how the portfolio had managed to double over a mere 15 months. That kind of thinking seems patently ridiculous now.

For those unaware, this past month has seen the fastest market drop in history as COVID-19 (aka, Coronavirus) has brought the US economy to a screeching halt. The volatility has been extreme, and it has gotten to the point where I don’t even blink when multiple positions in the Freedom Portfolio are up (or down) 20%+ in a day. Redfin (RDFN) was recently up 20% and 30% in back-to-back days and is still down something close to 50% in the past month alone. So I’ve very quickly had to shift my mindset from one of, “Isn’t the market an amazing way to generate wealth?” to “Don’t panic! This kind of thing happens sometimes”.

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

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

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

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

So basically, treat the numbers below as very tentative.

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

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

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

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

Notable Performers

Best Performers

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

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

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

Worst Performers

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

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

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

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

Changes in the Portfolio

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

Sells

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

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

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

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

Buys

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

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

Watchlist

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

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

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

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

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

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

The Freedom Portfolio – April 2020

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

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

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