The Freedom Portfolio – January 2023

March 13, 2023 paul.essen Comments 0 Comment

A January recap! Released in mid-March… After skipping the October 2022 and December 2022 recaps…

Yeesh. And to make matters worse, I completely missed the 4th anniversary recap! How embarrassing. Not sure which is worse:

How late this quarterly recap is
My portfolio’s performance over the past year plus
My 2022 bold predictions
My fantasy investing 2022 performance
My fantasy football teams for 2022 (3 leagues, missed the playoffs in each of them)

That last one is largely irrelevant, and I’ve already touched on #3 and #4 in previous posts, so let’s get rolling discussing #2. What better place to start than the performance since inception?

I tried writing up my thoughts on my investing performance, but then I went back to read what I had written in the last quarterly recap I had finished (8 months ago) and found that I wouldn’t change a single word and probably couldn’t say it any better. Here is what I wrote:

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 how 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.
The Freedom Portfolio – July 2022

The past year has seen unprecedented rises in interest rates by the Fed in response to inflation levels that the country hasn’t seen in a long time. The swiftness of the rise has caused issues all around: from the real estate market screeching to a halt, to big tech companies having big rounds of layoffs, to the shocking and sudden collapse of Silicon Valley Bank. It’s no wonder that the high growth companies I like to invest in have had a hard time abruptly switching gears to go from a cheap cash environment to one where suddenly everybody is looking for profitability.

Some of my investments have been exposed as poorly run companies or at the very least ones that didn’t have quite the moat or tailwinds that I anticipated. I have been attempting to slowly and methodically prune those over the past year. The proceeds from those sales have gone into companies that I believe have proven their mettle during this challenging time and have shown that not only can they survive, but they will come out of this even stronger than before.

With that said, here have been the changes that I have made since my last update:

Changes in the Portfolio

All done in September of 2022.

Sold some of Tesla (TSLA): I feel like a bit of a broken record at this point. This trimming of my Tesla position marks my seventh sale of Tesla shares over the past two and a half years. Each sale has been for the same mix of reasons that all revolve around the fact that I was uncomfortable with how high the stock had skyrocketed in such a short amount of time. As much as I love the company and its potential (still!), it was hard to deny that the valuation had gotten incredibly out of control and that it had grown to an uncomfortably large percentage of my portfolio considering some of the concerns that I have over the company (the aforementioned valuation, Musk distraction, competition coming, etc). Even after this most recent trim, though, the company remains a top 4 position in my portfolio, so I still have a pretty high degree of confidence. I just felt better locking in some gains and diversifying into other positions.

Bought more Axon Enterprises (AXON): Axon has been a sneaky good performer (as a stock, but more importantly as a company) over the past year or two when basically the entire rest of my portfolio has been falling apart. The more I follow the company and learn about it, the more impressed I become. Axon is a company that has grown far beyond the taser and has some pretty lofty aspirations. It also seems like they still have plenty of room left to grow as well.

Bought more Nubank (NU): Speaking of room to grow, Nubank has that in spades. Not only do I love the demographic trends of Latin America (growing populations which are increasingly online), but Nubank has still barely scratched the surface in terms of saturation in their non-Brazil markets. On top of all of that, Nubank has a number of financial products that they are in the early innings of in terms of cross-selling to their members. It’s been a rough life as a public company so far for Nubank, but I remain super excited about the growth possibilities ahead of the company.

Bought more Redfin (RDFN): I might have a problem. I’m not sure if there is any other company in my portfolio that I have added to more often than Redfin. Has the company made some missteps? Undeniably. Have they navigated an absolutely insane roller-coaster of a real estate market over the past few years about as well as they can be expected to? I think so. I’m a bit worried about how closing their iBuying business weakens their complete real estate offering, but their acquisitions of Bay Equity and RentPath seem like they would more than make up for that. They’ve survived a complete shut down of the real estate market during COVID, an insanely fast and furious re-opening right afterwards, and are now in the process of weathering a rocketing of interest rates. The stock has cratered along with the real estate market, but as the wise man Buster Moon once said: “You know what’s great about hitting rock bottom, there’s only one way left to go, and that’s up!”

Bought more Sea Limited (SE): Sea has encountered a number of speed bumps over the past year or so. The popularity of their Free Fire game has waned at the same time around the same time that they shut down operations in a few of their markets, including the high potential Indian market. Those are no doubt disappointments, and I wish management had been a little more prudent in terms of not expanding in too many directions at once, but I still love a lot of the growth potential with this company and the stock is far more reasonably priced now (ie, it’s a lot lower). Incredibly, their most recent earnings report showed that they can shift to profitability faster than most people thought was possible. Assuming they can keep on track with that while still maintaining their growth potential, this seems like a winner going forward.