The Freedom Portfolio – July 2019

June 30, 2019 paul.essen Comments 5 comments

Another really solid performance for the Freedom Portfolio is in the books. For the 2nd quarter of 2019, the Freedom Portfolio returned 9.5%, more than doubling the S&P’s 4.3% return. Since inception, the Freedom Portfolio is now up 7.3% compared to the S&P being up 2.2%. Again, it’s still an incredibly small sample size, but I’m heartened to see that the portfolio is doing what I expected it to do based on previous performance: under-perform when the market is going down, but also out-perform when the market is going up.

Here are the numbers from last quarter:

Ticker	April 2019	July 2019	Percent Change
SWAV	33.25	57.09	71.70%
SHOP	208.43	300.15	44.01%
JMIA	18.95	26.42	39.42%
NVCR	48.58	63.23	30.16%
CRSP	36.25	47.1	29.93%
DIS	111.59	139.64	25.14%
MELI	516.28	611.77	18.50%
TDOC	56.25	66.41	18.06%
ILMN	314.45	368.15	17.08%
BZUN	42.69	49.86	16.80%
TTD	201.56	227.78	13.01%
MKL	999.03	1089.6	9.07%
AMZN	1800.11	1893.63	5.20%
NFLX	359	367.32	2.32%
NPSNY	47.49	48.43	1.98%
EDIT	24.73	24.74	0.04%
NVTA	23.85	23.5	-1.47%
JD	30.93	30.29	-2.07%
SQ	75.59	72.53	-4.05%
BABA	185.09	169.45	-8.45%
ISRG	575	524.55	-8.77%
RDFN	20.67	17.98	-13.01%
KSHB	6.075	5.07	-16.54%
IQ	24.9	20.65	-17.07%
TSLA	282.62	223.46	-20.93%
STNE	41	29.58	-27.85%
UXIN	3.88	2.2	-43.30%

The big story this past quarter was the performance of the Enterprise level positions, or perhaps I should say the former-Enterprise level positions, because two of them (Shopify and MercadoLibre) did so well that they got upgraded to Babylon 5 level positions. That’s a great segue to talking about…

Notable Performers

Best Performers

Shopify (SHOP): Shopify has been on an absolute tear recently. Not only was it up 44% this past quarter, but it has more than doubled year-to-date. Shopify alone accounted for about a third of the Freedom Portfolio’s gains this quarter. It has gone up so far so fast that I even wrote about my concerns regarding how Shopify seems to have gotten ahead of itself a bit in terms of valuation.

MercadoLibre (MELI): While not quite as impressive as Shopify, MercadoLibre has also been doing very well in 2019. While it was “only” up 18% this past quarter, it was still good for almost 20% of the Freedom Portfolio’s gains and also good enough to move MercadoLibre into Babylon 5 level territory. Like Shopify, MercadoLibre has also been an amazing performer year-to-date and has more than doubled.

Disney (DIS): A gain of 25% in the quarter might seem relatively modest, but it was a welcome sight considering Disney shares have been fairly flat for the past 4 years or so. I was glad to finally see some life in the stock. Disney’s 25% gain this quarter was good for around 13% of the Freedom Portfolio’s gains.

ShockWave Medical (SWAV): A clarification here. While ShockWave is up 72% this quarter, I didn’t buy it until later in the quarter and thus my own position is actually basically flat right now.

Worst Performers

Uxin (UXIN): The smallest position in the Freedom Portfolio continues to struggle mightily and is now down over 50% from where I bought it. Clearly I’m not happy with the performance, but I expected this to be a very volatile position and that’s why I only invested a small amount of money. I’m still holding on to see how Uxin performs when the situation in China becomes a little more stable, but this is clearly a big miss so far.

Tesla (TSLA): Down around 21% for the quarter and it could’ve been a lot worse had it not rallied in the last few weeks. I’m not shocked by the poor performance, as I suspected Tesla could have a rough few months (which is why I sold some of my position previously), but even I didn’t expect it to be this bad. I think brighter days are ahead, so I have no intention of selling any more shares at this time.

Changes in the Portfolio

Sells

2u (TWOU): A few months ago, when I started my position in 2u, I mentioned believing that there is a bubble in higher education costs and that I was looking out for companies trying to disrupt the education market. I’m no longer convinced that 2u is the company to do that. I’m worried that they are too tied to the current higher education institutions and that could make them too resistant to cutting deals with disruptive upstarts. In short, I worry that a bursting bubble in higher education might take them down too. I’m still on the lookout, but have decided to sell my entire stake in 2u (for a modest gain).

Activision Blizzard (ATVI): The writing has been on the wall for this position for a bit. In the previous Freedom Portfolio update, I said, “The company remains on my watch list for potentially selling, as there has been a lot of negative news around the company recently that has wiped out some of the investing thesis behind it.” That’s pretty much all there is to say. There are no new big franchises in the pipeline, the company seems to be doubling down on existing franchises and on mobile, and there are rumblings of the once great Blizzard losing its shine. I would love to be wrong about this, since Blizzard has made some amazing games and I want them to keep making amazing games, but I’m worried about the ability of this company to beat the market over the long term. I sold my entire position for a modest gain.

Twitter (TWTR): I had enough to say about selling my Twitter shares that I wrote a whole post about it recently.

Spotify (SPOT): When I started my position in Spotify, I was intrigued by the idea that they could become the Netflix of podcasts. I’m less convinced that’s a huge opportunity now. The reasons are varied, but strangely enough one of the biggest ones was listening to the Spotify CEO on an episode of the Freakonomics podcast. It was then that I realized that the vision that the CEO had for the company wasn’t one that I necessarily shared, and that seemed like a great reason to decide to no longer be invested. I sold my entire position for a modest gain.

Altaba (AABA): Altaba recently announced a “Plan of Complete Liquidation and Dissolution“. They are effectively planning on selling the assets that the holding company owns and distributing them to shareholders. It’s all a bit complicated, but as near as I can tell this ends the dream that the company will ever be able to close the discount to net asset value that I was hoping for when I started my position. As a result, I decided to sell my entire position for a modest gain in order to buy…

Buys

Alibaba (BABA): Pretty straightforward buy here: I wanted to retain exposure to the Chinese eCommerce company and not have to deal with whatever process Altaba was going to go through.

Stoneco (STNE): During the last Freedom Portfolio update, I mentioned dipping my toe in with a small position in Stoneco. Well, I ended up buying at near the all-time high and it has ended up coming down a fair bit since then. I ended up adding a bit more on the way down because I like the exposure to the digital payments space in developing markets. I’m down on all my purchases so far, but it’s still a small position so I’m not worried.

Jumia Technologies (JMIA): Described as the “Amazon” of Africa, this company has had a wild ride in the past few months. They IPO’d in mid-April and have already traded between $18 a share and $49 a share. I initially thought it was way overvalued when it skyrocketed immediately after the IPO, but ended up dipping my toe in with a tiny position after the price crashed soon after. I’m a sucker for eCommerce stories in emerging markets, and I’m sure my experience with MercadoLibre influenced my decision making a bit. I fully expect this to be very volatile, which is why I am starting with a small position.

Tesla (TSLA): Earlier in the year I sold some of my Tesla shares because I was concerned with their short term outlook after the reduction in the federal tax credit and pulling forward a lot of demand at the end of last year. Apparently the market agreed, as Tesla stock plunged from over $300 a share earlier in the year to under $200 a share this past quarter. That seemed like too much of an overreaction to me, so I added to my position a bit.

The Trade Desk (TTD): The Trade Desk has been on my radar for around a year now and I’ve seen it pop up on many people’s lists of companies that they believe have a crazy amount of upside. I’ve been kicking myself for not having bought it a year ago since it has nearly tripled in the past year alone. That kind of crazy appreciation is one reason I’ve avoided it so far. I keep thinking I missed the bus and keep waiting for a pullback that hasn’t really come. The other reason I’ve held off? I’ve never been able to fully grasp what gives them a significant competitive advantage in the world of online advertising. How do they compete with behemoths like Alphabet and Facebook? I still don’t know if I have a definitive answer to that question, but I finally decided to open a small position in the company to motivate me to find out more. Hopefully I like what I find.

iQiyi (IQ): iQiyi has had an up and down 2019 so far, but has generally trended down over the past year. I’m still a big believer in the long term prospects of this JIB member, so I decided to add to my position somewhat. I believe the stock will see better performance once all of the concerns over trade wars and a slowing Chinese economy are in the rear-view mirror.

NovoCure (NVCR): NovoCure continues to do a good job in expanding the number of afflictions that their Optune system is cleared to treat. I added to my position to reflect my increased optimism in the size of their future addressable market. I wouldn’t be surprised to see this company being bought out at some point in the near future, as they’ve done a good job demonstrating the effectiveness of their treatments, but that’s not part of my buy thesis and I actually hope they aren’t bought out because I still feel like there’s a lot of upside left.

ShockWave Medical (SWAV): I believe I first heard about ShockWave Medical on a Motley Fool podcast and was immediately intrigued. The company produces a device which uses sonic waves to break up calcium deposits in arteries. As somebody with an extensive family history of heart disease, I felt a strong personal connection to the company and I was also attracted to their unorthodox approach to solving a common problem because it reminded me a bit of the position I just talked about above: NovoCure. ShockWave IPO’d just a few months ago and is already up big. I’m intrigued by the potential of their new treatment, and so I started a small position.

Markel (MKL), Uxin (UXIN), Intuitive Surgical (ISRG), Naspers (NPSNY): I added a small amount to each of these positions mostly to take advantage of lower prices or to moderately increase my exposure.