Portfolio Feb, 2021 YTD CloudL 3% 12.3% SP500 2.78% 1.73% WCLD -1.1% -0.8% Russel 2000 3.13% 7.96%
This month is brutal for growth stocks. MWK and UPST dropped substantially right after I bought it. They remind me of when I bought EXPI at the end of Dec,2020 and it dropped 20%. Deja Vu!
This drop is more severe than both the 2020 year end selloff and Jan,2021 short squeeze.
I think it has two factors:
1. Expectation of rising interest rate.
I don’t worry about high interest rates or high inflation. The world population is peaking. It can’t grow as fast as in the past when we have 7.8 Billion people on earth. The best case is static state population. Or worse, it’ll decline over the next few decades. In order to have high inflation, the population growth rate must be high like in the baby boomer time period. So high inflation is not going to happen. So the interest rate won’t go too high despite liquidity injection.
2. A second but less severe WSB short squeeze.
GME squeeze gain? Come on ! They short squeezed the hedge fund the first time to show a point. That’s fine. I showed my support. But doing it the second time while risking crashing the whole stock market? I no longer support WSB. They are a bunch of gamblers. Munger said it’s a dirty way to make money and they are gamblers. We should make money by offering people good products. The good thing is the second squeeze won’t be as severe as the first one because people are experiencing it the second time and are not caught off guard… People can be fooled once but can’t be fooled the second time. So funds either sold off winning stocks to prepare for the squeeze and short it at a high price. Since GME didn’t go as high as last time, funds probably didn’t deploy all their cash to short GME. They will buy back the growth stocks!
My portfolio was up around 26% at peak month to date Feb 16. Then it dropped to up just 3% by the end of month due to two main factors above. After watching my super concentrated portfolio of 7 stocks downed 5% to 10% a day for a few days, I was extremely stressed. I was so sick of the volatility and I wanted to go cash! Struggling with this, I woke up in the middle of night to chat with a friend and he helped me to found myself again. My strategy is working.Why panic? I am up 30% in the last 3 months.This is an amazing result. During the last 3 months, WCLD is up 11% and SP500 is up 3.7%. Why stress too much about being perfect or about short term fluctuations? Even getting 50% return a year is a good result. It reminded me of myself in March, 2020. I wanted to go in cash but resisted. I am good at analytic but I have a problem with the worst case scenario. (Over thinking) I want everything to be perfect and go according to plan. Life doesn’t always go smoothly. There will be up and down. If we do our best, the result will be very good in the end. So what do I do? I stopped checking portfolio balance every day and stopped going to Yahoo Finance. I’ll let the stock price do the dancing. Once the selling is done, they will go back up because the companies have good fundamentals.
The lesson I learned is that life is a journey not a destination. Investing is a means for the journey. We do our best. It’s okay not being perfect. It’s okay to pick the wrong stocks. If overall, we get satisfactory results, we should stick with our plan.
I also had the thought of stopping sharing on this board because I want to do whatever I want and not explain a thing. Sharing on Saul board is not about being perfect or getting the highest ROI. It’s a gathering of like minded people so we know we are not alone. Don’t quit before reaching the finish line. I will try to but not promised to share useful thoughts for a little while.
I now understand why Saul said don’t copy him exactly.
The reason is that we frequently adjust the portfolio. My turn over rate is extremely high, much higher than Saul.
I compared the result of before and after change for the past 2 months and noticed the result after adjustment performed a lot better than without adjustment. a 5% difference a month is 80% difference compounded in a year! I can’t say I’ll always get better results adjusting positions but the likelihood is high because I changed positions very quickly depending on the prospect of the company. E.g. Is it slowing down? Is it reaching market saturation? Small caps tend to have more upside than mid to big caps. Lowly valued growth stocks have more upside than the highly valued stocks etc. .
And it’s misleading if someone sees the good return and tries to copy us exactly. They won’t get the same return as I do because I frequently adjust positions in a concentrated hyper growth Peter Lynch style. When I made adjustments, I didn’t always get a better return from each individual transaction but overall, I did get better results. Even people try to follow, they’ll always be a few steps behind so they have to learn to make their own decision. So having independent thinking is the way to beat the indices.
Just show examples of what the difference positions adjustment will make:
Jan, 2021 return:
No position change(return based on end of last month positions):1.94%
With position change(actual return):9%
Feb, 2021 return:
No position change(return based on end of last month positions):-2.46%
With position change(actual return): 3%
Current holdings and weight(%) and price change:
Ticker Weight Monthly Change MWK 21.63% -10.45%(new) UPST 21.02% -23.21%(new) EXPI 20.29% 13.3% SLBG 14.39% 13.07% (new) CRWD 11.8% 0.09% FUTU 7.33% 53.7% LMND 3.54% -13.4%
Sold out positions:
2/4/2021 Sold PTON added to EXPI, LPRO, FUTU
2/5/2021 Sold some EXPI, LPRO Bought SLBG
2/10/2021 Sold LPRO Bought UPST
2/16/2021 Sold SNOW Bought 15% MWK,
2/24/2021 Sold 7% CRWD, 7% FUTU Added 7% to MWK, 7% to UPST
I sold PTON on Feb 4 because of the guidance of almost flat revenue for the next 2 quarters and ongoing shipping issue. I used most of PTON’s funds to buy Singer Bag(SLBG). SLBG is an early stage company making tennis ball launchers. It has more kickstarters funding and backers than PTON did. While I don’t think SLBG’s addressable market will be as huge as PTON, I think there’s a decent market for SLBG and there’s substantial upside. First year revenue is 11m with 50% gross margin. It initially focuses on tennis launchers but will expand into other ball launchers. Since this is a microcap, it’s not suitable for a big portfolio.
CRWD and FUTU:
I removed 7% of CRWD leaving 10% and 7% of FUTU leaving 7% and added to MWK, UPST.
No major issues with CRWD and FUTU. it’s just that part of my strategy is to focus on smaller caps stocks.
During COVID, the stock trading activity has increased. I know many people traded more stocks in 2020 due to COVID. I am not sure it’ll continue. While FUTU’s recent acceleration of revenue may slow down in the future due the COVID is going away, FUTU”s revenue growth should still be decent due to more chinese buying US/HK stocks.
EXPI stock got some headwinds probably due to fear of rising interest rate. I will watch the revenue growth rate instead of interest rate speculation.
I have to admit. I made a mistake on Snow which I paid too high of a price. I averaged up from $270 all the way to $380 without looking into valuation! Huge mistake! It was a case of FOMO when I bought at $380. My average cost ended up at $330! Snow is the worst performing position in my portfolio. If I bought at the low of $217, the return will be decent so valuation and price do matter for our return.
I can wait for the stock price to go up. I am sure I will be doing alright if I hold it longer. However, there’s opportunity cost. Many of my other holdings performed so much better than SNOW. For example: EXPI. I bought EXPI at the end of December, 2020. It generated a 100% return in little more than 1 month. The lesson I learned here is that price matters! It doesn’t matter how great the company is. If we pay too much for the stock, our return will be mediocre or at worst a loss.
Next time, I will be more patient to obtain a good price. Don’t let FOMO takes control. It’s okay to miss one opportunity. There will be more opportunities coming up. Find good companies but pay a fair or good price !
I took a second look at MWK and decided to sell Snowflake and buy MWK with a 13% position. SNOWFLAKE revenue growth rate is impressive. However the valuation is insane at Market cap/annual gross profit = 200% ! while revenue growth rate is 100%. and SNOW’s market cap is almost 100B ! MWK growth rate is between 50% to 90% and valuation is very cheap. With a market cap of 1.2B, low price to sales ratio, the upside for MWK is much larger than SNOW.
MWK’s revenue shows a similar seasonality to Shopify. It’s okay its revenue doesn’t go up smoothly every quarter. There’s a similarity between MWK and shopify’s. Shopify offers a platform for others to create a product brand rather than reply on amazon. MWK derives most of its revenue from its own products brands with their own retail websites. MWK also buys other product brands and offers its AI platform for third party sellers. The total market size for e-commerce is massive and continues to grow and there’s room for many players to co-exist.
MWK’s next year revenue is forecast to go up 90% from this year. It’s a decent growth and matches its historical growth rate from past few years.
I’ve decided to sell Open Lending and buy UPSTART. My reasoning is Open Lending focuses on just car loans. UPSTART offers many types of loans. UPSTART also seems to be signing up more banks than Open Lending. Both of them are in the same market and both derive most revenue form fees charged to the banks. They don’t have loan credit risk. I don’t know why it dropped so much recently. Maybe fear of interest rate change? Or because it went up too much in the last 2 months without reporting first earnings? I looked at the price to sales ratio, the valuation is on the low side. With Open Lending as an example, I have confidence in Upstart(AI + more products) This stock is volatile. When it goes up, it’ll go up fast. BTW: I don’t think Upstart is a turn around stock. It’s a startup disrupted by COVID.
Last 12 months: monthly
2021 Feb: +3%
2021 Jan: +9%
2020 Dec: +16.4%
2021 Year To Date: +12.3%
2013 to 2019: 12% per year (Dividend stocks)
I started growth stocks investing at the end of 2019.
As you can see, dividend stocks return is very close or just slightly better than index return. Dividend yield is pennies. My portfolio went parabolic once I switched from dividend stocks to hyper growth stocks.
-By careful pruning and rotation based on fundamentals, you can improve your results
-When stocks are out of line with reality and better alternatives exist, sell them and switch into something else
-Keep an open mind to new ideas