Disco Gator's January Update

January 2021 Portfolio Update

Monthly Disclaimer: I put together these updates as a sort of record keeping for myself. It helps me to think things through with my investments, and documents the reasoning for most of the moves I make. I do not want to come across as a know-it-all or a braggart just because things are going well. I have always kept records of my investing because I want to see how each of the decisions I make compares with the overall market. Having these records reminds me that it is an absolute certainty that things can and will go south at some point. This is now the fourth year that I have kept detailed information on a monthly basis. Every year, there have been periods of time where my portfolio has dropped from 20-40% and it will happen again. In fact, it happened twice in 2020. Now on to this month’s update…

I am going to lead off with this so it doesn’t get lost. I’m a little late posting this as I’ve been working on a side project for investing. I’ve started a Twitter account where I will be posting weekly updates for a part of my portfolio that I have pulled off to the side. This is from a ratings system that our group chat has been working on the past few months. I completely understand that it’s not necessarily possible to come up with a one number fits all to rate companies, but we take a lot of variable into consideration for our system. We update the portfolio each week and there are usually one or two trades when this happens. The companies we rate are from well respected sources, which includes this board and many other sources mentioned on this board.

Since we started this 7 weeks ago, the new portfolio has beaten my main portfolio 6 of 7 weeks. The new portfolio is up 13.01% YTD. Although my main portfolio is up 12.72% YTD, this was highly influenced by the 60% increase in FLGT the last week of January. FLGT blasted off due to speculators buying it because of its relatively high short percentage. If you back out the last week of FLGT returns, my main portfolio would only be up 8.51% YTD and significantly behind my new portfolio. Before I put real money into this, I tracked it for an additional three weeks prior, and it beat my portfolio 2 of the 3 weeks there. I’m at the point now where I’m trying to decide how much funds from my main portfolio I should allocate to this new venture. Many people often feel like it is too late to get into some of the stocks we invest in. This new portfolio should put that thought to rest as we make the decision to invest based on the current stock price. We invest in the Top 8 rated stocks each week. This is definitely off-topic for this board, so if you have any questions about it, please send them to me via email. By checking the “E-Mail this Reply to the Author” box. If you’re interested, check it out on Twitter @PBMMInvestments

The first month of the year is now in the books. We were discussing 2021 goals in our group chat, and were thinking about different dollar amounts and/or percentages that we would like to hit this year. Being the forever optimist, I think I will go with our friend that predicted another booming year. Don’t get me wrong, I don’t expect returns like we had in 2020, but I also don’t expect it to be overly painful. That said, the last week of January quickly reminded us that it very well could be. I won’t get into all that is going on with GameStop (GME), as you can read about it practically everywhere right now. Just know that the volatility we are seeing is greatly influenced by the uncertainty with all that is going on and the Fear and Greed index has dropped to 35 which is a pretty solid Fear indicator right now.

As a reminder, I post results the last weekend of the month. This worked out well in January as the end of the month actually fell on a weekend. We hit a high of +13.69% on January 22, before dropping some the final week. Here is a snapshot of how my portfolio has performed over the past month, compared to the broader indexes. As usual, I’ll include the CNN Fear and Greed Index.

W/E Date        Portfolio     S&P 500 %     DJIA %      Nasdaq %    Russ 2000    Fear and
                % change       change       change       change     % change    Greed Index
01/08/2021        +7.41%       +1.83%       +1.61%       +2.43%       +5.91%        71 
01/15/2021        +1.92%       -1.48%       -0.91%       -1.54%       +1.51%        60
01/22/2021        +3.86%       +1.94%       +0.59%       +4.19%       +2.15%        69
01/29/2021        -0.85%       -3.31%       -3.27%       -3.49%       -4.07%        35
 January         +12.72%       -1.11%       -2.04%       +1.42%       +5.35%        35

We end January up 12.72%, completely smashing the indexes which averaged +0.91% for the month. As mentioned above, Fulgent’s performance over the last week really boosted our return. The last week wiped out most of the gains in the market for the year, with the Russell 2000 still having a good return. The attention the short squeeze was given really shook things up in the market and sent the Fear and Green index plummeting. It reached a high of 71 on January 8, but finished the month at 35.

As the market opened the year on January 4, I made a few trades to start off the year. I sold out of Datadog (DDOG) at $98.85, and initiated positions in Square (SQ) at $219.15 and Fulgent Genetics (FLGT) at $53.67. At this time I also rebalanced my portfolio, trimming Crowdstrike ($213.45), Zoom ($338.30) and Cloudflare ($77.31), while adding to Etsy($180.54), Teladoc ($197.05) and DocuSign ($221.51). This brought my portfolio back to 9 positions, but I have always been more comfortable with 8.

I feel like I was delayed selling out of Datadog and should have done it much earlier. We know they will struggle with their Y/Y until they pass through Q2 this coming year. I trimmed Crowdstrike down to 25% of my portfolio because it ended December at nearly 30% and I didn’t want that large of a position. Cloudflare was trimmed because I felt like it had run up quite a bit to end the year, and I felt that its valuation was a bit high. Zoom, I just didn’t really know what to think. Our internal rating system had it as a good play, but all the bear arguments made me feel that I should bring it down on par with the bulk of my companies.

As far as the two new additions go, both were rated very high on our rating system and I will write more about them below. I moved Teladoc to my #2 position because I felt like it was grossly undervalued and too many were considering it a Covid play. I’ve been a big fan of Etsy for a while now, and wanted to bring it up to par with the bulk of my companies.

On to the individual results for each company that I invest in. They are listed by allocation from highest to lowest. None of them announced earnings this month, but that will change in February.

Company                Allocation       Initial         Purchase       December       % Change
                                       Purchase          Price         % Change      since Pur
CrowdStrike (CRWD)       22.60%        01/01/21         $211.82         +1.88%          +1.88%
Teladoc (TDOC)           15.22%        01/01/21         $199.86        +32.00%         +32.00%
DocuSign (DOCU)          11.15%        01/01/21         $222.30         +4.76%          +4.76%
Etsy (ETSY)               9.93%        01/01/21         $177.91        +11.90%         +11.90%
Zoom (ZM)                 9.79%        01/01/21         $337.32        +10.30%         +10.30%
Fulgent (FLGT)            9.25%        01/04/21          $53.67       +105.87%!!      +105.87%!!
Cloudflare (NET)          8.95%        01/01/21          $75.99         +0.88%          +0.88%
Sure(SQ)                  8.81%        01/04/21         $219.15         -1.39%          -1.39%
Shopify (SHOP)            4.32%        01/01/21        $1131.95         -3.70%          -3.70%

On the chart above, you get a clear picture of how things are currently allocated. For the “Initial Purchase” column I default to the stock price when the year started for stocks I have owned prior to this year, instead of when I purchased it. I want to see how things go from this point forward. Fulgent’s incredible performance really boosted our returns. When I initiated the position on January 4, it was a 5% position. It’s explosion resulted in it moving up the chart. Teladoc had a great January as well really bolstering the returns.

As we head into the information about the individual stocks I invest in, I’m changing up how I do this. Instead of reporting news from each of the company with a thought or two from me, it will almost entirely consist of my own personal thoughts. Here they are in order of allocation:

CrowdStrike (CRWD) - CrowdStrike Holdings offers cybersecurity services through its Falcon platform, which monitors client operations at their endpoint connections to the internet and works to identify and stop threats. The platform learns from attacks made on it and then warns the entire CrowdStrike cybersecurity network about likely avenues for future security issues. I trimmed my position to start the month as it was getting larger than I was comfortable with. This has been one of the top rated stocks on our list for all 10 weeks that we’ve worked on it. Without a doubt it is the company I feel most confident in. After all that happened with cyber attacks in December, I really expect them to crush their earnings.

Teladoc (TDOC) - Teladoc provides virtual access to healthcare providers with a portfolio of services covering 450 medical subspecialties from non-urgent, episodic needs like flu and upper respiratory infections, to chronic, complicated medical conditions like cancer and congestive heart failure. I increased my position as the market opened on the first day of trading in 2021. Many people seem to think this is a Covid play. I think this is part of health care reformation. I’m happy I increased my position here as it has really taken off this month. Up 32.00% through the first four weeks. Teladoc has scored consistently well on our ratings list.

DocuSign (DOCU) - DocuSign is the market leader in providing electronic signature technology and automation of the agreement process through its cloud platform. DocuSign’s solution addresses the core of every business transaction - the agreement - and makes the process much more efficient, resulting in lower processing cost and time. I increased my position here to coincide with my growing conviction in this company. Many people are looking at this as a Covid play, but they’ve got it wrong. I can’t imagine anyone utilizing DocuSign’s services and then deciding to go back to using paper. We are looking to see continued growth when they announce earnings in February. This company has scored as a Strong Buy in 6 of the last 7 weeks, with it being a Buy on the other.

DocuSign was up 4.76% in January, which is fairly decent considering the beating the market took the last week. I look forward to continued growth next month.

Etsy (ETSY) - Etsy operates a global marketplace where people can make, sell, and buy unique goods online. The company also offers various services to support its sellers. One of my favorite companies to be invested in, and the one I had the hardest time writing about this month. I’m a big fan of this from an investment standpoint and have also purchased a few items off of there the past year. This had a Buy rating the first three weeks we started the ratings system, and has been a Strong Buy the seven weeks since. They were well on their way to having a stellar month until the whole Short Squeeze thing started shaking the Market. They still ended the month up nearly 12%, so I’ll happily take that.

Zoom (ZM) - Zoom Video Communications provides telecommunications services that allow people to connect via video, voice, and chat as well as sharing content. The dedicated cloud-based platform aims to offer a superior user experience compared to traditional teleconferencing options, and its device-agnostic features offer high-quality communications regardless of how users connect to the platform. After trimming a little in December, I trimmed again as the market opened on the first day of trading in 2021. I do not expect to trim any more from this until I see what happens during their next earnings announcement. Down significantly from their all-time high, I feel like they have been unfairly punished.

Finished January up 10.30% which is in line with my portfolio’s performance. I look to them to continue to inch their way back up until they announce earnings, most likely the first week of March.

Fulgent Genetics (FLGT) - Fulgent Genetics is a technology company that provides comprehensive diagnostic genetic testing using its proprietary platform, which integrates data comparison and suppression algorithms, adaptive learning software, advanced genetic diagnostics tools, and integrated laboratory processes. Initiated a position in Fulgent Genetics as the market opened on the first day of trading in 2021. I first read about this company when a poster on Saul’s board (plumtree) brought it up as a watchlist candidate. About a month after this, a member of our group chat brought it up for discussion. Of course, he called it Flatulence and most of us laughed it off as a joke, not realizing it was a great company with enormous potential. I have to admit, I didn’t expect the stock to blow up so fast. Up an unbelievable 105.87% since I purchased it, with 59.58% coming in the last week alone. Much of the gain in the last week was likely due to people jumping on this stock because of the relatively high short percentage held against it. It’s grown to a decent size position in my portfolio, and I may sit on it for now to see what happens.

Cloudflare (NET) - Cloudflare is on a mission to help build a better Internet. They have built a global cloud platform that delivers a broad range of network services to businesses of all sizes around the world—making them more secure, enhancing the performance of their business-critical applications, and eliminating the cost and complexity of managing and integrating individual network hardware. I trimmed from this position at the start of the year, mostly due to how high the valuation was and how much the stock had already run up. Unlike Crowdstrike, which I expect a much higher growth rate, Cloudflare’s is considerably lower and will take longer to grow into its new price.

One note I would like to make is that Cloudflare is the lowest rated company on our tracker. In fact, the score has consistently dropped over the past 10 weeks. I’m at the point now where I may cut bait here and keep tabs on it moving forward.

Square (SQ) - Square is a commerce enablement platform focused on providing card acceptance, business analytics, and other ancillary products to help small merchants grow their businesses, as well as well as utilizing the Cash App ecosystem to broaden their reach to people that are under banked, and wanting to trade including crypto currencies etc. Initiated a position in Square as the market opened on the first day of trading in 2021. The above snapshot of the business doesn’t come close to telling the whole story in what they do. I owned stock in Square in 2018 and sold out near the end of 2019. As they have continued to grow, they’ve been able to do a tremendous job with the monetization of Cash App which is probably the biggest reason I am getting on board now.

They allow people the use of Cash Card, which is a Visa debit card, that is connected to their Cash App account instead of a bank. Since Square isn’t technically allowed to run an FDIC insured bank, they have partnered with Sutton Bank to provide routing and account numbers. This enables members to get Direct Deposit into their Cash App account.

As far as investing goes, Cash App allows their users to buy and sell bitcoin as well as fractional shares of blue-chip stocks. There are plenty of other apps that allow these trading features, but it is just one more thing that helps Square hold onto their members.

Although in the past I’ve been a slow adopter to some things (I just used Apple Pay for the first time this month as well as using an ATM to make a cash deposit for the first time ever this month), I’ve been a big fan of Cash App, Venmo, and the like for a few years now. I find it cumbersome having to deal with people that only accept cash or check. My investment in Square is part of my personal war on cash.

This stock started as a Hold in our rating system, then a Buy, and has been a Strong Buy for the past 7 weeks. Sadly, the stock’s performance hasn’t matched its rating. Square was down 1.39% this month after being up 10.18% after one week in. I expect this stock to improve moving forward as they will announce earnings results at the end of February.

Shopify (SHOP) - Shopify’s e-commerce platform allows merchants of all sizes to build an online presence, including storefronts and fulfillment, payment, and shipping services. More than one million businesses use Shopify’s platform, with most of them using many of the add-ons available to them. As expected, Q4 is always their biggest quarter with this one expected to be the best one ever. I’m not sure why I haven’t grown this position much, but it certainly would not be a bad move. Its rating has wavered between a low buy and a hold position. The main thing holding it back is the valuation it has right now. It is pretty steeply priced, but we really like most of their other metrics.

Now that I have found consistent success with our Ratings system, I am having a hard time deciding how much I want to let it effect the bulk of my family’s investments. I don’t think I’m ready to dive 100% into it, but I will definitely use it to help guide my decision making. I am sitting at 9 positions and really feel like 8 is the sweet spot for me.

I plan to finish updating our ratings for the week and finalizing my decisions for what I plan to do when the market opens Monday morning. As of now, I am leaning towards selling Cloudflare and absorbing it into my other positions.