Pika's portfolio at the end of Dec 2020

Date 12/30/2020

== Link to all 2020 months: ==
November 2020 https://boards.fool.com/pikatrain39s-portfolio-at-the-end-of…
October 2020 https://boards.fool.com/pikatrain39s-portfolio-at-the-end-of…
September 2020 https://boards.fool.com/pikatrain39s-portfolio-at-the-end-of…
August 2020 https://boards.fool.com/my-portfolio-at-the-end-of-august-20…

== My allocation on 12/30/2020 ==

SYBL    NOW   (Previous Months)
(tier-1; convinced)
CRWD	26.03%  (16.05%, 13.69%)
DDOG	18.14%  (20.20%, 17.68%)  
SQ	16.84%  (15.56%, 11.79%)

(tier-2; pondering)
NET   14.76%  (new)
MGNI  12.56%  (new)

(tier-3; trying/downsizing)
BABA   3.11%  (new)
PTON   1.98%  (23.78%, 25.00%)
ZM        0%  (24.41%, 31.84%)

AW3X   6.58%  (new) * see the "benchmark" section below

P.S. Leverage 1.53x

== Summary of the month and my reflection about 2020 ==

I had two weeks of vacation at the end of the year, so I have more time to think. I had a bad habit that I tend to make (portfolio) changes when I have more time. However, most of my profit came from not doing anything. It’s a good lesson to know/learn.

I’m thankful to all of you who shared insight on this board. I learned a ton from Saul’s knowledge base and read every thread with 20+ recommendations. When I looked back on 4/30/2020, I made 400% from my all-time-low(ATL), or 5x ATL (of course, I also saved a lot this year due to pandemic). With my coming vested RSU stocks, I practically have my financial freedom next year for sure – if I don’t buy anything to impress anyone (no fancy car, no big house). I’m FIRE-qualified. Ref: https://en.wikipedia.org/wiki/FIRE_movement)

My father will retire next year, and he is very surprised when I told him that I could retire next year LOL (if I want). I won’t quit – I enjoy my job when I know I don’t need it. I have made enough FU money to support my family (Alert: you may get offended. Plz don’t click if you don’t like to hear F-word. FU money definition: https://www.youtube.com/watch?v=eikbQPldhPY )

Happy new year! I post my earnings on 12/30 because I want to relax and enjoy the rest of the week. Wishing you joy, peace and good health this holiday season.

Let’s get back to the stock discussion:

If you pay attention to the recent stock movement, Zoom’s stock price has steadily declined week over week in the entire December. When other SaaS stock (CRWD/DDOG) bounce back or rise, Zoom continues to decline. When other SaaS stock falls, Zoom usually follows. I started to ask myself: what’s happening? I believe Zoom is still a superior product, but at this moment, and none will stop using Zoom after the pandemic.

I eventually came up with my answer: while none will stop using Zoom, no one will switch to Zoom in Q4. The Q2 YoY is 355%, and the Q3 YOY is 366%. A 3% increase (Q2 to Q3) is a strong signal that they must already acquire all low-hanging to high-hanging fruits. Clearly, based on their last two earnings calls, the growth has almost stalled.

I just can’t find any evidence of support that Zoom will continue at least a 10% QoQ growth rate in the next few quarters. Zoom phone-ish is all hand-wavy. Also, Zoom is now a 100B company, so it’s not nimble as it could be. I wish I had sold out all ZM earlier, but I hesitated because I will need to pay at least 50% tax (fed + state). I had sold out everything above $400 in my IRA account.

[OT alert] I won’t discuss why and how I come up with this. Please don’t send me a private message about this nor ask any questions on the forum.

I finally decided to close all my ZM position in the last two weeks. I sold most of them directly if I feel I can afford the tax bill the next April. Some of my position is below $150, and if I hold them for another five months, I can switch from income tax to long-term capital (35+% → 20%). I did some math, and I eventually sold my high-tax position out via protective collar strategy. This action is purely for tax reasons. For simplicity, I will eliminate reporting these protective collar positions in my portfolio reports.

I believe DOCU is following suit. But since I don’t owe DOCU, I won’t share too much of my opinion.

Lesson learned: don’t hold a position just because of tax reasons. I was thinking of selling Zoom when I saw the last earning report. The fact spoke itself, and I ain’t listen to data but follow my gut.

I notice this stock after seeing mekong22’s post on 11/6/2020. I have noticed that many companies increased their marketing budget. I also believe that during the post-pandemic recovery and the CTV accelerating during COVID. I added 8% around $20; I later add another 4% when I saw they signed an exclusive contract with Disney’s Hulu.

I sold PTON to make room for MGNI, and looking back: I would get the same return if I did not add MGNI. PTON/MGNI together accounts for about 1/6 of my portfolio. I made this switch before PTON announce the acquisition of Precor (Ugh!). I am not regrettable about this change because I have a good reason: I feel that data growth or market spending growth have more room than home-gym need growth.

Unlike Zoom or Docu, I believe PTON has not yet burned all their customers. I tried their Peloton streaming subscription with my free credit card offer – I’m kind of disappointed in a way that I don’t see a huge difference. It’s not that bad, but the feeling of exercising alone vs. exercising with real people – the former is an inferior experience. I don’t really “feel” any competition or the same joy of group exercising. It’s okay during the pandemic – probably the best alternative now, and their product is good. People will keep using it, but I believe many of us will prioritize outdoor activities when most of us got the vaccine.

Everyone agrees its growth will slow down, but none knows how much? We can all speculate. It’s just too complicated for me to figure it out. On the contrary, I can easily project the marketing expense (for many companies) to increase in 2021. I also need some money to buy Alibaba and some benchmark funds (see the next section).

I added 3~4% Alibaba stock on 12/30/20 as the eCommerce in China is booming. The ant finance and the anti-trust investigation on Jack Ma brought down the stock by about 30% from its ATH $312. Double-11 shopping day is astounding. Alibaba made 74B revenue in one day (11/11/2020), growing from 38.4B on 11/11/2019. It’s 21 times more than the Amazon Prime day (10/13-14/2020). I think this is an opportunity to buy a good company at a discount price.

While generally, I am very worried about China companies, the top three (Alibaba, Tencent, and Wechat) are less concerned since they all dominate in their own area with strong moats and everyone (including their government) is looking carefully at their numbers. I also notice Ray Delio holds BABA as his only foreign stock: https://finbox.com/ideas/ray-dalio

Like it or not, China is a rising competitor to the US. China’s economy is booming. I know Saul and many people (including myself) are concerned about their accounting principles and ethics. But cheating is everywhere, from Theranos to Luckin. I decided to take some calculated risk here.

DDOG & CRWD: There’s no reason for me to make any change. I will keep holding them for the foreseeable future.

SQ: It’s amazing to see Square soared during the COVID when its main business (POS service fee) has a strong headwind. The success of the cash app (and bitcoin move) makes me believe they are continuing innovation and is disrupting the traditional bank and PayPal. They are now moving toward credit Karma, and I bet their goal is not to compete with TurboTax but to provide free tax returns in exchange for even more (cheap) customer acquisition.

Square’s main customers are located in a suburban area where bank service is often unreachable. Cash app provides all banking service (and debit card) plus investment and tax return with Cash App. It becomes a one-stop shopping, and they provide payday loans. Their APR for these loans is 60%, but it is still significantly lower than most payday loans, which can be easily 600%+ APR in some states. Ref: https://www.cnbc.com/2018/08/03/states-with-the-highest-payd…

I can clearly see why Square’s acceleration on the cash app (customer acquisition). For Gen Z, who just started to build their wealth, the app can satisfy all her/his financial needs. When the pandemic is over, the POS service income will further drive up revenues. I see clear evidence/products supporting its revenue growth in 2021. Their projected moat/acceleration is clear to me: the comprehensive and expanded ecosystem, growing user base via bitcoin and tax initiatives, and the coming back of POS revenue.

It’s also the top holding (10%) in ARKF fund: https://ark-funds.com/fintech-etf

NET: Saul and many of us have discussed this stock. I read all the discussions, and I finally decide to join the crowd around $75.

== Benchmark fund ==

I was curious about my investment performance, and I somehow feel that I need to create a benchmark for myself. I asked: if I had not found this board, how would I allocate my investment? I will not put my money on Russell 2000 Index (e.g., VTWO). I won’t put my money on the Nasdaq Index (QQQ either). Even the traditional 80/20 (Stock/Bond) is not my thing.

[OT alert] I won’t discuss why and how I come up with this. Please don’t send me a private message about this nor ask any questions on the forum.

Here is my conclusion/benchmark in 2021: TQQQ(50%), UTSL(30%), and UGL(20%). It’s just an allocation I will use if I did not find this board. I don’t plan to adjust it frequently. I allocated a small portion of my money on 12/30/2020 to create this “benchmark” portfolio for the sake of analyzing my coming 2021 performance. I spend quite an effort in reading the forum, seeking alpha, earning calls, etc.

I need a fair benchmark to justify my return in 2021. I’ve high-risk tolerance, so I create a benchmark that fits my max-drawdown (risk-tolerance) using some backtest website. I spare 6~7% of my portfolio to make sure I’m serious about this benchmark. I also want to track the CAGR and the max drawdown to convince myself that a “stock-picking” portfolio has no wrong.

== My annual return ==

2017 0.56% (About ~2 months, not investing too much)
2018 2.30% (Mostly FANG-alike stock, technical)
2019 14.34% (Give up stock selection, switching to ETF: QQQ, SPY and keep only Amazon)
2020 117.17% YTD

A little break down of 2020

JAN 26.40%
FEB 31.91% * Use margin and option to sell short stocks
MAR -24.22%
APR -50.48% * Switch to Saul's strategy at its lowest point, about -74% in mid-April
MAY -9.08%
JUN 24.76%
JUL 40.15%
AUG 42.38%
SEP 83.34%
OCT 63.76% * ATH around 100% on 10/13
NOV 85.26% (11/29) * Or, 91.13% on 11/30/202
DEC 117.17% (12/30)

== My investment principles ==

  • My tax rate is very high, so if there are two stocks to trim, I will consider tax implications first, especially due to short-term capital gain, into my decision process. Namely, if two stocks are similar, I often sell the one I make less (or lose the most). However, I learned a lesson that I should NOT keep an investment for the sake of worrying about tax.

  • I usually avoid a stock when Saul (or any other experienced investor) gives some little “experiments,” or their conviction is low (<10% of their portfolio). I am fine with only keeping 4-5 stocks, and I diversify my holding to cover non-Saas stocks, especially domains I’m familiar with or interested in learning: SQ (finance), Baba(china, e-commerce), MGNI(marketing), and PTON(exercise).

  • I generally avoid stocks where I can see a clear headwind in the next six months, no matter how incredible the management team and the product are. Also, I get rid of an investment if I feel their growth will slow and the evidence of seeing a reacceleration. Revenue YoY means a lot to me for a growth stock.

For example, If in the earning call, the CEO/CFO says they are going to have some bumping rides (or headwind or slow-down) in the next few months, I trust them 100% because they have no incentive to lie for such a statement.

  • If a company’s future is too complicated for me to understand/predict, I rather passing it.