Note:
% of portfolio uses market value.
Cost allocation denotes my cost basis as a % of full position size. 100% means it is a full position, whereas 100% + denotes an overweight position. I have recently lowered my cost allocation $ as I foresee I will have lower contributions in this coming year.
My performance:
Adds: $TWLO (2x), $DDOG, $SE, $NVDA
Sells: nil
Click here for my April portfolio analysis.
Commentary and Thoughts
On balance, I thought I did quite well for the month of May, considering my buys. I don’t worry about the performance of my stocks as much as I do the (in)decisions I make regarding my portfolio. But, over a long enough time period, investing performance is an outcome of your cumulative investing decisions, be it good or bad.
Overall, my portfolio did what every other portfolio did after months of growth -> value rotation and inflation fears — range. I also found a pretty neat feature on TradingView (Compare button) that allows me to place all my portfolio tickers together for a monthly comparison:
While there was a trough during mid-May for my portfolio, there was no peak (at least not yet). In other words, momentum seems to have died out over the past few months.
Nevertheless, I stuck to what I had said, adding to them post-earnings, thus resulting in lucky entries on post-earnings dip (lucky since the stock could’ve had a pop). I am grateful to have a chance to add excellent companies on dips this time around. These adds are currently in the black, but any hint of Fed thinking about slowing down the money printer to rein in ‘runaway’ inflation will make everything go red, again. Liquidity (via stimmys or bond purchases) is the driver of markets in the current low-rate environment and to take away that is tantamount to limiting drugs from a drug-addict.
Anyway, I’m not an oracle, but will begin to taper my contributions to the stock market in anticipation of that. Even if that does not turn out my way, the peace of mind I can get by having ‘cash’ to buy any potential dips would be a sound investment decision.
What investing decisions offers you a peace of mind?
During the course of the Q1 earnings season, I had a thought to write quick and dirty threads on what I think the earnings of the company went, heavily referencing their call transcript, since that’s where additional color regarding their outlook and performance can be found. I don’t consider my thoughts as well-informed as some of the other investors out there, but Twitter is still free, so I will post what I want, and what I think will add most value to FinTwit. Hope it’s of use to people. Also helps to foster discussion and correct my misconceptions of the companies if I have any.
Intrinsic Value
Consider an alternate reality (disregarding the flaws of this example) where:
All companies are private, yet you had full access to its financials and business-related information as if it were a listed company.
There are no stock markets, but you can buy/sell shares of a company, giving you marginal ownership of that company.
You have no information regarding what others pay for shares of a certain company. The company quotes a share price to potential buyers/sellers, which will change from time to time depending on what the company thinks one share is worth.
How much would you pay for each company share? With no reference price, but full visibility into their company operations, would you be able to construct a Discounted Cash Flow (DCF) model to approximate a present value of future cash flows? Most investors don’t even know where to begin, including me.
In this scenario, you are likely being quoted what the company thinks is the true value of the company. In other words, any investor of that company are invested in that company because they think the instrinsic value of that company will continue to go up. Any seller of those company shares would think the opposite.
Add in the stock market, and you have a price discovery mechanism, or what people refer to as extrinsic value. Google explains it quite well, in the case of options:
Extrinsic value is the difference between the market price of an option, also knowns as its premium, and its intrinsic price, which is the difference between an option's strike price and the underlying asset's price. Extrinsic value rises with increase in volatility in the market.
To be a great long-term investor (I am neither both of those things, yet), the only aspect of value that investors should think about is what the company itself think it is worth.
Let me repeat:
The only aspect of value that investors should think about is the company’s opinion of their intrinsic value.
Who are the best estimates of a company’s intrinsic value, if not the management themselves? Furthermore, the average retail investor won’t have access to detailed analyst reports talking about price targets, catalysts or intrinsic values.
Intrinsic value as a metric itself, is not actively calculated by the management nor is it disclosed. This brings us to the state of things now.
Here’s what we don’t know:
Current intrinsic value (“X”)
Future intrinsic value (“Y”)
Here’s what we do know:
Company performance and growth metrics that determines the change in “X”
We need not know the starting and ending points of a company’s intrinsic value, but as long as we can identify the change in current intrinsic value, that’s good enough for long-term investing success. This means metrics and figures like
Topline growth (Revenue, RPO, customer & enterprise customer growth)
Usage growth (DBNER, Churn rates, % customers with X products)
Operating leverage (operating expenses)
Headcount (sales or R&D team expansion?)
can give an idea of where the intrinsic value of a certain company is headed. These are found in financial statements and earnings calls, which provide additional color on the details of their product development, sales wins, as well as confidence of the management as can be inferred from the tone or phrasing.
Not that I am an astute judge of a company’s intrinsic value, but I think the growth over time is more important to investing success than valuing at that point in time. That said, I wish investing were that easy.
I wish I am not easily swayed by what others think of companies that I invest in, good or bad. I wish media outlets report on what is pertinent, rather than what attracts the most clicks. I wish for truckloads of cash during dips. I wish for other investors to not think about multiple compression. I wish I don’t expect number go up, but subconsciously, I likely do.
In the journey of long-term investing, one which I am just embarking on, the market will do all in its power to bring you off-course, be it timing the market or trading. The only guideposts that are available to you are company information that can offer a glimpse into their business performance and by extension, instrinsic value.
Investing is hard.
*Disclaimer: crypto content below. Do skip to the next section if you’re not interested.
Crypto
I think for those who have followed me for awhile would know that I am exposed to crypto. I’d like to share some general thoughts regarding it, given that we’ve seen an absolute bloodbath in May. I personally was overweight altcoins, and did not sell.
I did the best I could to buy the dip but the dip turnt out to be a cliff. So, there’s that. I’ve not used any leverage, or taken any loans to do this, and this came at the expense of unrealised gains I’ve had since summer of 2019 as I DCA-ed into Bitcoin and Ethereum.
To put things into perspective (and to justify why I write about crypto), my total cost basis into crypto as a whole was about 60% of the total amount I’ve investmented into stocks. I track the results of both crypto and stocks montly. As of End-April, my crypto portfolio ballooned to about 5.2x the value of my stock investments. Safe to say it’s much worse than that now. Still, it’s a lot of money, especially for someone who’s just been out in the working field for only 2 years.
While mania is not coming back to crypto anytime soon, if the past few years were a guidepost, it is that hype cycles happen way quicker in crypto than in traditional markets. It’s really remarkable to have a full-fledged bull market where Bitcoin did a casual 6x in about 9 months, and then dropped 50% in a space of a few days. Now, it’s suddenly a bear market. Like it or not, the volatility is a fascinating sight to behold.
All said and done, it is unlikely that altcoins will head to 0. Every cycle we’ve heard of people saying that but it didn’t materialize. It does for the coins that are truly devoid of fundamentals, though.
The simple fact is that they’re high beta (i.e. higher movements in price) vs Bitcoin. When bitcoin dumps 50%, generally altcoins will dump even harder. With higher beta, the inverse is also true. That said, what’s done is done.
The damage to my portfolio is permanent. What I hold myself accountable is a distinct lack of action plan. I had no plans to sell my holdings at a specified price. I had no plans to somehow hedge my portfolio to preserve its dollar value. I had no plan to ‘exit’ the wave. I could’ve secured a truly life-changing amount of money if I had a plan. I don’t, and I only have myself to blame for it.
The good thing is that some of these coins aren’t literal scams. When there’s smoke, there’s often fire. Focus on the right metrics and the right projects, and if the bull market comes knocking again, I’ll do just fine.
The most important thing? Capital preservation. Crypto is an asset class (if it is even an asset, hah) with such sky-high volatility, even a low-leveraged 3x long can wipe you out if the price dropped 33%, which it most certainly can do.
There’s always things to learn from this. I am learning massive amounts from this crypto cycle. If you are in this too, don’t be the person who just bagholds from cycle tops only to sell at break-even, and to invest in another promising coin again at the next cycle top.
Markets provide important and often times painful lessons. The key to success is to learn from those painful lessons.
Closing Thoughts
Thanks for reading thus far, and I’m glad my thoughts are worth something to the people who are reading this. We should always be learning and that applies not just in school but in all aspects of life. Beyond learning though, we should critically apply those learnings. I can write all the journals in the world, but if I don’t make improvements to my mental models, clearly that learning is useless.
To summarize:
Accountability
Learning
Application
See you next month everybody!
Cheers,
Joey