Portfolio Performance - Feb2021
Recent movements, thoughts and analysis
February 2021 Holdings (% of portfolio value):
$ROKU 17%
$SE 15%
$CRWD 11%
$NET 10%
$TDOC 8%
$DDOG 7%
$U 7%
$FSLY 6%
$NVDA 3%
$MP 2%
$LMND 2%
Cash 6%
Portfolio MTD: -5.6%
Portfolio YTD: 3.5%
Portfolio (since inception Feb 2020): 69.3%
Adds: $U, $AYX, $FSLY, $SE
Closed: $AYX
$U, $AYX, $FSLY adds were following their earnins release. Markets were dissappointed with their performance and punished the stock. I added quite soon after the earnings dip, but it kept dipping 😅.
$SE add was after the market dip caused by bond yields rising. While we shouldn’t add to stocks right before earnings, it’s drop from the $280+ highs and my high conviction pushed me to add a little. If market disagrees with the earnings, and my theses remains intact, I may add more over the next few weeks.
$AYX sell was me wanting to raise cash. Of all stocks, $AYX was the lowest in conviction, and about 60% of a full position size (cost basis). I asked myself quite honestly if the company is truly something I want to own for outsized returns. The answer was no. This decision may or may not have been influenced by the market turmoil caused by bond yields.
My Thoughts
Earnings season came upon us as we watched our beloved management showcase evidence of their execution. Next came the rise in bond yields stoking fears of inflation going out of whack, despite the Fed being absolutely prepared to manage this if it goes awry. Then came the icing on top which seemed to be fund rotations away from growth stocks.
This form of journalling could serve me well as a reflection on my actions and thoughts over the past month. In just a span of a few weeks, the markets taught us SO many lessons, especially for newer investors who's not properly experienced a bear or a cyclical market.
IPOs - Driven by momentum or by proof of execution?
Disclaimer: I’m a relatively new investor in US equities - slightly less than a year. Many of the companies I’ve bought are recently IPO-ed companies ($U, $LMND, $MP), and have 1 or none earnings reports within them. Many others ($FSLY, $NET, $DDOG) IPO-ed in 2019. It’s a little of wanting to find companies exhibiting long tails with my own theses of industry tailwinds, as compared to buying established companies since the ‘returns’ have already been realised. Of course, as we’ve seen in 2020, stonks (especially big ones) can go on for longer than we can ever imagine (and participate in).
Over the course of more than a few months, I think its easy for us (me anyway) to get lured into this bias that just because the company stock appreciates at a fast clip, it is evidence of execution. Whether I like it or not, valuation plays a part in capturing forward returns and it may be best to demand proof of execution from companies first, before jumping aboard the hype train.
Of the recent IPOs, Unity would be a mistake in allocation. My buys (by earliest purchase) went something like this: $98, $123, $156, $155, $147, $139, $134. Many of which was before the earnings release. As of writing, it is ~$107. This reminded me of a thread by @FromValue:
I’d encourage everybody to read this thread. I found this to be very insightful at the time. Obviously, I did not follow through. FOMO is likely one of the key weakness of any public market investor with the barrage of news and dopamine hits received on twitter(dot)com, especially me.
While this is not me saying never to buy IPOs until the 6th month period, ideally we should strike a balance in having exposure as well as demanding evidence of execution. As investors we must assess conviction based on grounded truths, not lofty ideals. This can be earnings reports and/or growth metrics to evaluate how management has performed relative to their promises.
Summary: No need to add to positions around earnings, unless the stock drops in tamdem with the broad market. If a stock has run up to earnings, then be patient. Even more so for newly IPO-ed companies as it’s financials stand up to greater scrutiny.
Buy the dip
With heightened volatility this month due to rotation away from stocks, earnings season, and increase in bond yields, I found myself unprepared for a continued dip in my portfolio. My initial thinking was to buy on red days, but when there are multiple red days and a finite amount of cash, what happens then?
I am not an oracle, and surely timing the market would be beyond my capabilities. However, when market provides an opportunity, we best seize it. As much as we should caution ourselves into FOMO on green days, we should also warn ourselves not to succumb to FOMO during red days and buy dips immediately. This was something @LiebermanAustin was alluding to, though it’s not something I fully agree with.
In any case, it pays to be patient in these times, and having cash is a meaningful way to calm your nerves (imagine if the bulk of your portfolio dropped 20% in a few days, but you’ve no cash to add to existing positions).
While I don’t call myself an expert in technical analysis, it can be useful to use charts to identify areas when you want to add to a position. Note: Starting a position is not discussed here as the essense of timing is less relevant when opening a small position for exposure.
Charts allow us to view stock’s performance over any timeframe, and I found it very useful to focus on this rather than checking prices on your favourite apps. checking prices likely sends a subconscious dopamine hit when its green, and an adrenaline hit when its red.
Looking at a chart also allows you to zoom out.
While I do think that we shouldn’t time the market, there’s always an element of timing in the portfolio of successful investors (i.e. buying bitcoin at $18000 in 2017 only to break even in late 2020). When valuations are stretched, momentum is strong and markets are flush with optimism and greed… it may be best to move slow and be patient.
Universal truth: Stocks don’t go up in straight line, and eventually they correct. We don’t seek to buy the bottom and sell the top, but we shouldn’t buy into excessive strength, nor should we sell into excessive weakness. This is easier said than done, obviously.
Perhaps moving averages can provide a consistent framework with which positions can be added to…
For example, in $SE (above), we see that the 50 daily moving average (blue line) has served as good pockets of support for the stock to carry on its strong momentum. In the most recent drop, it has held as support as well. Of course, there are many more aspects to consider, and moving averages are but one of it.
In an ideal situation, we’d want to add to our positions if the business improves. As mentioned above, our conviction must be based on grounded truths.
In order of preference:
Adding on broad market dips
Adding on business improvements from earnings result
Adding on stock corrections
Adding on momentum
Over the past couple of months, I find myself doing more on the latter few, which would likely hurt my performance in the longer term. What matters most is how you hold yourself accountable, and move on from this ‘known’ weakness.
Summary: Dips happen more often than most expect - don’t go all in on the first dip. Patience carries more weight in determining success than most people realise. Cash has more purpose than just allowing investors to buy the dip. Charts allow you to view price over a longer term and not get cooped up in short-term price fluctuations. Charts with moving averages also provide potential areas that one may wish to add to an existing position.
Whatever the future may hold, the only truth is price (and volume). It’s the greatest game in the world, and hence to outperform requires greater than average effort vs other domains.
Stay nimble, and think long-term. Cheers.
- Joey