Joey's Investment Journey - Equities (Oct 2021)

Take a look at September's report on Seedly here.

Equity Portfolio Performance

This shows the Internal Rate of Return (IRR) of my equities portfolio. My current brokerage is Saxo, and IRR refers to basically the time-weighted returns of the portfolio.

Time weighted returns 2021 (IRR):

Performance since inception:

CAGR Performance:

The reason behind plotting this chart is because when you do liquidate your portfolio or take profit, the eventual return on your investment is basically your value as a ratio to your cost. If value is less than cost, then you lost money. Otherwise, you got some gains.

Of course, this completely disregards the time when you started buying the actual stocks, as well as the concept of time-value of money. Buying stock A, and having it gain by 10% over a 6-month period would make you (all things equal) a better investor than someone buying stock B and having it gain by 10% over a 12-month period and IRR will show that (stock A = IRR 20%, stock B = IRR 10%).

However, this is the stark reality; Your family or whoever's using that cash, won't appreciate this difference. Instead, they will care about how much money they receive, vs how much they put in. Hence, it's a decent measure that's well understood by non-investors, but misunderstood by investors.

Equity Portfolio Breakdown

Blue: Current value as % of my portfolio.

Orange: Cost as a % of my total cost invested into equities.

I don’t have a hard rule on % cost allocation on stocks nor a threshold where I will trim them. This chart simply shows the divergence between my investment thesis and the market expectations of the company. It’s also a decent visualisation of my portfolio holdings. Cash not included in this chart.

Portfolio Changes

Bought: $DNA, $TWLO (x2), $MP, $SNOW Trimmed: $NET

Porfolio Commentary

October is by and large a good month for me. However, since bad experiences outweigh good experiences by at least 1 (or more depending on your emotional discipline), I tend to remember prices with red days more clearly across the board more than prices where my portfolio is green. Human nature at its finest.

Though, I think its safe to say that October’s seasonality holds true for growth stocks… until treasury yields come to party. It’s quite apparent that lower yields translate to higher prices (and thus valuations). This is obviously notwithstanding the effect it has on analysts’ Discounted Cash Flow (DCF) models that uses interest rates to discount future values back to present value. The lower the rate, the higher the present value (my brain seems to agree with the math).

Since March 2020, growth stocks have experienced multiple expansion. While we can also argue that much of their businesses have been improved for the better (and even transitioning into hhhypergrowth - hat tip to Muji who I deeply respect for SaaS info. He also runs a premium newsletter delving into the tech behind these company, of which I’m a paying subscriber), we can also see that such stock returns are normal. Submitting evidence 1 of 92840, your honor:

$NET experienced a 80% gain from just October alone! By the way, $NET is one of my top 3 positions both by market value as well as cost. Is the gain wholly due to business improvements, or multiple expansion? Chances are, its skewed towards multiple expansion. While bulls will argue that the intention of Cloudflare as the 4th public cloud (which btw just brushes aside Alibaba cloud; found that quite amusing), the valuation rerating seems quite drastic.

As mentioned above, I sold about 1/9 th of my position in $NET at $169.5, and so far, I’ve been proven wrong & markets will continue to stay irrational. Filing this under: "Why you shouldn't time the market". If you lurk around Seedly long enough, many of us preach this, but yet the same questions keep coming... Funny.

While there’s a probability that markets (and my portfolio will move up from here), by definition, returns you receive now are simply returns you will receive in the future, pulled forward.

The more returns you get now, the less returns you may receive in the future. Can Cloudflare head to $250 in this bull market? Unlikely, but it’s not impossible.

As investors, we have to constantly weigh the trade-offs of our incremental dollar. Yes, we can’t time the market, but it doesn’t mean you keep adding to your position at all-time highs. With multiple expansion and yields unlikely to go lower even further (can’t go negative as policymakers do not want to do that), it may be that yields start rising in anticipation of Fed’s tapering, which will impact valuations.

In any case, I have no blueprint for what to do next. I am a simple investor. I see a dip; I buy. With earnings season here, I think markets will punish companies that seem way too frothy, and reward companies that seem appropriately valued. OR they (retail mania) can simply bid the asset up anyway.

Nobody said investing was easy.

It’s no wonder investors have been chirping about since H2 2021 about persistent overvaluations and that this time, the bubble will pop. For a more egregious display of current multiples (SaaS companies specifically), look at Jamin’s clouded judgement newsletter here. It’s a good weekly update on the frothiness of the companies in there, many of which I’ve invested in. I’ve taken 1 chart from it to highlight below. Draw your own conclusions.

Elsewhere in my portfolio, Sea Limited’s ($SE) venture arm, Sea Capital has participated in a funding round for leading crypto exchange FTX. Notably, FTX raised 420.69 million from 69 investors in their Series B-1 round, including Temasek.

As an investor in both (FTX via pseudo exchange token, FTT), I am pleasantly surprised by Sea’s (& Temasek’s) involvement. Sea has also made rounds across FinTwit bulls by starting online presence across Europe as well as India. Suddenly from South East Asia and Latin America, Shopee wants to take over the world. This puts $SE firmly in the growth stage. Do not expect profitability anytime soon...

Ginkgo Bioworks ($DNA) also experienced its first short seller research report that momentarily caused a brief dip back to $9-ish area. I think the report came at a time where valuations are frothy and took advantage of it. From the feedback of some FinTwit people I follow that are more in tune with the name, its merely an exaggeration of the current state of affairs; Ginkgo takes equity in companies that want to use their services. In that sense, its sort of like a venture arm that will also enjoy better returns if their customers eventually become successful and sufficiently large. All eyes are currently on their next earnings where they will hopefully beat expectations, which are sky high at the moment.

Having trimmed some $NET, I wanted to add to my existing positions. Snowflake ($SNOW) was one I wanted to make it a full position faster due to my conviction. I also thought MP Materials ($MP) was a decent add ahead of earnings where I don’t foresee demand slowing down for NdPr magnets (which is used in wind turbines and EVs). 15% of world supply in 2020 speaks volumes + only such mine in US (backing from DoD). Talk about bad timing; I bought the stock at 1030PM. A short report came out at 11PM and it tanked 10+%. I have never been so lucky (?) in my investing life.

I have also been DCA-ing into $URA (Uranium exposure) as well as $IXC (Global Energy ETF). I think Uranium easily ranks as a top 5 for brainless investments. The world can never brush away nuclear as a clean and energy dense (as in unit of material required for 1 gWh equivalent) that trumps all other forms of sources. Check out Lyn Alden’s article on it (long read warning). It’s sort of borrowed conviction but her article made me understand the investment thesis behind energy.

It’s not included in my equities portfolio as I used a different brokerage to buy it. Cost basis for $URA is ~$22 and for $IXC is around $27. I plan to keep allocating sums of money into this periodically.

Useful links

Earnings review: I write Twitter threads evaluating the earnings of my portfolio companies, focusing on their earnings call.

• Twilio, Teladoc (more coming next month!)
• Q2 2021 review of my portfolio companies

My September 2021 writeup. This can also be found on my website, where I store all my past articles and threads on crypto and stocks.

Follow me on Twitter so you don't miss the earnings review updates!

Note that this is adapted from my substack Oct 2021 article here.

Conclusion

Thank you for reading thus far. I merely want to document and share my lifelong journey on the internet. Cue the full earnings season coming in November! This is honestly a second job but I love it. If the info and learnings in here has helped you on your investing journey, then this would not have been in vain. :)

Cheers,

Joey