Portfolio Review - May 2020
Total Return: 12.1% YTD (+18.3% vs S&P)
My stock portfolio is built around one central thesis - the digitalization of our world. I believe that,
The digitalization of our world is 10% complete.
This megatrend will continue for at least another decade.
I believe that this trend allows for outsized returns. That's why I invest a significant portion of my net worth into individual stocks. If you're interested in my monthly portfolio performance, deep-dives, and analysis around my holdings, feel free to subscribe below!
2020 is a fascinating year.
We are facing a once in a lifetime pandemic, and yet here I am looking at two consecutive months of incredible outperformance - April +15.9% and May +7.1%.
Looking at High Growth portfolios, one might think that we have seen a V recovery.
I don't believe that this is true. It is only valid for a small percentage of companies, namely the big Tech companies and SaaS companies, who have shown that their business model appears to be quite resilient during a recession.
Many businesses are suffering. It will take years for traditional companies to recover, and to rehire all the people who have unfortunately lost their jobs.
One comparison that illustrates this disconnect quite beautifully is if you look at the S&P 500 index in its default weighted vs. unweighted version.
The S&P 500 is weighted by market cap. That is why the big five tech companies have such a dramatic influence. The S&P 500 Equal Weight Index on the other hand gives every stock a 0.2% weighting.
The former has returned -6% YTD vs. -13% for the equal weight version.
The impact of Tech becomes even more apparent if you look at the same comparison for the Nasdaq. It has returned 8% YTD, staging a real V recovery, whereas the weighted equivalent also sits at break-even for the year. Again, illustrating the impact of the big names.
The above demonstrates that everyone is piling into the "winners of the pandemic," for example, SaaS stocks.
It is driven by strong momentum, and one needs to be very careful with the valuations right now. I do get that the FED printing money devalues the dollar, and it is logical from that perspective that the price of SaaS companies should go up. Still, the current levels are keeping me away from making aggressive moves into the market.
I consider the majority of my holdings to be fairly valued if not overvalued right now.
That's why I have made just one move this month. In April, I initiated a position in Facebook and Slack. This month I added to my position in Slack and am otherwise patiently sitting on the sidelines, analyzing company fundamentals, and what I consider to be fair valuations.
GARP - What the hell is GARP?
Peter Lynch is a significant influence on my style of investing in the public market. His books were the first ones I read, and they all left a lasting impression. He popularized the concept of GARP - Growth At A Reasonable Price.
I am not sure if people realize how perfect the execution of Zoom and Datadog has to be in the coming years just to grow into their current valuation, EV/Sales of 70 and 50, respectively.
The risk/reward here is completely off for my style of investing. That said, I don't shy away from high valuations. The Trade Desk, ZScaler, and Slack all sported high multiples when I purchased them, albeit lower than where they are at now.
I have no intention of selling them, yet at the same time, I try to find value in beaten-down growth stories as well. Baidu, Opera, Nutanix, Twitter, and Pluralsight were examples of this approach when I purchased them. Word of caution, Pluralsight has had a fantastic run-up from its lows and is not undervalued anymore in my world.
The Acceleration of the Digital World
The move towards a more digital world has been accelerated by multiple years due to the pandemic.
Two developments this month are worth highlighting.
Several Tech companies are implementing work From Home as their default.
Twitter and Square started the party, announcing that only a small portion of their workforce would be needed in the office. Everyone else is free to work from home in perpetuity. Shopify, Spotify, Box followed with announcements of their own shortly after. Facebook and Google are a little more cautious, but have in principal also said that their workforce would become more remote over the next years.
This movement will lead to more profitability in the long term for companies that are embracing this model. Either as a full WFH or WFH-First company.
Slack doesn't care if you work from the office or home. They provide a "Work From Anywhere" tool, which is why I am a believer in the long term story and have added to my position ahead of earnings next week. I also appreciate that their CEO is sharing useful metrics with investors, rather than the ambiguous and controversial numbers that Zoom shared recently.
Facebook and Shopify cooperating on FB Shops is a big deal.
E-Commerce adoption accelerated during the lock-down. Two of the heavy hitters teaming up will enable a whole host of new online shops to go up. Ultimately more and more businesses will move online. The battle for users will intensify, which is good news for all the platforms that can provide you with precisely the users that you are after - Facebook, Alphabet, Amazon. It's not just going to be the big three who will benefit. The Trade Desk, Twitter, Pinterest, and Snapchat also stand to gain from this long-term development.
Portfolio & Performance
This year is shaping up to be another excellent one, despite all the noise in the market.
My holdings are vastly outperforming both the Nasdaq and an All-World index.
Portfolio: 12.11%
Nasdaq: 4.33%
All World Index: -9.03%
Current Portfolio - End of May
In May, I only doubled up on my position in Slack. No other moves were made.
Top Performers - May
ZScaler took the lead in May on the last trading day of the month after reporting fantastic quarterly results.
The majority of my holdings have reported earnings now for the last quarter, and none have disappointed.
The Trade Desk stayed mostly flat after posting impressive gains in April.
PayPal, Square, Alteryx, Nutanix, HubSpot, and Pluralsight continued to add strongly to already impressive gains in the prior month.
Thank you for following my investment journey. I hope you found this useful and here's to an exciting June. Thank you for reading!
Below you can have a look at my Twitter thread that outlines my overall approach at a high level. If you find it useful or helpful for others, please do consider Re-Tweeting it.
what do you think of Fastly as a long term investment?
I don't see Okta in your list which is another tech titan I track