April Performance Review

Since our last updated in mid-February (approximately the market “top”), the value of our positions has declined by about 5% overall, with some portfolios hardly moving and others declining over 10%. The differences were driven by:

• What percent of the portfolio is in cash or bonds – 25+% portfolio two, 30+% portfolio three, 20%+ portfolio four, with the heavier the cash and bond weighting the lower the decline
• Amount of high growth stocks in portfolio – certain stocks that have been great performers that are considered “growth” and generally trade as a multiple of sales (say 20-30x sales) such as Tesla (TSLA) and Cloudflare (NET) and Sumo (SUMO) fell as the market moved from growth to value in the first quarter

Given that these portfolios represent a log-term investment for each of the participants and would be a portion of their total net worth (i.e. they often hold other cash in savings or other accounts), we try to be reasonably heavily invested in the market, but each participant has their own risk tolerance.

During this rotation into value stocks, some sectors which had been battered such as energy (Exxon-Mobil and Chevron) and Financials and some general retail have come back strong. There are many of these stocks in the portfolios (such as Coca-Cola, Procter and Gamble, and many others) but they generally represent a lower portion of the total “value” because the tech stocks have risen so much that their position size is much bigger.

We also see variances by region, with Chinese stocks rising and US stocks generally rising (at least in some sectors) but European stocks stagnant. Since these portfolios seek to choose both US and overseas stocks, we also will see changes in value based on changes in currencies and country-specific dynamics. We do not intend to “predict” which ones will rise and fall, but we encourage a balanced mix of stocks by sector and region / currency where possible.

Some specific stocks have fallen and are “on watch”, including:

• Alibaba (BABA) – a well run Chinese company with huge cloud presence (like AWS) and a giant financial arm (called ANT), this group has run afoul of regulators and Chinese politics.  It is down about 25% from its high
• Cloudflare (NET) – Cloudflare runs an advanced online system and trades for more than 30x revenues… making it susceptible to falling when it doesn’t perform exceedingly well in revenue growth or when interest rates increase.  It is down about 20% off its high
• Tesla (TSLA) – the grand-daddy of all stock high flyers is down about 20% from recent peaks
• Sumo Logic (SUMO) – SUMO has lost about half its value from peak recently.  While SUMO is still growing quickly, it recently acquired a company and is not exceeding expectations
• Baozun (BZUN) – Baozun, the Chinese e-commerce support company, is down about 30% off recent highs.  The company was part of a short squeeze and impacted by US / China relations overall, but core operations are solid
• Gilead (GILD) – this large pharma stock has lost about 20% of its value, despite having high earnings and dividends.  It does not play significantly in the covid space and is a bet for focus on other drugs and treatments in the post-covid era.

By portfolio:

• Portfolio one -BABA, NET
• Portfolio two – BABA, NET
• Portfolio four – TSLA, NET
• Portfolio five – SUMO, NET, BABA, BZUN
• Portfolio six – BZUN, GILD, SUMO
• Portfolio seven – BABA, BZUN, SUMO
• Portfolio eight – BZUN, SUMO

Additional Stock Picks April 2021

Recently there have been some sales and a few of the portfolios are looking at possible incremental investments.

Note that there are very few “bargain” stocks out there. One that I thought was a relative bargain was Rocket Mortgages (RKT) and then it was pumped up so we ended up taking some short-term profits which we normally don’t do. Some stocks we are considering:

US Companies

1. Nike (NKE) – the global footwear and clothing retailer saw significant price increase in 2020 but has fallen about 10% off its all-time high.
2. Etsy (ETSY) – the platform for twee e-commerce also had a recent drop after a big run-up and it is down about 17% off its all-time high.
3. Twitter (TWTR) – Twitter recently owned up to its poor performance (like Kraft Heinz) and started a new plan to become more profitable and “win over” the market. There was a run up earlier in the year but it is down about 17% from 52 week highs
4. Chevron (CVX) – the giant energy company is attempting to take over the lead position from Exxon Mobil (XOM) in the energy space. Their stock is trading near 52 week highs
5. Microstrategy (MSTR) – Microstrategy is a company in the data analytics space that has been around for many years and is not growing. However, they recently decided to borrow money on the bond markets and invest it in Bitcoin and today that makes up about $5B of their $7B market cap. This is an interesting way to play the crypto markets
6. Honeywell (HOM) – Honeywell is a US controls manufacturer that is benefiting from “edge” and “quantum” computing. As a result, their stock is near a 52 week high
7. Berkshire Hathaway (BRK) – the holding company controlled by Warren Buffet has been under-performing the S&P 500 for over a decade but may be positioned to rise as value stocks come to the fore. The stock is at an all time high

Non-US Companies

1. Sea Limited (SE) – is a Singapore internet, mobile and gaming platform. It has also pulled back recently and is down about 17% from highs (this is the US ADR of the foreign stock)
2. L’Oreal (LRLCY) – the global makeup brand has embraced digital and direct sales and is doing well despite covid (the is the US ADR for the foreign stock). The stock is trading near its all-time high
3. Kraft Heinz (KHC) – the global snack company was selected as a value stock previously and although it has increased in price may still have room to increase. The stock is trading near its recent 52 week highs

Previous Holding Candidates

The stocks that have driven the most value in the portfolio that are not bought across all the portfolio (because every beneficiary selects individually) are:

1. Electronic Arts (EA) – videogames
2. Mastercard (MA) – electronic payments and credit cards
3. CME Group (CME) – financial services
4. Alibaba (BABA) – Chinese e-commerce giant
5. Nvidia (NVDA) – semiconductors
6. OKTA (OTKA) – SAAS provider of security services
7. Paypal (PYPL) – electronic payments
8. Procter & Gamble (PG) – iconic brand company
9. Taiwan Semi-Conductor (TSM) – Asian chip giant
10. Union Pacific (UNP) – railways
11. Facebook (FB) – social media platforms
12. TESLA (TSLA) – electric cars
13. Wal-Mart (WMT) – massive retailer
14. Cloudflare (NET) – new cloud stock with potential
15. Gold ETF (IAU) – tracks price of gold

Portfolio Eight Updated March, 2021

Portfolio eight is 5 1/2 years old. The beneficiary contributed $3000 and the trustee $6000 for a total of $9000. The current value is $16,423 for a gain of $7,423 or 83%, which is 17.5% / year adjusted for the timing of cash flows. Go here for details or to the link on the right.

During 2020 there was $97 in dividends and a long-term loss of $510 tied to the sale of GM. The portfolio is doing well overall.

Portfolio Seven Updated March, 2021

Portfolio 7 is 5 1/2 years old. The beneficiary contributed $3000 and the trustee $6000 for a total of $9000. The current value is $16,157 for a gain of $7,157 or 80%, which is 17% / year adjusted for the timing of cash flows. See the details here or at the link on the right.

The portfolio is doing well. During 2020 we had a long term loss of $558 for taxes (sell GM) and $121 in dividends.

Portfolio Six Updated March 2021

Portfolio six is 8 1/2 years old. The beneficiary contributed $4500 and the trustee $9000 for a total of $13,500. The current value is $22,835 for a gain of $9,335 or 69%, which is 10.4% / year when adjusted for the timing of cash flows. You can see the details here or at the link on the right.

The portfolio overall is doing well. The drug maker Gilead (GILD) has a good dividend but has had a stagnant price since we bought it many years ago and is on watch.

During 2020 for taxes there was $206 in dividends and a long term capital loss of $841 tied to sales of Shell (RDS.B) and Exxon Mobil (XOM).

Portfolio Five Updated Feb 2021

Portfolio Five is 11 1/2 years old. The beneficiary contributed $6000 and the trustee $12,000 for a total of $18,000. The current value is $36,700 for a gain of $18,701 or 104%, which is 10.9% / year when adjusted for the timing of cash flows. Go to the link on the right for details or here.

During 2020 there was a net long term gain of $5592, which mainly came from selling Appian (APPN). Dividends totaled $268.

The portfolio is going well. Big gain stocks include Cloudflare (NET), Nvidia (NVDA), Okta (OKTA), Paypal (PYPL), Infosys (INFY) and Procter and Gamble (PG). There is $7393 in cash to consider re-investing as well.

For capital gains – if your income is under $40,000 (as a single filer) in 2020 the long term capital tax rate is ZERO. Thus this was a good year to sell Appian! The long term tax rate is 15% for income > $40,000 but less than $441,000.

Portfolio 4 updated Feb 2021

Portfolio four is 11 1/2 years old. The beneficiary contributed $6000 and the trustee $12,000 for a total of $18,000. The current balance is $34,611 for a gain of $16,611, which is 92% or 9.7% / year adjusted for the timing of cash flows. See the link on the right or go to this link for details.

During 2020 there were some sales with a small net long term gain of $30 and a short term loss of $158. Dividends totaled $316.

The portfolio is currently doing well. TESLA has been a big winner. Other winners include ORCL, NVDA and PG.

Portfolio Three Updated Feb 2021

Portfolio Three is 13 1/2 years old. The trustee contributed $14,200 and the beneficiary $7000 for a total of $21,200. The current value is $32,436 for a gain of $11,236 or 53%, which is 5.5% / year adjusted for the timing of cash flows. Go here for a summary or to the link on the right.

There were no sales in 2020, and only some slight capital gains from the BND ETF. There was $348 in dividends. The portfolio is doing well, it has a heavier component of cash / bonds / gold as a percentage than the other portfolios (almost 50%) so it has gone up less than the other portfolios but would decline less in a downturn, as well.

Portfolio Two Updated Feb 2021

Portfolio two is 16 1/2 years old. The beneficiary contributed $13,000 and the trustee $17,200 for a total of $30,200. The current value is $58,216 for a gain of $28,016 or 93%, which is 7.7% / year adjusted for the timing of cash flows. Go here for details or to the link on the right.

There were no sales in 2020 for capital gains purposes. The dividends were $516 and there was $16 in capital gains on the BND fund.

Portfolio One Updated Feb 2021

Portfolio One is our longest lived portfolio at 19 1/2 years. The beneficiary contributed $5000 (net of withdrawals) and the trustee $19,000 for a total of $24,000. The current value is $86,099 for a gain of $62,099 or 259%, which is 10% / year when adjusted for the timing of cash flows. Go here or to the link on the right for more detail.

During 2020 we had $650 in dividends and two sales for a net long term loss of ($802). We sold Toronto-Dominion Bank (TD) and Exxon Mobil (XOM).

The portfolio is doing well overall. A couple stocks to watch are AEP (utilities have been down for years) and Alibaba (BABA) due to political turmoil in China.

Performance as of February 2021

After the nadir in Spring 2020, our portfolios have performed well.  We are up about 15% in the last three months with no incremental capital added, which annualizes to a 60% rate (ignoring compounding).

We are reviewing all the stocks as we look at performance in 2020 for tax purposes. Generally they are performing well with a couple of exceptions that we will watch (AEP, the utility stock, and GILD the pharma company).

Organizing Your Portfolio

In order to understand your investments, you need to put all of your investments on a single page. Most people have their data in various locations, such as Quicken or in other financial planning tools. However, few have them organized into a single view so that they can see the key variables at a glance. This is very important and here is how you can do it.

There are a few key elements to every investment. For the purpose of this blog post, I am massively simplifying investing and if you have a complicated portfolio you should likely see a professional. But everyone can benefit from attempting to put these elements on a single page.

The first thing you have to do is go and find all of your investments. This is often far harder than you would think. Let’s look at some of the common elements:

1. Brokerage statement – if you have stocks and bonds and cash in a firm like Fidelity, Vanguard, eTrade, your band, etc… pull that out and get the detail
2. IRA / 401(k) – as you switch jobs, you will accumulate IRA’s and 401(k)’s with different employers (unless you consolidate them, which I recommend). Pull all of these out, as well
3. Bank – you will need your bank statement, for your balances in checking / savings / money market
4. Stock apps – if you have (significant) stock in apps for trading, you need that information as well
5. ESPP / Options – if you have employer stock or options that are in the money or restricted stock, you should include that too
6. Deferred compensation – if you have any other form of deferred compensation, find those documents, and you also should determine what is vested
7. Government debt – many people have treasuries or other types of government bonds that they own or were gifted
8. Insurance / annuities – these get more complicated but if you have significant investments in these types of assets you should get them out, as well
9. Land / Debt / Mortgage – this author is not an expert on debt / mortgages but you should include at least the net value as real estate here
10. Crypto – if you have crypto that is significant, you should include that as well

Once you have all this information, you need to classify it a few ways. These include:

• pre tax or post tax – it is important to classify assets as pre or post tax. Your pre tax investments are effectively “overstated” because at some point they will (likely) need to “wash” through and become taxed
• By type of investment – you can get as detailed as you’d like but at a minimum I generally use “cash like”, “investment grade bonds”, “US equities”, “non-US equities”, “gold”, “real estate”, “other”. If you have a concentration in a particular stock, add that stock specifically (could be your employer, your ESPP, you have options with them, etc…) if it is more than 2% or so of your portfolio
• By ticker – ideally, when you get the information together, get the specific “ticker” such as VTI for the vanguard ETF or the specific stock ticker. There also are tickers for most mutual funds. If you are in a proprietary fund, they still will have some sort of unique identifier, try to get that, because you can use it to track your # of shares, price per share, and then categorize the investment
• For the sake of this analysis, I am assuming that you are “dollar based”. If you are based in a foreign currency, you also need to add what currency it is based in because moves in that currency vs. the dollar will be a very significant variable

When you have this information, you need to put it down into a spreadsheet (ideally a google sheet, so that you can auto-update it by price or update the ones such as proprietary investments periodically), and look at it and see if it makes sense.

When people look at the stocks that they are considering for investing, it really only makes sense in the total context of their portfolio. If you have a lot of cash or cash like investments elsewhere, then you can consider a higher portion of your stocks being “in the market” (and at risk). But you can only do this if you first put it all down on a sheet of paper (or in a spreadsheet).

Once you do this, ideally you would quarterly calculate your “net worth” (for this purpose, your debt is “net” on real estate and I’m not considering other forms of debt like student debt or credit card debt, but you can add that in as an offset) and physically look at it. Once you gather all the investments together, looking at this quarterly is not as difficult as you’d expect, but the first time is harder. Not only would you know your net worth, but you would be able to see at a glance your position in cash, investment grade debt, equities, etc… at a glance which is a critical part of the equation.

Portfolio One Updated November 2020

Portfolio One is our longest lived portfolio.  It is 19 years old.  The beneficiary contributed $5000 and the trustee $19,000 for a total of $24,000.  The current value is $72,519 for a gain of $48,519 or 202%, which is 8.6% / year adjusted for the timing of cash flows.  You can see details here or at the link on the right.

Portfolio one has 20 stocks.  The major gains have come from Taiwan Semiconductor Manufacturing (TSM), PayPal (PYPL), Nvidia (NVDA), and Procter & Gamble (PG).  Other winners include Alibaba (BABA), Accenture (ACN), Infosys (INFY), Toyota (TM), and American Electric Power (AEP).  Stocks hitting recent bumps include EA (earnings), CME (ZIRP), SAP (earnings), and BABA (delay of ANT IPO).

Portfolio Two Updated November 2020

Portfolio 2 is 16 years old.  The beneficiary contributed $13,000 and the trustee $17,200 for a total of $30,200.  The current value is $54,779 for a gain of $24,579 which is 81% or 7% / year when adjusted for the timing of cash flows.  Go here for details or at the link on the right.

The portfolio consists of mostly ETF’s with some recent stock purchases.  The portfolio is doing OK overall but Alibaba (BABA) went down recently due to the deferral of the ANT IPO by China.

Portfolio Three Updated November 2020

Portfolio 3 is 13 years old.  The beneficiary contributed $7000 and the trustee $14,200 for a total of $21,200.  The current value is $31,205 for a gain of $10,005 or 47%, which works out to 5% / year when adjusted for the timing of cash flows.  Go here or to the link on the right for more details.

The portfolio consists of 3 stock ETF’s, one bond ETF, a gold ETF, and cash.  They are all doing well.