Brett's May Portfolio Update
Newsletter/Show on pause (for now)
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If you’ve listened to our podcast at all the last two weeks, you probably heard that we are pausing our content for the summer. That also includes this newsletter. Ryan will be busy interning at the Motley Fool and I will be walking in the woods, so we thought it would be best to pause everything for the time being. You’ll likely start getting emails in late August/September when we are free to write again. Thank you for subscribing (or just reading) these posts, we hope you enjoy hearing about two investing novices and seeing our returns/choices with full transparency.
This month I’m going to list some of the things I’ve learned about investing. Don’t think of this as expert advice by any means, just some stuff I wish I knew 3 years ago when I opened my brokerage account. Alright, here it goes:
The financial media isn’t there to help you. Thinking you can be a good investor by watching CNBC and reading clickbait headlines is like thinking Bill Belichick can win the super bowl by watching ESPN. It’s just not something the professionals would do.
Investing is a lot harder than you think. No seriously, trust me on this one. The Dunning Kruger effect is real, and affects everyone. I look back at how irrationally confident my investing was and laugh because at the time my decisions felt rational and level-headed. And I expect 10 years down the line, I’ll be thinking the same thing about today.
You don’t need to pick a lane. A lot of people classify themselves as “growth” or “value” investors. To me, that seems like eliminating a whole part of the market for no good reason. Yes, you will probably lean one way or the other (I definitely lean growth, at least right now), but not investing in something you think is a good idea just because it is outside of your self-described “wheelhouse” will do more harm than good.
Read a lot. But not about investing. After reaching the basic floor of knowledge (i.e. you understand accounting, earnings statements, etc.) reading books on how to be a better investor becomes redundant. What I find helpful, and which is based on Charlie Munger’s famous commencement speech, is trying to obtain wisdom about the broader world that can help you become a better investor. SEC filings still need to be read, but so does history, science, politics, and economics. Any of those topics will be 10x more productive than staring at your holdings all day.
Investor Relations pages are your best friend. This includes conference call transcripts. And all relevant SEC filings. Searching Google articles or trying to find research from blog articles will just lead you to information that is already on a company’s IR page. Personally, I like to use something like Atom Finance to make sure I get any relevant filings in one place. It will save you a lot of time and wasted effort by consolidating all the information in one spot.
Looking at your portfolio does more harm than good. Usually. You have to check your portfolio sometimes. But if you’re checking it more than a few times a week, it is probably causing you unnecessary stress (which can cause bad decision making) that can be easily avoided. Unless the facts change about an investment, any wild price movements should only be taken as a chance market event and nothing more. Volatility is only a risk if you let it be.
If you are going to invest in individual companies, you need to understand what every line of the income statement, balance sheet, and statement of cash flows means. Three years ago, I understood about 10% of an earnings statement. Now, unless it is a weirdly complicated company, I’m able to comprehend everything on a 10-k. But that’s not anything special. Understanding income statements, balance sheets, and the statement of cash flows are table stakes for investing in common stocks. Research becomes 10x easier when SEC filings don’t feel like a foreign language though, and is definitely one of the early hurdles you have to get over.
Twitter can be your friend. But also your enemy. Using Twitter can be great for investors. It is easy to find new research ideas, and you can communicate with some of the sharpest minds in the industry, all from your computer. But it can also cloud your judgment, because no matter what investment you are making/talking about, there will always be someone who will take the opposite side. Don’t let that detract you from making an investment decision. And conversely, just because everyone you follow invests in Amazon doesn’t mean you have to too.
Never invest solely because of a story. A mistake (I think?) everyone makes as a novice. You hear some wild stories about how great a company will be, how it is a can’t miss opportunity, and how it is a guaranteed 10 bagger. Those are usually poor places to find quality investments. For example, right now Nikola Motors is getting major hype and is riding high solely because the company tells a good story. That should make investors cautious, because stories do not generate free cash flow.
If you read the above list and thought “well, duh,” then good news, your not a beginner anymore. But I hope it helped at least a few people accelerate their learning and not make the same mistakes I did when starting out.
Individual Account
Trades Made (in chronological order):
Bought 2 shares of Altria Group for $35.46
.1205 shares of Activision Blizzard reinvested at $71.44
Not an exciting month whatsoever. If you read my March, April, or February updates, you may have thought I was a decently active trader. But truthfully, a month like this is more normal for me. My strategy is to be active when prices get beaten down, and then sit on my ass the rest of the time. I’ll also sell out of a position if the facts change, as I did with JD.com and Disney, but I hope that does not happen often.
Portfolio Statistics
Average Consensus P/E: 110.5
Average Consensus EPS growth: (14.41%)
Average Consensus Rev. Growth: 14.24%
Portfolio Diversity: 62.52% Tech, 11.4% Consumer Cyclicals, 9.09% Industrials, 7.18% Healthcare, 5.23% Consumer non-cyclical, 4.03% uncategorized, 0.54% Cash
Over the past few months, those first three bullet points have gotten absurdly bad. Yes, I am heavily invested in growth stocks, and these stats are definitely not the end-all-be-all for a portfolio, but they are striking to see nonetheless. It seems to be that, at least for the time being, the market is trying to forget 2020 and look even further to 2021. I try and keep a perpetual 3-5 year time horizon, so one year of bad or decreasing profits/revenue growth will not get me out into cash, but eventually, these numbers will need to improve. 3rd quarter earnings in October/November are going to be interesting, to say the least.
Returns since January 27th, 2020 (when I connected to Atom Finance):
Remember, this is my individual account from around the start of this year. Roth IRA not included.
Stocks on My Watchlist
None
Heading into this summer, I won’t have time to research, so I’d be lying if I said any companies were on my radar at the moment. Expect this to have 2-5 tickers once we start up again though. Anything more and you start diluting your research capabilities.
Roth IRA
Trades Made:
Bought 7 shares of Vanguard S&P Small Cap Value ETF for $94.96
I want to continue adding to VIOV as much as I can, at least if the price stays reasonable. And when I say “price”, I mean value as a factor relative to growth. I’m the furthest thing from a quant, but from my research I know two things: that small-cap value outperforms over long periods of time, and value is almost as cheap as it was during the dotcom bubble.
Portfolio Performance Since January 2017
*These are time-weighted returns to adjust for withdrawals, deposits, and timing.
Unless my portfolio does phenomenally well, I will likely still be trailing the S&P 500 on a time-weighted basis for the next few months, if not longer. That’s just the nature of how returns are calculated. It will obviously still trail if my holdings perform poorly too. Nonetheless, 2020 has been a strong year for my personal portfolio so far, and I think (I know, possible DK effect yet again) I’m finally set-up for long-term success.
Alright, that’s it for my May 2020 portfolio update. Make sure to follow us on twitter @chitchatmoney, subscribe to this newsletter if you haven’t already, and check out our podcast here for more of our content (and analysis on a lot of the above companies.
See you in a month,
Brett Schafer
*I am not a financial advisor. Nothing I write is advice or a recommendation.
**I also own options on Tesla and Stitch Fix in a joint account, for full disclosure.