Henderson Capital: 5 Month Update
Lesson learned
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This month marked the first clear lesson of my investing career. Before I dive into what I learned, it’s important to have complete transparency. I’m a college kid with no disposable income. I’ve been fortunate enough to save a few thousand bucks from summer jobs, holidays celebrations, and the same great uncle sending me birthday cards two to three times a year. So as someone with limited liquidity, capital allocation is of the upmost importance.
With that said, here’s the lesson. Always have some form of cash on hand. This month I learned that the hard way. Over the last month Henderson Capital saw a decline of 17.43%. While losing more than 17% of my portfolio wasn’t a great feeling, it’s the next part that hurts more. I’m witnessing tons of bargain all across the markets and I have no cash to deploy. So as I agonizingly watch these bargains pass by, I continue to apply for different jobs in hopes of quick cash, but it’s a little harder than I would’ve imagined. As it turns out, becoming a Starbucks barista isn’t such an easy process.
Despite the rough month, my overall portfolio return is still hanging in there. Over the last 5 months Henderson Capital is up 4.58% vs the S&P 500’s -8.02%. Here’s my current allocation
Square: 33.83% [Up 5.25%]
Spotify: 16.35% [Up 12.85%]
Match Group: 14.98% [Down 8.53%]
Alteryx: 12.93% [Up 15.10%]
Yext: 10.87% [Down 8.36%]
Telaria: 6.37% [Down 20.86%]
Semler Scientific: 4.68% [Down 5.68%]
The only change I made this month was initiating a starter position in Semler Scientific. Semler Scientific is a small-cap health care stock that trades on the OTC (over-the-counter) market. Semler has a relatively simple business model in that they only develop and sell one product, their QuantaFlo. This comes with a hardware and software component that helps doctors identify PAD (peripheral artery disease).
Semler trades at a price to sales multiple around 10 and an EBIT multiple around 30, all while growing revenues at 52% and pre-tax income at 112% for the full year 2019. It looks like Semler will be a great compounder for years to come, and trades at a relatively cheap valuation in reference to estimated future cash flows. For more information on the company, Brett published a far more extensive piece right here.
I should note that I didn’t choose to limit my purchases this month for any particular reason besides my rather abysmal liquidity levels. Over the course of this recent drawdown, I’ve found it prudent to assemble a quick shopping list of stocks in the event that I receive some quick cash. At the top of this, list aside from the companies I already own, sits Mastercard and Roku. Short thesis following:
Mastercard: Mastercard is basically that company that everyone wants to own but thinks is too expensive. Well if you’re reading this now, it’s your lucky day. Mastercard is down roughly 24% from their recent highs, due to an update via their investor relations page that if the impact of coronavirus continues, next years revenue growth could be 2-3% slower than expected. Not sure that warning warrants a sell off of almost a quarter of the market cap of one of the most stable businesses on earth, with basically an impenetrable moat.
Roku: Roku trades as erratically as any company out there. I’ve bought Roku once before at around $30 a share, but found it hard to justify its valuation above $150, so I decided to sell. Just to be clear, yes, that was a brag. Trading history aside, the stock sits at $97.58 a share and I’m extremely bullish on the underlying business of Roku. Roku dominates the connected TV space by supplying 1 in 3 smart TV’s held by American consumers, and uses those sales to reinvest back into their higher margin platform business.
Final thought, keep some cash on hand and be ready to deploy it for moments like these. Guess Buffett was right again, who would’ve thought.
Thanks for checking in, see you next month.