Henderson Capital 6 Month Update
Liquidity Solved
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Let me give you a scenario. There’s this trigger happy college kid (it’s me), that loves buying stocks and thinks nothing can go wrong. Over time he becomes increasingly impatient and begins to neglect company’s valuations (still me). He pours essentially all his accessible capital into the markets and doesn’t look back. Fast forward 2 months and a global pandemic later, and to no one’s surprise my stocks are down and I’m desperate to buy the dip. If any of you read my latest update on Henderson Capital, you would know that I was struggling with some minor liquidity issues. In laymen’s terms, I was broke. Queue the parental dependence.
I’m quite fortunate to have two parents that have worked extremely hard, and saved a healthy amount of money over their lives. As we sat idly in quarantine, I began to pitch the idea of some sort of low interest loan. To my delight, they had saved up a bunch of money for my college tuition that they no longer needed, thanks to my brilliant decision to attend a cheap, underperforming, party school (you’re welcome parents). Long story short, they thought it might be a good idea to give me some of the money they had stowed away. Now I’m not sure if this was a loan or a gift, but rule number one as a college kid who’s financially dependent on their parents, is to not ask questions when they hand you money. Anyway, the end result for me was the ability to deploy capital to the stocks I liked, and that I did.
Here’s my updated performance and allocation. Since October 18th
Henderson Capital: -3.34%
S&P 500: -19.99%
Here’s a log of all the changes I made this month, in order.
March 10th, Bought 1 Share of Roku at $94.97
March 10th, Bought 2 Shares of Match Group at $64.79
March 12th, Bought 8 Shares of Telaria at $6.75
March 23rd, Bought 47 Shares of Square at $40.18
March 23rd, Bought 12 Shares of Roku at $86.50
March 23rd, Bought 8 Shares of Mastercard at $214.60
March 23rd, Bought 17 Shares of Match Group at $49.75
March 23rd, Bought 14 Shares of Semler Scientific at $30.70
March 26th, Bought 2 Shares of Roku at $91.50
April 1st, Bought 2 Shares of Roku at $83.50
April 2nd, Bought 8 Shares of Livongo at $25.75
April 3rd, Bought 7 Shares of Square at $43.30
While the strategy I deployed above may look eerily similar to what some in the business call “Spray and Pray”, there was some method to the madness. Before making my purchases this month, I set my desired ending allocation and aimed to get as close to that number as possible. Instead of one time purchases, I hoped to add periodically in increments, in the event that I saw more desirable price movement.
While I won’t get into every change I made this month, here were some of the big ones.
Mastercard: I highlighted this in my previous update, but Mastercard is the epitome of a high margin, strong moat business. This month I felt that they were finally at a favorable price, so I took a substantial position. They now make up 13.5% of my portfolio, and have done well in the first 2 weeks of owning them (up 10.5%). Mastercard is a company I intend to own for a long time, and I expect to compound at a growth rate higher than the market.
Rubicon Project: I had a small portion of my money in the sell-side ad platform, Telaria. 3 days ago, as of this writing, the Telaria and Rubicon Project merger went through, and they now trade under the ticker symbol RUBI. Each share of Telaria was converted into 1.082 shares of Rubicon Project. If you notice above, Rubicon Project is down almost 55% for me and it occurred in a relatively small timeframe. This is the nature of micro-cap businesses, and is the exact reason I allocated a very small portion of my portfolio into Rubicon. If I’m right, I’m right big. If I’m wrong, I’m wrong small. I still believe in the thesis of a dominant sell-side platform across CTV and desktop, so I plan to keep the shares I currently hold.
Roku: Roku is a company I’ve liked for a long time. They run the most popular operating system for internet connected TV devices. Founded by Anthony Wood in 2002, Roku has done a tremendous job garnering market share, while increasing the lifetime value of each added customer. Roku actually loses money on their TV sales, according to last quarter’s numbers (-0.5% gross margins), but the TV sales are purely customer acquisition costs at this point. The monetization comes from the platform itself. As we’ve seen the rise in cord cutting customers, we’re begun to see the switch in advertising as well. Roku is best positioned to benefit from this transition.
Square: Now I don’t want to sound like a broken record, but it’s probably important to highlight my largest holding. I dropped my cost basis from roughly $62 to $46.92 within a month. Square is a roaring buy in my eyes, and quite possibly the single best investment opportunity I’ve found since I began my investing career. This month, when I bought shares at $40.18, Square’s market cap was around $17 billion. At that valuation, I would buy Square for their Cash App business alone.
I understand small businesses will be heavily impacted by coronavirus, and Square will be susceptible to that same pain their customers feel, but this is not the end of entrepreneurialism as we know it. Americans need small businesses, and small businesses have a need for the services Square provides. Not to mention they just sold Caviar and on their most recent conference call announced that they have $3.1 billion in available liquidity.
All in all, I’m not sure what’s going to happen over the next few months and quite frankly, I don’t care. I try to buy meaningful businesses, with competitive advantages and strong financial positions, with the mindset of holding them for a long time. This is what I’ll continue to do for the foreseeable future.
Thanks for checking in, see you next month.