One Year, Six Month Update of Hypo Capital
Up 34% vs. the S&P 500
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*Link to the spreadsheet for anyone interested in how we calculate returns
This is the 18-month update of Hypothetical Capital, or HC. It is a mock portfolio of our favorite investing ideas. Since it began in November 2018, HC is is up 46.59% vs. the S&P 500’s 12.14%.
As you can see from the chart above, we are pretty darn happy this month. The portfolio exploded to an all-time high, led by some of our highest conviction picks like Square, Spotify, and Match Group. 18 months is not an exceptionally long time period (a decade is probably the minimum amount of time to be judged as a PM), but it is all we have to show so far.
Since HC matches our personal portfolios closely (which you can see here and here), understand that while this is a “paper account,” we still have some skin in the game. We also have to wait until at least August to send another one of these updates (more on that in another post), so we are being fairly cautious heading into the summer.
If you’ve read our previous updates (and if you have not, I’d recommend checking them out here) you know that beating the market for 18 months is not our goal. Our goal for HC is to show that spending 1-2 hours with one “trading” day a month can outperform heavily managed funds.
Here are the rules we have set to try and mimic a real portfolio as closely as possible:
We can only change our asset allocation on the 20th (or around then) of each month. All other days are off-limits, meaning we can only add or subtract from our allocation once a month. (We’re not the day trading type anyways, so this should not affect our investing philosophy).
No derivative securities (options or futures).
We are not reinvesting dividends, for calculation purposes. Although we highly recommend that you do so in a real scenario.
We cannot incorporate any commission fees so we will act like we are investing through Robinhood
We are competing against the S&P 500 so the benchmark for the portfolio will be how much it has beat or lagged the market since its inception.
Shares Held 4/18/20 - 5/20/20
*Not time-weighted
Top Performer
Spotify, on recent news they are going exclusive with the Joe Rogan Experience, has really jumped the past few days. People now understand how serious the company is about podcasting, and what ambitions they have to upend the industry.
Worst Performer
Semler Scientific has been a laggard, but we are not concerned. The business seems fine, and if they get a slowdown in use because the coronavirus takes all of the healthcare industry’s demand, they have the balance sheet to weather the storm. With a $300 million market cap, you have to be ready for major ups and downs.
Dividends Paid
Buying and Selling
Major snoozefest this month. We sold our small-cap ETF (ticker: SCHA) and decided to plow those proceeds and some of our cash into the small-cap value ETF (ticker: VIOV). This ETF from Vanguard tracks, as you might have guessed, the small-cap value index. We are bullish on small-cap value coming out of the crisis for one reason: the spread between it and the rest of the market is the highest ever.
Allocation for Next Month
Our short podcast going over the portfolio should be out now. You can listen to the show here if you’d like
See you at the end of the summer,
Brett and Ryan