Hello my fellow financial independence fighters!
When was my last update on portfolio? May 2020? That was 7 months ago. Crazy.
Covid has been insane. What happened to Capitol is crazier.
I guess everyone hates it. Only thing positive about Covid is I get to spend more time with my wife and our new born.
Baby grows quickly. She was 3kg when she was born. Now she is at 5.4kg who just celebrated 100 days of life in this Covid world.
Baby makes everything better. My life is more fulsome and happier. Everything is more exciting and fun except the not-exciting and not-fun stuff.
She already started hammering piano keys now so I am a very happy dad.
Enough with my baby. Let’s talk about the 2020 results.
Do you remember May 22, 2020 portfolio update?
My porfolio 1 was at -10% in May. What can I tell you. At the time, I was very happy to buy everything I can. I literally had $50 of cash in my bank account. That’s it. I poured everything into the markets buying all the great companies in distress sale. When something is down by 50% then you make 100% if the company recovers.
Buy the dip. That’s it. That’s the lesson. Simple.
But not many do… I do not understand why.
The fear drives the narratives.
Discount is discount. Why don’t you get it?
The more you know, the more you are afraid.
The simpler you think, the higher returns you will make.
For this experimental portfolio, I did 95% in 2020.
The stocks I talked about in May- Mercado Libre, Sea limited, Facebook, Livongo and Alteryx did great except Alteryx.
They all did 50-300% since March and 50-150% since May. I still have not sold a single share of Mercado, Sea, Facebook.
I trimmed Livongo which were converted to Teladoc. I sold out Alteryx.
They are all great companies and still growing a lot so I am just letting winners run ignoring volatility.
Looks like S&P did 19% or so I did better on this experimental portfolio.
Since inception of January 1, 2019, I did 225.8% on this portfolio VS 25-50% of various indexes.
I gave some thoughts on why I did better on this experimental portfolio VS my other portfolios.
2 takeaways that I learned.
1. Getting out of my comfort zone.
My other portfolios are heavily invested in Canadian stocks.
As much as I love Canada, the investing opportunity in this country is very limited.
Only handful of great stocks and another 20 solid stocks in my opinion (I am strictly ignoring micro caps. There could be plenty of great microcaps, I am sure.)
If you are looking for dividend then yeah Canada is wonderful. Bank stocks. Pipeline stocks, railways, telcos, restaurant stocks, REITs … It goes on and on.
But I am not a fan of dividend stocks. They are good but not great. They will deliver 6-12% but rarely 15% or more and they will never deliver outstanding returns.
I could literally buy any world stocks I wanted with my cell phone with this account.
The bigger the pool, the greater the possibility.
It is just simple as that.
2. Power of margin.
It increases performance when markets are uptrend.
The markets are uptrend now and they have been for a while.
I use about 10-20% of margin at times. It fluctuates all the time. When times are good, I increase it to 20%. When times are less opportunistic, I reduce it to 10%.
That seems nothing but what it does is pretty great. There is more to it.
The biggest advantage of margin account isn’t boosting your performance by having additional funds.
It is all about seizing opportunities.
Margin account enables me to act instantly.
How many times did you miss an opportunity because you did not have cash in your hands? or because you had to sell something to buy something?
You know something is a great deal but you may miss them if you wait too long.
With margin account, I can act instantly and worry about reducing margin exposures a bit later or I can use it for short term trading and get the heck out.
That, in my opinion, is a big deal.
I carefully treat margin. It is a very scary tool.
If you are reading this and want to explore, you gotta make sure you understand the risk associated with margin. Debt can get addictive!
Let’s talk about portfolio 2.
This is all Canadian. I did 32%. Nothing to brag about. Did much better than TSX’s 5.6% though.
Again, TSX is a joke so I am even embarrassed to use it as a benchmark.
But 100% of the portfolio is Canadian stocks. What should I compare against? S&P500?
Let’s jump onto portfolio 3 (RRSP CDN and USD both).
I did 151% on this portfolio.
There were many things paid off well in this account.
I bought MTY at dirt cheap and trimmed from $35 all the way to $55 or so. Still have a sizable position as it doubled and tripled.
I sold Amazon to buy Livongo. It wasn’t much of a big position at all but paid off big.
Biosyent was another contributor that did fabulously well.
Overall 2020 was a great year in terms of stock performances.
Would it continue in 2021?
I am gonna keep my head down, buy companies that look opportunistic, scale down if trend reverses, hold great companies like CSU and Enghouse and sell when things do not make senses and not look back.
Hope you have a wonderful 2021!
Things that I say to myself all the time
- You have to trust your process.
- It is easy to look smart in a bull market but it is much harder to stay levelheaded during market selloff. Emotion is a really powerful weapon which often works against you.
- Do your due diligence.
- Go with your best ideas (e.g. Moat, high gross margin, high FCF and ROIC, founder driven and experienced management, leader dominating niche, high visibility revenue (recurring), large and growing tangible addressable markets etc.)
- Buy absolutely high quality stocks and let them run.
- Be patient but don’t hesitate to change your mind if you feel something is off. Don’t stay wrong for a long time.
- Lastly, keep your macro view intact especially times like this- For example, what companies will benefit due to Covid? If you think of the companies that would benefit, then start small and increase your position as your conviction gets bigger. When you think that you are really late to the party, maybe you are early. Not the earliest but still early and benefit greatly down the road. Who knows? What counts is your thoughts and ideas based on research and act on your convictions.
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