I’ve had more stock trading action in 2020 alone than all the years leading up to it combined. It’s been a compressed period of learning and making mistakes.
I thought it would be a good use of time to reflect on this year’s moves and ways to be a better investor in the future.
The main reason I engaged in such high volume of trading activity was the sale of our condo back in January. That brought in an influx of cash which got me thinking about stock investments. I had initially put large sums into bonds and a cash savings account, but with interest rates plummeting, I decided to shift more money into stocks. I also figured that since our family is already very heavily invested in large cap index funds, we could afford to increase our exposure to single stock investments.
Adding in the savings from my income, my SEP-IRA contribution, sale of existing stocks, and cash returned from some private investments, I was able to deploy over $300k in 10 months to establish new positions in various public stocks.
What I Bought
I grabbed shares in 53 different companies in 2020. The top 20 stocks accounted for over 80% of my investments in terms of cost. The bottom 33 stocks are a mix of micro-positions that I’m still building up or small increases to existing positions.
Here’s the breakdown of the top 35 purchases I made this year:
|Ticker||% of Total $ Deployed||New/Existing Position|
Missing from this list is Zoom (ZM). Not only did I not purchase Zoom on its meteoric ascent up, I actually trimmed my holdings, shedding nearly half of my shares. A couple of factors influenced my decision-making: 1) I bought into the idea that Zoom had no moat and players like Google and Microsoft would take away market share over time and 2) the sudden rise in the stock price made me want to capture some gains since I had held the stock since IPO.
Contrast this with my decision to bet more heavily on Shopify. My cost basis for my Shopify position was under $100 per share. I balked at buying as the stock zoomed past $200, then $300, and eventually closer to $1,000. Similarly to Zoom, being invested at a lower cost basis made any additions feel too expensive. Not to mention the chatter from investment pros about how aggressive Shopify’s valuation was, trading at 40x estimated revenue. But because I’m exposed to Shopify daily in my work at Barrel and part of the Shopify ecosystem as a business owner, I felt more conviction about the company’s future and its role in expanding ecommerce. This was why I was okay adding to my existing position when Shopify was trading at over $800.
With Zoom, I lacked such conviction at the time. In the months since, I’ve come to appreciate Zoom even more in my day-to-day vs. the other options out there. The stock has more than doubled since I trimmed my position back in April. A part of me wants to take the same path as Shopify and add more shares. I know the valuations are aggressive and there’s so much future growth built into the current price, but like Shopify, I think Zoom will be more than just a tool but rather an essential platform for how communication happens in modern work. In the same vein, this is why I increased my position in Slack. Unlike with Zoom, the news surrounding Microsoft’s efforts to win over enterprise users with Teams did not worry me when it came to Slack. Looking back now, I don’t know why I felt so differently about Slack vs. Zoom, but I felt Slack was a stickier product that would be harder to replace once ingrained in the team’s day-to-day operations.
Defining Investment Themes
The earlier part of the year was characterized by haphazard purchases based on what felt like a “good deal” or by a feeling of FOMO after reading some tweets and blog posts about particular stocks (e.g. LVGO, CRWD, SE, etc.). My decision-making felt messy and reactive, so I put some thoughts down around the types of “themes” I was interested in investing. This has been helpful in narrowing my attention and for guiding my content consumption.
These include any companies offering software and services that help businesses operate in the cloud ranging from developer tools to workflow automation to analytics and security. Look to evaluate and invest in businesses with great long-term growth potential and strong gross margins with offerings that are critical to the business functions of its customers. Current holdings include: NET, MSFT, AMZN, CRWD, DDOG, SNOW, GOOG, API, AYX, OKTA, MDB
These are companies with sticky software subscription models that enable team collaboration ranging from communication to productivity and creativity. For these, lean on selecting companies that I’ve had direct exposure to (and been customer of) and have strong conviction of the company’s growth in the long term. Current holdings include: TEAM, WORK, ZM, ASAN, MSFT, GOOG
Bullish on the macro trend of all payments moving to digital. Invest in businesses that are at the forefront of such trends. These types of companies may range from enablers of ecommerce to payments providers to supply chain and logistics companies. Look for business-critical players that occupy an advantageous position in the commerce stack. Current holdings include: SHOP, AMZN, ADYEY, SQ, MELI, FB
Entertainment & Media
These companies have combined technology with content to develop (or at least enable) direct relationships with a growing base of customers. They have moats typically in the form of valuable IP, scale (massive subscriber base or customer adoption), and/or differentiated user experience. Current holdings include: DIS, NYT, PTON, SPOT, NFLX
These companies command the attention of customers and influence behavior through the combination of user-generated content and powerful algorithms. These companies develop valuable troves of data that can be used to further improve their algorithms and to help brands serve targeted advertising. Scale and engagement matter and only a limited number of winners can exist at a time. Current holdings include: FB, SNAP, TWTR, PINS
These companies are charting the path for the future of medicine with a focus on user experience and access to remote care. Investments can range from those tackling chronic illnesses to those helping customers save money on their prescription drugs. Look for companies leveraging technology, building scale through smart partnerships & acquisitions, and being known for exceptional user experiences. Current holdings include: TDOC, LVGO, OAC (SPAC that’ll merge with Hims/Hers)
I aim to keep increasing my knowledge in these themes as I read more articles, listen to more podcasts, and dive into earnings calls and 10-Ks. My guess is that I’ll most likely go deepest with Cloud Infrastructure, Team Collaboration, and Digital Commerce as they are directly related to my professional work, but the other themes will provide me with nice variety and inspiration.
I started using a Stock Watch List in late August to help me keep track of specific companies so I could read up and learn before making an investment. I revisit the list every few weeks to see if I’ve changed my mind on things or if I’m ready to buy a position. In the meantime, I try to add companies that sound interesting and merit more investigation.
The Size of Bets & How I’m Buying
I’ve toyed with different sized bets this year but still haven’t worked out a solid process. Looking at my purchases, here are the three most common buying patterns I’ve noticed:
- High conviction bets: $10k+ (a handful that are $25k+) in companies that I feel are well-positioned to keep on growing and become more and more valuable in the long run. The “safest” out of these is Berkshire Hathaway, which I bought more as a type of index fund than a growth stock. However, given its Apple holdings and its continually growing insurance and energy businesses, I think BRK.B can still appreciate a good amount. Others at this level: NYT, SPOT, PTON, DDOG, SHOP, TDOC, MELI, SQ
- Starter position bets: $2k-$10k in companies that I find very promising and would like exposure to right now with the potential to increase my position later. The average is around $5k, but this also depends on how hot I feel about the company at the time, usually influenced by chatter on Twitter. I’ve since tempered this sort of behavior, adding the stock instead to my Stock Watch List and then monitoring it for longer before making the call. CrowdStrike (CRWD) and Etsy (ETSY) are two stocks that I bought into multiple times as I got to know more about their respective business. Others at this level: API, ADYEY, UBER, APPS, AYX, SNOW, OKTA, ASAN, FVRR
- Basket bets: $2k/month spread across a basket of companies via Folio Investing. These are trendy high growth stocks with a great deal of volatility that I want to keep on building over time through dollar cost averaging. My current basket includes some of those mentioned in the starter position bets as well as: ROKU, SE, FROG, ESTC, and ZS.
I am contemplating increasing my basket bets and having a couple different baskets vs. initiating random starter positions. This way, I can have more powder to focus on a small handful (2-3) of high conviction bets each year.
It’s going to take some experimenting to find something that feels right. Regardless, I know I’ll continue to increase my exposure to a variety of companies whose prospects I generally feel good about. There will be opportunities for me to buy the dip and increase my positions with some of these, as I did this year with Atlassian (TEAM) and Slack (WORK), so I will monitor carefully especially around earnings reporting time.
Risk & Remaining Calm
At this point, I feel like I’ve seen enough violent swings in my portfolio to remain calm during big drawdowns. Many of my stocks are highly correlated, and I’ve seen how cautious guidance or negative sentiment on earnings calls can instantly wipe out 30% of a company’s market cap. The key to remaining calm, I realized, is to have enough cash to feel safe in knowing that even if all the stocks were completely wiped out tomorrow, our family would be fine.
During good times, when prices keep on going up, cash sitting on the sidelines feels like a waste, especially with pitiful savings interest rates. I’ve felt the urge to lower our cash reserves and pile more into stocks. In fact, I did loosen up and lowered our family reserve amount from 18-months’ cash on hand to 12 months. But I think 12 months is as low as I’ll go to keep my peace of mind. We’ll continue with our monthly contributions to this account as well. This way, when the market plummets again for an uncertain duration like it did in March, I won’t feel the need to sell off and instead, can look to shop for bargains.
Sharing My Portfolio & YTD Performance
I published a Stock Investing page on this website to share a couple of my portfolios. The main reason was to pay it forward and share my investing activities as I had learned quite a bit by following others who shared their stock trades. The other reason was to help me stay focused and organized. Knowing that I would be publicly sharing my primary stock portfolio, it got me thinking twice about making haphazard speculative trades with little to no research. This in itself is reason enough to keep this page updated.
If you look carefully, you’ll notice that the Stock Investing page doesn’t include some of the stocks I mention above. I have a few other brokerage accounts where they’re held. One brokerage account, the Folio Investing one, is littered with bits and pieces of over 100 stocks that I’ve bought prior to Motif’s acquisition by Folio Investing. It’s a bit unwieldy and messy to share and the purchase price for the active “basket” changes each month as I dollar-cost-average, so I’ve held off on sharing this publicly.
I recently added a column to show % Gains/Losses to show the unrealized performance of my holdings, but I don’t disclose the absolute amounts I own, so it’s anyone guess how well my portfolio has been doing.
One exercise I did in writing this post was to see what the year-to-date (YTD) performance of all my purchases have been and what kind of return (all unrealized gains) I’ve seen on the cash deployed this year. The number as of Monday, October 19 was a little over 28%. I compared this with where I would be if I had put the exact same amounts at the same times into FZROX, Fidelity’s Total Market Index Fund where I have a large chunk of my index fund investments tied up. The returns there would be a hair over 10%.
28% vs. 10% feels good at the moment but I also know these things never remain fixed, and I can easily end up on the underperforming side of things. The key is to remain humble, know that it’ll always be a challenge to beat the market, and just continue being a student of business.
Here were my best performers where I had at least $1,500 worth of stock:
It’s fun to see charts like these and pat myself on the back for making the picks, but it’s just a snapshot in time and the stocks that made me a boatload of unrealized gains today could evaporate in a few months. My hope is that I can continue to hone my skills in sniffing out and sticking with businesses that have staying power, strong growth, and the ability to compound for years to come. The psychological component of being patient, being bold, and being prudent in the face of lots of noise will also present constant challenges. It’s a neverending game that I hope to keep playing.