Q3 2021 Portfolio Update
The content of this post, or any post in Stumbling About, is for informational purposes only and does not represent investment advice. My investing style is fairly aggressive, and suits my own personality and psychology…it may not suit yours. You should do your own research before using any of the information that I share, and especially before investing.
Welcome to Q4 2021!
Some context setting
My portfolio is primarily based on a Long Trend Momentum model that I created called Farfin. You can learn more about Farfin here. In addition, I will usually also have a relatively small investment in broad market ETFs, concentrated mostly in the Vanguard Total Stock Market Index ETF (VTI)1.
The combination of these typically results in my investments based on Farfin being 90%+ of my portfolio. However, I will opportunistically pick up other stocks when the market calls for it…and 2020’s Q1 nose dive called for it! As a result, my non-Farfin portfolio got up to nearly 20% of my portfolio, and currently sits at ~16%.
Given that my 2020 activity plays a material part of the current composition in my portfolio, I’m going take a little time to dive into that activity in more detail before hitting on this quarter’s results (hope you don’t mind).
A brief history of 2020 buys
2020 was a terrible year overall — notably the pandemic and continued racial injustice — and anyone that’s reading this is likely also quite familiar with the roller coaster that was the stock market.
In case you missed it, between February 19th and March 23rd of 2020, the stock market dropped by ~35% (in 5 weeks!). The world was rightfully scared, and investors shared that sentiment.
And, on March 16th, I started shopping. Between March 16th and the end of the year, my portfolio went from ~95% Farfin/5% self-picks to ~85% Farfin/15% self-picks. These “self-picks” fell into three categories:
Stocks that I viewed as relatively well positioned within industries/sectors that were hit especially hard
Individual stocks that were performing well pre-February 2020 and were disproportionately hammered during this downturn
Opportunities that I saw as a potential hedge for overall US equities
Industries that got hit hard
The list of industries whose stocks were hit especially hard during this downturn won’t surprise anyone: airlines, restaurants, hotels, movie theaters, physical retail, cruises, events, real estate, banks, etc.
I didn’t buy into all of it, but I did get much more active than normal (not hard because my normal is pretty inactive). Over the year, I bought into airlines, cruise lines, movie theaters, restaurants, REITs and banks. I like to hold stocks for more than a year for tax reasons, and most of these purchases I still own; however, I sold my cruise stocks within a matter of days after they rose 2x-3x quite unexpectedly. (Again, I didn’t like the tax consequence of this, but a bird in hand…)
For the rest, I do plan to sell them before the end of the year (or maybe into Q1 2022 at the latest). All in all, here are the stocks I picked up (current portfolio status in parentheses):
Airlines: Boeing (active), Airbus (active)
Cruise lines: Royal Caribbean (sold), Carnival (sold), Norwegian (sold)
Movie theaters: Cinemark2 (active)
Restaurants: US Foods (sold)
REITs: SL Green Realty (active), Realty Income Corp (active), EPR Properties3 (active)
Banks: Wells Fargo (active), HSBC (active)
One long term holding that also unexpectedly fell into this category was TransDigm Group. TransDigm is a supplier of aerospace/airline parts, has an incredible business model (the business model is so good that its biggest threat in my eyes will be government regulation) and its stock got obliterated during the downturn — it fell from a high of ~$650 to a low of ~$200 during this period. Take a look at this chart from January 2020 to September 2021.
I dove in headfirst and bought the stock near daily from mid-March through April of 2020, giving TransDigm the largest percentage of my downturn investment contributions by far. I still hold TransDigm (and likely will for quite some time), but sold roughly half of my holdings in Q1 of 2021.
Prior star performers
The second category of stocks I bought were those that were doing quite well prior to the downturn, and were hit disproportionately hard during it.
I looked at companies’ stock performance relative to the overall market over the prior 5 years (or however long they’d been public for those with less than 5 years of returns), and applied a discount factor based on this relative performance — e.g., if they’d beaten the stock market by 3x or more, then I would consider the stock if it was down by 50%, whereas a worse relative performance would require a larger discount.
After that filter, I did some fundamental analysis on each company’s financials (e.g., debt, cash flows, profits, etc.) to determine what to pick up. As I mentioned before, my intention was to hold these stocks for at least a year for tax reasons, but most I sold sooner based on accelerated performance. Here are the stocks I bought in this category, along with their current portfolio status:
Delta Apparel (sold)
Credit Acceptance Corp (sold)
The Trade Desk (sold)
Planet Fitness (sold)
Reata Pharmaceuticals (active)
Hedging the market
The last category of stocks that I bought during 2020 I classify as hedges against the overall US equity market (though the commodity stocks were bought in early 2021). These included investments in emerging market ETFs, solid dividend stocks and commodity stocks:
Emerging markets ETFs: Franklin FTSE India ETF (active), Franklin FTSE Russia ETF (active), Franklin FTSE Asia Ex Japan ETF (active), Franklin FTSE South Korea ETF (active), Vanguard Emerging Markets ETF (active)
Solid dividend stocks: Walgreens (active), AT&T (active), Aflac (active)
Commodity stocks: Cameco (active), Freeport McMoran (active), Anglo American (active), Fluor Corp (active), AB Svensk Ekportkredit (RJA) (active), Invesco DB Commodity Index Tracking Fund (active)
Overall, my 2020 return for the picks in the 3 categories above was 92.3%4. I still own most of what I bought, but as you’ve read, I’ve sold some and plan to be out of the rest5 by the end of Q1 2022.
Thank you for allowing me to digress, and now back to the present quarter.
High level quarter summary
Results: The overall portfolio was up +5.5% for the quarter, and is up +9.4% year to date6 (YTD)
Market Results: As a reference point, the market (VTI) was down -0.9% for the quarter, and is up +14.1% YTD (yep, I’m still behind for the year)
Buys: None (boring, how it should be)
Sells: None (boring, how it should be)
Top Holdings: DexCom remains the #1 holding at nearly 40%, and here’s the full of top 5:
DexCom (DXCM): 39.7%
Broadcom (AVGO): 18.2%
HEICO Corp (HEI): 7.4%
SeaGen (SGEN): 4.2%
Illumina (ILMN): 3.1%
Top 10 holdings: 82.1%
Below is a pie chart of my top 10 holdings for those that enjoy visuals.
My 3rd grade teacher told me to concentrate. I took that to heart and haven’t looked back since. Thank you, Ms. Berg.
Lowlights and Highlights
Lowlights
Let’s get the painful stuff out of the way, so that we can end with the positive.
The absolute lowlight for this quarter was the train wreck that is TAL Education Group. A little background:
In July, China came out with a proclamation that tutoring companies (e.g., TAL) are no longer allowed to make a profit
Not surprisingly, investors in tutoring companies (e.g., me) like to make profits
Ipso facto, TAL took a nose dive
Take a look at this wondrously glorious all-time stock chart of TAL vs. the Vanguard Total Stock Market Index ETF (VTI) — TAL is in blue, VTI is in green
As a result, TAL has gone from over 7% of my portfolio earlier this year to 0.4% of my portfolio at end of Q3 — what a ride!
TAL takes the cake for the worst performing stock for this quarter, and here is the full top 5 quarterly worst performer list (with YTD in parentheses):
TAL Education Group (TAL): -80.8% (-93.2%)
LendingTree (TREE): -34.0% (-48.9%)
Trupanion (TRUP): -32.5% (-35.1%)
Reata Pharmaceuticals (RETA): -28.9% (-18.6%)
Coupa Software (COUP): -16.4% (-35.3%)
Another notable negative is HEICO Corp, which represents ~7% of my portfolio and lost a little over 5% for the quarter. C’mon, HEICO, you can do better.
Ouch. OK, now let’s shake that off.
Highlights
Onto the good stuff. Coming out of Q2, I gave a pep talk to some of my classic top performers, and they didn’t disappoint.
DexCom, which represents nearly 40% of my overall portfolio came in with the top performance, gaining 28.1% for the quarter. Q1 (and most of Q2) wasn’t kind to DexCom, but Q3 made me proud (see the chart below). You go DexCom!
Here’s the full top 5 quarterly best performer list (YTD figures in parentheses):
DexCom (DXCM): +28.1% (+47.9%)
Cameco (CCJ): +13.3% (+18.3%)
Mesa Laboratories (MESA): +11.6% (+5.7%)
Salesforce (CRM): +11.0% (+21.9%)
Franklin FTSE India ETF: +10.3% (+25.6%)
Some other stocks worth noting:
While only posting a 3.6% gain for the quarter, Nvidia holds strong as my top performing stock this year at +58.8% — but watch your back Nvidia, DexCom is right on your tail…
EPR Properties, the movie theater property owner, lost almost 5% over the quarter, but has produced a +54.2% return for the year. People, if you’re reading this, maybe a movie this weekend? Thank you 😊
Looking to the future
To sell: As I mentioned, I’m planning to sell off the majority of my 2020 pickups over the remainder of the year, so expect some sell announcements in Q4.
To buy: One stock that I’ve been eyeing for a couple years is now coming in at what potentially might be the right price for me to buy — StoneCo Limited, the Square of Brazil7. It may soon become of member of the portfolio, TBD.
Q3 ended on quite a rocky note, and we’ll see if Q4 will follow suit. Fingers crossed on a nice rally to end the year!
Regardless, this quarter will be nothing if not exciting, and I look forward to seeing what the Fed, inflation, supply chain disruptions and the rest of the things I can’t control bring forth.
Oh, and if interested, you can see my whole portfolio end of quarter here — these are all my holdings, along with performance for the quarter. Enjoy!
The content of this post, or any post in Stumbling About, is for informational purposes only and does not represent investment advice. My investing style is fairly aggressive, and suits my own personality and psychology…it may not suit yours. You should do your own research before using any of the information that I share, and especially before investing.
Throughout this and other posts, when I refer to a stock’s performance relative to “the market”, I’m using the Vanguard Total Stock Market Index ETF (VTI) as the proxy for “the market.”
I know, I missed out on the AMC mania, but I still stand by picking up Cinemark given AMC’s balance sheet at the time.
While EPR is technically a REIT, I mostly picked it up as an additional movie theater play — EPR’s largest tenant is AMC, and nearly half of its revenues come from movie theater properties.
As with all of my return calculations, this is a time-weighted return; also, this return % does not include Farfin (which returned ~46% in 2020), it’s only for my self-selected stocks.
There might be a couple exceptions to this. Namely, I’m considering holding onto most of the emerging market ETFs and potentially Cameco as well.
All of my returns are calculated using time-weighted returns.
Remember, this is not investment advice, I’m just talking about what investments I’m buying / might be buying. I have an aggressive, concentrated style that wouldn’t work for most people. Every investor needs to invest based on their own needs, situation and psychology.