Portfolio Review – 1/1/21

2020 Year End Thoughts

For me, 2020 was the first real test of a year as an investor. I was too young to be invested during The Great Recession. For the first time ever, my stomach turned when I looked at my investments on March 16th, 2020. I had seen a couple of days of the market being down 3-5%, but this time it was down close to 10% and things didn’t look like they were getting better. This was the first time that I thought maybe I shouldn’t continue to put money in and wait a little bit. I am usually the type to preach the old phrase “time in the market is better than time out of the market”, but I didn’t fully believe it on that day. I still have an investment horizon of 30+ years, but I’m still a human with emotions. 

Due to my long time horizon, I did view March as a buying period and I came out the better because of it. No one knew how quickly the stock market was going to rebound and no one will ever know that question. My investment thesis is still built upon the idea of if you invest for decades, you’ll come out on top as long as you are semi-smart with your money.

This is a good reminder for me that if I see attractive companies discounted, I shouldn’t worry about if they will rebound within the next couple of months or even the year. As long as I think they will be able to make it through whatever the current economic crisis is, I should jump on the opportunity and not wait on the sideline.

For the year, my portfolio across my general investment account, Roth IRA, and 401k returned a total of 42.5% compared to the market of 16.26% for 2020. I’ve seen people on Twitter have some crazy years doubling or tripling their account values, but I’m more than happy with my performance for this year. As I said earlier, this was my first true time being tested as an investor and I think I passed the test according to my own scorecard. 

When things were dropping in March I upped my 401k contributions and told my friends to do the same. I put in more money into the companies that I thought were going to have outsized returns for the future. I opened up a couple of new positions in companies due to the discount. I plan on doing the same the next time an opportunity like the middle of March shows itself to me.

Of course, this is all being said with a smile on my face because everything rebounded quicker than expected and the market is at record highs as I write this. It is important to realize that my investment decisions weren’t so brilliant that they rebounded the market. There is an element of luck when you are examining your investments in a short time horizon. The luck factor reduces its importance as you have a longer time horizon for your investments.

2021 Outlook

I feel silly even writing the section “2021 Outlook” because I don’t think I can predict the future at all. Go back and try to read every smart person’s 2020 market outlook and see how many of them predict a global pandemic. For all I know there could be another horrific event that turns the world upside down again or maybe we could be on the cusp of world peace! 

Regardless of what gets written in the history books for 2021, I still think some trends will continue over the next several years that I want to be able to ride:

  • Cashless Transaction – This can be derived from more people spending their money online for their purchases or the ease of using a touchless credit card to pay at the store. No matter where payments are being made, cash is being used less frequently.
  • eCommerce – More and more of my own personal purchases are coming from the internet. I just bought Settlers of Catan as well as a pack of Gillette razors at 10 am this morning and they are supposed to arrive at my house by 6 pm on the same day! How crazy is that?!
  • Disruption Comes Through Technology – The companies that will continue to push the world forward are the technology companies. Every company now sells itself as a “technology company first that does *fill in whatever activity you want*”. We all know the major players which have dominated the 2010’s, but it will be important to be the lookout for other companies that might come out on top of the 2020s.
  • Consolidation is Happening at a Quicker Rate – For better or for worse, power is being consolidated into a couple of key main players. I know that if I’m going to make a purchase online I’m going to check Amazon first since I’ve got a Prime membership. Almost 95% of the time they have the item that I want so I purchase it there. This consolidation has helped the FAANG stocks to have outsized returns over the last 5 years, but I do feel some real momentum on the potential of breaking up these players. My guess is that it won’t happen in 2021, but it’s something to keep our eyes on.

With all of that being said, I still plan on keeping a large percent of my money in safe market-wide ETF’s. I want to be able to retire comfortably and be able to sleep at night not worrying about my investments. I do want to try to find companies that are able to take advantage of these broad trends and continue to put money into my winners. 

The concept of adding to your winners is something which I’ve learned from the Motley Fool. It initially seems wrong to add to a stock that is already up over 100%, but those couple of stocks that you have which are performing exceedling well is what drives your portfolio above the market. Being able to hold an exceptional company for 20+ years is how you can really generate wealth through the appreciation of the stock and the compounding of the dividends it pays (if it pays dividends).

It is still important to realize that the stock market doesn’t equate to the overall economy and the well being of the world. The current US unemployment rate is slightly below 7% compared to it being 3.5% at the start of the year. Many hospitality based jobs have either been cut or have seen reduced hours. I’m in the fortunate position where I can put additional money I have into investing, but this isn’t the case for most. It is crucial to continue to help out those in need through donating money, time, or effort to causes you care about. Just writing this out is the reminder that I need because it is very easy to focus on yourself and not the world around you.

2020 Portfolio Performance

As I’ve stated earlier, I had a great 2020 just like many others invested in the market. I wanted to do a little more analysis on where the growth of my portfolio was really coming from. To start off, I wanted to look at the breakdown of how much of each of my holdings make up my total portfolio.

The majority of my portfolio is in broad-based ETFs. Like I’ve said previously, I am investing to position myself for retirement, but I still want to be able to sleep easy at night. Investing in a broad stock market ETF has been a great way to generate wealth and I plan on trying to copy that for myself. I do have some individual stock holdings because I enjoy the process of investing. It is a little bit of a game that I want to be a part of while understanding the risk I am taking by investing in individual securities compared to index ETF’s.

I wanted to have a view of the total unrealized gains of my stocks. I had an idea of what stocks have done well for me, but I wanted it visualized. The graphic below shows the total unrealized return of my holdings since the inception of my portfolio.

I knew that SQ was a winner for me, but I had no idea how much of a winner it was compared to my other holdings. I’m happy to see that most of my large holdings have had a positive total return for me. 

It was interesting to see the total returns of my stocks, but I wanted to see what stocks were driving my return compared to the size of the stock in my portfolio. I wanted to see if there were stocks that had an outsized return compared to the size of my portfolio it takes up. I expected to see that the holdings which take up a larger percent of my portfolio should also have a higher percent of where my gains are coming from.

I am able to see that VGT, MSFT, MMED, and SQ all had outsized returns compared to its position in my portfolio. I’m also able to see that T has been my only long term holding that hasn’t appreciated in value. I want to continue to add to my winners and this view can give me a quick glance of where my winners are in my portfolio.

Despite being a long term investor, I did do some selling in my portfolio. I plan on always contributing more than taking out of my investments, but below are a couple of investments which I divested in 2020.

I picked up SBUX in March and I decided to sell it to pick up some additional holdings that I liked. I wouldn’t say I regret selling it, but SBUX is a fantastic long term hold and is currently at an all time high. Those are the companies that I like investing in and I would have been happy to hold it for an indefinite period of time.

Current Portfolio Holdings

The holdings below look across all of my stock holdings in my general investment account, my Roth IRA, and my 401k. I think it’s important to have a holistic look at my total investment portfolio rather than looking at just my general investment account, which is where I have my individual stock holdings.

  1. VTI – Total Market Vanguard Total Stock Market (26.78%)
    It’s hard for me not to have a total stock market ETF not be my largest holding. I still am a believer that is near impossible to beat the market over an extended period of time. I don’t think I’m smart enough to correctly pick individual stocks that would outperform the market, so that is why about a quarter of my portfolio is the market. A large amount of this comes from my 401k where I add to this position automatically every two weeks. I also have VTI in my general investment account as well as my Roth IRA. For the rest of my life I expect to continue adding to the position and the magical power of compounded interest will take me into retirement with this cornerstone piece.
  2. VGT – Vanguard Information Technology (16.88%)
    VGT has been the position that has driven my portfolio forward over the past couple of years, just like how these tech companies have driven the overall market to record highs. Not only has VGT continued to outperform the market over recent years which has made it a larger part of my portfolio, I’ve continually added to it making it an even larger share of my overall portfolio. I typically like to look at VTI and VGT as my main two ETF holdings if an individual stock doesn’t strike my fancy. I am a little concerned that we could see some turbulence with the potential of breaking up the large tech companies, but I’ll continue to add to this position for now.
  3. MSFT – Microsoft (7.33%)
    Microsoft has been my favorite individual stock to own over the last several years. I almost treat it a little like an ETF that if I don’t know where to put my money, I’ll continue to add to my MSFT position. I’m still learning how to properly value the CEO position in regards to a company, but I really love Satya Nadella. I read his book, Hit Refresh, a couple of years ago and I think he has been a major contributor to Microsoft turning the ship to becoming a stock market darling again. Windows powers most office places, schools, and governments. I believe cloud computing will continue to grow and Microsoft is in a great position to continue to grow their business.
  4. VYM – Vanguard High Dividend Yield (6.36%)
    I’ve truthfully had a little bit of a love/hate relationship with VYM. I was honestly shocked that it is my 4th largest position, but this is due to the contributions I make towards it via my 401k. There has been very little capital appreciation to VYM which is why I haven’t purchased it in my general investment or Roth IRA account in over a year. At the same time, capital appreciation isn’t the goal of this. This is all about getting dividends that will grow over time. I really should be seeing the result of this when I retire. This is more of a defensive position where I won’t be wrecked in the next economic downturn.
  5. VUG – Vanguard Growth (5.62%)
    This is a recent addition to my portfolio. There is a lot of double-dipping between this and VGT. The top 5 holdings of VUG are AAPL, MSFT, AMZN, GOOG, and FB. Even though this is labeled as “growth” these are still the mega large-cap companies. These aren’t small biotech companies that have the chance to cure cancer (that comes later in my portfolio), so I still view this more defensive position with some upside, all assuming that tech continues to outperform and drive the market forward.
  6. VGTSX – Vanguard Total International Stock Index (4.64%)
    Even though International stocks have lagged in the US, I think it is still good to gain a little international exposure. I think I might trim this position down a little more, but I think somewhere between 3-5% of my total portfolio is a fair position to have, especially since over 25% of my portfolio is the Total US Market.
  7. MMEDF – Mind Medicine (4.32%)
    By far my riskiest investment. I’m really breaking a lot of my beliefs as an investor with my investment in MindMed. MindMed doesn’t only lose money, but they don’t have any recognizable revenue. MindMed does psychedelic based drug research in hopes of developing drugs which will help mental health. I think we’ve all heard from friends and families that the current drugs on the market don’t always work perfectly, and I’m a believer that psychedelics could be an alternative. I made a similar investment into Canopy Growth with weed stocks several years ago. MindMed has applied to be part of the NASDAQ and I think more capital will begin to flow into the space, just like when weed stocks popped a couple of years back. Oregon was the first state to legalize psychedelic mushrooms back in November. I see more states following suit and the general investment community will want a share of the pie in the coming years.
  8. VMFXX – Vanguard Federal Money Market Fund (4.21%)
    My cash position. This honestly is more cash on hand than I usually have. I think my money does more work being in the market rather than on the sidelines, but I think having a cash position be somewhere between 2-5% of your portfolio is an ideal amount for when you want to add to a winner or begin a new position.
  9. AAPL – Apple (3.85%)
    Just like with Microsoft, I never feel bad purchasing a couple of extra shares of Apple. I opened up my first position this year back in the middle of March. I plan on continuing to add to this position throughout 2021. I’m by no means an Apple fanboy, but it’s hard to find a bad product they make. I’ve been an iPhone guy for a while and I assume the next phone I buy will be another iPhone. I even just tried on a friend’s new Apple Watch and I was very impressed by it. I could see a future where the Apple Watch could be as popular as the iPhone itself. Apple has been able to assert their dominance with their products, but now they need to be able to translate that ecosystem into services sales. Of course, this is all speculation, but one thing that isn’t speculation is Apple’s ability to sell products while having close to $200 billion in cash on its balance sheet.
  10. SQ – Square (3.67%)
    Square was the best investment I made this year. I also bought this back in March when it was $46 a share and now it’s $217 a share. It always puts a smile on my face if I’m making a purchase at a store and I see a Square reader being used. Like I’ve previously said, cash is being used less and less. I barely even carry cash on me anymore and I don’t see myself starting to in the future. Despite Square’s rise to fame due to the card readers, the company has expanded to offer many financial services to businesses and consumers. The Cash App has been a major success for Square as well as their ability to provide loans to businesses. I look forward to seeing what other advances Square will be able to make in the Fintech space in 2021.
  11. V – Visa (3.20%)
    Visa was one of my first long term investments. Visa had an “off-year” compared to the tear it had been on. Seriously, go check out their stock chart. It is exactly what you want to see for a long term investment. Visa didn’t break out like some of the other stocks this year, but that is fine by my book. They are the payment rails that allow me to use my credit card online or at the store. Anytime I purchase something, they take a little piece of the transaction. Whether you are invested in Visa or MasterCard, they have both been fantastic investments over the last 5 years and I believe they will continue to do so for the foreseeable future.
  12. SE – Sea Ltd. (2.88%)
    Sea is another new addition to my portfolio this year. This was a stock that I was eying for a little bit of time, but was holding on buying because it kept going up! I feel like many people can miss on opportunities just because a stock keeps increasing in value and I didn’t want to miss the boat on this one. Sea operates in E-commerce, payments, and video games in Southeast Asia (as well as an introduction into Latin America). I look forward to continuing to build up a larger position in Sea.
  13. T – AT&T (2.13%)
    This is the one laggard in my portfolio. I’m tempted by the dividend yield and the stability of the business. There was a time period where if I had a little extra cash in my account I would throw it into AT&T for the dividend yield. I’m planning on keeping this position as a stable part of my portfolio which has a nice dividend yield. This isn’t going to be the stock that makes me the next millionaire and that’s alright. If my portfolio was made up consistently of home run swing stocks, that isn’t so much of investing rather than gambling.
  14. VOX – Vanguard Communication Services (1.78%)
    Once again, a stable ETF that pays a slight dividend. I prefer to put my money into VGT and VTI over VOX, but I initially bought this when Alphabet, Facebook, and Netflix were put into the ETF. I don’t know if I’ll be adding to my position, which makes me question why I have it in the first place? This will be something that I might want to reconsider in my thesis of why I own it in the first place.
  15. APPN – Appian (1.56%)
    One of the latest additions to my portfolio. Appian provides low code applications to their clients in order to build applications quicker and more effectively. I recently listened to an interview with its founder and CEO, Matt Calkins, where he discussed how Appian was able to help build applications that a University used to track COVID testing. The application needed to be built quickly and effectively which Appian was able to deliver.
    They are also DMV based which gets an extra point in my book!
  16. BABA – Alibaba (1.40%)
    Alibaba was recently one of my largest holdings. I had set up stop losses on some of my holdings to lock in my profits. I have no idea when the next time there could be a major drop in the stock market, and I wanted to be able to lock in some of my profits. Due to the stop loss, I sold some of my shares with the recent news coming out that the Chinese government was looking at potentially breaking up Alibaba. I still have a slight position in my portfolio and was able to lock in some profits.
  17. ARKG – ARK Genomic Revolution (1.12%)
    Another new small addition to my portfolio. ARK has gotten a lot of attention in the financial media due to the performance of a couple of their ETF’s. As it says in the title, this ETF focuses on stocks in genomics. The most notable stock to me is CRSP which has received a lot of attention over the past couple of years. I view this as a little bit of a flyer as an investment, but I plan on holding it for many years to come.
  18. DKNG – DraftKings (1.07%)
    With some of my profits at the end of the year, I decided to dip my toes into DraftKings. I’ve started playing daily fantasy for football over the past 2 years and it has brought me back to the NFL. Even though I just have a couple of dollars on the line, it makes me more engaged in the product. In addition to the daily fantasy which DraftKings is known for they are increasing their sportsbook presence. Sports betting was made legal in DC, but I have to use the government-backed app. More and more states will continue to legalize sports betting and I think DraftKings will be in a prime position to take the money which is currently in offshore sites.
  19. ICLN – iShares Global Clean Energy (0.65%)
    People care about the environment. We’ve seen it in the 2020 Democratic debates, but clean energy solutions will continue to grow in the 2020s. This is an ETF where I don’t have to worry about which companies are going to win in clean energy, I am able to benefit from the growth of the industry.
  20. VNQ – Vanguard Real Estate Index (0.54%)
    I initially bought this when I opened up my Roth IRA last year. I made a very small investment and I haven’t added to it since. It hasn’t performed since I have purchased it. I think I’m going to look into selling out of VNQ and look to adding to ICLN due to the capital appreciation I believe I can get from ICLN.

Feel free to drop me a follow on Twitter @TheRealPandL if you want to discuss any of this!