Sunday, May 30, 2021

Portfolio Updates (May 2021)

It has been another month of a roller coaster ride for US tech stocks and the shares in my growth portfolio have also taken a plunge. The selloff was attributed to the fear of rising interest rates as inflation picks up steam. While a high inflation environment may hurt stocks in the short run, history have also shown that stocks beat inflation over the long run.

Every time, after each crisis, the rich get richer, and the poor get poorer. So, despite the uncertain economic outlook, I will continue to stay invested. Just look at the net worth of billionaires before and during the Covid 19 season.


Source: https://www.statista.com/chart/22068/change-in-wealth-of-billionaires-during-pandemic/

(1) Growth Portfolio




Other than the two new additions for my US portfolio, UiPath and Alphabet Class A, I have been averaging down most of my US stocks. Practically most of my tech stocks had blowout quarters, yet the shares tanked after the earnings report. For instance, The Trade Desk, reported 37% revenue growth, achieved free cash flow, and announced a ten-for-one stock split. Yet the top ranked demand-side platform, which benefits from the rise of streaming services, still got punished down 26% in a single trading session. I believe investors are taking reference from FAANG earnings such as Google and Facebook, which had 34% and 48% revenue growth. Since mega cap stocks can achieve such high returns, investors are expecting more growth from smaller cap tech stocks to compensate for their higher risks. After all, it is about the opportunity costs.


Amazon 

Amazon.com has become so popular that it has become a verb. i.e., if your business is Amazon-ed, it means your business is disrupted.  Despite being an ecommerce behemoth with a market cap of USD 1.63T, its growth is not slowing down anytime soon. I bought a few shares before its earnings, hoping that the rumour of a stock split would play out. In the end, there was no stock split, yet Amazon crushed analysts’ expectations, with revenue up 44%, but stock price is hovering around the $3,200 range. 

 

Unfortunately, the rumours of a stock split turned out to be mere unfounded speculation. Although the stock split did not happen (yet), I have no regrets of owning shares of this company. In fact, a stock split does nothing to the fundamentals of a company. Like a pizza, you own more slices of it but smaller pieces after a split. Since history has shown that stock splits always drive-up stock prices (remember Apple and Tesla stock splits), my FOMO actually kicked in and bought the shares.


Most of us know Amazon for being an e-commerce company. Although the tech giant derives most of its revenue from e-commerce, this segment only accounts for 33% of its operating income, with Amazon Web Service making up the rest of its earnings. Despite the stellar growth in AWS, I believe this cloud infrastructure has only scratched the surface of cloud computing’s potential. 


Check out their clients: https://www.contino.io/insights/whos-using-aws



These are big companies like Adobe, Disney, Novartis, McDonalds, and Baidu. Even streaming giants such as Disney and Netflix, who are competing against Amazon Prime, are using AWS. Whichever side of the streaming services you are on, they are all contributing to AWS when their demands grow. Even Apple is said to be a client of AWS.

Furthermore, there is still a huge runway for AWS when 5G becomes more mainstream. When full self-driving and Internet of Things become the new normal, they will require low latency connectivity, which translates to a higher demand for edge computing and hybrid cloud. Since Amazon is an indisputable leader in providing cloud platforms and infrastructures (as seen with AWS Outposts and AWS Snow series), it will inevitably dominate the future landscape of 5G.

 

Roblox


This is a company which I added to my watchlist recently. From the surface, it seems like a platform for developers to create new games with limited coding knowledge and a multiplayer online game for young children and early teens. It currently makes money from selling Robux, an in-house currency which can be used to upgrade one’s avatar or enhance abilities of a game player. 

 

My belief is that Roblox is more than just a game but a metaverse platform which is gaining popularity. If you cannot attend a concert physically due to Covid 19, think of being present in a virtual concert. Lil Nas X has successfully hosted a concert in Roblox which attracted 33 million visits; it was indeed a roaring success. If one can organize a concert in a metaverse, one can also officiate virtual weddings, organize birthday parties, throw baby showers…the possibilities are (virtually!) endless. 

 

Secondly, Roblox is partnering with Tencent to develop its own version of Roblox in China, with the former owning 51% of the partnership. It also aims to focus on providing education in STEM (Science, Technology, Engineering and Mathematics). 

 

As China is the country with the biggest gaming industry due to its huge population, it is able to scale leaps and bounds by having access to the 800 million internet users. Moreover, having Tencent, which globally dominates the gaming industry, as Roblox’s partner, Roblox is able to benefit from its gaming expertise to bring the metaverse to fruition in China.

 

Currently, Roblox seems to be priced for perfection, trading at 46.5X price to sales ratio. Despite a rich valuation, one must look beyond its revenue and consider its bookings segment. Similar to deferred revenue, bookings account for cash which is received by Roblox but has not been earned. This can be likened to the case of Starbucks, whereby the value that is loaded into the Rewards Card will not be reflected as sales until coffee is bought. In Q1 2020, Roblox reported bookings of $652mil, up 161%. If we consider bookings as part of revenue, it would be trading at a more reasonable 23.4 price to sales ratio.






TTM for Revenue+Bookings= USD 2.285b
Market Cap (18th May closing)= USD 53.433b
Price/ Sales= 23.4x


(2) Dividend Portfolio




When the phase II heightened alert was announced, there was a sudden sell down in Singapore shares, particularly in the  bank sector and retail REITS. Even industrial REITS were not spared either, and I took the opportunity to add Ascendas REIT at $2.86 and $2.92. In my view, the REITS sell down was unwarranted since a month of heightened alert will not cause a fundamental change in their long term prospects.

 

The following Monday, I bit the bullet and sold off all my bank shares: DBS at $29.00+41.49%, UOB at $25.10+24.48% and OCBC at $11.70+14.91%. Unfortunately, after selling, the share prices took a turn and resumed its uptrend. Well, all I can say is short term pain for long term gain. From my blogpost last month, I have said that I would like to focus more on growth companies which can deliver superior returns, which the financial sector cannot achieve. That being said, I will still continue to grow my dividend portfolio by adding on REITS, as I would still like to grow my passive income.


I am currently sitting on about $108k in cash and will continue to add on to promising and disruptive tech companies for the long haul. The next few months will be rocky for tech stocks as the monetary policy outlook remains uncertain, but I see it as an opportunity to buy on weakness.

Stock Portfolio: $444,651

Total Cash at Hand: $108,000

Total Portfolio Value: $552,651




Portfolio1  Net Worth (Dividend+Growth): $444,651

Portfolio 2 Net Worth; $193,833

Total Cash at Hand: $108,000

Net Worth (Cash+Equity) = $746,484

Thank you so much for spending time to read my blog and I really appreciate you. If you enjoyed reading my blog, hope you can support me by liking my Facebook page here or share my post. Currently, I do not earn any fees through any affiliate programme or sponsor. If you have any queries, feel free to post them and I am happy to take questions! :)



Saturday, May 15, 2021

Investing during turbulant times

Unless you are living under a rock or you became a rock, you would know that tech stocks - especially shares of Ark Invest, which were once darlings of Wall Street - are having a meltdown. In my view, the current sell down is attributed to plenty of risky investing behavior in the past few months. These include speculating meme stocks, punting penny shares, and investing into the SPAC mania with no fundamentals; these were further fuelled by the rise of many new trading platforms with zero commission fees.

Truth to be told, my growth portfolio was not spared either. Instead of this month’s usual stock analysis, I will be sharing my strategy on what I am doing in these turbulent times.


Invest in FAANG Stocks

 

I would buy into FAANG (Facebook, Amazon, Apple, Netflix and Google) stocks to benefit from the stock market recovery earlier.

 

The Nasdaq composite is weighted by market capitalization like S&P 500, meaning that companies with large market capitalization will have the most significant impact on the overall index. Here is the list of the top 20 largest market cap tech stocks - it occupies 1/3 of the Nasdaq index. 

 

The direction of the stock market is mostly dependent on the movement of the stock index, which is driven by the ups and downs of the large cap companies. Hence, big cap companies will be at the forefront in stock market recovery while smaller cap companies take the backseat.

 


Furthermore, if the prospects of rising interest rates came true this year, then the large cap companies would be less affected since they have good earnings and generate huge amounts of FCF (Free Cash Flow) on a GAAP (Generally Accepted Accounting Principles) basis; comparably, smaller cap companies with high operating expenses relative to gross profit (Teladoc, Open-door, Fastly) will be worse hit. 


Therefore, holding on to tech titans like Apple or Amazon shares in your portfolio could counter some of the pain of the stock losses and ride out the volatility.


Put things into perspective and do not panic sell


In 2018, I first dipped my toes into the US market by purchasing 10 shares of Shopify at USD163. A few weeks later, the shares sank to USD 120, a loss of 26% due to the lackluster earnings report. To rub salt into the wound, one analyst predicted that Shopify is only worth USD60 due to its high price-to-sales ratio.The stock decline made me feel jittery, but being a long-term investor who knows their time horizon, I decided to hold on to my shares.




Fast forward a few years later, the miniscule drop is so insignificant compared to the gains I have made to date. My only regret is not buying more when it dipped. The lesson? Time in the market is more important than timing the market.



Retrospectively, it would not have mattered whether I bought Shopify at 5% lower or 5% higher.  Back then, Shopify was also trading at a steep price-to-sales ratio, but I agree that in the words of Warren Buffett, “it is far better to buy a wonderful company at a fair price, rather than a fair company at a wonderful price.”


If I had panicked-sold back then, I would have missed out the opportunity of owning shares of this great SaaS (Software as a Service) company. Similarly, in the current situation, I will continue to “hodl” all my growth shares because their fundamentals are intact and I have conviction in their ability to scale. In fact, the current stock market rout is an opportunity for me to add more shares at a discount.


Do Nothing


Sometimes, the best thing to do during a market correction is to do nothing. The Oracle of Omaha also famously said, “The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd nor against the crowd.” Being invested in the equity market for ten years, I have been through ups and downs of the stock market such as times when the US lost its triple AAA bond rating in 2011, the UK voted to leave the EU in 2014 and the US imposed more tariffs on China in 2019. The lesson I learned is that the stock market always goes up in the long run. Instead of getting so fixated with every sensationalized news headline that Wall Street wants every retail investor to hear, try doing... nothing! Ignore the noise in the stock market. Take a deep breath, turn off the news, and do not check your stock portfolio. 


Experience tells me that selling your shares during the stock market correction is the worst thing that a long-term investor should do unless you are a trader. In my case, I have a nine-year time horizon to achieve my goal of $3.909 million; therefore, in the grand scheme of things, two months of volatility does not matter to me.


If you have thoughts of selling your shares when they tank in hopes of buying them back at a lower price, consider this: you have no way of predicting when the stock market will recover, and simply missing a few best days in the stock market could be disastrous for your portfolio. According to Fidelity, missing the top 10 best days in the stock market could affect your overall return by half. Usually, the stock market performs best right after a correction.


S&P 500 index fund from 1980 to 2018

Look at the chart below. The S&P 500 index plunged 9% in a single day over news that the Federal Reserve would begin Quantitative Easing. Just a day later, it went back up by 9%. If you had cut your losses during the drop, you would have missed out 9% in a single day and all the big gains in the following month.


S&P 500 Index

With that being said, it is as important to know the reason for owning your stocks as it is to have a portfolio strategy. Investing should be like a game of chess, where you have a clear investing strategy, and not roulette, where you buy stocks which are en vogue at that point and expect them to rise sharply in a short period of time. Take a good look at your current portfolio, and if you don’t know the reasons why you purchased them in the first place, it is time to read up or do research on the companies you own. If you finally realized that the stocks do not match your risk profile, take it as a lesson learnt, bite the bullet and move on. To err is human, after all.

 

I remember a Facebook user just began his investing journey and was looking for a mentor. Another user responded, “you don’t need one; thestock market is your mentor.” Although it was funny, there was some truth in it, too. Only once you get your hands dirty and truly participate in the stock market long enough, you will understand that the stock market is like a roller coaster and volatility is part of the ride.

Thank you so much for spending time to read my blog and I really appreciate you. If you enjoyed reading my blog, hope you can support me by liking my Facebook page here or share my post. Currently, I do not earn any fees through any affiliate programme or sponsor. If you have any queries, feel free to post them and I am happy to take questions! :)

How did your stock portfolio perform this month? Are you affected by the tech stocks recent volatility?