Disruptive Investing

I've not written for a long time, and I've started this post several times. 

Paradoxically, the pandemic has given me more time to think, which means writing has not been as necessary to organize my thoughts. However, I think it's time for a portfolio check and some random thoughts. Random thoughts first.

• We moved to a house from an apartment. Statistics about pandemic-induced moving now include us. 
• The kids are in day camp, adjusting to the new normal. School will be virtual for the fall. We (parents) continue to make adjustments; work/life continues to change.  
• The pandemic is a physical challenge and we don't really know what the long term consequences will be. 
• The pandemic is also a mental challenge and we don't really know what the long term psychological consequences will be. So ... a system of staying centered, staying connected, and managing stress is just as critical as any physical measures. Maybe even more critical.

I can't remember where I heard this, some podcast, but it really resonated with me. Life has always been precious and risky and fleeting and full of challenges. This was true before the pandemic, is true now, and will be true. The pandemic is simply highlighting life's random twists a bit more. The key is what it always was: living in a way that is true to yourself; controlling what you can; finding meaning in the day to day. 

 
Ok, now a deep dive on investments. This is all about clear thinking and decision making in the midst of strange times. I should really do a post before I buy or sell an investment. 

A few lessons I've learned while investing during this pandemic (and during previous periods of volatility), in no particular order:

• The economy and the stock market are not the same thing. Therefore, don't let your view of the economy dictate your view of the stock market.
• The stock market and individual stocks are not the same thing. Therefore, don't let your view of the stock market dictate your view of individual stocks.
• Bubbles and crashes happen. Bubbles can take a long time while crashes can happen quickly. Therefore, it's important not to cry bubble too soon and miss big gains. Additionally, it's important not to get too bearish after a crash. (Yes, we had a crash. We might have another, but we already had one.)
  
• The biggest gains come from individual companies that are growing, have a compelling story and product, and capture the attention of investors. These companies can be winners for a long time. Therefore, don't sell them too soon. Just as you shouldn't catch a falling knife, you shouldn't jump off a rocket.
• Technical analysis is good to know but difficult to trade on. Therefore, do not make big decisions based on uncertain technicals alone.
• Make sure position sizes reflect confidence in the company and performance of the stock. Therefore, your largest positions should be confident bets on winners, not speculative lottery tickets on losers.
  

Ok. Now for a look at how the portfolio has evolved. 

PORTFOLIO EVOLUTION

April 2020

May 2020

In late April and throughout May my portfolio was nearly 20% gold-related and 5-10% energy. I am now completely out of those sectors. Gold mining stocks were big winners for me over the past year and they are still doing well, but I don't see them as buy and hold forever businesses. Gold is a trade on the economy and the stimulus, and I was finding it too difficult to anticipate. Because this was a trade for me, it was time to close it out and take the gains. I know, now, that I sold too soon. I'm ok with it. 

Energy stocks rebounded from crisis levels but are now in for a long slog. With unlimited capital I might've held for the dividends but I don't have unlimited capital. The real question is, with limited capital how do I want to be positioned to make all this investing worth it? Which investments have the potential to multiply exponentially? I think the answer to that question has something to do with the secular trends in technology and biotechnology and other select innovations. I wrote about this in Technology Is No Longer A Sector.

Now to the present.

June-July 2020

As you can see, Biotech, Life Science Tools, and Gaming have remained areas of concentration. My big additions have been in New Tech and New Retail, which have effectively replaced metals and energy. 

How To Move The Needle

My goal for the portfolio is to move the needle of investment gains in a meaningful way. Otherwise, why do it? 

One way to move the needle is to grind out modest gains year after year. For most people, this will be through index funds. I do have money in index funds, which is fine. However, if stock picking simply recreates index investing, then it's probably not worth the effort. 

Therefore, in order to move the needle, I need to find companies that are going to outperform over time and compound exponentially. We all know about Apple and Amazon and other companies that have turned modest investments into tens of thousands of dollars. They are big names; many lesser companies have also had exponential growth.

Let's see what's going on in my portfolio.

Bubble charts are fun. 

So here's what the chart says. The horizontal axis is the % gain -- so, farther to the right means a better return in % terms (not necessarily absolute $ terms). MRNA, way to the right, is up 250%. The vertical axis is cost % -- so, higher means a bigger investment / higher risk. Finally, the size of the bubble represents monetary gains. The bigger the bubble, the more money I've made regardless of percentage.  

Note: the chart only represents current holdings, not sales. I've sold much of my MRNA position, for example, otherwise the bubble would be a lot bigger.

As you can see, there are 3 standouts on the chart: MRNA, LVGO, and PINS. Livongo (LVGO) is a great example of a stock that could be a big winner. I bought LVGO in early June, and in 2 months it's up 109%. PINS was up 35% in one day last week. 

What these companies have in common: compelling stories and potentially game changing technologies spurring growth. Additionally, they have not been public companies for a long time. I'd say that recent IPOs (within 2-3 years) make up around half my portfolio.

So, all this has me optimistic. I might not have the next Apple in my holdings, but I might have a company that outperforms for several years. I've had stocks like these in the past and sold them too soon out of impatience or a negative macro view. Here's the thing -- I don't need the overall market or the economy to grow exponentially in order to win at investing. That sort of thinking has often tripped me up, and my instinct is to be bearish. But, if I'd let that dictate my new positions, I would have missed out on some of my biggest winners. I can move the needle with innovative, disruptive stock picks. Investing with optimism works better than the alternative.