Thoughts on my portfolio and markets - Quarter 3 2018
Updated on 11/14/2018
I started investing actively in securities market from late November 2017. Portfolio's asset growth in this time period has been around 135.8% (Month-on-Month) and net yield is around -3.51% at last Friday's closing. The benchmark that I previously used S&P 500 Total Return Index has a yield of 2.97% in the same time period. I recently changed benchmark index to MSCI ACWI and it has a yield of -3.54% in the same time period.
This is not my first attempt at investing. I started investing in securities market after downturn of Chinese market in early 2016. However, it is first time that I am actively managing the portfolio through my trading account via Robinhood app. In my experience, ~10 months is a short time to measure whether my decisions have been good or not. Most of my portfolio holdings are still trading at a discount to their respective valuation (in my opinion). Given a chance to start afresh I would invest in these companies again because their stock prices are even more cheaper.
My current feeling is that I am still a beginner to investing, markets and businesses in general. Operating a portfolio is like running a small startup and asset growth is not profitable if there is no yield. All my investment and business knowledge is either from asset management or high technology venture investing. There is much more to business and I have yet to learn it.
In addition to my decision fallacies, securities market is also affecting the portfolio.This is because most of my investments are in listed securities. I have tried to reduce correlation by reducing my investments in index based funds or equities such as FAANG which are owned by most fund managers or exchange traded funds (ETFs). In uncertain and rising interest environment, securities market do not seem to do well. It remains to be seen whether I need to re-think my investments or is it just uncertainty in securities market.
Historically, my bias towards technology and industries has led me to screen out financials and insurance companies (excluding Berkshire Hathaway since they also have major interests in railroads, energy and other industries). I have not been able to properly assess technology industry since they seem to be overvalued by business metrics that are most important to me even though they are some of the well-run companies among the listed equities. To solve this problem, I have allocated a sizable position in an exchange traded fund run by a manager and team that in my view are amazing when it comes to technology investing. Rest of my investments are mostly in listed securities that in my view are undervalued yet I am optimistic about those businesses or the industries environment in which they operate.
I don't need to report any of my holdings since they don't cross thresholds set by SEC (securities and exchange commission of United States). Although, I can share following about portfolio:
26.3 % - cash
20 % - auto company in US
14 % - telecommunications company in US
11 % - internet company in South Africa
8.3 % - footwear company in US
8 % - (actively managed) Technology ETF
4.5 % - Bitcoin (BTC)
3.7 % - (passively managed) Value index ETF
~5 % - starter positions in broadcasting and apparel companies
You might ask why so much cash. The answer is that I am a student who is also working part-time (currently my only means to grow asset base). So, it is hard to find time as well as discover interesting opportunities to invest in. Thus, the cash keeps increasing but it is very hard to deploy. If I can't find good assets to invest in, I don't.
In the age of internet and high technology, it might be interesting to you that my second largest allocation is in an auto company. My current view is that this particular auto company is trading at a valuation quite lower than its intrinsic value of its asset and future earnings potential. Outside of Tesla Motors, auto industry future seems bleak but it's not actually when you look at the management and performance of this particular company.
I am also very optimistic about internet and technology since I have grew up just around the time internet and computing became pervasive across the world. For some reason that I can't understand, computing and internet companies are trading at stratospheric valuations that make them outside of my universe of investment opportunities. Hopefully, a correction in securities market brings the valuations of these companies back to a more reasonable level. These companies are going to stay and keep growing for a long time because of their numerous applications in daily life. So, I have decided to invest in companies and sub-sectors that are really important (in my view) which are communications & computing infrastructure and consumer / business application providers. In fact, my thesis is even reflected in the portfolio - around 32% of my holdings can be qualified as technology / internet to be honest.
Sometime ago, I built a small position in Bitcoin as well because it is not correlated with other asset classes that I have alread invested in. Also, Bitcoin has had the staying power that few technologies or industries have had in human history. My bet is that either this position will outperform all my other positions or underperform more than all of them combined by a factor of 10 over medium to long term. I plan to average up but keep it under 5% my portfolio for at least next six months unless there is an unusual price action. Rest of the positions were made when I was beginner or that they seemed interesting to experiment at their valuations.
In my weekly portfolio review, a week back, I realised that my investments and my universe of opportunities are quite different from S&P 500 Total Return Index. On further research, I found MSCI ACWI Index is a more appropriate index. I have also invested in BTC, so no standard benchmark can actually work but I think because of the geographic locations that these portfolio companies operate in, MSCI ACWI seems to be a better choice of index.
Conclusion:
I still have to learn a lot and portfolio yield is less than 0. I am making a loss in my investments, which is unfortunate. Yet, I am comfortable with the risk I am undertaking and willing to experience even more downturn since I have confidence in these positions. I am flexible to change my strategy or view but I don't think right now I need to be worried about the future of portfolio holdings. If I do proper work and due diligence with my investments, I believe yield will come. In the meantime, I can always discover new opportunities to invest in or work (to grow the asset-base).
Disclaimer:
This is not investment advice nor should it be treated as such. It just presents my current view about my portfolio and markets. One should do their own due diligence or get an investment adviser for their investments.













