A monthly update of the Compound 8 to 80 Portfolio…
Performance Review and Market Environment
The 8 to 80 Portfolio gained 5.75% (net of fees) in June. Since inception (October 2020) the portfolio has gained 13.57% (net of fees).
The broad markets finished higher in June with growth/technology stocks leading the way. This was a reversal of the trend over the last few months, where reopening trades and value stocks had been outperforming growth/technology.
The US is likely approaching herd immunity, with covid-19 deaths down to their lowest levels since the start of the pandemic, a 93% decline from January’s peak.
With covid-19 becoming less of a risk, Americans are on the move again. US airline travel is now averaging 2 million passengers a day, closing the gap with pre-covid levels.
This surge in demand has led to a continued increase in Crude Oil prices, which are now back above $75 a barrel for the first time since October 2018.
Gas prices are moving up in tandem, with drivers paying the highest prices at the pump since 2014.
Thus far, investors have largely ignored the inflationary spike, shrugging off a 5% CPI reading (highest since 2008) and core inflation of +3.8%, its highest level since 1992.
The rationale behind the sanguine attitude: higher prices are a direct result of higher growth and more demand, all favorable trends.
With corporate earnings hitting record highs in Q1 and the Fed maintaining the easiest monetary policy in history, it’s indeed hard to make a pessimistic case today. As a result, the risk/reward has becomes less favorable, as optimistic investors have driven prices and valuations higher.
Exhibit A: junk bond yields are now below 4% (the lowest ever) and are just one frothy example out of many.
That said, no one knows when the music will stop, and all news seems to be good news for the time being. But rest assured that there will be bumps ahead, as there always is.
Onto the portfolio…
-Zoom ($ZM) reported earnings ($1.32/share vs. $0.99 consensus) and revenues ($956 million vs. $906 estimate) that handily beat expectations.
Revenue increased 191% over the last year while Net Income increased 741%.
Zoom issued strong guidance for the remainder of the year, easing investor concerns over a post-covid downturn. It appears that video communications are here to stay, and Zoom remains a favorite among businesses.
Zoom shares rallied throughout June and the stock is now back in positive territory on the year, up 42% from its low in May.
-Elastic ($ESTC) continues its rapid pace of growth, with a new record in revenues ($177 million) during the most recent quarter, up 44% over the prior year.
Elastic now has 48% of Fortune 500 companies as customers and is quickly becoming a leader in enterprise search. They are projecting annual revenue to grow to over $1 billion by 2023.
-Nike ($NKE) has completely recovered from the short-lived pandemic downturn, reporting record revenues of $12.3 billion (vs. $11.0 billion estimate).
The stock gapped up to a new all-time high on the news with sneaker and apparel sales trouncing expectations.
-Shopify ($SHOP) announced that it will soon be opening up its e-commerce checkout system to all retailers selling through Google and Facebook. This is big news as it means shoppers on Instagram, YouTube, or Google Maps will now be able to pay for their purchase using Shop Pay, regardless of whether they are Shopify merchants.
Why is Shop Pay becoming the industry’s gold standard?
The announcement was well received, with Shopify shares rallying back to a new all-time high for the first time since February.
The top performers during June were Elastic (+23.3%), Twitter (+18.6%), and Shopify (17.5%)
The bottom performers during June were Tencent (-3.9%), the US Cannabis ETF (-3.7%), and Jamf (-3.2%).
Initiated new positions in Farfetch ($FTCH) and the Ethereum Trust ($ETHE).
Exited Lululemon ($LULU) on concerns about their “mirror” offering and increased competition.
Howard’s Latest Thoughts
- I finally got my Peloton ($PTON) and I love it. So does my wife who is not a cyclist or a fan of spinning classes. I love the ability to do short classes on busy days and burn a lot of calories. It is very efficient. The social network part including the challenges is not for me, but I am in the small minority. I can imagine how fun and motivating it can be for most.
- After owning $LULU a very long time I have decided for now to drop it from the 8 to 80 portfolio. I am not bearish, but I worry about the rollout of ‘the mirror’ in their stores. I don’t think it will catch on and I also feel that the competition in the mall and in my Instagram feed for yoga and niche streetwear leisure clothing will slow $LULU down If I am wrong and the sales continues to grow fast, I can see adding the stock back again.
- In the meantime, I added Farfetch ($FTCH) into the 8-80 which is also a ‘fashology’ company (fashion and technology). I have followed the company/stock for a while. I love the luxury focus of this brand which helps boutique high end brands and creates special ‘drops’ that sell out fast. Farfetch has a massive reach into luxury customers around the globe and should be able to grow fast for a long time. Like any fashion brand (even fashology) there will be hiccups and that is when I look to buy. Farfetch had pulled back from the 80’s and so buy we did.
- I also added Ethereum ($ETHE) after a more than 50 percent pullback. Like Bitcoin, I consider Ethereum a public market venture capital position. We do not know if Ethereum will be the ultimate blockchain winner, but today most developers are building on Ethereum and the best time to add category leaders is after pullbacks like this. All eyes are on them in early July as the developer community looks to put in place a system to control inflation and burn Ethereum which would limit the growth in supply.
End of Month Exposures
Cash and Cash Equivalents: 18%
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Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security.
Past performance is no guarantee of future results. Performance results are shown net of fees and include dividends and other adjustments. All performance data is strictly illustrative and may differ from actual results.
Discussion of portfolio holdings are for illustrative purposes only and are not investment recommendations. The portfolio holdings are subject to change at any point in time.
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