8 to 80 Monthly Update – December 2021

By Charlie Bilello

10 Jan 2022


A monthly update of the Compound 8 to 80 Portfolio

Performance Review and Market Environment

The 8 to 80 Portfolio declined 2.22% (net of fees) in December.

December was another challenging month in what has been a difficult year for stock picking, particularly among high growth names. Many of the market leaders from 2020 posted substantial declines in 2021.

The multiple compression within this group has been severe, with any hint of a slowdown in revenue met with sharp declines.

Within the technology sector, software ($IGV) and cloud ($SKYY) names have been particularly weak, with relative strength against the Nasdaq 100 ($QQQ) at their lowest levels in many years.

Part of this is simply mean reversion, undoing the extreme valuations we saw in early 2021. But another part is rising interest rates and the increased likelihood that the Fed will start hiking rates in March (75% probability according to Fed Fund Futures, with 3-4 hikes priced in by year-end).

On that front, the bond market is already repricing, with 1, 2, 3, 5, and 10-year Treasury yields now at their highest levels since the start of the pandemic.

The question for investors in 2022: will the end of ultra-easy money mean continued pain for high growth stocks, and if so, will that pain extend to the major equity indices which have thus far been left unscathed?

As always, the future is unknown, and investors should be prepared for multiple possible outcomes in the years to come.

Onto the portfolio…

Portfolio Updates

-Elastic ($ESTC) reported another quarter of record revenues ($206 million), up 42% from a year ago.

Despite this high growth rate, the stock declined 20.8% during the month, as multiples across the software space contracted. Elastic now trades at 15x sales, down from 28x in early 2021.

-Nike ($NKE) reported revenues ($11.4 billion) and Net Income ($1.34 billion) that beat expectations but also revealed a slowdown in growth (1% YoY increase in revenues, 6% YoY increase in Net income).

Covid-related factory closures impacted inventories and expenses throughout 2021, and Nike expects supply chain issues to persist in 2022.

Digital continues to be a bright spot for Nike, with 12% YoY sales growth as the company is increasingly selling goods directly through its own website.

Nike also announced an acquisition of a virtual sneaker company (RTFKT), viewed as a way to gain exposure to the fast-growing metaverse. Nike’s CEO John Donahoe call the acquisition “another step that accelerates Nike’s digital transformation.”

Portfolio Movers

The top performers during December were Jamf (+17.9%), Zillow (+17.7%), and Mastercard (+14.1%).

The bottom performers during December were Ethereum Trust (-29.3%), Bitcoin Trust (-25.9%), and Elastic (-20.8%).

Portfolio Changes

-Reduced position size in Apple ($AAPL) after a large advance.

End of Month Exposures

Invested: 68%
Cash and Cash Equivalents: 32%

To learn more about the 8 to 80 portfolio managed by Compound, read our post and FAQ here.

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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.

For our full disclosures, click here.

About the author

Charlie Bilello

Charlie is the founder and CEO of Compound Capital Advisors.

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