February 2021 Review
Stocks go down faster than they go up
Overview
The end of Feb 2021 was about as much fun as the end of Feb 2020.
A solid reminder that good investing can be simple, but is not supposed to be easy. Although I’ve shifted to monitoring performance over longer time frames, it is disheartening to see a portfolio drop roughly the equivalent of your post-tax annual salary in about a week.
The flip side is that you can easily argue that 2021’s run up till mid-February was not something that could be justified for the majority of the companies that I hold, especially after 2020.
Easy come, easy go I guess.
Portfolio Changes since end January 2021
Sells
80 shares of $AYX at ~ $111 - position closed.
I sold out of Alteryx because I think the business quality has deteriorated. I do not have high confidence that the opportunity cost of seeking a turnaround is worth it for me.
Just before ER at $140 would have been a great time to get out of $AYX. But I didn’t, sadly.
After listening to the ER call, I realised that I didn’t have high confidence in the management team. The numbers at ER were not surprising. It wasn’t the price action that caused me to drop my position either. It was much more of a qualitative assessment - Mark Anderson may be a good sales operator, but my personal take is that he lacks charisma and passion. He describes himself as a knuckle dragger - what does that even mean?
I never got to the bottom of his real reason for leaving Anaplan $PLAN less than a year after joining, claiming he needed time with family and then becoming $AYX CEO 6 months later…
I’ve been reducing my position in Alteryx for the last few months, and I don’t see much to persuade me to change my stance at present. Losing their CRO - hired in January 2021 doesn’t help either. It makes me wonder about the quality of the judgement and decision making at the company….
You can make the argument that AYX stock at $96 could represent a reasonable “reopening play” for some, but all the moving parts have led me to feel it’s just not something I want to be in right now.
Buys
$API - added 5 at $68.5 at the beginning of Feb. Was the pre-breakout resistance, which became support for a short while, before it got smashed. Oh well.
Current Portfolio Allocations via Google Sheets
The Market’s Mood Towards My Portfolio at the End of Feb
Almost every company in my portfolio was indiscriminately sold off in the last week of February. As I’ve said multiple times on this blog, this should not come as a surprise. There was notable relative strength in $ZS, and $MDB - but how long it lasts is anyone’s guess.
I had actively considered completely clearing all outstanding loan debt in Feb, given my sense of the potentially unattractive near term risk/reward profile of parts of my portfolio.
The main thing that held me back was capital gains taxes.
My stocks are split across two accounts. I have a tax free UK ISA account with Interactive Investor (ii). I can contribute up to £20,000 a year into this account and there are no taxes on any gains, regardless of the holding period.
The bulk of my investments are held in my ISA. However, the FX costs are high (all ISA transactions are in GBP so you get hit twice on FX and transaction costs if you sell a US stock and buy another), some ADR stocks like $SE, $BZUN, and $API can’t be held in an ii ISA.
I also have a general investment account (GIA) that I hold with Degiro. In my GIA, I have to pay capital gains taxes on any gains over ~£12,000 per tax year - which resets in April. I scale into companies in stages, so I use my Degiro account for that. After building a position out for a long term hold, I try to time the sale of stock in my GIA based on technicals, transfer the money to my ISA account, and then aim to buy the same number of shares in a single transaction at the same or lower price than what I sold them at.
I was already at the limit of CGT-free realised gains in my GIA due to a successful 2020. The realised gains were used to pay down debt.
ISA allowance is “use it or lose it” each tax year, so I try to avoid making many withdrawals from that account. Any further sales in my GIA before April would have come with a CGT bill, and I hoped to eke out another 5 weeks of good fortune so that I could sell $API in my GIA and contribute to a new ISA with IG.com (a different provider) in April 2021, who do allow you do hold $API and $SE in an ISA. You can only use one stock and shares ISA per tax year, and I don’t know why the rules vary on ADRs with each provider, but they do.
So, did that work out in the way that I had hoped?
It’s not all bad though. I know I can’t make perfect decisions, so I’ll settle for good ones. I’ve still paid off ~£13.5K of loan debt in the last 6 months on top of my regular scheduled payments.
By April 2021, this will be ~ £19K. Our car loan is gone, and one of my investment loans is completely gone.
I am going to use the proceeds from selling $AYX to reduce the loan balance further. I want all loans gone in the next ~ 18 months. I’d like to get to a point where I can build out a cash position more easily and dollar cost average on a regular basis.
I know that some investors on Fintwit are thrilled to see the beatdown in growthy names because they’ve felt that the gains are completely unjustified and it has hurt to see people they consider unsophisticated outperforming them in 2020.
I can understand this perspective to a degree. There has certainly been a lot of froth in pockets of the market recently:
momentum chasing without any due diligence by people who would not usually be market participants
asking random people on Fintwit whether they should be buying or selling
the $GME / wsb / YOLO / diamond hands saga
ARK frontrunning / copy-pasting / hoping they crash
SPAC over enthusiasm
You have to find a way to tune out the noise and focus on your investment strategy.
The most important thing is that it matches your personality and philosophy. I try to stick to decisions that I feel will be correct over the long term, accepting that the near term volatility is part of the journey. There is no universal approach that is right for everyone.
I thought hard about selling $API in February after the run up above $100 - the rise was largely based on Clubhouse hype rather than near term business performance and a valuation of $10B on a sub 200M run rate seemed overly generous given the risks.
The tax implications kept me from selling, and the price has come back to earth with a ~47% pullback after ER and the selloff.
The long term bull case for Agora is still attractive to me, but valuation does indeed matter.
Earnings Season is in Session
So far we’ve seen outstanding ERs from $TWLO, $ZS, $ROKU and good results from $TDOC, $TTD, $ESTC and $API. The usual cash burn is in full flow at $NVTA. None of it mattered last week though…Everything got beaten down.
I’ll dig deeper into the ER for my portfolio companies in my quarterly review.
The beatings may well continue into March and beyond. I don’t know. There are lots of opinions, but the only one that matters is that of the market. Good luck out there!
Watchlist
$APPS, $TMDX, $CLPT, $SKLZ, $CMLF, $HK.08083, $GOCO
Super write up !
this year, and i can't believe tis only 2 months!... has been a complete rollercoaster. i wanted to know your thoughts. a lot of people on fintwit are just telling you to stay calm, not sell, that you are playing the long game and shouldn't worry about pullbacks, etc... i can't help to think that yes, i understand, but i had personally a hard time seeing those nasty pullbacks. why don't people like to admit that it's ok to feel lost... and then reassure you that they've also been through moments of insecurity, and that's ok to make mistakes etc... i really like your honesty btw, and can't wait to hear from you