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Portfolio overview and January purchase

Today I am planning to wrap up with discussing the first image I shared in my blog. The overview of my portfolio. I will now go through all the positions I am holding to explain why I have them, what are my plans with them etc.

2021.01.01 Portfolio snapshot

Today I am planning to wrap up with discussing the first image I shared in my blog. The overview of my portfolio. I will now go through all the positions I am holding to explain why I have them, what are my plans with them etc.

The First thing you might have noticed is that I have a significant portion of my portfolio in cash. You might ask why is that? Am I preparing for a recession? The answer is no. Basically most of it is my emergency fund and the rest is the amount for my January purchase. I did borrow from this fund the last year, and as a result I am still paying back the deficit. Going forward you will see a month or so where I will be making significant additions but in the longer term expect to see 2% – 4% of my monthly savings to go here for around 2 years after which I am expecting the sum to be big enough so that it does not require any more additions.

I think it would make sense to actually prepare for a recession at this point by hording some cash due to the crazy rally we have had in the last months, but my idea is that I want to ride through my first real recession as exposed as possible so that I can be 100% sure it does not affect me emotionally.

I recently wrote a slightly more detailed post about this part of my portfolio here but to sum it up. I will only be making additional purchases in case the market pulls back significantly. Otherwise, I will either hold or sell so in the near future expect only selling activities if any.

I have read the book “Black swan” and now I am finishing the book “Antifragile: Things That Gain from Disorder” by Nassim Nicholas Taleb or to be more precise listening to them through Audible. Both are good books which I can highly recommend. There one of the ideas he is propagating is that one should seek out options with unlimited upside as those have the highest possibility of gaining from disorder. Loans do not have this property as the upside is clearly defined by the interest rate. Also, he made the point that banks make tons of money in most years but throughout history there are a few years when they lose all those gains. Those ideas together motivated me to stay away from the loan sector.

On the other hand opening a position in Twino was my first activity as an investor and to keep some nostalgia I am not planning to liquidate it in the near future, I will just keep the position small. I have been investing in guaranteed loans without currency exposure which are returning me more or less 10% a year as can also be seen based on the XIRR in 2020. Going forward I will just let the interest payments keep accumulating.

My general idea is that every quarter I will be making one individual stock purchase and 2 ETF purchases. This should lead me to put roughly 66% of my savings into ETF-s and 33% into stocks this year. In case I find great bargains I might buy even more individual stocks.

My general view is that the individual stock part is the one that will bring the big gains and ETF’s act more like an insurance if I get the stock part wrong.

That is why when I was looking for ETF-s I was more focused on diversification rather than past and future gains and ended up buying all world rather than US based indexes. Initially I had only one ETF VWRL which has very good diversification and if you were to only hold a single ETF then this is a great choice. The only problem with it is that it has almost zero small cap exposure which made me add IUSN,
As I do not have any real estate on my own then I decided to add more exposure with a REIT ETF HPRD.

Finally, the biggest question which I thought long about and have been thinking about later as well was whether I should add a bond ETF. It was a hard decision, but the reasoning for my decision was as followed. First it would make up a small part of my portfolio so even if it underperforms then the effect should not be significant.
Secondly historically having a bond position improves the risk adjusted returns of a portfolio. Thirdly Warren Buffet advises people to hold 90% in stocks and 10% in bonds. Finally and this will also explain why I decided to go with government bonds rather than higher yield corporate bonds is that I wanted to have something in my portfolio which I can liquidate during a crisis with small losses in case everything goes wrong, and I need the money. Government bonds have this property. Quite often they even increase in value during the crisis. Of course, I am planning my finances in a way that this should never happen but having a back up plan allows me to sleep better at night.

The reason why I have the separate small pie chart for ETF-s is because I have set very clear proportions for each ETF which will guide my ETF purchases. The plan is
VWRL – 70%
IUSN – 12%
HPRD – 8%
SPFE – 10%

In the current year I am not planning to add to any of these positions as I do not want one position to have too much influence on my portfolio, so I will be focusing on opening new ones but in the future adding to one of the existing ones might also be an option.

ACMR: Highly profitable stock with 40% gross profit margin in the growing tech industry which means a lot of growth in sight plus a long history, high insider ownership and little debt.

CHRS: Biosimilar pharma stock which due to a very successful product release is highly profitable and in addition has around 5 additional drugs in the pipeline with some in late stages.

SIX: An amusement park company (famous for badass roller coasters) stock which before the crisis had quite a high dividend with 7%. During the crisis they have been focusing on rolling out tech based solutions to make the parks even more quest friendly so once Coronavirus is behind us there is the hope this stock will become highly profitable again.

CDLX: Company which enables other companies to make marketing campaigns to credit card users. They are close to rolling out a platform that would allow small businesses to easily create their own campaigns. The hope is that as with Facebook that is where the big money is to be made.

MWK: An e-commerce company which is buying up smaller sellers in the space and integrating them into their system. The extreme bull case is that they have software which deals with automating a big part of the processes if they could make it into a service then they could become a SaaS company which means significantly higher margins.

BDSI: A small pharma stock which is already profitable and with growing projected revenue and profits. Their main drug is a less addictive painkiller which should mean that there should be a decent market for it as drug addiction is a big problem in the US.

What did I do with my money in January?
The answer is simple boring and short. With roughly 76% I bought the bond ETF SPFE and the remaining 24% I added to my cash pile.

How to subscribe?
I had a request a week or so ago to enable a way to subscribe to the blog. As I am not that fond of emails then as a first iteration I have decided to go with a Facebook page where I will be sharing my latest posts. If you prefer other ways of staying up to date with blogs then feel free to write them in the comments and I will try to see what I can do. Also do not hesitate to leave any other thoughts or questions in the comments.

Stay tuned, stay awesome and stay invested
Yours truly
The Hobby Investor that could