Full Portfolio Update. Closed SQQQ Hedge & Bought FNF, VZ, MDT, MPW

Quick housekeeping. The newsletter has now been fully transferred over to beehiiv. If you had a paid membership on my substack, your membership was transferred over and there’s nothing required on your part. You will not be double billed; your payment info was not transferred anywhere. Both Substack and beehiiv use Stripe for payment processing, so all of that stayed the same.

One of the things I’m most excited about with moving to beehiiv is that I can finally have a referral program. All subscribers can now earn anywhere from 1 month to 5 years of free paid memberships to the newsletter, depending on how many referrals you get. If you already have a paid membership and you earn a free annual or 5-year membership, I will refund your money and give you the free membership.

Onto the portfolio update

In Tuesday’s email, I shared that I believed the S&P 500 and Nasdaq 100 were overvalued and that there was too much excitement in the market. With that thesis in mind, I hedged using SQQQ to protect my portfolio during what I believed would be a volatile week due to earnings and the fed minutes coming out.

I still believe the S&P 500 and Nasdaq 100 are overvalued, but as I said in Tuesday’s email, the SQQQ is designed to be used as a short-term tool. We made it past the fed minutes, which showed that a “few” members said they wanted a half-point, or 50 basis point, increase that would show even greater resolve to get inflation down.

The market took this “hawkish” tone in stride. I generally believe that it’s a bad idea to hedge or short due to valuation alone (because things can stay crazy for a long time). There’s always a chance some “black swan” event happens which crashes the market, but these happen far less often than many doomsday forecasters like to predict and sitting on the sidelines or shorting until one happens is a great way to lose a bunch of money.

So I closed the SQQQ hedge for a roughly 3% profit. Nothing groundbreaking, but it served its purpose. I protected my portfolio from what I thought could be a potential downside catalyst.

So now what?

As much as I love cloud and SaaS companies like DDOG, SNOW, NET, and MDB or even NVDA, I believe their stocks are currently too overvalued to own. It’s okay to love a company, but not the stock.

To give a little perspective to this, I shared two screenshots below. At the top of the first screenshot, you can see in 2010 Google had $28B in trailing twelve month revenue, 23% revenue growth, 36% operating margin and a market cap of $190B.

Compare that to Nvidia today. $28B in TTM revenue, -16% revenue growth, 25% operating margin, and a market cap of $510B.

Google had a P/E of roughly 10 back then which was admittedly low, but Nvidia has a P/E of 88 today.

I just can’t justify owning companies that appear to be so overvalued when I feel there are much better opportunities at more reasonable valuations which I’ll cover below.

I’m not shorting those stocks and I admit they may all just keep going higher. But even if they do, I won’t have FOMO. If they’re going higher and their P/E, P/S, or P/FCF multiples keep getting higher, I will be even less interested in owning shares.

I’ll certainly keep watching them and I’ll share what prices (or multiples) I’ll consider buying them at in a future email. But let’s cover the companies I’m invested in now.

YTD we’re up $34,400 and since I started the portfolio on February 15, 2022 we’re up $8,690 or roughly 10% on a money-weighted return basis.

Here are the companies from largest to smallest. For anyone wondering about position sizing, I’ll share my target position size for each company and a rough “fair value” price where I’m happy to buy shares.

Even though I’ve been very active lately, that’s really not my style. So I don’t plan to be constantly trimming and adjusting positions. Instead, if a stock gets to double my target position size, I’ll trim it back down to around the target size. So if it’s a 10% target size and it gets to 20%, I’d trim it back down to 15% or 10%. That shouldn’t happen for a while though.

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