How I lost $51,121.66 in a week

I'm still up $120k year to date. That's the power of long-term investing

September 14, 2019

If you’re new to this newsletter and only clicked because the headline grabbed your attention, you enjoy reading about people suffering, or you were hoping to read a panic-inducing article that urges everyone to run for the hills, then you’re out of luck.

The picture of pancakes below has nothing to do with this article…other than the fact that I need to finish this email soon because it’s Saturday and our family is going to make pancakes together. So maybe it does have something to do with this article…the worst week for our portfolio that I can remember won’t impact what’s most important to me.

* Our pancakes won’t look anything like that because we will have a 5-year old and a 2-year old “helping” us.

Photo by nikldn on Unsplash

This was a tough week for our portfolio. It’s the largest single-week dollar loss I can remember. That happened because our portoflio is much larger now than in previous years and because most of our companies sold off significantly.

Here’s the key. These are still fantastic businesses which I believe in for the long-term. There’s an argument to be made that they had gotten way way over-priced. I honestly don’t know if that’s the case or not because there have never been companies that are growing revenue this fast (off of large bases) with such high gross-margins.

Here’s what I know. Investing in the best companies we can find, keeping a multi-year time horizon, and adding to winners along the way is the best way I know how to invest and it has worked well for me since November 2014 (see returns section below). There is certainly some volatility along the way, but that’s just part of the way I invest.

5 years is not a long time in the investing world so don’t listen to me. I’ve tried to soak up and apply as much as possible from the best investors I know who have skin in the game.

David Gardner is at the very top of that list. Here’s a powerful article from him that describes this style better than I ever could: The Greatest Secret of All. The date on the article says 2016 but that’s when it was last edited so the returns he cites from Stock Advisor are from somewhere between 2004-2006 I think (too lazy to figure out exactly when and it doesn’t matter).

A couple quotes from the article (but seriously, read the article). Also, I can’t emphasize enough the value of subscribing to The Motley Fool’s Stock Advisor and/or Rule Breakers services. I get absolutely nothing for this recommendation. Those services have drastically improved our financial lives.

Expressed in easy-to-read black and white on a page or two of numbers was an astonishing demonstration of long-term investment success. Almost position by position, stocks that were trading for $30, $40, $50 a share on that day had been held for years and years, invested at cost bases of $1.57, $2.34, $0.88.

Find good companies and hold those positions tenaciously over time to yield multiples upon multiples of your original investment.

And after finding good companies, boy, do you ever work a lot less than people making dozens of trades a week, following fast-talking TV gurus or somebody's overpriced charting software.

Portfolio review

7-Day Return: - 16%Year to date return: +24%Since Nov 2014: +177%

A note on drawdowns. As you’ll see in the third image below, the portfolio is down 23% in 30-days. That’s a lot. But, we lost 35% in Q4 of 2018 (I don’t know why the image is showing max drawdown of 29% since inception). I have no idea how much more our portfolio will drop but I do know that selling when our portfolio was down 35% last year would have been a terrible idea.

Trades this week:

Tuesday Sep 10: Bought 70 shares of Zscaler at $49.60. Here’s my article about their Q4 2019 Earnings Report.  Friday Sep 13: Bought 200 shares of Cloudflare (new IPO) at $19 and sold within 20 minutes at $19.19. I like this business but decided there are better options considering it’s fundamentals and current price to sales ratio. If it were to trade down to $11-$13 I’d be interested depending on where our other companies stood.

What do I plan to do next?

I plan to keep adding to the portfolio each month and buying the best businesses I can find. I probably won’t add to companies that are larger than 15% of the portfolio and instead will use this sell off to build positions in companies like CRWD and ZM that are going revenue nearly 100% yoy and selling 20%-30% off their highs.

Thank you!

Gotta get going…pancake time. I know this isn’t a joke and losing money isn’t easy. I’m feeling it too. But I’m doing my best to remember it’s part of the process and there are more important things in life then obsessing over weekly, monthly, or even yearly portfolio returns.I hope this has been of value to you. Thank you all so much for reading and helping to support my goal of making investing accessible to anyone with an internet connection. We are now at 919 total subscribers and 61 paid subscribers. If you enjoy this please hit the ❤️ at the top of the page (this helps others find us on substack.com), share with friends, and/or start a paid subscription for $5/month or $50/year.

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