2018: An Investor's Look Back
Updated: Jan 3
To know where we're going we've got to know where we've been.
2018 had some ups, but the fourth quarter of the year brought a lot of downs. While it is easy to blame the market for our negative portfolio we don't. As we look back at our analysis, reviews and recommendations, many of our big losses fall on us. We were impatient.
Patience is the key. If you've subscribed to or purchased one of our newsletters that haven't feared so well against the markets, you've seen the phrase before, patience is the key. Looking back though, we failed to exercise patience in our recommendations and we'll discuss that more as we break down 2018.
^GSPC = S&P 500
Our December 2017 Newsletter.
Apple rose into profits shortly after the release of the newsletter. Kroger, a stock we were hoping would trade sideways at around the $20 per share area until the newsletter came out, traded out of our buy-zone as the release date approached. We included Kroger anyway with a $20 - $25 area as the buy zone, and the stock eventually came back down into the buy zone. LVMH Moët Hennessy Louis Vuitton we felt was solid but a slow roller.
Fast Forward to February 2018
February 2018 comes and the markets begin to drop. Our profitable Apple position is now negative, it breached through the low of our zone and we sold it for a 5% loss. Our reason for selling was because of the pull back in the markets, which started with tech stocks. We were not sure if the market was taking a breather or if it was the big recession / economic slow down that people were expecting, so we sold for a small loss. As stated earlier Kroger traded down into our zone in March of 2018 and we are still in it today with a slight profit. LVMH Moët Hennessy Louis Vuitton was up 20% at one point in time and came within two points of our intended goal, but the stock has now come back to where we initially recommended it.
As much digital content as we consume J2 Global made sense. Their debt was a concern, but after the release of the newsletter the stock soared, from $75 to $90 per share (20% gain) in just a few months. Disgusted at ourselves for being shaken out of Apple, we recommend it again, it was only $4 per share more than it was in December 2017. Apple eventually hit our target of $225 per share for a 28% win. UPS made our first ever Seville Report Newsletter, at $114 per share with a target of $123.50 per share, the stock traded to $135 per share, which was a nice win, small percentage wise but a nice win. The stock tanked on the news of Amazon doing their own deliveries. We felt $100 per share was too cheap a price for UPS and we recommended it again at $106. The stock traded back to $120, before being beat down by more Amazon news and the overall down markets. It's now under $100 a share.
A look back on March 2018, and our feeling is that maybe we were being greedy. JCOM at $90 per share (20% gain) and UPS at $120 (13% gain) would've put us way ahead of the markets. Hind sight is 20/20. We still hold J2 Global and UPS.
June 2018, Where Patience was Needed
Tencent had pulled back from a $61 per share high. Every reason that U.S. investors give for shunning Chinese stocks played out with our Tencent investment. The brakes were put on the Chinese economy, then the government began cracking down on video games. A part of our thesis for a Tencent investment was that Tencent was bringing Fortnite - the worlds hottest video game - to China. Fortnite had been making a fortune from downloadable content in the States, so imagine what it would do in China, but it hasn't materialized. As of this writing the Chinese government has begun to approve video games, however Tencent has not had a game approved yet.
PayPal has been steady. It continues to make deals and gives the indication that it is/was undervalued and ready to rise in price.
Applied Materials, was another stock that was pulling back from a high. We knew that smart phone demand was hitting a plateau. We're 11 years into the iPhone, it only makes sense that the craze of upgrading to the new iPhone or smartphone every year would eventually fade. Our belief though was/is that there are so many devices that require semiconductors now, everything is becoming "smart," that there will continue to be demand. Also, Applied Materials doesn't make the semiconductors, they provide the equipment, materials, and software to the semiconductor and display industries. Why prospect for gold, when you can make a fortune selling the picks and shovels was the mindset.
We saw value in both Tencent and Applied Material, but not deep value. After the markets recovery from their February declines, our thought was to ride the bull, instead of waiting for better value.
We couldn't foresee the Chinese government taking the stand that they did with video games, so we try not to beat ourselves up about that. Applied Materials on the other hand, the markets were speaking, the cyclical nature of the semiconductor industry was about to come into play. Semi demand was starting to dry up, semi stocks were going to sell off, and the semi market was going to reset itself. We put our idea - more smart devices will lead to the demand for more chips - over public sentiment, and it has bitten us in the ass.
With all of that said, we still hold Tencent and Applied Material even though they are way below the bottom of our zone. Our thought is the fundamentals haven't changed. Tencent, away from video games is a good company operating in several different industries within China, it's not just a video game play.
As for AMAT, 5G, artificial intelligence / machine learning, are the next advances in technology that Applied Materials can benefit from. The drop in the market has definitely given both Tencent and Applied Materials another kick to the gut that they didn't need, but we remain committed to both.
Again, a story of not being patient has caused us to see bigger declines than we should have. Taiwan Semiconductor, another splash into the semiconductor industry. The company provides Apple with the chips for the iPhone. Apple is looking into using its own chips in mac products going forward, this seemed like a simple enough investment. This was another investment that would also benefit from the introduction of 5G, and the growth of artificial intelligence and machine learning.
Cognizant Tech is a company that saw Q2 year-over-year growth in four of it's operating segments. Healthcare and Finance were of specific interest to us because those industries were seeing growth as well. Synchrony Financial got our attention after the stock's sell off following its break up with Walmart. We felt the company was solid and the sell off was over done. Rising interests rates were a concern, and we knew as interest rates rose so would delinquencies. Interests rates have risen and so have delinquencies.
As the chart above reveals we're down on all three recommendations from September 2018, the stock prices fell with the market. We are still committed to all three, but we are keeping a close eye on Synchrony Financial. September's recommendations provide another example where we believed there was value, but it wasn't deep value.
And Here We Are...
More so than the falling markets, second quarter and third quarter earnings calls really had an impact on the portfolio. While none of the companies that we recommended had awful quarters, the conservative outlooks given by the management teams of the companies, due to a slowing economy made investors fearful. Add to that, Apple cutting orders from their suppliers - due to slowing iPhone demand - confirming that the days of tremendous growth fueled by the iPhone are over. The Apple news hit our Applied Materials and Taiwan Semiconductors investments hard.
Overall we're down but not out. While we didn't expect the portfolio to look this bad, we also didn't expect to be rolling in Benjamins by years end either. Our outlook is always long term. If the company runs a sound operation we want to figure out if there are drivers that will help the company succeed years out from our analysis. We feel there are long term drivers for success for most of our recommendations.
Our want to participate in the markets unfortunately won out over our need to be patient. We bought what we felt are good companies, but the goal is to buy good companies at bargain prices, and this is where we failed in 2018.
Why Buy The Seville Report in The Future?
Because we'll do better, we won't just talk patience, we'll be practicing it more than ever before. We'll get back to isolating good companies at bargain prices.
Initially The Seville Report Newsletter was a place for us to share research that we were doing anyway as active investors. We felt that if we could provide great research that was simple to understand for any level of investor, we could get more people to invest.
We strongly believe sound investments in the markets are one of the easiest ways to building wealth and financial comfort. To achieve that wealth or financial comfort a new investor need only believe that over a long period of time the markets will rise, and then fund that belief. From there an investor will likely see their money grow over the long term. This is what we believe and this is why we invest.
In 2019 we plan to add more information to The Seville Report quarterly newsletters. More articles, some reviews, and write-ups about other places to put your money besides stocks. We will continue to keep the investment aspect simple and easy to understand for any level of investor.
What A Year
So here's to 2018, for all that we've gained and all that we've learned. We look forward to 2019 and we hope it provides great investment opportunities for us all.
Thank you to every reader, purchaser, and subscriber of The Seville Report Newsletter. We appreciate the time you spent researching The Seville Report, the money you spent on a newsletter or a subscription, and the feedback. We apologize if we bombarded you with emails during the rough times. We just want to make sure that you're aware that we are here for any questions that you may have, if the market is up 1000 points or down a 1000 points, we're here.
Thanks to The Seville Report blog readers, Weekly Wrap Up and Seville Report TV viewers. Thanks for every read, view, like, share, retweet, repost, follow, and comment. We really appreciate everything.
Have a great 2019, and may your next investment be your best investment.
The Seville Report Team