2018: An Investor's Look Back
Updated: Jan 3, 2020
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.