During October, the paper portfolio continued to show some divergence vs the S&P500, underperforming by 1.35%. While a number of the stocks recovered some of the losses experienced during September, several other stocks continued to experience weakness.
Nonetheless, each of the underlying businesses remain strong. This portfolio should be well positioned to outperform sometime in the future.
The US and China seem to have made progress towards resolving some portion of the trade conflict. It is not yet clear to me how much can get resolved as part of the “phase 1” deal especially since more sensitive areas concerning national security and technology are not easily addressed in a short period of time (if addressable at all). Nonetheless, we seem to be moving towards de-escalation or at least a standstill. Given the improvement in external environment, it makes sense to me to incrementally increase exposure, especially given the high level of cash in the portfolio at the moment.
There are three new additions: Facebook (FB), PayPal (PYPL), and Uber (UBER). All of these names likely need no introduction.
While FB is somewhat of a controversial name due to its entanglement with politics, I think ultimately it will have limited impact on the operations of the business. As a member of society, I share many of the concerns that others have regarding the impact of core Facebook on our society. However, Facebook’s influence over politics has very little to do with Facebook’s ability to generate revenues. In fact, it is likely a distraction and the sooner they extricate themselves from the controversy the better. Leaving all of that aside, Facebook remains the most dominant social media platform globally. Aside from core Facebook, Instagram and WhatsApp have immense untapped potential. Instagram looks particularly interesting as they pivot towards ecommerce. WhatsApp also offers some interesting optionality since Facebook is using it to experiment with fintech in India.
Although PayPal is somewhat of a legacy player in my mind, PayPal does have an interesting two-sided network with its PayPal and Venmo apps. Given the sell-off in the shares recently, seems like a good spot to establish a position and see where they can go from here.
Uber is likely the most controversial addition from a financial perspective. Along with WeWork, Uber is likely one of the poster children of the recent wave of cash-guzzling unicorns. While Uber has not achieved breakeven yet and is unlikely to do so in the near-future, competitors seem to be rationalizing. Uber does have significant cash on the balance sheet, which means the current cash flow dynamics are unlikely to lead to insolvency at the moment. What makes Uber interesting in my mind is not ride hailing or food delivery, but rather what they can do with 100 million+ high frequency users. By virtue of both competing with and partnering with other ride hailing players globally, Uber has seen and understand the “super app” strategies that have been popular in Asia. I think that makes Uber very interesting, especially since Uber has begun experimenting with similar models in some of their geographies. I’ll probably spend more time in a future post discussing some of these elements.
Disclosures: I own shares in SE, BABA, ATVI, TCEHY, SQ, SHOP, and UBER. I have no intention to transact in any name mentioned in the next 48 hours.