For everyone in the US, happy Memorial weekend! This is likely the first holiday weekend where a large portion of the population is finally vaccinated and ready to experience the world once again.
Hope everyone has a happy and healthy weekend!
During the month of May, the markets remained choppy. High-growth / high-multiple stocks reversed some of the gains experienced in April, while more reasonably valued large-cap growth stocks and reopening / value plays benefited.
This resulted in another choppy month for the Paper Portfolio with returns coming in at -6.09% vs +0.69% for the S&P500. This brings YTD results to -2.58% for the Paper Portfolio vs +12.61% for the S&P500.
While the results this year have been disappointing so far, the Paper Portfolio has suffered relatively small losses despite the significant volatility. Although it would be good to actually earn a positive return by the time we close out the year, I think I would consider it a win if we simply don’t lose much (given how strong the results were last year).
Outside of a few positions that I may have gotten overly aggressive on at the wrong time (e.g. Fastly and Afterpay), the Paper Portfolio still looks well positioned with the potential to deliver meaningful returns going forward. Many of these stocks ran up to very high multiples, but the benefit of investing in secularly growing names is that the multiples naturally compress pretty quickly if the stocks trade sideways / down for a while.
Even better, many of these names continue to accelerate despite widespread expectations for normalization post-COVID. For example, Nvidia which benefited from gaming and datacenter demand during COVID-19, just reported the best quarter in its history. Not only is the business not slowing down, it’s spinning even faster.
If we are right on the long-term trajectory of these businesses, good things will eventually happen when you throw together rapidly growing and accelerating businesses with tepid stock performance. The keyword, of course, is being right on the long-term trajectory. No stock is cheap enough if we are wrong!
In terms of the rebalancing, not much to do for this month. I am rebalancing higher in the high-conviction names, while marginally reducing some of the names near the bottom.
In an about-face, I am cutting the ETHE position in half. Last month, we swapped from GBTC to ETHE. While that turned out to be a very well-timed (and lucky) swap given how much worse Bitcoin has performed vs Ethereum, Ethereum has also come under pressure as well. ETHE has performed about as well as the rest of the Paper Portfolio in May…that probably counts as a nice win and could have been much worse. Given how much our favorite stocks have fallen from recent peaks, the relatively good outcome we’ve achieved in ETHE probably gives us a window to swap some back into stocks / rebuild some cash. (And plus, cryptomaximalists are constantly suggesting that crypto can still go up 100x+…I suppose if that really does happen, I would be very happy with the returns from a 1% Ethereum position even if it is small in the grand scheme of things).
Alright, that’s all folks! Time to enjoy the weekend.
Disclosures: I own shares in NET, SE, PINS, SDGR, SQ, U, PLAN, UBER, and AYX. I have no intention to transact in any shares mentioned in the next 48 hours.