I bought some single stocks this year for my personal portfolio. I’ve decided to revisit these purchases and make note of my thought process so I can do a better job the next time I decide to buy single stocks.
Side note: when it comes to investing in public markets, I mostly stick with automated monthly purchases of index funds. I split some into a couple of no-fee funds from Fidelity, FZROX and FNILX. I’ll share more details in an upcoming 2020 version of my Personal Finance Stack.
But before I dive in, I find that Warren Buffett’s lesson on investing from his 1996 Shareholder Letter is always a good refresher when it comes to thinking about buying stocks:
Let me add a few thoughts about your own investments. Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.
Should you choose, however, to construct your own portfolio, there are a few thoughts worth remembering. Intelligent investing is not complex, though that is far from saying that it is easy. What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.
To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In our view, though, investment students need only two well-taught courses – How to Value a Business, and How to Think About Market Prices.
Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards – so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.
I made all my stock picks with the full intention of holding on to them for 10+ years. However, I did end up selling out of 2 positions (PINS and UBER) towards the end of the year for tax loss harvesting reasons, especially as these stocks lost quite a bit of value towards the end of 2019.
It’s too soon to tell whether or not these stocks were good investments. I’ve jotted down below my thoughts on why I bought them at the time, and hopefully, in 10 years’ time, I’ll either seem foolish or prescient.
Purchases Overview
I bought 8 different stocks for my personal portfolio in 2019.
A visualization of my single stock purchases by relative cost basis.
In chronological order, they were:
- Snap Inc. (SNAP), the social media company best known for Snapchat
- Pinterest (PINS), the social media company known for sharing websites, images, mood boards, etc.
- Zoom (ZM), a video conference software company
- Uber (UBER), a ride sharing platform
- Datadog (DDOG), a monitoring service for cloud-scale applications
- Cloudflare (NET), a web infrastructure and website security company
- Match Group, Inc. (MTCH), the online dating company that owns OkCupid, PlentyOfFish, Tinder, Hinge and Match.com
- Discovery, Inc. (DISCA), a media company that owns TV networks such as Discovery Channel, Animal Planet, Science Channel, TLC, Food Network, HGTV, and Travel Channel.
Snap Inc. (SNAP) – bought at $11.85, $11.21, and $17.18
I had been following SNAP since its IPO in 2017 (where it debuted at $17). While it faced intense competition from Instagram as well as from insurgent social media platforms like TikTok, it looked like Snapchat wasn’t going to go away and there was some stickiness with its app. I figured that if the company could do a better job of monetizing, it could become similar to Twitter, a smaller social media company with a loyal core user base and a growing advertising business.
As the stock hovered in the sub $12, I felt good about the company’s future prospects to buy some shares. It wasn’t a huge position, but I feel like I got in at a time when its price isn’t hyped up at all.
My first two purchases of SNAP happened in April, when they were below $12/share. It would have been even better at $4.99/share, when it hit its low just a few months earlier. As the stock started to climb up, I bought into the hype and felt that it would soon break $20 and take off. I decided to pick up some more shares at $17.18. My weighted cost basis is still under $13. At this point, I don’t think I’ll add any more shares and just monitor the company’s progress.
Pinterest (PINS) – bought at $24.15 and $20.39; sold at $17.98
It would be great to see Pinterest one day become a competitive advertising option for marketers. The platform still has a lot of improvements to make to its advertising tools including its ability to target and deliver reporting. This is where Facebook and Google are just so far ahead.
I think there’s great appetite among marketers and brands to see Pinterest succeed and as long as they can continue to improve, there will be growth for their advertising platform. It has strong engagement among its heavy female audience (nearly 80% of users) and is often used as a tool for key life moments with high purchase intent (e.g. weddings, home improvements, parties, wardrobe upgrades, etc.).
I bought PINS at IPO in April for $24.15 and patted myself on the back when it hit its high of $36+ in August. However, the stock tumbled after missing earnings estimates in late October and ended the year in the high teens. I actually doubled down and bought at $20.39 after the stock dropped. I only sold out of my PINS position for tax loss harvesting purposes at the end of the year at $17.98, capturing some losses for tax deduction, and after 30 days are up (wash-sale rule), I’ll buy into the position again.
Side note: I did a “cleanse” of my single-stock investment portfolio and got rid of all the stocks that I no longer had conviction in for the long term. These were mostly stocks I had purchased a long time ago when I was even less knowledgeable of an investor. PINS was actually not one of them, but the stock had declined enough and I had enough shares that I thought it would be a good trade for tax purposes. Barring any huge pops in the next few weeks, I should be able to pick the shares right back up so I can hold for the long term.
Zoom (ZM) — bought at $63.02
There was a great deal of hype around IPO for Zoom and the sound economics of its business compared to other tech companies that were still losing massive amounts of money. I was personally intrigued because we had switched earlier in the year to exclusively using Zoom for all our video conferencing needs at Barrel. We had previously used the free Uber Conference service but felt it was worth paying for Zoom because of superior quality and experience.
I also noticed that more and more clients as well as friends were also using Zoom. It was becoming as ubiquitous as Slack. I even saw people running mastermind courses and coaching lessons all switch over to Zoom from tools like GoToMeeting and Skype.
I can see Zoom continuing to capture people who’re still using Google Hangouts or other free options as their requirements for better video conferencing experience goes up. As more and more businesses go remote and rely heavily on video conferencing for communication, Zoom will become a default option much like Slack has become the default for SMBs needing chat capabilities.
In 2019, the stock went up to as high as $107+ at one point before coming back to the high sixties to end the year. I didn’t pay much attention and didn’t feel too bad when the stock fell back to earth. Heeding Buffett’s advice above, I’m fully committed to holding on to Zoom for the long run.
Uber (UBER) – bought at $44.60; sold at $29.66
Uber was by far my lowest conviction purchase this year. I continue to question the company’s ability to become profitable unless they cut the rider subsidies and start charging a lot more (and perhaps find a way to merge with Lyft). I picked up a small number of shares shortly after its disappointing IPO thinking that maybe in 10 years’ time, they would figure something out. I didn’t put as much thought into this purchase as I should have. I think Uber will survive and continue to be a presence in people’s lives, but hard to say if it’ll be a great business.
The stock continue to flounder and towards the end of the year, I decided to sell and take a loss for tax deduction purposes. This is one position that I probably will not re-establish this year.
Datadog (DDOG) – bought at $36.36
I liked Datadog’s growth story and how its suite of products allowed customers to come from various entry points and grow in value as they adopted other offerings. At Barrel, we had used New Relic’s application performance monitoring (APM) tool for some of our web application builds and so it made sense that a company like Datadog was taking off as more and more businesses relied on custom cloud-based software to run their businesses. I can see Datadog continuing to grow as they dive into mobile monitoring and capture more of the cloud-based monitoring and analytics business.
I picked up some shares on the day of IPO and will look to hold this one for the long term. I’ve also decided not to pay too much attention to IPOs this year (too easy to get swept up by the hype) and instead will take my time in evaluating businesses more closely for a longer period of time and buy larger allotments.
Cloudflare (NET) – bought at $18.53
We’ve been using Cloudflare at Barrel for many years now, so it was neat to see it go public this year. Cloudflare provides website security services. At Barrel, we help our clients implement Cloudflare on their websites to improve speed via their content distribution networks (CDNs) and to protect them from denial of service attacks. When Google started to penalize websites without SSL certifications, Cloudflare came in super handy for many of our clients as we used their free SSL certification service to get the “https://“ designation on their websites.
Like Datadog, Cloudflare benefitted from a very rich valuation at IPO and needs to deliver stellar growth to live up to its price. I’m banking that as more and more websites need better security and protection from malicious actors, Cloudflare will continue its strong growth.
Match Group (MTCH) – bought at $68.31
MTCH stock took a hit when Facebook announced the launch of its dating feature. Having owned some shares of MTCH from a few years ago (bought at $28.45), I saw the stock go as high as $95.32 before skidding down to the high sixties in November.
Riding on the growth and stickiness of brands like Tinder and Hinge, MTCH will continue to be a big player in the online dating space for the long term. The stock ended the year up at $82.11, which was a nice feeling, but when you’re looking to hold for 10+ years, I’m sure there will be more ups and downs in the years to come. My bet here is that things will, overall, trend upward.
Discovery, Inc. (DISCA) – bought at $32.17
Legendary telecom CEO John Malone’s interview on CNBC convinced me that I should get in on Discovery. Malone makes the case that Discovery is undervalued as a business. They own their own content, are throwing off a great deal of cash, and continuing to grow.
This was by far my largest single-stock purchase this year (more than all of the other purchases combined). I feel like the company has a good deal of room to run with their upcoming streaming service and its increased content footprint from the Scripps merger which added networks like HGTV, Food Network, and Travel Channel to the mix.
Investing Takeaways
This year, I’ll be limiting my single stock purchases and instead up my monthly allocation to automated investments in index funds. I’ve also started investing monthly into a “Digital Dollars” Motif, a basket of stocks focused on companies that are leading the way in digital and electronic payments. These include card networks like MasterCard, Visa, and Amex as well as processors like Square and Global Payments Inc. It’s performed quite well in the past year (up 52.5%), and I’m bullish on companies that are helping to facilitate more and more cashless transactions both on and offline.
With single stocks, I will opt for doing more window-shopping and just taking the time to learn more about companies in general rather than going in with an intent to buy. It’ll be a cheaper education this way versus pulling the trigger too quickly only to regret my decision later on. I feel okay about the picks I made in 2019, but I look forward to applying some more rigor to my investing moving forward.