2021 Q2 Update

Summer is here and I hope you all are making the most of it. Much of the United States is vaccinated and life finally feels like it is returning back to normal. We are not completely out of the pandemic woods yet, but we are certainly heading in the right direction. Markets continue to boom and the economy sure feels like it is heating up. The government stimulated the economy with trillions of dollars and all that money flowing around needs somewhere to go. Inflationary pressures are pushing prices up, seen particularly in areas such as lumber and other building materials.

While some of these price changes will be temporary, they are important to take note. How will they impact our companies and what price fluctuations are set to last into the future? I don’t necessarily have the answers to these questions, but it is our job as investors to sit around and ponder. I can postulate over various outcomes, but as usual I come to a similar conclusion; invest in great companies that can weather any economic environment. These companies are able to pass rising costs onto their customers while maintaining strong margins.

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Q2 Performance

As of 7/1/2021, my 10K portfolio climbed to $17,100.01. When I started on 8/19/18, the SPY had a price of $285.06 and my account started with $10,000. As of 7/1/2021 the SPY had a price of $430.43. In reality, the SPY has done even better due to dividends given out, so I have accounted for dividend reinvestment in the return calculation.

10K Return(1)SPY Return(2)Difference(1-2)
2018(8/19-12/31)(13.95)(13.71)(.24)
201937.3332.64.73
202021.2217.593.63
2021(1/1-6/30)19.3817.51.76
Since Inception(8/19/18)7159.0511.95

2021 continues to deliver more than satisfactory returns, both for myself and the S&P 500. After a strong 2019 and 2020, I did not expect another 20% gain in the first half of the 2021, but I’m not going to complain. I have maintained my outperformance over the S&P, with the delta now growing to just under 12% since inception. This isn’t exceptional, but I’ll take it. I will never add a dime to this portfolio, but I am constantly adding new money to my personal portfolios and I hope you do the same. If you can just outperform the markets by a small amount, over the course of decades it can compound into vast fortunes. Time in the market is the most important variable.

As I have noted before, while good, my performance is not all that great thus far. While I have beaten the S&P, I have lost handily to the Nasdaq. I would have been better off just buying the QQQ’s and learning to play golf. Since I started, investing in the QQQ’s would have provided returns of 101.72% beating me by 30.72%. I’m hoping that over time I can close the gap, but the Nasdaq is a tough competitor. Time will tell.

As we can see, my cash allocation has risen to $1,354. This comes out to around an 8% cash position. This is higher than I generally like to carry, so do not be surprised if I make a transaction somewhat soon. I have my eye on a few companies and a buy could be coming up.

Transactions

MCO- At the end of April, I bought 2 shares of Moody’s. Moody’s is a company I had long followed, but had never owned any shares of. As a company Berkshire Hathaway invested heavily into, Moody’s is well known to the investment world. Berkshire owns roughly 13% of the company and Warren Buffett has often talked about how much he admires the company and why their economics are so strong.

Primarily, Moody’s is a rating agency. They rank the creditworthiness of companies that intend to issue bonds to the public market. Before a company can go to the market with a bond issuance, they must get a credit rating from one of the licensed major credit rating firms. Moody’s along with S&P Global and Fitch Ratings, form an oligopoly in the industry. The three of them providing over 90% of all credit ratings. Many have tried to enter the space and unseat the legacy businesses, but all have failed. The three companies are utterly entrenched within the financial world.

Moody’s has a long and storied history, as they were founded by John Moody over a century ago. The company has gone through many iterations with different ownership structures over the years, coming to be owned by Dun and Bradstreet for decades. In 2000 they were spun off back into their own independent company, if only I had been smart enough as a 9 year old to buy in. Since 2000, the company would have returned over 53 times the initial investment with dividends reinvested.

Financially, the company is a rockstar. They support gross margins over 70% and those margins follow down to the bottom line at over 35%. As is a trend with companies I like to invest in, the business takes almost no additional capital to run. In 2020, they cash flowed around 2 billion, while only needing to spend 103 million on capital expenditures. This leaves a lot of money with which to reward shareholders. In 2020 they paid out 420 million in dividends, bought back 556 million worth of shares, and made acquisitions that added up to just under 900 million. They followed suit this past quarter doing more of the same while adding cash to their strong balance sheet.

Speaking of this past quarter, they divulged a particularly strong report and I saw an opportunity to buy into such a well built growing business. In Q1, Moody’s saw revenue growth of 24% and adjusted EPS growth of 49%. Not too shabby for a company that’s been around since before WW1. So far I have been rewarded, my shares are up 13.65% after only a couple of months. Let’s hope they keep up the momentum!

EGHSF- At the end of June, I sold my shares of Enghouse Systems. I have long admired the company, but their most recent quarterly report made me question some of their decisions. Once you lose a little conviction, it is hard to remain invested in the company. I don’t do half measures, I’m either in or out.

Revenue this past quarter fell 16% as compared to the previous year. I call myself the GARP investor for a reason. I am looking for companies with growth, not slipping in the opposite direction. To be fair, Enghouse was running up against comps that were inflated due to how well their Vidyo business performed at the start of the pandemic. That business has since tailed off, returning back to PreCovid numbers. Part of my issue with the company is how reliant they are on Vidyo. In the world of Zoom, I’m just not convinced Vidyo provides a strong enough differentiating platform. They have invested a lot of money into Vidyo’s success and it might turn out to have all been a waste.

Enghouse has also publicly bemoaned their inability to get as many acquisitions done as they would have liked. They cite higher prices and a general slowdown in transaction speed due to the pandemic. I think these are valid claims, but when I compare them to another portfolio company of mine, Constellation Software, Enghouse comes out inferior. Constellation has had no trouble closing deals, I seemingly read about multiple acquisitions they close every single week.

Admittedly, I might look back at this as a foolish decision full of recency bias. They have been a strong performer in the past and their CEO Stephen Sadler is well respected for a reason. Given all the variables placed in front of me however, I think I have better opportunities to invest those dollars. I’ll be sure to revisit this decision in the future.

As always, I would like to thank you for taking the time to give this a read! Feel free to leave some comments or questions. Follow me on Twitter @TheGarpInvestor.

2021 Q1 Update

At long last, there finally appears to be a light at the end of the COVID tunnel. As the world works its way through the vaccination cycle, life is slowly returning back to normal. Businesses are reopening and at least here in Baltimore, the sun is starting to shine. I am excited to resume normal life, being able to travel and go as I please without fear of harming myself or others. I will look back on this period as an incredibly strange time in my life, but ultimately one with no real lasting impact. I have been lucky enough to get through this without personally knowing anyone who fell truly ill to the virus. Knock on wood this stays true through the end. Unfortunately for others, they have not been so lucky. Over 550,000 people have lost their lives to the virus in the US alone. That number will continue to creep up until we reach full herd immunity.

I do not take it lightly how lucky I am to be in that position. Along with most others, my investments have continued to do well over this period, but that is truly of secondary importance to being safe and healthy. If this has all taught me one lesson, it is to not take life for granted. Nothing in life is guaranteed, so make the most of it.

I have partnered with the great group at 7 Investing and become an affiliate. They offer monthly stock recommendations and so far they have absolutely crushed the market. For only $17 a month, you get access to their 7 best picks each and every month, one from each of their 7 lead advisors. Follow this link and use coupon code GARP to save $10 off your first month. I highly recommend their service!

Q1 Performance

As of 4/1/2021, my 10K portfolio climbed to 15,700.05. When I started on 8/19/18, the SPY had a price of $285.06 and my account started with $10,000. As of 4/1/2021 the SPY had a price of $396.33. In reality, the SPY has done even better due to dividends given out, so I have accounted for dividend reinvestment in the return calculation.

10K Return(1)SPY Return(2)Difference(1-2)
2018(8/19-12/31)(13.95)(13.71)(.24)
201937.3332.64.73
202021.2217.593.63
2021(1/1-3/31)9.607.841.76
Since Inception(8/19/18)5745.9611.04



My portfolio has started 2021 strong out of the gate. I outperformed the S&P and my returns continue to grow. With congress pumping an additional $1.9 trillion into the economy, I expect spending to remain high. I won’t opine on the impacts of inflation today, but it is certainly a topic to think long and hard about. Inflation will have a profound impact on the economy and therefore our investments in the years to come.

Since inception, I am beating the S&P by over 11%. As I noted last quarter, this is nice, but slightly misleading. The SPY is only one metric to follow, comparing with the Nasdaq leaves my performance looking much worse. Fortunately, I gained ground in Q1. At the new year, I was losing to the QQQ by 34.88%. That delta fell to 24.42% by the end of Q1. I’m still getting trounced, but I’m trending in the right direction!

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Here we can see my allocations and that I hold $699.21 in cash, meaning cash is a 4.45% position. I like to have a little firepower left in the tank for opportunities, but I remain almost fully invested.

Transactions

HD– I made the error of never buying shares of Home Depot previously, so this quarter I decided to remedy that mistake. They are a company we all know and I would hazard a guess and say shopped at. Whether you were dragged there as a kid by your parents or are someone who enjoys home improvement projects, Home Depot has a way of drawing people in and getting them to spend their money. As someone who has worked in real estate for the better part of the last decade, I can personally attest that we have spent a lot of money at their stores.

I can’t count the number of times I’ve walked through their aisles, impressed with the level of inventory they keep on hand at all times. Often in construction projects, you need an unexpected part that very day. If you had to wait even two days for the item to be shipped, you could lose out on thousands of dollars of productivity. Therefore it is worth paying a few extra dollars to get what you need immediately. Orders are often quite bulky as well. The price to ship such orders often outweigh the convenience of not leaving the house. Home Depot also provides high quality customer service, employing a knowledgeable staff who can help you answer questions and locate items within the store.

Every quarter I marveled at the results the company reported, but could never justify the price based on valuation. This was a mistake, as Home Depot proceeded to knock it out of the park quarter after quarter and the stock followed suit. I finally saw the stock take a dip after their most recent quarterly earnings release and I pounced at the opportunity. I couldn’t let this slip through my fingers once again.

As for some numbers, let’s take a quick dive in. Home depot is a behemoth, with a market cap now well over $300B. In 2020 they did over $132B in revenue and $12.8B in bottom line profit. They produce gross margins north of 33% and report massive FCF, roughly $13B after subtracting $2.5B in CapEx. They use that FCF to pay out a strong dividend, around 2.5% when I bought in, buy back shares, share count has fallen 11% in the past five years, and every now and then make an acquisition like they did this past year of HD Supply. They have a strong balance sheet with only $67B in total liabilities. They are simply a company you can hold long term without much worry. In bad economic times they will weather the storm and in good times they will thrive.

This past quarter, revenue was up 25% and EPS up over 16%. The record level of home buying has really helped the business, but I don’t expect a let up anytime soon. This investment does not rely on any brilliant insight on my part. Home Depot is a world class operator with economic tailwinds giving a boost. The market presented a rare opportunity to buy at a reasonable price and I took it. I purchased at around 22x FCF which I think is more than fair. The stock has already increased by 25% since my purchase.

TOITF– Next up we have an interesting situation with Topicus. Constellation Software performed a spinoff this past quarter, yielding me with three shares of Topicus. I trust Mark Leonard of Constellation and his decision making, so if he thought it was in the best interest of Constellation shareholders to make this happen that’s good enough for me.

Much like Constellation, the company focuses on VMS business rollups. As the company takes very little capital to operate, they are left with lots of capital with which to deploy into acquisitions. Topicus will focus on the much more fragmented European markets.

I’ll readily admit I am not exactly sure about all of the structural nuances of this spinoff. As this is now a tiny portion of the portfolio, I’ll keep tabs on the company and learn more as times go on. If I like what I see, perhaps I’ll buy more shares. At this present moment I don’t have anything particularly insightful to say, but let’s give this a bit of time.

EA- My ownership of shares in Electronic Arts was short lived. I didn’t particularly like what I saw out of their last quarter and management didn’t give me great hopes for the future. One red flag to me was that another company announced they were producing games in the Star Wars universe. EA lost their exclusive rights, which makes me worry about their competitive position. Will they lose other exclusive rights to long term money making franchises?

They also announced the acquisition of GLU Mobile for $2.4B. This is a lot of money to pay for a company that is hardly earning any money. This could very well pay off, given EA’s game expertise and ability to squeeze profits out of IP, I’m just not sure. Mobile is obviously a big part of the gaming universe and EA desperately wanted to get in on that slice of that pie. I’m skeptical that this acquisition was the right move given none of GLU’s games are truly must have IP. Ultimately, I felt more comfortable holding shares of HD over EA, so I traded out of EA and into HD. So far this has been a very profitable trade, but time will tell if it was the right decision.

As always, I would like to thank you for taking the time to give this a read! Feel free to leave some comments or questions. Follow me on Twitter @TheGarpInvestor.

New Year

Happy new year everyone! I hope you are staying healthy and able to find some enjoyment during these strange times. How do you even begin to write up a recap for a year such as 2020? If you had told me this time last year that a global pandemic would bring our country to its knees, leave 375,000+ dead and force businesses across the country to close, I would have guessed that the market had fallen precipitously. Little did I know, other than a blip in March, none of this mattered and the market climbed to all time highs.

The economy has been buoyed by the combination of extremely low interest rates and a seemingly limitless level of money printing. Neither of these appear to be changing anytime soon, so the rally could carry on. I however continue to remain cautious. The market cannot go straight up without reprieve. At some point, the bill comes due. When that will be, I have no idea, but I think it is important to be prepared for such an eventuality. I remain steadfast in my decision to hold companies of the highest quality. Their businesses will perform in good economic conditions and in bad. That is my margin of safety.

2020 Performance

As of 1/1/2021, my 10K portfolio stood at $14,324.59. When I started on 8/19/18, the SPY had a price of $285.06 and my account started with $10,000. As of 1/1/2021 the SPY had a price of $373.88. In reality, the SPY has done even better due to dividends given out, so I have accounted for dividend reinvestment in the return calculation.

10K Return(1)SPY Return(2)Difference(1-2)
2018(8/19-12/31)(13.95)(13.71)(.24)
201937.3332.64.73
202021.2217.593.63
Since Inception(8/19/18)43.2537.256.00

As we can see, my investments have continued to beat the SPY. I am up 3.63% on the index in 2020 and 6% since inception. This is a modest outperformance, but nothing exceptional. If I can outperform by a couple of percentage points annually, this outperformance will compound to a large disparity over the course of many years. Time is ultimately your greatest friend. Be that as it may, all is not as great as it appears.

While my investment record looks more than satisfactory, this is really just due to the benchmark I have chosen to compare myself against. Had I instead chosen the Nasdaq as my benchmark, my results would look rather awful. Over the same time period, investing in the QQQ with dividends reinvested would have provided a 78.13% return. This beats me by a whopping 34.88%. Sure much of this is due to valuations on some tech companies becoming stretched to levels not seen since the dot com bubble, but it is still disheartening to lose.

I could have simply put my money into the Nasdaq, done absolutely nothing and obtained returns that far exceed my own. It is frustrating to see, but this is the sandbox we play in. You can work diligently, remain disciplined and still lose. Investing is hard. Sometimes your approach will get a tailwind, driving you to superior results. At other times it will feel as if you are pushing a boulder up a hill. The only solution is to just keep going. Hone your strategy, keep putting in the work and fall asleep each night smarter than when you woke up.

My stocks are now worth $13,947.72 with an additional $376.87 in cash. Let’s look at what changes I made.

Buys

EA– Electronic Arts is a company I have long followed, but only did a deep dive into in recent months. Gaming as a sector is going through a renaissance during the pandemic. People are spending more time than ever in their homes and video games are a great way to kill time. Video games might seem like an expensive hobby at first glance as you are really just buying a bunch of digital code, but actually video games can provide some great bang for your buck. A new Playstation or XBOX game will typically cost $60. Some games deliver a 10 hour experience, which boils down to $6 per hour, but I and many others have been known to sink hundreds if not thousands of hours into certain games. For those games, you are paying only pennies on a per hour basis. Few if any forms of entertainment can yield that kind of value. A good deal for the buyer and an even better deal for those making and selling the games.

EA for instance can expect to cash flow $1.5 Billion+ each and ever year. They sit on over $6 Billion in cash with trivial levels of debt. They are able to do so by owning some incredible IP that more or less generates annual recurring income. Franchises like FIFA, Madden and NHL are virtually assured to sell hundreds of thousands if not millions of copies a year. As a personal anecdote, I have bought the new FIFA each and every year for roughly the last decade. I am predictable in this action and there are millions just like me. This is great for EA, as it costs them little to reproduce. EA updates the rosters, makes some slight game play and graphic modifications and ships the new game to coincide with the new soccer season. The company has locked in long term contracts with sports leagues to be the exclusive provider of simulation games, such as the NFL whose contract was recently extended through the end of 2026. With these long term contracts in hand, cash flows are predictable and provide the company with strong margins. Gross margins typically fall in the 75% range, with net margins over 25% even given the large amount spent on R&D.

Additionally, EA has locked down the contract to produce non mobile games within the Star Wars universe. Jedi: Fallen Order was a top seller and Star Wars: Squadrons was a strong follow up. With the success of The Mandalorian on Disney+, you can bet more games are to follow. As you would expect, video gaming is a capital light industry. No need to buy all new equipment or real estate. Therefore the company is able to generate a lot of cash that management is then able to allocate as they see fit. Thus far, acquisitions and share buybacks are the primary uses of this cash. Most recently, EA announced the purchase of Codemasters, the developers behind racing games such as Dirt and Formula One, for $1.2 Billion. I expect more acquisitions in the years to come.

Do not be surprised if another name within the gaming world ends up in my portfolio. The industry is extremely profitable, predictable and has a long runway for growth. I own shares of Nintendo in my personal portfolio outside of this account and if I can find some room I might add shares in this one.

ETSY– I also decided to purchase shares of ETSY. I’ve long followed the company and been impressed, but stayed away due to fears over their high valuation. After seeing their most recent quarterly report, I decided the company was too strong to ignore. Etsy sells custom made items, great for gift giving and anything you might want personalized. The company has been bolstered by the pandemic as ecommerce sales have skyrocketed. Mask sales in particular have been a bright spot, constituting 11% of sales. Even if those sales were to fall to 0, the company would still show impressive growth.

Revenue this past quarter was up 128% YoY and adjusted EBITDA was up 259.9%. Yes, you read that correctly. These growth numbers are mind boggling. More buyers and more sellers enter the marketplace every quarter, creating a flywheel effect. Of course they cannot keep up this pace forever, but growth is hastening, not slowing down. The market cap sat at around $20 billion when I bought in. They may never get to the size of Amazon, but they don’t need to in order to make a fantastic investment. The company is already profitable and the rate of growth is on an upward trajectory.

When I saw the stock tumble after reporting a fantastic quarter, I knew it was time to pounce. Turns out, I made a timely purchase, as my Etsy shares are up 43.5% after less than two months of ownership. Can’t say I expected that, but I’ll take it.

Sells

CBOE- While I still really like the company, I had to make room for Etsy. I only held CBOE for a short time, but something had to go. As my only allegiance is to making the best returns, no company is sacred. Every investment is open to turnover should it make economic sense to do so. I lost a few percentage points on the trade, but that was more than made up for with Etsy’s gain. So far, a great move.

MKL- Similar to my sale of CBOE, I sold shares of Markel to open up room for EA. Markel will always be a world class company, run by top notch management. They will steward shareholder capital intelligently and safely. The problem is currently with the insurance business as a whole. Given the low interest rate environment, insurance is a tough business to be in. By law, they are forced to hold a large percentage of capital in bonds that can guarantee the payments on their claims. If much of your capital is tied up in low earning fixed income bonds, it is hard to earn a high return on invested capital. It is no fault of the company and one day the tide will turn, but interest rates don’t look to be rising anytime soon.

INTC- Here is where I have to own up to my misjudgement. It is never easy to admit a mistake, but it is doubly hard when you post your positions publicly and open yourself up to ridicule. I deserve criticism for this and I accept it.

I bought shares of Intel with great hopes. Upon release of their most recent quarterly report, those hopes went right out the window. Intel presented a pretty poor quarter and outlook for the future was grim. I immediately realized I was out of my depth and needed to make a change. In my Q3 update, I wrote “Intel is still an incredible business that spins off loads of cash that can then be reinvested back into the business.” While this mostly remains true, I overestimated current operations. I thought I could predict how the company would perform, turns out I could not. Later on I added “admittedly, I will never be a semicondcutor expert, far from it.” If you ever catch yourself writing something that closely resembles those words, turn back immediately. As Peter Lynch would tell you, stick to what you know.

Much like IBM, Intel appears to be a technology hardware company that is stuck in the past. Given their incredible resources, they have time to right the ship. It wouldn’t surprise me to see them regain their superiority, but as it stands they are not performing up to the standards of their past. The saving grace in all of this is that I recognized my mistake quickly. I took action when I saw the economics not playing out as I expected. If you are wrong about a stock, it is better to admit the error and move on than to dig in your heels and double down. I lost 5.68% on Intel, hardly a disaster.

As always, I would like to thank you for taking the time to give this a read! I know this was a long one, but I guess I had a lot to say. Feel free to leave some comments or questions. Follow me on Twitter @TheGarpInvestor.

Q3 Update

2020 has been a remarkably odd time to be an investor. Granted, it has been an incredibly strange time to be alive in general. It is now October and Covid continues to rage on, a seemingly never ending storm without respite. Our President just tested positive for the virus and has entered the hospital. He has the best medical care and will therefore almost assuredly be fine, but you never know. The word has been used over and over, but that is because it rings true, these are unprecedented times. I think we would all like to just get this chapter over and move on with our lives. With an election right around the corner however, I expect more volatility to be on the horizon. I’m not one to make market forecasts, but I would not be surprised to see some pretty big swings in the near future.

Q3 Performance

As of 10/1/2020, my 10K portfolio stood at $13,047.01. When I started on 8/19/18, the SPY had a price of $285.06 and my account started with $10,000. As of 10/1/2020 the SPY had a price of $334.89. In reality, the SPY has done even better due to dividends given out, so I have accounted for dividend reinvestment in the return calculations.

10K Return(1)SPY Return(2)Difference(1-2)
2018(8/19-12/31)(13.95)(13.71)(.24)
201937.3332.64.73
2020(1/1-9/30)10.415.325.09
Since Inception(8/19/18)30.4721.858.62

As we can see, I have done reasonably well in both 2020 and overall. I am by no means crushing the index, but a steady outperformance compounded over years can grow into a massive delta. If I can keep beating the S&P by 4-5% a year, I will be thrilled. So far, my GARP strategy has worked. I hope my portfolio keeps up the momentum, but don’t be surprised to see some reversion to the mean.

My stocks are now worth $12,778.29 and I am sitting on an additional $268.72 of cash, meaning I am almost fully invested. The market does appear to be frothy in my opinion, but in general I like to have my money invested rather than sitting on the sidelines. Should the market fall, I expect my companies to make intelligent capital allocation decisions, coming in the form of share buybacks or acquisitions of target companies at lower prices.

BUYS

INTC– I saw someone on Twitter(I would give credit, but I don’t remember who) mention that Intel shares looked attractive given current prices. I decided to take a look and based on numbers alone I liked what I saw. Problem was, the semiconductor industry was well outside of my circle of competence. I then went on to do a mini deep dive and educate myself. Admittedly, I will never be a semiconductor expert, far from it. But I think I have learned enough to be able to assess the competitive dynamics, time will tell if I am right or wrong.

So why the Intel discount, what’s the rub? Intel has been perceived to be in a losing CPU race against smaller faster competitors, AMD and Nvidia. They have the advantage of being fabless, in other words they do not manufacture chips themselves. Rather they design the chips and outsource manufacturing, mostly to TSMC, the Taiwanese semiconductor giant. TSMC brings fantastic technology to the table, enabling the smaller competitors to leapfrog over Intel in ultra high performance technology. This perception very well may be correct, but I feel it fails to paint the full picture. Intel is now so diversified that they are no longer completely reliant on the microprocessor. The second quarter of 2020 marked the first time that the data center portion of the business overtook the CPU portion, accounting for 52% of overall revenue. Data centric revenue was up 34% YoY. Certainly doesn’t look like a company on the brink of death to me.

Intel likely did take their eye off the ball and let competitors catch up in areas they previously held complete dominance. While Intel used to be a microprocessor company, they now are involved in so many different lines of business. Their focus has shifted to data, which they estimate to have a total TAM of $230 billion by 2030 according to this past quarter’s earnings transcript. This is significantly higher than the PC market TAM and Intel has therefore made it into the priority.

At the end of the day, Intel is still an incredible business that spins off loads of cash that can then be reinvested back into the business. In 2019, they spent 16.2B on CapEx and an additional 13.3B on R&D. That is 29.9B being spent on innovation and improvement, almost 3x what Nvidia and 5x what AMD did in total 2019 revenue. Intel trades at around 13x expected 2020 FCF, a deep discount to the rest of the market. I expect the company to continue to make use of their vast resources to invest in the future. Simultaneously, they will continue to pay out increasing dividends, make accretive acquisitions and opportunistically buyback shares.

CBOE- This one is a little less controversial and much less discussed on the Twitter-sphere. CBOE, which started as the Chicago Board Options Exchange but now goes by CBOE Global Markets, operates as a market maker, creating a marketplace for options and futures as well as a global stock exchange. It is a brilliant business model, they take none of the risk, but rather create the rails for others to work on. They exhibit classic GARP characteristics that I like to see, high return on invested capital and a capital light business. The business requires very little reinvestment, which allows the company to use their cash flow elsewhere. In 2019, they generated operating cash flow of $632 million. CapEx for the year was a mere $35 million. This left just under $600 million to be used in value creating activities. For instance in 2017, CBOE made a $3.2 billion acquisition of BATS Global Markets that has really bolstered the company. Since then, top line, bottom line and FCF have all grown considerably. I expect more large acquisitions in the future.

There is actually a whole group of companies working within this greater marketplace industry that exhibit superior economics. Just some examples are CME, Intercontinental Exchange and Market Axess. I happen to like CBOE the most at the moment given current prices, but they are all great companies. Should an opportunity come available, I could see myself owning one or more of these companies in the future. I’m actually surprised I have never seen Warren Buffett play in this sandbox. Seems to be right up his alley, but he has his reasons.

As always, I would like to thank you for taking the time out of your day to give this a read! Feel free to leave some comments or questions. Follow me on Twitter @TheGarpInvestor.

Q2 Update

Count me as one who did not expect the market to come roaring back in the second quarter. I cannot quite claim to understand why the market has been so exuberant, but euphoria reigns supreme. Coronavirus case numbers are surging, major companies are being forced into bankruptcy and yet, the stock market continues to rise.

I see economic struggle everyday within my family business. We are commercial real estate landlords and many of our tenants are facing tough times. Some have been closed for months, unable to pay their rent. Others will probably have to shut down their businesses never to return. This is our new reality.

I truly hope things will recover, but we should all be preparing ourselves for any eventuality. You don’t have to think too hard to come up with some truly dire situations that could arise. I’ll spare you all the doom and gloom, but I have envisioned quite a few. Should certain events happen, calamity could ripple through the economy and really shock the financial world. Let’s pray I’m just being overly dramatic and none of these events come to pass.

Q2 Performance

As of 7/1/2020, my 10K portfolio stood at $12,478.91. When I started on 8/19/18, the SPY had a price of $285.06 and my account started with $10,000. As of 7/1/2020 the SPY had a price of $308.36. The SPY has also given out $9.78 in dividends since I started tracking, so I have accounted for that as well.

           10K Return(1)    SPY Return(2)   Difference(1-2)    

2018(8/19-12/31)                           (13.95)                  (13.71)               (.24)

2019                                                   37.33                    32.6                    4.73

2020(1/1-6/30)                              5.59                      (3.03)                 8.62

Since Inception(8/19/18)           24.79                   11.6                     13.19

As we can see, I have actually had a very strong 2020. In particular, most of the outperformance came within the second quarter. At the end of Q1, I was only beating SPY by 2.01% on the year. That delta has since grown to 8.62%. Given everything going on in the world, I’ll take it.

Screenshot 2020-07-02 at 11.22.27 AM

We can see my stocks are now worth $10,343.63 and I am sitting on an additional $2,135.28 of cash. This means the cash portion of the account now comprises 17.11% of the portfolio. I was uncharacteristically busy with my transactions this quarter, the state of Covid-19 and the corresponding effect it has on the economy really has me spooked. I therefore unloaded a few of my holdings. For the time being that money will just be waiting on the sidelines, I am not seeing many buying opportunities out there.

Buys

EGHSF– I purchased shares of Enghouse Systems in early June after the company reported their latest quarterly earnings. Enghouse is a vertical market software company not much unlike my largest holding, Constellation software. I purchased 30 shares for a total of $1,459. Enghouse has just come off an incredible quarter. Year over year, they increased revenue by 50%, net income by 63.8% and cash flows from operation by 72.5%. I don’t think I even need to say much more than that.

Sells

HEI and LUV– I decided to liquidate all of my holdings in any company competing in the travel industry. They very well may recover and I might end up missing out on some gains, but I would rather take the risk off the table. These are times that we really have never seen before. It is incredibly hard to predict how this will all play out. Heico and Southwest are both strong reputable companies. They will likely make it through to the other side, but I’d rather put my money in companies that don’t have to struggle through this crisis. Most of my other companies are operating from positions of strength.

FND and ULTA– I have also decided to sell out of my two big box retail companies. Floor and Decor saw a surge in the stock price and my confidence in the business began to wane. I don’t know where the economy will go, but I’m not sure a company looking to open up hundreds of more big box stores is where I want my money. Now that I’ve sold, I’m sure the price will double. I’ll live with those consequences. Coronavirus has really impacted Ulta’s business. As you can imagine, when no one is leaving the house, the need for beauty products has fallen to near zero. I expect their business to struggle for as long as the virus lasts. For that reason, I think my money can be put in better places.

As always, thank you all for reading! You can follow me on Twitter @TheGarpInvestor.

 

Updating The Watchlist

I’m not sure about the rest of you, but I have found myself with an abundance of time on my hands. I have spent the last couple of months quarantined to the house and much of my normal business work has been put on hold. I am not married and don’t have any kids, so let’s just say I have nothing but time. Watching Netflix and playing video games can only get me so far, so I figured I should at least be somewhat productive.

I have dedicated at least an hour or two every day to investment research. Some days I  have done far more than that, while others have gone completely wasted. What I can I say? I am human. Whether it is running screens, glancing through company financial statements, or reading 10Ks and quarterly transcripts, I have found the last couple of months to be the perfect time to learn.

Now is also an opportune time to update my company watchlist. I’m not sure what the next few months or even years will hold, but I am trying to get myself ready. Recently many of us tuned in to watch the Berkshire Hathaway annual meeting. Berkshire is now sitting on a record level of cash, over $130 billion. Buffett remarked that he wants to be prepared for any financial situation. Things could return to normal in a matter of weeks, but the Covid-19 numbers could spike and businesses could be forced to close for months further. If that should happen, economic calamity will ensue and I would assume that markets will drop into free fall. I want to have a list of companies ready to go for such a buying opportunity. I want to emphasize that this is not a prediction, but rather I am doing my best boy scout impersonation by being prepared.

The first companies on a watch list should always be ones you already own. These are companies you have studied and had the conviction to buy. Many variables have likely changed since the initial purchase, but that’s where research should begin. Check one by one and see how the businesses have performed. Have revenues and profits risen or fallen in recent quarters? Has their balance sheet held up, or have they taken on additional debt? Think into the future and consider where the obstacles might lie and whether they are still in a position to grow. Finally, when you have a good grasp on the business, look at the price. If the business scenario looks bright and the stock price is below your purchase price, that business is likely a good candidate for buying more. Conversely, if business conditions appear dour and the stock price has risen, you have a good indicator that it may be time to sell.

Aside from companies I have already invested in, I have compiled a short list of companies I am watching closely:

Comcast (CMCSA)- Look we all know them and if you are anything like me, you probably hate them. They may have terrible customer service, but that doesn’t change the fact that they are a phenomenal business. The cord cutting revolution was probably overblown, but it has been interesting to follow. As less people order cable, Comcast has simply raised prices on internet services. They are essentially an unregulated monopoly on a vital product. They are a cash machine, churning out a whopping 13 or 14 billion dollars of free cash in 2019 depending on how exactly how you measure it.

After a rather steep decline in the stock’s price, my interest has been piqued. Let’s be conservative and use the lower number 13.  Comcast now trades at 12.5x 2019 FCF, a very reasonable number. Much like Disney, we know the business will be adversely affected by the virus, they have been forced to close all Universal theme parks, a big money maker for the company, that comes along with high fixed costs. My real hesitancy however is the amount of debt the company holds on their balance sheet. Over 100 billion in debt and 180 billion in total liabilities. I need to dig in more before I would feel comfortable making an investment.

Copart (CPRT)- I just finished reading Junk to Gold: From Salvage to the World’s Largest Online Auto Auction, the story of Willis Johnson, founder of Copart. I encourage you all to pick up a copy, I thought it was a great short read. The book depicted his rise from humble beginnings to Copart’s domination of the auto salvage business. What started as just a tiny scrap yard has turned into the world’s largest auto auction business. It is a classic rags to riches story. Johnson is a tremendous entrepreneur and has a penchant for finding opportunities to make money in any situation.

Today, the company sits in a great position. Their financials look better every single year. In my opinion they are probably a bit expensive at current prices, but Copart will remain on my radar. They have a solid balance sheet and produce a fair amount of free cash. They reinvest that cash back into the business, which has allowed them to grow immensely.

Intel (INTC)- Intel is probably the company I am most interested at the current moment. It is a company you have probably all heard of, but may not actually know what they do. I understood what they did at a cursory level, but never did a deep dive until this quarantine began. I thought the semiconductor industry would be too difficult to understand, so I just skipped over it entirely. After taking a brief look through their financials however, I couldn’t push it off any longer.

Intel is the world’s largest designer and manufacturer of semiconductor chips used in virtually all computing equipment. Though they are known for their microprocessors, they design chips for a range of products from mobile phones to the self driving car. I admittedly will never understand the technical minutia of the industry, but I think I can at least understand the competitive dynamics and why Intel has been so successful.

Intel is the gorilla in the fight. With a market cap of around 260 billion and sales of over 70 billion in 2019, Intel is the major player in the US. To put that in context, their main American competitors, AMD and NVIDIA had sales of 6.7 billion and 10.9 billion respectively. In 2019 alone, Intel spent 13.3 billion on R&D and another 16.2 billion on CapEx. That means they spent just under 30 billion bettering their competitive advantage, all while spitting out over 15 billion in free cash flow. AMD and NVDA have found footholds in successful niches, but catching up to Intel in the overall market is incredibly tough. Intel just has so many more resources at their disposal. The company actually faces much tougher competition from companies outside the US. Samsung and TSMC are great companies in their own rights, but do somewhat different things. I’m not going to go too deep into this today, but know I am watching Intel very closely for now.

Medifast (MED)- As someone who was born and raised in Baltimore, I have a sweet spot for any local company. Medifast is one of the few public companies still located within city borders, so I like to check in on them. With a renewed focus, Medifast has grown quickly these last few years. Revenue has grown over 2.5x over the last 5 years.  Their financials look very strong, the company holds zero dollars of debt on their balance sheet. Any company able to grow quickly without having to take on a single dollar of debt is impressive in my book.

I am a little cautious about investing in this company however. I wouldn’t go as far as calling Medifast a pyramid scheme, but at first glance I would say they have pyramid like tendencies. Most of Medifast’s growth has come from the Optavia brand. Optavia is a multi level marketing company selling weight loss products. Their model works through having members sign up as coaches, who then make money selling products to other members. Perhaps this is all just a clever marketing scheme, but it sounds a bit fishy to me. Unless I can understand what differentiates Optavia from a pyramid scheme, I’ll be staying away.

As always, thank you all for taking the time to read! I hope you take some time and update your watchlist. If you find any companies I might be interested in, please send them my way. You can follow me on Twitter @TheGarpInvestor.

 

Q1 Update

Well that was a doozy! We just finished the quarter in what has easily been the scariest investing environment I have ever faced. In fact, it has probably been the most frightening time for any investor, young or old. Unfortunately, the situation we all face isn’t close to being over. I don’t know how long this will last, nor do I know how devastating the consequences will be. The best we can do is hold strong and remain ever vigilant waiting ready for opportunities.

As for my own investing performance… it has been rather putrid. I have scolded myself many times in the last few weeks for not keeping more cash on the sidelines. This was a rookie mistake and I own up to it. I just personally hate sitting on cash, I enjoy owning partial shares of some of the world’s greatest businesses. Cash can’t compound, it sits idly losing value due to inflation. It does however provide a lifeline should an opportunity come knocking. If there is no cash available, you either have to watch it go by or tap into a margin balance, which I personally refuse to do.

While the future looks grim, now is not the time to panic. These kinds of events are what separate novices from those who outperform. This crisis will shuffle money from the know nothing investor, to those who have done their homework. It will expose those who made use of excess amounts of leverage and those who bet on companies that lack durable competitive advantages. As Warren Buffett put it “You don’t know who’s swimming naked until the tide pulls in.” Everyone looks great during a bull market, it is only when the bear roars that the score is settled. This can be applied not only to investors, but to companies as well. Some are prepared for these kinds of situations and can prosper, others will be forced into bankruptcy.

For that reason, I try and invest into companies that perform well in all economic conditions, feast or famine. A strong balance sheet is imperative. It is hard to go broke if you don’t owe any money. Cash is king and I prefer companies acting like a dragon sitting on a hoard of gold, protecting that cash at all costs. You can bet a company such as Berkshire Hathaway won’t be filing chapter 11 and instead will be using this occurrence as an entry point into outstanding businesses.

Q1 Performance

As of 4/1/2020, my 10K portfolio stood at $9,700.23. When I started on 8/19/18, the SPY had a price of $285.06 and my account started with $10,000. As of 4/1/2020 the SPY had a price of $257.75. The SPY has also given out $8.44 in dividends since I started tracking, so I have accounted for that as well.

    10K Return(1)    SPY Return(2)      Difference(1-2)    

2018(8/19-12/31)                          (13.95)                 (13.71)                   (.24)

2019                                                 37.33                     32.6                      4.73

2020(1/1-3/31)                             (17.91)                  (19.92)                  2.01

Since Inception(8/19/18)        (2.99)                   (6.62)                    3.63   

As you can see, I have actually beaten the S&P since the inception of this account, albeit I have done so while still losing money. I therefore find no sense of accomplishment in this feat. If the S&P was to fall 50% over a 10 year period while my own account only fell by 35%, I’m not going to be happy. The ultimate point is to make money, not just outperform an index.

Current Portfolio

Here is an updated look at my portfolio as of 3/31/20

Screenshot 2020-04-07 at 5.50.41 PM

We can see I have $9,652.61 invested and have an additional $47.62 in cash. I made some changes to my portfolio this quarter, time will tell if any of these were good ideas.

Buys

CNSWF- I invested into Constellation Software, which has immediately become my largest holding. The company acquires small companies that provide vertical market software to niche customers such as dentists, fitness centers and hospitals. They serve customers in virtually every market you can think of. They own hundreds of businesses and have extremely high customer retention. Constellation is a company I have followed for years and given a large fall, I became a happy buyer. Of course right after purchasing, the stock continued to plummet. I could have gotten a much better price, so be it. They are run by Mark Leonard, a brilliant capital allocator with an amazing beard. I have great confidence holding this company indefinitely.

HEI.A- I also bought shares of Heico corporation. They have a dual class structure, so I bought into the A shares, seeing that they traded at a discount to the standard shares. They offer only 1/10th the voting power, but given how small a position I hold, I find this to be immaterial. Heico is a niche supplier of airplane parts. They are a fantastic company that has fallen greatly due to the decimation of the travel market. While I was initially thrilled by the drop in price, I may have acted in haste, not fully appreciating how long the impact of the virus will last. I will continue to monitor the situation, but am considering getting out. I don’t like quick in and outs, but sometimes you can get lured in on false hope. The travel market might be impacted for years to come, I’m hoping that is not the case but who knows at this point. If people aren’t flying, planes won’t need new or replacement parts. Even a great business with a pristine balance sheet can get into trouble if sales fall off a cliff for years.

Sell

BKNG- For the very reason I am considering selling out of Heico, I have already sold out of my position in Booking Holdings. They are a fabulous company, but the impact of the virus on their business is immense. They make their money selling hotel rooms, car rentals and airline tickets. It is a brilliant business model, they take on none of the heavy lifting and merely act as an agent. As long as this pandemic lasts however, their entire business has essentially been cut to 0. They have a strong balance sheet and smart management, so I have no doubt they will weather the storm. I just can’t predict how this will impact their bottom line and for how long. I wouldn’t be surprised if I one day get back into the company. I’m not comfortable holding them right now, but that won’t always be the case.

Hold???

LUV- I haven’t made a decision on Southwest yet. Just like the last two companies I discussed, Southwest’s business has been crushed by this pandemic. I am loath to get out of an industry leader that is trading at a deep discount to prices seen just a few months ago, but my hands might be tied. The company just announced they are cutting 50% of flights through the end of June. Don’t be surprised if they are forced to cut flights deep into the summer or longer. Will Southwest need to be a part of the government bailout? Maybe, I honestly don’t know and I’m also not sure what kind of stipulations will come as part of such an agreement. No dividends or stock buybacks? That would really impact the investment potential. I’m weighing all these variables, but might pull the trigger soon and sell. I also notice I have allocated too heavily into the travel industry. I did not foresee this kind of crisis impacting so many of the companies I invested in, but I have to play the hand that is dealt. I need to make sure I diversify better so one industry can’t bring me down.

As always, thank you all for reading! This is a strange and difficult time. I invest to make money, not to watch it wash away. Let’s hope the rest of 2020 sees a return to normal and we can all start leaving our houses again. You can follow me on Twitter @TheGarpInvestor.

COVID-19

Fear, agony, depression, anger, and desperation are just a few of the feelings creeping through my mind over the last couple of weeks. As I’m sure you are aware, the market has gone into free fall and the world is in a true state of panic. Coronavirus has spread and brought the world down to its knee. I know things look grim, but as always when investing, it is best to remove emotion from the process. Take a deep breath, go for a walk, whatever you need to do to get yourself into the right mindset.

One mantra I have been repeating over and over is an ancient Persian proverb, This Too Shall Pass. Things look terrible, but the world will one day return to something that resembles normal. In America, we have gotten through the great depression, the financial recession, two world wars, a civil war, four presidential assassinations and once came on the brink of mutually assured nuclear destruction. I have confidence that in time we will overcome and get through this pandemic. We will look back on this as one of those events that we will never forget. This too shall pass.

I don’t say that to minimize the current state of affairs. This is an extremely serious situation that has ramifications felt in all walks of life. Our economy has essentially been put on hold and our most vulnerable citizens are left scared and hopeless. Unfortunately innocent people who did nothing wrong will die. Our hospitals will be strained far beyond capacity. People will lose their jobs and companies previously thought to be impenetrable will fold and go out of business. All we can do is persevere and make the best out of a terrible situation.

Peak to trough, markets have fallen roughly 35%. If your accounts have taken a massive hit, do not feel alone, everyone is suffering. I myself am suffering right along with you. It pains me to my core watching my money wash away. Across the nation, the sense of freedom and security has disappeared in the blink of an eye. Many have lost a significant portion of their retirement savings. I am lucky enough to be somewhat young and hopefully have a long runway ahead of me, but I sympathize with those who don’t. For those who plan to be net buyers of stocks in the coming decades, the only positive way to spin this is knowing that you can now buy stocks today at a 35% discount to what they were just a few weeks ago. I know that doesn’t make it any better, but it is now more important than ever to keep investing.

At some point in the future, there will be a resolution. I don’t know if that will be a month, a year or even many years from now, but eventually we will know where things stand and how the COVID-19 virus played out. In the end, this situation can really only go one of two ways. Either things will ultimately recover and return to normal or our entire world order will collapse and our financial system will turn to ruin. In the first situation, patience and delayed gratification are crucial. In the second, financial assets will cease to matter. Human society will have broken down, so what’s the difference? Who cares what stocks you own or cash you have if the entire system has collapsed? I happen to think the second scenario is incredibly unlikely, but just my 2 cents.

So the question is, how can we make the best out of this awful situation as an investor? Below I have listed 5 actionable steps we can all take.

5 Actionable Steps

  1. Stop Panicking- Easier said than done, but panic provides no benefit. Calm, rational well thought out decision making will always win. Now is the time to start formulating a game plan. Most of us have been quarantined and are stuck at home. You have an abundance of time, make use of it. Take this as an opportunity to learn and grow. Determine what your goals are and how you can reach them.
  2. Give Gratitude- I find myself to be a bit useless at times like these. Other than giving away money, I have no ability to save anyone. I do not have the necessary skills for these kinds of disaster situations. For that reason I find it especially important to be thankful. There are men and women out there on the front lines risking their lives in order to give care to those who fall ill. Thank the doctors, nurses, hospital staff and administrators, emergency responders and anyone else who is out there providing vital relief. They are not the only ones putting themselves at risk however. Thank the cashiers at the grocery store, thank the delivery driver who drops off a package so you don’t have to leave the house, thank the bar and restaurant workers providing you with food to go. There are countless other brave souls out there potentially exposing themselves to the virus, making sure our society continues to function. Thank them!
  3. DO NOT SELL!- The absolute worst thing you can do is to sell out in the middle of a panic. It truly sucks watching your stocks go down every day. I hate it as much as you do, but you never know when the tide will turn. I am not in the game of timing the market. The market will likely recover long before we see the end of the virus. It will turn when sentiment burns bright. I’ll leave it up to Peter Lynch to describe it better than I can. “A stock market decline is as routine as a January blizzard in Colorado. If you’re prepared, it can’t hurt you. A decline is a great opportunity to pick up the bargains left behind by investors who are fleeing the storm in a panic.”
  4. Look To The Greats- We may not immediately know what some of the best investors out there are currently doing, but we can at least attempt to put ourselves into their shoes. Even better, what would they do if they were in our own shoes? If Warren Buffett wasn’t handicapped by Berkshire’s massive size and the public scrutiny that comes along with all of his decisions, how would he proceed?. I can’t tell you exactly, but I would imagine he would be turning over every rock trying to find the diamond in the rough. He would be looking for great companies with a strong moat, that have fallen to a price far beneath their intrinsic value.
  5. Put Your Research Into Overdrive- As an investor, this is probably the most important step. Everything else you do is all for naught if you don’t put in the work. Populate your watch list, start reading 10Ks and sift through as many balance sheets as you can. As for myself, I plan on taking a look at every company within the S&P 500. I’ve gotten to the point where it only takes me about 30 seconds to know if I might have interest in a company. If I do, more work needs to be done, but otherwise I Just pass on to the next one. After that I’ll start using screeners to help me find smaller companies not located within the S&P. This might feel like a daunting task, but truth be told, you don’t get the reward without the process. When the time comes, you will be ready to pounce.

I know this time is challenging and things are likely to get worse, but remember This Too Shall Pass

Thanks for reading. I’ll be back sometime next week to give you my Q1 portfolio update. Sneak Peak: It’s bad! You can follow me on Twitter @TheGarpInvestor.

Credit Card Points

This blog has been almost entirely devoted to investing into the equity markets. As investing is merely one of my passions, I figured I should write up a post about one of my others: Credit Card Points. These points have allowed me to travel the world, while saving tons of money. I have not paid for a single flight in about 5 years, taking roughly 4 round trip flights a year.

Before I get started, let me lay a few ground rules. Credit cards can be incredibly dangerous. Compound interest works against you just as easily it can work for you. In fact, probably more so. The banks charge interest well into the 20% range. I know of very few investors capable of compounding at that rate. If you let the debt start flowing, it will never stop.

3 Cardinal Rules

  1. Do not use credit cards if you cannot afford to pay off the the monthly balance each and every month.
  2. Pay your bills on time!
  3. Do not start spending extra money just to get additional points.

If you can follow these rules, you can use credit cards to your advantage. The banks that partner with the cards offer some incredible perks. These perks are offered because they know a certain percentage of people will fall into their trap; miss a payment and they can start charging crazy amounts of interest and fees.

This allows people like me to take advantage. By making sure I follow the rules, I can get all of the perks without any of the negative repercussions. Over the last 5 years I have accumulated well over a million points. Conservatively valued, a credit card point is equivalent to a penny. In reality, you can do a fair bit better than that, but based on that exchange rate I have earned over $10,000.00.

The most important perk is the sign up bonus. There are a number of cards which will give you something in the range of a 60K+ sign up bonus if you spend at least $3,000.00 within the first 3 months. Each card differs slightly, but this is the gist of it. For those with expensive tastes, $3,000 is rather easy to hit. For others, there are ways of getting up to the spending limit without taking on unnecessary luxuries. For instance, you can often prepay things like cell phone, cable and utility bills. They will keep a credit on your account. You have only altered the timing of the spending, not the amount.

As I try and limit my personal spending, I have been forced to be creative to get these bonuses. I am fortunate enough to run a business that allows me to open up additional cards and reach spending limits. Business expenses tend to add up rather quickly, so if you are able to put these expenses on a card it has a two pronged positive impact. Most importantly, you get the all important points we have been talking about. A second more nuanced benefit is being able to delay payment. Say you make a purchase in mid January. This will get put on the end of month January bill that will likely not need payment until the end of February. You’ve essentially just been given a 45 day interest free loan from the credit card lender. Awfully, kind of them. This can really improve a company’s cash flow situation, just make sure the bills are being paid. Use this to your advantage, don’t be tricked into paying interest.

I’ll give a shining example from the last couple of months, this has been my crowning achievement so I am rather proud of myself. At a property my family owns, we had a large expected repair to something called a sewage ejector pump . Don’t want to bore you all to death with all the details, but long story short we owed about $16,000.00.  We have the money in our account, we are in no danger of defaulting on a payment, so why not put the money on a card? I called up the company and they informed me they would in fact accept payment with a CC. You can’t get what you don’t ask for.

Knowing that we had such a large expense coming up, I decided to open a new card. I went with the Chase Ink Business Preferred. The beauty of this card is the 80,000 point bonus. The caveat is you have to spend $5,000 in the first 3 months. $5,000 is a fair amount of money to spend that quickly, but perfect for just this kind of situation. I called in and put the expense on my card, earning me a quick 96,000 points. 80,000 for the sign up bonus and the usual 16,000 points earned for every dollar spent. The fun doesn’t end there however, I had another ace up my sleeve. Because I already owned the Chase Ink Business Preferred in the name of another one of our LLC’s, I was able to refer myself one company to the other. This gave me an additional 20,000 points for doing virtually nothing.

That’s right, I just got 116,000 points on a single transaction. A transaction we had to pay for no matter what. I also got to delay our payment by about a month and a half, improving our cash flow situation. I’m not sure the stars will aver align that perfectly again, but you never know. I am now sitting on a tad over 250,000 points. Part of the game is figuring out how to extract the most value out of them. Manipulating the system and how best to transfer points to travel partners is a discussion for another day, but know that these points will be put to good use. If you have any travel recommendations, send them my way.

As usual thanks for reading! This was a bit of a change up from my regular programming, but hope you got something out of it. I’m happy to try and answer any questions. Feel free to follow me on Twitter @Thegarpinvestor.

 

 

 

Happy New Year!

Happy new year everyone! 2019 has ended and a new chapter is about to unfold. A new year is always exciting, but a new decade brings on a whole new level of anticipation. A blank slate just waiting to be built upon. Should you not have taken advantage of the last decade of investment gains, fear not. Is the market overpriced now and ready for a downturn? Perhaps, but not necessarily. Time in the market, beats timing the market every time. So let’s all just make a commitment to putting some money aside and investing each and every month. There is no time like the present, so just do it!

IMG_0681

2019 Performance

As of 1/1/2020, my 10K portfolio stood at $11,816.42. When I started on 8/19/18, the SPY had a price of $285.06 and obviously my account started with $10,000. As of 1/1/2020 the SPY had a price of $321.86. In reality, the SPY has done even better due to dividends, so I have accounted for dividend reinvestment in the return calculations.

10K Return(1)     SPY Return(2)    Difference(1-2)    

2018(8/19-12/31)                          13.95                    13.71                       .24   

2019                                                 37.33                    32.6                         4.73

Since Inception(8/19/18)         18.16                     15.09                      3.07

So far, my investment results have been satisfactory. I haven’t crushed the market by any means, but a few points of outperformance are always nice. Compounded over decades, a few points will make you incredibly rich. For now, I am on the right track. Before I get too proud however, I have only been running this portfolio for a year and change. Let’s see if I am still ahead 5, 10 and 20 years from now. Fingers crossed.

Robin Hood

2019 brought along a welcome change to investing to the investing world. The major brokerage houses all lowered their trading commissions down to 0. This is a real boon, no longer do we have to worry about transactions eating into our returns. This was actually just a continuation of the multi decade brokerage race to zero fees. My dad reminds me of the days when a broker would charge a percentage of the total purchase. Imagine having a million dollar transaction(must be nice) and having to pay 20 or 30 grand just to buy or sell.

Given that I have no allegiance to Robin Hood, I am going to move my account over to TD Ameritrade. I don’t particularly like how Robin Hood displays account information, it isn’t easy to determine how individual stocks have performed using their interface. Robin Hood charges a $75 fee to move an account, so I gave TD a call and they are willing to cover the fee for me. The lesson here is that these brokerage firms are eager for your assets, use your leverage to negotiate.

Current Portfolio

Here is an updated look at my portfolio as of 12/31/19

Annotation 2020-01-06 122134

As you can see, my portfolio weightings have started to take shape. Some positions have become quite large, while others now take up a smaller portion. For the most part, this wasn’t due to putting much more money into one vs another. I invested a similar amount into most of my companies, within a couple hundred dollars. The difference has rather come from those investments performing well. It is no coincidence that Floor & Decor is now my largest holding at 15.05%. I originally put $1,137.10 into FND, it is now worth $1,778.35, up 56.4%. If only all my investments could perform that well, alas I am not that lucky.

I also still hold a little over a 5% cash balance. I always like to keep at least a little ammo in my pocket should I see a good opportunity. That being said, I like to be almost entirely invested. You can’t compound with money sitting on the sidelines. I trust that the companies I have chosen will make good decisions. Should the market take a fall, they all generate lots of cash to use opportunistically. Whether that is buying back stock when the market price is lower than the intrinsic value of the company, or making an acquisition at a bargain price, I feel confident. I am far more interested in finding the right company than finding the right price.

As always thanks for reading, I appreciate it! I hope you all had a happy new year and let us all make 2020 a good one. Please subscribe and don’t forget to keep on compounding.