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.