2021 Year in Review
Today, I review the year that was from my investing perspective. I take a look at the good, the bad, some of the key learnings and aims for 2022. I have already reviewed my portfolio returns for December 2021 which can be viewed below if you missed it.
Best Returns
Here are my top five returns in 2021 on a dollar cost average basis:
DataDog (DDOG) +83%
Cloudflare (NET) +74%
Microsoft (MSFT) +55%
Innovative Industrial Properties (IIPR) +49%
AbbVie (ABBV) +41%
The thing that stands out to me the most here is that three of the top five performers pay a dividend. The argument that a stock cannot appreciate because it pays a dividend is often banded about but is not something that I subscribe to. My portfolio is a combination of growth and value stocks for this very reason. I do not rule out a stock based on their dividend preference alone.
Worst Returns
Here are my top five worst returns in 2021 (stocks that I still hold) on a dollar cost average basis:
Peloton (PTON) -70%
Enthusiast Gaming (EGLX) -50%
Roku (ROKU) -40%
Fiverr (FVRR) -37%
Brookfield Renewable Corporation -35%
I don’t regret buying any of the above stocks and have no immediate plans to sell. Expect for Peloton. Hindsight is obviously 20/20 but there were some signals that I could have picked up on which I will cover in more detail below.
Dividends
Whilst I do not invest for dividends alone, I thought it would be interesting to share the progress year over year as the result surprised me. During 2021, the dividends I received increased by a whopping 396% from 2020. The majority of this increase was a result of accumulating more shares in dividend paying stocks. However, I did have notable dividend increases throughout the year:
Innovative Industrial Properties +21%
AbbVie +10%
Microsoft +10%
The dividends received are not factored into my YTD performance but are reinvested back into the portfolio and contribute to the compounding effect.
Key Learnings
Wait at least six months before buying a newly public company
When a new IPO hits the market, many investors including myself have a rule that we do not invest until six months after the IPO. There are many reasons for this. Operating as a public company is very different to a private company and we need some time to see how the company and management adapts. The lockup period is another reason meaning that insiders usually cannot sell any shares until six months after the IPO date which can lead to some downward selling pressure when this happens.
At the end of 2020, I broke this rule when I invested in PaySafe before its SPAC merger with Foley Trasimene Acquisition Corp. I thought I was getting a good deal before the merger and ‘getting in early’. I was wrong, each quarter that PaySafe reported was one disappointment after another. Had I waited for six months, I would have had two quarters of earnings to review and would realise that the company was not living up to any of its shiny promises that it made before the merger. I ended up selling the entire 2% position in November for a 50% loss. Since then the stock is down a further 24%.
Don’t try to catch a falling knife, pick it off the floor
I can’t remember who I heard say this but it was on a really good Twitter space held in November. When we see a stock fall it can be very easy to just jump straight in and buy the dip immediately. We’re not trying to time the market but there is nothing more frustrating than seeing a stock drop another 20% from the initial dip. While we cannot predict what the market will do, we can use technical analysis to help identify a bottom. For example, I opened a position in Peloton in February at a Price/Sales of 14 after it had ‘dipped’ from 20. I added it again when it hit 10. The knife continued to fall. Bar a mini revival in May there was no support coming for this stock at all and the stock has bled all the way down to a Price/Sales of 2.
My point here is that the Price/Sales valuation of 14 was still well above the pre-covid multiple of 8. I was impatient to take a position in this stock but the risk vs reward was stacked heavily against me when I did. Just to add here, I have not sold Peloton because I want to use the losses for tax harvesting over the next number of years. If I were to sell it all in 2022 I would end up with a lot of unutilized losses from a tax perspective. I will not be adding to my position (unless there is a significant turnaround).
Buy and continuously verify is superior to buy and hold
Peloton is once again the case study here. I should have got out when I could but I believed in the concept of connected fitness and placed too much trust in management. The following red flags arose with Peloton:
May 2021: Treadmill recall handled badly by management after a number of injuries and a child’s death (Share price: $83).
August 2021: Bike price was lowered despite this being marketed as a premium product - would this ever happen with an iPhone? (Share price: $98).
November 2021: Quarterly earnings well below estimates and lowers forward guidance significantly (Share price: $55).
November 2021: After stating on the earnings call that a capital raise will not be required, Peloton raised capital (diluting shareholders) less than two weeks later (Share price: $47).
January 2022: Hires Morgan McKinsey to review cost structure and suspends production of all connected fitness products (Share price: $24).
Don’t ignore red flags when they arise just because of an emotional attachment. As active investors we need to park emotions and instead act based on cold hard facts. Even exiting on the 3rd red flag would have resulted in a loss substantially less than today.
In comparison, when the red flags arose with PaySafe and GAN I was a lot quicker to exit. While I did suffer losses in both if I was still holding today the losses would have been significantly worse.
Aims for 2022
I’ve called this section aims rather than goals. Goals should be SMART: specific, measurable, attainable, relevant and time bound. My aims would not make good goals because they are not SMART. However, these aims are designed to span across my entire professional and personal life.
1. Maintain Curiosity
I believe that one of the most important skills an investor can possess is understanding information. In general, the investor who understands information the best stands to profit the most. However, it's not just about understanding information, it’s about understanding the most information. What drives someone to constantly search out new experiences, new perspectives, new ways of doing things, and expand past personal boundaries to understand more information? It is curiosity.
2021 was arguably the breakthrough year for NFTs. Whilst I do not hold any crypto or NFTs personally I spent quite some time exploring this space. Curiosity and conviction are two very different things. Whilst I would not feel comfortable putting my money into this space in its current iteration I believe that it is very important to keep up to date with developments. Facebook was not the first social network but it has turned out to be the most successful. I believe that this will be the case with crypto and NFTs. The versions we see today might not be the long term winners but the blockchain is here to stay.
Dismissing ideas that you don’t understand is letting ignorance dictate your research interests. Curiosity helps to avoid this pitfall.
2. Seize the Day
This one was provoked by a tweet from @Route2FI. The past two years have had a profound change on how we work and live. Working from anywhere is now possible. We’ve probably all got ideas in our heads about how we would live or work if there were no constraints. But what stops us from pursuing these ideas? The fear of failure.
At the end of 2020 I launched this newsletter and one of the things holding me back initially was ‘what if nobody reads it?’. Rather than focus on the fear of failure I decided to focus on the personal benefits of writing my thoughts down, even if nobody else cared to read them. Subscriber numbers are in the thousands now (thanks to you) but this would never have happened if I did not pen that first article.
One of my goals for 2022 is to do the things that I would do if there were no constraints, be it professionally or personally. The opportunities we have to work and live in 2022 are very different to what might have been the case up until 2020. Don’t be a coward.
I will leave you with a quote from Ellen Johnson Sirleaf, Africa's First Woman President:
If your dreams don’t scare you, they are not big enough
Contact me
Twitter: @wolfofharcourt
Email: wolfofharcourtstreet@gmail.com
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Happy investing
Wolf of Harcourt Street
Disclaimer: I am not a financial adviser and I am not here to give specific financial advice. The opinions expressed are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. The information is based on personal opinion and experience, it should not be considered professional financial investment advice. There is no substitute for doing your own due diligence and building your own conviction when it comes to investing.
Nice post, but only 2 Aims?
Here's an unrelated question, but one relevant to your experiences last year. How can you know what's really going on with a company? It seems that so much of whether a company succeeds or fails depends on its leadership. While one can know the name and basic information about a company's CEO, one has a very difficult time telling what their goals are and whether they are more than PR. And even if one can determine that the CEO intends to act to achieve the stated goals, one has no idea how well it is going until too much later to make a real difference. What is your strategy for dealing with that?