2020 Year in Review + #CK2020 Highlights

There is no shortage of investment content in 2020. I will try to keep this short.


First, the market died the day that StockTwits rang the opening bell and that is an important moment in history that gets swept under the rug with all the headlines in 2020.


While equity returns were great in 2020, more importantly, I found that covid helped narrow my focus even further into higher quality growth names. The Universe at year end 2020 should more accurately reflect the focus sectors (medical devices, software/technology, etc.) and desired characteristics (low debt, high gross margins, etc.) of the Growth portfolio.


My biggest takeaway (reminder) of 2020 is that the stock market is not the economy and vice versa. For months, bears have cited a global pandemic, high unemployment, ballooning debt and deficits, the contested election, etc., as obvious signs that civilization is about to enter a death spiral, and with it goes the stock market. Meanwhile, growth investors have snapped up shares of quality companies as they doubled/tripled+... while value investors fought over which ShitCo energy play has the safest 14% dividend for when we go into our bunkers.


The price collapse in Feb/March was a historic buying opportunity as the VIX peaked at over 90 and there was mass panic and daily 10% swings. At one point, I joked that the base case for equity markets was human extinction and presented the "bear thesis" on some stocks that I was buying. The point being, these companies were not going anywhere and someone's need for liquidity could be your next payday.


Personally, the biggest signal for me to get more involved in equities actually came from credit markets. With the Fed signaling that they would backstop the economy and markets, confidence in our markets ability to properly function returned. A week prior, many suspected that exchanges would have to be closed. I jokingly made these two memes on March 23 to share my sentiment on the Fed essentially saying that they would do whatever it took to stop asset prices from falling.


The illiquidity seen in credit markets was worse than the dot-com-bubble or global-financial-crisis, you could not even efficiently trade US Treasuries because the spreads were so wide.

As some may know, my full time job involves working with insurance companies to manage their general account investments. The majority of the assets that I manage or advise on are fixed income. I spend significantly more time looking at interest rates and credit spreads than I do looking at equity markets. The price action across fixed income markets told me that I needed to take risk.

To be clear. I did not call the bottom. I was buying on the way down, and selling on the way back up. I am struggling to locate the tweets, but the words that come to mind are "don't get too high on the highs or low on the lows". There will be good times and bad, and you need to be mentally prepared at all times. You cannot have a gloom and doom outlook and you cannot think anything that everything you touch turns to gold. Manage your expectations, prepare for the worst.

OK, maybe not that bad.


Some other "funny" moments...

Promised to name my first child $SPOT (yes, with the dollar sign). Do not tell my wife.


Oddly high small bid premarket in $IRTC... I couldn't find any news and the bids were small so I hit them. What happens? $IRTC opens at 175 and trades up to $275 in the following months.



CK2020


The winners and losers this year are logical considering the backdrop and changing world that we live in. The CK2020 portfolio was overweight several sectors that had serious negative implications from coronavirus.

  • SPDR Energy Sector ETF (XLE) – The sector was absolutely decimated as the global economy ground to a halt. We saw NEGATIVE OIL PRICES! The bounce back has been lackluster as people turn their focus on the future and alternative energy. CVX and XOM now represent 50% of the index. [-36% as of 12/1/2020]

  • Delta (DAL) – With air travel largely suspended or avoided for months, Delta faced a death-spiral of unstoppable losses adding to tens of millions of dollars per day. Warren Buffett bailed and the government stepped in to backstop. The sector largely seems un-investable over the next few years, which likely means it is a great investment and it will get repriced higher before anyone wants to be an airline bull again. [-30% as of 12/1/2020]

  • TripAdvisor (TRIP) / Booking Holdings (BKNG) – Travel booking and research when you can’t leave your home? Ugh. Long term these are still solid companies with great operators. They will be lean and more efficient and profitable as ever in a few years. [-14% and -1% as of 12/1/2020]

  • WWE (WWE) / IMAX (IMAX) – Arena based entertainment in a pandemic? Woof. These were not exactly in an uptrend coming into 2020 and were definitely more contrarian/reversal plays. There is value here but may take patience. [ -33% and -27% as of 12/1/2020]

  • Funko (FNKO) – I joked that they were the new beanie babies. I should have taken myself more seriously. I thought there was (is) value but the market disagrees. "Collecting" is in right now and people seem to love Funko toys, but it is a difficult business and time will tell. The equal weighting system unfortunately bites here with a significant drawdown without risk management. A company this size would never be equally weighted with FB/GOOGL/etc. [-49% as of 12/1/2020]


2020’s winners also seem logical considering the huge shift to e-commerce, working from home, etc. With the population on lockdown, everyone was at home on their couch streaming movies/music, playing video games, shopping online, ordering delivery, swiping on social media and if needed, seeing their doctor via video chat.

  • Streaming - Roku (ROKU) / Spotify (SPOT)

  • Telemedicine - Teladoc (TDOC)

  • Social Media - Pinterest (PINS), Facebook (FB), Twitter (TWTR)

  • E-commerce - Etsy (ETSY)

  • Shipping/Logistics - FedEx (FDX), Landstar (LSTR)

  • Video Games - Take Two Interactive (TTWO), Electronic Arts (EA)

  • WFH Trends - GrubHub (GRUB), iRobot (IRBT), Yeti (YETI)

The February/March weakness, while warranted for many companies, made little sense for others. It was important to recognize the opportunity early and act. A few examples below.


One more for fun...


If you are interesting in accessing the top picks for 2021, aka CK2021, check out the blog post below.


https://www.oakriverinvests.com/single-post/launch-of-ck2021



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