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My 2021 Investment thoughts...

While this blogs purpose is not for providing financial advice, it is a place where I will be providing my thoughts on various investments and investment platforms. One area that is of obvious interest to me is my own investments. In this blog I thought that I would give a snapshot of my 2021 investments so far, and why I made them.

A professional investor I follow a bit currently is Australia's Hamish Douglass. He is the Chairman of Magellan Financial Group, which is listed on the ASX. The company may actually be my next investment, as I think they are currently undervalued. Something insightful Hamish said recently, discussing Magellan's poor performance compared to the global stock indexes, was that by November the horse had already bolted. By this he meant that when the Covid-19 vaccines came out around that time, the market re-priced its risk and stocks around the world became more fully valued. If you got in before this time, you are probably sitting on some decent profits. But if you didn't get in till after this time, you will likely have gone nowhere, or be harbouring some paper losses. Particularly so if you got involved in the 'tech trade' after November. This year has seen massive outperformance in the cyclical trades like Banks and Travel stocks; but 2021 has not been so kind to the growth names, which outperformed in 2020. The reason that a lot of technology stocks outperformed in 2020 is because they were part of the 'stay-at-home trade'. Think of the things that people still do when locked-down at home; they still need to eat, brush their teeth and pass the time. This is why gaming stocks did well in 2020. A lot of people passed the time by playing video games. And now that everyone will be getting vaccinated, and be going back to work, some of the wind will come out of that trade.

Markets are always forward looking, and are pricing in the publics' sentiment about what they think will happen 6-months from now/ 12-months from now. This often leads to mis-pricing of risks, and mis-pricing of stocks. If you believe in the Efficient Markets Hypothesis, what you are saying is that you believe the publics' sentiment about what will happen in the future is always correct. But we all know that this is not the case. Markets are inefficient because people cannot predict the future. The best thing that we can do when investing is to make informed decisions, and not to have all of our eggs in one basket.

I made a lot of investments in 2020; before, during and coming out of the pandemic. The investments I made before have bounced back. The one's I made during, from April through to November, have done well. But the one's I have made after November have so far been hit or miss. So me personally, Hamish Douglass's insightful comments ring true. But funnily enough for me, the best investment I have made after November has been in Box (NYSE), which provides cloud data-storage for large companies, like Salesforce and Procter & Gamble. Box is technically a stay-at-home stock that has bucked the trend of the other stay-at-home stocks like Zoom Video and Netflix. In comparison though, Box has struggled for years with having a low valuation (on a price-to-sales basis) compared to other cloud and tech stocks. Despite the recent increases in its share price, Box still has a comparatively low valuation. The market has punished the stock in the past for having low earnings growth rates compared to its peers. With the company recently moving into a positive operating cash-flow position in the last quarter, I believe that its price-to-sales and price-to-earnings valuations will get more in line with its peers.

Other investments I have made this year includes Madison Square Garden Sports (MSGS: NYSE), and Fisker Inc. (NYSE). Adding these stocks was all part of building up my American portfolio, which I did via Hatch. MSGS is one of the only pure sports business stocks you can own, with their two biggest assets being the New York Knicks (NBA) and New York Rangers (NHL). My reason for buying it is basically that I thought the Knicks were due for a rebound as an NBA organization. And seeing them win their first playoff game in eight years today, it appears that they have a bright future. The NY Rangers on the other hand have been a strongly performing franchise in the NHL for many years, and a couple of years ago selected first in the draft, and have a good young core. The third biggest asset in the company is Counter Logic Gaming, which is the oldest e-sports organization in some of the country's largest e-sports tournaments. This asset was also appealing, considering the expected future growth of e-sports.

Fisker was really a shot in the dark, and I did not contribute a lot of capital to it. To be honest, I was one of the many investors who sold my Tesla shares way too soon. My thought was that Tesla would get hampered by increasing competition from the big auto makers, like Ford and General Motors. But what has happened is that Tesla have got a big jump on their competition by building a high-quality brand, with an efficient manufacturing process. They were not the first to develop a high-end electric vehicle in the US though. That honor belongs to Fisker Automotive (an earlier iteration of Fisker Inc.). In the early days of electric vehicle design, they developed the Fisker Karma, which looked really cool, but was hampered by having many structural problems. The company eventually went bankrupt. So Fisker Inc. and its first production vehicle, the Fisker Ocean, is the second attempt by Henrik Fisker to enter the electric vehicle space. The company says that they will commence production in 2022, and the car will be marketed as the world's most sustainable vehicle. The indoor lining of the car is made from recycled ocean plastic, and the leather upholstery is vegan. The cars will be sold at a price point of $37,500; which compares well to any EV currently on the market. And with the current US EV subsidy for consumers, the final price point will be just under $30,000. And if you do not want to pay that cost upfront, you can also lease the car for $379/month after paying an up-front activation fee of $2,999. This leasing model will provide the company with an additional source of revenue. Combine this innovative financing model with the cars sustainable qualities, and Fisker could have a bright future. But considering that the company has not yet actually produced any vehicles (beyond a prototype), I thought that the stock did not validate risking a lot of capital.

So there you have it, those are the investments I have made this year. I am pretty happy with the portfolio I have built up. But as with any other investor in these markets, I am always worried that the next big crash is just around the corner. I don't pretend to know when it will come. The way I am trying to protect myself against it is by holding a number of defensive stocks (outside of my 2021 buys). I am probably not holding enough cash, so perhaps my focus for the rest of 2021 should be to build up my cash position.

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