Welcome back everybody to the second week of the Hughes Fund. This week we will be analysing the opening performance we have seen from the portfolio so far and take a breath to review the Portfolios asset classs mix, assess the potential risk of the portfolio, and breifly talk over the rational of 3 trades made on Friday close. This will be bit of a shorter post (Hazar!) So let get straight into it!
14 Day Performance
As a first note, I am sure you would of all noticed the 'returns' we have had from bitcoin. This position was open far before the official opening in the portfolio, as the website was being constructed, near the end of the pullback we all witnessed at the start of march, so please be aware this is a unrealistic expectation to of achieved such growth in the market over the last 14 days, however as this part of the portfolio is real for me personally, I felt it would be appropriate to include. When It comes to buying bitcoin, the debate often touches upon the most effective method of buying the asset, as a long term portfolio my answers t this would be... Today! Along with tomorrow, the day after, the the day after that day. Jokes aside, if you are a true long term believer in bitcoin even fractional matching gold over the long term as a hedge against the ever weakening US dollar (with Jerome Powell suggesting another year of dovish inflation policies) the most important thing to do is just get in, Dollar cost averaging in with granular increases, leaving some cash on the table for potential bulkier buy in's to take advantage of any dips. Word for the more fragile among us: Bitcoin has been and will continue to be a very volatile assets, greatly effected by the media and retail investors, do not let short term dips (Or crashes) scare you, DCA will smooth out the peaks and troughs and I truely believe in 10 years from now you will look back and be very happy you did.
Beyond bitcoin we have 4 more strong performing assets so far: Amazon, Facebook, Microsoft and Zillow. Great to see our compounders jumping to such a high start, when fewer morelucrative opotunities present themselves in growth stocks, excess cash will be DCA into our compounders. Sadly, I am a bit underwhelmed by our growth assets so far, but as the last 2 months have proven very turbulent for tech and growth stocks with bloated valuations. I have insured the portfolio has remained level headed with valuations and focusing of businesses already set up for dominating their respected markets such as Zillow and Peloton.
Looking at on paper our worst investment so far, Futu Holdings, we can already see our secondary and riskier 'Robinhood of China' bet, Up Fintech, has improved +15% this last week alone and I can confidently see these two investments leading our portfolio for growth and % return soon, therefore I will sit tight on both of these asset and not fear any more short term dips and in fact buy more the average down our entry price to maximise returns, more in this later.
Asset Mix and Risk
- With 51% of the portfolio across Bitcoin and Growth stocks we can assume a high level of risk for this portfolio, as a long term based portfolio we are not prioritising any high cash yielding asset for at least 10 years. This allows us to swallow some of the 10 year DCF model used for business such as Telsa (Coming Soon!) and ride the tail coats of the growth focused market we are seeing since March 2020, but remain disciplined by only acquiring the highest quality businesses, with a competitive advantage already set in place to increase the chance of our picks leading their respective industries!
- We are nearing the bottom limit of our cash reserves (5%) as we appear to gradually be regaining stability in the markets with multiple back to back highs for the S&P500 and the DOW30 and a bouncing back NASDAQ100, I see this as a prime buying opportunity for doubling down on growth stocks with the highest risk adjusted upside, reducing my appetite to hold onto emergncy cash.
- Special positions, by nature, will remain a small percentage of the portfolio, with mine being a return to work play with Uber, as their more lucrative lift hailing service are set to bounce back it will be interesting to see how consumers habits have permanently changes towards the convince of UberEats, proving to be a sticker element of their business, potentially leading to some great quarterly number come the second half of 2021.
- Prepare for value stocks to be sold in full as they return to a fair value. These can be quite sleepy positions until the recovery materialises, often around earnings season. I aim to keep around 10% of the portfolio to be value based, limited to 3 individual equities with each required to be a different main sector.
- With our compounding positions, I will like to see these stocks slowly tick up in value and provide a solid foundation of mega companies to drip any dividend payments into, reinvesting over the 10 years. With DCA position increasing occurring when we are sitting on to much cash.
- Please read last weeks Post for our Green ETF rational.
Trades
For the two Chinese based growth stocks as previously mentioned "I can confidently see these two investments leading our portfolio for growth and % return soon."
FUTU - Growing 200%. 80% Gross Margins Buying in at 12-14x forward Gross Profit. Already profitable with 45% EBITDA margins! Buying in at 18x forward EBITDA, assuming growth cuts in half this is still a bargain!
TIGR - Hitting 15x forward GP for a 100% grower is another steal. If it keeps growing 60%+, its a no brainer long-term. Already profitable.
PTON - A $124 buy-in price gets you a 17% IRR on my assumptions. Buying on weakness all day long.
Well that's it for this week folks! I hope that this week post helps to cover some more of the rational behind the Hughes Fund further and we will soon see our first 3 trades made this week aid our growth equities in becoming our return leading asset class alongside bitcoin! Say tuned for my first equity deep dive coming this week and my first weekly digest!
