In 2020 Shaperfunds generated a total return of 36.6% versus 17.88% for the Standard and Poor’s 500 Index with dividends included.
I made some colossal mistakes in 2020 and I’m not kicking myself. It was a difficult year personally and it was challenging providing financial advice when there was so much confusion and dissonance.
2020 started with a favorable set up. I was paring back my Tesla (TSLA) position as it rose rapidly in January and February. I had cash to deploy and I deployed it. I deployed it too quickly and aggressively into companies that I deemed to be the best opportunities but were dropping a lot faster than the market. Royal Dutch Shell (RDS.A) is a shining example.
By the time I began to internalize the amount of time the economic situation would be different, we were near the bottom of the market in March. I did manage to pick up some high quality companies at compelling valuations including Apple (AAPL), Microsoft (MSFT), Home Depot (HD), Starbucks (SBUX), Twilio (TWLO), T-Mobile (TMUS), and Teradyn (TER).
As the market raced off the March 23rd bottom I decided to add hedges in late April. This led to worse performance than had I remained 100% long. As the summer went on and stocks everywhere began making new highs, I decided to sell positions I assumed would simply capture the beta of the market in a time I wasn’t thinking I wanted beta.
The market continued higher and I reached a tipping point in late August where I decided to better define the scope of my hedging approach. The size of my shorts, which included a couple stocks and index funds, were relatively small, but as I trimmed back my “overvalued” longs, my long exposure came down quickly to levels that began to feel uncomfortable.
The big picture is that I’m a young and risk tolerant optimist. I was also constructive on parts of the market such as banks and oil companies. I decided to cut back on my SPDR S&P 500 ETF (SPY) short and add to Royal Dutch Shell (RDS.A) and PNC (PNC). I also decided I would never be fully hedged or short.
I’m also a contrarian. I can be different and wrong for a lot longer than an average person. There are limits to how wrong I can be for how long and I tested those limits in 2020. Even without outside investors, the pressure to pace with the big indices is undeniable.
The end result of 2020 is something to be proud of. I improved my thinking, I improved my approach and I had the biggest calendar year outperformance relative to the Standard and Poor’s 500 Index since I began tracking in earnest in 2015. I also moved into a beautiful new house with my girlfriend, our two dogs and my Tesla.
My largest position, Spotify (SPOT), returned 110% in 2020, Microsoft (MSFT) was the second largest contributor to positive performance. Tesla (TSLA) and Volkswagen (VWAGY) were honorable mentions.
The top detractors to performance in 2020 includes my SPDR S&P 500 ETF (SPY) and Mattel (MAT) shorts, and my Alibaba (BABA), Biogen (BIIB), and China Mobile (CHL) longs.
I exited 2020 at 64% net long.
One other note on performance: I have a 30-day holding constraint. I’m unable to sell something I bought within 30 days and unable to cover anything I shorted within 30 days. This is less than ideal for my active position sizing, as well as all the volatility we saw in 2020.
As always, nothing on this blog constitutes investment advice or any recommendation that any security, portfolio of securities, investment product, transaction or investment strategy is suitable for any specific person. You should not use my Blog to make financial decisions and I highly recommend you seek professional advice from someone who is authorized to provide investment advice.