2020 – Investment Retro

I wanted to look back and share how my “investment strategy” has developed throughout this turbulent year.

Buy the dip (or not) ????????

At the start of 2020, I was feeling pretty confident that the market was going to collapse at some point this year. And I was absolutely right: Covid 19 blew up in March and the S&P 500 dropped 30% vs. where it had been in February. But, sadly, I didn’t act. I waited to buy because I thought that this was just the start- the tip of a global recession-looking iceberg. I was wrong. The markets have since rallied spectacularly. The S&P 500 is now 8% higher than where it was at in February. I understand this to be largely down to actions taken by central banks like the Fed. There is also a theory that another contributing factor to the market clawback has been the growing appetite for equities amongst retailer investors. These are the middle-classes who have more money in their pocket than usual (having been stuck indoors for so long) who just discovered the Robinhood app.

Sold big-name tech stocks ????????‍????

Having made a nice 89% return on Apple last year, I had said to myself it would be a long-term HOLD stock for me. However, as I believe is the case for many big-name tech stocks, the hype and narrative around Apple appear to now be greater than the reality of the future growth potential for this Cupertino tech giant. iPhone sales have stagnated and the move to service-based subscriptions has thus far been underwhelming. Furthermore, the US government looks to be tightening its grip on the application of its antitrust laws concerning the operations of the FAANG stocks. The upshot of all this is that I have now sold Apple, Facebook and Shopify.

Apple CEO, Tim Cook

Bought some UK stocks ????????

Here in the UK, the FTSE has also rallied since March but to a lesser extent. Apparently, the heady tonic of one part Brexit to two parts shambolic pandemic management has put some investors off. In the last few months, The Motley Fool published many an article about the undervalued share prices of British companies and, at the end of October, I got lucky and purchased a handful of these at just the right moment. Taylor Wimpey, ITV, Burberry have been amongst my top performers since, with an average increase of 41.5% to date.

My selection criteria weren’t too complex. I looked at fundamentals such as their price to earnings (PE) and combined these with Simplywall.st’s “Share Price vs. Fair Value” metric, which echoed the Fool’s sentiment that these companies were on sale. Further, I believe these industries (new homes, TV and luxury fashion) are relatively stable and not overly competitive.

Stock portfolio

Hold the gold ????

To give my portfolio balance, and because I still believe the markets will nosedive in the not so distant future, I have purchased a couple of gold-mining stocks in Centamin and Barrick Gold. These are currently down 4 and 15%, respectively but that’s to be expected during a bull market and they only make up 20% of my portfolio’s value.

The world has gone EV crazy ????

It is easy to look back, with the benefit of hindsight, and feel regret that I didn’t buy, buy, buy back in March when the pandemic first started to take hold. I don’t feel quite the same when it comes to Tesla: the world’s best-known electric car manufacturer that has increased 730% in value since the start of this year. Even back then, many were already saying this stock was overpriced.  I think it was really only the foresightful EV evangelists / Tesla fanboys who were buying the stock at that time. But since then, every Tom has told every Dick and Harry (presumably over virtual drinks) to get into TSLA.

EV hype has been a catalyst for many other growth stocks this 2020. Not least NIO, which Freetrade describes as “the Chinese Tesla”. This company has all the right ingredients to set it on a course of incredible growth. NIO is said to have looked closely at Tesla’s model and improved upon it. For example, they’ve developed a car that can have its battery switched out within a few minutes (vs. the ~30 minutes charge time for a Tesla). NIO’s share price has increased by 1,640% since the beginning of the year. Having tipped this stock to several people for weeks when it was around $13 per share, I was late to the party myself and only got in at the $33 mark. Still at $46 / share today, I have already seen a good return.

NIO 2020 share price

Lesser-known companies that stand to benefit from similar trends

Thinking about the major trends that have occupied the headlines this year, I think of;

  • the coronavirus
  • Electric vehicles
  • 5G
  • Renewables / sustainable business

I mentioned above about how the buzz /hype around certain consumer brands has, in my opinion, led to over-inflated share prices across many stocks that operate in the above markets. The impact of covid on Zoom’s share price is a good example of this.

When seeking value, it can be useful to think about the supply chain of these companies. For example, when we think about the rise in EV, we know that the batteries of electric vehicles are made from lithium, and so we can look at some of the companies that mine this metal. Albemarle (ALB) is one such company. Their share price has increased by 45% since I bought it on 28th October.

The rise of the SPAC ????

Special Purpose Acquisition Companies (SPACs), as I understand it, are a relatively new phenomenon. They are known as “blank cheque” companies: publicly listed funds created with the sole purpose of acquiring a high-potential private company. They are often headed up by billionaires. Chamath Palihapitiya, for example, is the face of Social Capital IPOB. This SPAC acquired Opendoor, a platform that aims to disrupt the $164bn US estate agency market. At the time of writing, IPOB is up 49% since I bought it on 10th November.

There appears to be a lot of hype around SPACs and often their share price will increase exponentially at the point that they declare which private company they will be acquiring. There are potentially huge gains to be made if investors can buy the right SPAC at the right time.

Moving forward – my strategy for 2021

In short, it will more of the same. Keeping an eye out for out of favour, “value” stocks as well as lesser-known growth stocks that stand to gain based on the market trends. We know that coronavirus will still be a thing right through 2021 but with the rollout of the vaccine we will see headwinds that could create some choppy market conditions.