Chit Chat Stocks - 17 Month Update of Hypo Capital

Episode Date: April 20, 2020

On this show we discuss the hypothetical portfolio we run. Check out the numbers/returns here: https://www.chitchatmoney.com/one-year-five-month-update-of-hypo-capital/ --- Support this podcast: https://anchor.fm/chit-chat-money/support Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the 17-month update of Hypo Capital, short for Hypothetical Capital. I'll let Brett get right into it. What is Hypo Capital? What's our goal? Yeah, so it's just a fake portfolio. Hypothetical, I guess, is a better term we like to call it. But we just started in November 2018 and we gave ourselves a fake million dollars. And since we don't really have that much money, we can't really invest in all of the companies that we want to. uh so we wanted to publicly uh so we're just posting it on the sub stack and on the website what we're doing and we make changes every month uh so we just have one trading day per month and it's on a weekend so the disadvantage is there's only one trading day but the advantage is we're

not actually buying and selling with actual people uh we keep it pretty simple it's long only uh no shorts uh no derivatives or options just because that's way harder to track and yeah we keep it pretty simple this is the 17th month and yeah we just you know buy or sell all the long positions and then yeah that's that's really it's very simple and in a simplified form basically we get one trade a day a month so we're we're seeing how we do against the market if we were only looking at it once a month and making trades those days um and how have we done what's our performance all time yeah it's been it's been a great month for us so we've had a quite a few good stocks uh for us even with the market coming back so we're up 29 all time since november 2018

and then the market s well i guess we use the s&p 500 as the uh in this index that we follow that is up 8.47 so we're outperforming by 20.5 uh it's been one of our best months and yeah that's all i can really say about that it's it's been well it's been doing well we we had built up a lot of liquidity um before last month and we ended up lowering it i think we ended with like two percent in cash or i'm not mistaken last month so we ended up using a lot of it which happened to be good timing who have been our best performers this month and also worst performers so yeah i'll start out with worst performers i guess boston omaha uh has been a bad performer they're down totally uh 33.6 percent uh but we're still confident in their business yext has been

struggling uh they're down negative 14 percent and then yeah that's really it disney i guess hasn't been doing well either uh but other good ones would be teledoc they are you know benefiting a ton from the pandemic and they're up 217.9 percent roku has also benefited they uh pre-announced of revenue beat. They're up 210% in total for us. And then JD.com, which spoiler, we actually ended up selling all of it this month just because we're not as confident

in China as we were. And they're up 136%. So yeah, those are the best and worst performers. Okay, we're going to hit a quick break and then we'll tell you our changes that we made and why we're keeping so much cash. you

Welcome back in. We'll get right into what we did this month. what did we sell and why? Okay. What we sold was JD.com and Disney. First up, I'll go JD.com. It's simple. We do think if the business numbers are legit, it is a fantastic company. It's done phenomenally well for us. I don't know if you owned it in your personal account, but I ended up selling it in my personal account as well. Yeah, we sold all the shares and it was 10% of the portfolio so what was one of our largest positions but we've seen the fraudulent uh scandals come out of china recently and i just don't think we can invest over there right now

also the economy over there is not doing very well and that's going to lower consumer spending that's our thoughts heading into that and jd.com is not as cheap as it used to be uh yeah any other thoughts on why is that really yeah this is kind of a sad goodbye uh because jd.com was a company we really liked uh and they have done well for us but there's just a risk factor that we can't you can't calculate for the fact that all the numbers could be fake like you can't put that into your thesis so it's super tough to kind of judge around that and we think it's best to just kind of get rid of our chinese exposure right now um what about disney disney we sold uh at what is it here 106 a share i mean they have a ton of exposure to pandemic affected things they have

a cruise line they have disneyland and disney world and then the international ones um i know in china they actually opened up the disneyland shanghai and it's kind of um it's like adjusted everyone's wearing masks you can't go near people so there's less people actually at the park so i think they're going to get affected a ton uh by this um they're also going to have tough time shooting movies things like that where they're not a lot of the essential uh things that people are going to do they're not a lot of the essential travel they are entertainment they're like the worldwide largest entertainment company and then espn is going to get hit really hard as well i think people are underrating how long some of these uh non-essential items or like non-normal

items in crowds or events sorry not items are going to stay away and i just think they have they're levered up a ton um i think they gotta have a tough time here and that's why we wanted to sell yeah and if there's one thing that this pandemic did it was highlight how how beneficial it is to have an asset light business disney is not one of those they are asset intensive they have tons of i mean it is in its structures so uh cruise ships parks that stuff is going to get killed for a long time and even if it's even even if people go back to normal life there's still going to be some hesitancy from consumers going on cruise ships um and going to park so we don't know there's no timeline there and i think it was just a good

idea to get rid of the company as a whole um let's get into what we bought though this month what do we buy and why okay so we bought two companies and they're both in the uh retail clothing retail space um stitch fix and revolve group uh we've done shows on both of those if you want to listen to kind of why we became bulls on the company uh or each company sorry so we bought 3 000 shares of revolve and that now makes up 2.7 of the portfolio it is actually the smallest position uh which is just because we're kind of starting out here maybe we'll add shares if we get a couple more earnings reports down the line but basically revolve is an online shop uh that sells higher end clothing. So we're talking like $300 dresses, $200 jeans, things like that

for kind of the upper class in Europe and the United States. And yeah, people love it. They use social media influencers to try to get people to buy them, which seems kind of like a dumb idea, but it does help drive people to the site and people seem to love their brand. They change things really quickly. So they're asset light and they're online only. So that helps them interchange things for new uh trends and stuff like that and stitch fix is the subscription styling service so you subscribe um and it's technically not a subscription but you get a fix sent to you so the stylist uh based on what you say give them like they send you clothes and stuff like that we think they're very undervalued right now uh compared to their growth rate and i got hit

rather hard uh with this sell-off and we think they're actually going to benefit from people maybe overall uh clothing sales will go down but their share will go up just because it's a lot easier instead of like going into an actual department store yeah and stitch fix was really cheap i mean if they achieve two to three percent net margins they will be uh it'll be a complete turnaround and yeah right now i mean it's it's a realistic possibility that they could down the road um revolve it targets the most desirable possible consumer which is young women because they and wealthy and wealthy at that so wealthy young women those are the highest uh are the largest shoppers yeah so other than maybe the the mom um but even the mom is probably buying them

for their daughter or stuff like that so uh they have a great consumer base and people that spend a lot of money so uh it's good for them um any more on stuff we bought uh we did not buy anything uh i think i mean maybe we'll i mean we haven't sent it out yet we're actually doing this pre record so we're not uh those are all the stocks we sold we might put the cash into like a money market fund uh short some treasuries or something like that but we haven't decided yet uh so yeah that's all the buying and selling we usually have to keep it simple but now we have what 10 percent of the portfolio in cash it looks like yeah exactly 10 that's how it ended up so i hope i mean we're not hoping for a more downturn but we're definitely keeping the cash uh i know everyone

uses this term but optionality open just because it is the easiest thing to do if there is another pullback here uh instead of having to sell something to buy uh you know some cheap stocks you actually just have the cash there to deploy we are keeping yeah like you said 10 in dry powder I'm putting that in air quotes because that's what people say. And the thesis behind it is, okay, we are a month into quarantine. Everything's shut down. Business is not functioning normally, obviously. But it's not like a macro thing.

The fact is people are going to react negatively, at least in a few businesses, to zero percent top lines or zero top line revenue. And businesses are going to get hurt. I have a hard time believing every stock is going to jump after earning season. So as earning season hits, I think it's going to be good to have at least some liquidity on the side so that you can attack those opportunities. Yeah, we're in uncertain times right now. And we just want to be able to take advantage of that if things go more negative.

You know, yeah, there's a couple of bad earnings that's definitely not priced in right now. Right. I think that's going to do it then. Thank you guys for listening. follow us wherever you're listening like and review if you're on apple podcast also follow us on twitter at chit chat money if you aren't on twitter and you have any questions or you want us to do any shows you want us to look up any companies email us at chit chat money podcast

at gmail.com thank you for listening we are not financial advisors anything we say or discuss here on chit chat money is not formal advice or recommendation thank you guys see you next time It's an honor.