Chit Chat Stocks - 18 Month Update of Hypo Capital

Episode Date: May 21, 2020

The 18 month update of Hypo Capital, our $1 million paper portfolio. Read about it here: https://chitchatmoney.substack.com/ --- 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 in to the 18-month update of Hypo Capital or Hypothetical Capital. This is our sort of hypothetical fund that we run. We've been running it for a year and a half now, so 18 months. So I'll let you kind of break it down. What is Hypo Capital and what's our goal? Yeah, it is, like we've said before, just starting out with a million dollars of fake money. like we were running a fund. And basically we're younger, don't have much money. We can't invest in all the investing ideas we have. So we thought it'd be fun to track it online, update it once a

month. So basically we can't trade every day just because it's paper trading. And we just do it when the market is closed once a month. So that gives us a little bit of a disadvantage, but it also gives us the advantage that we don't have to actually compete with a bid and ask spread. So we keep it simple. Don't reinvest dividends, but we include those. And we are competing against the S&P 500 just to make it fun, seeing how much we can do. We don't do any options, just long, common stocks, no shorting. And yeah, that's it. Really very simple, but pretty fun and can be challenging and what has our all-time performance been versus the market so we're recording it during after hours so it might change a tiny bit but our absolute returns have been 46.6 percent

about annualized that's 31.06 percent the S&P 500 absolute return since November 2018 have been 12.14 percent so we've really had a good a few two months here difference between us in the market is now 34 which has been very strong it's um yeah i mean we used to just be beating it by a tiny bit but the last couple months really been strong i think we you know kind of luckily timed the bottom a little bit with the update in march um and we're able to buy a couple of good stocks there we own some things that have done very well coming out of the recovery like spotify match group ea activision square teledoc mongodb so those have done really well for us and i think that our concentration we started to sort of increase our concentration

over probably the last six months yeah i think that's starting to pay off and that's starting that's why we're beginning to see this large difference uh between ourselves and the market um a few more questions before we get to a break who are our best performers of all time and then And who are some of our worst performers this month? Yeah, so best performers all time, MongoDB, Roku, Teladoc. So they're both up around, all three of those are up around 200%. Sorry, they're up 3x, I guess, almost for us. They're the only stocks that are up 100% for us.

I think the only ones that are up over 75%. So they're really leading the charge on the returns. MongoDB database software. where it's going to be tough to explain what they do. Teladoc, Telemedicine, Roku, the home screen for a lot of connected TV. And they're kind of a connected TV thesis there. So, yeah, those have been the best ones. They started out a little smaller, which is, I guess, unfortunate,

but they've kind of grown into sizable holdings in the portfolio. Did we have any bad performers this month? This month? Not really. It's been a really good month overall. a lot of our worst performers all time we have either cut or the thesis has changed or we sort of didn't see something that initially and so we ended up selling those so yeah i guess schwab small cap has done pretty poorly which i guess we ended up selling the reet the schwab

reet is down uh but we're that's mainly to diversify a tiny bit and get some dividends in there but i i guess similar scientific has been pretty bad they're down to 42 still they didn't recover not nearly as well as a lot of other bigger stocks okay we're gonna hit a quick break and then we've got the second half of the show you all right welcome back in we're gonna hit the second half here what did we sell this month and why yeah pretty simple month not complicated whatsoever so we sold our Schwab Small Cap ETF. Hard to say there. That was about 3% of the portfolio. And we replaced that

and added a little more to the Vanguard Small Cap Value ETF, which is a different ETF. It's going to have a lot different holdings because instead of the whole small cap universe, it's going to be specifically small cap value, a little higher expense ratio of 0.15%, which is not terrible, but it is something to consider. And we didn't make any other changes to the individual holdings, mainly because we think a lot of the companies we own are pretty fairly valued and we like the allocation we are at. So not an exciting month, but I don't think when the market is, and I guess this, I don't know, this is what a lot of people say, when the market is reaching close to all-time highs, it's usually good to be kind of patient and going

into the summer which uh i guess we'll talk about at the end here where we're gonna have to pause the updates for like three months here we don't want to get anything too crazy we still have about seven percent cash and we didn't really see any great opportunities out there right i mean that's kind of how we would describe it yeah our goal was to keep some cash keep some liquidity on the side when we're not finding any massive opportunities and then be aggressive when we see them. Obviously, that's a little easier said than done. But as of now, there weren't any screaming buys.

We're getting close back to all-time highs again. And there's a lot of companies that there's a little more uncertainty around their financials. So we're keeping around 7%. I think I have a hunch that we are going to see some better opportunities after these next few months as we're taking a break

than we saw this month available out there. So we're, for the time, keeping a lot of cash. Yeah, it's, I mean, it can be boring to not have one month go by and not do much, but you got to be patient sometimes. All right, last question before we wrap things up. It's been 18 months now and the goal at the start of this

was basically to see if two college kids could outperform the market by only trading once a month. and we have, how much confidence do you have going forward that this can continue? Do you believe that the individual investor can beat the market? Oh, wow. A little big picture question. That's, I mean, I think I'm slightly more confident in our ability and I guess that improves every year or so if we do this and we'd still beat the market because I guess that's just more evidence that we can do it. But overall, if you're an individual investor, I think the evidence proves that if you do focus and have a long-term time horizon and don't do day trading,

you can have an advantage, although the numbers are against you. So you have to put in a lot of work and you do have to enjoy it. And you also, I mean, I don't know. I don't want to say you have to get lucky because I don't think that has much to do with it, but you do have to have, I believe that long-term time horizon, you do not want to be a short-term trader and you also have to do a lot of research. It's not going to take, you don't just look up one blog post on Google and say, all right, now I'm going to buy a stock and just read it for 10 minutes. You got to do a few hours of work, probably more, read all the filings, read all the SEC filings, look at the debt structures, look at all the balance sheet, cashflow statements, revenue statements, or income

statement sorry um so that takes a lot of work but if you do all that and you do have the long-term time horizon i i mean i believe you can uh do that that's why we're uh doing this and with you know the stuff we do with our personal portfolios yeah and to reiterate that there we had a quote from matt cochran who came on the show and he said you can't borrow conviction i think as evidenced by us you can beat the market if you buy quality companies at good prices and have a long-term horizon but do the research yourself find these companies yourself because like he said you can't borrow conviction you're not going to be able to just pull the best ideas from the best investors and be able to replicate their returns so right yeah i mean that's that's

basically yeah you got to go on your own all right well that is going to do it thank you guys for listening that is the 18 month update of hypo capital we will we should uh we should say before we go just explain that because we have you have a summer job i'm doing a summer trip uh we we'll write about it again we talked about it we'll talk about every show until we stop june july and august we're going to be pausing this um and then picking it back up so it's like a three-month break in between the next holdings right exactly and if you want to follow uh the returns a little more closely we have our sub stack um you can find it on our twitter at chit chat money um and Brett writes our articles there. So, and that goes, that's a little more comprehensive than

just this podcast. So go ahead and check that out. Also follow us, like, and leave a review if you're on Apple podcasts. And you can email us chitchatmoneypodcast.gmail.com. We've been getting some emails from people that are a little sad that we're leaving for the summer. So thank you for reaching out. We appreciate the support. We are not financial advisors. Anything we say or do or discuss here on chitchat money is not formal advice or a recommendation thank you guys for listening we'll see you next month Thank you. It's an honor.

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