The past year was a wild one with a lot of movement. The portfolio rallied in February to reach several ATHs and a local peak of +18.3%. Next, we started one of those big drops that we periodically experience. This drop included a drop and a recovery three times, finally settling at a YTD low at -23.5% on 13May. This peak-to-trough drop was -35.3%. The portfolio then rallied for five months aided by leverage that I had added at the bottom. This rally produced a 173.5% return from the 13May bottom. This rallied set up a second major drop from the 18Oct YTD high of +109.2% down to +17.2% YTD on 16Dec; this drop was 44.0%. I’ve discussed such big drops in a previous post. Below is a list of the big drops of the GauchoRico Portfolio since 2018.
| PEAK — BOTTOM | % DROP | Days: Old Peak to New ATH |
|---|---|---|
| 4Sep2018 – 24Dec2018 | -37% | 176 |
| 26Jul2019 – 22Oct2019 | -37% | 207/291* |
| 18Feb2020 – 16Mar2020 | -45% | 84 |
| 9Jul2020 – 16Jul2020 | -14% | 25 |
| 5Aug2020 – 11Aug2020 | -25% | 27 |
| 13Oct2020 – 10Nov2020 | -27% | 65 |
| 22Dec2020 – 3Jan2021 | -14% | 45 |
| 12Feb2021 – 13May2021 | -35% | 125 |
| 18Oct2021 – 16Dec2021 | -44% | ??? |
The five-month rally from May to June was particularly strong so it seems understandable that the most recent 44% drop was steep. And perhaps it may take a long time to re-attain the 18Oct portfolio ATH. In fact, it will take a 63.8% increase from the portfolio’s end of 2021 level to re-attain the 18Oct ATH. That sure seems like an unlikely outcome during 2022, but I’ve been surprised on several occasions by the rate at which hyper growth portfolios can recover.
PRIOR PORTFOLIO UPDATES
PORTFOLIO PERFORMANCE
| DATE | GauchoRico Portfolio (YTD) | S&P500 Total Return (YTD) |
|---|---|---|
| Jan | 3.1% | -1.0% |
| Feb | -1.2% | 1.7% |
| Mar | -13.2% | 6.2% |
| Apr | -1.5% | 11.8% |
| May | 3.4% | 12.6% |
| Jun | 28.0% | 15.3% |
| Jul | 33.7% | 18.0% |
| Aug | 73.3% | 21.7% |
| Sep | 74.7% | 15.9% |
| Oct | 100.8% | 24.0% |
| Nov | 47.0% | 23.2% |
| Dec | 27.7% | 28.7% |
The GR Portfolio ended 2021 with a 27.7% return. That’s a respectable return, but, in comparison to the S&P500 (with dividends included), the portfolio lagged slightly in 2021. I’ve been meticulously tracking my portfolio’s performance since 1/1/2017, which is exactly five years. The five-year CAGR of the portfolio is +73.6%, and the five-year cumulative return is +1477.3% or more than 15 times the 1/1/2017 value. Clearly, I’m happy with this result, particularly since the S&P500 returned much less. A $10,000 investment in the GR Portfolio grew to $157,730 since 1/1/2017 while a $10,000 investment in the S&P500 grew to at a CAGR of 18.5% to $23,341 in the same period. I’ll certainly take the higher return with the higher volatility over the lower returns with lower volatility.
Yes, hyper growth stock investing can produce higher returns with higher volatility. I also layer on prudent use of options which amplifies the highs and lows. However, when done prudently, I continue to believe that use of options will outperform the same portfolio without the use of options. The reason for my expected outperformance is that we are playing a game with a net positive expected value (i.e. on average investors make money); thus, using some leverage with such a game will lead to an amplification of this net positive result. Yes, over a short time period this leverage can backfire, but, as long as the leverage isn’t overdone, these short-term losses from leverage will be more than compensated for by the outsized gains during the upswings. I plan to continue the practice of using leverage prudently.
2021 Notable Days for the Portfolio
Below are some of the notable days in 2021.
| Date | YTD Return | Notes |
|---|---|---|
| 01/27/21 | -2.2% | local bottom |
| 02/05/21 | +12.6% | new ATH |
| 02/08/21 | +14.0% | new ATH |
| 02/09/21 | +16.6% | new ATH |
| 02/10/21 | +16.8% | new ATH |
| 02/11/21 | +17.8% | new ATH |
| 02/12/21 | +18.3% | new ATH |
| 02/25/21 | -3.4% | -6.3% on the day |
| 03/03/21 | -6.3% | -7% on the day |
| 03/04/21 | -13.6% | -9.2% on the day |
| 03/05/21 | -17.1% | -4.1% on the day |
| 03/08/21 | -22.8% | -6.9% on the day |
| 03/09/21 | -11.0% | +15.3% on the day |
| 03/11/21 | -4.3% | +9.6% on the day |
| 03/18/21 | -10.2% | -6.7% on the day |
| 03/24/21 | -15.6% | -8.6% on the day |
| 03/29/21 | -19.0% | close to 3/8/21 trough |
| 03/31/21 | -13.2% | +6.6% on the day |
| 04/13/21 | +4.0% | +8.0% on the day |
| 05/04/21 | -10.9% | -6.1% on the day |
| 05/06/21 | -21.1% | -9.6% on the day |
| 05/07/21 | -17.5% | +4.6% on the day |
| 05/13/21 | -23.5% | new YTD low |
| 05/14/21 | -16.3% | +10.9% on the day |
| 05/20/21 | -5.3% | +7.1% on the day |
| 05/24/21 | -0.1% | 7th consecutive up day |
| 06/10/21 | +11.3% | +5.4% on the day |
| 06/17/21 | +19.8% | new ATH (finally!) |
| 06/18/21 | +23.2% | new ATH; +5.1% on the day |
| 06/22/21 | +27.4% | new ATH; +6.2% on the day |
| 06/23/21 | +28.0% | new ATH |
| 06/24/21 | +28.5% | new ATH |
| 06/28/21 | +30.8% | new ATH |
| 06/29/21 | +31.2% | new ATH |
| 07/06/21 | +33.4% | new ATH |
| 07/09/21 | +33.9% | new ATH |
| 07/14/21 | +25.6% | -4.0% on the day |
| 07/22/21 | +34.2% | new ATH |
| 07/23/21 | +36.9% | new ATH |
| 07/26/21 | +37.0% | new ATH |
| 07/28/21 | +37.9% | new ATH |
| 08/04/21 | +41.2% | new ATH |
| 08/05/21 | +49.1% | new ATH |
| 08/12/21 | +51.2% | new ATH |
| 08/13/21 | +55.9% | new ATH |
| 08/23/21 | +56.0% | new ATH |
| 08/24/21 | +65.1% | new ATH; +5.8% on the day |
| 08/25/21 | +66.3% | new ATH |
| 08/26/21 | +68.1% | new ATH |
| 08/27/21 | +72.4% | new ATH |
| 08/30/21 | +73.3% | new ATH |
| 08/31/21 | +73.3% | new ATH; +0.05% to ATH |
| 09/02/21 | +74.8% | new ATH |
| 09/03/21 | +79.2% | new ATH |
| 09/09/21 | +82.7% | new ATH |
| 09/16/21 | +83.9% | new ATH |
| 09/17/21 | +85.0% | new ATH |
| 09/21/21 | +85.1% | new ATH |
| 09/22/21 | +88.8% | new ATH |
| 09/23/21 | +92.1% | new ATH |
| 09/28/21 | +75.0% | -5.5% on the day |
| 10/12/21 | +84.1% | +4.5% on the day |
| 10/13/21 | +95.1% | new ATH; +5.9% on the day |
| 10/14/21 | +104.1% | new ATH; +4.7% on the day |
| 10/15/21 | +106.5% | new ATH |
| 10/18/21* | +109.2% | new ATH |
| 11/10/21 | +74.3% | -16.2% on the day |
| 11/15/21 | +69.2% | -6.8% on the day |
| 11/16/21 | +76.1% | +4.1% on the day |
| 11/19/21 | +64.4% | -4.7% on the day |
| 11/22/21 | +49.8% | -8.9% on the day |
| 12/01/21 | +29.7% | -11.8% on the day |
| 12/03/21 | +24.2% | -6.7% on the day |
| 12/07/21 | +37.8% | +11.3% on the day |
| 12/09/21 | +34.1% | -5.8% on the day |
| 12/13/21 | +22.4% | -5.3% on the day |
| 12/14/21 | +17.5% | -4.1% on the day |
| 12/15/21 | +26.4% | +7.6% on the day |
| 12/16/21 | +17.2% | -7.3% on the day |
| 12/21/21 | +30.2% | +8.1% on the day |
Weekly Performance
| DATE | GauchoRico YTD | S&P500 TOTAL RETURN YTD | DELTA |
|---|---|---|---|
| 01/08/21 | 6.5% | 1.9% | 4.6% |
| 01/15/21 | 6.4% | 0.4% | 6.0% |
| 01/22/21 | 10.2% | 2.4% | 7.9% |
| 01/29/21 | 3.1% | -1.0% | 4.2% |
| 02/05/21 | 12.6% | 3.6% | 9.0% |
| 02/12/21 | 18.3% | 4.9% | 13.3% |
| 02/19/21 | 14.2% | 4.2% | 10.0% |
| 02/26/21 | -1.2% | 1.7% | -3.0% |
| 03/05/21 | -17.1% | 2.6% | -19.7% |
| 03/12/21 | -6.3% | 5.3% | -11.6% |
| 03/19/21 | -7.7% | 4.5% | -12.3% |
| 03/26/21 | -15.8% | 6.2% | -22.0% |
| 04/01/21 | -9.5% | 7.4% | -16.9% |
| 04/08/21 | -3.3% | 10.4% | -13.6% |
| 04/15/21 | 0.0% | 11.9% | -11.9% |
| 04/23/21 | 3.1% | 11.8% | -8.7% |
| 04/30/21 | -1.5% | 11.8% | -13.4% |
| 05/07/21 | -17.5% | 13.3% | -30.7% |
| 05/14/21 | -16.3% | 11.7% | -28.0% |
| 05/21/21 | -2.4% | 11.3% | -13.7% |
| 05/28/21 | 3.4% | 12.6% | -9.2% |
| 06/04/21 | 2.3% | 13.3% | -11.1% |
| 06/11/21 | 12.6% | 13.8% | -1.3% |
| 06/18/21 | 23.2% | 11.7% | 11.5% |
| 06/25/21 | 28.0% | 14.8% | 13.2% |
| 07/02/21 | 28.9% | 16.7% | 12.1% |
| 07/09/21 | 33.9% | 17.2% | 16.6% |
| 07/16/21 | 23.8% | 16.1% | 7.6% |
| 07/23/21 | 36.9% | 18.4% | 18.5% |
| 07/30/21 | 33.7% | 18.0% | 15.7% |
| 08/06/21 | 46.7% | 19.1% | 27.6% |
| 08/13/21 | 55.9% | 20.0% | 35.9% |
| 08/20/21 | 50.2% | 19.4% | 30.9% |
| 08/27/21 | 72.4% | 21.2% | 51.2% |
| 09/03/21 | 79.2% | 22.0% | 57.3% |
| 09/10/21 | 78.3% | 19.9% | 58.4% |
| 09/17/21 | 85.0% | 19.3% | 65.7% |
| 09/24/21 | 88.9% | 19.9% | 69.0% |
| 10/01/21 | 73.5% | 17.3% | 56.3% |
| 10/08/21 | 76.5% | 18.2% | 58.3% |
| 10/15/21 | 106.5% | 20.4% | 86.1% |
| 10/22/21 | 103.4% | 22.4% | 81.0% |
| 10/29/21 | 100.8% | 24.0% | 76.8% |
| 11/05/21 | 99.9% | 26.6% | 73.4% |
| 11/12/21 | 81.6% | 26.2% | 55.3% |
| 11/19/21 | 64.4% | 26.7% | 37.7% |
| 11/26/21 | 52.5% | 23.9% | 28.6% |
| 12/03/21 | 24.2% | 22.4% | 1.8% |
| 12/10/21 | 29.9% | 27.2% | 2.7% |
| 12/17/21 | 21.5% | 24.7% | -3.2% |
| 12/24/21 | 29.2% | 27.6% | 1.6% |
| 12/31/21 | 27.7% | 28.7% | -1.0% |
ALLOCATIONS
| TICKER | 12/31/21 | 12/3/21 | 11/30/21 | 10/31/21 | 9/30/21 | 8/31/21 | 7/31/21 | 6/30/21 | 5/31/21 | 4/30/21 | 3/31/21 | 1/31/21 | 12/31/20 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| DDOG | 31.7%* | 29.8%* | 27.4%* | 15.6%* | 14.9%* | 14.4%* | 16.4%* | 15.7%* | 16.7%* | 12.0%* | 12.9%* | 10.7% | 10.4% |
| MNDY | 27.5%^^ | 24.8% | 23.3% | 4.7% | — | — | — | — | — | — | — | — | — |
| SNOW | 15.5%** | 12.9% | 11.9% | 7.9% | 5.3% | 5.3% | 6.0% | 5.6% | 6.8% | 6.9% | 3.0% | 0.5% | — |
| UPST | 14.7%* | 17.3%* | 17.4%* | 27.4% | 31.1% | 22.3% | 13.0% | 7.8% | 6.3% | 4.4% | 5.7% | — | — |
| AFRM | 7.4% | 8.1% | 10.8% | 7.9% | 6.5% | — | — | — | — | — | — | — | — |
| CRWD | 5.9%* | 12.4%* | 13.2%* | 14.4%* | 12.1%* | 18.7%* | 19.1%* | 19.9%* | 20.0%* | 30.2%* | 27.7%* | 31.2%* | 31.5%* |
| ZS | 4.3%* | 0.8% | — | — | — | — | — | — | — | — | — | — | — |
| LSPD | — | — | — | 11.5%^ | 8.3%^ | 9.5%^ | 11.1%^ | 11.3%^ | 12.1%^ | 13.1%^ | 13.2%^ | 4.8%^ | 3.3% |
| DOCU | — | — | — | — | 6.4% | 12.5% | 13.2% | 12.6%* | 6.6%* | 5.7%* | 5.6%* | 16.2%* | 16.4%* |
| NET | — | — | — | — | 5.9% | 6.9% | 13.4% | 15.9% | 15.2% | 16.6% | 15.2% | 17.9%* | 17.8%* |
| DCBO | — | — | — | — | 1.8% | — | — | — | — | — | — | — | — |
| NEM | — | — | — | — | 1.3% | — | — | — | — | 1.0% | 1.1% | 1.0% | 1.0% |
| ROKU | — | — | — | — | — | 2.7% | — | — | — | — | — | — | — |
| GOLD | — | — | — | — | — | 1.5% | 2.0% | 2.0% | 2.9% | 1.6% | 1.7% | 1.4% | 3.0% |
| ZM | — | — | — | — | — | 2.5% | 5.5% | 5.8% | 10.8%* | 11.0%* | 12.3%* | 11.5% | 11.0% |
| PATH | — | — | — | — | — | — | — | — | — | 0.1% | — | — | — |
| PTON | — | — | — | — | — | — | — | — | — | — | 4.0% | 4.0% | 4.2% |
| BPRMF | — | — | — | — | — | — | — | — | — | — | 1.2% | 1.3% | 1.4% |
| Cash | -4.0% | -0.1% | -0.2% | 11.1% | 6.4% | 3.9% | 1.4% | 6.5% | 3.0% | -0.2% | 1.2% | 0.8% | 0.7% |
Six of the seven positions in the portfolio are leveraged with long-term call options. CRWD: of the 5.9% allocation, 1.2% are shares and 4.7% are Jan2023 $190 calls. DDOG: of the 31.7% allocation, 29.5% are shares and 2.2% are Jan2023 $65 calls. ZS: of the 4.3% allocation, 2.1% are shares and 2.2% are Jan2023 $280 calls. SNOW: of the 15.5% allocation, 13.4% are shares and 2.1% are Jan2024 $300 calls. MNDY: of the 27.5% allocation, 25.5% are shares and 2.0% are Dec2022 $250 calls. UPST: of the 14.7% allocation, 13.6% are shares and 1.1% are Jan2023 $330 calls. The AFRM position is all shares.
The allocation table (above) shows how much the portfolio has changed since the end of 2020. There were 11 positions that I either owned at the end of last year or at some point during 2021 that are now no longer in the portfolio.
PORTFOLIO CHANGES
Changes since 3Dec 2021
- Sold about half of CRWD position: Sold all CRWD $170 and $170 calls and bought CRWD shares and CRWD Jan2023 $190 calls.
- Increased MNDY position: Bought shares and Dec2022 $250 calls.
- Increased SNOW position: Bought shares and Jan2024 $300 calls.
- Increased ZS position: Bought shares and Jan2023 $280 calls.
I had previously been reluctant (for tax reasons) to take large profits on the CRWD LEAPS that I had bought between March 2021 and May 2021. At one point, some of these LEAPS were up more than 200%. In early December, when these LEAPS were valued near their purchase price, I decided to sell them and redistribute the proceeds among LEAPS on several of my other holdings (MNDY, SNOW, ZS). These actions served to decrease my allocation in CRWD and add to my allocations in MNDY, SNOW and ZS. All I can say is that this was another example of letting capital gains taxes get in the way of taking a profit that I would have otherwise made. For me, it’s one of the hardest things to implement in investing.
OPTIONS TRADING
I define options trading to include all options trades with a three-month or less holding period. Options trading contributed positively to my 2021 returns. Profits from options trading accounted for a 4.1% return on my end of 2020 portfolio value and 9.8% of the total portfolio gain. Without any options trading, the portfolio would have increase 22.5% rather than 27.7%. For more details on my Q4 options trade, please see this post.
PORTFOLIO POSITIONS
There have been no earnings results since the last portfolio update, but I’d like to share my current thinking about the positions in the portfolio.
DDOG is my highest conviction position. This is based on the Company’s recent financial results, key performance indicators, and management’s comments during the recent earnings calls. The results seemed pretty flawless and signs point to further success in the coming quarters. However, 31.7% is a huge allocation. I’m not comfortable adding to it and may decide to cut it back for purely risk management reasons. I will need somewhere else to allocate the funds.
MNDY is the position I think could grow the most from here in the short- to mid-term. However, the Company operates in a competitive market that I don’t completely trust. I also don’t see MNDY as dominant as DDOG or SNOW for example. I will likely trim MNDY on a strong stock price surge.
SNOW is also a very high conviction position. The recent results have been outstanding, and I think it’s highly likely that such strong performance will continue. I also have high hopes for SNOW’s data sharing efforts.
UPST is a tricky position because there is such huge potential combined with a moderate amount of uncertainty. I really like UPST’s execution, its vision, and its potential. I’ve decided to give UPST a bit of a longer leash so that the thesis can play out. Quarter to quarter the results can be lumpy as we saw in Q2 and Q3 of 2021. I also like the stock’s volatility for harvesting premiums from options. I’ve recently stepped up those efforts because I think the stock price may have bottomed out.
AFRM is another lower confidence position, and I’m unlikely to funnel additional funds to it even if the 31Dec quarter’s results are excellent. But I do want to see how the 31Dec quarter results before I make a major change with the position.
CRWD has waned a bit in confidence for me. I’ve cut my position in half since the last portfolio update. Growth has continued to slow, and it seems to me that competition is taking a chunk out of growth potential. Since the last portfolio update, S reported excellent results. I expected CRWD to do better and S to do worse. I haven’t taken a position in S; rather, some of the CRWD proceeds went to ZS.
ZS received some of the proceeds from my CRWD selling. ZS’s business is continuing to accelerate as it operates in a cyber security segment that seems to have less competition.
In summary, while I like all of the positions in the portfolio, I really don’t want to add to any of them. In fact, if I had other companies that I want to buy, I’d be happy to redistribute funds to them. The main reason for a lack of new ideas for the portfolio is a lack of effort and research on my part. I’ve had a number of vacations, visitors, and other household activities over the past two months that have kept me from doing the necessary research on new companies. With the new year starting and these activities now behind me, I hope to devote time to investigating new investment opportunities.
FINAL THOUGHTS
It’s really hard for me to know how the portfolio will perform in 2022. I tend to think that this most recent big drop may be over. In response, I’ve started increasing leverage by maintaining long-term call options (14.3% of the portfolio), increasing margin (the negative cash portion to -4.0%), and increasing use of naked, short puts. The current leverage in place is nowhere near the level that I had in place near the bottom of the Spring 2021 drop; this reflects my uncertainty about whether stocks will rebound strongly in 2022. I would not be surprised if the portfolio stocks rally strongly in 2022, but I would also not be surprised if they do not. Thus, the portfolio is currently positioned to benefit from a strong rally, but I also have the capacity to add significantly more leverage should we see the stock prices fall.
The opinions, thoughts, analyses, stock selections, portfolio allocations, and other content is freely shared by GauchoRico. This information should not be taken as recommendations or advice. GauchoRico does not make recommendations and does not offer financial advice. Each person/investor is responsible for making and owning their own decisions, financial and otherwise.