Tmf Saul’s Investing Discussions

By | June 23, 2022
Surendra Sharma/iStock via Getty Images

Just over a month ago, I unveiled my personal growth portfolio that I decided to launch transparently on Seeking Alpha as a bit of an experiment. Called the “10X in 10 Years Portfolio”, my goal is to turn every
dollar I invest into $10 over a decade. As the headline implies, I am a long-term investor, but there are many lessons learned along the journey, which is why I am sharing updates as time passes.

This article marks the first formal update since the unveiling, the first of what I hope are many to come. I will go over moves made and unveil what I currently have on my “hot list,” stocks that I am very interested in, but don’t yet have positions. Let’s jump in!


Note
: If you missed the unveiling of The 10X in 10 Years Portfolio, you could see it here.

Mission Statement Behind The 10X Portfolio

Before reviewing the portfolio itself, I want to highlight the philosophy behind the 10X portfolio. Just like a company has a mission statement that (should) guides its tactical and strategic actions, we also follow our own mission statement to ensure that we remain “on the path.


Mission Statement: Creating wealth with forward-thinking, common sense investing.”

Let’s first discuss why it is “difficult” to outperform in the first place. First, most investors look in the wrong places. The standard benchmark to compare stock returns is the S&P 500. This index holds what is generally considered the market’s best and brightest companies. However, embedded in this is the first factor already working against the investor. That is that the majority of these companies are mature. Consider that the S&P 500 currently carries a market cap of $36.37 trillion. That would mean that, on average, the market cap of each S&P 500 member company is roughly $72 billion.

The problem with that is that large numbers begin to work against you at that company’s size. It’s much easier for a company to grow from $5 billion to $50 billion in size than a $70 billion to go to $700 billion. There are exceptions to this, as a “best of breed” in a large addressable market can grow to be a substantial business; it’s just harder to find.

So to find this upside, we usually need to dig a bit deeper. The Russell 3000 carries a much larger amount of stocks, but the terrain is much more difficult. In other words, these names are much less proven than S&P 500 members, meaning the returns are not evenly distributed.

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Source: Awealthofcommonsense.com

If we look at the Russel 3000 and its distribution of gains, only a tiny percentage generates returns of 5X or more over the stock’s lifetime. So just from the math alone, we are looking for needles in the metaphorical haystack.

But are the odds as bad as they look? If we assume that 5% of the Russell 3000 consists of these “extreme winners,” that would mean that we are searching to build a portfolio from a pool of about 150 stocks. So you don’t need to identify each of these winners, just enough of them to make a difference.

So what do we do to help maximize the chances that we stumble upon these winners? We need to invest using the criteria that typically make up winning investments:

  • Founder led
  • Rapid revenue growth
  • Strong unit economics
  • Large addressable markets
  • Secular tailwinds
  • Optionality

Look for the companies that check as many of these boxes as you can. While they all won’t turn out to be winners, you may be surprised by how much “junk” you can filter out by applying certain criteria to your investing strategy.

Lastly, and perhaps the most overlooked mistake that a typical investor makes: emotion-driven trades. With some effort and time into researching and learning about a business, you can identify winning stocks. But unfortunately, too many folks will find a great company, only to sell when the price goes down (or sell too early when it goes up a little).

Ultimately, the best way to generate outsized stock gains is to find the right companies and to sit on them for long periods of time. People who try to “time the market” or trade around valuations usually shoot themselves in the foot. If you can invest with a process, put effort into researching, and then sit on your hands once you find the right stocks… the concept of 10X returns is more obtainable than many realize.

With that said, let’s see what the portfolio looks like today:

Portfolio Update

Current Holdings:



Source: Author

New Positions:

Coinbase
(COIN)

Elevator Pitch: Cryptocurrency is interesting, but I don’t have enough expertise to own specific coins. Coinbase is a best-in-class infrastructure play, and the company’s immense optionality could buffer the company from margin pressures as competitors push trading fees lower. After the large drop following its direct listing, I felt that Coinbase had become reasonably valued.

SoFi Technologies
(SOFI)

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Elevator Pitch: Fintech is not a new investing theme, but the banking system is so large that we are still in the early innings. SoFi is a consumer-facing platform with tons of optionality. It’s targeting young consumers, which is a premium demographic. It’s also pursuing a banking charter. The addition of Galileo gives SoFi a diversified and competitively positioned business that should carve out a nice stake in the massive digital banking landscape.

Adds:

Desktop Metal
(DM)

Why: I’ve said that I will add opportunistically to flesh out positions, and Desktop Metal is one of the first occurrences of that. The stock is down about 20% from my cost basis, so I am carefully adding over time. Despite the discount, I won’t add over aggressively, as I would rather add as the company continues to prove itself over time.

Soaring Eagle Acquisition
(SRNG)

Why: Gingko is an exciting innovator that has a lot of upsides baked into its NAV. I am adding where I can, while the stock trades below NAV as I will be less interested in chasing if the stock starts running after de-SPACing.

UiPath
(PATH)

Why: UiPath is another company that has commanded a premium valuation. While valuations matter less over time for growth stocks, I am taking advantage of the post-earnings dip to continue building a position.

Sold:
None.

Unveiling The “Hot List”

This is my “short” list of names that are currently on my firm radar. I have a personal list that is a bit looser, and I put them here when I have seriously interested.

There isn’t a lot to read into as to why I don’t yet own these names. The reason I don’t own them yet can vary. Perhaps I am concerned about whether the company is too large to go 10X over 10 years. It could be that I don’t quite have full conviction yet. It could be political concerns. Or sometimes, I am ready to open a position, and I don’t have the capital yet.

A quick example is that Global-e Online (GLBE) was a company that I had intended to start a position in, but shortly after I published my last article, the stock went on an insane run, and I didn’t feel compelled to chase it.

Anyways, the stocks that are on my hot list are below. If there is a stock that you feel really convicted about, please feel free to pitch it in the comments. I am always looking for new ideas!



Source: Author

A quick side note on the above: There are many good, proven winners out there. Names such as Apple (AAPL) and Amazon (AMZN) are obviously great investments, but they won’t end up on my list. Remember that we are looking for the companies that could be the next generation of iconic businesses years from now. As a result, I rarely include companies with market caps exceeding $100 billion, unless a $1 trillion market cap is possible within the decade. Ideally, most of my names carry sub-$50 billion market caps.

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Gameplan Until Next Update

I am adding new capital monthly and am taking a “brick by brick” approach. I have largely established starter positions in most stocks that I want to own immediately. In contrast, I may open up a couple of new starters during July and will likely add to numerous existing positions.

I don’t like to hoard a lot of cash, as I believe that “time in” always beats “timing.” In the event of a major market crash that presents across-the-board buying opportunities, I do have access to margin. It’s something I don’t liberally use; rather, I keep it in my back pocket for the exceptional opportunity.

Wrapping Up

Investing is an ongoing learning process, and I expect that I will make mistakes along the way. Sharing this journey on Seeking Alpha allows me to garner feedback and (hopefully) help others as things progress. Please be sure to follow if you would like to see future updates, and feel free to pass along feedback in the comments. Until next time!

This article was written by

Wealth Insights profile picture

I provide straight forward insights on stocks and markets using fundamental analysis and common sense. – Bachelor’s degree in Business Administration with a concentration in Financial Analysis. Been investing and following the markets for more than a decade.- Wealth Insights is an investor, and investment author. His content is not geared to anyone’s specific investment goals, time horizons, or risk tolerance. Content is for illustrative purposes only, and is not intended to displace advice from a fee based financial adviser. It is not to be taken as investment advice, or influence investor decision making. Accuracy of data is not guaranteed.

Disclosure:
I/we have a beneficial long position in the shares of ALL STOCKS IN 10X PORTFOLIO either through stock ownership, options, or other derivatives.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Tmf Saul’s Investing Discussions

Source: https://seekingalpha.com/article/4438015-10x-in-10-years-portfolio-update-1

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