Galeanu Mihai/iStock via Getty Images

Galeanu Mihai/iStock via Getty Images

My tech-growth portfolio was created two years ago and became a 3-bagger in 2020 driven by NIO (NIO) and Pinterest (PINS). However, in 2021 the portfolio has continued to perform rather similar as Cathie Wood’s Ark Invest ( ARKK), which means the 2020 performance has been decimated due to two prolonged sell-offs (February-May and November-December), which indeed have seen both of these companies (and others) shed over 50% from their ATH.

I estimate the current return over two years is quite similar to the S&P 500 benchmark. Nevertheless, I have been buying many new and existing stocks for the portfolio, which arguably provides the portfolio with exciting prospects going into 2022. A full overview of the portfolio is provided below.

Although the portfolio delivered no returns in 2021, it is (in my opinion) reasonably well positioned for 2022 (and beyond).

The biggest (and only) winners in 2021 were Asana (ASAN) and Innovative Industrial Properties (IIPR). On the contrary, my portfolio saw numerous flops such as Peloton (PTON), Fastly (FSLY), Pinterest (PINS), Alibaba (BABA), DiDi (DIDI) and Teladoc Health (TDOC). Nevertheless, many of these sell-offs were arguably too harsh (when taking a long-term, multi-year mindset), which may position the portfolio for alpha in 2022 and beyond, even if it was just due to recovery of those stocks.

As I initially started writing this review in mid-Q4, the portfolio was indeed showing some signs of recovery, and I was becoming bullish on the next leg higher in 2022 after the flat 2021. However, the sell-off that occurred from mid-November has again been devastating for the portfolio: the year started with nearly all stocks in the portfolio near their ATH, and has ended with nearly all of them down to their 12-month low, often 50% below their ATH.

While the portfolio was conceived with a multi-year holding period, these events make me question if I have to change strategy and should start following the herd, by becoming more like a short-term/momentum trader by making sure to take profit once stocks reach unreasonably high short-term valuations. (Although most stocks in the long run should be fine if they deliver on their long-term growth potential, by "timing the market" perhaps additional profit could be made.)

The previous portfolio update can be found here: Portfolio Update: Has My Luck Run Out?. The previous portfolio collapse was detailed here: My Tech Portfolio Has Collapsed.

Before discussing some of the stocks, let’s first review the portfolio changes during Q4.

GLBE had been on my radar for a while, and through the quarter I gradually initiated a small position, making sure to maintain an average cost around $60. I also initiated and consecutively averaged down in IS, UPST and RSKD. I also added S around its all-time low after its strong earnings report, and added two minor positions in TWTR and DUOL.

Of these new stocks, UPST and S represent the biggest positions.

While most growth investors apparently have been busy with selling their stocks, I have used the weakness to add to many existing positions. For example, PINS, ROKU, FVRR and TDOC all were winners in 2020, and I expect these businesses to continue to win going forward; their stock movements have been much more bearish than how these businesses are actually evolving. Although of the ones just mentioned, FVRR remains most speculative and could take much longer to recover.

Further additions were in LMND (which reached a new all-time low despite continuing to grow around triple digits since IPO), FROG (whose growth has accelerated a little bit driven by strong cloud performance), SUMO (whose growth I still expect to re-accelerate), BABA (probably among the most discussed stocks on Seeking Alpha), PUBM (my largest portfolio position) and SMAR (which has been a highly reliable growth stock).

Aside from using new capital to buy the aforementioned stocks, I also raised some cash by selling the few stocks in the portfolio that traded at lofty valuations. Of those four, I only fully exited MongoDB.

I still hold the majority of the ASAN shares I had acquired, and intend to buy some shares back if it falls back to ~$60. The other three stocks also remain great businesses, so the decision was purely based on valuation: shifting some profits to the more beaten-down stocks discussed above.

My experience with Chinese stocks over these last two years has been… highly mixed to say the least. While NIO remains my largest multi-bagger, I have lost substantially on all other Chinese stocks I have invested in:

A brief explanation for these positions in the portfolio may be in order. Investors should have noticed by now I do not own any FAANG (and related) stocks. Although in hindsight this may be an oversight, my reasoning and thesis was to try to find the next Big Tech that might become multi-$100B in size. So instead of investing in FB, I invested in PINS for example.

So from that view, Alibaba seemed a reasonable middle ground since its valuation is much lower than Big Tech despite operating in a much larger market (as measured by China’s population count). However, I admittedly wasn’t fully aware of all the issues regarding Alibaba. (I thought the only reason for the stock’s underperformance was due to the failed Ant IPO, which seemed like just noise.)

Secondly, DIDI represented a long-term bet on robotaxis. However, given its delisting it seems I won’t be able to hold the stock for a multi-year period before the company even has any robotaxis in the first place. Instead, Intel (INTC) announced a few weeks ago that it would take Mobileye public, and will have robotaxis in 2022, so that could be a more reliable investment. I hereby initiate Mobileye at a $1T market cap target (in similar spirit as the Tesla (TSLA) bulls), representing 20x upside from the rumored $50B IPO.

For a brief recap, the portfolio continued its great momentum from 2020 early into 2021, with strength from Pinterest, NIO and other stocks. However, the portfolio then experienced a prolonged correction from mid-February to May, with further mixed performance ever since. For example, in Q4 the portfolio started to seemingly improve, only to get caught up in another stock market growth sell-off in November through December, which hit Asana, Roku and Teladoc Health among others. The portfolio lost around 20% in a month or so.

When viewed over two years, the portfolio ended 2021 with a value about 1.35x higher than the cash injected to construct the portfolio over these two years. Although I have not done any calculations, I estimated this +35% performance is about equivalent to simply having invested this cash in the S&P 500 over these two years. (S&P 500 is up by ~50% over two years, but the portfolio has gradually grown to its current size over these two years; so +50% is an upper bound to the return that would have been possible by solely investing in S&P 500 over the last two years.)

Nevertheless, I reckon the portfolio remains positioned for long-term recovery and outperformance. The portfolio has just been hit by a prolonged multi-week sell-off (which can't be ascribed to the actual Q3 results of these companies). A few weeks prior the portfolio was still up by 50% over two years, which I would have considered a slight beat vs. S&P 500. Although the portfolio admittedly contains some companies that have not continued to live up to expectations, such as Peloton, the vast majority of the companies I own remain solid businesses.

Obviously, when just looking at 2021 the portfolio has significantly underperformed the market, similar to Ark Invest for example, so I do agree with Cathie Wood’s sentiment that growth stocks could significantly outperform from this point. For example, I remain bullish about both Pinterest and NIO. Although some companies reported mixed Q3 reports, for example Roku has been hit by a substantial sell-off despite growing its platform business by over 80% YoY in Q3. As such, I do think some of the sell-offs will end up being highly overblown in the long-term.

The graph below shows how the portfolio has performed: its slow demise from a 3-bagger in one year to a 35%-bagger in two years. Still, note that the portfolio was still an 80%-bagger as late as 14 November.

Note that the portfolio was substantially driven by NIO and PINS in 2020, both which are now well over 50% off their ATH. Nevertheless, both positions are obviously still up compared to their cost basis, so contrary to quite a few other stocks in the portfolio (such as TDOC, Fastly, BABA, FROG, etc.), these two stocks remain a net contributor to the portfolio performance.

Besides the above, another metric I closely watch is (absolute) net profit, as calculated by realized + unrealized profit. This metric too remained quite healthy through mid-November, when the collapse began: it was close to where it was in June, which itself still wasn’t too far off the all-time high (when valuations were in bubble territory) in February.

Another way to phrase this is that the net capital injected in the portfolio through 2021 had "diluted" the portfolio from remaining a 2- to 3-bagger to becoming the 80%-bagger as discussed above. However, the collapse since mid-November obviously means that the portfolio is down substantially YoY also in this metric. (I have not analyzed the performance of the capital from 2020 and 2021 separately, so the term "diluted" may be a bit misleading.)

As a last check, I compared how much capital I injected in the portfolio in 2021 and compared this to how much the overall portfolio has grown in size in 2021. As just indicated, in November these two numbers were roughly equal (i.e. roughly flat portfolio performance in 2021). However, after another month of sell-offs in December, the conclusion is that roughly every dollar I invested in 2021 has been "converted" into 0.5 dollars.

In summary, if it hadn’t been for December, I would have considered a roughly flat performance after being a 3-bagger in 2020 as quite reasonable, but currently it seems it might take longer than I might have previously expected for some stocks such as FSLY, TDOC, NIO and PINS to return to their ATH.

As the flat performance indicates, besides Asana and Innovative Industrial Properties, the portfolio didn’t contain a lot of winners in 2021, although a few such as MongoDB (MDB) and CrowdStrike (CRWD) also had a strong 2021, those were simply too small to make a major impact. Hence, a section about the greatest flops/mistakes in the portfolio might be more educational. (Note I wouldn’t for example consider Teladoc, NIO and Pinterest to be flops since their multi-year prospects remain bullish. Similarly, I remain slightly bullish about Fastly, Invitae (NVTA) and Alteryx (AYX)).

In summary, I might just have been a bit too sloppy with investing in some of these companies in the first place. A lot of money can be lost by not investing in best-of-breed companies (although conversely the appeal is to invest in such companies before others do, which represents the risk if the company doesn't turn out to be as great as it seemed).

First, Beyond Meat. Besides my poorly timed entry point (high cost basis), the stock hasn’t been a growth company since the onset of COVID-19, and despite the company's continued investments (the CEO from that start has been vocal to remain focused on the long-term), BYND still hasn’t been able to resume growth. (As an aside, I bought Beyond Meat as a suggestion from a reader after a previous portfolio update.)

Nevertheless, Beyond Meat remains an interesting company for two reasons. First, since it isn’t made of meat, it has the potential to disrupt conventional meat based on pricing, once it reaches a high economy of scale. Why buy meat when there exists something that tastes the same and costs (potentially substantially) less? Secondly, regular meat is not exactly climate change neutral, which provides another impetus for alternative meat (although the world’s actions regarding climate change don’t line up with what the world says it needs to do about it).

Note that Beyond Meat has yet to reach cost crossover with regular meat. In that sense, it is a bit similar to EVs vs. ICEs, although EVs have already made a lot of progress even before crossover as evidenced by Tesla and others.

Continuing the theme of buying stocks based on reader suggestions is Invitae. Additionally, I thought it might be interesting for some diversification away from tech. Although a few other people like Ark Invest have also recommended the shares, the company so far hasn’t quite lived up to any expectations. Conclusion: stick to what you know (which for me is tech) and always do your own DD.

Entering my top three worst investments (#1 remains Luckin Coffee, not further discussed here) is Peloton. Besides again not doing enough DD, I guess the main reason for this failure again stems from an attempt to diversify away from tech (more specifically, software tech companies like DOCU, TWLO, PINS, etc.). After all, if you’ve only ever invested in software, Peloton’s valuation looks deceivingly cheap. It turns out it was indeed deception. In addition, it also turned out Peloton was just at the end of its S-curve of growth.

I bought this telehealth company in the midst of COVID-19, which turned out to have resulted in artificially inflated growth rates for this company. Still, there were a few seemingly valid reasons at the time: its number of customers had grown by 10x while revenue was trending only at 1.8x, and the company was being backed by Google (GOOG) (GOOGL). For some reason, the company was only able to sustain the 1.8x growth for exactly one quarter.

Fastly actually could have been a decent growth stock, except that the company has had to deal with high volatility (due to overly high expectations) and many comparisons against Cloudflare (NET) in the wake of COVID-19. Nevertheless, Fastly has set a target for a 4-year growth CAGR of 30% to reach $1B in 2025.

Similar to Fastly, at the current price, I actually don’t see a lot of reasons Alteryx couldn’t be a decent investment, and I expect decent leverage from its 90% gross margins as the company continues growth over the next few years and perhaps gains additional traction from its new cloud product (although a bit dilutive to gross margin). However, similar to Fastly and Beyond Meat, my cost basis is suboptimal.

Two last honorable mentions may be Lemonade (LMND), where the rally to ~$200 was driven purely by momentum (Fool recommendations), and Fiverr (FVRR), which similar to Peloton has had to reduce its guidance.

Nevertheless, I remain bullish about these two stocks. Lemonade just launched its highly anticipated car insurance and has continued to grow at triple digits. (LMND seems to have amassed a share of vocal bears, which could actually be interpreted as bullish if people are spending so much energy trying to talk down the company, similar to TSLA.) Fiverr actually reinstated its original guidance, although Fiverr’s QoQ growth rate still remains worrying going into 2022.

In early 2021 (when the portfolio was still around its ATH and NIO in the $60s), I was strongly contemplating selling a portion of NIO for Asana when Asana was around $30 (which I had called my top stock for 2021). In hindsight, this could have delivered very strong results: compounding a 20-bagger with what became a 4-bagger at its recent peak.

Instead, after deciding in early 2021 to leave the portfolio unchanged, NIO started its slow decline through 2021 due to multiple issues. Nevertheless, around mid-2021 I finally executed on this original plan, but bought PubMatic instead of Asana. So far, the bull case of PubMatic being revaluated to a similar multiple as The Trade Desk (TTD) hasn’t happened, although the company itself has been executing very strongly.

Further, although more a missed opportunity from 2020, I was looking in fall 2020 at Cloudflare around $35, and this stock has rallied since to over $200 (mostly due to multiple expansion). I have covered Snowflake (SNOW) a few times, but I missed out when it was around my ~$200 price target for buying shares. Thirdly, Datadog (DDOG) has also been on my watch list since 2020, but I never bought it given its high valuation. However, the company has in fact been able to accelerate its growth rate, which obviously is a great recipe for alpha, but not very predictable.

One growth stock I was not even aware of until it was already a 10-bagger was Upstart, although I have been buying the stock on its way back down.

Lastly, the original premise behind the portfolio was to find companies that could become the next big tech. Although some of these companies like DOCU and TWLO have made solid progress, Big Tech itself has actually continued to become even bigger tech to a greater extent than I likely would have guessed. Indeed, it seems in 2021 Big Tech has vindicated Small Tech, at least based on my portfolio results, so a portfolio built around FAANG names would have delivered strong results in 2021.

The biggest learning always remains valuation, which especially in growth investing can be quite a risk. If investors suddenly start to worry about profits in a growth company, then a growth stock has infinite downside (even if it has high growth). If a growth company stops growing at the rate of growth it is supposed to be growing at, it also suddenly becomes very overvalued.

Another learning is that all sorts of macro or non-company related issues tend to drive day-to-day stock performance. Some of the big words in 2021 were inflation and tax-loss selling. Nevertheless, investors should also note (remember) that a high ride may rise all boats (or a low tide may sink all boats), but eventually it will be up to each boat individually to weather the storm.

For example, Alteryx (before I owned the shares) had already issued downside guidance in the wake of COVID-19, but the shares kept going up driven by the whole work-from-home investment movement early 2020. Eventually however the shares obviously caught up with the company’s new financial reality.

This insight in the last quarter led me to contemplate increased trading to capitalize on such stock movements driven by macro stock movements ("timing the market"), which indeed resulted in some of the stock sales mentioned above.

Although the portfolio was intended to maintain a long-term outlook, and as such I have remained hesitant to sell any stocks (and will probably continue to be), the portfolio size has grown to over 30 stocks. Although quite a few are just starter positions, I foresee one theme could be to reevaluate this diversification towards a more focused portfolio.

The main issue with investing ultimately comes down to picking just a few stocks out of thousands of possibilities. If a company doesn’t turn out to be as best-of-breed as it looked, a potential multi-bagger quickly turns into bag holding.

In general, as discussed I expect a stronger 2022 and beyond. It's called a growth portfolio for a reason, so it just doesn’t make sense for my stocks to keep going down while the companies themselves keep going up.

I read on Twitter that, apparently, many fund managers had gone overweight on cash late in 2021. I further read about things like tax-loss selling.

While those are perhaps nice explanations for my stock performance in the last two months, of course bag-holding cash isn’t investing. Hence, I reckon at some point those fund managers would have to buy stocks again. I wonder which stocks they are gonna buy then… Junk like AT&T (T) and IBM (IBM), or innovative, growing companies like the ones in my portfolio? Although as discussed the portfolio perhaps contains a few losers, the goal remains to buy the best companies before others do.

Overall, from that view the portfolio is positioned for 2022, even if it is just for a recovery.

This updated table provides an overview of all stocks, their nest egg, cost basis and portfolio weight, rounded to 0.5%.

While finalizing this article, Q1 started with an even further sell-off. I fail to see how such a thing as the 10-year yield could be in any way a predictor of how companies like GLBE, SE, PINS, etc. will execute over the coming years, so I will buy the dip.

Many companies in the portfolio have had their share of issues. Although a few stocks performed well, such as CrowdStrike, MongoDB, Asana and IIPR, this was often from a small nest egg. Nevertheless, since at the start of 2021 I had called Asana my top pick for 2021, perhaps the biggest mistake was not selling any stocks to replace them for Asana (since the latter was still small in February while most others were near their ATH).

Stepping back, the last two years (as rookie investor) have been quite (perhaps above average?) volatile. Dynamics such as COVID-19 in 2020 and some of the macro/inflation issues in 2021 drove respectively large rallies in 2020, but also sell-offs in 2021. (If it hadn't been for the ferocious EOY 2021 sell-off, the portfolio could have been up by 50-80% over two years.)

Looking forward, the biggest positions in the Portfolio are PUBM, PINS, NIO, ASAN, IIPR and TDOC, but the next dozen or so stocks collectively still make up quite a portion of the portfolio. Most of the 1-2 dozen largest stocks in the portfolio are well off their ATH despite continuing to grow at healthy rates, so December or January could be the bottom of the portfolio.

This article was written by

Disclosure: I/we have a beneficial long position in the shares of PINS 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.