Put in $1500. Then purchased:
$100 for SPY
$100 for VWO
$300 for BAM
$300 for BN
$316.71 for OWL ($16.71 mostly from dividends and interests)
$200 for PYPL
$200 for SMRT
There was a pretty good short report on SmartRent (SMRT) on Seeking Alpha: SmartRent: Accelerated Revenue Recognition For New SmartHubs Superficially And Temporarily Boosts Stagnating Low-Margin Business. While the reports have valid points, I do not think they show the fundamentals of the company are much different from what I accessed previously (you can also see it in the Brief individual portfolio holding comments section below). Here are the breakdowns with my thoughts:
I added an approximated IRR (internal rate of return) for SPY next to my portfolio IRR. It's a hypothetical calculation that assumes I simply invest all my money to SPY instead of the stocks I picked. It's calculated using the price of SPY without dividends, plus the current dividend yield of SPY, so it's only an approximation. Let me know if there is a better way to do this!
Transactions
Portfolio
All-time return:
One-year return:
IRR: +2.69%
SPY approximated IRR: +5.78%
Holdings:
All-time returns for holdings:
Last prices:
Portfolio holdings conviction
The convictions in the table below reflects my current opinions and will guide the future contribution of additional investment to existing holdings. Stocks not inside the table will be very unlikely to receive more contributions.
Conviction in long-term prospects means how much I believe a company would match or outperform the market (e.g. S&P 500) in the long run. Valuation matters so the conviction generally corresponds to the neutral rating of Valuation. It has the following ratings: weak, moderate, strong
Valuation: overvalued, slightly overvalued, neutral, slightly undervalued, undervalued
Brief individual portfolio holdings comments
The plus (+) sign after the following stock symbols represent new shares are purchased since the last update.
SPY (+)
Warren Buffett recommends most people to buy S&P 500 index fund. 90% of his estate is handled this way as well, so I just followed his advice to buy some SPY most of the time when I put money into this fund. I don't aim for the 90% allocation, though.
VWO (+)
Emerging market ETF. It has Taiwan Semiconductor, Alibaba, Tencent, and other companies I like. Its portfolio is over 30% in Chinese companies, so it's a low long-tail risk vehicle to invest in China.
ADC
Agree Realty is one of the lowest leverage triple-net lease REITs with a debt to EBITDA ratio of 4.9x. Its tenants are mostly investment grade (67%) retailers and restaurants. At the worst time of 2021, it collected 95% of the rents, which shows the quality of its assets.
One special thing about Agree Realty is its 14% portfolio in ground leases, which has low default risk, low cash flow, with short-term inflation risk, but long-term stable return. It diversifies the risk portfolio of the company.
Its acquisition and disposition ratio is 4.2% in 2021. The ratio is kept low for the past, which again, shows the quality of the assets, so that it does not have to sell many non-performing assets.
SQ
Paypal is the leading payment company online, and Square (or Block) is the physical point-of-sale leader with a market share of 22%. Its Cash app is doing great in fintech with a bright future. CEO Jack Dorsey's big bets on bitcoin ensures Block a distinct leader in the fintech world.
PYPL (+)
Analysts expect Paypal 2023 EPS to be $4.94, and will grow more 15-20% annually for a few years. Its top line will grow at a high single digit as well. 2023 P/E ~ 13 is quite attractive. Paypal's economic moat did not change recently. Its neutral position in payments is a good counterposition for big competitors like Apple Pay, Google Pay, Visa, Mastercard, Zelle, etc. It's OS and payment network neutral. As a case in point, Paypal was accepted as a payment on Amazon.
Short-term catalysts are continuous growth of users in Venmo, shopping super app, and the cost cutting measure to make the company more efficient. The stock price is depressed now only because the market worries about its short-term growth.
META
Global Monthly Active User (MAU) above 2.8 billion. Facebook is the biggest social network in the world. There will always be people buying Facebook/Whatsapp/Instagram.
The economic moat is weakened by Tiktok, but Tiktok is not really a social network that connects users who are familiar with each other, but another variant of youtube, so Facebook is still the top dog in social networking, although user time spent is definitely hurt.
Given Facebook's investment in VR; optional values in Facebook dating, and Facebook shops; Facebook Pay and Messenger have good monetization potential; Instagram has a unique position for people to express themselves; the improvement in Ads Infra to compensate for the loss in Apple App Tracking Transparency, I believe Facebook will come back. Long term annual growth of 15-20% in earnings should not be a problem.
BRK.B
Berkshire Hathaway in the current form was found by my idols, Warren Buffett and Charlie Munger. I will try to buy more if it's not very expensive.
AMZN
The biggest e-commerce company outside China. Amazon is the top company in the cloud business. The prime memberships are sticky because of the great value. Its IoT devices, while not complete, are all very popular. Amazon also owns the largest ebook market including the ebook hardware reader: Kindle. Its advertising business is growing rapidly as well. It also has a huge potential in the medical drugs market.
Basically, Amazon has potential in a lot of daily life goods and services which do not require high-end technology. It challenges incumbents with high profit margins. Amazon is definitely a killing machine. The only drawback is that the stock is quite expensive today. Annual growth around 15-20%.
PLTR
Palantir is a big data analytics company that mainly services democratic governments in the West, especially America, the strongest in the world, for the sake of global peace and prosperity. I think it's a very bold statement that is not easily found in innovative tech companies in Silicon Valley. It also services large scale manufacturers, medical and financial institutions.
Palantir builds solutions for customers, so the service it sells often needs some long lead-time, which creates a natural barrier of entry. Once Palantir gets into the business process of a customer, it's sticky. Its support of the US military makes it stand out among other Silicon Valley high tech companies, which eliminates a lot of competition.
One saying is that Palantir and Google are two sides of a coin in terms of handling customer data. Google gathers a lot of user data but the usage is very restrictive, and it focuses a lot on privacy. Palantir, on the other hand, only processes data gathered by clients, to help clients "process users".
It is going to earn about $1.98 billion in revenue in 2023. Assuming a long-term profitability of 20%, that is about $400 million in earnings. With a market cap of about $35 billion, a P/E of 88 is too rich for now.
The nature of the business has a lumpy growth. The company should have no problem maintaining a 20-30% annual growth in revenue for quite a lot of years as expected by the management, mainly due to the needs of the government in big data and artificial intelligence.
OWL (+)
It's a real estate asset management company, similar to Blackstone. A majority of the company's assets are funded by permanent capital, so it does not have withdrawal risk and the fees revenue is stable. Given it acquired STORE Capital (STOR) recently at a decent price, the management is very good.
With expected EPS of at least $0.6 in 2023, it's trading at P/E 20, not bad given it can grow its earnings 15-20% for quite a few years.
APO (+)
Apollo specialized in distress situations, which reduced the number of competitors. Its famous slogan is purchase price matters, which shows how price conscious they are in picking investment. It has another slogan "we want 25% of everything and 100% of nothing on the asset", which is a goal post of the company about engaging in a lot of asset managing transactions even for other asset managers. It's a good way to position the company to have a large adjustable market. Their use of reinsurance company, Athene, helps them to grow assets under management effortlessly as well.
Expected 2023 EPS is $6.61, so P/E around 12, pretty cheap with an expected growth of 10-15%. 2.5% dividend yield helps a bit as well.
BN (+)
With an IFRS book value of $52.36, Brookfield Corporation is trading at a 37% discount to book. With their asset management business and reinsurance company, they will be able to continue to earn stable cash flow to deploy into their attractive return opportunities from real estate and infrastructure. Mohnish Pabrai believes Brookfield has the best alternative management DNA (video, full interview), so I have no doubt this is a great company to own for the long run.
With their asset management business growing 10-15%, and their holdings in various real estate and infrastructure earning 10-20% annual return, it's a stock that can achieve an annual return of 15% easily given the huge discount to book.
BAM (+)
The pure asset management company part of the Brookfield Corporation. With BN, BAM can grow its asset under management (AUM) easily. Oaktree Capital, founded by the famous Howard Marks, is part of it, so it's very reputable.
The management has already indicated they are locked in to grow its cash flow 15% annually for the next field years. Its management fees do not rely on performance that much, so they are stable. With an expected 2023 EPS of $1.39, P/E 25 is not cheap, but with the help of 3.8% dividend yield (close to 100% payout, thanks to the asset light business model), there is a fair chance the stock can return 15% annually.
BX
A very reputable company in real estate. Its management fees rely on performance much more than Brookfield, but Blackstone has a track record, so I am not too worried about it.
Expected 2023 EPS is $4.36, P/E ~ 21. A 3.5% dividend yield with expected annual growth of 10-15%, this stock can potentially get a 15+% return in the long run.
SMRT (+)
SmartRent is a company that provides physical access solutions to rental housing and for a small part, pending-for-sale housing. Brad Thomas has a great article describing it on 2023/06/01. It manufactures smart locks and builds the management software for it. On one hand, SmartRent sells the hardware to rental unit owners. On the other hand, it has a recurring revenue stream from the management software.
The access business includes self-guided tour service used by homebuilders or landlords for their prospect buyers and renters.
Strengths:
Lucas Haldeman is the founder & CEO at SmartRent. He served as the Chief Technology and Marketing Officer of Colony Starwood Homes. From SmartRent's website, "[t]he custom platform developed by Mr. Haldeman and his team were instrumental in cost effectively helping the business acquire, renovate, lease and manage more than 40,000 single family homes in 12 states." He is definitely experienced in this niche space.
Not only does the management have a rich background in the real estate industry, SmartRent had raised funds from RET Ventures before. RET Ventures investors own and manage over two million multifamily and single-family rental units across the U.S. and Canada. They include Starward Capital, Aimco, Essex, Mid-America, Invitation Homes, Venterra, etc. That connection gives SmartRent ready customers to grow for a very long time.
Customers generate high ROI on investing in the system sold by SmartRent.
Customers are sticky, very unlikely to churn due to the small cost to maintain the status quo once the system is installed. Switching to another system will incur a substantial cost without much benefits.
Being in a niche market, its competition is limited. There is not enough revenue for multiple players and the business is not very exciting given a lot of on the ground work needed. The company does not have to invent very hard because its customers will simply let the company know about new requirements, and the new requirements are usually not hard to implement.
Weakness:
It's not profitable in 2023. It's also burning cash.
Being a small hardware company, it's subject to supply chain issue which can affect its profitability and increase cash burn for the short-term.
It can have difficulty raising capital given its low stock price and it does not have positive cash flow.
Opportunities:
The business model is sound. The company will break even at EBITDA by the end of the year. There is a high probability that the company will start to be cash flow and earnings positive in 2024.
Its existing customers are large enough to provide substantial units for SmartRent to grow its business. SmartRent has 496 customers with over 6.5 million units as of March 31, 2023.
Threats:
Security breach may lose SmartRent's customer confidence with the company's products.
Hayden capital mentioned the company in its 2022 Q3 letter.
Valuation:
The company will earn between 225 to 250 million in revenue. However, in 2023 Q1, 57% of it is hardware revenue which has a very slim margin. About 20% from professional services which is a segment that loses money. If we assume its only profitable segment, hosted services, is 23% of the annual revenue, its revenue will be about $55 million. Let's assume that its hardware and professional services segments breakeven, including the cost of the corp, and SmartRent only has earnings with 75% profit margin from the $55 million hosted services revenue, the hypothetical earnings will be $41 million in 2023.
The current market cap is $650 million, so the "P/E" using this hypothetical earnings is 16. The host services segment revenue more than doubled last year, so it's pretty cheap if you go along with my assumption of its earnings potential.
BXMT
On 2023/06/24, I bought it at $19.60 for the high dividend yield ($2.48 annually, 12.65%, ex-div date next thursday). It's mainly to cover the monthly fees for the Robinhood Gold membership. I do not intend to add more because its high leverage makes me a bit uncomfortable.
TSM
Taiwan Semiconductor is a global leader in chip manufacturing. It has passed Intel and is getting farther and farther ahead of Intel. It has a wide economic moat as a popular company in Taiwan beloved by common people. It's a national treasure.
With all technological gadgets today requiring chips to operate, including military weapons, its business is neverending. Supply problems are just small hiccups which do not hurt the fundamentals of the company.
Starting from the 2023/04/04 update, I did not intend to increase my stake any more because Buffett sold pretty much all of Berkshire Hathaway's stakes in 2023 Q1, and my exposure in VWO has included TSM already.
MCHI
Almost like a China technology ETF composed of the blue chips like Tencent, Alibaba, Baidu, JD. It also has some other blue chips which I like like China Construction Bank, Ping An Insurance. To avoid the long-tail risk of China, starting from the 2022/05/31 update, I would invest in VWO instead of MCHI in the future.
OPK
A free stock came from opening this stock account. Not sure what it does.
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