At the end of January I left Google - it has been a great ten years, but I'm much more focused on looking forward than looking backwards. I'm joining Spring - an ecommerce company that aims to change the way we shop. It's going to be interesting for sure.
I've already transferred most of my Google stock out of company brokerage account to my private one. I've also performed some of the rebalancing driven by my last valuation exercise.
I kept Google, Valeant, Gilead and Facebook at similar levels. I used the market selloff to increase my positions in General Motors, Vereit, Apple, Berkshire and Pacific Gas & Electric.
Short motivation for each change, in a decreasing order of current position size:
I've already transferred most of my Google stock out of company brokerage account to my private one. I've also performed some of the rebalancing driven by my last valuation exercise.
I kept Google, Valeant, Gilead and Facebook at similar levels. I used the market selloff to increase my positions in General Motors, Vereit, Apple, Berkshire and Pacific Gas & Electric.
Short motivation for each change, in a decreasing order of current position size:
- Google (25%) continues to grow top and especially bottom line at astonishing pace and the impact on earnings from Tax reform and EU fine is temporary. But I already have an outsized position in Google and do not grow it by much, unless it becomes much better bargain or the fundamentals change.
- General Motors (20%) is valued as a cyclical car manufacturer, but they are relatively resistant to potential drop in car sales, allocate capital prudently and have gigantic optionality in TaaS. The downside is limited, while the upside is huge. I added quite a lot lately.
- Valeant (15%) continues to be the turnaround of a decade, with outsized potential for gains to equity holders thanks to the leverage they use. But the leverage is coming down quickly and the company is executing well. I expect positive earnings release, perhaps with another jump in share price after it. Even if not, I'm confident that by the time next piece of debt is due (2020) they will be in much better financial position and perhaps this will be recognized by the market. If not, I believe current management will prudently allocate capital, including buybacks.
- Berkshire (13%) is still an admirable company. I gradually sold off a bit of my holdings during the recent rise to ~$215, and was happy to gradualy buy these shares back (and then some) when it dove into ~$190 territory. I still only have ~70% of the numbers of shares that I have had when it was trading for $144 just before US elections. By now Buffett's buyback threshold is already north of $150 per B share, and I'd happily add much more if it approaches these levels.
- Vereit (10%) sold off heavily and I've been buying. The dividend yield touched 8%, and it makes it a bargain, given that the dividend is well covered. I expect positive earning release and might lighten up my holdings if market recognises that via higher share price. Still, Vereit is the company where I'm most heavily in the red right now (not counting dividends).
- Apple (7%) is a great company and the two regrets I have is not buying more when it was ~$90 (it was still by 3rd biggest holding then after Google & Berkshire). The other regret is selling off too early, starting gradually around $120. The management's plan to have zero net cash provides great upside through accelerated buybacks, and I now have even more shares than I had when it was at ~$90. It's not such a bargain anymore, but I have more capital to allocate now, and Apple looks very attractive when it approaches $150, when they have ~$53 cash per share ($33 net of debt).
- Pacific Gas & Energy (5%) I wanted to establish a larger position in PCG and my wishes came true - it dropped together with the broader market and I was able to establish a decent position. It's unlikely that California will punish PCG so much for wild fires, as it is such a vital part of its infrastructure. I also think it will reestablish dividends once the liabilities become more clear. The earnings call confirmed my expectations.
- Facebook (4%) I expect Facebook to continue to grow rapidly for a few more years, as it scales its Sales efforts and monetizes userbase. Therefore I find the valuation reasonable, and would add much more if it goes lower. The intraday low of $167 from Friday is actually already very attractive - I just didn't have my typical gradual buy orders placed for FB.
- Gilead (1%) I bought Gilead as a value play and it performed OK, but not spectacularly well. I'm mostly out of this position, but I'm keeping a small chunk in order to keep watching it. The revenue decline continues rather strongly, perhaps more than I originally anticipated. Given that I have a few other value plays in my portfolio now, I will probably not be adding much, unless the price or fundamentals change materially.
- Tesla (-5%) - the quarterly report surprised me by a large cash position, but it all came from balance sheet tricks, not an improvement of the actual business. The business seems to still be structurally unprofitable. Even if it starts generating profits, there is no way it would justify a price close to the current one. I'm managing the short position as it goes up (or down), by selling more (or buying back shares). It's hard to predict when this will go towards zero, it might be this year, might be another few years. Once TaaS reaches high tens of thousands of cars deployed in US, it will inevitably have an impact on new car sales. I expect target market of Tesla Model 3/Y buyers (big city residents) to be most prone to forfeit buying new car and instead use TaaS. GM's most profitable markets (suburban SUV and rural Truck buyers) should be the last ones to resign from personal car ownership. I do not expect fully autonomous Tesla to be ready before 2020 - and by then the company may well be after bankruptcy already.
