End of year update

2018 was a very interesting year, both for me personally, but also from the investment perspective - which is my primary focus in this blog.

During the stock declines in December I decided to trim a few positions and focus on a few core positions, which I consider core to my portfolio. Specifically, I sold BRK, VER, BYC, Tencent and EPOL, each for a slightly different reason:

• I still consider Berkshire somehow undervalued, but not as much as the core positions, so I decided to focus 100% there.
• VEREIT is cheap, but also not as cheap as core names and the growth outlook (organic or not) is rather dim. The yield is still reasonably attractive, but with e.g. GM having not much lower yield and excellent positioning as both profitable vehicle producer and as TaaS leader, the choice is easy.
• With BYC and Tencent I decided to move on, since the general outlook for both companies deteriorated rather than improved in last several months (for Tencent it was the reduced game-related revenue after Chinese authorities started to scrutinize the games much more, while for BYC it is the more challenging perspective of getting to US electric vehicle market, given the tariffs, as well as the possible slowdown in Chinese economy in general. It helped that I was roughly at break even with both investments.

What should naturally follow is reassessment of the core portfolio that I intend to hold (at least under current or lower prices):

AAPL is a powerhouse that is not going anywhere and the value of the ecosystem will continue to grow. Even if unit volume is only steady, the services devision will likely continue to add value. I'm also very bullish on Apple's positioning in wearables, starting from Watch, but also beyond. The ECG app and all such features can lead to, plus Apple's positioning in privacy, is an example of competitive advantage that will be very hard for others to match. The valuation is attractive, and with the massive buyback and cashflow its a no-brainer to keep this as a defensive position, with still a substantial upside, even though it's a megacap.

BHC is executing flawlessly on their turnaround plan, paying off debt and making the best use of their assets. With ongoing deleveraging the value of equity will keep rising rapidly and it no longer seems like going after drug companies is no longer the focus in US. And of course BHC is not a typical drug company, with large divisions that are in more general healthcare businesses.

FB had a rough year, and it will certainly have some effect in slowing it down. But it was a good value in $200+ range, and it's a screaming buy now. It doesn't seem like people will move their social activity to any other platform and if anything, it can fuel Instagram's growth rather than e.g. Snap's.

GM continues to impress me with disciplined execution - the recent trimming of US factories is yet another example of that. It seems like their focus is return on equity instead of chasing growth (or even sustaining the (not profitable enough) volume. I wish I had more visibility into actual autonomous capabilities of Cruise, but based on valuation and positioning of GM in the vehicle market I consider this a very safe bet.

GOOG continues to be well positioned and executes nicely. With multiple strong businesses it's hard to see it go away anytime soon and the synergies between various offerings are significant. I wish Cloud, Hardware, Waymo and some other businesses would get to scale more quickly, but importantly they are growing nevertheless.

I'm keeping a minor position in KHC after it's very steep decline. I don't want to liquidate it at substantial loss, and the current yield makes it easier to hold onto it.

Finally, I've reduced the TSLA short by more than half at avg. prices around $315 and started to reestablish the short at $335. If the Q4 delivery update causes a rally I'm prepared to slightly add to the short, but will most likely not go as much short as before, given TSLA's potential to turn on a profit in the short term. I expect Q1 to be challenging, with reduced FIT credit in US and all the extra costs (shipping, tailoring to EU requirements and right-hand-side drive) causing model 3 to be rather expensive in Europe and not very profitable. It's exciting to see a number of new EVs becoming available, but still with current prices and limitations this is a niche market that cannot support Tesla's valuation, especially vis a vis valuations of other car manufacturers.