Taking Profits After a 108% Gain

A great surprise

We are taking profits on a trade we entered in October 2017.

Taking profits has always been harder than buying a stock.

You will experience one of two emotions:

• You will sell too early and watch the stock rise another 50-100%. That hurts.

or

• You will hold and watch all those paper gains evaporate before your eyes. That’s brutal too.

So I came up with a rule

No matter what, we will take partial profits on a position if it gains 100% or more in less than a year.


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IPO Profile: (Roku) + A Podcast Recommendation

Even though I don’t regularly invest in IPO’s, I keep a watch on ones I think are interesting.

Here’s one I am thinking about.


Roku

Quick facts

Roku (ROKU) is the market leader for internet TV devices with 37% market share. This is the same as last year and up from 33% two years ago.

• Apple is in second with 15% market share; down from 19% two years ago.

• Google’s chromecast slipped to 14% market share; down from 18% a year earlier and 21% two years ago.

• Of all households with broadband internet, 40% own a TV streaming device; up from 6% in 2010.

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Should You be Buying Emerging Market ETFs?

Good Wednesday, hope your week has been productive.

Today | 9 items


1. Chart of the day

(Data: money.net, chart: Axios)

2. Investors are pulling out of emerging markets

Overseas funds are pulling out of six major Asian emerging equity markets at a pace unseen since the global financial crisis of 2008 — withdrawing $19 billion from India, Indonesia, the Philippines, South Korea, Taiwan, and Thailand so far this year, according to data compiled by Bloomberg.

Why are they pulling money out?

Investing in emerging economies is considered riskier than investing in U.S. stocks.

Since interest rates in the U.S have been near zero since the financial crisis, investors have looked to other countries for better investment returns.

However,

Recently the Fed (federal reserve) has started raising interest rates. In doing so, it’s attracted money back to the U.S and away from emerging economies.

In addition, investors are worried that trade disputes and tariffs could have a negative effect on certain Asian economies.

Should you be a buyer?

It depends on your investment objectives. Here are two questions to ask:

• Are emerging markets currently a part of your allocation?

• Emerging markets carry a higher degree of risk. Can you accept the greater potential return for greater volatility?

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How NEXTera Energy Became the King of Green Power

Resources used:

Financial statements | Income, balance sheet, and cash flow statement. You can’t edit but you can copy and make your own.

Funding and capital structure


Who is the world’s largest operator of wind and solar farms? It’s also America’s most valuable power company. Still stumped? It’s by design reports the WSJ.

NEXTera Energy (NEE) has grown into the largest power company mostly under the radar.

Let’s see how…

Three important points to their success

• They were focused on business fundamentals and not the Hollywood status that comes with being a champion for green power.

• Only built new sites after it lined up customers. This way, they avoided debt problems that sank rivals such as SunEdison. Instead of debt, they used federal tax credits.

• Has been led by the same executives for 15 years. The CEO, James Robo, came from GE and preaches financial discipline. He avoids hiring the type of workers who join the industry to change the world. 

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Can iRobot Reach 26 Million Households? (A Deep Dive on iRobot’s Stock)

Resources used in this article:

2018 10-k  | The 10-k starts on page 93. The preceding 92 pages are the proxy statement.

Financial statements | Income, balance sheet, and cash flow statement. You can’t edit, but you can copy and make your own.

• 2018 analyst day slide presentation.


iRobot (IRBT)

iRobot (IRBT) is the best known public company and market leader in the consumer robot category. Their most popular product is the Roomba(left picture).

Company overview

iRobot is a consumer robot company that designs and builds robots that empowers people to do more both inside and outside the home.

A more complete overview can be found in their 10-k; pg. 94 of the document. The first 93 pages of the PDF is the proxy statement.

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Twitter, Portfolio Update, And How to Get Wealthy (Over Time)

Good evening, hope your day has been well. On to the update.

Today | 7 items

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1. Twitter enters the S&P 500

On Monday it was announced that Twitter (TWTR) will be apart of the S&P 500 index, replacing Monsanto.

What’s the big deal?

Vanguard, State Street, and Blackrock own the three largest index funds that track the S&P 500. Collectively, those funds manage more than $700 billion in AUM(assets under management).

It’s a big deal because those funds will be required to buy Twitter shares. In other words, Twitter found a new group of investors.

Who determines what companies make up the S&P 500?

Before we get to how the companies are selected, it’s important to remember that the S&P 500 represents 500 of the largest companies(not necessarily the largest 500) whose stock trades on the NYSE or NASDAQ.

The components of the S&P 500 are selected by a committee. While not strictly rules-based, here are a few of the criteria they use when making their selections.

  • A market cap of $5.3 billion
  • Headquartered in the U.S.
  • At least a quarter-million of its shares traded in the previous six months
  • The majority of its shares in public hands
  • At least half a year since its IPO

Further reading

The head of the committee who decides which stocks are in and which are out is David M. Blitzer. The WSJ wrote a nice profile about him.

For a real doozy, you can read their full methodology. PDF


2. Twitter: position update

Enough time has passed that I feel comfortable sharing a position our members hopefully took in Twitter on October 30th of 2017.

This stock represents 5% of our portfolio. The position, not the portfolio, has gained over 85% since we entered.

I do not share this brag. I’ve had plenty of losing trades and will have more in the future. I share because I hope it brings value to your investing process.

Let’s walk through this trade.

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Cannabis Follow-Up, A Long-Shot, and Gold

Good Friday. Here is today’s memo:

Today | 4 items


1. How to invest in cannabis (reader question)

Important

This is a new and developing market. If you are going to put money at risk it needs to be money you can afford to lose.

In addition, you need to have a 10 year+ time frame. If the upside in this industry is as large as people think it is, it will take time to develop and grow.

One thing to keep in mind.

In the U.S., while cannabis is legal in a handful of states, it’s still illegal at the federal level. Some banks and brokerages won’t take the legal and reputational risk of holding stocks that are illegal at the federal level.

Most of the investment products available for retail investors are based out of Canada and trade on their TSX exchange. Recreational marijuana will be legal in Canada sometime this fall, possibly August or September.

I am still new to this space and don’t have any insights yet. I will report what I am reading and a few investment options for you to look at.

ETFs

The largest ETF in this space is ETFMG Alternative Harvest ETF (ticker MJ) with $300 million + in AUM. You can buy this ETF at most U.S. brokerages.

The management fee is 0.75% or 75 basis points. For every $100 invested, you pay 75 cents.

Here are the top 10 holdings:

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