We bought Stone $STNE - Malevolent Missy Invests, Stock Series #12
Welcome to month #12 of Malevolent Missy's maiden stock investing voyage
This month we bought Stone $STNE and Missy is still killing the index funds.
Our heroine Malevolent Missy just keeps showing up to work and getting paid and might even be due for a raise soon. She also continues to buy stocks and invest consistently. Some people would say our gal is nuts to buy individual stocks but the numbers so far are proving the naysayers wrong!
We are building Missy a stock portfolio from the ground up.
I've been posting about our Smidlap Misguided Individual Dildonic Stocks ($SMIDS) with details since 2018. The latest performance update is July 2020 YTD Stock Scorecard: Smidlap +56.3%, QQQ +22.2%, VTSAX -0.6% The thing I've come to realize in writing those portfolio updates is they might not do much good to see or feel how it was to start a portfolio from scratch. It's one thing to see a portfolio where a couple of huge winners have gone up by 4 or 5 times their value, but it's instructive to feel some of the natural trepidation to buy shares before they have taken off. That feeling is real, especially when you're starting out and haven't ridden the roller coaster of investing yet. I also haven't been tracking our portfolio or writing about it from the beginning so I thought I would write a series about beginning stock investing and base it on my young protege who has only been working a couple of years right out of college. That is how the Malevolent Missy Stock series was born; so you can have a look at building a portfolio from ground zero.
We already covered some of the basics in the Malevolent Missy series and if you are just starting out or know someone in the nascent stages of adulting or who is starting a career you can check out the previous series posts here: For Beginners: The Malevolent Missy Series. You'll find a treasure trove of information that is obvious to some but surprisingly not obvious to others. I should know; this stuff didn't really sink in for me until I was about 35 years old and still paying off 10's of thousands of student debt dollars. Don't be like I was. Be like Missy is and get a head start towards Financial Independence while you're young. Your future self will owe you a tremendous debt of gratitude.
At the bottom of the post I'll give you some information on Malevolent Missy's background, salary and the philosophy on how we're investing her money. I repeat that section each month but you are new here be sure and check that out.
This month's stock scorecard
I think you have to keep score to make sure you can beat your favorite stock index. If you're a humorless Boglehead you probably prefer the Vanguard total stock market index also know as #VTSAX. I'm sure they'll tell you all about it at top volume if you swim in their section of the Reddit cesspool. In my opinion the Nasdaq 100 or QQQ is better than VTSAX so we measure Missy's portfolio performance against both of them. If she finds she can't beat the index she should just buy the index instead. Each month we'll buy an equal $1000 amount of one stock and the same amount of the two index funds, the way a real life investor might.
We also keep score for accountability. If you're thinking of buying advice or a course from a self-appointed investing "expert" you want to know their historical returns. I don't claim to be that expert or guru but you can find plenty of those claims on the world wide web. "Expert" is a term best bestowed onto a person by someone else and not self-applied, in my opinion. We also keep score because we think we can beat the stock indices and if you can't do better than the index you might as well own the index and save yourself the trouble. Much of the rhetoric in the personal finance world will tell you it's foolish to try and better the index and the way we keep score we'll sure as hell find out. I also like to let it be known that this is not some play money high school stock market type game as the fictional Missy will not buy any stock we don't own in our real life Smidlap portfolio. In other words, our money resides where our mouth is.
Let's get straight to this month's scorecard:
Here they are in a little more readable format in case you want to see all of our gal's holdings. Ask nicely and she'll show you her huge tracts of land, too (Monty Python joke).
Here's how she did against the indices, just for emphasis
Scorecard Commentary
This looks like a pretty good bunch of stocks so far. Remember, Missy has a long road ahead and a couple of these winners are likely to distance themselves from the indices as time marches on. We have one triple in Shopify and doubles in Twillio and Square. 10 of our 11 holdings are in the green since we started in September of 2019 and that's really good. We surely don't expect or assume that every single selection will be a home run or even a single. Some will be losers and that is why we diversify and buy a collection of stocks. Do some of these buys seem a little "frothy" and maybe seem like they are ahead of schedule on those rising prices? Yes, but we don't sell and try and time the market because we are buy and hold investors. Astute and keen-eyed readers might recall that I have been selling small amounts of shares weekly in the Smidlap Portfolio and that is true. I've been selling to build our cash position as we're both 50+ years old in our house and I want a certain amount of a cash position as we get ready for retirement. I'm willing to sacrifice a small amount of gains to maintain that desired cash position in our overall asset allocation. We haven't sold more than a few % of our largest holdings as they hit all-time highs and I would say that still counts as buying and holding when you retain 95% of your best stocks. Remember that the objective of this whole investment journey is to grow your hard earned money until you eventually turn your (hopefully) inflated stocks back into money to buy something! You can't go to the best taco truck in town and spend the green numbers on the screen; you gotta use money. Missy is only in her 20's and she will not be selling unless it's to use the proceeds for a better future opportunity. She is in full-on accumulation phase of investing while still maintaining the balance of enjoying her life now.
Here's a cool graph I've made that shows the comparison of Missy's picks vs. the QQQ and VTSAX since November of 2019 when she only held two stocks.
She did not panic back in March 2020 when the sky was falling and everything turned around in the months since.
So, after 11 months Missy is crushing the beloved and revered VTSAX by by over 50%. 67% is a great gain so far. You might notice that QQQ is also beating the VTSAX handily at this point. Do I expect that outperformance to continue every single month in perpetuity? Not necessarily, but we're buying every month consistently if prices happen to drop on some of our Watch List stocks. It feels like we have a good portfolio of growth stocks right now.
This month's buy (made yesterday 8-17-20 around mid-day)
STNE 20.49 shares @$48.80
QQQ 3.64 shares @$274.77
VTI (VTSAX equivalent) 5.82 shares @$171.77
Missy also continues to buy $1000 worth of VTSAX in her 401k because her cruddy employer refuses to add QQQ to the investment choices. So, she not only has almost $18000 in individual stocks but over $25,000 in index funds because she started on those 401k investments before she started buying stocks. In fact, if you count her ample $8,000 emergency fund in a high yield savings account our gal's net worth is over 50 grand. That's pretty darned good for a young person and almost as valuable are the good saving and investing muscles she is training for a lifetime of success. You can also notice in this graph the gap between individual stocks is closing on the amount of VTSAX in her work retirement account. This is partly due to her stocks going up at a good rate despite her putting an equal amount of money to work in each asset class every month.
We bought Stone $STNE this month - Why?
Why not?! I jest. We love "Fin-tech" or financial technology companies. That's why Missy and I own Square and Mastercard. Stone is a fin-tech company focused on helping merchants with electronic commerce solutions among multiple channels in Brazil. Here's a quote from our pals at Yahoo! finance if you want to learn more. STNE quote.
Here's a free article from Motley Fool extolling the virtues of Stone: 2 Warren Buffett Stocks Worth Buying Now. As the title of the article implies, last months Missy selection, Berkshire Hathaway ($BRK-B) bought shares when Stone had its IPO in 2019. We've owned it in the Smidlap Portfolio since December of 2019. Company revenue is growing like crazy and they are also profitable. If you believe in the shift away from cash payments as a general global trend this could be a winner. They did just buy/merge with another Brazilian company called Linx a couple of weeks ago but Missy and I think the growth story is intact. Poke around the quote or the article and see what you think.
If the share price sinks some in the coming months we won't fret too much as We’re Buy and Hold Investors. We are looking at least three years down the road on these businesses and would love to hold them even longer through thick and thin.
In the running
We also considered two other stocks today. Rollins ($ROL) is a pest control company we own in the Smidlap Portfolio. They have brands like Orkin. The other one is Slack Technologies ($WORK), which we don't own. They specialize in workplace communication and seem to be gaining steam and customers. This is the second month we've thought about adding Slack but didn't pull the trigger.
Remember, we own all of these Missy Stocks in The Smidlap Misguided Portfolio of Individual Stocks. Chug on over there if you want to see what else we own and how they are performing.
What do y'all think? Missy is doing pretty well for a young gal, eh? You think I should give her a "raise" to start investing $1,100 a month to mimic real life? Also, will she make money with Stone or end up destitute for this selection?
Here's a picture of Banjo in the shadows to take the edge off another boring investing post
That's the end of the "fresh material" for the month. If you've never been here or want some of our half baked philosophy and strategy I repeat the information below every month. Happy investing, y'all.
Malevolent Missy Background Information in Case You're New Here
Missy has a lot of good starter items in place with her finances and life. Now our gal wants to invest in stocks
This is the scenario I have set up for MM:
Young Missy has a briefcase full of money to invest
I'll give her a pretty sweet (we live in cost effective Buffalo, NY) starting salary of $60,000 per year. Let's assume she has invested 15% of her pre-tax dollars in our 401k with a nice 5% match since 2018. That would mean she would have $12,000 invested over the past year and we'll say she has it in a total US stock market fund like the legendary VTSAX from Vanguard. I use VTSAX and VTI interchangeably as VTI is just the ETF version of VTSAX and their performance will be essentially the same over time. VTSAX is up just over 2% over the past year but she was buying weekly so she bought some at cheaper prices so I'll say she had a 5% overall gain for a starting amount of $12,600.
I'll have her invest an additional $1000/month in her VTSAX fund in the 401k and we'll track that performance against a monthly stock buy of $1000 in a brokerage account. The first $6000 will be in a Roth IRA and the last $6,000 will be in an after tax brokerage.
If you have read here before you know that I think an investor can do just fine without individual stock investing, but I also think there is a better index fund than VTSAX or one that tracks something like the S+P 500. The QQQ is the symbol for the Nasdaq 100 stock index. I feel like many of these stocks are more of the future and the total stock index has too many loser companies like brick and mortar retailers and a bunch of others in business being trounced by newer and better companies. I covered a lot of why I prefer the QQQ in this post: QQQ vs. VTSAX: The Battle Continues. So, in the spirit of competition I'll be making an equal $1000 "buy" of the QQQ index each month alongside the 401k buy of the VTSAX, which is favored by so many in the Financial Independence community. While not an indicator of any future returns QQQ has more than doubled the returns of VTSAX since 2001. We'll see if I am right or if I am wrong.
We'll be checking in on the whole invested portfolio each month. You always want to look at everything in total. For instance, if Malevolent Missy has an emergency fund of $5000 cash, $12,600 in VTSAX in a 401k and buys just one stock to start for $1000 and one per month to follow that doesn't mean she has extreme single stock risk as she builds the overall portfolio. I'll also add a few hundred bucks to the cash portion each month as our gal builds up her emergency fund. One stock per month seems like it's a long time to build a well diversified portfolio but life is a long game. You gotta walk before you can run and I like this slow approach as it really mimics what a person can realistically do in real life. Most of us don't just acquire a lump sum and have all that pressure to try and divvy it up into buckets of investments. Regular folks just go to work and save and invest for the future in these kinds of increments. This stuff takes patience to get the ball rolling.
As time goes on our gal's percentage between the VTSAX index fund in her 401k and her individual stock allocation will come closer together. She's adding $1000 per month to each and that's just math doing its magic. I personally like starting slowly like this as she gains confidence in her stock investing abilities rather than jumping straight into the deep end of the pool on the first try.
I also want to clear up a couple of things I commonly see as mistaken notions about investing. 1. Just because you might not have a brokerage account doesn't mean you are not investing. To me, your investing starts as soon as you put away in your first emergency fund and if you have something like a 401k or a public employee equivalent and choose a fund for your money then you are an investor. 2. Choosing your own stocks is not the same as buying actively managed mutual funds! Surely this way is not for everyone and some prefer the simple route to wealth and average returns. I agree that most actively managed funds will not beat the indices over time due to higher commissions and fees. In fact, if somebody advised me to buy one of these that basically was enriching the fund manager and person selling it to me, I would tell her to pound sand and DIY my own portfolio. Buying stocks, however, is not the same as buying these sometimes expensive funds. I repeated that for emphasis. If you're the "index is the way and the only way type person and anyone who tries anything else is a dildonic idiot doomed to failure" person then feel free to follow along while Missy either crashes and burns or hits it out of the park with fantastic returns.
If you want to know where I learned my investing philosophy about buying and holding stocks for a long period knowing how much difference a few huge winners can make then check out this YouTube video. It's an interview with David Gardener, co-founder of The Motley Fool. He explains it better than I can write it down in this interview. I think it's worth the 20 minute time investment to have the philosophy crystalized: David Gardener Investing Video
While I'm on the subject, remember this is for entertainment only and should not be considered advice. Use your own brain and get advice from a qualified professional if you need it. I am not a finance professional. I'm just a guy with a keyboard and internet connection. Do your own research for what's best for your situation....but keep reading to see how we do.
You don't have to be a young employee just starting out to benefit from this experiment. You might be in your 30's or 40's or later like I was and just getting your act together. Hopefully we can see where it all goes together and what works and what fails. Maybe QQQ will turn out to set Missy back versus the beloved VTSAX. Time will tell.
This investing stuff is not as scary as some of the professionals would scare you into believing. They might toss out a ton of jargon in order to frighten you into thinking you're not smart enough. There is also allegedly some rhetoric around young women not having the confidence to get started in investing, to which Missy and I call out a resounding "Bullshit!" Even if she didn't want to buy stocks and just index her way to wealth we will not be intimidated by those who claim you need a Harvard MBA to build wealth. Confidence, however, doesn't always magically appear all at once so we'll take these baby steps before we walk and then eventually run.
The Missy Portfolio buys will also help me in looking at our portfolio. For instance, would I recommend something like Shopify ($SHOP) after it has gone up 9-10 times its value in 3 years? I wouldn't buy more right now because it's such a big percentage of the portfolio already, but should somebody else buy at this price? I think you can see where I'm going with that thinking.
We will not limit ourselves to one type of stock investment (i.e. dividend growth stocks) but will build a diversified portfolio that will hopefully end with 15-20 or so stocks. If the experiment gains traction I may switch to "buying" 2 stocks per month in the future. The $1000 per month amount is arbitrary amount that should be easy to track. We'll be buying plenty of disruptive growth stocks because I am a firm believer that One Big Winner can Supercharge Your Returns. If you look at the Smidlap Misguided Portfolio you can see that we have two huge winners really juicing the returns since early 2016. We'll try and balance those more risky growth stocks like *Shopify ($SHOP) and *Match Group ($MTCH) with solid dividend growers like Costco ($COST) and ($ADP). Finally, every now and then we'll seek out something from the bargain bin. I still remember Estee Lauder ($EL) dropping to about $75 bucks a share at the end of 2016 and 3 years later those shares are in the $190's. It was the same with Chipotle Mexican Grill ($CMG) when they dipped below $300 per share a year and a half ago after they made some people sick. Fast forward 18 months and they're over $800. Everybody loves that stuff apparently although I've never been to one. It's not my style.
* we own shares of SHOP and MTCH in our personal portfolio.
I"ll buy "partial shares" so the buy amounts equal very close to $1000 for easy tracking. I know there are some little brokerages that allow partial shares but in real life we use Ameritrade which does not. We buy whole shares only.
Sometimes the portfolio will go down in value, especially when the overall market sinks. Nothing can save you when this happens. Missy will not be committing any new money that she anticipates needing in the next 5 years and hopefully longer. She is in this as an investor and not a trader; buying businesses with solid prospects for the future. Buy and hold is the name of her game.
This is an important rule: The way I think our stock portfolio will win is by avoiding buying crappy stocks! There are a ton of crappy stocks in the universe and we will avoid them like the plague. I have owned some of them in the past and they include some oil drillers and mining companies in 2019. You used to be able to own some of these and make money but that has not been the case for a long time. Maybe some day they'll make a comeback and we can reexamine some of these beaten up industries but Missy doesn't want to touch Noble Energy ($NE), Macy's ($M), or Kraft-Heinz ($KHC) with a 10 foot pole. You get plenty of those losers complimentary with your VTSAX! Anyhow, this should be tremendous fun, don't you think?