Feb 2023 - Good news despite the bad
February has been exciting, with several of my holdings posting earnings. Despite some disappointing revelations, this has been a good overall month for my investments. I have many thoughts to share on what has been going on and have updated my Watch List in a new improved format, aligning better with my gradual restructuring and rethinking of my portfolio.
Overview
Unlabeled on the chart: Alphabet (1.4%) and Adobe (0.8%).
Moves
On February 22nd I purchased a small stake in Coinbase (COIN) at an average price of $59.20.
On February 28th I sold my stake in Coinbase at an average price of $64.00 marking a return of 7.8%.
Performance
My overall holdings increased 6.5% in the month of February, comparing very favorability against The Dow Jones World Index, which was down nearly 5% in the same time period.
Dividend overview
| Name (Ticker) | Received | Amount (USD) |
| Danske Invest Denmark Index (DKIDKIX) | Feb 10th | $303.76 |
| AbbVie (ABBV) | Feb 16th | $48.31 |
| Realty Income (O) | Feb 16th | $13.52 |
| Starbucks (SBUX) | Feb 27th | $10.63 |
| Total | Feb 2023 | $372.22 |
I received a total of $376.22 in dividends before taxes for February 2023, compared to $522.40 last year, which marks a YoY decrease of 27.98%.
Commentary & Review
First, I want to comment on the dividend. February usually makes for my highest dividend payout on a monthly basis. While it is likely to remain true for now, it was drastically reduced this year compared to 2022. The main contributor and the main differentiator is the Danske Invest Denmark Index (DKIDKIX) fund, which despite me having added to it all throughout the year, paid out a lesser dividend compared to the year prior. This is due to the fund’s dividend being made up of a combination of both the growth and dividend of its underlying assets. As 2022 was a bad year for stocks all around, the dividend is much less.
I had expected this to be the case but still ended up disappointed - the impact was far greater than I thought - the dividend was significantly lower. As I have alluded to in previous posts, information on how this fund calculates its dividend is rather opaque. This new data point (negative growth in a full calendar year) finally gave some deeper insight into how it actually works - and I do not like it. I am not just looking for a dividend, I am looking for one I can count on. This is something my individual holdings offer over this fund - a proven dedication to the dividend year after year, in spite of tough times. For this reason, it is likely that I will exit this position soon and in place invest in some of its underlying stocks. There are many quality companies inside this fund, even some that I have owned before.
The reverse Buffet Effect
Moving on to another disappointing and rather surprising development this month, it was revealed that Berkshire Hathaway (BRK), the investment fund controlled by Warren Buffett, let go of nearly its entire position in Taiwan Semiconductor Manufacturing Company (TSM). This was a surprise to everyone, as Buffett usually invests with a very long time horizon. Berkshire sold 86% of its position in TSMC, after only holding the shares since November 2022 where it was made a top 10 holding. In my journal entry for November, I described the so-called ‘Buffett Effect’ that made the stock spike when the original purchase was disclosed. What is more interesting is that it is unlikely that this was some purposely made short-term trade and that the overall profits made from this move are rather minuscule in the grand scheme of things. In all honesty, unless Berkshire knows something that no one else does, I believe they made a mistake selling. While I was happy to see the greatest investor of all time jump on one of my major holdings and boost public perception around the thesis, their decision to jump back off does not change things in any way for me. I was bullish on TSMC long before Buffet, and it seems, apparently, long after. But if someone from Berkshire happens to be reading my blog and are looking for where next to place a bet in the semiconductor industry, I likewise hold Broadcom (AVGO) in very high regard 😉.
As you may have noticed, I myself made a successful short-term trade this month. With Coinbase, a former long-term holding of mine, I made a quick buck in less than a week, buying in at $59.20 and getting out at $64.00. I am sort of testing the waters with this one as I try to take better advantage of my knowledge of trends in technology, as described in my 2022 Year in Review. Coinbase could easily end up as a long-term position for me once more, but until it reaches positive cash flow again, I instead plan on trading in and out of this very versatile stock. My logic behind this particular move was that I came away impressed by their recent earnings report - yet for some reason on the following day, the stock randomly dropped 5% mid-day for no apparent reason. Outside of this little window of a few hours, the stock traded higher than prior to earnings. And so I bought in - and exited a few days later with a 7.8% return. Keep in mind, that I adjust my entry/exit fees to include brokerage fees and exchange rates, meaning this was more in line with a 10% trade had I made a bigger bet, which is what I plan to do in the future. Activision Blizzard is another short-term trade I am currently considering, as I believe Microsoft (MSFT) will be successful in closing its acquisition in spite of regulators’ and competitors’ woes.
I welcome our AI overlords
Microsoft is wasting no time with its investments. Last month I mentioned how the company had recently doubled down on its investment in OpenAI and taken a 49% stake for $10 billion. In early February, Microsoft announced ChatGPT’s integration with Bing, which by now already feels like a decade ago, as so much has happened since. A day later, Alphabet (GOOGL) announced their answer - Bard - which was ridiculed online for making a factual error during the product presentation. This made investors uneasy and Alphabet stock dropped heavily on the day, under new threat from Microsoft. While it is interesting to see new things happen in Search, a space that has been stagnant for so long and absolutely dominated by Google, I do believe people are overreacting. In the short time since Microsoft CEO Satya Nadella told The Verge that they would make the 800-pound gorilla (Google) in the space ‘dance’, Bing’s chat AI has already gone off the rails and been subsequently nerfed. This technology is hard, even harder to monetize and earnings prospects are still likely pretty far out. However, with all that being said, I have signed up for the waitlist and do plan on switching to Bing (something I never thought I would) the moment I am granted access. The technology is profound and already has numerous benefits for the consumer - just much less in terms of value creation for its owners.
Checking in on Unity
Finally, let us talk about Unity (U). The company delivered earnings on February 22nd and while I personally thought it was mostly positive, the stock dropped 15% the following day. How so? Well, mostly because of conservative guidance for the full year 2023. While analysts had aimed for higher, due to uncertainty in the current macroeconomic environment, management decided to guide for no growth in ad revenue for the year. Other than that, things looked pretty good - On a non-GAAP basis the company delivered its first profitable quarter, which is HUGE for me, as it gives me confidence that promises made on prior earnings calls are kept. The ironSource acquisition has delivered a lot of new value and boosted numbers significantly. The acquisition has also led to a slight adjustment in company structure, with what was previously known as Operate now rebranded as Grow. This is a small detail, but something I was confused about during Q3 earnings late last year, as I thought they would create a whole new third business unit under this name.
Create continues to exist as normal and remains the part of the business I am most excited about long-term. The most surprising part of these earnings were the news that the company has already spent $1.5 billion of its allocated $2.5 billion on share buybacks. The company bought back shares at an average price of $35.10 during Q4, which while at an attractive level (in my opinion) still comes off a little rushed, considering they are issuing new debt to do so. What remains the culprit of the stock, however, and the reason why I am not adding any more shares right now, despite the attractive price, is the issue of share dilution. Despite the buyback, its share count is up 22% YoY. According to GAAP, the company is still far off profitability due to stock-based compensation. Thankfully management commented on this on the earnings call and promises to finally do something about it. Unity is a fantastic company, situated perfectly - but because of this issue, it still remains a question whether investors will benefit.
Watch List
I have updated my Watch List to now include all the companies I find interesting in some way. They are sorted by sector and I have included notes on each one, describing my interest and reservations. The status indicates the likelihood of a position being added to my portfolio. ‘Watching’ means I just keep an eye on them, whereas ‘Top Pick’ means they are very likely to find their way into my portfolio at one point - ‘Under consideration' means somewhere in between, with notes offering some elaborating thoughts. Please note my Watch List is based on my own research and goals and is in no way a recommendation of what to buy.
| Sector | Name (Ticker) | Status | Notes |
|---|---|---|---|
| Healthcare | Novo Nordisk (NOVO-B) | Top Pick | Strong innovator, previously owned, familiar |
| ARK Genomic Revolution ETF (ARKG) | Under consideration | Considering as an alternative for CRSP | |
| Merck & Co (MRK) | Watching | Casual interest, limited familiarity | |
| Medtronic (MDT) | Watching | Casual interest, limited familiarity, attractive dividend | |
| Industrials/Manufacturing | A.P. Møller - Mærsk (MAERSK-B) | Watching | Lacks ambition in electrification efforts |
| Elkem (ELK) | Top Pick | Too expensive, great positioning | |
| Otis (OTIS) | Under consideration | Potential dividend growth play, familiar | |
| Norsk Hydro (NHY) | Watching | Casual interest, limited familiarity, attractive dividend | |
| Lockheed Martin (LMT) | Watching | Ethical concerns, too expensive | |
| Corning (CLW) | Watching | Weakening moat, rising competition, familiar | |
| Consumer | McDonalds (MCD) | Watching | Strong brand, limited optionality |
| LVMH Moët Hennessy Louis Vuitton (MOH) | Under consideration | Strong leadership, performance, too expensive | |
| Costco (COST) | Top Pick | Incredible moat, leadership, too expensive | |
| Coca-Cola (KO) | Under consideration | Strong brand, stable giant, too concentrated, familiar | |
| PepsiCo (PEP) | Under consideration | Strong brand, well diversified, familiar | |
| Hasbro (HAS) | Watching | Strong product line, shaky mangement | |
| Energy/Utilities | Ørsted (ORSTED) | Top Pick | Strong positioning, leadership, familiar |
| Waste Management (WM) | Under consideration | Stable giant, limited familiarity | |
| NextEra energy (NEE) | Watching | Strong position, too concentrated, too expensive | |
| Enphase Energy (ENPH) | Watching | Rising star, limited familiarity, too expensive | |
| Technology | Embracer (EMBRAC-B) | Under consideration | Incredible acquisitions, not profitable, familiar |
| Sea (SE) | Under consideration | Core business weakening, innovator, not profitable | |
| Activision Blizzard (ATVI) | Top Pick | High conviction that MS acquisition offer will go through | |
| Palantir (PLTR) | Watching | Amazing tech, highly dilutive, unprofitable, opaque | |
| Meta (META) | Watching | Strong leadership and userbase, undergoing big change | |
| Apple (AAPL) | Watching | Strong brand, loyal userbase, risk of disruption | |
| Mercado Libre (MELI) | Watching | Great execution, growing market, too expensive | |
| Squarespace (SQSP) | Watching | Familiar, too concentrated, too expensive | |
| Shopify (SHOP) | Watching | Innovator, well positioned, unprofitable | |
| Xiaomi (1810) | Watching | Fast innovator, China risk, previously owned | |
| Nvidia (NVDA) | Watching | Strong brand and leadership, too expensive, previously owned | |
| Finance | Coinbase (COIN) | Under consideration | Strong brand and leadership, unprofitable, previously owned |
| BlackRock (BLK) | Under consideration | Strong execution, exposed to the economy, attractive dividend | |
| Whitehorse Finance (WHF) | Watching | Attractive dividend, strong execution, high risk | |
| Sofi Technologies (SOFI) | Watching | Strong leadership, innovator, unprofitable | |
| JP Morgan Chase (JP) | Watching | Stable giant, overlapping industry with holding | |
| Manulife Financial (MFC) | Watching | Stable giant, attractive dividend, limited familiarity | |
| Real Estate | VICI Properties (VICI) | Top Pick | Strong leadership and execution, attractive dividend, too concentrated |
| Digital Realty (DLR) | Watching | Good positioning, attractive dividend, limited familiarity |
Disclaimer: I am not a financial advisor, the opinions expressed in this article are entirely my own – always invest at your own risk.
