May 2022 - Downwards and onwards!
May has come and gone and so it is time for another entry in my investment journal. It has been quite an eventful month, although I have been busy with exams. The markets are still rough and both my portfolios continue to be in the red for the year. Unity (U) has taken a beating and suddenly Alphabet (GOOGL), the parent company of Google has found a place in my portfolio quicker than anticipated. Let us have a look!
Changes to my portfolio this month
Early in the month, I poured my last savings into Unity just a day before the release of their latest earnings report, which resulted in the largest crash of one of my holdings I have ever experienced. This event will be the theme of this month's investment journal. But as my moves suggest I have not lost conviction in this company and have actually managed to continue buying, despite having depleted my savings. How you may ask? I managed to move my pension from a managed fund into my private brokerage account sometime in the middle of May, giving me the opportunity to take advantage of the situation and at the same time welcome Alphabet - The number one position on my Watch List for some time now into my Growth portfolio.
Growth Portfolio
Overview
Unlabeled on the chart from left to right: Alphabet (1.5%), Xiaomi (1%) & Coinbase (0.1%)
Moves
On the 9th, a day prior to earnings, I increased my position in Unity slightly at a price of $53.3 per share, bringing my average to $89.25.
Three days later on the 12th, I picked up even more shares of Unity at a price of just $32.1 as a result of the stock tanking following earnings - lowering my average further to a current $78.98.
On the 20th I added Alphabet to my Growth portfolio at an average price of $2120.
Performance
My Growth portfolio continues to bleed dropping 11.29% since April, even trailing the market quite significantly.
Dividend Portfolio
Overview
Unlabeled on the Chart: Orion Office REIT (0.3%).
Moves
A small automatic buy order of the Danish Invest Denmark Index (DKIDKIX) ETF went through on the 9th - Which I aim to continue doing every month this year.
Performance
My Dividend portfolio holds strong, letting go of only 0.8% this month, slightly better than the market.
Dividend overview
| Name (Ticker) | Received | Amount (USD) |
| Realty Income (O) | May 16th | $14.01 |
| AbbVie (ABBV) | May 17th | $47.81 |
| Starbucks (SBUX) | May 30th | $9.81 |
| Comparison YoY | $112.05 (May 2021) | $71.63 (-$40.42) |
Dividends received before taxes. Comparison to the same month a year prior.
Commentary & Review
As mentioned, the main event of May for me has been Unity's earnings report and the more than 30% drop this stock experienced at market opening the next day. Despite growing revenue by 36% and reporting their expectation to reach profitability in Q4 of this very year, one particular thing made investors worry following earnings. Unity Monetization, which gives game developers in-game advertising and purchasing tools, has unfortunately been fed some bad data from one of the company's largest clients. This error in the algorithm resulted in their customers experiencing lower revenues and unfortunately was not caught until late in the quarter. The service now has to be rebuilt, resulting in an expense of an estimated $110 million over the next 2-3 quarters. For this reason, guidance was lowered from 30% to just 6% which made investors flee in mass.
Unity's stock price has dropped 34% over the last 30 days, at its lowest marking an 85% loss from its all-time highs. Fortunately, I am down less than half of that myself.
But here is the thing: The problem is identified, contained, and being addressed. Its impact is seemingly limited to this year alone, meaning no change to the long-term case. The company's leadership has promised to do more than just fix the issue and to rebuild stronger - This is an opportunity for the company to prove its quality. I acknowledge the short-term risk but at the same time, do I recognize the sell-off as a massive overreaction? The stock has taken a beating, just like any other in the software/technology space over the last few months, and under normal circumstances could I easily imagine this earnings report resulting in the stock jumping Simply ignoring all the other incredibly positive things shared makes no sense. For example, has it never been in the cards before for the company to reach profitability as soon as 2022. That is remarkable on its own. For this reason, I added some shares of Unity to my pension just a few days after, and since then the has stock crawled back up again by nearly 15%.
Expecting the view of the stock to change once they have overcome this challenge and particularly once they turn profitable I plan to do everything in my power to continue adding to this position for at least the rest of the year. As mentioned in March I perceive many of the stocks I follow to now trade at fair levels. But the risk/reward ratio of Unity is now simply too great for me to still consider adding to Coinbase (COIN) and Xiaomi (HK1810) right now as well. Hopefully, I may come around to it later in the year anyway but with the rest of the funds of my pension, I needed to buy a more proven asset still. I considered adding to my position in Taiwan Semiconductor Manufacturing Company (TSM) but instead, I opted for the opportunity of finally buying into Alphabet. Alphabet should in truth have been part of my portfolio for a long time, all things considered, but as a University student, I rarely have the chance to drop more than $2000 at once to start a new position. Due to my new pension funds, I finally had the chance to do so and as the stock will split in 20 next month, I will now also have the opportunity to slowly increase this position going forward.
Dividends
May became a month of two firsts for me, in regards to my dividend income. Starbucks (SBUX) has joined the list with its first payout landing this month and while still small, I expect this payout to increase significantly year-over-year as one of the main reasons for buying in is the growing dividend. It may also increase for the simple reason of me increasing my share count in the near future. Another first is that we can see from my dividend table that May of this year actually compared negatively to May of last year, in regards to my dividend income. The simple explanation for this is of course my exit of AT&T (T) which used to be the largest contributor to this type of income stream with its then yield of more than 7%. But I would much rather hold shares in a growing operation like Starbucks than in a company where its share value drops at the same or even faster pace than it is able to reward its investors.
Research & Goals
I have been occupied by exams this month and even pushing this update a little bit to hand in the last of my deliverables. For this reason, I have not spent too much time diving deep into things. However, I have to share my assessment of Broadcom's (AVGO) offering to buy VMware (VMW) in the second-largest corporate deal of the year at $61 billion. I had a few discussions with other investors on this topic as the news broke; Most of those I talked to seem negative or even confused over this move. Now, I cannot quite tell yet if VMware is worth paying a near 50% premium for and taking on new debt, but I am not surprised by the move being made. Broadcom's management has been committed to not only diversifying further into software revenue since the merger with Avago but generally has also been on a spree of acquisitions. It is not too long ago they attempted to take over Qualcomm (QCOM) in a similar deal, which was then blocked by American authorities.
I am sure Qualcomm, as another chip designer, seems like a much more obvious takeover by Broadcom than a seller of virtualized software. But VMware can bring interesting new opportunities for deep integration between software and hardware - both in terms of performance and utilization, but maybe more importantly when it comes to security. VMware makes a ton of revenue from enterprise solutions - a field where cyber security has lately become a top priority. This ties well into Broadcom's existing software solutions and overtaking a software operation of this size could be what is needed for Broadcom to finally be seriously perceived as more than just a chip designer. Overall I am positive about this news and hope to see it go through - although I also hope to see much uncertainty wiped away as we get closer to the deal potentially closing.
Watch List
Growth Portfolio
| Name (Ticker) | Conviction (Rank) |
| Embracer (EMBRAC B) | 1 ↑ |
| Sea (SE) | 2 ↑ |
| Shopify (SHOP) | 3 ↓ |
| Meta (META) | 4 ↑ |
| MercadoLibre | 5 (New) |
| Palantir (PLTR) | Contender |
Note that many of these may already trade within desirable price ranges for me but may overlap with current holdings with higher conviction or are simply on hold due to a lack of funds.
Dividend Portfolio
| Name (Ticker) | Conviction (Rank) |
| JP Morgan (JPM) | 1 --- |
| Costco (COST) | 2 --- |
| Bank of Nova Scotia (BNS) | 3 --- |
| Digital Realty (DLR) | 4 --- |
| Lockheed Martin (LMT) | 5 --- |
| Corning (GLW) | Contender |
Note that many of these may already trade within desirable price ranges for me but may overlap with current holdings with higher conviction or are simply on hold due to a lack of funds.
As the long-time king of my Growth Portfolio Watch List, Alphabet, has now moved into my portfolio, Shopify (SHOP) was expected to take its place. But despite the stock having shredded more than 70% of its value this year, I have taken a closer look and noticed that it is still weirdly expensive, all things considered. I still really like the company and am keeping it on the list, but may still be too early for me to seriously consider adding this company to the ranks. At the same time, Embracer (EMBRAC B) has once again impressed me with its ability to find unique value in the market. Embracer announced in early may their acquisition of Crystal Dynamics, Eidos, and Square Enix Montréal. These studios house IPs of beloved franchises like Tomb Raider, Deus Ex, Theif, and many more - somehow valued at a mere $300 million. Despite the company being far from established and unprofitable I know that one day I have to be part of this journey. Their leadership and I are seemingly entirely aligned on how to drive a gaming business and I believe incredible things are to come from them if they manage to keep up.
These three franchises are prime examples of great content struggling to deliver acceptable numbers due to mismanagement. Given free creative reigns, like Embracer is known for, I believe all these franchises are worth much more than they are today.
MercadoLibre (MELI) has also joined the list as a potential alternative to Sea (SE). The two businesses are in many ways alike, each with a stronghold in different geographics. MercadoLibre is trading at a massive valuation, but I keep seeing impressive growth and execution from them. I have never even considered a company based in South America before, but see this as one of the more appealing things about it. Despite its similarities to Sea (both being E-commerce platforms and growing fintech businesses), they are a little less rooted in the gaming industry than the other, which may also be a benefit to me in terms of diversification - particularly as I keep increasing my position in Unity and eventually may own Embracer as well. Finally, a new contender can be found on the Dividend Portfolio Watch List, Corning (GLW) replacing Whitehorse Finance (WHF). Corning is a company I know well in terms of its products, providing just about every glass surface on any smartphone in the market, but very little in terms of its operations. Whitehorse is still interesting to me but widely disconnected from the overall strategy of this portfolio.
Goals
Short term I wish to continue to increase my position in Unity - potentially Coinbase and Xiaomi as well.
For the year 2022, I prioritize buying growth over dividend stocks.
I have no plans to open new positions in my Growth Portfolio and consider the purchase of Alphabet in my pension to be a unique incident.
I do not plan on selling out of any more positions this year.
In my 2021 year in review, I stated that I aim for a 35% return in 2022. I continue to strive toward this goal. Currently, I am down 21.96%.
Over the long term, my goal is to slowly shift towards more stable positions and dividends on my journey towards financial freedom.
Disclaimer: I am not a financial advisor, the opinions expressed in this article are entirely my own – always invest at your own risk.
