2021 Q1 Portfolio Review: Wake Up Calls, Greed & Volatility

Q1 2021 Portfolio Review

(Bonus points for you if you can guess what stock’s chart is in image above)

Alright, I decided to get a little more personal today.

Today, I’ll be covering how my investments did in the first quarter of this year, some highlights, not so glamorous investment choices and also probably my views on how the market might look in the next few months to the rest of the year.

Before we go any further, all views and stocks mentioned in this article are not financial advice and should not be construed as such. They are not recommendations to buy or sell. Please do your own due diligence before making any financial decisions.

Portfolio Returns

If you’ve been in the market this year, I’m sure you at least felt some of the volatility that rocked the US markets, especially in high-flying growth stocks and ETFs. In a decline which followed closely to the timeline of the Covid-19 crash last year, we saw the Nasdaq-100 falling just over 10% and to trade sideways for about 3 weeks after.

NDX YTD
Nasdaq-100 Dip

But the bulk of the damage was done to what most investors term as “Growth Stocks”. These stocks had revenues growing at 40%, 50% and even some at 100% a year and had seen their stock price soar tremendously over the last year. Many of these names are well-known to most investors, think: Tesla, Roku, Square, Fastly. 

In fact, the arguable poster child of this ‘class’ of stocks would most aptly be Ark Invest’s funds. In the sharp decline, we saw ARKK fall almost 30% from its peak in just 3 weeks.

ARKK YTD
ARKK’s Dip

Well, what caused this decline?

The decline has largely been attributed to the rising bond yields in US Treasuries, specifically the 10Y treasuries. The US 10Y Treasury Yields have been long associated with the interest rates. With the rise in 10Y yields, investors began to fear that interest rate hikes may be brought forward from their initial 2023 timeline as promised by the Fed. Higher interest rates generally make it harder for companies to borrow as much money to fund their growth, which tends to hit high growth stocks the most as many of them rely on some form of debt financing to grow their operations at these breakneck speeds.

Under most normal circumstances, US 10Y Treasury Yields and the stock market aren’t very closely linked. However, US 10Y Treasury Yields rose 46% from 1.208% to 1.774% in just 6 weeks, sending jitters through the stock market.

The rise seems to have topped out at the moment and has retraced back to lower levels, allowing stocks to rally again in the previous week.

It is also worth noting that through it all, the Dow Jones Industrial Average and the S&P 500 both hit all-time-highs as the Nasdaq and growth names were being crushed. This highlights the strength of proper diversification in a portfolio.

S&P 500 YTD
S&P 500 YTD Performance
DJIA YTD
DJIA YTD Performance

In the midst of all of these swings, my portfolio, which is mainly targeted at high growth, has seen some crazy swings. From peak to trough, my portfolio fell just more than 30%. Fortunately, with last week’s rally, we’ve seen some recovery with almost 13% of its value returning, hooray! This brings my current YTD performance to, drumroll please…just over 6%.

Portfolio YTD Performance Review
IBKR’s lovely performance graph

Nothing too fantastic honestly, but as famous fund manager, Terry Smith once said, “Two months is a ludicrously short period to [measure financial performance]” when discussing the performance of his fund. Likewise, I do think that one should not be overly celebratory or overly demoralised by a quarter of poor performance.

Good Trades

An eventful quarter it has been, while there have been plenty of downs,  good trades were also made.

The best decision I probably made in this period was probably finally getting down to investing in cryptocurrencies, specifically Bitcoin and Ethereum. I had always dragged my feet when it came to crypto, due to the hassle of setting up an additional broker and monitoring a whole nother set of investments. Pretty lame reason but honestly, I’m sure we all remember how long we took before we started investing HAHAH. I bought in 2 batches, once after Elon Musk announced Tesla’s Bitcoin purchase and once again when it dipped again not long after. These have been some of my best performing investments for the year.

BTC ETH YTD
BTC & ETH YTD Performance

Other great buys included Digital Turbine (NASDAQ: APPS), a small mobile-advertising firm, as well as the parent company of our beloved Tiger Brokers, UP Fintech Holdings (NASDAQ: TIGR),

Bad Trades

Good and the bad, Yin to the Yang.

My worst trade this quarter was probably an options trade. On the day Elon Musk announced Tesla’s purchase of Bitcoin, I was holding 200 shares of Riot Blockchain Inc. (NASDAQ: RIOT). Being greedy and expecting the Bitcoin price to correct back downwards, I sold a covered call option on my shares, expecting the price to stay under it by the end of the week. Unfortunately for me, RIOT surged more than 100% after that, resulting in hefty lost gains.

Market Outlook

In my opinion, the worst is behind us for this dip (let’s hope this ages like fine wine and not like milk). This is amidst the diminishing impact of the 10Y yields on the stock market despite inching to new highs just 2 Fridays ago. As such, I would expect us to slowly crawl back to all-time-highs over the next few months or so. I don’t think we will see a sharp rise back up, which I think is a good thing for the markets as we give the market time to grow into their valuations.

From a technical perspective, things are also looking good with a strong breakout on the daily chart of the Nasdaq-100, after trading in a range for a few weeks. The gap up is a bullish signal and we can look to see if it holds above the trendline for further confirmation of the pattern.

NDX Breakout Pattern
Breakout Pattern on the NDX Daily Chart

That said, I do think that not all stocks will return to their all-time-highs. Stocks that soared because of Covid-19 sentiments relating to SaaS/WFH/Cloud stocks but didn’t have the substance to back the rise will likely see themselves trading lower for a while or even forever. Alteryx (NYSE:AYX) is one example which soared due to Covid-19 but its earnings and performance couldn’t live up to the investors’ expectations.

AYX YTD Performance
Alteryx fails to live up to expectations

Moving forward, I think we can expect more volatility to come our way. Stock performance will definitely not be as uniform (or as easy) as 2020 where everything basically went up. Stock pickers will hence, have to be more discerning in their picks or otherwise risk getting burnt.

While a 3-month timeframe isn’t effective to gauge performance, it is useful to do a review to understand what you could’ve done better in terms of your decisions and strategy and whether you managed to stick to it through a turbulent period.

Invest safe, good luck and see you at the next quarterly update! Cheers 🥂 

Cheers

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