Compounder Fund: Portfolio Update (January 2021) - 15 Jan 2021
Jeremy and I intend to share frequent but non-scheduled updates on how Compounder Fund’s portfolio looks like. The last time we shared an update on this was for Compounder Fund’s portfolio in mid-October 2020.
In it, I shared all 40 holdings in the fund’s portfolio. As of the date of this article, the portfolio contains the same 40 holdings (although Livongo did change to Teladoc – more on this soon), plus the addition of three new stocks.
As you know, Compounder Fund is able to accept new subscriptions once every quarter with a dealing date that falls on the first business day of each calendar quarter. In the middle of December 2020, Jeremy and I successfully closed Compounder Fund’s second subscription window since its initial offering period (which ended on 13 July 2020).
The new capital raised during the subscription window was deployed quickly in the days after the last subscription window’s dealing date of 4 January 2021. Jeremy and I invested the new capital across 19 of Compounder Fund’s existing holdings. They are (in alphabetical order): Activision Blizzard, Amazon, Chipotle Mexican Grill, Costco, DataDog, DocuSign, Facebook, Haidilao, MercadoLibre, Netflix, PayPal, Shopify, Square, Teladoc, The Trade Desk, Twilio, Veeva Systems, Wix.com, and Zoom. We also invested the new capital into three new stocks, namely, Afterpay Touch, Fiverr, and Tesla. A few quick words on the new companies in the portfolio:
- Teladoc, previously a telehealth services provider, became an existing position in Compounder Fund after it merged with Livongo on 30 October 2020 (Livongo is now a subsidiary of Teladoc). The deal saw Livongo shareholders receive cash as well as Teladoc shares; we opted to proceed with the deal and so Compounder Fund is now a shareholder of Teladoc. The combined Teladoc/Livongo entity is now a connected health company with interests in telehealth services and remote health-monitoring.
- Afterpay Touch is a BNPL (buy now, pay later) company that counts Australia and the USA as its key markets. We find the BNPL model to be much less usurious for consumers compared to traditional credit cards. Moreover, Afterpay is very popular with users, which we find to be an intriguing trait for a payments company. So, we find the growth opportunity with Afterpay to be very interesting.
- Fiverr operates an online platform that connects freelance service providers with companies and individuals who require freelance services. We think it’s providing an important platform in the freelancing economy, and the business still has significant room for long-term growth despite having grown rapidly over the past few years.
- Tesla is… well, you know Tesla. It is perhaps the most controversial company we have in Compounder Fund. For a long time, we could not get a good grasp on the economics of Tesla’s business, but we now think we have a much better handle on this. We see Tesla as much more than just an electric vehicle manufacturer and its future seems bright. The market also seems to agree wholeheartedly, given that Tesla has a blindingly high valuation. For now, the company is one of the smallest positions in the portfolio. We’re adopting the stance of “if it works, a little is all you need, if it doesn’t, a little is all you want” – this stance comes from one of the best investors I know, Thomas Engle, who recently retired from The Motley Fool.
In Compounder Fund’s Owner’s Manual, we mentioned that “if Compounder Fund receives new capital from investors, our preference when deploying the capital is to add to our winners and/or invest in new ideas.” Not all of the 19 existing holdings in Compounder Fund’s portfolio that we added capital to have seen their stock prices rise strongly after we initially invested in them. But all of them (with the exception of Haidilao) have executed brilliantly in recent times and produced wonderful results. They are winners, according to our definition. The three new stocks we invested in have also produced excellent results. Here’s how Compounder Fund’s portfolio looks like as of 12 January 2021:
We added to our position in Haidilao, despite the hotpot restaurant operator posting poor results for the first half of 2020 because of COVID-19 (the company only reports earnings once every six months). We did so after coming across a Mandarin book titled 海底捞,你学不会 that was published in 2011 (in English, the title is translated as You Can’t Copy Haidilao). The book was written from the point of view of its author, Huang Tie Ying, a professor at Beijing University, and in it Huang discusses the highly unusual way that Zhang Yong manages Haidilao. Zhang is Haidilao’s co-founder and the company’s key leader since its founding in 1994. You Can’t Copy Haidilao gave us much deeper insights on who Zhang is as a person, and what makes Haidilao tick. After reading the book, we developed even greater conviction on Haidilao’s future growth, the fuel of which is Zhang’s unique worldview. So we decided to increase the company’s allocation in Compounder Fund. In our investment thesis for Haidilao, we also shared English translations of some of our favourite passages from You Can’t Copy Haidilao.
We’re sharing all this information with the public and with the fund’s investors for two reasons. First, we believe deeply in investor education and want Compounder Fund’s return and actions to be a source for people to learn about investing. Second, we believe that this transparency will help investors of Compounder Fund develop comfort with our investing process over time, which is great; in turn, this will also free us from the time-consuming activity of dealing with questions on how we invest, and thus give us more to invest better for our investors.
And here’s an important disclaimer: None of the information or analysis presented is intended to form the basis for any offer or recommendation; they are merely our thoughts that we want to share. Holdings are subject to change at any time.
