October is the best! The weather is perfect. All kinds of sports leagues are in season. And mosquitos are dying off (bye bye little monsters. You guys suck! In more ways than one!)
Alas, October is over. But this year, there was a bonus: it was the first month of the Love Portfolio contest, and we started tracking the Top Ten Love Portfolio (TTLP). So, I get to see my readers’ Love Companies in action. It’s like a reality talent show, but with live stock numbers.
I love it!
Let’s look at some noticeable movers/shakers in the TTLP (Tesla, Spotify, Microsoft), plus a couple of the Love Companies from you guys that are not on the TTLP list (Dutch Bros, Kiwa).
Lastly, I will answer a couple of rather loaded questions from the readers.
Below is the Top Love Portfolio, compared to the S&P 500.
Overall, the TTLP was up 12.7%, while the S&P 500 was 6.9% at the same period. So the market had a good month and TTLP still kicked its butt. But what does this mean in the grand scheme of things? Not much! For Love Investors, we need to hold on to the stocks of our love for as long as we love them. It could be years or decades. The short-term fluctuations of the market and individual stock prices are meaningless. They might be up or down 10%. But fear not! Love always prevails in the long term.
That said, it doesn’t mean it’s not fun to look at what these companies are doing and why their stocks are moving. So let’s take a peek:
Tesla: +43.7%. Tesla stock went up due to their new earnings report showing increased profitability, as well as the news that Hertz will buy 100,000 Model 3s (I already know where to rent a car next time I travel to speak.)
Tesla stock has had a mind-blowing run for the past five years (+2,823.1 %). The company went from a little cute novelty car company to #5 on the S&P 500 list by market cap. It’s value is now at $1.1 trillion. The last time this type of explosion happened, Japan surrendered.
Now, you can argue for many reasons: Elon Musk is a ruthless visionary and a fantastic salesman. The company is leading the electric car revolution. And governments have put in incentives and measures to subsidize the industry to lessen our reliance on fossil fuels. But the most important reason? Tesla owners LOVE their cars.
In California, where I live, Tesla is like Roy Kent from Ted Lasso. It’s here, it’s there, it’s every-f**king-where! If I were to drive a car on the highway blindfolded, there is a good chance I would hit a Tesla first. And the cop who would subsequently arrest me probably owns a Tesla too. People just love it.
Passionate love by a lot of people = stock performance. It’s that simple.
Now let me tell you my biggest regret in life other than not having a daughter: I don’t own a Tesla, and I haven’t held Tesla stock in my personal Love Portfolio. Why? I’m cheap! I see cars as transportation tools, not status symbols. But as a Love Investor, if I don’t own the product, I can’t love the company, and I won’t buy its stock. It’s a principle/dogma that made me millions, but also cost me hundreds of thousands in the case of Tesla.
Lesson: Don’t be cheap. If you love something and can afford it, buy it, along with its stock. It will pay itself off plus plenty more with the stock gain.
Also, Elon Musk’s personal net worth is at $300B. I am old enough to remember that in 1999, Bill Gates became the richest person in the world with $30B, and people were losing their minds. So now Musk is worth ten 1999 Bill Gates? Just how much money do you need?
In a way, these folks are the real Love Investors, because they own and hold an astronomical amount of stocks of the companies they love (and control). I bet they are reading this blog now (send me a Model X, Elon!)
Now, when Bill Gates became rich, he started philanthropy to tackle education and malaria.
When Musk became rich, he wanted to land on Mars alive.
They all want to leave a legacy somehow.
What would I do with $300B? Easy. I would buy up all the mosquito zappers companies in the world and make zappers nonstop. I will eventually deploy 10 billion of these machines around the globe. Let’s extinguish these bloodsucking jerks. Then, people will build statues for me around the world.
Now, tell me in the comments what you would do with $300B.
Spotify: +28.4%: unlike with Tesla, I do own Spotify in my Love Portfolio. However, I don’t even use their app. The only reason I own Spotify is that they bought The Ringer and Gimlet Media, two of my favorite podcast companies. I listen to tons of their shows.
That said, I didn’t make a lot of money with Spotify stock. Why? Because I tried to time the market, which is one of the seven deadly sins of a Love Investor.
When Spotify bought Gimlet Media in Feb 2019, I was like, “huh… interesting. Can you do that? Why is a music app buying a podcast maker?” One year later, they bought The Ringer, the company founded by Bill Simmons, my favorite sports podcaster. My reaction was exactly like Leonardo DiCaprio in Django Unchained.
I wanted to buy Spotify stock then. But their stock was at $154 (with a very high market cap), and I thought it was too expensive. Maybe it will drop soon. So I waited for a pullback.
Over the next five months, the only thing that was pulling back was my spirit. Spotify went up 75% to $270. I said to myself, “shoot! I better buy it before it goes to $500!”
That’s classic market timing behavior. And just like all market timers, I got burned. Since I bought it at $270 in July 2020, it’s been hovering around it. And today (Nov 2021), it’s only at $289.
Now I am a little annoyed, but not pissed (I remember I had an English teacher teaching us the “ten levels of madness in vocabulary,” from “irritated,” to “annoyed,” to “pissed…” all the way to “enraged,” “furious,” and “wrathful.” I bet he didn’t know I would use the vocabulary to measure stock losses.)
I am annoyed at myself for not buying Spotify as soon as they bought The Ringer in February 2020 and missed out on a 75% gain. But in the long term, I am OK. As long as I still like their podcast, I plan to hold Spotify for a long, long time, and I don’t even care how the stock will do.
… but the 75% would be nice though.
Darn, now I’m approaching “pissed” just by writing this.
Lesson: don’t try to time the market. No one is good at this game. If you love a company, just buy it and hold it forever (until you don’t love it, of course), and don’t worry about the price.
Microsoft: +17.6%. Since we mentioned Bill Gates, let’s talk about the company he founded. Microsoft went up 17.6% in October. If you look at their quarterly report, they are making more money than they know what to do with. They have again become the most valuable company in the world after giving up the title to Apple in 2010, which is mindboggling.
Microsoft used to be my favorite company growing up. If you have listened to my TED talk, I mentioned Bill Gates as my childhood model and instilled my desire to become an entrepreneur. Well, I didn’t become Bill Gates, but I want to thank him for helping me with an inspired life and an awesome story.
However, in the early 2000s, Microsoft became a joke and punching bag of Wall Street, because they became a monopoly and stopped innovating. I remember at graduate school, Microsoft recruiters would visit us on campus and give us recruiting presentations. The guy said, word-by-word: “yes, we already know our products suck. Google is beating us with innovation, and Apple is killing us with design. But we are trying to do better.” I was like, “oh wow. Thank you for the notice. Let me send my resume somewhere else.”
It all changed in 2012, when their loud, sweaty, developer-loving CEO Steve Ballmer left the company and bought the Los Angeles Clippers. They hired a new CEO, Satya Nadella. That leadership change was like trading in a Ford Focus for an Audi A6. Nadella made great strategic decisions after great strategic decisions, from ditching Windows Phone, to making Office available on Android and iOS, to investing heavily in Azure (their cloud business). Their stock has done a steady climb since.
But as a Love Investor, I don’t care about great strategy as much as mesmerizing products. So what caught my attention and made Microsoft a Love Company for me was their acquisition of LinkedIn.
I love LinkedIn.
Yes, you might laugh at me for liking a corporate/boring social media company. But in my mind, LinkedIn was the sleeping dragon of social networks. It was THE ONLY thing I could use to connect with anyone in the world I wanted to in a professional setting. It’s a fantastic tool for hiring, sales, fundraising, and business intelligence. I’ve always thought they could one day become one of the most valuable companies in the world. In fact, I had owned LinkedIn stock since its IPO.
But in 2016, they were struggling as a stand-alone company. Then Microsoft swooped in and bought it for $26B. People were laughing at Microsoft for overpaying, but I knew they struck gold.
Unlike with Spotify’s purchase of The Ringer, I didn’t wait, and I bought Microsoft stocks right away.
Since then, it went up from $51 (June 2016) to $332 (Nov 2021).
If I were to give another TED talk, I would start by thanking Steve Ballmer for firing himself.
Now, let’s talk about a couple of companies that are owned by some of my readers but not in the top 10 list:
Dutch Bros: +76%.
I’ve never heard of the company. So when I saw the name and stock jump, it immediately caught my attention. “Dutch Bros?” What could it be? An underwear maker? A porn producer? I’ve got to find out.
After some googling, I’ve got it. According to Wikipedia, they are a drive-through coffee chain based in Portland, OR. They just went public in September 2021.
Interesting! I’ve been looking for a Starbucks replacement for years. I’ve got to check this out.
But after putting in “Dutch Bros” on Google Map, this is what’s showing:
I live in San Jose. Unfortunately, it’s everywhere but my area. It’s like their management is playing a practical joke on me with their location selections.
Here is the thing: playing hard-to-get often works. That’s why it’s so effective in dating. So next month, I will drive there for “Love Research” and update you in the November update.
This is the worst performing Love Company submitted by my readers. But what really surprised me was that someone has this as a Love Company in the first place! What is this thing?
After doing some website research, I saw that it looks like it’s a biotech company based in Los Angeles that’s about to go out of business.
Now watch their corporate video. It’s both frustrating and hilarious. After going through one minute of empty phrases such as “we help you improve your process,” “we create trust,” “we ensure quality,” I am at madness level 9: “enraged.”
Just what do you do, Kiwa???
No matter what they do, it’s hard to imagine a dying biotech company can be a Love Company. Maybe this person works there? Perhaps they like corporate buzzwords. Maybe they want to bet on penny stock? I don’t get it.
Lesson: unless you genuinely love and understand the company’s product and services, don’t put it in your Love Portfolio.
Lastly, before I finish, I want to answer some harsh questions/comments.
Q: Your newsletter target group is highly biased (availability bias mostly, self-serving bias, confirmation bias, and others). So I’d be interested in the results of the following experiment: Hire a proper independent market research company and ask 1,000 random (!) people about the products they love. Then attribute the companies and weight for % of their revenue (or profit). I wonder how different their (much more unbiased) list would look like. I personally would much rather invest in that list, than in the list of your followers, who may or may not understand the psychology behind their own actions.
A: This is a good thought, and a classic one with any type of market research. How do I know if the sample is big enough and is not polluted with selection bias? How many people do I need to interview to get good statistical data?
It would be great to have the budget to do a large-scale research project like that. But how much better will the results be? If you look at the top ten list, it makes total sense. If I were to guess what my readers would put in blindly, I would be right about eight to nine out of the ten companies.
Leadership author Craig Groeschel has this concept called GETMO (Good Enough To Move On.) In search of perfection, we can spend a lot of time making things marginally better, when we would have to use the time/resource on making things monumentally better somewhere else. To me, the Top Ten Love Portfolio is a GETMO.
Q: You are not quantifying risk properly….the correct word is volatility….there have been zero negative returns in any 30-year rolling period from 1926 until today…I suggest if you are so confident about your love portfolio, and you have become a millionaire doing it, then make a bet with Warren Buffett…google the Long Bet and you’ll see what I am talking about….good luck…..and you’re investing in the glory years of tech…when things change, and they will, then we’ll see how the Love Portfolio performs….
A: Aside from the epic use of ellipsis (I thought I loved ellipsis, but I’ve found my match), there is a lot to unpack here.
Quantifying risk is an interesting topic. Of course, a portfolio of 10 companies is a lot more volatile than the S&P 500, which contains 500 companies. When the market (a portfolio of 500 stocks) goes up, a ten-stock portfolio will probably go up more. And when the market goes down, the odds are the ten-stock portfolio will go down more. That’s just statistics.
That said, owning the right stock over the long term is exactly how people become rich. If you look at the ultra-wealthy, no one became that rich by only buying index funds. Instead, they all own a concentrated portfolio that has outperformed the market over a long time.
If you take the argument to the extreme: if you only own Amazon stock, you will have a lot more volatility than the market. But over the long term, you will have crushed the S&P 500. If Jeff Bezos has owned the exact amount of shares of VOO (an S&P 500 ETF) vs. AMZN over the years, he would be just another rich guy, not Jeff Bezos.
Now, we don’t know which company will be the next AMZN or GOOG. That’s why I’m not in the prediction business. And that’s the reason I invest with a Love Portfolio. The return might not be as great as a single stock, but a collection of them will provide a balance between risk and reward.
You also mentioned that “there have been zero negative returns in any 30-year rolling period from 1926 until today.” That’s precisely my point. The US stock market over the long-term is a safe wealth generator (10% annually.) It can go up and down, but over the long term, it goes up a lot more. In that case, volatility works in your favor.
My goal for the Top Ten Love Portfolio (TTLP) is to beat the market by 5% per year. They have proven in the past that they could not only do it, but crush it. Will they continue to do it in the future? That’s why we are tracking this in real-time.
Speaking of Warren Buffett, I’m glad you asked. I’ve been tracking my Love Portfolio against Berkshire Hathaway stocks since 2016.
I don’t brag much, but here are the results:
Love Investors, unite! Let’s all join the race against the Oracle of Omaha! Win or not, it’s gonna be fun!
OK, guys. If you have made it this far, you might as well give me some feedback. Do you like this update? I am trying to decide how often to write an update like this. Monthly? Quarterly? Never again?
Tell me how much you like this article with a comment with a “five-level scale of likeness:”
Love what you share with us, it’s amazing!
Love from France