Investing in 2020
Investing in 2020 has been out of the ordinary. It has been my most challenging year so far, but also the most rewarding.
The most important lesson from this year has been the value of writing a decision-journal. For every decision I have made, I have tried to explain the reasoning in a short note. Then, as things have unfolded, I have added to the initial reasoning with new facts or better understanding. But most important, by writing down my reasoning, I have become aware of where I was wrong, right, or right on the wrong premises.
The main event in 2020 was the Corona-virus. At the beginning of the year, I believed in an underpricing of many cyclical stocks and had heavy exposure to oil and shipping. As the Coronavirus resulted in lockdowns and demand destruction, the cyclical stocks dropped between 40-60%. Even in isolation this is a big loss, but the toughest part was that all other assets also crashed at the same time. During a three-day carnage where the markets declined 5-10% each day, I wrote that it felt exponentially tougher each day (although the percentage loss was the same, and the actual loss became smaller). At its worst, my main portfolios were down -44% and -32%.
At the beginning of the crash, I had no clue what to do. I spent a lot of time reading and trying to understand what was going on in the world and in the markets.
I have previously read about the psychological challenge of selling stocks with a loss, but this was my most challenging encounter with it. The reason for buying the stocks I owned was based on a strong conviction, and instead of re-assessing this initial belief when things changed, it was much more comfortable to use new information to update the initial belief so that it remained right. A good example is shipping where the narrative shifted from IMO2020 to oil-contango. It made a lot of sense, and I wrote about it here. Eventually, however, I managed to thoroughly re-assess my initial beliefs and started to restructure my portfolio. This meant getting rid of stocks where I had big losses and starting to build new positions. (By building positions I gradually read and invest more into a stock, until it becomes a big position)
My first new position was Snapchat, which gradually grew into a big position. I have written about it here. In tech, I have also followed Kahoot and their aim to build the leading learning platform. The potential upside always seemed huge, but as I struggled to understand the downside, it remained a small position for a long time. This changed with the entrance of Softbank. This was a strong endorsement from one of the best tech investors in the world. What changed my mind, however, was their willingness to buy shares from other large sellers effectively setting a floor in the stock price. This turned Kahoot into a big position.
I have been investing in Aker for a long time, and I have continually added to this position. Aker has traditionally had high exposure to the oil and gas industry, but during the crisis, they have diversified their exposure into new and growing trends: Green change with Aker Horizons, digitalization with Cognite, and health with Aker Biomarine. I highly recommend reading “Letter from the CEO” in their Q2 and Q3 reports from this year explaining this transformation.
Finally, Bitcoin. I have been interested in Bitcoin since the beginning of 2017. Back then I was intrigued by the volatility but ended up deep-diving into the technical and monetary concepts. This resulted in writing articles for a webpage (can be found here). After this, I attended extra courses in information-security and blockchain-technology at my university. I have also been highly interested in the concept of money and debt, and in my master thesis, I will combine control system theory with macroeconomics. I remain intrigued, and from an investment perspective, I believe the price can appreciate 10-20x this cycle.
These are the only stocks/assets I ended the year with. During the year, however, I was exposed to several other interesting stocks. Most notable here is Tesla and the renewable spin-offs from Aker Solutions. They both could have grown into big positions, but as their price increased a lot, I found it hard to understand the pricing and decided to sell.
In the end, the portfolios ended up 75% and 105%. As these numbers are much higher than one should expect, they are encouraging, but also need to be approached with humility.
Going into 2021 I will take some profit and start building new and small positions. Hopefully, some of them will grow big. I also want to share more of my investing process and thoughts, and I am always eager to hear from you as well.
Erlend.