The COVID-19 Economy
My portfolio strategy for a 2022 recovery bet
Please note: I don't give investment advice, but I find writing about my own strategies is helpful for decision-making and ideation. It's important to note that there are a slew of reasons why this portfolio strategy is not right for you.
A close friend once told me that if I want to share observations on geopolitics and economic events, then I should also try to clearly state how to make investments or bets based on those observations.
Last week, I wrote how I believe the economic recovery likely won't begin until later in 2020 and won't actually bring us back to 2019 levels until the end of 2021. So far, Federal Reserve Chair Jay Powell seems to agree with me.
With my friend's advice in mind, there are a few specific observations I'm making that I want to turn into concrete investment decisions:
- The recovery in entertainment and leisure will begin taking place near the end of 2020, and we'll see a recovery in demand by 2022.
- We'll continue seeing a shift to digital technologies and products as a result of COVID-19, and companies focused on digital transformations (or providing consumers with digital experiences) will do well.
- Companies based in Asia will do particularly well due to the combination of aggressive COVID-19 responses, earlier recovery for their economies, and focus on digital infrastructure.
If the above is true1, then...
- Leisure and entertainment companies that have suffered financially due to COVID-19 will recover by 2022. Call options for 2022 could be a good and aggressive bet. This could include companies like Disney, Netflix, and others.
- Asian companies like Alibaba or Kingsoft Cloud will likely do well too, especially due to their combined focus on digital consumer experience and digital transformation. Other companies in this bucket could include JD.com, SEA Group, and others.
- As will digital work and transformation companies based in the US, such as Salesforce, Zoom, Microsoft, and so on.
Of course, you still need to find companies that have great management teams, have good revenue or product momentum, and meet fundamental requirements.
With the above in mind, here’s is my 2-year portfolio to operationalize this specific set of expectations. I believe this will either 5x itself in the coming two years, or I might lose everything2. See the footnotes for when I actually made these purchases and what the asset breakdown is3.
- Kingsoft Cloud. Buy the actual equities, due to the recent IPO. Th
- Alibaba. Call options for 21 January 2022, with the expectation the stock price will increase 30% or more.
- Carnival Cruise Lines. Call options for 21 January 2022, with the expectation the stock price will recover.
- Disney. Call options for 17 June 2022, with the expectation the stock price will recover.
- Salesforce. Call options for 21 January 2022, with the expectation the stock price will increase 30% or more.
These investments will do well if (a) my view on a 2022 recovery is correct, (b) the recovery positively impacts the types of companies I'm focusing on, and (c) that the specific companies I'm selecting will do well. There are many unknowns, but also a large upside.
I'd love to hear what your strategies are or discuss the above. I'm also happy to provide additional points on each of the companies above, and why I feel strongly about them. Feel free to reach out.
- The goal of this post isn't to debate whether the above will happen, but rather assuming it does happen, then what bets to make?
- A key aspect of my investment playbook is to make bets where the downside is limited but aggressive (i.e., lose everything but don't generate debt), and the upside is 5x, 10x, or more.
- Here’s the breakdown of the portfolio, with all values in USD, which I entered on 14 May 2020. The percentage amount shows how much this represents of the entire portfolio.
- Kingsoft Cloud at $22.67 per share. (66.7%) Note that while this represents the majority of the portfolio, it’s also likely to be significantly less volatile than call options expiring in 2022.
- Alibaba. Call option 21 January 2022 call at $260.00, purchased for $16.85/share. (12.7%)
- Disney. Call option 17 June 2022 call at $135.00, purchased for $10.00/share. (10.1%)
- Carnival Cruise Lines. Call option 21 January 2022 call at $20.00, purchased for $3.05/share. (3.1%)
- Salesforce. Call option 21 January 2022 call at $250.00, purchased for $9.70/share. (7.3%)