Portfolio review 2018

Since Feb 2017, I started to build my portfolio based on the GATAFA, which stands for Google, Apple, Tencent, Alibaba, Facebook, and Amazon. I did not invest the equally weighted portfolio but it was my intention. Anyway, here is my portfolio review.

Market conditions

2017 had a nice rally. The market became a bit nervous. In Feb and March, there are two dips happen in the US market, which was a good rebalancing point. I should take advantage of this up and down volatility.

Negative news is always filled with media: trade tariff, North Korean rocket man, and interest rate hikes. But they only matter to the certain extent not too much to an individual investor. What it matter is the following.

Last week March 9, US job number and inflation were historically high and well under control. Currently, I am monitoring whether corporates are showing any signs of earning slow or higher cost due to inflation.

Should I sell?

My selling check is based on the book written by Peter Lynch

He has different selling checks based on 6 type of securities.

1. Slow grower

2. Stalwart

3. Cyclical

4. Fast grower

5. Turnaround

6. Asset play

7 out of 8 are fast grower. Valeant is the only turnaround.

So, here are the things to check whether I should sell a fast grower.

1. Earning shrinking ==> High P/E

2. End of the second phase of rapid growth?

3. Same store sales are down 3% QoQ

4. New store results are disappointing

5. Top exective leave to join a rival firm

6. Company return from a road show to promote their stock to institutional investor

7. P/E > growth rate

Alibaba

2017 Alibaba net income is lower than 2016 due to 18 billion impairment loss on Alibaba Pictures, which is a film company. Non-GAAP Net income is 20% higher than 2016. It will lower the growth rate but sale number will increase. Revenue has growth around 50% year over year (yoy).

Alibaba is growing in the following areas:

1. Core commerce (57%)

2. Cloud computing (104%)

3. Digital media and entertainment (33%)

It is accelerating for the second phase of its growth. it grows its free cash flow around 30% and held around 220.4 billion RMB. Capital expense is growing as absolute dollar site but stays in term of % of total revenue. Current P/E is similar to the growth rate.

It is not a sell yet.

Tencent

The Q4 2017 number will come out Wednesday. I will update the number next week