ZM - My 5 Best Calls Over The Past 2 Years And What I've Learned

Summary

• This article looks back at 5 of my most profitable positions over the past two years: shorting Zoom and TIPs, long Philip Morris, BHP, and Luk Fook.
• Two years is shorter than my preferred performance horizon, but these were cases where I bought low and sold high.
• While I must acknowledge a fair bit of luck, I do want to reflect on what lessons I should take from these to improve my next five ideas.
• One interpretation is that many of these ideas worked well during the unusual COVID period and post-COVID inflation, and that I'll need different ideas for the next two years.

One of the most important habits I find at year end is to reflect on what I did well over the past year, versus what I did less well. Even for things I did well, it is important to reflect on how much of that was due to my skill versus being lucky or benefiting from someone else's skill or generosity. That's why I'm writing this article only on my five best calls over the past two years, and review my worst calls in another article. I did not even do this kind of reflection last year, let alone write it down, so this needs to cover both last year and this year, which I hope marks the end of a very strange three year period dominated by COVID-19.

I will review these in chronological order, sharing a snapshot of the performance since publication, and providing my comments on what I've learned and whether I'd do a similar trade again.

1. Shorting Zoom

On 25 February 2021, I shared my plans to re-initiate a short position on Zoom Video Communications ( ZM ). I had been stopped out of an earlier short position, which I unfortunately started right before the COVID-19 pandemic, but by early 2021, I decided ZM was in a bubble and there was no way the 2020 trends would continue for this company. I remembered too well how many people were wrong about business travel never returning after 9/11, and even though the impact of COVID-19 on travel lasted longer and was more global, ZM already had too much competition and too many users with "Zoom fatigue". Add to that the then-current Price/Sales multiple of 43, and it was clear to me that the only further upside was if the bubble continued to push this name up to 100x sales, otherwise, there was more downside than upside.

My trade at the time was buying the 260-180 put spread expiring 20 Jan 2023, a little less than a month from now, and I'll probably go ahead and close it now to realize the long-term gain in 2022. This trade roughly tripled the money I risked in a little less than two years, and while I could have made more with an outright put or more contracts at lower strikes, I'm pretty happy with this call.

What I learned here: there is a place for shorting wildly overvalued and overhyped companies with plenty of competition, and long-dated puts or put spreads are a limited risk way of doing that.

2. Bearish TIPS

In October 2021, I wrote a "sell" recommendation on US Treasury Inflation Protected Securities , aka TIPS, which can also be tracked with the iShares TIPS Bond ETF ( TIP ). If I had shorted TIP at that time, I would have made at least 9% (more from any rebate on my short sale / repo) while the S&P 500 has been down almost 9% over the same period. Perhaps the only way I could have improved on this call would have been to do it two months later, and with UK inflation linked bonds ( which fell 47% over the next 10 months ).

Rather than outright shorting TIPS, my recommendation at the time was simply to buy shares of companies that were able to borrow at long term fixed rates that were negative in real terms. I see the short TIPS trade as over now that real rates are positive again, but the lesson here is to remember the importance of real bond yields.

3. Philip Morris

Philip Morris International ( PM ) has long been a favorite stock of mine, and my October 2021 "buy" article was the result of " four plusses and two minuses ". I wasn't lucky or clever enough to buy more at any of the four "bottoms" since the $95 share price at that time, but the +13% return over a period when the S&P 500 is down -9% is nothing to cough at.

The main question PM leaves me thinking about is how strict I should be about companies with rocky revenue growth and negative book value. I usually prefer to buy companies with steady revenue growth and book value growth, but I still see too much money left to be tapped out of PM's brands for me to quit owning them just yet.

4. BHP

My decision to buy into BHP Group Ltd ( BHP ) last year was more of a "timely" trade based on seeing this good company trade well below what I saw as fair value. This name was down on concerns over global iron ore demand, but everyone at that time was already talking about inflation, and the best inflation hedge I know is to buy shares of companies with hard assets and good dividend yields on top. I managed to buy BHP very close to its multi-year bottom, which it recently approached again this year, but now that it's no longer as cheap as it was, I think it's time to "sell high" on this one.

5. Luk Fook

Last but not least is a name that may be relatively obscure to an American audience: the world's third largest listed jeweler Luk Fook Holdings International Limited ( LKFLF ). I wrote about this as my " top pick for an inflationary environment " for the simple reason that 2/3 of its balance sheet is in gold inventory, and on top of that it has a brand and a good business that spits out a good dividend yield. In other words, I see it as having all the benefits of gold plus the brand and the dividend. The HK-listed shares are up from HK$18 to HK$22 per share over just the past 3 weeks, likely due to China's re-opening, but that just means I'll probably just stop buying for a while, as this is a name I'd continue holding for its dividend.

Conclusion

One of the things I like about writing on SeekingAlpha is that it not only lets me record my investment thoughts over time, but also tracks the performance of individual stock and ETF calls and how they performed versus the S&P 500 since that call. While I do wish they would add additional data points, say tracking whether I was right about the next dividend hike but wrong on revenue, I'll appreciate these features for reminding me which of my ideas provide positive lessons, and which can teach me how to improve. While I expect the next two years to be very different than the last two, it seems my basic habit of buying low and selling high has been tested to work in yet another market environment.

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