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Revolution Investing: I’m selling Square and Zoom — their best days are behind them

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I must caution you that you cannot live in the past. The 1971-72 season is now history and we must look toward the future. The past cannot change what is to come. The work that you do each and every day is the only true way to improve and prepare yourself for what is to come. You cannot change the past and you can influence the future only by what you do today. (John Wooden, UCLA Bruins basketball coach, 1972)

I don’t know what made me pull John Wooden’s autobiography off my shelf last night at least 30 years after reading the book in high school when I was obsessed with becoming a Division 1 basketball player.

And it was weird when I flipped to the 27th chapter and saw the above quote taken from a letter that Wooden wrote to his team in 1972 following a season in which they went 30-0. I had just been passionately explaining to my wife why I am still feeling so compelled to reset my brain, my analysis … and even my life.

Last week’s scare with emergency surgery on my 6-year-old daughter’s one good eye shook me up more than I want to admit. I had a rough time getting back into work after having taken off a week when we learned about Amaris’s diagnosis last Monday. It also made me realize that my Great Reset isn’t over. In addition to making changes at my office and in the hedge fund positioning, I realized I need to make improvements in my personal life. But back to the hedge fund …

Looking to the future

Over the last 15 to 20 years, I have had some wildly successful stock picks. Those of you that have been with me for a while have heard me mention uying and holding Apple Inc.
AAPL,
-1.48%

from 25 cents a share, owning Google (now Alphabet Inc.
GOOG,
-0.47%

GOOGL,
-0.56%

) since the IPO, correctly recognizing the potential of Facebook Inc.
FB,
-0.75%

in the $20s near all-time lows and you have probably listened to me tell you about how I saw the potential in bitcoin
BTCUSD,
+9.87%

when I started accepting it as a payment back in 2013 around $100.

These are things to be proud of when you do what I do for a living. And I guess it is all right for us to celebrate our wins, but we cannot sit around resting on our laurels if we want to be the best, if we want to go undefeated again, if we want to dominate the Wall Street Leagues.

I am no longer going to rest on my laurels and use prior victories to justify what I am doing today, tomorrow or anytime in the future. I have heard and even used that phrase before, but what does it really mean to rest on one’s laurels? Merriam-Webster defines the idiom as, to be satisfied with past success and do nothing to achieve further success.” 

The phrase traces its roots to ancient Greece where laurel wreaths were a symbol of victory and status. Although the “doing nothing to achieve further success” part of the definition doesn’t apply to me, as part of the reflection I am doing during the Great Reset, the question I am asking myself is: “Am I doing enough to be truly great going forward?”

Cleansing process

So as part of the cleansing process, I have continued to go through the portfolio and eliminated reasons such as “I bought it at the lows” or “It has been a huge winner for us” as justification for continuing to own stocks that I really do not want to own anymore.

So here is a major trade alert as I continue to reset and reinvent. These are the stocks that I am selling, even after making a lot of profit, because, as Wooden said, I can only influence the future by what I am doing today.

I reserve the right, as always, to revisit each and every one of these names.

Square

I am in Square Inc.
SQ,
-2.39%

at about $55 a share and have to admit that part of the reason I have continued to hold it is because I have such a huge gain in this position. That is not a good enough reason to stay with a stock. That is one big reason why many hedge-fund managers struggle to repeat early successes. Square’s gross margin isn’t that good at 29%. Revenue growth is expected to slow to less than 15% next year. It has been a great run but it is time to let go of Square.

Sony

It has been almost seven years since we bought our first tranche of Sony Group Corp.
SONY,
-0.54%

at $18. If I was looking to make my first purchase in Sony today, I would be looking at a company with gross margins less than 30% that is expected to grow sales at a pace of less than 10% this year and next year, with earnings per share that are forecasted to decrease about 5% next year, trading at a high valuation. As much as I hate to let it go, I am selling it and moving on.

Zoom Video Communications

Even in a post-coronavirus crisis world, the workplace has changed and the future will be more of a hybrid model, with more working remotely. But I have a hard time seeing how Zoom Video Communications Inc.
ZM,
-2.56%

will be able to justify its current $73 billion valuation with the increase in competition that I mentioned in the most recent Latest Positions. It was a great run over the last 14 months but I am letting go of ZM.

Virgin Galactic

This one really stuck out to me — I was trying hard to find a reason for Virgin Galactic Holdings Inc.
SPCE,
+6.36%

to remain in the portfolio. I couldn’t find one. On the other hand, the reasons to sell are plenty, with constant insider-selling, failed test flights, no revenue and just getting left behind in the race to space. I really believe in the potential of the Space Revolution and this one overstayed its welcome in the portfolio because of that. We rose this one up from $10 to over $60, where I repeatedly suggested taking profits and wished that the company had done a secondary to raise more money. They didn’t. The stock and the company’s future have probably gone from a virtuous cycle to a vicious one. 

I leave you with a few more quotes from John Wooden: Talent is God given. Be humble. Fame is man-given. Be grateful. Conceit is self-given. Be careful. Never mistake activity for achievement. Ability may get you to the top, but it takes character to keep you there. Success is peace of mind which is a direct result of self-satisfaction in knowing you did your best to become the best you are capable of becoming.

(This article was produced with assistance from Cory Greak and Piper Adamian.)

Cody Willard is a columnist for MarketWatch and editor of the Revolution Investing newsletter. Willard or his investment firm may own, or plan to own, securities mentioned in this column. 

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