July 2023 - X marks the spot
In July, Elon Musk rebranded Twitter to X and the courts made an X-ellent decision netting me a pretty sum on my arbitrage play. Tesla (TSLA) has been X-ordinarily volatile and Q2 earnings from my biggest holdings are out.
Overview
Unlabeled on the chart:
In Consumer: Starbucks (1.0%)
In Industrials/Manufacturing: 3M (0.6%)
In Technology: Alphabet (1.4%), Adobe (0.8%)
Moves
On July 11th I sold my stake in Activision Blizzard (ATVI) at an average price of $92.00 marking a return of 19.76%.
Performance
My portfolio value increased by 0.84% in the month of July, underperforming the Dow Jones World Index up around 3.6% in the same period.
Dividend overview
| Name (Ticker) | Received | Amount (USD) |
| Broadcom (AVGO) | Jul 3rd | $23.27 |
| Realty Income (O) | Jul 17th | $13.77 |
| Bank of Nova Scotia (BNS) | Jul 28th | $48.28 |
| Total | Jul 2023 | $85.32 |
I received a total of $85.32 in dividends before taxes for July 2023, down 10.12% compared to the same month last year at $94.93.
Commentary & Review
The X-traordinary Elon Musk
In early July Tesla announced Q2 vehicle deliveries, confidently beating expectations with 466.140 delivered against 448.000 expected. Given just how much Tesla makes up of my total portfolio, this gave me a nice start to the month. However, for this same reason, it ultimately ended up as a month of high volatility as earnings later in the month did not impress everyone. In good news, the first release-candidate Cybertrucks have been built at Giga Texas, production of the Dojo supercomputer has started, 4680 battery cell production has drastically improved and Energy margins are increasing rapidly. On the other hand, overall gross margins dropped below 10% for the first time in a long time, production is expected to come in slightly lower for Q3 due to ‘global factory upgrades’. For my own ambition for Tesla, however, the biggest disappointment was the lack of growth in Tesla Energy quarter over quarter. While still a massive uptick in both production and sales compared YoY, I had expected a significant jump over last quarter too. I was also disappointed in the earnings call itself, which I would describe as mostly being a waste of time and an off-topic mess led by Musk. One interesting tidbit was revealed though: Tesla is now in early talks with a ‘major vehicle OEM’ about licensing out its full-self driving software. If that ends up going through, it would indeed be massive news and hugely exciting for the company. Many people still doubt Tesla will ever come to realize its mission of a self-driving future - likely due to Musk’s over-enthusiastic annual predictions for progression. Striking a deal like this with another automaker would help regain public credibility for this aspect of this business. Having followed development extensively, I, however, remain convinced that Tesla has taken the right path in achieving this goal and that they are far ahead of anyone else in this space. Particularly in the past couple of months, progress has been astounding.
Also regarding Musk, the man has once again managed to surprise the world, with a sudden rebranding of Twitter into X, just a few days ago. This $44 billion personal acquisition of his has already been hugely controversial, and by proxy, trouble for Tesla investors like myself. From his early commentary on his plans and vision for the platform, I was initially optimistic and I must admit also that I have been impressed with how he was able to cut a bloated, inefficient operation down into a skeleton crew while maintaining stability and introducing new features at a pace never seen before. But now he has decided to cut away the brand value too - letting the adored blue bird fly out the window - and porting the domain to X.com. Musk has owned this coveted single-character web domain ever since his second business venture in Silicon Valley - a digital finance service that later turned into PayPal (PYPL). Ever since being bought out of that company, Musk has apparently had this unrealized vision of a platform in his head, made to financially reward content creators of any kind. From this perspective, the rebrand makes some sense, as Twitter will evolve from exclusively short-form text-based content - tweets - into any type of content. But confusingly, Musk also plans to turn X into a so-called “Everything App” inspired by WeChat of China. And here, I no longer follow - I do not comprehend how tweeting cannot still serve as the social aspect of such an app. Twitter, the company, may have been a failure, but the brand was not. If everything inside an Everything App is branded as X, it is sure to end up as one huge confusing mess. I still remain cautiously optimistic about his plans for the platform, although I am now more skeptical than ever. This new endeavor is likely to distract from what I do consider more important causes. Long ago, when I first learned about X, I envisioned it as the end game for Musk: Combining all his ventures in renewable energy and transportation with global internet, space travel, and digging tunnels: That vision seems a little far off now.
An X-ellent Victory in Court.
On July 11, the court delivered a favorable and definitive ruling, allowing Microsoft (MSFT) to proceed to close its acquisition of Activision Blizzard, beating the FTC. This was an outcome that I had anticipated and which you may know that I decided to bet on in May, netting me a return of nearly 20% in just two months. On the day Activision Blizzard stock immediately jumped following the news, but it was the subsequent announcement by the British regulatory entity, the CMA, to settle with Microsoft, that in the following hours pushed the price above $90. When the stock came within $3 dollars of the deal’s closing price of $95, I decided to take a profit rather than wait a few more months for the deal to officially close, from the continued complexity introduced by regulatory woes.
Once the deal finally does close, it will mark the culmination of an engaging chapter that began with the deal’s announcement back in January of last year. Throughout this period, I have dedicated time to try to understand its intricacies to assess the risk-reward ratio of taking on such a bet. I have gained valuable insight into how such deals are structured, on court proceedings and deadlines, and to some degree global regulatory decision-making. These learnings I believe, have significantly strengthened my ability to potentially identify and capitalize on future arbitrage deals, assuming take place within my sphere of expertise (technology, digital interaction). Unbeknownst to some, Buffett did in the past, grow much of his fortune this way also, studying and taking advantage of arbitrage deals. While it is nowadays, somewhat of a rare occurrence for him to do so, he did bet alongside me for this one, netting a huge gain for his fund.
A few X-tras
As briefly alluded to last month Nothing (nothing) - the private company in which I hold a stake in - released their second generation flagship product in July: The Phone (2). I am glad to see that the company is moving into more of a premium segment, given its focus on design, and by the looks of it, the change has been generally well received. It seems also that another crowd investment round may not be too far off now. Given how well this company has executed since I took a chance on them last year, and how much of a name it has already managed to make for itself in the tech community, I may be interested in increasing my stake in their operations further.
Unity (U) has shared that developers can now sign up for an early beta of some of Weta’s powerful tools inside Unity. I am deeply excited about these tools for use in RT3D and hope to see the value of this acquisition starting to show. Unity is also announcing earnings in just a few days, which will be interesting now, that both the AI hype wave and the Apple Vision Pro announcement have boosted both the stock and expectations. I have no real idea what to expect this time around, but I hope to hear about developments focused on adding long-term value.
Microsoft and Alphabet (GOOGL) announced earnings on the same day in late July. While both beat expectations, only Google went in the right direction, and the other went down. In fairness, Google did reveal more impressive numbers, but the reason for Microsoft’s rather significant drop was apparently due to Cloud growth dropping by a single percentage point. Not really worried about that one myself.
Watch List
My Watch List sorts stock by sector and notes are included for each one, describing my interest and reservations. The status indicates the likelihood of a position being added to my portfolio. ‘Watching’ means I just keep an eye on them, whereas ‘Top Pick’ means they are very likely to find their way into my portfolio at one point - ‘Under consideration' means somewhere in between, with notes offering some elaborating thoughts. Please note my Watch List is based on my own research and goals and is in no way a recommendation of what to buy.
| Sector | Name (Ticker) | Status | Notes |
|---|---|---|---|
| Healthcare | Novo Nordisk (NOVO-B) | Top Pick | Strong innovator, previously owned, familiar |
| ARK Genomic Revolution ETF (ARKG) | Under consideration | Considering as an alternative for CRSP | |
| Merck & Co (MRK) | Watching | Casual interest, limited familiarity | |
| Medtronic (MDT) | Watching | Casual interest, limited familiarity, attractive dividend | |
| Industrials/Manufacturing | A.P. Møller - Mærsk (MAERSK-B) | Watching | Lacks ambition in electrification efforts |
| Elkem (ELK) | Top Pick | Cyclical industry, but well positioned to break out | |
| Otis (OTIS) | Under consideration | Potential dividend growth play, familiar | |
| Norsk Hydro (NHY) | Watching | Casual interest, limited familiarity, attractive dividend | |
| Lockheed Martin (LMT) | Watching | Ethical concerns, too expensive | |
| Corning (CLW) | Watching | Weakening moat, rising competition, familiar | |
| Consumer | McDonalds (MCD) | Watching | Strong brand, limited optionality |
| LVMH Moët Hennessy Louis Vuitton (MOH) | Under consideration | Strong leadership, performance, too expensive | |
| Costco (COST) | Top Pick | Incredible moat, leadership, too expensive | |
| Coca-Cola (KO) | Under consideration | Strong brand, stable giant, too concentrated, familiar | |
| PepsiCo (PEP) | Under consideration | Strong brand, well diversified, familiar | |
| Hasbro (HAS) | Watching | Strong product line, shaky mangement | |
| Energy/Utilities | Ørsted (ORSTED) | Top Pick | Strong positioning, leadership, familiar |
| Waste Management (WM) | Under consideration | Stable giant in a rock solid industry, limited familiarity | |
| NextEra energy (NEE) | Watching | Strong position, too concentrated, too expensive | |
| Enphase Energy (ENPH) | Watching | Rising star, limited familiarity, too expensive | |
| Technology | Embracer (EMBRAC-B) | Under consideration | Incredible acquisitions, not profitable, familiar |
| Sea (SE) | Watching | Core business weakening, innovator, just turned profitable | |
| Palantir (PLTR) | Watching | Amazing tech, highly dilutive, unprofitable, opaque | |
| Meta (META) | Watching | Strong leadership and userbase, undergoing big change | |
| Apple (AAPL) | Watching | Strong brand, loyal userbase, risk of disruption | |
| Mercado Libre (MELI) | Watching | Great execution, growing market, too expensive | |
| Squarespace (SQSP) | Watching | Familiar, too concentrated, too expensive | |
| Shopify (SHOP) | Watching | Innovator, well positioned, unprofitable | |
| Xiaomi (1810) | Watching | Fast innovator, China risk, previously owned | |
| Nvidia (NVDA) | Watching | Strong brand and leadership, too expensive, previously owned | |
| Finance | Coinbase (COIN) | Under consideration | Strong brand and leadership, unprofitable, previously owned |
| BlackRock (BLK) | Under consideration | Strong execution, exposed to the economy, attractive dividend | |
| Whitehorse Finance (WHF) | Watching | Attractive dividend, strong execution, high risk | |
| SoFi Technologies (SOFI) | Watching | Strong leadership, innovator, unprofitable | |
| NuBank (NU) | Watching | Great execution, interesting market opportunity | |
| JP Morgan Chase (JP) | Watching | Stable giant, overlapping industry with holding | |
| Manulife Financial (MFC) | Watching | Stable giant, attractive dividend, limited familiarity | |
| Real Estate | VICI Properties (VICI) | Top Pick | Strong leadership and execution, attractive dividend, too concentrated |
| Digital Realty (DLR) | Watching | Good positioning, attractive dividend, limited familiarity |
Disclaimer: I am not a financial advisor, the opinions expressed in this article are entirely my own – always invest at your own risk.
