Q3 Portfolio Update: Reflections on +88.5% YTD
A turbulent quarter ends on a high
The market gods are really helping me this year. Despite the drawdown in Cipher, which I will get to later, the portfolio has stayed in the green every month so far this year.
I think it is important to put this year's performance into perspective. It is just 3/4 of a year. Nothing more, nothing less. My net worth has obviously benefited, whether it's a fluke or not. I spent some time thinking about why this performance is so high, and the best explanation I have is that I had a lot of turnover, and the new stocks I bought, most of them I bought close to the 52W highs. That means they had positive momentum, and that momentum was carried over into the next few months. To illustrate this point, I split my portfolio into "2023 decisions" and "2024 decisions" - my 2023 portfolio is "only" up +67%. While the imaginary 2024 portfolio is up +178% YTD.
Now, I want to emphasize that in my opinion, this is mainly due to the short or medium momentum of the stocks I bought. Time will tell if these picks work over a longer time horizon. I obviously do not expect them to work with this performance, but my ambition remains to beat the market with these picks.
While I would not consider myself a momentum investor, I do find it psychologically pleasing when the stocks you buy are on the upswing rather than making new 52-week lows every week. But then again, the turkey has a great life until Thanksgiving, so it could happen to me as well.
Portfolio update & Q3 Trades
Cipher Pharmaceuticals
Funny what a difference a quarter can make. In the last update, I briefly mentioned Cipher. At that time, it was still a cash hoarding company. The market was hoping for an acquisition. Now that acquisition has happened, and it provides Cipher with several unique assets that they can leverage to grow. The drug that they acquired and the optionality that the acquired U.S. sales force gives them.
I wrote about this here in detail:
Well, after a few interviews and weeks, the market figured out the genius of this acquisition and the stock went up to CA$18. Then Moberg issued their press release stating worse than expected results for their phase 3 trial in the States. This has no direct impact on Cipher as they have the rights for Canada, not the US. The launch and sale of the drug in Canada will be based on the approved studies from Europe. The news from Moberg puts the success of the drug in the US in serious jeopardy. After the acquisition by Cipher, there were indications that Cipher might also be interested in the US license. This fantasy has been dashed.
In addition, Cipher's management stated that their agreement with Moberg was based on a complete cure rate, and that this label would have increased marketing effectiveness. Since this claim probably cannot be made, it has been questioned whether Cipher will even pursue the drug in Canada. My comments on this are twofold. First, Craig Mull has acted rationally so far, the stock is a 10-bagger since he rejoined as CEO. My view is that if they would not pursue this opportunity, it would be because they had a better opportunity. But even without Moberg, I think the company can easily get to $40 million EBITDA by 2027. Put a 10x multiple on that, and you have a market cap of $400 million. That's still about 45% upside for the bear case scenario.
Innovation Food Holdings