a. Updated Performance vs. the S&P 500

Overall:

Year-to-Date:

Same caveat as last time. It's January 14th.

b. Portfolio Changes

It has been a busy few weeks for portfolio changes. That happens sometimes. There will be weeks where I make changes multiple times. There will be lengthy stretches where I do nothing. It ebbs and flows.

Cutting PayPal:

Before I start. I hope to own PayPal again at some point. They have a ton of good work to do before I even entertain that idea. But... I will keep tracking their earnings and other materials like I would any other holding. You'll keep getting the same reviews. I want to be ready to re-enter if I end up thinking that's the right decision.

I cut the rest of PayPal today. I want more room to add to names that I think are performing at a superior level. I was hoping to wait until after the PYPL earnings report to make the final decision, but increasingly compelling deals for other higher conviction names push me to act now.

This position has been an absolute dud for me. I will own that. I lost money on this name (average cost per share around $65) despite holding it for multiple years... while benchmarks zoomed higher. This was an extremely disappointing investment and one that I am ready to call a mistake. I will surely have more mistakes like these in the future and will continue to fixate on my overall portfolio outperforming the S&P 500... not every individual name. I will pick many more winners. There will be more losers. It's inevitable and why diversification matters.

The newsflow out of PayPal since their last report has been bad. They're struggling to modernize branded checkout and get more than 15% of their overall volume on flows that aren't antiquated. Checkout is fiercely competitive. This modernization process has taken them several years and is no where near done. They're not capable of moving faster. The longer it takes... the further they fall behind better products like Apple Pay and Shop Pay. My least favorite part of the old team was their inability to accelerate online branded checkout upgrades. This team is struggling with the exact same thing. That makes me question whether or not branded checkout growth can actually support multi-year profit growth beyond more buybacks. Can they grow operating profit at a respectable pace? I'm not so sure anymore.

They're struggling with macro more than other competitors seem to be, which makes me think it's not just macro.

They've already taken back their 2025 investor day targets because they want to invest in agentic commerce and because they need to work harder than expected to win customers over. That means more incentives... lower quality customer cohorts... and ongoing margin pressure... while demand grows at a very slow pace.

This deserves to be wildly cheap just like it is. Could this earn a few more turns of multiple expansion if they deliver a good Q4? Absolutely. But I struggle to see what incremental upside there is beyond that if they can't get their most important business on track. And they can't.

Terry Smith (investing legend) said it best:

To their credit, Venmo is thriving and Braintree is on better footing. But? PayPal's main operating profit driver is mightily struggling and I'm ready to move on to better companies.

Trimming Alphabet:

On the flip side... Alphabet has been an absolute home run. They are killing it and are the clear full stack AI leader. When I offered those opinions last spring, they were controversial. Now? Consensus. The multiple has moved from about 16x to 31x in less than a year and the position has ballooned to 10% of holdings. This feels like it has moved from stupidly cheap to fairly valued. I remain a very confident shareholder here, as profit growth should keep driving returns... but I did want to harvest some profits.

I reduced my stake in Alphabet by 9% today.

Adds – I am using the proceeds for the following transactions:

• 10% Coupang add. I plan to keep slowly inching into more multiple contraction as the ongoing data breach noise punishes this company. I think the actual financial headwind will prove temporary. I see sizable demand and margin headwinds for Q4. Then, I see a material margin headwind from customer concessions for early 2026. After that, I think Coupang will get back to mostly normal. That leaves me with time to keep accumulating in pieces if the volatility continues. That's my preferred approach here.
  • Some quick math. Let's pretend their 2027 EPS estimates get cut by 25% from this breach. That's well beyond my expectations... but let's roll with it for a moment. That means their 2-year EPS CAGR from 2025 to 2027 will be 95% for a company currently trading around 50x 2026 EPS. 2026 concessions will push estimates down and that multiple up, but even if we assume the true multiple is 65x forward instead of 50x forward... this high-quality company is very cheap. I am leaning in slowly but surely.
• 14% ServiceNow add. I will keep building this newer position if the multiple keeps contracting.
• 5% Meta add. In my mind, this is where the Alphabet proceeds are going today. This is me cycling from one of the most loved Mag7 names to one of the most hated right now. That's an approach I've used many times in the past and it has worked very well for me. Meta is a world-class business and I wanted to take advantage of the correction.

c. Portfolio Management Strategy Snapshot

*the order of the names in these lists below is meaningless.

My holdings that are performing & compellingly priced where I'd accumulate into modest multiple contraction:

• Amazon
• Meta
• Mercado Libre
• Zscaler
• DraftKings
• Starbucks
• On
• ServiceNow
• Nu
• Coupang
• Axon

My holdings that are performing & expensive where I'd accumulate into meaningful multiple contraction:

• SoFi
• Lemonade
• Shopify
• Cava
• I like what I own in Uber right now. I want it to be sized right where it is. That balances my optimism in their AV positioning with my respect for all the uncertainty and how rapidly things are evolving.
• Alphabet

My hot seat – holdings that are NOT performing & need to do better if I'm going to stick around:

• The Trade Desk

Watch List:

• CrowdStrike (would love to re-enter at some point)
• Sea Limited

"If you were starting a portfolio today, what would it look like?"

• 8% Alphabet
• 8% Amazon
• 8% Meta
• 8% Mercado Libre
• 6% Zscaler
• 6% ServiceNow
• 5% Nu
• 5% Coupang
• 5% DraftKings
• 5% Starbucks
• 5% Lemonade
• 5% SoFi
• 4% On
• 4% Uber
• 4% Cava
• 3% Shopify
• 3% Rubrik
• 2% Axon
• 2% Trade Desk
• 4% cash

d. Holdings