Bear's Portfolio through Nov 2017

PaulWBryant · November 30, 2017, 4:32pm

“I guarantee nothing but hard work.” - Bear Bryant, Alabama Football Coach, 1958 - 1982

“exponential compounded growth does not fit the analytical backward looking skill sets of most Wall street analysts” - mauser96

“I presume the thing is to ride the momentum for the short squeeze and exit fast with enough money for a few months supply of whisky before everyone realises it’s a value trap.” - Strelna

Previous Month Summaries

Portfolio Performance

note that I use tickers .INX, .IXIC, and IWM to benchmark. These do not include dividends, I don’t think. If anyone can suggest tickers that do, I will switch over.

Also I have added a monthly metric called MyPort_EWNT (equal weight no tinker) that shows the monthly average gain/loss percentage for all positions I held at the end of last month. The idea is that if:

I hadn’t bought or sold anything, and
I just had an equal weighted portfolio, say 14 stocks that were ~7% each

…then this would be the return. It’s a rough estimate, but comparing it to my actual return each month tells me if all my buying and selling is worth a damn.


**This Month**
My Portfolio             -0.86%
MyPort_EWNT              -2.40%
S&P                      +2.81%
Nasdaq                   +2.17%
Russell 2000             +2.90%
 
**YTD**
My Portfolio             +59.66%
S&P                      +18.26%
Nasdaq                   +27.69%
Russell 2000             +13.90%

So, I’ve not had the best month, clearly. Especially compared to Saul and others on the board, some of whom, at least before this week, were up over 90% for the year. But I’m still up 60%, and that’s still more than I would have believed possible.

Wix hurt me, but even more of a contributor is that I’ve been out of LGIH for a while now, and never got in on NTNX or UBNT. Glad those are doing well for everyone else, though!

My Current Allocations


Ticker	Curr%	Buy/S	Mo Ch	YTD Ch
SHOP	21.1%	-10%	4.4%	142.2%
ANET	12.9%	27%	16.6%	140.2%
HUBS	11.2%	12%	-6.5%	72.2%
SQ	9.9%	-15%	5.5%	187.7%
WIX	8.7%	49%	-21.3%	22.1%
FB	6.2%	3%	-1.6%	54.0%
INST	5.1%	-29%	-0.1%	77.7%
TLND	5.1%	19%	-3.5%	80.0%
PSTG	5.0%	NEW	12.5%	64.0%
TTD	4.6%	46%	-25.5%	77.6%
HDP	4.5%	0%	15.1%	128.8%
ALRM	4.4%	82%	-12.2%	47.3%
MU	1.3%	NEW	-4.3%	88.0%

New Positions

Pure Storage (PSTG) - I bought this a couple weeks ago. Have been meaning to write it up for the board, but the summary below will have to suffice.
Micron (MU) - A tiny try out position. Just want to keep it on the radar. I’m definitely not confident enough to add before their earnings report on 12/19.

Stocks I sold

Twilio (TWLO) - http://discussion.fool.com/why-i-sold-twlo-32889534.aspx

Summary: The increasing cost of revenue isn’t just something to watch…if I were an alarmist I’d say it’s spiraling out of control!

M17: $37M
J17: $42M
S17: $48M

Yikes. That’s up from $31M in S16. 54% increase. Revenue was only up 43%. OpEx was also up more than revenue: 48%. Maybe Twilio will right the ship – but you have to admit it’s listing badly right now.

Mercadolibre (MELI) - I got nervous about constricting margins (due to all they’ve bitten off with shipping) and sold my shares before they reported. I guess I was half right: EPS was actually down 28% YoY. But, to mix a metaphor, the revenue train keeps rolling to the sky: up 61% YoY. That is incredible. In the last 7 quarters, revenue has risen sequentially every quarter, starting at 158M and this quarter reaching 371M. The only word that comes to mind is WOW. So it’s back on the watch list, but I still think the shipping thing could be a drag for a while. South America <> North America.

Stocks I own

SHOPIFY - SHOP (21.1%) - To slightly modify what they say about themselves, Shopify is “the only platform you need to build your [small or medium sized business] empire [online].” They provide a website, a way to take payments, SEO optimization, etc, etc, etc. They’re innovating and growing…and boy are they growing. They make money when businesses sign up with them, and then they make more when those business grow and sell more stuff.

How have they been doing? As most of you know, Shopify continues to grow like…actually, any hyperbole I could come up with would understate the growth. Here’s my review of the September quarter: http://discussion.fool.com/bear39s-shopify-sepq-review-32880587…

This is real, and it is amazing. I think in the not-too-distant future, this company will be worth many multiples of its current 10B price tag. I increased my shares held by 70% in October. I dialed that back 10% in November, but could add back at any time, as I highly expect Chris is right that they will absolutely kill it in Q4 (http://discussion.fool.com/shop-2017-shopping-32905712.aspx). The $1B they sold over Black Friday weekend is a darn good start. No idea if they’ll get there, but I suspect they have their eyes on 10B for the quarter.

This is a top confidence position, and I’m in this company for the long haul.

ARISTA NETWORKS - ANET (12.9%) - Arista sells network switches, just like Cisco, except Arista’s switches use SDN (Software Defined Networking), which I understand makes for better control, performance, and security. Oh, they’re also pretty hard to make, because Cisco is sucking wind trying to catch Arista, but to no avail.

Arista won me over after their June quarter, which was a total smash. Well guess what? The September quarter might be even MORE impressive. Growth: They maintained 51% revenue growth, which just shows how much they’re dominating, as others in the space aren’t growing much, or some at all. Profitability: You want earnings? Operating leverage? Look no further than ANET. EPS basically doubled YoY. OpEx actually came DOWN sequentially, and was only up 13% YoY vs Gross Profit which was up 51%. Net Margin soared to ~30%. Arista is crushing it all around. Oh, and ANET has $1.3B+ in cash – my guess is that when all the legal pestering from Cisco abates, they’ll buy back shares, start a dividend, or invest in something really cool.

I started a position in August, added 26% more shares in September, and another 18% in October, and 27% more in November. Obviously I like this company a lot and just wish I would have started paying more attention sooner.

HUBSPOT - HUBS (11.2%) - Hubspot helps companies manage their brand online. This is much more than just buying ads. This is SEO, website, blog, social media, etc, etc. Hubspot is such a powerful and value-adding tool for marketing departments (a CMO’s dream) that I can’t see why any company of a certain size wouldn’t want to use it, and use it increasingly. Of course with a product that’s this much of a value add, there are certainly competitors. Yey it sure seems to me like Hubspot is a leader, if not THE leader, in the space, and the results it continues to achieve seem to confirm this.

As Saul noted here (http://discussion.fool.com/hubs-why-all-those-analysts-are-jumpi…), Hubspot managed to eke out positive earnings despite a conference that costs millions, so without the conference they would have had double-digit EPS. Pretty swift acceleration of operating leverage. I expect the next couple of quarters to really highlight it for those who can’t already see it like Saul can. They’re guiding for 7 cents EPS in Q4. Expect them to beat that…by a lot.

I was happy with Hubspot as one of my very largest positions, but when shares fell after earnings (I assume there’s a lot of sell on the news going on with many companies after they report) I couldn’t resist, and added about 12% more Hubspot shares. It’s oversized now at 11.2% of my port.

SQUARE - SQ (9.9%) - You might know Square if you’ve ever paid with a credit card at a local vendor – there’s a good chance they used a Square device to take the payment. Square also provides many other services available to their customers. One of the most profitable is Square Capital, which really leverages their data advantages to offer extremely profitable and low-risk loans to their customers.

Or if you read this board, you might know that Square had a lot of action in November. At one point they were up 32% this month. Then the negative article sent them down double digits, and 11/29, a very rough day for a lot of stocks, saw them down another 7% or so. And STILL Square is up almost 200% YTD. To me, this is just the nature of the high flying growth companies we invest in. If you can figure out when to get in and out, you’re a better investor than me. Sure, Square looked expensive in the high 40’s. But it looked expensive at $30. Who knows where or when the pullbacks will come?

In their September quarter Square failed to make me look stupid (http://discussion.fool.com/modified-buy-and-hold-pt-2-32875928.a…). They accelerated revenue growth to 45%, just as I had hoped and been foolish enough to predict. Thanks, Square!

At one point this month I had trimmed 30%, but the last few days I added back quite a bit, so I end November with 15% fewer shares than I started with. I’m ok with that, because there’s always something I want to buy!

WIX.COM - WIX (8.7%) - Wix is a company that helps users create websites, and then hosts them. It makes most of its money by charging subscription fees for premium content. It has over 100M users, and more than 3M of them pay for premium accounts.

The September quarter was fantastic. Revenue grew 47% and Average Collections per New Annual Subscription ticked up sequentially from $156 to $158. But, as I noted (http://discussion.fool.com/overall-i-liked-the-quarter-no-slow-d…), the market kind of missed the point. The positive EPS was well within the “step in the right direction” category, but missed expectations that I think were so unreasonable as to be silly – and the company doesn’t give EPS guidance, so I’m really not sure where they came from.

I mentioned that I had added 21% more shares at $57. I didn’t expect to see a lower price, but I got one, and I now own 49% more Wix shares than I did at the end of October.

FACEBOOK - FB (6.2%) - I sold Facebook back in May because I thought their ad business had to be getting close to a saturation point, and that they probably didn’t have a lot of levers left to pull for growth and profit. But then I started using “Marketplace” to sell some items around the house. They should absolutely put eBay and Craigslist and who knows who else out of business! This is just a small example, but to me it was a totally new line of business for them. Then they added a video section. I don’t know how that will work out, but my point is simply that FB is far from done growing. When you have 2B users (ponder than number for a moment) you can do almost anything you want.

September was just a tremendous quarter from FB. Revenues now over 10B. Operating margin is roughly 50%. What? Wow. But they’re going to hire 10,000 people or something to try to keep Russians from advertising on their site. Something like that. But whatever. This company prints money, and their ~40B annual revenues are chump change compared to the Apple’s, Amazon’s, and Google’s of the world. Plenty of room to run. And again, 2B eyeballs to sell to.

I sold a little FB but added more back, so I now have 3% more shares than I had at the end of October.

INSTRUCTURE - INST (5.1%) - I brought Instructure to the board in September. http://discussion.fool.com/why-i-bought-instructure-inst-3283437… It’s is a cloud-based learning management platform for academic institutions and companies across the world. Their platform enables virtual learning, and they’ve gotten so good at it in the education context (since they started in 2008) that they’re now (actually since early 2015) offering it in a business context as well. Their classroom product is called Canvas, and their business solution is called Bridge. They are constantly signing school districts and businesses to expand their reach to hundreds of thousands of new users.

They reported a great September quarter yesterday, which I wrote about here: http://discussion.fool.com/bear39s-instructure-sepq-review-32880… Seems they’re just winning everything. I hope to see some margin acceleration soon, but we’ll just have to see.

My position had become pretty large, so I cut it by 29%. Decided to keep all my positions after FB at 5% or so. These are very small companies and I feel my visibility of their businesses is pretty low. I think 5% is about right. It is enough to move the needle for me if these companies continue to grow rapidly, but not so much exposure that any one could hurt me too terribly.

TALEND - TLND (5.1%) - Talend has carved out a niche within big data integrations by specializing in Hadoop, an expertise that will not be easily disrupted. Saul has called them a “category crusher,” a leader with no viable competition in its niche. I tend to agree, though others will not ignore this space forever. Hopefully Talend will continue to build up years of subscription revenues while they occupy the catbird seat.

I would describe Talend’s quarter as a solid continuation of good progress all around. Revenue grew 40%. Operating leverage improved – oper loss narrowed quite a bit, they added 44 enterprise customers (vs 31 last Q), and enterprise customer count was up a massive 59% YoY. Nothing to complain about here.

I added a net 19% more shares to my position in November.

PURE STORAGE - PSTG (5.0%) - Pure Storage, formed in 2009, provides flash storage arrays. Storage arrays are nothing new, but flash is different. How different? Bert Hochfeld says it’s the biggest change in storage since spinning discs replaced tape. (https://seekingalpha.com/article/4007341-pure-storage-nimble…)

They reported their October quarter on 11/28 after the market closed (the day before the big 11/29 drops). Just your average beat and raise. Revenue growth accelerated to 41%, and EPS loss dropped to 1 cent per share. For a company valued so lightly (PS is 4.3 – even lower than HDP’s), they sure have a habit of doing exactly what they say they will (well, slightly better). I cannot recommend their slide deck enough: https://investor.purestorage.com/news-and-events/events-and-… They’ve been perfectly predicting exactly what they will do, down to operating expense and operating margin percentage loss (next quarter it will be a gain – their first positive earnings) – see slides 9 and 10. People write Pure off as a hardware company, but:

They have a large SaaS element – 20% of revenue this quarter
They’re NOT a commodity. Gross Margin is 65%+

I owned Pure once before, but I bought back in during November. I’m very happy to hold while this skilled management team increases the value of the company.

THE TRADE DESK - TTD (4.6%) - The Trade Desk plays in the somewhat crowded world of advertising tech, but it seems the way they’ve positioned themselves to work with ad agencies (instead of companies placing ads) has really made them a preferred tool for the buy side. They also don’t buy inventory but just facilitate, so that streamlines their process and enables them to serve their customers without conflict. Their growth is phenomenal: revenue grew by 78% for the year in 2016. And they’re profitable with a PE around 35 (down from 50+ a month ago!), which given their growth, seems VERY low.

Revenue grew 50% YoY, although OpEx grew 59%. At first I wasn’t thrilled with that, but then I realized, they are still growing into a very large opportunity. They didn’t raise their Q4 guidance, but it’s already 100M bucks…what do you want people? I wasn’t blown away or anything, but I see a company that’s still doing a lot of winning, and a market overreacting as shares fell 26% this month.

Due to the drop, I added 46% more shares to this small position, which isn’t as small now.

HORTONWORKS - HDP (4.5%) - Hortonworks helps companies manage big data with Hadoop. Customers subscribe to the HDP software platform, and Hortonworks stores, processes, and analyzes their data.

This quarter was exceptional. Maybe the best of any company I own. Revenues accelerated from 42% to 45% YoY. More importantly, Subscripton Revenue was up 64% – a HUGE acceleration. Gross Profit was up 72% YoY! Then, they actually reduced OpEx YoY. Yes, you read that right. Arista reduced theirs sequentially, which is impressive when you also grow revenue like they do. But HDP did them one better. In short, the “expand” part of their land & expand model is gangbusters right now.

I added immediately after they reported, but later sold those shares and banked the quick 10% gain. Just keeping this one relatively small, as I said.

ALARM.COM - ALRM (4.4%) - As stenlis, who brought Alarm to Saul’s board, puts it: Alarm.com Holdings, Inc. provides cloud-based software platform solutions for the smart homes and businesses in the United States and internationally. The company provides interactive security solutions to control and monitor their security systems, as well as connected security devices, including door locks, garage doors, and video cameras. I wrote them up here: http://discussion.fool.com/my-thoughts-on-alarmcom-32813166.aspx…

This little company is so solid and undervalued as they just start to flex their operating leverage muscles. Don’t let tax fluctuations fool you, they made incredible progress this quarter. Operating Income was up 267% (not a typo). Revenue was up 33% but SaaS revenue is growing a lot faster. I love this under the radar grower and think they’ll surprise a lot of people in 2018.

They fell around 15% as accounting decisions made non-GAAP EPS estimates for 2017 seem lower, but that seems like a dumb reason to sell shares. I increased my very small position by 50%. I added more on 11/29, so I now have 82% more shares than at the end of October.

MICRON - MU (1.3%) - I wrote about Micron here: http://discussion.fool.com/micron-what-is-a-commodity-32900653.a…

But this is just a tiny position for me to keep it on the radar. I’m definitely not confident enough to add before their earnings report on 12/19.

Random Thoughts and Conclusions

My streak of 10 months beating the market is broken, but this year (that has been better than I ever would have believed) is still an amazing confirmation that stock picking works. Not just for me, but for so many who frequent this board. Even if like me you’ve given back a lot of your gains this past week, if you’re still up 40, 50, 60, 70, 80%…well, that aint bad. Congrats to all.

My best to all,
Bear

XMFBreakerForce · November 30, 2017, 4:47pm

Hi Bear,

Great write up, thanks for taking the time to do these. So informative. I love the little commentaries you guys do for each position.

Great work

Matt

RaptorD2 · December 1, 2017, 2:54am

So, I’ve not had the best month, clearly. Especially compared to Saul and others on the board, some of whom …

That’s not the way to look at it, Bear. You’ve done great! Just one little decision can so often make so much difference in a portfolio over a week, a month, a year … sometimes it comes down to luck. I’m sure even Saul would agree that it’s not very often that every decision we (anyone) makes is the very best decision possible for a portfolio. Investing isn’t like playing chess, where there are only so many moves. The choices and combinations of choices are truly endless, and the game is never over until you say it is. Not only that, but you get to decide the definition of winning.

You know, a lot of people think the only way to judge an investor is by his gains. True, that’s important in the end, and you’ve certainly won by that scoring. But we can also rate someone’s success by other things, like what they teach others. You’ve taught me new ways to look at things, which is the most I could ever hope for. And that puts you right in the front row. Thank you.

In the book of any rational investor, as if you didn’t know, you’re smashing it, dude. Well done!

Dan