Bear's Portfolio through Sep 2019

PaulWBryant · September 30, 2019, 4:47pm

My 2019 Portfolio Performance YTD as of


Jan +22.48%
Feb +33.46%
Mar +38.27%
Apr +46.86%
May +43.50%
Jun +58.27%
Aug2 +65.38%
Aug(31) +62.13%
Sep +35.64%

Woof. As most of you know, the market has been “rotating” away from high PS stocks (or high momentum…or whatever, we never know exactly, do we?) for over a month now. A lot of people think the worst has come at the end of September because it’s the end of the 3rd quarter for funds who report their gains or losses quarterly. They may want to show locked-in gains by selling positions they’ve held for a while that were way up, or they may simply want to show that they got out of these stocks that have recently been falling. I don’t really know – all this is speculation. Whatever the case, as most of the market has rotated out, I’ve rotated further into hyper-growth SaaS stocks. I got rid of TDOC, SQ, and DOCU this month and added to my favorites, and also bought back into CRWD. I even picked up a little try-out position in DDOG. More about all that below.

New 2019
January - DOCU
February - SAIL
March - TTD (again), ESTC (again) and MDB (again)
April - None
May - SQ (again), ZS (again), EVBG, PLAN
Jun - CRWD, FSLY, WORK, TWOU
Jul - MDB (again)
Aug - PINS, OKTA
Sep - CRWD (again), DDOG

Sold 2018
January - SHOP, SQ
February - WIX, MDB
March - PSTG, ZS
April - None
May - SAIL, ZEN, NEWR, OKTA
Jun - MDB, ARNA
Jul - None
Aug - EVBG, CRWD, FSLY, PLAN, TWOU
Sep - SQ, TDOC, DOCU

My Current Allocations


Ticker	Curr%	Buy/S	Mo Ch	YTD Ch
MDB	13.5%	15%	-20.9%	43.9%
TWLO	13.1%	60%	-15.7%	23.1%
SMAR	11.8%	10%	-25.9%	44.9%
ESTC	11.0%	-18%	-6.3%	15.2%
AYX	8.0%	-17%	-24.6%	80.6%
ZS	7.0%	100%	-31.2%	20.5%
CRWD	6.1%	NEW	-28.3%	#DIV/0!
PINS	3.9%	100%	-23.2%	#DIV/0!
OKTA	2.9%	100%	-22.2%	54.3%
TTD	1.4%	-78%	-23.7%	61.6%
DDOG	1.0%	NEW	#DIV/0!	#DIV/0!
options	10.0%			
cash	10.2%

You could say I’m at 11 positions now. More accurate would be to say I have 7 positions that make up 70% of my portfolio, then 4 small to very small positions, then some options, then some cash.

WHY I DID WHAT I DID THIS MONTH

Bought

Crowdstrike (CRWD) - The main reason I cut CRWD last month was valuation. (https://discussion.fool.com/why-i-prefer-zs-to-zm-and-crwd-34281…) This month it dropped about 35%! Needless to say, I added back, in several chunks, on the way down.

Datadog (DDOG) - A tiny try-out position. Bert wrote them up, and they have a lot of nice growth drivers. I’ll be watching and potentially adding more.

Sold

SQ and DOCU - I described my reasons for selling these here: https://discussion.fool.com/what-i39ve-done-today-34291355.aspx

TDOC - I mentioned this one here: https://discussion.fool.com/thoughts-as-the-slide-continues-3430…

The reasons I sold all three were similar: they were lower growth and/or lower conviction, and they were either up, or weren’t down nearly as much as other things. I “rotated” into higher growth, higher conviction stocks that were down more.

Added to or Trimmed

I trimmed ESTC and AYX just slightly, as they weren’t down as much as others. I wanted to spread the money among my favorites that were down more. Don’t read too much into it.

I added to MDB, TWLO, and SMAR. Especially TWLO, because I believe they have the best floor.

These are my five largest positions right now. I have owned them for a while, I’m familiar with them and the ways they make money, I have a good idea of their size and scope, and what their valuations are and have been. I’m really comfortable with large positions in them.

I also doubled my small positions in ZS, PINS, and OKTA when the prices fell. ZScaler is now becoming a larger position; the others are still small.

I cut TTD completely before it fell too much. I added a little back, and I’d be interested in adding more, but it’s always been lower conviction for me, so I’m just holding for now.

Passed

I continue to be fascinated with Roku, but even 40% cheaper I can’t bite, because I really don’t understand their value prop, their customers, and how they make money. I get what they do, but the numbers just don’t make sense to me. Many of you have explained it well…it’s just that the numbers are confusing.

Wrapping Up

Well! This wasn’t a fun month! I hope you saw it coming and got out before losing 25% or so! I’m not good enough to do that. Luckily, I had some cash, most of which has been deployed now. But the bottom line: I still love these companies to crush the market! Not only that, I’ve gone from:

“Meh, these are looking pretty pricey!” (July)
To “This is more like fair value…I think I’ll fill out my positions.” (Early September)
To “Ok…these are actually starting to look like bargains again! Hello 2017!” (The last few days)

That’s just how I see it. As you know, you each have to decide for yourself. Personally, I never “follow” anyone – I take what I can from the voices that make the most sense and are the most transparent. And whoever I listen to, I try to remember that as one board member said to me in an email: “Its easy to be a critic, its hard to be a leader.”

Good luck, and may October bring us all better weather!

Bear

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

“A man’s gotta know his limitations.” - Dirty Harry

“If you must tell me your opinions, tell me what you believe in. I have plenty of doubts of my own.” attributed to Goethe (but not sourced)

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” - Attributed to Albert Einstein

“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

jackstrawhat · October 2, 2019, 9:04am

Hi Bear,

I’m curious as to why you’ve been adding to Twilio when many others have been trimming? You mentioned you feel they have the best floor. Could you explain what you mean by that? Are you referring to a prospective buyout value holding up the stock price? Thanks.

Kyle

PaulWBryant · October 2, 2019, 10:07am

I’m curious as to why you’ve been adding to Twilio when many others have been trimming? You mentioned you feel they have the best floor. Could you explain what you mean by that? Are you referring to a prospective buyout value holding up the stock price? Thanks.

Kyle,

Twilio is a complicated story. For one, they recently made a big acquisition. That company isn’t growing as fast as they are, so it will be interesting to see where the combined growth rate lands. But on the other hand, their NER is over 140%. That will make it hard for them to grow under 50%. Also, they’ll be growing at a non-organic ~80% YoY for a couple more quarters due to the acquisition. So revenue will be around 1.2b in 2019.

My my napkin math, a company that large growing at even close to 50% is a titan. Slap even a PS of 15 on it, and it’s worth $18 billion. By the end of 2020 they’ll have maybe 1.8b in revenue (just figuring 50% growth). Then what are they worth? $25 billion? The company is selling for something like $15 billion now.

There’s still upside from there. 50% is slower than they’ve grown. But even at 40% these numbers would still look good, so when I say floor I simply mean, with this much potential (even with slower growth), I’m not sure how much lower it can go.

Bear

SaulR80683 · October 2, 2019, 4:57pm

Twilio is a complicated story. For one, they recently made a big acquisition. Sendgrid isn’t growing as fast as they are, so it will be interesting to see where the combined growth rate lands. But on the other hand, their NER is over 140%. That will make it hard for them to grow under 50%. Also, they’ll be growing at a non-organic ~80% YoY for a couple more quarters due to the acquisition. So revenue will be around 1.2b in 2019.

My my napkin math, a company that large growing at even close to 50% is a titan. Slap even a PS of 15 on it, and it’s worth $18 billion. By the end of 2020 they’ll have maybe 1.8b in revenue (just figuring 50% growth). Then what are they worth? $25 billion? The company is selling for something like $15 billion now.

There’s still upside from there. 50% is slower than they’ve grown. But even at 40% these numbers would still look good, so when I say floor I simply mean, with this much potential (even with slower growth), I’m not sure how much lower it can go.

Drew,

Sendgrid is growing in the 20’s and Twilio at 56%, so for revenue growth we are looking at something at about the mid 40’s now combined, and three quarters from now when we get apples to apples comparisons, it will be in the low 40’s probably.

You have a lot of faith in the net expansion rate, but net expansion rates gradually come down, like growth rates, and that’s only half the picture. They were very clear that they are not including Sendgrid in the net expansion rate yet. Sendgrid probably has a net expansion rate under 110%. Could be under 100%, I didn’t check. Think what that will do to their total net expansion rate!!!

Sure Flex and cross selling may bail them out but it’s not a sure thing.

That’s how I see it anyway, and why I cut my position size in half.

Saul

tchalla · October 2, 2019, 5:21pm

I don’t like short messages any more than the next guy, so bear with me, but for completeness sake, the net dollar retention rate for SEND Q1 2018 was 113% and 114% in Q2 2018

True current rev growth of the combined entity below

=100*(((211+46)/(135+35.7))-1)

Current blended growth for TWLO is 50.6% unless my math is bad…which is possible.

May or may not shift the argument one way or the other, but figured it’s worth having the facts out there

SaulR80683 · October 2, 2019, 6:00pm

Thanks tchalla, for doing the work for me. I guess I was 5% too low on my estimates, and I forgot to figure in that Twilio, growing faster than Sendgrid, will make up more and more of the combined company, so it obviously isn’t as bad as I was imagining it, but probably not as good as Bear was imagining it. Appreciate your aid!
Saul