Warning: the first section is a bit sappy/personal. If you want to skip straight to my 2018 review, skip to the next section
2018 was a great year for my family. Life is about far more than money and investing, but if done thoughtfully and intentionally, investing can enrich our lives and allow us to take control of our decisions and how we spend our time.
For me, my #1 priority is to spend more time with my family. Now, at the age of 29, not in 30 years when I’m “retirement age”. I served on Active Duty in the Air Force for 7 years doing a job that required a lot of training and time away from home. I’m so thankful I was able to do what I did on active duty. I had so many opportunities to learn from incredible people & leaders, help develop and coach others who are the future of the career field I was in, and see places/do things that I never imagined doing.
But with a 3 year old son, 1 year old daughter, and wonderfully loving, supportive wife who had been away from her family (we lived in Washington, our families are from FL) for a long time, I needed to shift focus and prioritize time raising my kids and dedicate more time to my wife.
That is what The Motley Fool and all of you on this board have enabled me to do. I am forever grateful for that and hope to spread the education and love for investing to others like you all have done for me and my family. Ultimately, I made the decisions to start investing and buy/sell the stocks in my portfolio, but I flat-out would not be where I am today without TMF and you all.
Thank you.
Now on to my 2018 results:
Returns as of 12/31/2018:
7 Day: +17%
MTD (December): (-8%)
QTD (Oct - Dec): (-16%)
YTD: +66%
Longer Term Returns
3 year: +139%
Since Inception (Nov 2014): +122%
*I included 7-day, MTD, and QTD here to show the importance (in my opinion) of staying invested and ignoring the negative headlines. I’ve noticed myself wanting to buy more in the face of all this negativity. I guess that too is a form of market timing and I’d be best off (in terms of performance and peace of mind) ignoring the macro headlines all together and focusing on what is happening with the companies I am invested in or considering investing in.
After all, management from these companies know them best and through our research of their IR sites, earnings calls, etc, we should get a good feeling for the temperature/temperament of our companies and their customers. Obviously, we can’t blindly trust everything they say, but to me, this is a far more valuable use of time than paying attention to the Financial Entertainment Network (CNBC, etc) headlines.
Portfolio Allocation
Stocks: 94%
Options: 6%
*In my November update, I was at:
Stocks: 74%
Options: 26%
Several of you STRONGLY encouraged me to reconsider the risk I was taking on by having such a high (or any) allocation to options. This caused me to do some deep thinking and I listened. I’m glad and proud that I did. In previous years, I might have been too overconfident (dare I say cocky) to listen.
That’s one of the really cool things about investing. It FORCES you to be humble. We have no idea what the heck is going to happen short term and there are so many people with far more experience than me. I’d be a fool not to take their warnings seriously.
What also helped was seeing Saul’s and others’ outstanding long-term results using no options/leverage. That proved to me that my time is better spent studying great companies, instead of spending brain power thinking about options contracts. I also sleep better at night this way.
Holdings
Core positions: 84%
TWLO: 20%
MDB: 17%
AYX: 17%
TTD: 15%
NTNX: 6%
OKTA: 5%
ZS: 4%
Tryout positions: 16%
ABMD
ESTC
GH
NKTR (very very small call from a long time ago. almost worth $0 right now so I’m just keeping it till it expires in Jan 2020. It’s in an IRA so no tax advantage to selling for a loss)
PSTG
TDOC
TWOU
VCEL
I currently hold 14 positions (not counting NKTR because it’s literally almost worth $0) which is a little high, but I’m okay with that for now because of how small my tryout positions are. My top 4 = 69%, top 7 = 84%, and the remaining 7 = 16% of my portfolio. The largest of that bunch is ESTC (4%), then TDOC (3%) and TWOU (2%). ABMD, GH, and VCEL are very small positions due to their high risk/high reward nature. I’ll explain why PSTG was knocked down to such a small size in the following sections.
Biggest Changes
PSTG - Downsized: this was a tough one for me. I truly believe in what this company is doing. I think they are an innovator and a disruptor in the storage industry. I also believe their move to the Evergreen Storage (software subscription type) model and their move into Cloud Storage (partnered with AWS, all software subscription) will improve revenue growth from the mid-high 30% range to the high 30% to low 40% range and keep gross margins stable. However, I felt myself falling in love with the story, and want to see the company/stock price begin to prove the things I’m thinking before making it a large investment. I won’t be afraid to add to my position if my thesis starts to play out.
NVDA - Sold All: I simply lost faith in management. I can understand botching the crypto thing for a quarter. But when they came out and said they underestimated cryptos impact again, I was disappointed. I also just didn’t feel a sense of ownership or urgency from management on the call. Finally, there are clearly many factors well outside of NVDA’s control that impact their business. This is the nature of hardware businesses, but I was convinced NVDA was a software, not hardware story. Maybe it is, but so far, hardware still heavily impacts the company. Also, it’s market cap is much, much larger than my other companies. Making it harder to double, triple, quadruple, etc.
Tryout Positions
Last month I had ARNA, CRSP, EDIT, and NTLA as a basket of bio/pharma/gene therapy/whatever stocks. I had a very very very slight understanding of what those companies did and knew they’d either be big losers or big winners, but that I’d never make them a meaningful chunk of my portfolio (too risky). I basically replaced them with GH, TDOC, and VCEL.
TDOC: I’ll do a write up on TDOC because it’s not heavily talked about here, but I understand their business an what they’re trying to do much better. I think Telemedicine is the future, and the network they’re building will soon be very valuable.
A16Z, the VC firm run by Marc Andreessen and Ben Horowitz did a really informative Podcast titled: The Infrastructure of Total Health with the CEO of Kaiser Permanente which made me think about the potential TAM. Here’s a link to the interview on Youtube. You can either fast forward it to 2x or, click the three little dots immediately under the video (to the right of “save”) and click “open transcript”. You can read the transcript if you don’t want to listen to the whole thing.
GH and VCEL: admittedly don’t know much about these companies yet, but GH does liquid biopsy stuff which sounds pretty important and VCEL has two current products: Epicel which helps replace skin in bad burn victims using a graft grown from the patient’s own skin and MACI which uses tissue engineering to grow cells from the patient’s own knee to repair cartilage defects in the knee. Both of these sound important and have massive TAMs. Don’t ask me anything else about them…
TWOU: I’ll also do a write-up on TWOU, but basically, I think the higher-ed system is old and outdated. TWOU offers a purely digital way (with one or two “immersions” at the school) to get the same exact degree as you would if you went in person. They have VERY VERY long contracts with universities, a 100% software revenue model, and I think in a recession, digital education might become more popular as people try to save money by not having to move/attend on campus.
My Big Four
TWLO, MDB, AYX, and TTD are my largest four holdings making up 69% of my portfolio. I don’t see that changing. I think these companies are likely to see the type of long-term returns that we read about from Apple, Netflix, Salesforce, Priceline (now booking), Google, etc. They are all founder-led, leaders in their industries, disrupting industries with very large TAMs, and providing business-critical services/products. I’m sure a recession will temporarily take their prices down, but we don’t know when one is coming. Also, I think each of these companies has a floor. I dunno what it is, but at some point, I think they’d get acquired if they stayed depressed for too long.
My Middle Three
NTNX, OKTA, and ZS make up 15% of my portfolio.
NTNX: I don’t see how NTNX can go much lower than where it is unless the business really starts to falter. I don’t think that’s going to happen. All of the reports we’re seeing from independent reviewers like Forrester and Gartner show NTNX as a clear leader in terms of HCI market share and technology. I’ve never seen a higher sustained NPS (90), and the company used 2018 to successfully (and transparently) transition their model from a hardware to a mostly software model. XI is finally released, and this year, they’re going to start facing similar YoY comps from when most of the hardware revenue was removed. I think this will surprise wall street even though we know it’s coming.
NTNX is the stock that I think will perform best in 2019. However, before adding to my position, I want it to earn it!
OKTA and ZS are leaders in their own segments of what I consider IT security. Both have huge TAMs and have executed magnificently. However, for now, I’m most comfortable keeping them as medium-sized positions.
After doing this review, it hits me that maybe I’ve diworsified my portfolio by having so many tryout positions. I might be better off keeping only ESTC and TWOU and dedicating the rest to NTNX, OKTA, and ZS. Definitely something I’ll consider though I do like the small exposure to some medical type companies.
As always, please ask questions and let me know what you liked or didn’t like about this format. Email or reply here is fine!
Thanks everyone and happy 2019!
