Here’s a quick performance review up front and some important lessons I’ve learned this month, then I’ll cover my current position sizes, and end by spending some time rambling about my thoughts on this style of investing (it helps me to write it out).
According to my Interactive Brokers Performance Summary (Time Weighted Return or TWR):
- I use TWR because it measures the true performance of the portfolio, with no effects from contributions or withdrawals. I put the full definition at the end of the post.
Best Month: Aug 2018: +42%
Worst Month: Oct 2018: -15%
I do not consider myself a great or even good investor. I’m still learning, still make a TON of mistake, and owe SO MUCH of that performance to you all and this board. Not because I blindly copy others’ ideas, but actually the opposite. This board helped me think different, and concentrate my portfolio in companies I truly believe in. Again, I still make a ton of mistake which I’ll highlight below, but look at how drastic a difference this board has made so far.
Here’s the history of my TWR performance since I began investing with Interactive Brokers on Nov 11, 2014. At that point I was 25 and had been investing using USAA as a brokerage since 2011. I don’t know my exact results with USAA, but they weren’t great.
Nov 2014: 0.45%
Jan 2015: -3.19%
Jan 2016: -16.39%
Mar: -9% - From Aug 15 - Mar 16 I was deployed with my USAF job… what a terrible spell! I remember specifically what I tried to do here….I tried to time the oil market because it had dropped significantly so I invested heavily in some highly thought of SA oil stocks. OUCH!
Jan 2017: 6%
Dec: 34% - Found Saul’s board and towards the end of December, I concentrated my portfolio down from 70ish RB/SA stocks to 10-12 Saul style stocks — forever changing/improving my investing and life.
Jan 2017: 55% (wow, I knew I was on to something…but it couldn’t last!)
Aug: 169% (holy cow what a month)
Sep: 164% ( during September, I withdrew enough cash for a 20% down payment on a home we will buy in the next year. It’s a home we will absolutely love in a community we will love for our kids to grow up in, closer to our families. Only possible because of this board, you all, and me learning to invest this way. Wow, this board improves lives.)
For the most part, I own a combination of common stock and options for each position…other than the bio/pharma/immuno basket of stocks which are just LEAPs or calls that don’t expire for 1-2 years. I won’t go into details on options here, but just know they affect my returns about 3X up and down compared to owning the same amount dollar-wise of common shares.
TWLO: 27% (Stock position is up 74%. Calls are up 343% and 190% respectively)
TTD: 18% (Stock is up 8% (added before the drop) and Calls are up 40% and 28% respectively)
MDB: 17% (62% in my top 3) (Stock position is up 62% and Call is up 49% (bought Call a few months after stock)
AYX: 15% (77% in my top 4) (Stock up 86% Call up 126%)
PSTG: 10% (Stock down 10% and too many Calls to have a % for)
NTNX: 8% (Combo of stocks and Calls both are down)
NVDA 4% (Stock - Down about 15%)
SQ: 2% (Call only
For this basket of bio/pharma/gene therapy companies, I took about 4% of my portfolio and used a basket type approach. I figured one might be a major major returner and the rest will probably expire worthless. No intention to add to or sell any of these)
ARNA: 1% (Jan 2020 Call - Down 46%)
CRSP: 1% (Jan 2021 Call - Down 8.3%)
EDIT: 0.5% (Jan 2021 Call - Up .007% WOOHOO!)
NKTR: .0003% (Jan 2020 Call - Down 97% ouch)
NTLA: .0006% (Apr 2019 Call - Down 80%)
I closed most of the shorts I had in October because I want to simplify my portfolio and shorting is a losing game (at least for me). I want to focus on being a better investor in great companies and controlling my emotions much better. Less action, more reading, holding, and writing!
SBH: -.5% (Down 22%)
SPY: -1% ( Down 3%)
Why do I own so much TWLO?
As many have covered, their numbers are incredible. In general, I just think they’re a leader in such an important market - communications and contact centers. Contact centers are still 90% on prem - lots of opportunity to move to the cloud. So many opportunities with Pay, the Narrowband IoT relationship with TMobile, I’m really excited about new opportunities from the SenGrid acquisition from a customer, API, and IP stand point. and I think there’s a potential they get bought out by Salesforce…especially if the stock were to take a big dip. I hope they don’t get bought out, but that’s kind of what I view the floor as for TWLO.
Also management is the perfect mix of humble, hungry, and confident.
Why do I own so much TTD?
I think TTD and companies like it are actually some of the most important companies of our time. They put customer privacy first and although it’s not so important here in the United States, it literally can save lives in other countries when customers can’t be targeted for their activities. It’s already a known that FB and Google have walled gardens and own most of search and most of social advertising. But I believe CEO Jeff Green when he says that model won’t last. And when it crumbles, TTD will be there to benefit from all that TAM that’s not currently expected from them. GDPR only seems to be strengthening TTD’s competitive advantage, China is it’s smallest market and Green expects it to be largest eventually, Their new Next Wave product is expected to have 50% adoption by the customer base by year end. When customers move over, they tend to spend more and spend more on things like data which is a new (and I think will be one of their most important channels eventually). Also, now the 40% of engineering resources they dedicated to developing The Next Wave for two years are free to develop more, new, awesome products.
Again, I absolutely LOVE Jeff Green and TTD’s management
Why do I own so much MDB?
I don’t know as much about MDB as I do about TTD and TWLO, but their growth numbers are great. I do know SQL databases are not suited to work with unstructured data like AI, machine learning, and all these crazy new technologies. I see how crazy big Oracle has become and I can imagine MDB being that large in the future. That’s a LONGGGGG way from here, so lots of opportunity for investors. Also, they have a lot of developer mindshare and a raving community of fans with Atlas.
Why do I own so much AYX?
I’m most familiar with this company from my day job. We partner with both Alteryx and Tableau and we’ve just seen a ton of demand for Data Analytics. Tableau is much bigger but since Alteryx burst onto the seen, we’ve seen them become more and more popular. There actually tends to be a lot of partner deals between the two companies (info about this can be found on their websites) From my point of view, I think Tableau depends more on Alteryx than Alteryx does on Tableau which to me is a sign of the future. They also have a few hundred thousand people as part of their raving community of fans.
My thoughts on investing in the current market environment:
As we all know, this has been a wild and volatile month or so for the stock market and specifically, the types of stocks we are invested in.
I and many others on this board have remained confident and fully or near fully invested because we’re not invested in stocks. We’re invested in GREAT businesses and there has been absolutely no slow down in businesses for most (or all) of our companies that are executing well. This doesn’t mean there never well be, in fact, it is guaranteed to happen at some point. But there’s no guessing when.
In addition to our companies businesses proving this, we recently had Salesforce’s CEO sum the environment up nicely when he said
"“I don’t think the company’s ever been stronger or been in a better position, and the reason why is every company that we’re dealing with is going through a huge digital transformation and every digital transformation begins and ends with the customer,” he told Jim Cramer in an exclusive interview on “Mad Money.””
The opportunity cost of missing out on that upside while you wait for the businesses to source is just enormous. Check any of Saul’s monthly updates to see what I’m talking about. Just over the last 2 years, waiting would have cost him around 240% or whatever that number is…. when I see those numbers, I just think, that’s life changing!
But then we’re stuck with how. How do we have the confidence to invest large amounts of money in just a few companies, and stay invested during sell-offs like what we’ve recently witnessed (and worse). It’s important to note, both of these ideas are almost opposite of most “investment advice” and what we hear from the financial entertainment channels during sell-offs.
For me, it comes down to these ideas (Saul speaks to this in his November update).
- Have any cash I might need in the next 3-5 years completely outside of my investment accounts.
- Be intimately familiar with the companies I am invested in (at least larger positions) and know my own reasons for being invested in them. This is what we will fall back on during sell-offs and it’s the only way to get to reason 3.
- Time in the market. As Saul pointed out, once you get to a place where you’re up something like 240% over 2 years, the thought of even losing 50% still means you’re up ~70% which is incredible. ($100 x 3.4 = $340/2 = $170).
Now my lessons learned:
I’ve messed up a lot over the last two months. As I said, I’m buying a house next year, and likely making a pretty big career shift which comes with some risk/unknown. I had a plan to not only have enough money for the down payment on our house, but also make sure to have some cash on the side, but I began trying to force better returns with trading (not investing) around company’s earnings reports. It worked really well with TWLO and Alteryx and absolutely horribly with TTD and NVDA.
I actually sold Elastic to buy NVDA and that was a mistake. Not because of the performance, but because of the reasoning. I believe more in the future of Elastic than I do NVDA and the market cap is much much smaller which I like. Whether one does better than the other isn’t the point. I went against my own investment thesis because I thought NVDA had traded down so much heading into earnings that if they surprised to the upside…big jump!
Anyways, I screwed up A LOT! I’m very fortunate to not have destroyed more wealth with my illogical, over confident trading. I plan to sell NVDA and buy ESTC and potentially ZUO, BL, PLAN or ZBRA…need to learn more about each and think about that
I just need to stop the trading crap and become a better long term investor. It will be much better for my life balance too.
That’s all for now. Would love to hear your thoughts. Too much rambling or is it good to hear what’s knocking around inside our brains a little?
Time Weight Return (TWR):
The TWR captures the true investment performance by eliminating all the effects of capital additions and withdrawals from the portfolio. Simply stated, the TWR is the return on the very first dollar invested into the portfolio. This makes the TWR a more meaningful measurement of performance when used to analyze the underlying performance of the portfolio’s assets or comparing your investment manager performance to alternative investments.
The method used to calculate the TWR is derived by dividing up the performance period into shorter sub-intervals, such as one month. Each sub-interval can be further divided into intervals based on the date of any cash inflows or outflows. Then, the IRR is calculated for each of these sub-intervals. Finally, the individual IRRs are then linked together with equal weighting (not dollar weighted) to derive at the portfolio’s overall TWR.
The TWR allows an investor the ability to accurately evaluate the true performance of the underlying assets and your investment manager, not just the return on the dollars you have invested in the portfolio. This may sound like a very subtle difference, yet, the IRR and TWR can be significantly different, even for the exact same period of time. It is important to understand the differences so you can make investment decisions with the best information available.