Previous Month Summaries
January: I didn’t start doing this until February
This Month My Portfolio +0.54% S&P -0.12% Nasdaq +0.99% Russell 2000 +1.76% YTD My Portfolio -11.3% S&P +6.21% Nasdaq +4.11% Russell 2000 +9.41%
In August, I had another “a step forward and a step back” kind of month. XPO appreciated quite a bit, but RUBI took a big hit before I sold it. None of my largest holdings moved forward in meaningful ways; in fact SEDG continued to get cheaper and cheaper. (If it continues down, I will buy more at some point. Tough to resist now!) A few of my smaller holdings appreciated quite a bit, but didn’t change my overall picture too much.
I also sold out of LGIH too early (more on that below), and managed not to get in on the BOFI gains.
Changes this month, and why I made them
This month I sold out of quite a few positions. This wasn’t particularly surprising, as at the end of last month I was spread pretty thin after my top few positions, which reflected my low conviction. My conviction has now grown in several companies which I have added to or initiated positions in. The low conviction companies, I sold. My process was simply asking myself if I could justify selling, and if the answer was yes (whether because I thought the stock price was likely to go down, or just because I felt other stocks were likely to outperform it) I sold.
I also starkly shifted from low PE / low PS companies into high PE / high PS companies. Valuation is a fascinating thing. There are some things I remain convinced are insane bargains. I added to SKX and didn’t sell any SEDG, despite their dwindling share prices and PEs. It’s possible I may have to wait a long time for these shares to come back to where I feel they should be, but I just don’t feel now is the time to sell. The price is too compelling. They are so cheap. It is frustrating when other things are going up to have these as a drag on my portfolio, but I feel that their time could come at any time.
I have stopped shying away from more expensive things, and greatly increased my stakes in SHOP, PAYC, VEEV, and added large positions in CRM, SSNI, and SPLK. This was largely because I began to understand subscription models and deferred revenue and realized that these companies are growing in a sustainable way that actually can contribute to justifying their valuations. These companies are in no way cheap, and I was treading lightly, but now I am jumping in.
This was no small change. The average stock in my portfolio (excluding WATT) had a P/S ratio of 3.5 last month. This month that average PS grew to 5.4. That is a real shift in the types of stocks I’m investing in. This is entirely based on my conviction that these are the companies which will grow the most rapidly and sustainably in the near term. I am becoming even more confident about these companies than SKX or SEDG…my allocations don’t reflect that yet, but they are rapidly moving in that direction.
I sold out of 9 positions during August and only added 4 new ones. So I’m down from 25 positions at the end of July, to 20 positions now.
IDTI - As I said on the day I sold, way back on 8/1: I was listening to the conference call and they said that next quarter sales would be down because of a big customer, and I hit “sell” immediately (this was actually my first ever after-hours trade). The word “Infinera” started ringing in my ears. But it’s more than that really. Like many companies these days, IDTI’s spending has just been going crazy. It has increased far faster than gross profit, which has led to decreasing margins. I’m out.
PN - Trimmed 50% on 8/1 when it went up on the new Ebix offer, sold the rest a few days later.
LGIH - I sold way too early, but I have been a little spooked by the monthly numbers lately. Hopefully they’re just noise, but I’d like to see a couple months back up over 400 closings before I consider getting back in.
DY - I sold before earnings came out. Just didn’t know what they were going to say about guidance given the demand uncertainty. Turned out selling was the right move, at least in the short term. I’m happy to be out for now. It’s not bargain basement or anything, and I feel like the recurring revenue companies I’m putting my money with are better bets.
INUV - Had to come to grips with the fact that I don’t understand this business.
RUBI - See INUV.
GDEN - Took profits on my tiny position. Wasn’t something I could get too interested in.
CBM - Like with SCMP before it, I again decided just to stay away from the health care industry.
INFN - Realized I was really only holding because I was hoping that revenues wouldn’t be as bad as expected. Hard to get excited about that. Better places to put money.
AMZN - Sold a ton to free up some cash. I absolutely believe they’ll be a long-term, steady winner, but other things are more compelling at present.
SSNI - Upon noticing that this little company had become Saul’s 7th largest holding at the end of July, I took a closer look. I really liked what they are doing, and even though the valuation is troubling, the magnitude of the deal with ConEd put me over the top and I bought.
SPLK - Bought after it sold off on phenomenal results. Bert wrote them up and convinced me. Also a David Gardener favorite. I don’t understand their secret sauce, but I like their business model and growth. They also seem near an earnings inflection point.
FB - Some of the proceeds from AMZN went here. Both of these companies will continue to take over the world, but neither is likely to double in mkt cap in the next 2-3 years. Slow and steady…these definitely have a place, but I am keeping them smaller than the huge potential stocks I like most.
CRM - A much larger company than SHOP, PAYC, VEEV, etc., but CRM also trades at a lower PS. Also, while others have been booming this year, CRM has yet to explode. Hopefully that share price reflection of their constant growth and vast potential is on the way soon.
AHS - This company seems to be on the right track, profitable, growing, in demand. It also sold off after earnings for no reason I can see, so I stocked up. I like it.
VEEV, SHOP, PAYC - SaaS is the place to be right now. I esp like that PAYC and VEEV are actually profitable, and increasingly growing EPS.
SKX - I continue to build up my position while SKX remains on sale.
SUNW - Phenomenal growth. Probably won’t add much more - a 9% position is pretty large for a microcap like this.
My Current Allocations
Skechers SKX 18.5% Sunworks SUNW 9.0% Solaredge SEDG 8.2% Salesforce CRM 8.2% Shopify SHOP 7.2% Silver Spring Networks SSNI 6.6% Paycom PAYC 5.2% AMN Health AHS 5.0% XPO Logistics XPO 5.0% Splunk SPLK 4.0% Mitek Systems MITK 4.0% Veeva Systems VEEV 3.5% Amazon AMZN 3.2% Fitbit FIT 2.5% Facebook FB 2.2% [Stamps.com](http://Stamps.com) STMP 2.0% Energous WATT 1.5% Yelp YELP 1.3% Pandora P 1.0% Perion PERI 0.9% Cash 1.0%
Random Thoughts and Conclusions
I’m starting to question why my high conviction stocks seem to do worse and my low conviction stocks seem to do better. I’ve even noticed the same for Saul to some extent (INFN, SBNY, SWKS, and SKX have been recent high conviction dogs, although LGIH breaks the mold.)
I’m hoping this is just a timing thing, or a reflection of what Saul calls a “camouflaged bear market.” So hopefully these high conviction holdings are on the verge of taking off.