Bear's Portfolio at the end of June 2017

“I guarantee nothing but hard work.” - Paul “Bear” Bryant

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

Previous Month Summaries

Dec 2016 (contains links to all 2016 monthly posts): http://discussion.fool.com/bear39s-portfolio-at-the-end-of-2016-…
Jan 2017: http://discussion.fool.com/bear39s-portfolio-at-the-end-of-janua…
Feb 2017: http://discussion.fool.com/bear39s-portfolio-at-the-end-of-febru…
Mar 2017: http://discussion.fool.com/april-fools-suckers-here39s-the-real-…
Apr 2017: http://discussion.fool.com/bear39s-portfolio-at-the-end-of-april…
May 2017: http://discussion.fool.com/bear39s-portfolio-at-the-end-of-may-2…

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.


**This Month**
My Portfolio            +0.51%
S&P                       +0.48%
Nasdaq                   -0.94%
Russell 2000           +3.37%
 
**YTD**
My Portfolio            +31.76%
S&P                       + 8.24%
Nasdaq                  +14.07%
Russell 2000           + 4.50%

As of Friday the 23rd, I was at my high point for the year – up more than 39%, and 6% for June alone. The bottom fell out this week, but even though most of the June gains were erased, I still have to be very happy for the year we’ve enjoyed, and the fact that my portfolio outperformed the Nasdaq for the month.

As usual, I’ll show what my portfolio looks like today. This time, instead of just a + or - where I added or trimmed, I’ll show how my share count changed as a percentage of how many I held last month.

I’m down from 15 positions at the end of May to 12 positions now at the end of June.

My Current Allocations


Ticker	Curr%	Buy/S	Mo Ch	YTD Ch
SHOP	16.0%	80%	-5.4%	102.7%
HDP	9.4%	0%	4.2%	55.0%
SQ	9.2%	0%	2.0%	72.1%
TWLO	9.2%	-22%	19.7%	0.9%
SPLK	8.4%	0%	-7.1%	11.2%
TLND	8.1%	-26%	6.1%	56.7%
HUBS	7.8%	50%	-8.8%	39.9%
WIX	7.7%	22%	-5.6%	54.8%
TTD	7.2%	22%	-8.9%	81.1%
MULE	6.9%	250%	-4.2%	6.6%	
MELI	5.0%	70%	-8.8%	60.7%
NEWR	4.9%	187%	-1.5%	52.2%

Stocks I sold

CYBERARK SOFTWARE - Even though it was only in May that I identified this stock as undervalued, in the early-June carnage it held fairly steady while other things dropped, so I couldn’t help but re-distribute funds from it into other stocks. It still looks undervalued, but so does a lot of other stuff.

PURE STORAGE Pure was around $13 when I sold. I had bought around $10 or 11, so a 20-30% increase was ok with me. They do sell hardware, after all. Especially when there was so much I wanted to buy this month, PSTG got the axe.

LGI Homes - I bought and subsequently sold LGIH in June. I’m back in on their story, but it’s not high conviction, so it too got the axe when I was raising funds.

YELP - After I had sold the companies above, I was down to 13 stocks in my portfolio, and since I had sold some Yelp when other things were down and it was up, my remaining Yelp position was my smallest. Suddenly I looked at my portfolio and it stuck out like a sore thumb. I said to myself: “I own 12 of the most exciting, fastest growing, innovative companies I know of…and Yelp.” When I realized that, I sold it immediately. I still feel like it’s undervalued. I still feel like it could get acquired and make a quick 30-50%. I don’t care. The name of the game is opportunity cost, and I’ll bet on the companies I’ve got right now.

Stocks I own

SHOPIFY (16.0%) - Once again resuming its rightful place as the top stock in my portfolio, enter Shopify. 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 help you set up your site, take payments, do 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.

I first bought SHOP in June of 2016. In Q4 2016, I accumulated shares until SHOP became a 25% position for me. When it started to spike in 2017, I took profits (maybe too quickly). In May, I slowly started to add back to my Shopify position. In June, given another opportunity to buy Shopify in the $80’s, I loaded up more – I increased my share count by 80%! It is now a very large position, which I am perfectly happy with. I will be sure not to trim it down below my other large positions again, even if it rises quickly.

HORTONWORKS (9.4%) - Hortonworks helps companies manage big data with Hadoop. Customers subscribe to the HDP software platform, and Hortonworks stores, processes, and analyzes their data.

They reported a fantastic March quarter. Revenue was up 35%, but Support Subscription Revenue Increased 52%. In June they announced this: https://seekingalpha.com/pr/16858756-hortonworks-introduces-…

HDP has been a top 5 position for me for several months. The stock has done well, even in June as many other things were down, but I think it still has a long way to go. I didn’t even think about reducing this one to add to things that were down.

SQUARE (9.2%) - 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 and Square’s service to take the payment. Square also provides analytics, offer overnight loans, and have many other services available to their customers.

Square turned in a great March quarter: beats on top and bottom lines, raised guidance. But what looks most interesting is that you can really start to see their path to profitability. The speed with which they’ve gone from barely even showing any gross profit to suddenly showing net profit is amazing. I’ll even go out on a limb and suggest GAAP profit is possible. If they hit their 535M guidance for total revenue in Q2, I’d expect gross profit to be over 200M…up from 173M sequentially! Pretty incredible. Then it’s just about keeping their operating expenses in check: they were 188M this quarter, so even if they keep it within 5% of that, they should show GAAP profit.

Like HDP, SQ was actually up in June. But like HDP, I didn’t want to sell any to buy things that were down, because I think SQ has a long, long, runway ahead of it.

TWILIO (9.2%) - Twilio makes web service APIs for phone calls and texting. Software developers who subscribe to Twilio’s platform can use these services in their products, this works out great on both sides: from customers’ perspective they only have to pay when these services get used, and from Twilio’s perspective, the more the services get used, the more Twilio gets paid.

March quarter earnings were great, but they made the disappointing announcement that Uber, their biggest customer, was cutting back their spend. Uber is going to do a few things in-house, and also use other vendors. This makes a lot of sense to me. It’s such an integral part of Uber’s business, they don’t really need to be so dependent on any one company. We had a lot of discussion on the board about the Uber situation. I still feel this way, basically: http://discussion.fool.com/matt-if-uber-can-do-it-this-quarter-w…

I bought a good bit on the ~30% drop. I think the perceived risks are way overblown, and they will prove it when they report the June quarter.

Apparently in June Mr Market decided to agree with me – at least that Twilio was oversold. It was up 20% in June, the most of any stock I own. I trimmed it a bit since it was so big, but mainly to add to things that were down.

SPLUNK (8.4%) - Splunk captures and organizes data in real time, then identifies patterns. There are a lot of use cases: application management, security, big data analysis, etc. From my admittedly limited vantage point, it sure seems Splunk is really becoming a very big fish in the big data landscape.

In the April quarter, analysts weren’t impressed with 30% revenue growth and similar guidance (even though it was a raise), but I was very pleased that recurring revenue increased 48% YoY in the April quarter – that’s a fantastic pace and it’s not slowing down. I had added a lot recently, so even though SPLK was down 7% in June, I just held my position.

TALEND (8.1%) - 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 first invested in Talend in February, and more in March, April, and May. In June TLND was up while other things were down, so I trimmed it (my largest position) to add to some others. It’s still a large position, as you can see, and ended the month up 6%.

HUBSPOT (7.8%) - 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. It sure seems to me like Hubspot is becoming a leader, if not THE leader, in the space, and the results it continues to acheive seem to confirm this.

In the March quarter, they grew revenue 40% (and most of it is recurring), raised guidance mightily, and announced some other great trends. My favorites were that total customer count increased by 40% to 31,262 and that marketing customer count increased 28% to 24,775.

Hubspot was way down in June and I took the opportunity to increase my position by 50%.

WIX (7.7%) - Wix is a company that helps users create websites, and then hosts them. It makes money by selling ads that are displayed on its free sites, and by charging subscription fees from its paying users.

Wix reported an incredible March quarter, with revenue increasing even faster than expected: 50%! They didn’t hit the EPS the market wanted, but the revenue is increasing at a pace where they’re probably willing to focus on that exclusively.

Since Wix is up almost 4 fold in just a year or so, it’s understandable for the market to take a breather every now and then, despite the results they keep pumping out. But I took advantage of the breather to increase my position by 70% in May, and in June I increased it again.

THE TRADE DESK (7.2%) - This company plays in the somewhat crowded world of advertising, 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 50, which given their growth, seems insanely low.

The Trade Desk was a new position for me in February. In March the stock flew up and then back down, and I added a ton on the way down. It got to be my second biggest position, so in April I just held. In May, I trimmed a little before and a little more after earnings. The report was fantastic (some called it “perfect”) and they grew revenue at a staggering pace once again: 76%. Though everything seems to be going great, I just don’t understand the industry too well, or why TTD is growing so much faster than competitors, so I’m more comfortable with it being a medium-large, but not a top position.

TTD was down almost 10% in June, so I added 22%. I don’t want to let it get much bigger, so if shares appreciate, I will trim it some.

MULESOFT (6.9%) - MuleSoft integrates applications. Wikipedia actually calls their directory of API’s a “social network for developers.” When Saul originally described MuleSoft, some thought it sounded a lot like Talend. It actually does a type of integration so different from what Talend is doing, that I think it has more in common with Twilio. It facilitates communications – not between apps and their user’s phones (like Twilio does), but rather between apps and other apps.

Saul has described this company as an unrecognized category leader, and they are certainly growing like one. Though revenue increased a fantastic 56% in the March quarter, subscription revenue actually grew much faster! Saul pointed out in his introduction to the company that they’re not only growing by winning tons of contracts, but also by a drastically increased contract value. Another incredible revenue force multiplier like so many of today’s great young companies have (e.g. SHOP, WIX, SQ, TWLO, MELI, etc).

I keep thinking back to a great lesson Saul wrote about how these super fast growers are actually UNDERvalued when they IPO (http://discussion.fool.com/one-reason-that-stocks-like-shopify-h…). I think he’s right. If they can keep growing like this, they are undervalued even at their current PS ratio of almost 14. I increased my very small position by 250% in June, so it is now a medium-large position.

MERCADO LIBRE (5.0%) - Most Fools have heard of Mercado. It’s been called the South American Ebay/Amazon. They have been growing like a weed, expanding offerings, taking payments, etc, etc. Mad growth. Revenue growth accelerated to 74% (constant currency…79% locally) in the March quarter! I took a tiny position, and added to it on a couple dips during the month.

In June, the stock was down, and I added 70% more, so that this small position is now more mid-sized. In fact, I did the same with New Relic, and so I actually don’t have any positions I would consider “small,” now.

NEW RELIC (4.9%) - New Relic is a company that monitors web and mobile applications in real time, detecting issues before they become problems, and helping companies figure out where the pain points may be before it costs them sales, or even customers. Along with CSCO’s recent acquisition, AppDynamics, and a private company called Dynatrace, New Relic is one of the main leaders in the APM space. They recently partnered with Splunk, which I think solidifies their position even more.

I first took a position in May, but in June NEWR was down around 10% at one point and I increased my position by 187%. It ended the month down less than 2%, so score one for good timing!

Random Thoughts and Conclusions

The last couple months, I’ve been noticing a ramp up in the volatility of the stocks I own. I did a quick study, and my daily fluctuation averaged about 0.7% for Jan-Apr. In May it was 1.1%, and in June it was all the way up to 1.6%. That’s a lot to move on average each day. I don’t know if that is a good or bad sign going forward, or neither. I just thought it was interesting.

But that observation got me thinking: it’s just volatility. It’s not real risk. The risk is not that companies will go up and down: that’s a certainty. Risk is the chance that the company does less business this year than it did last year…and that it might do even less next year, and the next year. This is how you’ll lose in the short term and quite possibly not come back in the long term.

Of course there is never certainty. But there are levels of uncertainty. Figuring out where a company falls into those levels is the art of investing. It’s being able to cut SNCR loose like Saul did in December. When I first found this board, I looked for stocks that appeared cheap. But cheap is perilous (http://discussion.fool.com/tim-thanks-for-posting-saul39s-respon…).

What I look for now: companies where growth is astounding and uncertainty is as limited as possible.

My best to all,
Bear

55 Likes

Bear,

Great report. Much to say on many of your holdings. But will limit myself to Square. I no longer use Square, but once did. There are many payment processors. I don’t know which one is better than any other. As a vendor I just want to get paid. In the last three days I’ve had new clients just pay me by going to my website, or sending me a credit card authorization form. My average sale is much larger than a typical vendor, but it is a great time to be a vendor in regard. Payments just come in, and you can invoice, and in your invoice they can simply click the “Pay Now” button and money comes your way.

In this scheme of things, does Square stand out? I personally cannot say. However, at least one group of analysts thinks they do. Calls Square the Tesla of payment processors. A term that you likely won’t appreciate so much :wink:

But here is a link to the article:

http://www.barrons.com/articles/why-this-fintech-firm-remind…

Tinker

3 Likes

Bear,

Thanks for sharing. I have some observations.

  1. Like Saul, you are very concentrated in technology companies. Yes, volatility has spike recently, but more specifically volatility of technology stocks has increased to a larger degree.

  2. Not only are you heavily weighted toward technology, but you also have an additional risk that you may not have considered. A large portion of your holdings are headquartered in San Francisco. I looked up the headquarters locations for your companies:

SHOP	16.0%	Toronto, Canada
HDP	9.4%	Santa Clara (SF Bay Area)
SQ	9.2%	San Francisco
TWLO	9.2%	San Francisco
SPLK	8.4%	San Francisco
TLND	8.1%	Suresnes, France
HUBS	7.8%	Cambridge, MA
WIX	7.7%	Tel Aviv, Israel
TTD	7.2%	Ventura, CA
MULE	6.9%	San Francisco
MELI	5.0%	Buenos Aires, Argentina
NEWR	4.9%	San Francisco

So if you count HDP which is about 30 miles South of San Francisco, you have 49.2% of your companies in the SF Bay Area. SQ, TWLO, and SPLK are just blocks apart. Also, Talend has people in Redwood City which is about 20 miles South of San Francisco. Shopify also staffs some of their technical people in San Francisco.

There is added risk when a large part of your portfolio is located in the same geographic area. As most know, San Francisco is especially prone to earthquakes and occasionally there is a big one. There are several faults that run through the region. One fault, the Hayward Fault, is on the other side of the Bay and it runs through Oakland and right under the UC Berkeley football stadium. The last big earthquake, a 7.0 quake, hit the Hayward fault in 1868 (149 years ago). The previous major earthquakes on the fault were in 1315, 1470, 1630, 1725, and 1868 which were separated by 155, 160, 95, and 143 years. Probably the biggest risk from a major earthquake is the security of the water supply which comes down by gravity through an extensive network of pipelines and tunnels from Hetch Hetchy, near the Yosemite Valley, into 11 reservoirs. The population of the San Francisco Bay Area is more than 7 million and many/most rely of this water supply. A major earthquake could also disrupt other utilities and wreak havoc on the transportation system on which many high tech workers rely to get to work. So there is a real risk to your portfolio from a major earthquake which is already overdue by about 10 years (considering the average interval of last 5 major events). The real risk is to business disruption of 49.2% of your portfolio. If there is a big one then these companies may not be able to operate for an extended period from their San Francisco Bay Area offices and this is where their management teams and most employees are located.

Chris

27 Likes

Chris,

You have a point about an earthquake but all companies big enough like the ones Bear holds would have a COOP. Continuity of Operations Plan.

It would be outstandingly ridiculous for these companies not to have perceived that risk already.

I can tell you this much, should Menlo Park and surrounding areas become a quarantine zone, FB would have no problem, count ORCL, GOOG and a few others.

A lower case fool that doesn’t perceive mother nature as a risk is a fool indeed.

1 Like

Bear, you write great reviews. Thanks!
Saul

5 Likes

Nicely done Bear.

Frank

*SHOP	16.0%	Toronto, Canada*
*HDP	9.4%	Santa Clara (SF Bay Area)*
*SQ	9.2%	San Francisco*
*TWLO	9.2%	San Francisco*
*SPLK	8.4%	San Francisco*
_TLND	8.1%	Suresnes, France **(Redwood City, CA)**_
*HUBS	7.8%	Cambridge, MA*
*WIX	7.7%	Tel Aviv, Israel*
*TTD	7.2%	Ventura, CA*
*MULE	6.9%	San Francisco*
*MELI	5.0%	Buenos Aires, Argentina*
*NEWR	4.9%	San Francisco*

BTW, I’ve been researching TLND and they are essentially headquartered in Redwood City, CA which is about 20 miles South of San Francisco. The management team is there. They are also partnered with Google which is based a few miles from Redwood City, CA. They have worked with Hortonworks on delivering joint solutions to customers; HDP is about 10 miles from TLND.

This brings Bear’s exposure to the San Francisco Bay Area to 56.1% of the total portfolio!

1 Like

OT: if you had to open a position / add to a position today, where would it be and why…

Just looking for ideas on what to buy next, current port is sweda, googl,cgnx,nda,fb,dis

All the best!

1 Like

Chris, Do you avoid investing in any companies in the San Francisco area? Just wondering. Do you live anywhere near San Francisco? I believe that there are also risks in the Seattle area (home to Amazon). You can’t avoid everything because of earthquake danger, but a big one would really be devastating, and probably with effects throughout the economy.
Saul

Do you avoid investing in any companies in the San Francisco area? Just wondering. Do you live anywhere near San Francisco? I believe that there are also risks in the Seattle area (home to Amazon). You can’t avoid everything because of earthquake danger, but a big one would really be devastating, and probably with effects throughout the economy.

I live on the 4th floor of a 4 story old building in San Francisco. I think it was built in the 1920s after the 1906 earthquake.

I don’t avoid investing in companies in San Francisco, in fact, I also have a heavy concentration of investments based in the SF area. I am aware of the risk and I thought I would post about it because I think most investors who don’t live in SF would not even consider this risk.

I agree that a Katrina-like disaster in the SF area would have an effect on the global markets. Some companies that are based in the area:

Google
Apple
Facebook
Uber
Twitter
Gilead
Arista
Nvidia
HP
Agilent
Genentech
Wells Fargo
Charles Schwab
Ebay
Paypal
Tesla
McKesson
Adobe
Salesforce.com
Oracle
Chevron
Clorox
Bio-Rad
Square
and many, many others including several thousand start-ups (BTW, a huge fraction of the world’s venture capital is based here; I heard recently that 50% of the global VC funding went to companies in the SF area)

The paralysis of a major earthquake due to infrastructure damage would certainly have global repercussions.

7 Likes

OT: if you had to open a position / add to a position today, where would it be and why…

As always, the first companies I’d recommend to anyone are the companies I own. And even in the order to which I’ve allocated my own money to them.

So…have you considered Shopify?

Bear

Wow, that’s a lot…I forgot Gilead and Square were out there when I mentally reviewed my own portfolio’s geography. Visa’s HQ is in San Francisco too, I believe.

Matt
Long GILD, SQ

Thanks Bear, assumed as much, shopify is now firmly on my radar!

have you considered Shopify?

I also like SHOP – I bought it a couple of months ago, mostly for the dividend.

OTT

I also like SHOP – I bought it a couple of months ago, mostly for the dividend.

As far as I know, SHOP does not pay a dividend…

I also like SHOP – I bought it a couple of months ago, mostly for the dividend.

As far as I know, SHOP does not pay a dividend…

Hence his name offtopictom :slight_smile:

Andy

SHOP does not pay a dividend

I was misinformed:

https://www.youtube.com/watch?v=u2inLcR_1jc

OTT

2 Likes

So happy I could set you up for that punchline, OTT!

1 Like

how did you get SHOP only down by 5.4% in June? it was close to triple that- down 15%.

I may be missing something but in all those concentrated portfolios spoken about here, all seems to show a slight gain this month. Considering the composition, I cannot square they were all up slightly. What is the stock that pull the rest up? are trading and edging kept you up? in that case that is a lot of work and a lot of skillful work.

tj

5 Likes

SHOP:

May 31 close: $91.86
June 30 close: $86.90

Difference: $4.96

4.96 / 91.86 = 5.39%

TJ,

It seems like you post in quite a bit of a hurry. I for one would appreciate it if you would look a little more carefully before filling up the board with things you could easily look up.

Bear

11 Likes