Important context for my portfolio reviews: I run a concentrated portfolio and WARNING the swings can be huge. From the 2021 high to the 2022 low, my portfolio fell more than 60%. For every $100 I had at the top I had just $40 left! Staggering. So, before trying this style, even with a small portion of your total net worth, please understand the downside – it’s much steeper than if you own an index, or a bunch of megacaps. Also, don’t follow or copy me, Saul, or anyone. To succeed with a concentrated portfolio, you must rely on your own decisions.
February was an up and down month, but in the end my portfolio was exactly flat. The indices were down, but only by low single digits. Seems like many of the troubled companies whose stocks went up in January came back to earth in February.
My main changes this month were significantly reducing Datadog after their report due to slowing growth, and adding tremendously to Snowflake largely for lack of alternatives, but also because they report earnings tomorrow, and I don’t want to miss my chance to add if they do well and the market loves it. Even if the market hates it, chances are I will still feel good about them long term.
I also sold out of my tiny positions in Crowdstrike and The Trade Desk. I don’t feel good about Crowdstrike’s growth long term, and I just don’t enjoy advertising, so Trade Desk isn’t for me. Lastly, I added one new (well, “new again”) position: Docusign – more below.
MY COMPANIES
BILL had a miserable quarter and the market punished them. The guide for next quarter was abysmal and they weren’t able to raise their FY guide which for me is tantamount to a miss (or let’s just say, they messed up). But I like what Saul did so I’m going to steal his format:
Market reaction: the stock dropped from (approximately) $130 to $95 and is now at $85.
My reaction: Though the growth is clearly not going to be what we’d hoped, there were some bright spots. BILL transitioned to generating cash in a single quarter, seemingly effortlessly. FCF margin was over 18% (vs negative FCF in the Q a year ago). There’s also a lot of seasonality at play, so I’m not panicking over one meh guide. It’s not like they had to lower the FY. I added enough to keep my allocation percentage about where it was before earnings. In my opinion, the market might be way overestimating the slow down here, and undervaluing the cash flows that are coming.
Snowflake reports tomorrow. We’ll just have to wait and see, but I’m holding a full position. I didn’t want to play any games, hoping I could add more if it goes down or something.
As I said, I reduced Datadog quite a bit. With a 25% guide for the full year, I don’t see this one as terribly undervalued. Seems like we’re paying a fair price. I still like the company enough to hold, but I’m only holding about 6% now. I’ll look to redeploy into something I feel will grow much faster and is therefore undervalued. Datadog seems like it’s just slowing naturally, and because of the macro environment, but there’s a slight concern that maybe competition is affecting them more than they want to admit. Let’s keep an eye on it.
Docusign is a new position. They have a new CEO, and he doesn’t seem inclined to just steer the titanic into the iceberg. He said on the Q3 call, “Obviously, I didn’t join to run a low or mid-single-digit revenue company. So, I’m pushing very hard to get us to a different place, and we hope to have a lot of news to report on that over the next few quarters.” That’s what I like to hear. Unlike Okta which I put on my watchlist, Docusign has been cash generative for a long time. They report on March 9th.
Cloudflare reported this month too, and just barely beat their guidance and grew about 42% YoY. The FY guide was for 37%, which the market loved initially, and it soared to over $70/share. I took the opportunity to sell most of mine. This really seems like a company where the market gets euphoric sometimes. I like to trim a ton when that happens, and then add back when the market starts to worry about them again. I’ve added back a tiny amount here at about $60, and I’ll continue to be opportunistic, but for now my position is lower than the bottom end of my target range. I still don’t see this as a good price.
WATCHLIST (sorta)
ZScaler is the company I’m most interested in, but before I buy back in, I’d like to see where Billings goes when they report on 3/2.
Okta seems like it might be rising from the dead, but it’s hard to get a handle on what profitability looks like for them. It’s not a TWLO-like disaster where they have hundreds of millions of costs to cut, but it’s not a history of consistency either…also growth has slowed to something like 20%. Twenty percentish growth is kind of a hard sell until it proves that it’s not going to slow to zero or negative (a la Zoom)…Docusign is in that boat too (but as I said above, they are cash-generative).
After looking into it this month and watching earnings, I’m taking Transmedics off the watchlist. I just have no idea what to expect…regulation concerns, no recurring revenue…this just isn’t something I’d ever be comfortable with.
As always, the goal remains the same: pick the best companies.
Bear
“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
Previous Month Summaries
Dec 2016 (contains links to all 2016 monthly posts): Bear's Portfolio at the end of 2016 - Saul’s Investing Discussions - Motley Fool Community
Dec 2017 (contains links to all 2017 monthly posts): Bear's Portfolio through Dec 2017 - Saul’s Investing Discussions - Motley Fool Community
Dec 2018 (contains links to all 2018 monthly posts): Bear's Portfolio through Dec 2018 - Saul’s Investing Discussions - Motley Fool Community
Dec 2019 (contains links to all 2019 monthly posts): Bear's Portfolio through Dec 2019 - Saul’s Investing Discussions - Motley Fool Community
Dec 2020 (contains links to all 2020 monthly posts): Bear's Portfolio through Dec 2020 - Saul’s Investing Discussions - Motley Fool Community
Dec 2021 (contains links to all 2021 monthly posts): Bear's Portfolio through 12/2021 - Saul’s Investing Discussions - Motley Fool Community
Dec 2022 (contains links to all 2022 monthly posts): Bear's Portfolio through 12/2022
Jan 2023: Bear's Portfolio through 01/2023