Bear's Portfolio through 05/2022

PaulWBryant · May 31, 2022, 5:08pm

WARNING: I was down roughly 54% YTD at one point this year. That means I only had about 46% remaining of what I started the year with! No one can prepare you for what it feels like losing more than half your net worth, even “on paper”…it’s not easy for most of us to tolerate. Don’t copy me or Saul or anyone – figure out what works for you.

Please don’t email me portfolio management questions. I have absolutely no idea what you should do, because only you can know how best to run your portfolio – and if you’re like I was when I was first running a concentrated portfolio, it will take months of rapt learning (including following along on this board) – and plenty of trial and error – to figure out what works for you. Here are a few answers to some questions I get frequently:

Q: Does your return percentage include the cash you hold?
A: YES, the 0% return from cash held is included in the overall return and obviously drags it down when the portfolio is up, but also drags return up when the portfolio is down. I’m constantly adding to and trimming positions, so my cash level fluctuates all the time – and I won’t be able to share my real time moves, just the monthly snapshot.

Q: Are stocks overvalued? Is that why you hold so much cash?
A: I never know when anything is overvalued. I just do what works for me.

Q: Should I hold cash to be able to buy on pullbacks?
A: Probably not if you have new money coming into your portfolio regularly (like from a paycheck), right? But when you’re retired you just have to figure out what works for you. The closest thing to advice I’ll say is this: You will never time it perfectly anyway, so just use your judgment and do what helps you sleep at night.


**Port Return**
Jan -21.2% YTD
Feb -23.8% YTD
Mar -26.0% YTD
Apr -35.5% YTD
May -49.0% YTD

Here’s what I did in May:
First, let’s just take a minute to realize how bad May was for our stocks. I thought that with the indexes falling in April (and my portfolio at -35.5% YTD through April), maybe we could expect a little bounce back in May. Quite the opposite. In May alone:

DDOG was down 21% despite a good quarter and great guide
BILL was down 31% despite a solid quarter
MDB was down 33% on no news that I’m aware of
ZS was down 25% even after rebounding some when they reported their quarter
S was down 29% while plenty of good news came out about their progress
etc

That would be an awful month any day, but on top of the year we had already had through April, it was crushing. Again, only my trading and my cash position mitigated the damage. (For more on that, see my monthly review from April 2022.)

In May, I sold out of Monday, Upstart, Twilio, and Amplitude. All were very small positions coming into the month, and in general I just didn’t like their quarterly reports. Either growth was too slow, or they weren’t showing much operating leverage improvement, or in Upstart’s case they actually had to reduce the FY guide they had given just a quarter ago! Yikes!

I took 2 new small positions in Crowdstrike and Cloudflare. Below you will find a blurb on each, but I’ve been in them before.

I now have 9 positions including cash. I reduced Bill.com and Zscaler (more on those below), so Datadog and cash are now my only super-large positions. Hopefully I’m through with letting my enthusiasm get ahead of my conviction – I’ll try to build up positions in new companies more slowly from now on.


Ticker	Curr%	Apr	Mo Ch	YTD Ch
DDOG	26.4%	21.3%	-21.0%	-46.4%
BILL	12.7%	20.3%	-30.7%	-52.5%
MDB	11.9%	6.3%	-33.2%	-55.2%
ZS	8.6%	19.6%	-24.5%	-52.4%
S	6.9%	2.2%	-28.5%	-52.9%
SNOW	4.3%	4.5%	-25.5%	-62.3%
CRWD	2.7%	0.0%	-19.5%	-21.9%
NET	0.6%	0.0%	-35.0%	-57.4%
cash	25.8%	18.1%

**Sold in 2022**
AMPL	0.0%	0.8%	7.9%	-64.4%
MNDY	0.0%	4.6%	-12.3%	-63.2%
UPST	0.0%	0.4%	-32.8%	-66.7%
TWLO	0.0%	2.0%	-5.9%	-60.1%

MY COMPANIES

Datadog (DDOG)
02/26/2021: $95.41 (Market Cap Approx: $33b, TTM Revenue: $604m)
03/31/2021: $83.34 (Market Cap Approx: $29b, TTM Revenue: $604m)
04/30/2021: $85.77 (Market Cap Approx: $30b, TTM Revenue: $604m)
05/28/2021: $91.05 (Market Cap Approx: $31b, TTM Revenue: $671m)
06/30/2021: $104.08 (Market Cap Approx: $36b, TTM Revenue: $671m)
07/30/2021: $110.70 (Market Cap Approx: $38b, TTM Revenue: $671m)
08/31/2021: $137.80 (Market Cap Approx: $47b, TTM Revenue: $765m)
09/30/2021: $141.35 (Market Cap Approx: $49b, TTM Revenue: $765m)
10/29/2021: $167.05 (Market Cap Approx: $58b, TTM Revenue: $765m)
11/30/2021: $178.29 (Market Cap Approx: $62b, TTM Revenue: $880m)
12/31/2021: $178.11 (Market Cap Approx: $62b, TTM Revenue: $880m)
01/31/2022: $146.11 (Market Cap Approx: $51b, TTM Revenue: $880m)
02/28/2022: $161.11 (Market Cap Approx: $56b, TTM Revenue: $1,029m)
03/31/2022: $151.47 (Market Cap Approx: $53b, TTM Revenue: $1,029m)
04/29/2022: $120.78 (Market Cap Approx: $42b, TTM Revenue: $1,029m)
05/31/2022: $95.39 (Market Cap Approx: $33b, TTM Revenue: $1,193m)

Datadog at 33b…hard to believe. And with almost twice as much revenue in the last 12 months than it had at this time last year. Their quarter was good and free cash flow was a standout. They also raised FY guidance mightily. It’s already a huge position, so I was just going to hold at $115 - $120, but below $100 and even $90 (as low as $84 I believe), I’ve been buying. This is a blue chip company in the making.

Bill.com (BILL)
11/30/2021: $280.85 (Market Cap Approx: $29b, TTM Revenue: $308m)
12/31/2021: $249.15 (Market Cap Approx: $26b, TTM Revenue: $308m)
01/31/2022: $188.21 (Market Cap Approx: $19b, TTM Revenue: $308m)
02/28/2022: $237.88 (Market Cap Approx. 25b, TTM Revenue: $411m)
03/31/2022: $226.79 (Market Cap Approx. 23b, TTM Revenue: $411m)
04/29/2022: $170.71 (Market Cap Approx. 18b, TTM Revenue: $411m)
05/31/2022: $118.24 (Market Cap Approx. 12b, TTM Revenue: $518m)

The quarter for Bill.com wasn’t as explosive as the previous one had been. Everything sounded fine, and I think the explanation was simply that this is their seasonal low. Still, it bears watching. This one has as much upside potential as anything, in my opinion. We’ll just have to see what they can do.

MongoDB (MDB)
04/29/2022: $354.93 (Market Cap Approx. $24b, TTM Revenue: $874m)
05/31/2022: $237.15 (Market Cap Approx. $16b, TTM Revenue: $874m)

Even as this promising company has seen its stock shed 30%+ in May on no news that I’m aware of, I “only” doubled my position, from ~6% to ~12%. Still need to put in the time to build conviction further. I will be watching carefully as they report tomorrow. The top line has been growing faster lately, and they’ve started to make progress showing some operating leverage. I hope to see both those trends continue.

ZScaler (ZS)
05/28/2021: $194.20 (Market Cap Approx: $28b, TTM Revenue: $536m)
06/30/2021: $216.06 (Market Cap Approx: $32b, TTM Revenue: $602m)
07/30/2021: $235.91 (Market Cap Approx: $34b, TTM Revenue: $602m)
08/31/2021: $278.34 (Market Cap Approx: $41b, TTM Revenue: $602m)
09/30/2021: $262.22 (Market Cap Approx: $39b, TTM Revenue: $673m)
10/29/2021: $318.86 (Market Cap Approx: $47b, TTM Revenue: $673m)
11/30/2021: $346.97 (Market Cap Approx: $52b, TTM Revenue: $761m)
12/31/2021: $321.33 (Market Cap Approx: $49b, TTM Revenue: $761m)
01/31/2022: $257.11 (Market Cap Approx: $39b, TTM Revenue: $761m)
02/28/2022: $239.15 (Market Cap Approx. $36b, TTM Revenue: $860m)
03/31/2022: $241.28 (Market Cap Approx. $36b, TTM Revenue: $860m)
04/29/2022: $202.74 (Market Cap Approx. $30b, TTM Revenue: $860m)
05/31/2022: $153.09 (Market Cap Approx. $23b, TTM Revenue: $970m)

This was a disappointing quarter. I can’t figure out why the market liked it, other than perhaps an even worse quarter was priced in. Billings (a leading indicator) showed signs that the growth might be slowing faster than I’d hoped. WSM explained that here: https://discussion.fool.com/wsm8217s-portfolio-30-may-2022-35121… Also troubling, I noticed that even as billings growth has been slower the last couple quarters, ZS’s sales and marketing spending (and OpEx in general) have accelerated a bit. That’s a double whammy. I’ve cut my position by more than half. Zscaler might be able to curtail spending and keep billings from decelerating much further, but that’s a lot to ask, so I’m questioning whether or not I want to keep holding ZS at all.

SentinelOne (S)
12/31/2021: $50.49 (Market Cap Approx: $13b, TTM Revenue: $169m)
01/31/2022: $44.14 (Market Cap Approx: $12b, TTM Revenue: $169m)
02/28/2022: $41.50 (Market Cap Approx: $11b, TTM Revenue: $169m)
03/31/2022: $38.74 (Market Cap Approx: $10b, TTM Revenue: $205m)
04/29/2022: $33.27 (Market Cap Approx: $8.8b, TTM Revenue: $205m)
05/31/2022: $23.79 (Market Cap Approx: $6.3b, TTM Revenue: $205m)

At one point this month SentinelOne dropped below $20. That was a 40%+ drop in May alone. I don’t want to have a large position going into earnings tomorrow, as I’m still building up my conviction in the company (and trying to figure out how durable their growth will actually be). But at the prices we saw in May, I was happy to begin to build the position a little.

Snowflake (SNOW)
04/29/2022: $171.44 (Market Cap Approx: $62b, TTM Revenue: $1,219m)
05/31/2022: $127.65 (Market Cap Approx: $46b, TTM Revenue: $1,413m)

Snowflake made some progress this quarter, especially with cash flow, but they beat by a tiny amount and did not raise the FY revenue guide. I just think other companies are thriving more than Snowflake in the short term. In the long term I still believe they will be a big winner, so I will keep a small position and think about whether or not it makes sense to add. I wish I understood their potential better myself, but every techie I know assures me their TAM is enormous.

SMALL POSITIONS

Crowdstrike (CRWD) - As companies fall out of favor (in my eyes, at least), I find that I need to backfill, sometimes with companies I’ve jettisoned in the past. Crowdstrike didn’t look as attractive when other favorites were all accelerating and CRWD was decelerating, but that trend might be reversing. We’ll know more in a couple days.

Cloudflare (NET) - Cloudflare has always been on my radar. Even now I can’t manage enough conviction to build up the position, but at least the valuation is no longer completely prohibitive. It remains an interesting company to follow, even if I don’t understand much of what they do.

CLOSING THOUGHTS

I believe we are at our best as investors when we are relentlessly pursuing the best companies, and more and more – to me – that means SaaS businesses with durable growth. The trick is figuring out which companies have growth that will be very durable.

Valuation matters of course, but if a company will 5x or 10x its revenue in a few years, we have some serious room for error regarding what we pay for shares today. If a company might only grow 5% or 10% or not at all, the price you pay for the shares matters a lot more, because there is less room for error.

I’ve seen this play out over the years. Even with all my mistakes and changing my mind a lot, and even with the storms the market throws at us (like the last several months), my portfolio’s growth over the last several years has amazed me. There are scary times, though, and you should figure out what works for you!

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

said2 · May 31, 2022, 5:40pm

Bear wrote:
if a company will 5x or 10x its revenue in a few years, we have some serious room for error regarding what we pay for shares today

As “in a few years” is a longterm bet on a company for me as a relative outsider here (still have some S) this raises a question in light of another part of Bear’s post:

In May, I sold out of Monday, Upstart, Twilio, and Amplitude. All were very small positions coming into the month, and in general I just didn’t like their quarterly reports. Either growth was too slow, or they weren’t showing much operating leverage improvement

How can one bet successful longterm on “in a few years” when one unsatisfactory quarter of more than a dozen to come is already enough to change one’s mind and to pull out?

Sounds like doubting that after spring summer will come and selling one’s summer clothes because of one cold week?