Bear's Portfolio through 09/2022

Investment Analysis Clubs Saul’s Investing Discussions
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Due to the popularity of Saul’s board, I know that many people look at my portfolio and others’ who post here. Please remember that I’m not here to advise. You have to decide whether to invest in growth stocks and whether or not to run a concentrated portfolio, and if so, with what percentage of your net worth. If someone who was retired, or on the verge, suddenly decided to put 100% of their net worth into a portfolio like mine in mid-2021, it absolutely would have messed up their plans. At the lows this year my portfolio was down more than 60% from its 2021 high. If you haven’t been through that, take some time to do the math. Staggering.

As bad as this year has been, if you widen the lens, you see a very different picture. Cumulatively since January 2017, my portfolio has gained over 1,200% even after falling so much this year. I think this style has worked for me for a few main reasons:

  1. It fits my mentality. I can change companies often, but I’m committed to investing for the long haul.
  2. When I started, I had a solid job and was adding money to my portfolio regularly.
  3. I had some great luck early after adopting this style, in that 2017-2020 (especially 2020) was an incredibly good run for growth and especially SaaS.

Saul and many, many others have successfully run a concentrated portfolio for decades. But that doesn’t mean it’s for everyone. And before trying this style, please understand the downside (2022 is a good reminder). If you want to read about my path, there are links to every monthly review (starting Feb 2016) at the bottom of this post.

General Comments:

I see that the Dow, S&P 500, and Nasdaq are all at YTD lows. And yet my companies are up 34% from their lows on average. Crowdstrike, Snowflake, SentinelOne and The Trade Desk all fell less than the Nasdaq this month.

Don’t get me wrong, investing hasn’t been a ton of fun this year. But I think we’re starting to see what happens after quarters of underperformance from the stocks of companies that are still putting up great numbers. In the short term, macro and sentiment drive returns. Eventually the company performance drives returns.

Comments on each company

On Friday (9/30) I sold out of Twilio at a gain. This was more of a trade than a position I considered building up, and I decided I’d rather take a small gain and have the flexibility of cash. I’m taking gains when I can get them these days, and I’ve started to think about what Twilio is really likely to be able to do profitability-wise any time soon. The way I see it, they’ve dug a hole by spending so much all these years. Even if they can do slightly better than break-even by some time next year as they’ve said, I don’t think the milk and honey will start to flow at that point. They might have a long road ahead – and they might never have anywhere near the FCF margins of a Crowdstrike or Datadog, because their gross margin is so low. They’re still dirt cheap, of course, but maybe they should be.

I also sold out of MongoDB. I was trying to come up with a reason to stick with them, but similar to Twilio, I just don’t see them rapidly increasing their profitability even when they eventually surpass break-even. Management just doesn’t seem very interested in it, and with revenue growth slowing pretty quickly, I just don’t think it will be like flipping a switch and suddenly, voila, they have a ton of FCF. Maybe MDB’s share price is fair now, but I’m just not seeing a ton of upside, or a reason to get excited about their potential.

I added to Datadog, Bill.com, Crowdstrike, and Snowflake in September. I consider these my core positions, and they are all very high confidence companies. That means if the price falls, I’m probably adding. I would be willing to go to 25% Datadog, but the others I’ll probably keep closer to 15% or less. I’ll likely only get to these limits when I feel the stocks are drastically undervalued. Bill.com is pretty close to 15% now, so that tells you I feel they’re looking pretty undervalued. I think Datadog and Crowdstrike are too. Snowflake, less so, but that’s only because it is showing incredible strength. Basically, these positions are in the range where I want them, so I’ll just be opportunistic as their stock prices fluctuate, adding and trimming.

I bought back into SentinelOne this month, as they really surprised me this quarter with roughly $65m in organic ARR growth. They are being very cautious for next quarter, guiding to “high 50’s,” so I don’t want to go too big on this one yet, but it seems I might have underestimated them. Promising, anyway, and it will be exciting to watch.

Cloudflare and SentinelOne and The Trade Desk are not as high confidence as the top group, so I’m fine with them as mid single digit positions. I wouldn’t feel comfortable building them to double digit positions just yet.

Lastly, I did add to my tiny Peloton position, but only enough to keep it around 2%. It got beaten down another 32% this month, and maybe even my 2% position seems crazy to you, but I am interested in this turn around story. The letter from the new CEO, Barry McCarthy, seems to indicate that he’s doing exactly what I would want him to do: https://investor.onepeloton.com/static-files/1dbcdc3f-5fb7-41c7-a1af-05d2ee456a92 So, are turn arounds possible? We’ll see.

So that’s 7 real positions, or 8 total if you count tiny Peloton.

As we’ve gotten used to by now, it’s been a rough year. Still, whenever the tide turns, the companies that are performing best will lead the way back up. Good luck in October.

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): http://discussion.fool.com/bear39s-portfolio-at-the-end-of-2016-32537340.aspx

Dec 2017 (contains links to all 2017 monthly posts): http://discussion.fool.com/bear39s-portfolio-through-dec-2017-32936267.aspx

Dec 2018 (contains links to all 2018 monthly posts): https://discussion.fool.com/bear39s-portfolio-through-dec-2018-34099070.aspx

Dec 2019 (contains links to all 2019 monthly posts): https://discussion.fool.com/bear39s-portfolio-through-dec-2019-34376383.aspx

Dec 2020 (contains links to all 2020 monthly posts): https://discussion.fool.com/bear39s-portfolio-through-dec-2020-34709186.aspx

Dec 2021 (contains links to all 2020 monthly posts): https://discussion.fool.com/bear39s-portfolio-through-122021-35012795.aspx

Jan 2022: https://discussion.fool.com/bear39s-portfolio-through-012022-35041354.aspx

Feb 2022: https://discussion.fool.com/bear39s-portfolio-through-022022-35064059.aspx

Mar 2022: https://discussion.fool.com/bear39s-portfolio-through-032022-35083903.aspx

Apr 2022: https://discussion.fool.com/bear39s-portfolio-through-042022-35101200.aspx

May 2022: https://discussion.fool.com/bear39s-portfolio-through-052022-35121454.aspx

Mid-June 2022: https://discussion.fool.com/bear39s-mid-month-review-35130695.aspx

Jun 2022: https://discussion.fool.com/bear39s-portfolio-through-062022-35137548.aspx

Jul 2022: https://discussion.fool.com/bear39s-portfolio-through-072022-35149103.aspx

Aug 2022: https://discussion.fool.com/bear39s-portfolio-through-082022-35159555.aspx

120 Likes
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Hi Bear, Interesting to see your positions. I also have 7 real positions and 1 little 2% position. Our top six positions are the same companies, showing that we both see them as the best prospects out there, although we are certainly not holding them in the same percentage positions.

For our 7th place positions you have The Trade Desk in a 5% position and I have Monday in a 6% position. I certainly see nothing wrong with TTD and tried it out myself for a short time.

For our little try-outs, you have 2% in Peloton and I have 3% in Zscaler. Here we differ as I see Peloton as a disaster basket case at $7 down from $151. It has all the problems with supply lines and selling things, though currently with excess inventory and no one wanting to buy, it’s consumer facing in a recession, its revenue was falling like a rock last I looked, and it’s very much losing money. I therefore guess you are seeing it as a short term speculation (correct me if I am wrong), and hoping that it might rise $3 to $4 on some piece of good news, to give you a quick 50% gain on a trade. Not my cup of tea (I’m sure the people who bought it $15 and $30 had the same hope), but I wish you well with it.
Best,
Saul

56 Likes
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Hi Raptor, your post is a portfolio management post and doesn’t really belong on our board. I’ll leave it for now without deleting it, but please don’t post this kind of posts on the board. I’ll try to find out if there’s a way to take a question like this off board the way we could on the old board.
Saul

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Hey Saul. I didn’t think you’d be interested in Peloton, but since you asked, it’s more than just a “hoping for a quick bounce,” but it’s extremely complicated, so very low conviction. It’s a turn-around play so I figure it’s not really right to discuss much on your board. But I really do think the company might work long term. My family loves doing the bike rides and I believe they have a good product in the content that they offer on a subscription basis. The problem is the hardware – and that’s a problem it appears Barry McCarthy is addressing. They’ve stopped selling inventory at a huge loss. Their gross margin was -4% this quarter and they’re guiding for 35% next quarter. No more giving product away just to get it out the door. But will they have an inventory problem? I don’t know. A big part of what they’re doing is getting out of the manufacturing business. How will that work? I don’t know. It’s complicated. They’re also selling apparel now which I think is a big move because there are Peloton fans that will want to wear their colors, and that should be a profitable add-on business.

It’s all kind of a big mess, but with something like a $1.5b run rate of subscription revenue (with a 68% gross margin), I just believe there’s a good business there. If they can really shed the manufacturing anchor, it could get interesting. Obviously that’s a huge task and I don’t know if it’s possible. But I’m intrigued enough to hold a tiny position too small to really sting that badly if it all goes up in flames.

Bear

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