Bear's Portfolio through Jan 2018

Greetings, All. January is now over and 2018 is off to a very nice start. Or as someone else put it, “January is turning out to be a great year for stocks.”…

My portfolio is up 13%. That really would be a good year, though we know from recent experience that years can be ever so much better still. Nevertheless, this year is off to so good a start that people are (again) coming out of the woodwork saying the market top is here. Even I am not immune to concerns and am carrying more of a cash position than usual (though never more than 10%). As voices of doom swell, I encourage you all to heed Saul’s wisdom. The best place for your money is aligned with great companies.

One other new thing about January is that I’ve started playing with options a bit. My main strategy is buying call options. Most notably ALRM, which I’ll explain below. But I’ve taken 3 other stabs (FB, TWLO, and PSTG). 2 of those 3 are earnings plays…and it’s looking like FB might not go my way. But fear not, I’m betting very small. I paid only 0.2% of my portfolio for all 3 options combined. I paid about 0.4% of my portfolio for the ALRM calls, but they’re in the money, and I also then sold ALRM shares equal to about 1% of my portfolio.

Ok, enough option talk, sorry. On to the January results!

My 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             12.97%
MyPort_EWNT              10.35%
S&P                       5.62%
Nasdaq                    7.36%
Russell 2000              2.56%
My Portfolio             12.97%
S&P                       5.62%
Nasdaq                    7.36%
Russell 2000              2.56%

Previous Month Summaries

Dec 2016 (contains links to all 2016 monthly posts):…
Dec 2017 (contains links to all 2017 monthly posts):…

My Current Allocations

Ticker	Curr%	Buy/S	Mo Ch	YTD Ch
SHOP	19.6%	-5%	26.7%	26.7%
ANET	12.8%	-14%	17.1%	17.1%
WIX	11.0%	8%	6.1%	6.1%
PSTG	7.1%	16%	27.0%	27.0%
TLND	6.2%	40%	4.0%	4.0%
SQ	6.2%	-26%	35.3%	35.3%
HUBS	5.8%	-25%	9.8%	9.8%
HDP	4.8%	13%	-0.8%	-0.8%
INST	4.8%	0%	8.5%	8.5%
MU	4.8%	0%	6.3%	6.3%
NVEE	4.8%	37%	-10.0%	-10.0%
ALRM	3.7%	-23%	1.7%	1.7%
TDOC	3.0%	-25%	7.3%	7.3%
Cash    5.9%

New this month:


Sold out of this month:

The Trade Desk (TTD) - I sold this one because I get an uneasy feeling about their place in the value chain. They seem to be doing cool stuff, but growth has slowed quite a bit, as spending continues to increase. It’s still a question mark for me whether or not they will be able to have a longstanding position in this tumultuous industry, or get squeezed out by the bigger players. I simply don’t know, and I don’t have to wait around to find out. Happy to watch from the sidelines.

So I now have shares in 13 companies, down from 14 at the end of December

SHOPIFY - SHOP (19.6%) - 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 provide a website, a way to take payments, 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.

How have they been doing? As most of you know, Shopify continues to grow like…actually, any hyperbole I could come up with would understate the growth. Here’s my review of the September quarter:…

This is a top confidence position, and I’m in this company for the long haul.

ARISTA NETWORKS - ANET (12.8%) - Arista sells network switches, just like Cisco, except Arista’s switches use SDN (Software Defined Networking), which I understand makes for better control, performance, and security. Oh, they’re also pretty hard to make, because Cisco is sucking wind trying to catch Arista, but to no avail.

Arista won me over after their June 2017 quarter, which was a total smash. Well guess what? The September quarter was maybe even MORE impressive. Growth: They maintained 51% revenue growth, which just shows how much they’re dominating, as others in the space aren’t growing much, or some at all. Profitability: You want earnings? Operating leverage? Look no further than ANET. EPS basically doubled YoY. OpEx actually came DOWN sequentially, and was only up 13% YoY vs Gross Profit which was up 51%. Net Margin soared to ~30%. Arista is crushing it all around. Oh, and ANET has $1.3B+ in cash – my guess is that when all the legal pestering from Cisco abates, they’ll buy back shares, start a dividend, or invest in something really cool.

Obviously I like this company a lot and just wish I would have started paying more attention sooner.

WIX.COM - WIX (11.0%) - Wix is a company that helps users create websites, and then hosts them. It makes most of its money by charging subscription fees for premium content. It has over 100M users, and more than 3M of them pay for premium accounts.

The September quarter was fantastic. Revenue grew 47% and Average Collections per New Annual Subscription ticked up sequentially from $156 to $158. But, as I noted (…), the market kind of missed the point. The positive EPS was well within the “step in the right direction” category, but missed expectations that I think were so unreasonable as to be silly – and the company doesn’t give EPS guidance, so I’m really not sure where they came from.

This is one of my largest and highest-confidence positions.

PURE STORAGE - PSTG (7.1%) - Pure Storage, formed in 2009, provides flash storage arrays. Storage arrays are nothing new, but flash is different. How different? Bert Hochfeld says it’s the biggest change in storage since spinning discs replaced tape. (…)

They reported their October quarter on 11/28 after the market closed (the day before the big 11/29 drops). Just your average beat and raise. Revenue growth accelerated to 41%, and EPS loss dropped to 1 cent per share. For a company valued so lightly (PS is 4.3 – even lower than HDP’s), they sure have a habit of doing exactly what they say they will (well, slightly better). I cannot recommend their slide deck enough:… They’ve been perfectly predicting exactly what they will do, down to operating expense and operating margin percentage loss (next quarter it will be a gain – their first positive earnings) – see slides 9 and 10. People write Pure off as a hardware company, but:

They have a large SaaS element – 20% of revenue this quarter
They’re NOT a commodity. Gross Margin is 65%+

I added early this month, and then shares took off – they’re up 27% in January! It’s grown into my 4th largest position, but I still think it’s a good buy, and may add as I become more and more familiar with this company. Management has a record of doing just what they say they will do, and I expect great stock results as that continues over the next few quarters.

SQUARE - SQ (6.2%) - 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 to take the payment. Square also provides many other services available to their customers. One of the most profitable is Square Capital, which really leverages their data advantages to offer extremely profitable and low-risk loans to their customers.

In their September quarter Square failed to make me look stupid (…). They accelerated revenue growth to 45%, just as I had hoped and been foolish enough to predict. Thanks, Square!

Square (much to my surprise) shot up 20% in the first couple weeks of January, so I trimmed a little (possibly more than I should have). As we’ve discussed recently on Saul’s board, I don’t want to sell too much because I want to keep plenty of skin in the game, but I admit it’s hard to see SQ growing much from here in the short term. That said, if revenue growth keeps accelerating, anything could happen.

TALEND - TLND (6.2%) - 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 would describe Talend’s September quarter as a solid continuation of good progress all around. Revenue grew 40%. Operating leverage improved – oper loss narrowed quite a bit, they added 44 enterprise customers (vs 31 last Q), and enterprise customer count was up a massive 59% YoY. Nothing to complain about here.

Due to Talend’s price dipping in January, I added back significantly to my position. I won’t add much more, because it’s not my highest conviction company, but I was happy to fill out the position at what I think is a great price.

HUBSPOT - HUBS (5.8%) - 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. Yet it sure seems to me like Hubspot is a leader, if not THE leader, in the space, and the results it continues to achieve seem to confirm this.

As Saul noted here (…), Hubspot managed to eke out positive earnings despite a conference that costs millions, so without the conference they would have had double-digit EPS. Pretty swift acceleration of operating leverage. I expect the next couple of quarters to really highlight it for those who can’t already see it like Saul can. They’re guiding for 7 cents EPS in Q4. Expect them to beat that…by a lot.

I have tried to continually re-evaluate my conviction in the companies I own. I have decided HUBS is more middle than top tier. Everything seems great financially, but I just don’t understand the product very well. I took their big run in Dec and Jan as an opportunity to lighten a bit, but I don’t plan to sell any more.

MICRON - MU (4.8%) - Micron (MU) makes chips for four different business units:

Compute and Networking (CNBU) - read: DRAM
Storage (SBU) - read: SSDs
Mobile (MBU) - read: NAND
Embedded (EBU) - read: Auto

Everything is growing fantastically. Revenue was up 71% for the quarter. The problem? Everyone thinks the party will end sooner than later and they’ll start losing money again. It’s not an unfounded fear. Their fixed costs are high, so if demand drops precipitously they could be in trouble. But there are reasons to be positive. They’re diversifying into these 4 business units really well, and most are not showing any shakiness of demand at present. They’re also making bottom line profit hand over fist right now, allowing them to pay down debt and really solidify their footing. How much are they making? Last quarter, net income was:

Micron: 2,678M
Nvidia: 838M
Facebook: 4,707M

Random examples, I admit. But look where they fall when it comes to profit! And since Micron is a 54B dollar company, while the other two are 123B and 525B respectively, there’s a WIDE margin of safety built in. Think about it, with a PE of 6.4 they could double and still have a PE in the low teens. Still

Micron is frankly all over the place. I won’t be adding any more shares, because I just don’t understand them well enough. The numbers seem too good to be true. But if they’re really a commodity, I suppose it could all come crashing down. This one is on a short leash, but there’s a lot of potential.

NV5 GLOBAL - NVEE (4.8%) - NV5 is an engineering and consulting services company in the infrastructure industry. They grow by many small acquisitions, but they increase profitability all the while. The founder/CEO owns 10% of the company and altogether insiders own 35%. Their ~50% growth in 2017 is certainly an impressive pace, but I believe this company will continue to grow quickly and profitably. That’s enough for me, but I also believe they might be at an inflection point with scaling (operating leverage).

In the September 2017 quarter, Operating Income was 9M. That’s up from 2.5M in Q1 and 6.9M in Q2. Excited to see where it goes from here! Also, gross profit has increased more than revenue in 2017.

Lots more info here:…

This was a new position in December. It was down double digits in January (while everything else was flying high), so I decided to add to it. I’d like to see a couple quarters before I consider making this a larger position, but there’s a lot to like.

HORTONWORKS - HDP (4.8%) - Hortonworks helps companies manage big data with Hadoop. Customers subscribe to the HDP software platform, and Hortonworks stores, processes, and analyzes their data.

This quarter was exceptional. Maybe the best of any company I own. Revenues accelerated from 42% to 45% YoY. More importantly, Subscription Revenue was up 64% – a HUGE acceleration. Gross Profit was up 72% YoY! Then, they actually reduced OpEx YoY. Yes, you read that right. Arista reduced theirs sequentially, which is impressive when you also grow revenue like they do. But HDP did them one better. In short, the “expand” part of their land & expand model is gangbusters right now.

This one, like Talend, is a mid-conviction position due to my not really understanding the industry. But what a value prop!

INSTRUCTURE - INST (4.8%) - I brought Instructure to the board in September.… It’s is a cloud-based learning management platform for academic institutions and companies across the world. Their platform enables virtual learning, and they’ve gotten so good at it in the education context (since they started in 2008) that they’re now (actually since early 2015) offering it in a business context as well. Their classroom product is called Canvas, and their business solution is called Bridge. They are constantly signing school districts and businesses to expand their reach to hundreds of thousands of new users.

They reported a great September quarter yesterday, which I wrote about here:… Seems they’re just winning everything. I hope to see some margin acceleration soon, but we’ll just have to see.

I continue to simply wait patiently with this company. Shares were up 8.5% in January, so I just held pat.

ALARM.COM - ALRM (3.7% + options) - As stenlis, who brought Alarm to Saul’s board, puts it: Holdings, Inc. provides cloud-based software platform solutions for the smart homes and businesses in the United States and internationally. The company provides interactive security solutions to control and monitor their security systems, as well as connected security devices, including door locks, garage doors, and video cameras. I wrote them up here:…

This little company seems so undervalued as they just start to flex their operating leverage muscles. Don’t let tax fluctuations fool you, they made incredible progress this quarter. Operating Income was up 267% (not a typo). Revenue was up 33% but SaaS revenue is growing a lot faster. I love this under the radar grower and think they’ll surprise a lot of people in 2018.

I think I have keyed in on a company the market is misunderstanding (and therefore mis-pricing). But I also know that the market can be smarter than me (duh). So I’ve used options to keep the upside going into earnings (not until 2/27), but decrease my shares owned (and therefore my risk). I’ll keep y’all posted.

TELADOC - TDOC (3.0%) - Teladoc is a rapidly growing (though partly by acquisition) telehealth company. What’s a telehealth company? Well, you can actually meet with a doctor via a Skype-like visit online, rather than going into the doctor’s office. Sounds like the future, huh? I’ve been tracking them for a year or so – the company I work for actually got Teladoc coverage a couple years ago. I wrote them up in June:

There’s been a lot of news, including the Best Doctors merger, which was large. Saul has questioned the path to profitability, and there are other question marks like competition, so I’m keeping my position small for now.

This one was down a good bit for much of the month, and when it started to come back to even, I decided to trim 25% of my position so it would shoot back up again (you’re welcome TDOC holders). In seriousness, though, this is a lower conviction position for me, and very volatile, so I’m happy keeping it small.

My best to all!


“I guarantee nothing but hard work.” - Bear Bryant, Alabama Football Coach, 1958 - 1982

“If you must tell me your opinions, tell me what you believe in. I have plenty of doubts of my own.” attributed to Goethe (but not sourced)

“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

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

“I presume the thing is to ride the momentum for the short squeeze and exit fast with enough money for a few months supply of whisky before everyone realises it’s a value trap.” - Strelna


Greetings, Bear.

Given the high fees, commissions, and wide bid-offer spreads in the options markets, on top of the add’tl taxes, why would you ever play in that arena if you cannot tell if the volatility you’re buying/selling from the professionals [hopefully only buying!] is a good ‘value’ or not?