“A man’s gotta know his limitations.” - Dirty Harry
The theme for May has been figuring out what I actually know – which companies are truly high conviction for me. The fact is that Talend, Arista, Pure, Hortonworks, and several other companies I’ve followed and owned…well they all do very technical things that thankfully they are very good at. I can understand the numbers, and a little about the market. But I have to admit my limitations. Doesn’t mean I can’t own these…just means it behooves me to keep my allocations from getting too large. So this month I significantly decreased my allocations in Talend, Arista, and Hortonworks (by 34%-40% each), and I significantly increased my allocation in Pure (by 30%), but didn’t let it get above 8% of my portfolio (and trust me, I wanted to…it seems like a STEAL right now).
In contrast, with Shopify, Wix, and Square, I can understand their customers and what drives these customers to buy from them. Because I can understand the customers’ needs, I can even come up with a reasonable guess as to whether this demand for these products will continue to grow, and how their competitors might be able to steal market share from them – and how difficult that might be. Therefore I’ve now allocated 40% of my portfolio to these three positions. Obligatory Saul paraphrase: “That’s an awful lot in three companies!”
It’s funny how a portfolio of 12 stocks can feel like it has a long tail. I used to own nearly 30. But the bottom half of my portfolio makes up only about 20% of my holdings. Why even bother at all? Well, I think some of these have the potential to run a long way – maybe even outpacing some of my higher conviction holdings. And I always want to keep learning about companies and products that I don’t yet grasp completely. So nothing fundamental has changed - I’m still allocating based on conviction. But I’ve re-evaluated my convictions a bit.
Without more ado let me start out with a performance check-in and then my allocations as they stand today.
My Portfolio Performance
**This Month**
My Portfolio 9.65%
S&P 2.41%
Nasdaq 5.32%
Russell 2000 6.16%
**YTD**
My Portfolio 40.39%
S&P 2.02%
Nasdaq 7.80%
Russell 2000 6.76%
Previous Month Summaries
Dec 2016 (contains links to all 2016 monthly posts): http://discussion.fool.com/bear39s-portfolio-at-the-end-of-2016-…
Dec 2017 (contains links to all 2017 monthly posts): http://discussion.fool.com/bear39s-portfolio-through-dec-2017-32…
Jan 2018: http://discussion.fool.com/bear39s-portfolio-through-jan-2018-32…
Feb 2018: http://discussion.fool.com/bear39s-portfolio-through-feb-2018-32…
Mar 2018: http://discussion.fool.com/bear39s-portfolio-through-mar-2018-33…
Apr 2018: http://discussion.fool.com/bear39s-portfolio-through-apr-2018-33…
My Current Allocations
Ticker Curr% Buy/S Mo Ch YTD Ch
SHOP 15.3% -9% 10.8% 46.6%
WIX 13.5% 11% 5.7% 51.1%
SQ 11.4% 0% 23.0% 68.0%
AYX 10.9% 0% 8.9% 34.6%
ANET 7.8% -35% -4.9% 6.8%
PSTG 7.7% 30% 6.1% 35.3%
HUBS 5.0% 0% 14.4% 37.1%
NTNX 4.4% NEW 5.7% 51.5%
MU 3.6% 40% 25.3% 40.1%
HDP 3.5% -34% 5.0% -11.6%
TLND 3.5% -40% 16.4% 51.5%
INST 1.8% 0% 6.0% 29.9%
Options 2.6%
Cash 9.0%
New 2018
January - No adds
February - AYX, NEWR, OKTA
March - MDB
April - No adds
May - NTNX
Sold 2018
January - TTD
February - TDOC, ALRM
March - NVEE
April - MDB, OKTA, NEWR
May - none
As you see, I didn’t actually sell out of anything in May. Still, lightening up on my positions in ANET, TLND, and HDP allowed me to start a new position in NTNX. I’ve held off a long time on this one and missed some great gains, but I’m finally starting to understand their numbers. This isn’t nearly as high-conviction for me as for Saul and others here, but I see great potential for them still. If the story plays out the way I think it will, I see nothing standing in the way of another double (even though the shares have more than doubled since Saul keyed into them).
I now have shares in 12 companies, compared to 11 at the end of April. I will now discuss each.
SHOPIFY - SHOP (15.3%)
About the company: 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 customizable website you can set up as an online “storefront,” inventory management to track your product, methods of taking payments, 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.
Latest Quarter Review: Thanks, FourthStooge! http://discussion.fool.com/hi-everybody-here-is-a-tabular-presen…
Recent Action: Trimmed a little to keep it a ~15% position.
Conviction Status: This is a top confidence position, and I’m in this company for the long haul. I’m happy with up to a 15% position.
WIX.COM - WIX (13.5%)
About the company: 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. They are very affordable, so people use them for all sorts of reasons – entry into ecommerce, a personal blog, a professional portfolio. They have some powerful tools for experts, but even a novice like me can create a website for free. Wix has over 125 million users, and more than 3 million of them pay for premium accounts.
Latest Quarter Review: http://discussion.fool.com/bear39s-mar18q-wix-review-33069988.as…
Recent Action: I added to my already very large Wix position this month.
Conviction Status: This is a rare company where I think the long term growth will be outstanding and the market cap is actually lower than I expect. Don’t see many of those right now. I’m happy with up to a 15% position.
SQUARE - SQ (11.4%)
About the company: 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.
Latest Quarter Review: http://discussion.fool.com/sqjust-wow-33054637.aspx
Recent Action: I decided recently that Square is really a top conviction stock for me, despite its pricey valuation. Luckily I added quite a few shares in April, because in May Square is up 23%.
Conviction Status: Definitely holding if not adding. I’m happy with up to a 15% position.
ALTERYX - AYX (10.9%)
About the company: A very familiar friend to many on this board (most of all its eponymous leader), Alteryx is a little company that is changing the landscape of data integration and analysis for data scientists. They have a product that from all accounts is inexpensive, easy to implement, and saves users incredible amounts of time while enhancing accuracy. The companies who try it seem to love it, because every year they spend (on average) 30%+ more money with Alteryx!
Latest Quarter Review: Thanks, Ethan! http://discussion.fool.com/ayx-q1-2018-update-33062981.aspx
Also http://discussion.fool.com/also-you-may-want-to-consider-that-ne…
Recent Action: I built this position so big that even with the rather pedestrian performance of the shares in May, it’s one of my top 5. Because it’s so big, I didn’t add more, but I still think it’s a great value.
Conviction Status: I think this one is a fat pitch right now so I’m comfortable with a ~10% position, but if the shares appreciate I will probably trim to keep it from growing much bigger.
ARISTA NETWORKS - ANET (7.8%)
About the company: 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. It also really seems like Arista has the best in class product.
Latest Quarter Review: Arista revenue grew 41% and everything else did what it was supposed to do except a lot of folks are worried that they guided for mid 20’s percentage growth. Here’s my two reminders about that:
http://discussion.fool.com/just-a-slight-reality-check-here-last…
http://discussion.fool.com/bear-i-understand-how-they-vastly-exc…
Recent Action: I trimmed a bit pre-earnings, then added a large amount when it dipped to $240. Later I sold this “trading position” at about $260, and later sold more to keep this allocation a little smaller.
Conviction Status: Obviously I like this company and its management a lot and plan to hold indefinitely. I’m comfortable with up to an 8% position.
PURE STORAGE - PSTG (7.7%)
About the company: Pure Storage 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: https://seekingalpha.com/article/4007341-pure-storage-nimble…
Latest Quarter Review: Saul provided a brief one: http://discussion.fool.com/sorry-everyone-andy-pointed-out-to-me…
My take is that they seem to be continuing to do everything they promise. Growth is great, and they seem to keep making best in class products that are in demand. They also have some great partners. My favorite part was Number of customers up 45% from a year ago
Recent Action: I added a significant number of shares (30%) in May.
Conviction Status: Pure is akin to Arista for me – a best in class leader with a lot of room to run. Pure is growing fast and on the verge of becoming profitable (like Arista already is). I’m comfortable with an 8% position here. If I stretched that to 10% it would be, as with Alteryx, the upper limit.
HUBSPOT - HUBS (5.0%)
About the company: 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.
Latest Quarter Review: Here’s one from Pete: http://discussion.fool.com/hubs-earnings-33063338.aspx
The key in my mind is this part: Grew total customers to 44,894 at March 31, 2018, up 44% from March 31, 2017.
Total average subscription revenue per customer was $10,016 during the first quarter of 2018 down 3% from the first quarter of 2017.
Phenomenal growth, but ARPU dropped a bit. They probably know what they’re doing, but it bears watching.
Recent Action: No change in May.
Conviction Status: I’m happy with up to a 5% position.
NUTANIX - NTNX (4.4%)
About the company: Nutanix provides a single point of control to for IT professionals to manage infrastructure and applications, on-prem and in the cloud, at any scale.
Latest Quarter Review: summary by xenotedvr1: http://discussion.fool.com/ntnx-3q2018-33077953.aspx
Pertinent comment from Saul: http://discussion.fool.com/289-million-up-41-from-206-million-in…
Recent Action: This is a new position. I finally get that like Pure and Arista, these guys are the upcoming leader in their space. They seem to be winning a LOT over incumbent VMWare, and they are not slowing down (despite the masked growth Saul loves). I couldn’t hold out any longer, and I’m in
Conviction Status: Not one where I understand the tech well, but i am comfortable with up to a 5% or 6% position, but I might bump that up to as high as 8% after another great quarter.
MICRON - MU (3.6%)
About the company: 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. I’ve talked about how cheap they are before, and how they’re seen as a commodity (and may be). The numbers seem too good to be true.
Latest Quarter Review: Ant wrote this one up: http://discussion.fool.com/micron-results-are-out-33020894.aspx (Looks like everything is solid here)
Recent Action: This is kind of the last vestige of my value-investor aspirations. I had to add a little as it was clobbered this month, but I will never be confident enough to make it more than a small position. Luckily my adding was timely – it’s already back up considerably.
Conviction Status: I think there’s still a ton of upside. Will probably hold for a while and ride it out. But I won’t be adding more, and will trim if it ever approaches a 4.5% - 5% position.
HORTONWORKS - HDP (3.5%)
About the company: Hortonworks helps companies manage big data with Hadoop. Customers subscribe to the HDP software platform, and Hortonworks stores, processes, and analyzes their data.
Latest Quarter Review: http://discussion.fool.com/hortonworks-scratching-my-head-330746…
Recent Action: After not knowing what to think of the March quarter, I lightened up on my position.
Conviction Status: I need to see what happens next quarter. If it’s back to business as usual, I will hold. If not, this one will be on the chopping block. If all is well, I’m comfortable with up to a 5% position.
TALEND - TLND (3.5%)
About the company: 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.
Latest Quarter Review: from rdutt: http://discussion.fool.com/talend-reports-1q-2018-results-330633…
And me: http://discussion.fool.com/concise-and-well-done-rdutt-i-hope-to…
Recent Action: Decided to trim a little more. Another one that I’m optimistic about, but with lower conviction.
Conviction Status: I’m comfortable with up to a 5% position.
INSTRUCTURE - INST (1.8%)
About the company: I brought Instructure to the board in September 2017. http://discussion.fool.com/why-i-bought-instructure-inst-3283437… 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.
Latest Quarter Review: I never managed to write up Instructure’s quarter, but Brian Stoffel did an excellent one: https://www.fool.com/investing/2018/05/01/instructure-inc-po…
Recent Action: I still love INST, but I just love other stuff more. Just held my tiny position in May.
Conviction Status: I would be comfortable with up to a 5% position.
My best to all!
Bear
“I guarantee nothing but hard work.” - Bear Bryant, Alabama Football Coach, 1958 - 1982
“A man’s gotta know his limitations.” - Dirty Harry
“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