Bear's Portfolio through Nov 2019

PaulWBryant · December 2, 2019, 9:12am

My 2019 Portfolio Performance YTD as of


Jan +22.48%
Feb +33.46%
Mar +38.27%
Apr +46.86%
May +43.50%
Jun +58.27%
Aug2 +65.38%
Aug(31) +62.13%
Sep +35.64%
Oct +32.16%
Nov +56.29%

I have lots of thoughts on this December morning. Thankfulness pervades them all, and is most important. I also look back on November as a month where things seemed to go right at almost every turn. And I’d be remiss not to mention that I also owe some of my success in November to buying call options (many that were so cheap because the expectation was that they would expire out of the money). This is not a topic to discuss here, and it reminds me: there are some here who do exactly what Saul and I and stocknovice do, and are very successful with it. There are also a lot of good folks who maybe just check in here to get a few ideas as part of a larger portfolio. There are those who are new to the board and still trying to get up to speed. So yeah, we shouldn’t discuss options. It truly takes time just to get comfortable picking stocks – even if you’re as committed and enthusiastic about the endeavor as many of us here (which puts you in the vast minority of the population, many of whom can’t tell a mutual fund from a stock option). That is the focus of this board. (And picking growth stocks, specifically.)

New 2019
January - DOCU
February - SAIL
March - TTD (again), ESTC (again) and MDB (again)
April - None
May - SQ (again), ZS (again), EVBG, PLAN
Jun - CRWD, FSLY, WORK, TWOU
Jul - MDB (again)
Aug - PINS, OKTA
Sep - CRWD (again), DDOG
Oct - none
Nov - SQ (again)

Sold 2018
January - SHOP, SQ
February - WIX, MDB
March - PSTG, ZS
April - None
May - SAIL, ZEN, NEWR, OKTA
Jun - MDB, ARNA
Jul - None
Aug - EVBG, CRWD, FSLY, PLAN, TWOU
Sep - SQ, TDOC, DOCU
Oct - TTD, OKTA, TWLO
Nov - PINS

My Current Allocations


Ticker	Curr%	Buy/S	Mo Ch	YTD Ch
AYX	20.8%	-3%	24.1%	90.9%
MDB	13.6%	0%	16.4%	77.6%
ESTC	13.5%	8%	10.3%	11.1%
SMAR	12.4%	-17%	20.4%	90.8%
CRWD	10.6%	17%	16.2%	#DIV/0!
ZS	8.9%	0%	18.5%	33.0%
SQ	3.6%	NEW	12.5%	23.2%
DDOG	3.2%	-25%	21.4%	#DIV/0!
options	2.9%			
cash	10.4%

WHY I DID WHAT I DID THIS MONTH

Bought

SQ - As a bit of cash started to accumulate again when we got some good days in early November, Square released results on a solid quarter. I think their days growing over 50% are over, but I was struck by the extent to which the industry they’re in is growing continually. Look what Visa and Mastercard have done the last few years. Paypal is still growing double digits with a revenue base many times larger than Square’s. I think there are many fertile years to come, and even though they’re definitely still a growth stock with a PE over 90, the PE will keep becoming more and more reasonable as earnings grow.

Sold

PINS - never truly got into it, and earnings disappointed.

Added to or Trimmed

DDOG - I trimmed some DDOG after they reported a great quarter and shares shot up 15%. Dreamer asked why they should be more than double the PS of ESTC. Saul replied that they’re a lot closer to profitability. That’s true, but as I said in a post linked below: With companies burning as much cash as ESTC, the valuation will definitely be lower. But that means more potential if we’re right about the company. https://discussion.fool.com/i-get-sauls-argument-and-i-get-dream…
So in short I trimmed DDOG because I don’t think it has too much room to grow in the short term. Happy to be wrong – it’s still a 3% position.

Trimmed SMAR slightly – I seem to be in the minority here with this one and I’m still not sure why, but I don’t like to go out on limbs.

Added to CRWD – seems like a unique opportunity to get it at 50-something. I kind of expect them to jump to 65 or 70 on earnings this week, but you never know.

Passed

ZM - PS will be down to 40 or so after earnings this week…worth keeping an eye on.

COUP - not growing faster than SMAR or ESTC or MDB, but a lot more expensive. PS near 30. But I’ll be watching this week to see if growth keeps accelerating.

ROKU - same reasons as ever.

Wrapping Up

It’s a little odd being down to 8 positions. And really I have just 6 that make up 80% of my portfolio. It feels great when everything goes right, like in November, but there’s not a lot of room for error. But I think I’m learning to know what I know, and my limitations. For example, I feel more nervous about my 6th position, ZS, than my top position, AYX, even though ZS is just a 9% position and AYX is well over 20%. But that’s the way it should be. I should allocate to the ones I feel most confident in. You’d basically have to pry my AYX shares out of my hands at this point.

Good luck in December, all. Here’s hoping the year closes on the good note that started playing in November.

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

PaulWBryant · December 2, 2019, 11:35am

For example, I feel more nervous about my 6th position, ZS, than my top position, AYX, even though ZS is just a 9% position and AYX is well over 20%.

As always, don’t follow me by any means, but I took my own advice here and shed a bunch of my ZS shares this morning, and added YES EVEN MORE AYX as it was down for no reason (or stupid reasons).

With the sales issues ZS had last quarter, I just don’t want to go into this quarter with a large position hoping things will be better when they report this week. Risk-off seems prudent.

Bear

branmin · December 2, 2019, 11:41am

Could be a wise move Bear. Getting creamed today. Wonder if history repeats like last year when Dec 18th was the time to jump back in. However, down the road for the right companies it’s insignificant.

thejusticier · December 2, 2019, 3:43pm

I am wondering how you discriminate between DDOG and CRWD. Both are in the take-off stage and both are very expensive. Why do you shed DDOG and add to CRWD? Is that just a nervous move?
You have been long on SMAR over the past months. Why lighten just as it is about to report?
I can understand why you lighten ZS but if you want to play the step-up (in case it has some positive surprise over last quarter’s disappointment), why lighten just before the earnings? I guess it has rebounded from the low 40s already so maybe the good news must be very good for it to jump in a significant way.

tj

PaulWBryant · December 2, 2019, 4:57pm

I am wondering how you discriminate between DDOG and CRWD. Both are in the take-off stage and both are very expensive. Why do you shed DDOG and add to CRWD? Is that just a nervous move?

DDOG is a lot more expensive than CRWD. DDOG’s PS ratio is about 38 and CRWD’s will be about 28 after they report. If you want to look at P/GP it’s roughly 50 vs 40. Also CRWD is growing a bit faster. DDOG definitely wins when it comes to profitability, but to me that’s a short term difference in the two – in other words, I think the potential is there for CRWD.

You have been long on SMAR over the past months. Why lighten just as it is about to report?

Partly because I bought a bunch when it fell to the mid-30’s, and it was up about 30% on no news. Seemed like a reasonable time to trim. And I only trimmed 17% of the shares I owned. I do this kind of thing pretty regularly, regardless of timing.

I can understand why you lighten ZS but if you want to play the step-up (in case it has some positive surprise over last quarter’s disappointment), why lighten just before the earnings? I guess it has rebounded from the low 40s already so maybe the good news must be very good for it to jump in a significant way.

I think it’s important to require a lot from large positions. I don’t want to see even yellow flags. Yes, perhaps that means I never should have added after the trouble reported last quarter. So it took some thinking…and the rebound in share price probably contributed to my decision…but I decided to rectify that mistake and trim considerably.

Thanks for the questions.

Bear

2100STJ · December 2, 2019, 8:36pm

I am glad you like DDOG. I bought it immediately after CSCO’S attempt to beat it’s IPO…trusting CSCO which buys useful Companies. Hope it will do well, eventually. Delighted that you bought SQ, again. I bought SQ AS SOON AS IT WENT PUBLIC…someday, it will do well. Just patience.
I have been buying INMD, lately. IBD raves about it,in weekly paper. Israeli Co with light drugs…selling in more world areas…recently got permission to sell in Canada. Not here, yet.STJ

clydejaz · December 2, 2019, 11:21pm

Bear (and Saul and stocknovice) - thanks for sharing your end of month analysis - extremely insightful and appreciated.

Do you worry about diversification of your portfolios? It’s like you own a SaaS sector fund - albeit one with some really great stocks, but what if this sector gets sick for more than a month next time - what if it gets sick for a year or more. Would you offer some perspective on how you get comfortable with that risk.

New to the board and trying to learn.

clydej

PaulWBryant · December 3, 2019, 9:12am

Do you worry about diversification of your portfolios? It’s like you own a SaaS sector fund - albeit one with some really great stocks, but what if this sector gets sick for more than a month next time - what if it gets sick for a year or more. Would you offer some perspective on how you get comfortable with that risk.

We’ve discussed this a lot, but not in a while. I encourage you to keep reading as you get more familiar with the board – it takes a long time to get up to speed! Since we haven’t discussed diversification in a while, I’ll try to answer.

Diversification = picking companies I like less because they’re in a different business than the ones I like most. This doesn’t make sense to me. If it comes down to it, I’d rather hold a little cash to help me sleep at night.
As for the risk that my companies my fall out of favor with the market for a while, I am more and more comfortable with this as I better and better understanding the companies. Sure I like my stocks to go up, but as you point out, the market can have long bouts with irrationality. I don’t really see this as a risk, though. I am confident it would be a temporary opportunity (which is how you frame it – so I suggest you re-examine your use of the word “risk.”) In other words, if AYX got any cheaper, it would eventually trigger others like me to buy. The “risk” is that it would take a long time and my portfolio would be down during that time. But to be confident it will come back up, I just have to have confidence in the companies I hold.

I can say that about AYX because it’s a real company that has really real customers that are all-in on it. One example is PwC, one of the largest accounting and consulting firms in the world. They have 250,000 employees (of which I know many), and so many (if not most) of them are encouraged to use Alteryx. They liked it so much they resigned as Alteryx’s auditor so they wouldn’t have a conflict of interest. That’s how much they value the product.

This level of understanding a company is what enables me to not be concerned with the current price, or whether these stocks are currently in the market’s good graces. I’m concerned only whether these companies are growing like crazy, because they are continuing to dazzle new and current customers with the value they add. Companies that truly create value become indispensable because it costs more (time and money) not to use them than it does to use them.

Bear

laulis · December 4, 2019, 6:04pm

Bear, I recall that you hold ESTC 13.5% of your portfolio.

I would like to hear your thoughts on Elastic’s earnings report.

XMFALieberman · December 4, 2019, 6:47pm

Laulis and Inph,

I’m sure Bear will update when able… but this board is designed for discussion.

What are each of your own thoughts on the quarter?

Inphanint · December 4, 2019, 7:10pm

I had created my own post on the board, if you check labeled ESTC

brittlerock · December 9, 2019, 3:28pm

Clydejaz,
There’s a flaw in your thinking. SaaS is a delivery vehicle, it’s not a “sector.” A while back Denny observed that it makes as much sense to group companies that employ SaaS in their business model as it does to group companies that deliver their products in trucks.

Generally, a sector is defined by companies that share commonality based predominantly on the products they offer. There is a finance sector, a defense products sector, a restaurant and hospitality sector and so forth. There is no general product commonality among companies that utilize SaaS.

What the companies followed here have in common is rapidly growing revenue, subscription sales as opposed to license or finished goods sales, high margins, little or no debt, low capital requirements, etc. These characteristics don’t make a “sector” in any traditional manner. But, it is exactly these characteristics that make these companies investment targets for those of us who have high confidence in the eventual returns on investment of high growth companies.

I for one (and I don’t want to speak for anyone else, but I’m reasonably sure Saul, Bear, Tinker and many others who have confidence in the companies followed here) do not look at these investments as a lumped together as a sector. I evaluate each of my investments as a separate entity. For example, what happens with OKTA in no way influences my thinking about DDOG. OTOH, if I were invested in both Lockheed and General Dynamics I most definitely would link the investment in both companies as being highly dependent on DoD budgets and spending.

Texmex · December 10, 2019, 6:44pm

While I agree with you that these are different businesses there are commonalities. For example the market looks at these stocks as belonging to:

Tech sector - hence anytime we hear that tech investments are likely to slow (based in CIO surveys etc.) these companies get hit.
hyper growth - hyper growth companies have a lot of future growth priced in. Any hint of recession these growth rates are reassessed and the prices drop.

Most SAAS portfolios are down by 20% from the July peaks. Yet SP index has edged higher. I believe it is because of the above reasons. Particularly #2.

clydejaz · December 11, 2019, 12:31pm

Brittlerock,

Thanks for your comments. Perhaps “sector” is not the best choice of words. Could substitute that word with “category”, “group”, “type”, etc. These companies generally get categorized as Tech - Software. They all employ a bunch of really smart software engineers, use AI, leverage the cloud, and sell subscription services. Some do it for security, some for HR, some for accounting, some for communications, etc.

My point is that the entire category can become hot where high valuations are accepted in the market (before September) and then the entire category can fall out of favor and acceptable valuations get dramatically lowered (feels like that is happening today).

I totally agree with you to evaluate each investment separately. In the short term the cruel market can affect the entire group simultaneously independent of individual company results. For believers in the mid/long term of these great stocks like DDOG, ZM, CRWD, AYX etc this presents fantastic buying opportunity.

Just need to have the stomach for the fluctuation if your investment strategy is narrowly focused versus one that is more diversified. Of course with risk comes the potential for great reward…

Won’t reply further as this board already has lots of other posts here on short term/long term, risk/reward, etc.

Great quote I recently saw attributed to investor Benjamin Graham (who Warren Buffet said had the 2nd most influence on his life after his father):
“Over the short term the market is a voting machine, but over the long term it’s a weighing machine.”

Interesting article on the topic of “value rotation”:
https://www.marketwatch.com/story/momentum-stocks-are-down-b…

Clydej