Bear's Portfolio through Oct 2017

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

“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

Previous Month Summaries

Dec 2016 (contains links to all 2016 monthly posts): http://discussion.fool.com/bear39s-portfolio-at-the-end-of-2016-…
Jan 2017: http://discussion.fool.com/bear39s-portfolio-at-the-end-of-janua…
Feb 2017: http://discussion.fool.com/bear39s-portfolio-at-the-end-of-febru…
Mar 2017: http://discussion.fool.com/april-fools-suckers-here39s-the-real-…
Apr 2017: http://discussion.fool.com/bear39s-portfolio-at-the-end-of-april…
May 2017: http://discussion.fool.com/bear39s-portfolio-at-the-end-of-may-2…
June 2017: http://discussion.fool.com/bear39s-portfolio-at-the-end-of-june-…
July 2017: http://discussion.fool.com/bear39s-portfolio-at-the-end-of-july-…
Aug 2017: http://discussion.fool.com/bear39s-portfolio-at-the-end-of-augus…
Sep 2017: http://discussion.fool.com/bear39s-portfolio-at-the-end-of-septe…

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.

Also I have added a monthly metric called MyPort_EWNT (equal weight no tinker) that shows the monthly average gain/loss percentage for all positions I held at the end of last month. The idea is that if:

  1. I hadn’t bought or sold anything, and
  2. I just had an equal weighted portfolio, say 14 stocks that were ~7% each

…then this would be the return. It’s a rough estimate, but comparing it to my actual return each month tells me if all my buying and selling is worth a damn.


**This Month**
My Portfolio             +3.26%
MyPort_EWNT        +3.67% (this beat me.  duh...my largest position is down 15%)
S&P                         +2.22%
Nasdaq                    +3.57%
Russell 2000            +0.73%
 
**YTD**
My Portfolio             +61.05%
S&P                        +15.03%
Nasdaq                   +24.98%
Russell 2000           +10.69%

My Current Allocations


Ticker	Curr%	Buy/S	Mo Ch	YTD Ch
SHOP	22.7%	70%	-14.6%	132.1%
SQ	11.1%	-9%	29.1%	172.9%
HUBS	10.7%	0%	3.0%	84.1%
ANET	8.8%	18%	5.4%	105.9%
WIX	7.5%	-21%	-2.9%	55.3%
TWLO	7.3%	0%	7.0%	10.7%
INST	7.3%	17%	5.0%	78.0%
FB	6.2%	0%	5.4%	56.5%
TLND	4.5%	3%	1.1%	86.5%
TTD	4.3%	0%	7.2%	138.2%
HDP	4.0%	33%	-2.6%	98.7%
ALRM	2.8%	0%	3.3%	67.7%
MELI	2.7%	-21%	-7.2%	53.9%
cash	0.1%			

Stocks I sold

TDOC - This one was a bit of a flier for me. They just made a big acquisition and the numbers aren’t very solid. I’ll keep watching, but for now I decided I’d rather own that many more Shopify shares.

MULE - I sold Mulesoft for 2 reasons:

The customer growth just wasn’t there. Now, they did get some large deals from the new customers they did acquire. But they simply didn’t acquire that many customers in total.
They also managed to get more spend out of the average customer, as usual. However, the amount of money MULE is spending doesn’t make sense to me. It shouldn’t be so expensive to sell to your existing customers. I am tired of seeing so much money go out without a lot of new customers come in. You can’t spend more and gain fewer customers forever.

Stocks I own

SHOPIFY - SHOP (22.7%) - 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, which they reported this morning: http://discussion.fool.com/bear39s-shopify-sepq-review-32880587…

This is real, and it is amazing. I think in the not-too-distant future, this company will be worth many multiples of its current 10B price tag. This was already my largest position, by a lot, last month. Now I own 70% more shares. Some of that you might call a trading position, although I don’t really think about it that way. But make no mistake: I’m in this company for the long haul.

SQUARE - SQ (11.1%) - 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.

Square reported their June quarter on 8/2, and it was pretty much aces. Part of me wished they hadn’t increased spending so much, but that’s probably just me being short sighted. They have a big TAM to go after! And just their Services segment would be a decent company on its own: http://discussion.fool.com/would-you-be-interested-32798819.aspx…

In October, Matt wrote a great article about Square’s move into banking. It prompted me to ask how this was materially different from Square Capital, and this was his answer: http://discussion.fool.com/what-is-the-big-difference-from-what-… So, to me that means, Square came up with this amazing way to figure out who to lend to and how to get paid back, and their loans therefore had this amazing loss rate of only about 4%. The banks were probably loving this. But then Square must have thought…wait a minute, why are we sharing this with the banks? We can profit not just from the fee but also from the interest!

Square shares appreciated quite a bit in October. I trimmed 9% early in the month, and it just kept growing! Just last week I considered trimming again, but then I realized that Square’s growth is likely accelerating: http://discussion.fool.com/modified-buy-and-hold-pt-2-32875928.a…

I first bought Square in November at 12.24 per share. In July it turned into a double for me, and now, already, it’s a triple.

Square will report September quarter on 11/8 after markets close.

HUBSPOT - HUBS (10.7%) - 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. Yey it sure seems to me like Hubspot is a leader, if not THE leader, in the space, and the results it continues to acheive seem to confirm this.

In the June quarter, they grew revenue 37% (and almost all of it is recurring), raised guidance (again), and announced some other great trends. Customer growth actually accelerated! You can read a little more about why I like Hubspot here: http://discussion.fool.com/why-i-own-hubspot-32808886.aspx

Curious what will happen with the Shopify partnership they announced in September. We might not know too much until after 4th quarter, but we’ll hear about the September quarter tomorrow after markets close.

ARISTA NETWORKS - ANET (8.8%) - 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.

Their June quarter was an absolute thing of beauty. 51% revenue growth (accelerating quite a bit), while OpEx was up only 21%. That’s a way to drop a LOT OF MONEY to the bottom line. Not only that, but Arista is pretty dang reasonably priced at a PE in the 40’s.

ANET has well over a billion 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. I started a position in August, added 26% more shares in September, and another 18% in October. ANET will report the September quarter on 11/2 after markets close.

WIX.COM - WIX (7.5%) - 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 almost 3M of them pay for premium accounts.

Wix reported an impressive quarter on July 27th. Revenue growth accelerated to 51%, FCF and collections were up…the only down spot was that Avg Coll per New Sub (which I lazily call ARPU) was flat. They had a reason (Easter discounts), so I’m not worried too much. Analysts were concerned growth is slowing, but management didn’t see any signs of that. I think it’s a lot of worry about nothing. Wix shares have dropped and look really attractive.

I trimmed Wix about 30% in early October when Shopify plummeted on the Citron report. I was simply trying to raise money to buy more SHOP. I’ve already added back some to WIX.

Wix will report September quarter on 11/8 before markets open.

TWILIO - TWLO (7.3%) - Twilio makes web service APIs for phone calls and texting. Software developers who subscribe to Twilio’s platform can use these services in their products, and this works out great on both sides: from customers’ perspective they only have to pay when these services get used, and from Twilio’s perspective, the more the services get used, the more Twilio gets paid.

Twilio’s biggest customer, Uber, has decided to multi-source, and thus has reduce their spend with Twilio, but I think the worries are overblown, because Uber really isn’t that big a piece of the pie anymore. When Twilio reported (a fantastic) Q2 in August, Uber accounted only 9% of total revenue. Revenue growth accelerated to 49%, and base revenue (recurring) sans Uber grew an insane 65%. And they added 2,735 customers in the quarter, which handily beats the 2,132 they added in Q2 2016. Demand looks strong.

As long as they keep adding tons of customers, and current customers keep increasing their spend, I really like Twilio’s value here. They are growing way too fast for a company with a PS of 8.6. I held pat this month, but might look to add more before September quarter is reported on 11/8 after markets close.

INSTRUCTURE - INST (7.3%) - I brought Instructure to the board in September. 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.

They reported a great September quarter yesterday, which I wrote about here: http://discussion.fool.com/bear39s-instructure-sepq-review-32880…

I especially love the operating leverage they’re displaying, as well as the new corporate product – really striking while the iron is hot, taking their wins in the education world and attacking the corporate world. I added 17% more shares in October.

FACEBOOK - FB (6.2%) - I sold Facebook back in May because I thought their ad business had to be getting close to a saturation point, and that they probably didn’t have a lot of levers left to pull for growth and profit. But then I started using “Marketplace” to sell some items around the house. They should absolutely put eBay and Craigslist and who knows who else out of business! This is just a small example, but to me it was a totally new line of business for them. Then they added a video section. I don’t know how that will work out, but my point is simply that FB is far from done growing. When you have 2B users (ponder than number for a moment) you can do almost anything you want.

I added 15% more shares in September. When I look at growth percentages, FB (although much much larger) actually fits in well with the other companies I own. Revenue was up 45% YoY in the June quarter, and EPS were up 69% in the same time. With FB sporting huge margins and a PE ratio of just 40, I just can’t ignore that kind of growth. With their incredible net margins, EPS are actually a bigger percentage of a smaller overall revenue base than other huge companies…say, Amazon or Google. So I think FB still has plenty of growing to do. And again, 2B eyeballs to sell to.

Facebook will report their September quarter after markets close tomorrow.

TALEND - TLND (4.5%) - 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 first invested in Talend in February, and added in March, April, and May. In June and July I trimmed it, and in August I sold quite a lot to invest in other things. I added back quite a bit in September, and a tiny bit more in October. Talend will report their September quarter on 11/9 after markets close.

THE TRADE DESK - TTD (4.3%) - The Trade Desk plays in the somewhat crowded world of advertising tech, but it seems the way they’ve positioned themselves to work with ad agencies (instead of companies placing ads) has really made them a preferred tool for the buy side. They also don’t buy inventory but just facilitate, so that streamlines their process and enables them to serve their customers without conflict. Their growth is phenomenal: revenue grew by 78% for the year in 2016. And they’re profitable with a PE around 52, which given their growth, seems quite low.

On 8/10, TTD reported another sensational quarter. Revenue was up 54% and EPS grew to 52 cents from just 22 cents in the June quarter of 2016. Still very early innings here, and there are a lot of swings in expenses, so I am not quite as sure what to expect, and I’m keeping this a smaller position, just holding and not add right now. TTD reports their September quarter on 11/9 after markets close.

HORTONWORKS - HDP (4.0%) - Hortonworks helps companies manage big data with Hadoop. Customers subscribe to the HDP software platform, and Hortonworks stores, processes, and analyzes their data.

Realizing how much of a black box Hadoop is to me personally, and how unorthodox the financials are for this company, I’ve dialed this position back quite a bit. Still, their results have been steady, and steadily improving. I added 33% to my small position in October, and it remains pretty small. HDP reports its September quarter on 11/2 after markets close.

ALARM.COM - ALRM (2.8%) - As stenlis, who brought Alarm to Saul’s board, puts it: Alarm.com 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: http://discussion.fool.com/my-thoughts-on-alarmcom-32813166.aspx…

This is a profitable company that’s growing nicely with a cloud subscription component. I’m fairly new to them, but intrigued! Alarm reports their September quarter on 11/8 after markets close.

MERCADOLIBRE - MELI (2.7%) - Most Fools have heard of Mercado. It’s been called the South American Ebay/Amazon. They have been growing like a weed, expanding offerings, taking payments, etc, etc. Mad growth. But they’ve added free shipping, and especially since this is South America, the market is taking a wait-and-see approach as Mercado spends a lot of money getting it going. In fact, this translated into an almost 20% discount to recent highs, so I added some Mercado during August.

As the stock fell on Amazon concerns, I cut back my position again in October. I’m not so worried about Amazon as I am concerned about margin pressure. Now a 2.7% position, I’m not so worried. If MELI falls much more, it might start to look cheap on a PS basis. Temporarily low margins could provide a buying opportunity. I’ll be watching. They report September quarter results on 11/2 after markets close.

Random Thoughts and Conclusions

Well, even as Shopify, my largest position, ends the month down 15%, my portfolio gained ground in October. This continues to be an incredible year. The Shopify situation, especially today’s reaction to a phenomenal quarter, reminds me that you just never know how a stock will react in the short term. The good news? It’s very obvious that the companies I own are doing well over the course of months, quarters, and years. That’s the only edge I have, and my continual focus.

My best to all,
Bear

44 Likes

Excellent job, Bear.

What impresses me most about your investing is your willingness to share. It’s fascinating to see into the thinking of an investor who’s winning and I only hope you have gained a fraction of the knowledge you have imparted to the rest of us so we can all be richer for the experience. Well done, sir.

(The only way your insight could be more valuable to me is if we disagreed on major points of investing philosophy, but the fact that we don’t can’t be helped.) :slight_smile:

Dan

5 Likes

Hi Bear

This is awesome that you have updated the community and how your portfolio is performing. I will probably just ask and probe the Shopify % which seems heavy on your portfolio. They are definitely going gang busters but this space has had a lot of flux if you look in the last 15 years since 2001 Dot come days and how it has evolved.

Initial days its was just the tools and f/W;s provided by companies like Broad vision , Blue Martini (I used to work there briefly) and ATG etc that enabled companies to go online.

The next wave were the companies like Magento etc that provided off the shelf facilities to set up stuff without a lot of effort

Now we have companies like Shopify making it more simple but this area evolves every few years see an e.g below of another competitor so not sure if we get a better mousetrap/gizmo what might happen to Shopify. We just need to know that signal which is sometimes hard…

https://venturebeat.com/2017/10/31/reaction-commerce-raises-…

Rajesh

2 Likes