brandonwahl's 2020 Portfolio Review

I have been a member of this board for just over two years now, and figured it was finally time for my first portfolio review. I’ve previously opted out of doing such given that the companies I own are very similar to other members, and are covered in much greater resound, with much greater frequency. That said, I felt it was important to memorialize some lessons I’ve learned in a few short years, and how excited I am to expand my education going forward.

I am 37 years old, and began investing around 19 or 20 years of age. Thankfully, one of the early lessons I learned was the importance of tracking results against a benchmark. I’ll save you all the tedium of going year-by-year, but from 2005 to 2018 I averaged 8.36% per year against 7.29% of the S&P over the same time frame. (We will come back to this later.) My early years found long term, buy-and-hold, blue-chip stocks such as Exxon, McDonalds and Coca-Cola making up the majority of my portfolio. In hindsight, while I was clearly passionate about following individual companies, I was clearly uneducated by doing nothing more than selecting some of the most heavily weighted companies of the S&P 500, the very benchmark I was actively trying to beat.

I cannot emphatically state how I came to discover Saul’s Investing Discussions, but the first mention of this board in my profile page is dated November 2018 where Saul discussed hardware stocks, and the difficulty of selling the same product over and over. He stated:

“Hardware companies have to wait for orders! Your best customer says…I don’t think we need to order the upgraded chips, the ones we have are good enough…or, our business has slowed and we only need half as many this quarter. They have to worry about overstock, inventories, pricing, order postponement and all the rest. Our SaaS companies don’t have to go out and sell that first $100 million again next year. It comes in automatically, on a lease. No customer is going to not order the software that is running their company.”

Those words took me back, and in that moment my life was altered forever. I thought about my favorite company in the whole world, Apple. A company that was selling 70 million iPhones a year at the time! How many phones did they need to keep selling to grow at the pace of the previous 10 years? It was clearly going to be impossible. Everyone I knew already had an iPhone, and even this fanboy found himself waiting 2-3 product cycles before upgrading. I spent the next few weeks feverishly educating myself on this thesis. I read The Knowledgebase a handful of times, and also the articles linked on the right side of the page. Armed with this information, I began to transition out of my holdings and into the stocks discussed here.

And then Dec 2018 hit. The market suffered its worst December loss since 1931, and its biggest monthly loss since February 2009. You can say market volatility all you want, but watching a portfolio plummet 30% within the span of a month will test any investor’s conviction in their thought process, not to mention one literally conceptualized a few short weeks ago. Yet all along, there was Saul, rhetorically asking “has the story of our companies changed?” I reasoned not, and kept transitioning into the companies discussed here. It is funny to note how a 30% drop doesn’t even phase me now. What has this board done to me!

The markets quickly recovered, my investment education continued to grow over the coming weeks (weeks…ha ha!), and I was on the prowl for a new company, with hot new software, ready to light the world on fire. I studied and studied and decided that company was going to be…Nutanix (insert facepalm emoji). I’d learned a lot from Nov 2018 to Jan 2018, but still fell victim to a sexy story, even as the story of that company was changing right before our eyes. Their quarterly revenue growth had already fallen from 65% to 57% to 50% to 34% to 13% (I mean come on, Brandon!) before I invested in them, and even fell into negative growth territory before I, like most of the board, gave up on them around March 2019 at $33/share. They are currently at the exact same price almost two years later, which has since taught me another lesson learned from this board, that of opportunity loss. When something clearly isn’t right, don’t wait around for things to get better. There are so few stocks firing on all cylinders, it is important to be selective with your choices instead of investing in companies stuck in the repair shop. (Please note, I genuinely do not mean to offend anyone still holding NTNX as I could be completely wrong going forward. I am wrong about many things. I originally sold DOCU back around $50/share before re-entering around $200, and also rode ROKU from $250 to $90 before selling only to watch it soar above $300. Oh yeah, I also sold an electric car maker in early 2019 as part of my portfolio transition.)

One stock I’ve owned since late 2018 that doesn’t get much coverage here is The Trade Desk. COVID was not kind to their bottom line, with revenue declining 15% sequentially in Q2 of this year. Despite this, I continued to hold as I felt their growth story of connected TV and programmatic advertising was still very much intact. CEO Jeff Green alluded to such on the Q2 call:

“If, like me, during COVID, you’ve been sucked into the world of online…advertisers are more tuned in to the power of data-driven advertising than ever before. They understand the role it can play in helping them be agile in midst of today’s uncertainty, and as they embrace it across their advertising channels, they’re demanding more of our industry. 2020 is a moment where the culture we built for the last decade is paying dividends, perhaps more than ever.”

Q3 brought an instant reversal, with a 55% sequential revenue gain! How could this be, still in the midst of a pandemic? Here is Green once again:

“In 2020, every advertising dollar has to be accounted for. CFOs are more involved in marketing and advertising decisions that they’ve been in years. They become a lot more focused on what business value is created by advertising. And that means advertisers have to focus on ad opportunities that are measurable and comparable, where the business ROI can be understood and proven. Combine these factors, and you can recognize how marketers today need to not only be much more deliberate, but also much more data driven.”

Global pandemic or not, those factors won’t be so easily reversed going forward and I remain quite bullish heading into 2021, despite the 15% drop the past few days. At some point the country/world will resume pre-COVID lifestyles, and organizations that have been unable to operate, or have been operating at lower capacities, will be clamoring for your money, which they will try to get through advertising.

The above is another lesson I’ve learned on this board, that being listen to/read the quarterly earnings calls! Embarrassingly enough, before coming to this board I’d never read a single one in 15 years of investing. The education gained in doing such can be multiplied ten-fold versus merely looking at the headline numbers, or by simply following what others are doing. Your investment style, or goals, or temperament is unique to YOU, and the simple fact is YOU have more knowledge, insight and passion about some sectors/companies than others. This can be through your work experience, or just an outright personal hobby. I don’t know anything about the medical industry or the mobile payment industry for example, but I’ve been a working professional in the television business since moving to Los Angeles almost 20 years ago. I know about advertising budgets, trends, programming choices, and the antiquated, expensive tv upfront model. I’ve witnessed first-hand how people in my industry approach those topics, and the business models they put forth as a result. TTD isn’t heavily discussed here, and without using my experience and comparing it to what I’m reading about in the earnings reports, I very well may have sold at the first sign of COVID trouble. Instead, I’m reaping the rewards on a company whose stock is up around 700% since my first purchases two years ago.

I’ll fast forward to today, but felt it was important to share my backstory and highlight some specific lessons I’ve learned since finding this board. They guided me through a year that very well may go down as my best percentage performance year ever. Some of these lessons may seem like no-brainers to many, but at some point these were brand new ideas to me. Of course there are many more I haven’t mentioned, and I can promise I have LOTS left to learn.

Heading in 2021, my portfolio consists of the following, and I ended the year up 145%:

CRWD – 27% (will be trimming this outsized position early in new year)
TTD – 26% (same)
OKTA – 14%
ZM – 12% (Saul’s post a few weeks ago regarding Zoom slowing down has me thinking about this allocation quite frequently)
DDOG – 11%
DOCU – 6%
NET – 3%

Beside the TTD thoughts above, the other companies in my portfolio have been widely covered, and I don’t have anything meaningful to add on top of what others have wonderfully shared in recent months. Instead, lets go back to my yearly returns pre-Saul’s Investing Discussions. At the top of this post, I mentioned averaging 8.36% per year from 2005 – 2018, or 207% in total over 14 years. =sum(1.0836)^14-(1). Taking my 2019 returns of 35%, and my 2020 returns of 145% has me at 230% in total returns since finding this board. =sum(1.35)*(2.45)-(1)

You can say the companies we invest in are over-valued, are ripe for a correction, my sample size is too small, that 2020 was a once-in-a-lifetime opportunity or whatever you’d like, but in TWO YEARS I’ve exceeded what previously took me FOURTEEN YEARS to achieve through other methods. That’s the power of this community, and one I’d encourage all of you to respect for what it has brought us. The summation of ideas and thought processes from everyone here has completely changed my life, and I am beyond excited to continue my education over the decades of investing that lay ahead. A sincere thank-you to everyone on this board.

Brandon

224 Likes

Brandon, your summary of your thoughts was absolutely brilliant, and should be read by anyone who is in any degree new to this board and to our kind of investing. Thanks so much for taking the time to write and post it.

Saul

16 Likes

Brandon, thanks so much for the post!

I’m wondering how TTD is different from the ads platform from Google / Facebook and what are TTD’s competitive advantages. TTD’s programmatic digital ads seem not too different from Facebook or Google’s ads auction systems. However, Facebook and Google have way more user data which, IMHO, could make targeting more accurate. So what would be the reason for advertisers to choose TTD instead of Facebook / Google for their budget? Or are they distributing budgets to all the platforms?

A lot of the companies favored by this board are either a leader or a winning disruptor of a type of software solution or an industry, while TTD seems not. I suspect that the deceleration trend of revenue growth of TTD (growth rate in 30s in 2019) was an indicator that TTD is not winning the competition.

I may be totally wrong here, as the market is really favoring TTD now. I’d appreciate any thoughts.

Luffy

2 Likes

Thank you for your thoughtful questions Luffy.

To answer them directly, the CEO addressed this in their last quarterly call.

“Lastly, I’m extremely confident in CTV’s future because of the industry wide movement that is galvanizing around the Open Internet. The most important manifestation of this is the collaboration that is now happening outside of the walled gardens (ie, Google and Facebook). Brands are looking for alternatives to walled gardens and alternatives to user generated content and alternatives to broadcast TV and alternatives that are all data-driven. All of which point to the value of the Open Internet and all of which also mean that once again, the secular tailwinds are getting stronger for The Trade Desk. We’re trying to distribute power among the competitive media market, not control the market. And as we have seen this year, there is growing demand for such an alternative to walled gardens that can execute at scale across every channel worldwide. The market will not allow Google to be the only company to offer effective ad targeting. There is too much collaboration and understanding of what’s at stake for that to happen. We believe that the industry will have a better upgraded alternative for identity, that more effectively explains the value exchange of [an open] internet and provides users with greater control and privacy.”

So yes, while Google and Facebook are the biggest pieces of that pie, should the walled garden model fall sometime in the future the tiny sliver of pie that is TTD would benefit greatly. And who doesn’t like more pie? That is the primary reason I continue to hold.

Perhaps greater than all that however is that connected tv (and the purchasing of such ads on my company’s digital channel) is in my circle of competence, the CEO and CTO are the founders of the company, and if the market is rewarding a slower grower to the tune of up 700% in the past two years, well then I’m not looking to fix something that isn’t broken at this time.

Brandon

7 Likes