Broadway Dan’s August Round-Up
Like the boys down at Dino’s Bar & Grill, I am back in town. As fate would have it the relative I turned over about 85% of our portfolio to during the horrific plummet from Nov 21 to Feb 22 left his role in wealth management and I am now managing our family’s investments.
As of August 31, 2023, This is Monsters of Greatness Excessive Capital Appreciation Fund:
· IOT 4.9%
· TTD 3.9%
· AXON 3.3%
· AEHR 2.8%
· CASH 85%
Spiritually speaking, I am currently in deep reflection, high up and nude on Mt. Everest with scars of the 21/22 thrashing still stinging my tuchus. I don’t yet know my game plan for the cash pile. But here’s some thoughts on specific stocks. Please know I only try to comment on my area of expertise – narrative – and work hard not to repeat what others post. Basically I steal picks from better investors and garnish the gumbo with my own seasoning. You can find my method below if interested. I needed to write it out as I re-take the reins.
The leaders met at MIT and prior to Samsara built a successful company called Meraki. It was doing so well it was acquired for over a billion-dollars early in it’s lifecycle and at the time the price caused jaws to drop. From what I can tell the acquisition was a good one for Cisco. The founders left to form a new company - Samsara. I have a personal connection here as my wife worked for a competitor who, she felt, had a superior product. But Samsara was so well run, the sales force so strong, they thrashed my wife’s company. So much so in fact, she left that company and it may be in death spiral. For me, narrative wise – the Samsara leadership is proven, they know how to execute, the verticals for their product suggest a ton of blue sky ahead. And I like the relationship equity that comes from their long term friendship. (See the same thing in Monday) I added after the last ER but wish I added more. In my experience the greatest success I have had is when our board loves earnings results but market does not. Generally speaking the market comes to see it y/our way. (Of note if you’re not subscribing to Stock Novice’s premium newsletter “Strictly Business” which costs a pittance, you’re committing a fiduciary outrage. His analysis of earnings led me to make the purchase pre-market and basically I more than 25X’d my investment in his newsletter with one trade. )
I have always loved this stock but rarely buy outside the board’s collective wisdom. So I was thrilled to see Bear naming it his top pick. The name, branding is exceptional. The dominant position in the space is glorious. A friend of mine who is Chicago cop vouches for the quality and says what a nightmare it is to shoot someone with a bullet for cops. Beyond the obvious trauma, it is a massive issue, particularly in this current environment in which many people are hostile toward law enforcement. The overall narrative is flawlessly articulated in their brilliant tagline, “Protecting life, capturing truth and accelerating justice.” Founder led by proven star, with a tough guy culture mitigated by strong female representation in C-Suite. High conviction.
Jeff Green is arguably the best CEO we have ever seen. He has been in the ad-tech space forever, once sold a company to MSFT, has a vision for how advertising should work – personal enough to serve up relevant ads, not so personal it violates privacy, transparent for buyers and better for consumers. Ads on streaming services are horrific – repetitive, irrelevant and full of wasted money/time for all involved. Green’s vision of serving more relevant ads and therefore everyone winning – those who sell the ads, buy the ads, view the ads – is dead on. Green has nailed major predictions in the past – most notably that Netflix would have to add a free, ad-supported tier. He was mocked for this as Netflix CEO Reed Hastings insisted it would not happen, which was a blatant lie.
I met a very successful executive who worked closely with Green and was furious that the publicly traded company she was at had the same revenue but 1/6th the valuation. Why? NARRATIVE. Her company has one of the worst, most convoluted, laughably awful websites I have ever seen. And when I showed it to Stock Novice he said the Investor Relations section was virtually unreadable. By all accounts the company is a noble one and extremely well run in all other ways. But the CEO just doesn’t know how to articulate a vision, to tell a story. That tells me narrative can be, literally, worth tens of billions.
They are run by a proven leader with lifetime experience in industry, who seems like a reputable and decent man. He accurately analyzed his industry, and while an exec at HP tried to purchase AEHR. That did not happen so he landed the CEO job there, invested heavily, put years into his vision and nailed it. The stock was flat for roughly nine years til it went parabolic. With leadership past performance is indicative of future success. Off our board’s enthusiasm for numbers, tech clearly proven, the narrative is sound. Mild concern – the education of the top guys is, by traditional metrics, the least noteworthy we have seen. Usually our stocks feature MIT, Harvard, Yale, Wharton, University of Chicago, Stanford. Here we have far lesser known schools – Brigham and Young, Hawaii, and Devry Arizona to name two. Could be a plus in that they value people not resume. But it did catch my eye. And my first thought was I wonder if these guy can make chocolate chips. Ohhh! Calm down it’s a joke. They’re killing it and countless geniuses didn’t even go to school. Still, it’s a narrative violation. But I strongly suspect a misdemeanor, not a felony.
Stocks Danny’s Currently Feeling …
Roaring back into the conversation. Surely this speaks well of McKinnon to move past acquisition, flawed ER performances. This is purely a pick based on seeing Okta’s price rising, positive reviews and it’s reappearance in Bear, Willem ports. Seems ripe for a comeback. Generally speaking my take is ANY stock that was ever good enough to pass the mile-high standards of this board, then falls, deserves a check-in every three months. I would not be the least bit surprised to see innovations at DDOG, NET, ZS drive them back to the highest allocations.
If there’s anything less enjoyable to think about than organ transplants I’m too much of a gentleman to mention it here. But the stock is down hard after they acquired a small airline and Stock Novice buys the narrative that the acquisition makes sense and is sticking with the company. Bottom line TMDX seems to be a better way to transplant organs, is taking more control of their process and it seems like story coming together. But I can only imagine the obstacles, regulations, challenges in this industry with hospitals struggling for cash and not always willing to spend a dollar today to save two tomorrow. This one, for me, is one of those weird ones where your mind says the stock will win but your gut just doesn’t want to go along.
Saul kindly took the time to post the literary equivalent of a mafia baseball bat attack on the stock’s recent numbers and board techies Muji and Smorgasbord are so unimpressed with the tech it seems to induce fits of narcolepsy. That said, Todd Nightingale strikes me as a brilliant, reliable, good man with exceptional resume. He played key roles in helping to build/sell a company to Motorola (that was founded by ZScaler’s Jay Chaudry) and was a big part of the company mentioned above, Meraki, founded by IOT’s founders. Basically Nightingale was on the board of Fastly, no doubt saw the farcical mess the CEO was making - the gains not being realized - and eventually wound up at the helm. The entire C-Suite has been changed - strengthened, and now includes heavy hitters in security from the Dept of Homeland Security, Stanford, and Checkpoint software. Chief Architect Artur Bergman seems genuinely delighted with Nightingale and all oars appears to rowing in the same direction, in synch while the crew sings war songs.
The CFO, Ron Kisling, led the sale of several companies including Fitbit to a $3B acquisition by Google. My take is great people do great things. Logic dictates Nightingale left his cushy job as a revered executive at Cisco to build Fastly into either a much more valuable acquisition target or into a monster of its own. Here we trust and follow the numbers. But in Narrative Land we trust the numbers and tech will flow from great leadership. Think of Fastly kind like the Washington Football Team. Their numbers and play has stunk. But logic dictates they will improve fueled by positive change at top. (But they must flush the cliché name “Commanders” – awful.)
Fastly is a high conviction stock for me. Leadership is just too good. But after I had good run from 16-ish to 20-ish I took profits based on belief that the stock pop (now at 24!) wasn’t justified by the numbers. It is however clear the market likes the narrative. Basically Nightingale openly admits the company needs major change and he is focusing on five core areas. He believes they were competing in spaces they had no right to compete in, that they are strong in 2, coming along in 2 and the 5th is rapidly speeding up innovation. He is fanatic about simplifying processes within the company, particularly in decision-making and sales, simplifying the pricing structure and offering and the message. This man is a winner. He’s not sexy, not a great speaker but his vision is dead on, he’s authentic and proven. Really admire him.
Not rooting for an acquisition but strongly suspect one will come. Looking at the resume the CFO on Linked in he seems to need about three years to get an acquisition done. He joined Fastly June 28, 2021. I expect the new Chief of Marketing, who hails from Checkpoint where he did real nice brand overhaul, to radically alter the look, design of their marketing for the better. I found the last CMO to be disaster based on watching a YouTube video that featured painful rambling. If the stock drops to $20 will add back. If drops to $16 will buy aggressively. Regret selling and learned lesson – never sell out entirely purely due to rising stock price unless valuation absurd. If this one sells for a 4B valuation while I am on sidelines I will roll up a newspaper and whap self hard on the snout.
Hard to say why but the name is great, cans looks fantastic. And this brand–frequently advertised on my beloved UFC– has captured massive mindshare, and seriously loyal fans. I have several friends who swear by it. Once a brand gains this kind of traction, and more importantly shelf space in stores, good luck moving it out. Imagine walking into the corporate offices of Wal-Mart and claiming your new energy drink deserves better placement on store shelves? That it will out-sell Celsius? Oof.
That said, I personally believe the claims about its benefits are (expletive for what comes out of a horse’s petoot). As founder of the Monsters of Greatness Excessive Capital Appreciation Fund I don’t see greatness in the actual product. Yeah yeah, they have study that says you burn more fat and can leap tall buildings in a single bound without getting jitters. Zzzz. So can countless other drinks. I use Jocko Go and love it. I might add this stock as the pros outweigh cons from investing standpoint. But I hate owning companies that, if they disappeared tomorrow, would be forgotten faster than haters flee our board after a 10% run-up.
Leadership, products, execution all seem flawless. And Saul has held onto this stock with such passion that at some point reason dictates just stealing the top dogg’s conviction. How many times must a fellow be right on high conviction stocks before you just go with it? And he has had years to study it in-depth as it has overcome brutal competition, markets.
Stocks Danny admires…
Friend at big investment firm told me some ZS tech is “lightyears” ahead of competition and there is no more reliable CEO than Jay Chaudry. This is a man who grew up in village in India with no electricity, has been in the cybersecurity space his whole career and what happened when they had a sales miss? He hired a new CRO and fixed it. Just rock solid. I don’t think he is great storyteller and has no cool factor. The name stinks. But his integrity, excellence are indisputable. I also love that he is smart enough and confident enough to build what he needs to and to develop products organically instead of buying up companies and inviting in all the corporate meshugas that comes from acquisitions. Chaudry is a rags-to-riches immigrant who has added immense value the world and truly represents everything great about America. If ever a stock deserved set-it-and-forget-it status it’s ZS. For three years I have found myself asking “Why don’t I own that one again?” Just cause I’m a sucker for branding, narrative, sizzle. My bad. Of note, again, Fastly’s Todd Nightingale was high up at AirDefense Solutions, a wireless security company founded by Chaudry which they sold to Motorola. That Chaudry thought so highly of Nightingale speaks volumes to me about Nightingale and I see the Chaudry/Nightingale/Samsara founders Sanjit Biswas and John Bicket as a killer triumvirate.
You all know what this is – dominant, great, it too deserves spot in classic Fool-style LTBH portfolio. Kurtz an absolute kingpin and company has best branding, design, storytelling in the entire market. Ever. But I do often find myself thinking that 40-60B+ is a market cap where hypergrowth goes to die. Just seems like TWLO, NET, CRWD, SNOW and many others seem to seriously slow down and fall from. I could sleep peacefully owning this monster. One exec I know at large pharma co told me the CRWD team did high level presentation and it was the best the company had ever seen. These are killers and winners. But my guess is big moves likely to be thing of the past. For every MSFT, META, AMZN that can fly past 50B there are 100 companies that can’t.
From everything I have read, and seen posted here, the technology is excellent, visionary. I once posted about the story of the company here and CEO Prince and I had exchange on Twitter resulting in my sending him my book and him sending me a Cloudflare t-shirt! So respect and love to the man. But I have to say I found it off-putting when he sent out a Tweet mocking Fastly right before they had a big presentation to investors. Fastly’s CEO maturely, calmly, and impressively handled a question about the Tweet that day by basically saying Prince was lying. Nightingale encouraged analysts to check third parties and insisted it was easily verifiable. Prince is a genius storyteller, marketer and incredibly successful human being – a University of Chicago educated lawyer, Harvard biz school grad, with a lifetime of experience in computers. But he finds a lot of time to Tweet or whatever you call that thing now. My guess is co-founder Michelle Zatlyn handles more of day-to-day operations.
For me, I just can’t dig a CEO lying so blatantly. He claimed NET is faster than Fastly in every country in the world, which Fastly disputes. This at best is juvenile behavior and just not my thing. What does that suggest goes on behind closed doors? That said like the bro culture at Axon it’s probably not really that relevant in long run. And may even be a good thing in that we want warriors growing our capital. And Steve Jobs and Musk both blur the lines between visionary and medicine men hustling to extremes and all worked out amazing for their stocks.
Five stocks I could sleep peacefully owning without the ability to sell for five years:
SNOW (Slootman the baddest of the bad in good way); NVDA (holy Moses); BILL – I love LeCerte, despite his story having something I hate: complexity; DDOG (I enjoy the feisty Frenchman CEO and let’s not forget that time they surprisingly rolled out 5 modules that earned rave reviews); and lastly, the tailwinds for solar plus the company’s BoD having one of my favorite characters, TJ Rodgers, makes ENPH likely to be a long term winner in my eyes.
Here are three stocks I just cant get myself to care at all about:
PURE, MDB, GLBE
Big Money Good Wishes to All,
THE BROADWAY DAN STOCK ANALYSIS METHOD
For those who don’t know me I’m the author of the critically acclaimed and intensely beloved book 27 Essential Principles of Story, Master the Secrets of Great Stories from Shakespeare to South Park. (The book is now available in Chinese, Russian and Korean!) And I am often referred to as “the father of narrative investing” by people like myself. While researching it I began to see Story as a superpower and recognize how often our best picks– names like CRWD, ZM, NET– were perfectly told stories while stocks that we came to regret like NTNX, NEWR and FSLY (v. 1.0) had narrative violations.
I try hard to add value to the board by giving insights into areas that are not covered by others and that have soul, brains, humor as we are investing serious time here and my take is that time should be well spent, engaging and fully human. We are not profit-seeking robots. We’re human beings investing in things that radically impact workers, communities, the world, etc. It’s easy to forget that when cheering for our bank accounts. And it’s easy to undervalue our time, spiritual health.
The Broadway Dan stock-picking method relies on three factors:
· Product Analysis
You know the Knowledge Base. For me, I rarely invest in a stock that is not vetted by the Saul Board’s elder statesmen. Numbers are likely all that’s needed as one can safely assume if numbers are strong, the product is sound and so is the narrative. But there have been times I have spotted gross narrative violations and avoided stocks with seemingly great numbers. And I’ve passed on winners that didn’t meet my criteria. No method gets ‘em all. I am horrific at math so I rarely if ever mention it.
If consumer focused I judge for myself. If tech focused I rely heavily on input from board experts, often driven by posters including Muji, Offringa, Smorgasbord. If you read enough articles on a company and watch videos of executives (grossly underrated) you can easily discern if the products are legit, highly rated.
· Trust in Leadership -
- Radiate integrity and have track records of success.
- Been in their industry for their entire careers.
- Founded company. Or joined very early.
- Level V leaders – strong silent type. (Think John Wooden, Tom Landry, Mark Messier)
- Competitive, gritty.
- (Optional) They have flair, cool-factor, ability to tell a convincing story giving the stock price a narrative premium. (Kurtz, Prince)
- They eat, breathe, sleep their industry.
- Ideal age – about 45. And 55 is better than 35.
· Company name, branding, mission clear, simple, packs visceral punch.
· Management knows target market, likely to innovate for it.
· Company is flying, or about to go flying, up the S-Curve.
· The macro environment – market sentiment, geopolitical, interest rate cycle is positive.
· The industry is in high demand with no major govt, regulatory obstacles.
· There are stocks whose narrative is about solidity, likely to do well and avoid catastrophic loss. These are mature, have dominant brands, moats, often pay dividends. (Apple, Costco, Schwab)
· There is an intuitive feeling I get that feels like a solid line down my gut and a specific visual – of cash flowing like a river that strongly suggest the stock is right for me. Older I get the more I am convinced your heart, for lack of a better word, FEELS truth before your mind. I know that in Islam the heart is considered the true source of wisdom. For example, I knew my wife was the greatest for me within seconds of meeting her. How was this possible? No clue. But we celebrated our 30th this June and it remains my greatest decision of all time. Surely this aligns well with Denny’s recent thoughts on the brain as a pattern matching machine.
Strategy, Putting it all together:
· Study overall market sentiment in financial media.
· Note macro head/tailwinds
· Note industry head/tailwinds
· Numbers vetted by elders of board.
· Tech vetted by experts when product out of wheelhouse.
· Analyze narrative using factors listed above.
· Stocks clearly form bases. Though “Mr. Market” has mood swings he is great at price discovery. Therefore a price range is firmly established going into earnings.
· Generally assume the price at earnings is legit. Compare quality of earnings to market reaction. When there is gap, act accordingly, e.g., if board loves numbers but market does not buy with aggression. Market loves numbers, board does not, sell some/all.
· Earning releases are critical times and schedules must be cleared to be all over them. Speed is key. Using after hours and pre-market to immediately sell struggling stocks and buy/add to elite performers is key to this style.
· Stocks move in a range between earnings reports. Have a trading strategy to take advantages of price moves unrelated to business performance. Sell high, buy low.
· Allocation must align with conviction.
· When conviction deep never sell out entirely unless price extreme.
· When in doubt, get out. If something, even if undefinable, irks you, just get out.
· Err on side of defense. Excessive losses will damage future. Modest gains and we’ll be on solid footing. But, still, outsized gains could present fantastic possibilities.
Challenges/Strategies to overcome:
· I lack analytical/math skills to make rapid decisions after earnings. With significant positions this is stressful bordering on traumatic. Mitigate by studying KPI’s, then comparing them, fast as I can, to earnings. Work on doing this under pressure.
· Watch temper when taking a beating. Only be critical of avoidable errors – e.g., over allocating to lower conviction stock to chase trend, selling co you love due to price rising.
· Don’t allow market to distract from creative work, earning dough.
· Do not allow quest for profits to blind morals. Avoid stocks you think do more harm than good – gambling, booze, weaponry likely to end up in tyrannical hands.
· Do not get caught up in mania – never forget the disgraceful number you once pushed into UPST and thank God in Heaven it was only mildly calamitous. Bufoon!
· No one is infallible. Never ever buy stock off 100% borrowed conviction.
· Trust the group’s wisdom. The Saul board is far more likely to come to a sound, rational consensus than it is to collapse into mindless Groupthink. Yes, unfortunately there are many posts which amount to little more than vapid regurgitation but there are at least 25 heavy hitters who do the work and question authority.
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