Broadway Dan’s September Round Up
On September 1st I owned only four stocks: AEHR (2.8%), AXON (3.3%), IOT (4.9%), TTD (3.9%) CASH (85%)
After the horrors that befell us in Nov 2021 I have become much more cautious in my thinking and feel a portfolio with at least 20 stocks is a better fit for me. My current portfolio looks like this:
AEHR 10.24% (Revised down, see below)
The fine art collection above is widely known as The Monsters of Greatness Excessive Capital Appreciation Fund. In September it fell 3.7%
Remember before you read this that I’m a narrative-focused investor and my thoughts are not meant to be comprehensive. They focus on the 30,000-ft view and x-factors that are hard to quantify. Taken out of context this stuff can seem trivial. For example I beat up on the AEHR website below but fully realize the tech matters far more. With earnings coming up and many with big allocations please take this as a trigger warning.
Thoughts On The Monsters of Greatness Excessive Capital Appreciation Fund
(IOT) – Samsara
Samsara has won over the numbers crowd here. They have won over Muji who did a massive deep dive on them on his Premium site which I highly recommend. Though you may need to be reincarnated twice to finish both.
If you look through their site – samsara.com – and download their report on the State of Connected Operations 2023 you see world class communications. It is clear, precise, specific, uses videos, animations, graphics, images to make their case. It radiates a convincing sense of purpose. They are led by obviously brilliant co-founders with a proven track record, who are relatively young and have a massive vision for what this could become. Of note I could not find the reason for the name Samsara on their site. Interestingly one definition could be of endless rebirth. But I found another that means something more like “flowing on” and that seems perfect. Their last company was called “Meraki” which means “doing something with soul, creativity, love and passion – an ancient Greek word that describes putting yourself fully into whatever you are doing.
There is a reason this thing is so richly valued – it’s the most impressive company in our current universe of stocks. My wife is in software sales, competed against Samsara with a different company and Samsara tanned their hide with aggressive sales force. She knows a few people there and they rave about the culture. I loaded up big time around 23 and change.
In this method when a top stock falls due to macro and a BS short report that is a must-load-up situation. Doesn’t get better. I tried to make a quick 10% on a short term trade – closed it up almost 8% in a few days in my taxable and beefed up the position in the retirement accounts. By far my highest conviction pick of our crew.
Everything about this stock feels like it’s at the beginning of a massive journey to positively and significantly impact the world. This doesn’t just feel like nerds who built something cool it feels like a fully realized vision of a company built by corporate warriror for the long haul. It feels like a story that’s just getting started. For a company to communicate as effectively as they do, that elite level of communication is the tip of an extraordinarily impressive iceberg where every last detail has been considered and the founders have the intelligence, clarity of thought, passion to transmit the vision through all necessary parties. If you don’t believe me, try this: pretend you’re a young, talented, aspiring executive looking for new gig. Navigate to their Careers page and see how well they do at inspiring you to work there.
And this brings us to the next stock…
(AEHR) - AEHR TEST SYSTEMS (Down to 3% from over 10% allocation)
When I started this write up I had let it get to over 10% which I now consider a GIGANTIC portion. And upon looking over the company, studying the story I realize I have very little conviction. I know nothing about the tech, the industry at all. All of my conviction here is borrowed from Saul and Novice so this morning I took it down to about 3%. I didn’t make an investment here I bought a lottery ticket.
When I said I see Samsara at the beginning of a great journey I feel the exact opposite here. The founder is an old man. His friend who co-founded the company retired this year from the board. The company was founded in 1977, went public in 2006 and as a public company the stock did bubkus for FIFTEEN years - it actually went down. The CEO seems like a good, kind man and he has a proven track record. He had a vision, saw the potential in AEHR’s technology, ran with it and by all accounts skated to where the puck was going, got there and put up a hat trick. The stock has gone from around two bucks in July, 2021 to 45.70. Exceptional. I applaud that like Travis Bickle applauding at a campaign rally with a brand new Mohawk.
In my last write up I noted that I had found a video online of Erickson running for the board of his Silicon Valley Golf Club and, again, he comes off as really good guy. Nothing but respect. But I’ve seen videos where Frank Slootman speaks of the torment he found in retirement and how quickly he tired of talking golf scores. Sure, Erickson may rightfully just be relaxing on the course to blow off steam. But when a fellow wants to join the board that suggests to me he has one toe in retirement. He feels to me like a man who saw something, nailed it and WON big. Mazel Tov! L’Chaim! Of note that video seems to have been taken down. Maybe they read our board.
The AEHR website is an atrocity. It looks like the founder’s grandson helped him build it on Windows 97. Whether it’s centered text on the About page, poorly right justified text in the bios, the photos, the writing – it’s just terrible. Except, maybe, the descriptions of the technology which are obviously by far the most important thing here. I do get that. But imagine you are a young aspiring executive and hear about this company’s promising technology. You go to the site and navigate to their Careers page. And you find not a dedicated page, but just a few God-awful cliché lines…
Aehr Test Systems is seeking talented, passionate, and relentless doers for our teams around the world. If that sounds like you, please check out our current job openings. We’d like to hear from you!
We are always looking for exceptional candidates and you are welcome to send us your resume using our contact form.
That is literally why the great William Zinsser wrote his masterpiece, On Writing Well - to rid the world of soul-less, robotic, corporate drivel.
When you look for videos on the company you never find the CEO on Cramer, or Fox Business or at a major event. You find really small videos like this one…
My word. The start of the video looks like the guy is about to introduce Robocop.
I know, I know this may not matter but at this point shouldn’t there be a high level PR person to consider the next level up?
Nicholas and Kasey Rossolito at this podcast, Chip Stock Investor have covered the stock extensively and seem to have a good feel for it and command of the sector, technology.
Nicholas was in early on the stock, has made good calls on it if you watch his videos and feels that the valuation is way too high, that he’d consider buying under $40. Here’s a recent video…
And one from five months ago…
He is very sober-minded – maybe much more of a value investor than our board and makes content for less experienced, more classic Fool style investors. But he both believes in the long term viability of SiC and gallium nitrate (I have ZERO clue what these are) and yet also feels the term “Silicon Carbide” is overhyped, that this industry is inherently lumpy in how money is made and feels violent swings both ways are likely. So he’s now an opportunistic player of the stock. Interestingly he feels growth investors long for something exciting to replace the hypergrowth of cloud stocks and suggests there is misguided optimism for AEHR, that semiconductors can’t deliver growth in the same way that stocks with recurring revenue, easy-to-release modules can.
In Saul’s August write up he states they have a “functional monopoly” – this conflicts with what Rossolito is saying as one of his videos anticipates competition likely to enter the space. I have no clue if it is a functional monopoly. And SJO’s take on quotes from a conference that Saul paraphrased included these lines…
"Silicon Photonics – biggest opportunity they’ve seen” … “has the potential to be bigger than silicon carbide”… *
“If this moves to transceiver business and optical IO (OIO), the TAM can explode”
“If you start stitching this together because the communications bandwith is becoming limited and Optical IO can increase this by 1,000 X. This could be a really big opportunity for AEHR that could become a driver for them.”
“Gallium nitrate (GAN) has the opportunity to be bigger than silicon carbide.”
Those who understand this tech, this space better than I do I wish you the best of luck. This surely can be a classic “Hidden Gem” that’s not really hidden any longer. And all this excitement may be justified. But to me, who many call the Barry White of stock analysis I am a tender, feeling man. And what I feel here is hype, starry-eyed dreaming about what could be. In fact the tone here reminds me of that Sea Algae company that sparked a frenzy years ago. If they could do x, y and z then the TAM was going to be bigger than forty times the mass of Jupiter.
I don’t understand the tech, don’t like the hyped tone, I find the website unprofessional, don’t feel competitive fury in the CEO, the board chairman seems like his best days are long behind him, and for these reasons I reduced the allocation. This feels to me like a great product not a great multibillion-dollar company in the making.
My bet is this thing gets acquired in next few years. For me I consider AEHR the anti-Bear stock of the moment. Then again there’s been many smaller companies around here that I thought would get bought out but never did. I would not bet against a top-allocated Saul pick. But Saul reminds us often not to just blindly follow him. That’s exactly what I was doing here.
(FSLY) – Fastly (7.70% allocation could see as high as 10)
I’ll say say stuff here that will feel like it’s in direct contradiction to things I said about AEHR, most notably that I believe, with Fastly, because X is happening, Y will follow. So there is “if/then” and “could”ness here. I’ll explain why below.
My narrative thesis looks like this. Let’s say it’s five years from now and the market cap is at 5, 7 or even 10 billion. And we view this number as the end of a short story. If we were to work backwards from that we’d see the company did everything they are doing now.
The reason I feel so enthusiastic and willing to accept if/then and couldness here is entirely due to the new leadership including new CEO Todd Nightingale replacing the disastrous Josh Bixby and maybe even more importantly, and far less known, David Hornik has replaced Arthur Bergman as Chairman of the Board. Interestingly I can’t find any real press on the latter switch. In an interview Muji stated that he found the idea of Bergman as Chairman of the Board a terrible thing because it meant the CEO had to answer to him and the structure was off. Bergman clearly is a pure-blooded techie and from what I can tell – awful, awful Chairman of the Board. Think of him as Chairman like Ringo leading the Beatles. Not good. Bergman is back where he belongs and superstars are in control. And when you see Bergman discuss Nightingale at their last investor presentation day he radiates comfort and real affection for the new CEO. He looks so content in his new role it feels like when a kid comes out of time out and fully realizes that true parental love comes from justified discipline. The man is ready to excel.
If you’re not familiar with Hornik, he is an extremely well connected VC who runs his own VC firm, Lobby Capital. He was an attorney for many years in Silicon with a long track record representing start ups, sits on the board of BILL, teaches at Harvard and Stanford and is credited as having both the first blog and podcast focused on venture capital. He studied music at Stanford, Criminology at Cambridge and Law at Harvard. He was the Lead Independent Director for years on Fastly’s board and just this April became the Chairman – presumably when he could not bear another second of Bixby’s bumbling.
I talked about Nightingale in my last write up. In short he’s got a great track record – he helped the Samsara founders build their last business Meraki into a beast that sold to Cisco for over a billion early in its history, then rose up high at Cisco. Prior to that he worked with ZScaler’s Jay Chaudry where the two sold AirDefense to Motorola, studied electrical engineering at MIT where he did undergrad and grad school.
These are winners with incredible track records, who both served on Fastly’s board and saw what the company could and should be. They have overhauled the entire C-Suite and from what I can tell each hire has been a significant improvement, most notably in marketing. And there’s a big emphasis on security.
I’m married to a software saleswoman and seen her over 3 decades deal with every kind of CEO - those who drive salesforce too hard, those who think their product is so good for world it will magically sell itself and those who truly understand how it works, how important it is and know how to manage a sales force. Nightingale is this kind. You can tell from how he discusses his sales team that he has spent serious time working with them and get this all-important function.
The new CMO has his work cut out for him but he did an excellent rebrand running the marketing for Checkpoint and no doubt will radically overhaul the current branding which is terrible. The website is a mess. The imagery and graphics are sloppy and inconsistent. I wish they’d change the name in a total rebrand as this is not the same company. And “Fastly” is a word that just sounds weak and chirpy. The “ly” undercuts the speed and muscle of the word “fast.”
I’ve listened to, watched and read several interviews with both Hornik and Nightingale and they strike me as genuinely decent human beings. Of course we can’t know this from distance but they seem like happily married fathers who genuinely care about doing great work. This is not mere foofoo barfism but hugely important for team building, recruitment, long term success.
Nightingale is radically simplifying all processes, product offerings, pricing and messaging.
The company competes in four categories: Network Services, Security, Compute, Observability and Nightingale is passionately focused on ramping up the pace of innovation to add more. He fully realizes how important it is to land and expand and to upsell the **** out of customers once you’re in. He often talks about only competing in categories he feels Fastly has a “right” to win.
He feels that Fastly partners well with the big dogs AWS, Azure and whatever the heck the other one is called. And with smaller players too – for example, with Data Dog he claims they both can do observability because they see things differently from their vantage point at the edge. (That almost sounded like I have a clue what it means.)
We’re hearing more and more talk of consolidation in software, that companies hate having so many vendors to deal with and products to integrate and Nightingale insists this favors Fastly as they don’t get cut out. By adding functionality it seems their platform at the edge could help with this customer/prospect concern by inherently offering various services in one place. Says Nightingale…
“Anyone going through vendor consolidation, because they want to shrink the size of their team, managing content delivery or even edge security, they’re almost always keeping the performance leader as one of their go-forward vendors, and that tends to always be Fastly.”
Here’s another quote that helps articulate his vision…
“The power of the platform is phenomenal and we have ported that Signal Science intellectual property onto Fastly’s Edge. We’re in the process of moving the whole management plane into one unified dashboard, one unified management playing both on the application developer side with the unified API and on the configuration and management side. And when that is finished, and we’re not there yet, we have a real opportunity to run a very low friction land and expand sales motion. And that’s the – when the real platform advantage comes, because all of our content delivery customers who are comfortable with our platform are experts on our platform.”
The man’s tone is sober, backed by intellectual heft, radiates authenticity and has some oomph to it. Though I greatly respect what Cloudflare’s Matthew Prince has achieved and his ability to spin a yarn, I prefer lower key leaders like Nightingale more. It’s a gut feeling about trust. When Nightingale says the following I believe him …
Yes. I think in ‘24 we’re going to drive that growth in security and delivery and not necessarily with the offerings we have, but by bolstering those offerings, our bot mitigation on the security sides in beta, it’s going to launch very soon for full availability. Huge opportunity to upsell there. Content delivery with the Domainr acquisition with a lot of the regulatory compliance stuff, we’ve got a huge opportunity to grow that business through portfolio expansion as well. We’ve got our DDoS security managed service offering has done extremely well. It’s very early days. We’re looking forward to that stuff. Security proxy work is an expansion opportunity for us. So, we’ve got tons of opportunity for expansion in those existing areas. And then just like you said, as we look at ‘25 and ‘26, AI compute, advanced edge storage, there’s tons of portfolio expansion.
The stock took off after the last ER and ran up to $24. It has since fallen back down to $19. We all keep seeing our stocks move in channels between earnings and I think many of us are getting a feel for doing short term trades off these. Samsara moves between 25 and 30, add some at 25 trim at 30 til next ER. Fastly seems to belong in the 17 to 22 range. And that run to $24 feels like what investors expect in the not too distant future. Of note, remember the name Gary Alexander? The fellow who was forever mocking valuations of our most popular stocks while we were all loading up trucks of gold bricks? Even that guy, a value-oriented investor thinks it can soon reach $27.
Bottom line for me is I’m breaking the Bear rule here and investing not based on what has been but what will be. When Lionel Messi joints Inter Miami you don’t evaluate the team based on their stats. You do it based on his stats. Hornik/Nightingale may not be Messi level but here they don’t have to be to get this thing to 5B. And I’m using their past performance not the company’s to justify the pick.
Wildcard Thoughts on the Rest of the Monsters of Greatness…
I suspect no one knows if SNOW, DDOG or BILL will do best so I just own 'em all. I think all three are exceptionally well run, especially SNOW. I confess to being a Slootman “fan boy”
The Clorox hack is apparently VERY bad and must be further terrifying corporate offices around the world. Tailwinds for cybersecurity are rivaled only by - never mind. OKTA, ZS, CRWD and yes, FSLY which is now heavily into security after converting Signal Sciences to Fastly Security and hiring a few heavyweights in the space. I also read an article about the Israeli legend who built PANW and that seems like it’s worth putting in the basket. Of note I’m okay borrowing some conviction from Bear on OKTA. His feel for picks like this is uncanny.
I have connection in beauty space who is fanatic about quality of ELF leadership, says they have brilliant sourcing and distribution. And once a brand owns mindshare, shelf space and people believe in their anti-cruelty, woke attitudes toward loving up every kind of body that makes them tough to knock off shelf space at Wal-Mart, Walgreens, CVS, etc. But this one has a hired gun and get a load of this - Snowflake with their big mean, anti-woke CEO has a higher ESG score on Schwab. New metric: The Loss Irritation Factor - the degree of irritation you feel when a stock you buy drops as mine did when I caught the exact high. SNOW, FSLY, IOT drop I consider adding. ELF dropped and my first thought was “what was a I thinking!?” Fun facts - did you know ELF stands for Eyes Lips Face and that one of the founders gave up his fortune, devoted himself to Jesus and became a priest?
TMDX - Transmedics - our nation is so grossly overweight that airlines are praying new weight loss drugs will help reduce fuel costs. Imagine a nation so fat it’s hard to lug them around in gigantic planes! Oy is that fat! The stock dropped because apparently the market didn’t like their purchase of a small airline. But it makes sense to me to control the whole process. Hate to be mean but that Americans will need heart transplants in large numbers seems certain. And if TMDX’s grotesque wired up glorified coolers can help with that it should be a winning bet. Not a long term hold for me as the CEO seems kind of grumpy. I like nice people. Like me!
Thanks to Gaucho Rico for introducing me to the killer podcast Acquired. Their episode on NVDA caused me to take a small position in what appears on the surface to be our biggest no-brainer stock. I just struggle to get brain around anything over a trillion. I actually listened to their other podcast on COST and was so inspired by the story - and by the madhouse I see whenever I go there I had to add some. In fact, I could honestly have my entire portfolio in Costco and sleep soundly.
If TJ Rodgers buys ENPH I’m in. The need in India, Australia alone should offset the idiocy from CA, FL, TX where regulations and politics impact sales. Tailwinds just too big here and I took a chance to add off the recent plummet. Barron’s did article claiming stock could rise 80% from low for whatever that’s worth. Our power grids are a disaster and solor panels help alleviate high-usage times, preventing rolling blackouts.
Took tryout position in PLTR because Karp impressed me when read interviews with him, founder led, been around a while and many think will explode with AI’s ascendance.
Had to add some TSLA due to all the fascinating posts here on Dojo, Optimus, coming self-driving car revolution, And the trouble with legacy auto industry surely a plus. That said, Musk is the most off putting over exposed personality in human history. I wish so much he’d execute the 16th of the 48 Laws of Power. And I’d kill to see him guest star on the testercle-themed show in the film Idiocracy.
Had to own some TKO because WWE, UFC and possibly addition of boxing would make this a dominant brand in the best global sport. Everyone in all cultures instantly gets what’s going on when two galoots whomp each other. Try explaining American football, or baseball, or cricket to cultures who don’t play them. I have seen UFC fights in China, Abu Dhabi, Liverpool, Paris, Mexico, Brazil … and the hysterical passion is the same everywhere. Especially for hometown fighters. I figure tons of room to grow in Eastern Europe, Africa, Latin America, all around the globe. Will never add to it as zero faith in management to do anything other than two-fist all the cash they can into their own pockets.
Every time an executive leaves a company you wonder if something negative happened. CTO and Co-Founder Dave PIckles at TTD set the gold standard for how to leave with class. Writes Pickles in the company’s press release…
“When Jeff and I founded The Trade Desk 14 years ago, we shared a vision of a better way to price and buy digital advertising. Our amazing progress since then is testament to the incredible work of our product, engineering and data science teams,” said Pickles. “I could not be more proud of the innovation we are pioneering for our industry, and I look forward to continuing as an advisor to Jeff, Sairaj and Gruia and everyone else at The Trade Desk in the years ahead.”
“In founding and building The Trade Desk into the world’s largest independent demand-side advertising platform, I could not have asked for a better partner than Dave,” said Green. “Dave is one of the true innovators of advertising technology, not only in service of The Trade Desk, but also more broadly, in helping the industry move forward with transparency and trust. He leaves behind an incredibly talented technical leadership team. While I will miss his day-to-day counsel and contribution, I’m thrilled that he will continue as a close and valued advisor moving forward.”
Yet more proof this company has an actual soul. Notice how he calls out Jeff, makes clear strong replacements in place and he plans to help and stay in touch. I hope his health is okay. He seems like a genuinely decent person.
Haven’t had time to consider MNDY but curious how a stock like that will be impacted by AI.
I couldn’t bring myself to buy CELH because I really believe the product is not healthy, not legit. That said, like with ELF massive mindshare, great marketing, Pepsi now in with them. But juggernauts Red Bull and Monster won’t go gently into that good night.And will surely release drinks that are allegedly backed by science. Ask Google if CELH is healthy and you’ll find tons of videos saying it’s not, especially in large daily quantities. If TMDX or CRWD vanished lives could be lost or ruined. If CELH vanished the effort to replace them would require reaching for a different colored can and maybe feeling a little sad. Must be 100 brands with equal quality. I’d call this liquid Peloton but the lock on shelf space and deal with Pepsi makes them too strong.
Saw an older story about AXON CEO sticking to his guns (almost pun not intended) on building drones with tasers in them. He had a board of advisors weighing in on ethical decisions. They concluded taser drones was bad idea as all sorts of potential for misuse. But to me placing drones in schools and buildings to be launched at mass shooters is a great idea. Good for Smith to stay tough. FWIW a cop friend of mine in Chicago thinks Tasers could become far more ubiquitous as shooting people with guns is a tremendous problem for cops - could risk their freedom, careers, mental health if get it wrong - so it’s far more preferable to take someone down by making them “ride the lightning.” Challenge is the shots don’t always make it to flesh. This one is in my LTBH classic Fool style bucket as well as Saul bucket. A flawless narrative - founder led, great marketing, noble mission, proven product, few if any real competition, a real top dogg.
Lastly it’s funny to note that in my Schwab account almost all our stocks are rated D or F. I think I might have one C. When I log on I feel I’ve gone back to Jr High.
Okay mercifully for all I’m out of gas.