YTD = 69.0%
3 yr. = 199.5%
9 Rules for the Highly Effective Growth Investor
according to me ;o)
Concentrated portfolios are the only way to go.
It took a while for me to move away from TMF recommendation to buy volatile growth stocks in thirds. Watching Saul from the sidelines cost me a lot of money to hold off on a good stock. If I do my research well, it’s probably best to hop in. Research can include buying a small tryout position. Also, I sleep better when I understand why I own each stock, so a concentrated portfolio is easier on my psyche.
Invest in the best.
This was hard for me to start doing this. I like to hold on to a stock until the thesis is broken. When a better stock comes along which exceeds the quality of my current holdings, I had to learn to go with it, regardless of whether my thesis was broken. I look at a 3-year time frame and hope my investments will double in that time. Sometimes this pushes me into areas that might be atypical for this board like biotech, medical devices, and value, but I will limit my discussion here to growth
I look at my stocks freshly every week and decide if I would buy them today. If not, their gone. Nothing matters but the future for the company. Saul improved my ability to react to poor business results.
Limit risk by managing initial investment size.
I don’t have any issue jumping in at 8% with one stock, but I don’t feel comfortable adding above that. I think that any concentrated portfolio holder has to figure out how they are comfortable. I will reup the stock to 8% if the stock drops, I like the stock, and there’s no new news. There are no magic answers.
Shoot your dogs and let your wild horses run.
Someone once said that on Louis Rukeyser’s Wall Street Week in Review. It always made sense to me. Once I find a winner, I HATE to walk away from compounding. I have let an individual stock run up to 25% allocation, and would be willing to go higher.
All things being equal, go with diversification.
Initially, I believe Saul was a Growth at the Right Price (GARP) investor. I think in a stroke of dispassionate and brilliant business savvy Saul shifted to SaaS investing EARLY. The point is that Saul has an open mind to identify opportunities, wherever they lay. In the spirit of open mindedness, I like to look at the universe of great stocks. Case in point, Mercadolibre is up 111% over the last year. That compares favorably with most SaaS stocks, but it is more of an ecommerce/electronic payment play for Latin America. All things being equal, if I can get he same return with industry or geographic diversification, I think it is safer to do that.
Think for yourself.
While I value the opinions of Saul, Bear, Gaucho Chris, Tinker, The Motley Fool analysts, my wife, my kids, Vince Lombardi, and a lot of people, NO ONE EVER AGREES ON EVERYTHING. All I can do is determine a process that works for me and listen to several viewpoints. The most important thing is not to be perfect but to commit to continual improvement over time.
Know that I am fallible.
I have tried to forecast the market and shifted money to cash at the wrong time. I have tried to hedge my bets with bonds and buying puts against various indexes, only to reduce my returns. My crystal ball does not work. What does work is checking how I invest vs. how others invest, and improving my approach over time. What does work is keeping noninvesting money out of the market. What does work in keeping investing money in the market. What does work is understanding how my investments are doing against the total stock market (VTI).
When a business speaks, listen.
I don’t care what the day to day price is. When Mongo DB says that Amazon’s NoSQL is is not a threat, then back it up with their results and conference call, I am good. I wait for what I believe are concrete business results before I make a move.
Mongo DB 12.2%
The Trade Desk 9.9%
Guardant Health 4.3%
ST Income 4.1%
Arena Pharm. 2.3%
Data Management SaaS (Alteryx, Mongo DB) 27.8%
Retail Services (Mercadolibre, Square) 17.1%
Communication Services (Twillio) 10.5%
Advertising (The Trade Desk) 9.9%
Internet Security (Zscaler) 9.5%
Energy (Oneoke) 7.3%
Health Care (Guardant Health/Arena Pharm.) 6.6%
Semiconductors (Skyworks Solutions) 5.7%
Short Term Investments & Cash 5.7%
If you are interested in a nongrowth company information, please email me your questions offline. This board is for growth discussions only.
Revenue Growth: 76%
Non-GAAP Gross Margin: 89%
Operating Margin: 8%
Comments: Sales growing nicely with a positive operating margin is a huge plus. Recent optimism in stock is probably equally from sales performance and takeover speculation due to the Salesforce.com purchase of Tableau. Many think that Microsoft would be a fit for Alteryx.
Revenue Growth: 76%
Non-GAAP Gross Margin: 89%
Operating Margin: -33%
Comments: Sales growing nicely but Mongo needs to convert revenue to profit. The low operating margin is concerning, but the Total Addressable Market is HUGE. Amazon’s foray into the NoSQL world does not worry me. Glad I held on through the dip. Eventually, this should grow to a monster providing stock based compensation and cash are managed well.
Revenue Growth USD: 50%
Operating Margin: -1.8%
Comments: Concern about competition by Amazon in Latin America is overblown. Sales moving along nicely, and growth in Mercadopago (+94% in local currency) is unbelievably good. Paypal’s investment in MELI is good validation of payment system.
Revenue Growth: 81%
Non-GAAP Gross Margin: 89%
Net Expansion Rate: 146
Operating Margin: -21%
Rule of 40: 60
Comments: SendGrid was purchased at a decent price, and it offers a good cross-selling opportunity, though everyone who uses email to communicate with customers doesn’t necessarily rise to the sophistication of having apps related to their businesses. Signs point to consistent positive free cash flow, though last quarter was negative. The revenue growth and net expansion rate should convert to real profit sooner than later.
The Trade Desk
Revenue Growth: 41%
Non-GAAP Gross Margin: 17%
Operating Margin: 20%
Comments: Just switched to positive cash flow! Love the combination of solid revenue growth with positive operating margin. Profits matter!!! Love the regulatory & privacy pressure on Alphabet, Amazon, and Facebook. Those aren’t concerns for The Trade Desk, and trend to connected TV should bode well for TTD.
Revenue Growth: 65%
Non-GAAP Gross Margin: 80%
Operating Margin: -9%
Comments: This product has seems to help my work computer systems work considerably better. Cash flow is positive. While the specifics of this business are over my head, I do understand the critical nature of securing remote devices will only grow as the number of millennials remote work, and portable devices grows.
Estimated Dividend Growth: 20%
Distribution Coverage: 1.4
Comments: New pipeline work that is occurring ahead of schedule!!! Pipeline network is unbelievably well positioned for natural gas. I think that an increase in natural gas consumption will coincide with an increase in electrical consumption for green vehicles and increased automation. 4.9% yield, good growth, and Utility like safety, potential for greater than 20% growth in dividend for the next several years. Similar situation to when I held this between 10/15 and 11/16 with a gain of 153%. Performance will be relative to interest rates and the price of oil. Caveat emptor.
Revenue Growth: -4.3%
Non-GAAP Gross Margin: 29.1%
Operating Margin: 32.4%
Estimated Apple Business: 40%
Estimated IoT Business: 30%
S&P PE 22
Comments: I should have sold this earlier. This is completely a value play so I won’t discuss this on this board. On the plus side, Skyworks manages their inventory well, they are unbelievably well positioned to provide 5G filters for phones and for automated devices (Alexa, cars, automated, and equipment). IoT is expected to triple over the next 3 years. On the down side, people are continually stretching out their phone purchases. I will guess that the phones will not decline quite as much due to the advent of 5G, then continue their decline after that. Putting this altogether, I business growing about 30% a year for a highly profitable company with little competition. SWKS pays a 1.88% dividend, and the S&P has been growing it’s earnings at about 18% recently. All that leads me to a conservative double. This stock is on a short leash with me.
Revenue: $111 M
Enterprise Value: $7.1 B
Total Addressable Market $100B Frost & Sullivan est.
Revenue Growth: 120%
Increase in Clinical Tests 31%
Increase in Biopharma Tests 61%
Non-GAAP Gross Margin: 63%
Operating Margin: -89%
Operating Cash Flow: -$70 M
Cash: $467 M
Comments: Although I am a fan of profits and positive operating margin, I am also a fan of big opportunities. First, the NILE study had positive head to head testing for guideline-recommended biomarkers for non-small cell lung cancer. Guardant’s Lunar-1, the test for reoccurrence for colorectal cancer had decent results presented at AACR and is moving into a 10,000 person trial. Lunar-2 is geared to early detection of colorectal cancer. Lot’s of potential competition. I can’t sleep on this pick.
Comments: Cautiously optimistic with my tiny position.
Comments: This comes from my work 401k. First, my company limits how much I can invest in individual stocks, so the balance I put into short term investments. I am skeptical of the overall market and of bonds. Until there is a hard market downturn, this money will sit in cash rather than an index fund. Take this with a grain of salt. I am no great market prognosticator.
I hope this is helpful and I hope everyone has a fun filled and blessed Independence Day weekend.