bulwnkl's Portfolio & How I Roll

Investment Analysis Clubs Saul’s Investing Discussions
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Returns
YTD = 69.0%
3 yr. = 199.5%

9 Rules for the Highly Effective Growth Investor
according to me ;o)

  1. 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.

  2. 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

  3. Develop amnesia.
    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.

  4. 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.

  5. 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.

  6. 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.

  7. 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.

  8. 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).

  9. 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.

Allocation

Alteryx 15.6%
Mongo DB 12.2%
Mercadolibre 10.7%
Twillio 10.5%
The Trade Desk 9.9%
Zscaler 9.5%
Oneoke 7.3%
Square 6.4%
Skyworks 5.7%
Guardant Health 4.3%
ST Income 4.1%
Arena Pharm. 2.3%
Cash 1.6%

Diversification

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%

Company Review
If you are interested in a nongrowth company information, please email me your questions offline. This board is for growth discussions only.

Alteryx
Revenue Growth: 76%
Non-GAAP Gross Margin: 89%
Operating Margin: 8%
EV/Sales: 25

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.

Mongo DB
Revenue Growth: 76%
Non-GAAP Gross Margin: 89%
Operating Margin: -33%
EV/Sales: 27

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.

Mercadolibre
Revenue Growth USD: 50%
Operating Margin: -1.8%
EV/Sales: 19

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.

Twillio
Revenue Growth: 81%
Non-GAAP Gross Margin: 89%
Net Expansion Rate: 146
Operating Margin: -21%
Rule of 40: 60
EV/Sales: 23

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%
EV/Sales: 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.

Zscaler
Revenue Growth: 65%
Non-GAAP Gross Margin: 80%
Operating Margin: -9%
EV/Sales: 34

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.

Oneoke
Estimated Dividend Growth: 20%
Distribution Coverage: 1.4
Debt:EBITA: 4.0

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.

Skyworks
Revenue Growth: -4.3%
Non-GAAP Gross Margin: 29.1%
Operating Margin: 32.4%
Estimated Apple Business: 40%
Estimated IoT Business: 30%
PE 13
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.

Guardant Health
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
EV/Sales: 64

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.

Arena Pharmaceuticals.
https://discussion.fool.com/binary-event-3-arena-pharmaceuticals…
https://discussion.fool.com/arna-update-2-34027551.aspx?sort=use…
https://discussion.fool.com/arna-update-34069303.aspx?sort=usern…
https://discussion.fool.com/arena-update-a-little-less-optimisti…

Comments: Cautiously optimistic with my tiny position.

Cash

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.

Best Regards,

bulwnkl

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bulwnkl,

I’m just catching up on the last few weeks of this board after a brief respite, but wanted to say I really enjoyed the intro w/ 9 rules in your recap. (As well as Saul’s extended June report which I just read, which was stellar.)

Some commentary…

1. Concentrated portfolios are the only way to go.
I too am new to this thought, selling down from a high of >60 stocks collected from HG/SA/RB newsletters, whittled to ~35 in early 2018, then finally down to 15 by Oct 2018 as I better focused my portfolio and sank into Saul’s methods. I’m now at 12 stocks, and I have to say it is a breath of fresh air after years of the “Foolish way” (buy and forget, hardly sell) - it allows me a MUCH greater focus on what I own, with a much better understanding of what the companies do and what their immediate future holds. Regardless of me being somewhat late to move into Saul’s overall strategy, this is the one thing I wish I had done sooner.

2. Invest in the best.
Yep. This board and the shared portfolios by Saul, Bear, Dreamer, Gaucho, et al greatly help bubble those up. Thanks for contributing w/ your updates. (Wish I had been here when you brought Bluebird Bio to the board.)

3. Develop amnesia.
I like your thinking on the “if I wouldn’t buy it today, it’s gone” mentality. Saul sells immediately when he gets uncomfortable or sees the execution falter. It’s still a skill I’m learning, as I am much slower to react (in both directions, buying and selling). But I agree with the overall reasoning - there is no reason to wait for rebounds and wishful thinking when there are so many successful companies you could invest in instead. Saul has an uncanny ability to part ways and take the resulting cash to bolster other top picks that are performing well. The opportunity cost is too great to sit around and wait for a rebound that may or may not happen over the next few quarters. So I’m learning… NTNX, for example, was an easy jettison for me, then NVDA, after their recent mgmt stumbles.

4. Limit risk by managing initial investment size. (<8%)
I still do this myself, but I consider it more a “getting to know you” phase rather than risk mgmt. But it makes me slow to act, which unfortunately made me much too slow to grow my OKTA and MDB positions until I felt I understood the companies more. I wish I had let the numbers speak louder, so perhaps this is slightly contrary to #9. But I am learning, and acted faster on ZS, ESTC and ROKU.

5. Shoot your dogs and let your wild horses run.
You compelled me to look at my portfolio with this statement combined with the “if I wouldn’t buy it today, it’s gone” part of #3. The market is really sour on SQ, for instance, and it is basically flat over TTM. In the meantime, my newer picks like ROKU and SMAR, first bought in March, have gone up 30-40% in last 3mo while SQ has languished. So there rears that opportunity cost again, while I sit and wait for the market to regain its senses on SQ, I could have put more in my newer holdings. ESTC is a bit similar w/ its poor recent performance, but since it is a new IPO that was still unlocking, I think I see why the market hesitates compared to SQ. It’s on a short leash but as I’ve said repeatedly, I like the the move into SaaS services.

6. All things being equal, go with diversification.
I understand the allure of MELI as I owned it for a long while. But ultimately I dropped it for a more stable economy (US of A) in the move from 35 stocks to 12. I don’t see where any companies that I currently own or even on my watch list are “equal”, so I feel this rule is perhaps a bit in disagreement to #2. But I did like and agree with your portfolio breakdown by industry, where you break out tech/SaaS companies by focus, which really highlighted that diversity can mean many things. So I personally will avoid the global diversity (MELI or BZUN) in favor of diversity of area of focus w/in the enterprise, overlaid by stickiness of service. Thinking of a portfolio as “overloaded in SaaS” really seems a blurry way to look at it - there are companies here focused on security, data storage, analytics and communications in this mix, that help development, IT, HR, and finance departments in various ways. These aren’t monotone companies that all do the same thing.

7. Think for yourself.
So motley! I definitely to overweight “stickiness” more than others here. Clearly other folks waffle on valuation. Diversity of opinion helps.

8. Know that I am fallible.
Aren’t we all. But perhaps this can be folded in with #3 (Amnesia) and be more focused on a rule of “Adapt quickly”.

9. When a business speaks, listen.
Posters here help us follow the financial story given by the numbers, not the marketing spin. I have always been a ‘story’ guy, which perhaps explains the love of Rule Breakers and David Gardner’s methods. But I don’t think the hyper-growth companies here are “story” stocks (ok, maybe SHOP). These stocks are having success because these companies are having success.

Thanks for the thought provoking post and the portfolio introspection it brought me.

-muji

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Hi Bulwinkle

I especially liked this:

Know that I am fallible. [Boy, isn’t that the truth for me too].
I have tried to forecast the market and shifted money to cash at the wrong time. [Which is why I don’t try to do it]. 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. {You must have bought the same brand of crystal ball as I bought!] 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. [Exactly!] What does work in keeping investing money in the market. [Exactly!]What does work is understanding how my investments are doing against the total stock market [Exactly!].

Best,

Saul

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Be it as it may that bulwnkl is the reason my portfolio is up 122% over the last few years, I can personally testify to the veracity of Rule #8. See me for anecdotes.

Sincerely,
R0CKY, bulwnkl’s daughter

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So awesome to see family on here investing together.

That’s a personal goal of mine with my kids some day.

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The Trade Desk
Revenue Growth: 41%
Non-GAAP Gross Margin: 17%
Operating Margin: 20%
EV/Sales: 20

Being an engineer, one thing I recall learning early on was to give things a quick reasonableness test when they’re first heard or read. At a quick glance, that 17% gross margin for TTD doesn’t seem like it could possibly correct, even moreso with the 20% operating margin listed right below it.

volfan84
keen to note TTD news with that as my largest position

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bulwnkl -

Excellent write up. Thanks for posting it.

Quick question for you. It appears you might use GAAP numbers rather than non-GAAP to calculate your operating margins. I don’t have the GAAP numbers to double check, but my non-GAAP rates are different for several of our common holdings. For example, I have TWLO’s non-GAAP operating margin last quarter as 1.4% vs your -21%. Similarly I have 7.7% vs -9% for ZS. Am I correct here?

Two reasons for the ask. One, I’d like to get your thought process if you specifically track GAAP. Two, I’d like to double check my own work if I’ve made a mistake or there’s a better way to track things.

Thanks.

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TTD Gross margin is actually 75.6%

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Hi stocknovice,

Fair point. I pulled the GAAP operating margin. And I was a little sloppy when I put together my notes, and pulled from Yahoo for the margin which I rarely use. Usually, I pull directly from the company website, and in this case there was a definite error. I vary with what I track depending on what the company reports and what I think is important, but for a young company, I would usually track non-GAAP numbers. Correct numbers are below.

Non-GAAP Operating Margin for Zs +8%
GAAP-Operating Margin for Zs -17%

https://ir.zscaler.com/news-releases/news-release-details/zs…

Sorry for the confusion.

Best,

bulwnkl

PS My only defense is that I wrote that while taking muscle relaxants for a strained back. I think that they lowered my IQ by about 10 points :frowning:

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Hi Volfan,
Your right. I screwed this one up a little bit, cutting and pasting mixed with muscle relaxants dropped my IQ a bit. As a fellow engineer, I should have checked this for correctness:

Adjusted EBITA Margin: 20%
Revenue Growth:41%
EV/Sales: 20
Non-GAAO Earnings Growth YOY): 44%

Apologies.

Earnings growth does bounce a lot, but TTD remains awesome.

bulwnkl

http://investors.thetradedesk.com/news-releases/news-release…

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