CloudAtlas’s Quarterly Portfolio Review
This is my first portfolio review. I post on this board every so often, usually in defense of LVGO or SE, sometimes to comment on lesser followed stocks, but I’ve never done a review before.
First, I want to give you a quick overview of who I am and what my investing journey has looked like. I’m a Consumer Researcher in my early 30’s living in the Bay Area. I was finally able to start saving money in early 2017, but didn’t want to leave it in a low interest bank account. I wanted to find a “side gig,” a source of extra income based something I was already good at. Since my background was in finance, accounting, and economics and because I sort of understood business thanks to an MBA, I figured I should try my hand at stocks!
My first year was primarily focused on Vanguard Mutual Funds and then thematic ETFs, but when I found this board in late 2017, I decided to try out individual stock picking, buying NVIDIA shares after a particularly strong dip. Over the course of 2018, I became more and more comfortable picking stocks, even though I still didn’t really know what I was doing. I made ALOT of mistakes in 2018, but I’m so happy that I made them. I learned a lot from those mistakes, and they led me to finding my own personal investing style. With the help of this board, I learned how to analyze a business, the importance of long-term vision, and investing in leaders, not value. I finally began hitting my stride in 2019, and 2020 has been even better.
My Personal Investing Style
I’m a sucker for disruption and my portfolio leans heavily towards disrupters. I look for companies that have all the ingredients for disrupting or creating their own industry, even if they’re still very early in their journey. Because of that, I have a longer time horizon than most of the board. Stock returns are second on my priority list (I know, its heresy). Therefore, some of my stocks are in an earlier stage than those typically followed on this board, some are even in later stages. As long as they are creating a new paradigm, they’re eligible for the CloudAtlas Portfolio. Valuation is also important to me when starting a position, and I use options when I see fit (I only buy call options, an important lesson I learned in 2018/19, and even then, they have to expire at least a year out).
I’m posting a portfolio review for the first time because I believe there’s a niche on this board of people who want to invest like I do. It’s worked out for me (so far), and I hope to contribute to this board’s ever-expanding wealth of knowledge.
Annual Portfolio Results
2017 -0.3% 2018 -13.2% 2019 +100.2% YTD 2020 +237.9%
2020 YTD Results
End of January +31.6% End of February +28.8% End of March -7.4% End of April +44.9% End of May +95.6% End of June +139.3% End of July +189.4% End of August +234.6% End of September +237.9%
Symbol % Allocation Avg Cost per Share Current Price Sea Limited SE 15.6% $50.10 + options $154.04 Livongo Health LVGO 10.5% $25.86 $140.05 Pinterest PINS 10.0% Call Options $41.51 Desktop Metal TRNE* 6.0% $11.34 $10.80 Inari Medical NARI 5.9% $43.32 $69.02 Guardant Health GH 5.7% $65.56 $111.78 MercadoLibre MELI 5.5% $671.69 $1,082.48 StoneCo STNE 4.7% $23.11 $52.89 Nano-X Imaging NNOX 4.5% $22.02 $23.52 Crowdstrike CRWD 4.3% $75.22 $137.32 Cloudflare NET 4.2% $39.63 $41.06 Adaptive Bio ADPT 4.0% $39.42 $48.63 Agora API 2.9% $40.09 $42.98 NVIDIA NVDA 2.9% $510.46 $541.22 PagSeguro PAGS 2.8% Call Options $37.71 Virgin Galactic SPCE 2.0% $12.82 $19.23 OnTrack OTRK 2.0% Call Options $60.00 Alteryx AYX 1.9%** $101.86 + options $113.55 Cash 4.5%
*TRNE will become DM sometime in Q4 2020. Read summary below on Desktop Metal.
**I am long a lot of AYX, but I’m also short puts, which technically have a negative value since they are liabilities. AYX’s allocation would be ~4.4% without those puts.
***For transparency’s sake, options make up 18.7% of my portfolio’s current value, but less than 6% of my cost basis. They’ve just grown a lot.
I look at my portfolio allocation based on original dollar cost (ie cost basis), as opposed to current value. My original dollar investment is based on my confidence in the business, and it doesn’t matter if one company’s stock rises quicker than everyone else’s. I’ll let a high-flying stock keep going if I still believe in the company (hence, my large positions in SE, LVGO, and PINS). Separately, since my portfolio has increased by so much this year, I’ve been allocating larger portions to my new positions because I have more funds than I’m used to and their valuations are relatively much better (hence, larger starting positions in TRNE and NNOX). In other words, my current portfolio allocation isn’t necessarily a function of my confidence in each company, but of stock price appreciation and when I initiated my position.
Some of my stocks are pretty well covered on this board, so I won’t talk about them here. I have a lot of other stocks, so I’m only going to highlight some of them (I may highlight the others in my next portfolio review).
Pinterest: To me, Pinterest is the most unique of the “social” media platforms. My day job is as a consumer researcher and one of the things we know is that images are much easier for humans to process than words are, which makes it ideal for browsing. Pinterest, along with Instagram, was made for picture and video and they cater to people who are looking for inspiration. I believe eCommerce (also known as social commerce) will be a game changer for PINS. When Pinterest fully integrates eCommerce into their platform (they began a partnership with Shopify in May), I believe advertisers and sellers are going to see an outsized ROI compared to text-based platforms like Facebook. People who get on Pinterest already WANT to buy things since Pinterest is basically a virtual showroom, so their strategy makes so much sense for them. I bought 2022 Leaps during the crash when PINS was ~$14 and it quickly grew from there. I don’t plan on selling until at least 2022.
Nano-X Imaging: IPO was in Aug 2020 and I got almost all my shares on the first day. It’s a very risky investment because they haven’t received regulatory approval yet. Nano-X claims they’ve created a medical imaging machine (X-ray) that is far lighter and cheaper than legacy machines ($10K price tag vs. millions), without sacrificing quality. This is important because 66% of the world doesn’t have access to medical imaging due to the weight and/or cost, and machines like their Nanox.ARC could substantially increase medical imaging availability and improve accessibility of early detection services around the world. Nano-X isn’t only going for product innovation, but business model innovation as well, by basically giving away the machine and employing a pay-per-scan model, charging $40 per scan (current global avg is $300 per scan). Lastly, they’re developing an end-to-end cloud-based system for uploading and interpreting scans, using AI to shorten the wait time to receive results. I interpret this as Nano-X using an amazing product to create demand, then turning high demand into a treasure trove of data for their AI. Its Livongo’s strategy, except that their X-ray machine is revolutionary in and of itself, unlike Livongo’s devices. They’re partnering with a few other companies to process these images, but I wouldn’t be shocked if NVIDIA shows up in the future as a partner (or more, as NVIDIA thinks about vertical integration).
I love what they are trying to do and it fits into my portfolio’s “disruptive company” theme. They’ve had delays testing the product due to COVID-19 and they don’t expect FDA approval on their commercial device until early 2021, so there still is a lot of risk, but they already have service agreements with 9 organizations around the world that guarantees a minimum # of scans worth $181MM/year (pending regulatory approvals of course). For full transparency, there have been a couple of short attacks on the company in the last few weeks, but they seem mostly baseless to me. These attacks have been refuted by many authors (including those at the Motley Fool, who’ve conducted a fantastic, exclusive interview with the CEO last week: https://www.fool.com/investing/2020/09/22/exclusive-intervie…). Back in August, Nano-X was actually highlighted on their Rule Breakers podcast (only for subscribers): https://www.fool.com/premium/coverage/investing/2020/08/31/w… .They seem to be getting a lot of attention from TMF recently!
Desktop Metal: What many would consider a leader in industrial additive manufacturing (aka industrial 3D printing). What sets them apart from the 3D printing craze 8 years ago was that those companies were focused on producing low volume prototypes and trinkets, while Desktop Metal claims they can print 100x faster at 1/20 of the cost of current high-end 3D printers, meaning that their printers can be used in actual, regular manufacturing operations. I don’t usually give much weight to grand claims made by management, but they have an impressive list of companies backing them, including Ford and BMW, and their machines are backordered until 1H 2024, so that lends a lot of credibility to DM’s statements.
Far from relying on one-time machine sales, Desktop Metal also makes money by selling the consumables used for printing, and they plan on vertically integrating in the very near future, boosting their margins, and giving them control over key strategic control points in their supply chain. They recently were acquired by a SPAC, which is why their symbol is TRNE (it’ll change to DM once the acquisition is complete). From everything I’ve seen, they are definitely leading the pack in an opportunity that could be revolutionary for manufacturing (link to their investor presentation: https://www.desktopmetal.com/uploads/Desktop-Metal-Investor-…)
Inari Medical: IPO was in May 2020 and I got almost all my shares on the first day. They’ve developed minimally invasive products used to remove large blood clots from veins. They claim that doctors are currently using products designed for arteries to remove clots from veins, which is inefficient due to differences in blood pressure and firmness of the clot. Inari claims to have created one of the only products specifically designed for veins. I don’t know much about this area, but judging by their revenue growth (150%+ during COVID) and high gross margins (86%-90%), customers seemingly agree that Inari’s products are better and are willing to pay a high price for it. I’ll stay with Inari until their income statement starts telling a different story, but my feeling is that this could be the next Abiomed.
StoneCo: Leader in independent payment processing and business solutions for SMBs in Brazil. Their portfolio of business solutions is impressive and they are doubling down on tools for eCommerce. As of their first earning call since COVID-19, 50% of eCommerce in the country went through their platform! I was impressed with this company well before COVID, having bought most of my shares in 2018, but they’re finding new ways to integrate themselves into their client’s business. Berkshire Hathaway owns 11% of the company. This is a clear long-term holding for me.
MercadoLibre: Clear leader in Latin American eCommerce. What made me invest in them was actually their payments platform, MercadoPago. Late last year, their off-platform payment volume exceeded their on-platform payment volume for the first time, meaning MercadoPago has made its way into people’s everyday life (paying bills, buying groceries, etc), not just eCommerce transactions. That’s huge! I expect big things from this company. Long-term holding.
Cloudflare: I won’t talk about NET specifically, but I will talk about why I chose it over the board favorite FSLY. From what I’ve gathered, FSLY has better, faster technology and is catered to large enterprises, while NET gets the job done for lower end clients who don’t necessarily need premium speed. Fastly is better technology-wise, but the language that its technology is based on is super niche, while Cloudflare made sure their CDNs are based on commonly used coding languages, making it very easy to work with. Its sophistication versus simplicity, and I usually bet my money on simplicity. I like Cloudflare’s strategy, as its simplicity grants the company a huge customer base, which lets the company upsell products like its new Cloudflare for Teams or its future Workers Unbound service. It also lets Cloudflare see more use cases, making for more relevant innovation and product creation. The fact that they host a large portion of the web and have an established security service gives them many avenues for understanding their customer better than anyone else. Data is the new oil, and the more data (or users) you can get information from, the better you can make your products. Of course, there are many projects that need the absolute best tech and fastest speeds, and those projects will go to Fastly, but Cloudflare will be fine with everything else.
Adaptive Biotechnologies: ADPT is using machine learning to map our body’s immune system response to diseases. This is an absolutely massive undertaking, similar to when scientists mapped out the human genome back in the early 2000’s. Adaptive wants to use this information to create customized treatments for every individual to fight conditions like cancer, food allergies, and auto-immune diseases. Microsoft formed a partnership with ADPT a couple years ago so that Adaptive could leverage their machine learning expertise, going as far as setting up joint teams and offices. This company has set ambitious goals and it looks like Adaptive Biotech is far ahead of anyone else in achieving them. Though they haven’t mapped out the immune system yet, they have a flagship product immunoSeq, which maps out T- and B-cells (the body’s main defense against antigens) mainly for academic and biopharma customers. They’ve recently leveraged immunoSeq to identify the body’s immune response to COVID-19, showing the product’s wide-ranging benefits. They are still losing a lot of money, but they have some other diagnostic tests in their pipeline. This is a long-term bet and probably won’t make me money anytime soon.
As you can see, finding disruptive companies is my primary goal. I’m fine sitting on “dead money” for a while and not investing in companies that have better short-term prospects. Even though I’m not as focused on returns, I definitely believe my portfolio will outperform the market every single year (though not to the extent that it’s outperformed this year). That’s the power of investing in burgeoning industries, eventually they’ll outperform the broader market, and they’ll do wonders for your portfolio if you buy the leaders early on. While my portfolio and philosophy may differ from the rest of the board, I think we share our passion for finding special companies. I’d welcome any feedback on my portfolio and/or my investing philosophy (I’ll also answer questions about my use of options if you want to send me a private message). Hopefully this was helpful!