CloudL first portfolio update for Dec 2020

Happy new year to everyone. I am excited to create new spreadsheets and start new pages. This is my first report on my portfolio result. I’ve refined my approach enough that I am happy to share the results with the board. Since this is my first update, it’ll serve as a reference point for future updates. Treat December 1, 2020 as my starting point in the world of concentrated hyper growth investing. I may or may not provide additional portfolio updates in the future.

My strategy evolved in 2020. I made many adjustments. With the simplicity of 6 stocks, it’s easier to share the results with the board. If I have 200 stocks, or 30 stocks, it’ll be impossible to discuss.

My current main investment approach:
I observed the revenue growth rate is the number one determining factor in long term return. If stock price deviates from the fundamentals, sooner or later it’ll snapback.

On Saul’s how he picks a company:
“Second, I would want rapid revenue growth. My ideas about that have become inflated in the last couple of years and where I once might have looked for 20% to 25% as very fast growth, I’m now looking for 35% growth, and usually more.

I raised the bar to the maximum. I start with historical and current revenue growth rate as the first screening criteria. I now seek a consistent YoY revenue growth rate of close to 100% ! Some people point out that 100% growth per year can’t last forever. I can also point out that 50% per year growth can’t last forever. All companies naturally slow down to market average growth rate. That’s because of the physical limit. Companies are growing fast for good reasons: competitive advantage, disruption, compelling product, large addressable market etc. When the fastest growing companies slow down, they are still growing faster than slower growing companies because the fastest companies started with faster speed. It’s inertia. I want to participate in their hyper growth phase. Those growth will show up as value in a company. The value doesn’t disappear because a company slows down. As a result,when fast growing companies slow down, their stock prices do not go back to the beginning.

Next, I look at products, business models, stock charts and estimate the room for future growth . Also, I invest for the long term. I don’t participate in short term economic or business trends even if they benefit the stock price. When I pick a company, I expect it to grow consistently both historically and currently and in the future for at least a few years at fast speed.

I did not track portfolio returns accurately from January to November. I did track my net worth and it’s the best increase both in terms of percentage and dollar over my over-a-decade of investing in the stock market.

Disclaimer: I do not guarantee my strategy will perform better than most people here simply because I picked the fastest growing companies. I do believe it’ll consistently produce satisfactory return. Do your own DD. Think independently, objectively. There are many choices. Different strategies can still perform extremely well if they are good at them such as: turn around play, short term trend play. My strategy is simply to focus on maximum revenue growth rate and strong business model and focus on just a few stocks. I have to keep saying NO to opportunities. I think not having clutter is a beautiful thing.

My 6 stocks portfolio performance in December, 2020: 1 month % change+16.4%

Meanwhile:
SP500:+3.26%
WCLD: +9.37%

Current holdings and weight(%) and price change in December:


`Holding`
`Weight     Stock price Change(%) in December`
`CRWD`
`23.84%             +38.19%`
`PTON`
`23.29%              +30.40%`
`SNOW`
`18.45%               -13.64%`
`LPRO`
`17.54%               +24.32% `
`EXPI`
`12.71%                +18.36%        `
`LMND`
`4.17%                   +76.84%      `

I do not plan to make any big changes next year because I see their growth will continue unless there’s a compelling new IPO as alternative.

My actual return is lower than the stock price change in december because I made multiple purchases at various times in December. If I had those positions at the beginning of December, the result would be much better. Now the portfolio is established I won’t make much change. From now on, my portfolio performances will more resemble the stock price % change.

My biggest gains in December came from CRWD and PTON. Smaller gain came LPRO. EXPI and SNOW went down from my average cost around -20% each. (and my portfolio is still up 16% in december!)LMND % change is impressive. However, it doesn’t have a big weight so its effect on the portfolio is not significant. I prefer to let itself grows into a big position without adding lots of new capital. I believe it has big potential. I may gradually boost its weight a little bit over the next several quarters depending if its financial metrics continue to improve.

My take on Calculating Portfolio Returns:
I find Saul’s way of calculating return is a bit complicated.
There’s another way. This way treats the portfolio like a mutual fund: there’s a total asset value ,unit numbers and unit price. Buying/selling changes the number of units but does not change the unit price. Only stock price change move the portfolio unit price. I find this way is simpler than Saul’s method which uses complicated multipliers.

This only measures the performance of stocks. It doesn’t include cash because cash should be excluded. If we include cash, why not include cars? House equity? They will lower the over return and we can’t measure how well an investor has done as a stock picker.

Here’s a template I’ve created:

https://docs.google.com/spreadsheets/d/1gfcooKHP8w08riI3glCj…

Some Quotes:

“The risk of paying too high a price for good-quality stocks – while a real one – is not the chief hazard confronting the average buyer of securities. Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.” Benjamin Graham

“We’ve really made the money out of high quality businesses. In some cases, we bought the whole business. And in some cases, we just bought a big block of stock. But when you analyze what happened, the big money’s been made in the high quality businesses. And most of the other people who’ve made a lot of money have done so in high quality businesses.” Charlie Munger

“See’s Candy - it was acquired at a premium over book [value] and it worked. Hochschild, Kohn, the department store chain was bought at a discount from book and liquidating value. It didn’t work. Those two things together helped shift our thinking to the idea of paying higher prices for better businesses.” Charlie Munger

“Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it. If the business earns 6% on capital over 40 years and you hold it for 40 years, you’re not going to do make much different than a 6% return even if you buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you’ll end up with a fine result. So the trick is getting into better businesses.” Charlie Munger

(My comment to the last quote: In case of growth stock, it’s revenue growth rate instead of return on capital. It’s ok to slightly over pay initially. Hyper growth will catch up to valuation in as little as 2 quarters. For hyper growth investors, the plan is not to own stock for 40 years. It’s to own the stocks during its fastest growing phase. Maybe it’s 2 years or maybe it’s 5 years. Shopify grew at 100% per year for 5 years. I don’t think it can continue this rate for the next 5 years.)

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