CMFAleeb August Portfolio Review

This is going to sound bad, but where are all the nay sayers and dooms day predictors from a month or so ago?

I mean that seriously. If they were truly interested in learning, adding value, and meaningful discussion, they would engage when times were good and bad.

They don’t so this tells me to ignore their posts because they are just lurking and hoping to see us suffer.

I would love to share thoughts from bull and bear perspectives to help them see our thought process and help us learn theirs…open invitation…

I do use a small % of very long term owned calls. Won’t go into detail. But keep that in mind with these returns. I’d do a lot worse of our businesses were struggling.

Month to Date

Return: +44%

Comparison S&P 500 return: +3.81% (as of Aug 28)

Founder Stock Portfolio vs S&P 500: +40%

Year to Date

Return: +101%

Comparison S&P500 return: +9% (As of Aug 28)

Founder Stock Portfolio vs S&P 500: +92%

I own these companies with the rank order of position next to them. We just got back from a trip and I’m on my phone so these might be off slightly. My largest 3 positions are 15-18% each and bottom 3 are 3% to 8% each… I’ll post the actual sizes in a reply tomorrow.

AYX #4
MDB #7
NEWR #9
NTNX #5
OKTA #8
PSTG #2
PVTL #3
SQ #6
TTD #10
TWLO #1
ZS #11

As I think about those numbers, it doesn’t feel real. These numbers can’t and won’t continue. In fact, I’m prepared for a 10% – 30% drop at any time. This could happen market-wide due to any number of global issues or it could happen at a more micro level to one of our companies, or the type of companies we’re invested in.

We must remember; these types of drops are normal. They happen and in fact, they have to happen for the economy and stock market to stay healthy long term.

However, if we get paralyzed by this fact and try to “time the market” by waiting for one of these drops to happen before investing, we would have missed out on 101% year to date, and 43% month to date. If/when our portfolio does drop by 30% it will hurt. It will hurt bad.

However, if it happens today. We’d still be up more than 30% for the year.

But what if that type of drop doesn’t happen for another 3 months, 6 months, or 1 year? That’s more compounding and wealth creation we would be missing out on.

The point is, HUGE drops will happen. They always do at some point. We don’t know when and contrary to what many try to say, we can’t time them.

The way we make this work in our favor is to set ourselves up for success before we ever invest a dime. Here’s the basic outline our family uses.

We live below our means

We don’t have high interest debt

We have a 6 month emergency fund in cash in the bank

We don’t invest any money we might need for the next 5 years.

Outside of that, we invest the rest. Every month. Staying consistent. Sticking to our strategy, not taking on extra risk by getting crazy and trading on margin (borrowed money) when times are good, or getting scared when times are bad. The only change is that when there is a down turn in the economy, we will try to put extra money in the market (while still covering cost of living)

Then we find the best 10 – 12 founder-led companies we can and we invest in them.

We learn more about each along the way. Listening to earnings calls, reviewing their earnings reports, following their founders and company social media accounts. Listening to their company podcasts if they have them. When we’re only invested in 10-12 companies, this type of commitment is achievable with 5 or so focused hours a week.

That seems like a lot of commitment, but if I average that out (and I’ll double that amount because I enjoy reading/learning and probably spend 10 or so hours a week researching).

That’s 320 hours or so of time invested so far this year.

$217,971 (how much our portfolio has appreciated this year) / 320 = $681 per hour….I’ll take that any day. The calculation isn’t that simple. We have to think about taxes and the fact that I haven’t taken any of the earning out. So really, all of that pay is delayed until future years, but the benefit is added years of compounding.

But really $681 per hour. Wow. That won’t happen every year…or even most years, but even if we made one tenth of that, it would be $68 an hour. Still pretty awesome!

Here’s a paste of my response to Saul’s Shell Shocked post. I think its fitting to describe why in spite of these great results, I firmly believe at least a few of our companies are incredibly undervalued.

More than the recent results, I’m proud of my (our) ability to not panic when everyone was claiming doom and gloom and the run was over. I watched my portfolio drop by 20-30% and didn’t freak out. In fact, I found a little extra $ I had and invested more. Not because of the drop, but because I was confident in these businesses and wanted to invest more.

I am a bit shell-shocked, but I truly believe we are invested in some of the most innovative, under-valued businesses of our time that are leading the transformation of how business will look in the future.

That’s right I said under valued. Most people claim these stocks are outrageously expensive. However, I think even we are underestimating the future growth of at least 1 of these companies.

Did we ever think Square Cash would pass Venmo? I didn’t…when I invested in Square, Square Cash wasn’t even part of the thesis. They just keep innovating to best serve their customers.

Did we know New Relic was going to launch their Infrastructure product with so much initial success? I didn’t. What will that impact look like long term? I don’t know…certainly can’t value it now.

How about the popularity of Twilio Flex already? What will their new Partner Program mean for their growth in 10 years? I have no idea!

How about all the fear about Alteryx when Tableau introduced their Prep product? This was supposed to compete and crush Alteryx. Tableau is the bigger, more established player. The most recent results, the voice of the market painted a completely different picture. The real one. Tableau is not competing with Alteryx.

What impact will Alteryx’s community have on future growth? THIS is their moat. It can’t be valued by analysts forecasting earnings in 3 months…

Same can be said with Pivotal and Nutanix with their hidden growth transitions. I think Pure Storage is in the same category with them. All impossible to possibly value over the next 5-10 years.

What will The Trade Desk’s “Next Wave” product impact be in 10 years… no clue.

All of that being said with success-bias. This has been a very good stretch for these businesses, I realize that.

I own 11 companies right now. I’m confident over time, I’ll be wrong about 6 of them. But I strongly believe 1 or 2 of them will make up for all of the losses and provide life-changing results. Similar to what Amazon, Netflix, Google, Apple, etc have done for long term investors.

In fact, our lives already have been changed. Because of these boards and my transition to a smaller, focused portfolio, I can really spend time understanding the companies I own.

As a family at 30 years old with two kids, my wife and I are now in a place to move back to our home state of Florida, to exactly the county/neighborhood we want and be closer to family/spend more time raising our kids while they are young and we are young.

Of course, this comes with risks, we will continue to work, but with much more control over how/when we work and much more time to spend together. We’re deciding to realize some of the benefits of our short term investing success (while still living below our means) and enjoy our lives now and in the future.

Getting off topic, so I’ll stop.

Anyways, great month, we can’t expect this to continue.

The Motley Fool and this board have changed (improved) my family’s lives tremendously.

Thank you all so so much.

51 Likes

Congrats, Aleeb, well done!

Now I’m really curious. How did you goose your returns on those holdings so much?

I’m not checking up on you; I just happen to have nearly identical holdings*; and my gains last month were only 20.6% and YTD only 46.7%, and only 1 of OUR holdings (yours and mine) returned over 40% last month (AYX @ 48.9%, a 12.3% position for me.)

Did options make over 100% difference? Are you using margin?

  • All holdings identical except:

I hold ABMD, AZPN and MA.
You hold NEWR and ZS.

Dan, needs a goose

2 Likes

Hey Dan, thanks for the question.

It could come down to a number of things. Here’s a few:

No I don’t use margin at all.

The options probably helped out quite a bit because I had/have some long calls on AYX, TWLO, and PSTG…all were up big after earnings.

Our % allocations can have a big difference.

It sounds like you have a few more holdings than I do so increases or decreases in the underlying stock prices will have a larger affect on my portfolio than yours. Especially for my largest positions which PSTG, TWLO are, and AYX was, but I closed some AYX calls because of the expiration date so it fell a few spots in terms of allocation size.

Again…I don’t want to go into detail on options here. They wouldn’t be effective at all if we weren’t invested in great companies and that’s the point of this board!

Last thing I’ll say is do not dive into options to find a goose or juice returns… they can be very very dangerous if applied improperly. Or if the stocks take a dive.

1 Like

Hi Aleeb,

I don’t want to beat on this discrepancy, but you evidently didn’t read my post carefully. I’m saying we could trade ports and except for the bottom-line totals, I doubt you would realize the switch for awhile.

• As I listed, I have only 1 more holding than you.
• My largest positions are SQ, MDB, TWLO, PVTL, PSTG, AYX (quite similar to yours)
• Only 1 of all the stocks mentioned gained over 40% in August (AYX). Unless your AYX is over 95% of your ports, position ranking can’t make up significant difference regardless of the sequence.

Yet somehow you doubled the ‘normal’ returns of these stocks. I was just curious as to how you managed such a neat coup. It could be your calculations are in error, but I’m sure if that were the case you would have realized long ago, so … if our positions were reversed, I trust you would be curious too. (No pun intended. Well, not initially anyway. :))

So if no margin is included, it must be the options with a 100% goose? Wow!

August Gains

Ticker	Aleeb	Dan
TTD		68.3%
AYX	48.9%	48.9%
TWLO	39.3%	39.3%
SQ	37.1%	37.1%
MDB	33.0%	33.0%
NKTR	26.4%	26.4%
OKTA	24.5%	24.5%
PSTG	23.9%	23.9%
ZS	21.2%	
PVTL	20.9%	20.9%
AZPN		20.4%
ANET	16.9%	16.9%
NTNX	15.2%	15.2%
ABMD	14.7%	14.7%
MA		8.9%
NEWR	5.2%	5.2%

Avg	25.2%	26.9%

Oops, correction: I have 2 more holdings than you; somehow I missed TTD, which I bought before their earnings announcement (and which REALLY kicked butt and blew away the returns of all others mentioned in August)

As frustrating as being unable to learn the difference may be, I give up; I’m happy with my returns. Anyway, congrats again! Maybe someday you’ll do an old man a favor and tell me the recipe for your secret sauce. :slight_smile:

Dan

7 Likes

Dan,

I don’t take offense at all. I just want to be careful about going into too much detail on options on this board.

I pull the MTD and YTD return numbers from my Interactive Brokers Portfolio Analyst report which automatically generates that Time Weighted Return (TWR).

For AYX, I own 696 Shares at an avg price of $31.26 current price $59.57
I also own 4 Nov 16 2018 $25 Calls at and avg price of $10.91 currently worth $34.80
3 Nov 16 2018 $35 Calls at an avg price of $5.01 currently worth $25.05
3 Nov 16 2018 $30 Calls at an avg price of $7.01 currently worth $29.95

I had a couple more long calls that expired after earnings which I closed for a big profit as well. For me, the AYX common shares are up 91% and those options positions: 218%, 397%, 326%.

As we all know, AYX reported killer earnings and the stock appreciated greatly. The options returns are about 3x (or more) my common share returns.

The only other example I’ll use is TWLO
I own 520 shares at an avg price of $47.52 now worth $86.60 - up 82%
and 3 Jan 17 2020 $27 Calls at an average price of $15.81 now worth $62 - up 293%
and 1 Jan 17 2020 $45 Call at $19.01 now worth $46.91 - up 140%

The same example plays out in NTNX, TTD, PVTL, PSTG, etc.

Again, I am not encouraging anyone to get into options. They can be incredibly volatile and risky. Much more so than owning common stock.

I’m not going to comment further about options on this board, but I wanted to make sure it’s clear I’m not trying to mislead anyone with inflated return numbers. This board, The Motley Fool, and investing have changed my life and you all are a major part of that. I can’t thank you enough and I simply want to give meaning inputs to this great community.

Thanks.

  • Austin

Shopify (SHOP) Ticker Guide

For information on all of my current holdings view my profile here: http://my.fool.com/profile/CMFAleeb/info.aspx

12 Likes

I noticed that PSTG is your second largest holding. Last month Saul sold out of it. What perhaps are you seeing that Saul isn’t?

Hi again Aleeb,

I did not want or expect you to give so much information about your accounts. You could have just said, “Yes, options doubled my returns” and my curiosity would have been satisfied. (Not that it’s your job to satisfy my curiosity either.)

But thank you for taking the time to explain. Never having used options, I was surprised at the difference in returns. Some day when I get time to study … who am I kidding? I can barely keep up with straight holdings.

:slight_smile: Dan

1 Like

That’s okay. I’m comfortable with the transparency.

P.S. today I was down around 5%. I would bet most others we’re down 1 to 2%…the volatility of options.

Best of luck!

1 Like

I’m not going to comment further about options on this board, but I wanted to make sure it’s clear I’m not trying to mislead anyone with inflated return numbers

Whoa, I didn’t catch that before. If you got the impression I thought you inflated your returns, my bad, because I specifically wanted to be clear that wasn’t the case, and I never thought any such thing. And lots of things can be explained by minor differences in 2 investors’ practices but double returns on the same holdings? To me, that requires explanation to understand. Again, “Options” would have told me all I wanted to know.

Rest assured I’m here to learn how to maximize my returns, not be nosy. I’ve never been jealous of anyone’s returns. But the higher they are, the more I want to discuss the “why.” So please don’t be paranoid, be flattered. So “Well done!” from your new best friend.

Again, congrats. No, that’s not good enough. Double congrats!

I hope it rubs off. :slight_smile:

Dan

6 Likes

Thanks Dan! Let’s keep learning together.

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“I noticed that PSTG is your second largest holding. Last month Saul sold out of it. What perhaps are you seeing that Saul isn’t?”

Kibo,

I can’t remember his exact reason, but I think Saul felt there were better places for his $. I believe he may have put money from PSTG into ZS and/or NEWR. Those very well might be better investments. Only time will tell.

I like a lot about PSTG. I think they are widely misunderstood as being a hardware company in an industry (Storage) that many analysts on wall street viewed as a low-margin, hard to build moat business.

I think because of this PSTG is one of the most undervalued stocks we discuss here. Also, it competes directly with NTAP and by everything I see is growing revenues much much faster and at a higher margin than NTAP.

Their ratings by Gartner are incredible. NPS by customers is incredible, founder-led, good glassdoor ratings,are a preferred partner of NVDA, and they just made what I think is a great Machine Learning acquisition…the list goes on.

All to say. I like PSTG

16 Likes