February 2021 Portfolio Update
Monthly Disclaimer: I put together these updates as a sort of record keeping for myself. It helps me to think things through with my investments, and documents the reasoning for most of the moves I make. I do not want to come across as a know-it-all or a braggart just because things are going well. I have always kept records of my investing because I want to see how each of the decisions I make compares with the overall market. Having these records reminds me that it is an absolute certainty that things can and will go south at some point. This is now the fourth year that I have kept detailed information on a monthly basis. Every year, there have been periods of time where my portfolio has dropped from 20-40% and it will happen again. In fact, it happened twice in 2020. Now on to this month’s update…
As I mentioned last month, we have developed a rating system for the stocks of the companies that we follow. Although we have partial portfolios completely following the recommendations given, I am personally meshing the two together for my main portfolio. The last three companies that I purchased were all former #1 ranks from this ratings system. Two of the three were home runs thus far (Fulgent Genetics and Digital Turbine), while the third (Square) has significantly outperformed the market. You can find more information about this on Twitter @PBMMInvestments. Please do not reply on board about any of the ratings as they are off topic here. If you have a question or comment, feel free to respond via email or on Twitter.
We had back to back down weeks to end the month, with the last week being brutal and down 12.10%. The month wasn’t a total loss though as we ended up +5.50 and are now up 18.92% for the year. I had numerous people reach out to me this past week about their portfolios seemingly going up in flames and their desire to go to cash to help put the fire out. This was most prevalent on Tuesday morning (2/23/2021) when my own portfolio was down near 11% at that time. I strongly urged them to stick it out although it is ultimately up to them what will help them sleep at night. By mid afternoon, most of our companies had fought back and we ended the day down only 2.30%. Imagine if they had all bailed that morning and later wanted to get back in? They would have sold at the low and bought back at a significantly higher price. As the people from WallStreetBets would say, it pays to have Diamond Hands. 
Some of the most frequent comments I hear from fellow investors revolve around price anchoring. The most frequent include, “I can’t sell XXX stock yet because I’m still in the red. When it gets back to where I bought it, I will sell”, “XXX is my worst stock, it’s the only one that is still in the red after YYY time frame”, and “I should have bought XXX when it was lower. Now it is much higher and I am too late.” One of the things I do to help remove the first two, is that I set a custom view on my brokerage page. I’m pretty sure all brokerages have this in some way shape or form. I just remove “Unrealized Gain/Loss $/%” from my view, and it is one less distraction from what is really important, which is deciding if investing in a company is a good decision or not. If you bought a company, and nothing has changed, I don’t see any reason to worry or sell. Of course, I do keep records of this information elsewhere, because I like to see how my company’s stock price fluctuates over time.
As a reminder, I post results the last weekend of the month. This again worked out well in February as the end of the month actually fell on a weekend. We hit a high of +36.56% on February 12, before dropping like a rock the final week. From February 12, to February 25, our portfolio dropped 16.44%. Not quite the 20% I speak about in the disclaimer, but it’s pretty darn close. Here is a snapshot of how my portfolio has performed over the past month, compared to the broader indexes. As usual, I’ll include the CNN Fear and Greed Index.
W/E Date Portfolio S&P 500 % DJIA % Nasdaq % Russ 2000 Fear and
% change change change change % change Greed Index
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02/05/2021 +14.68% +4.65% +3.89% +6.01% +7.35% 60
02/12/2021 +5.63% +1.23% +1.00% +1.73% +2.51% 63
02/19/2021 -0.92% -0.71% +0.11% -1.57% -0.99% 59
02/26/2021 -12.10% -2.45% -1.78% -4.92% -2.90% 48
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February +5.50% +2.61% +3.17% +0.93% +5.80% 48
January +12.72% -1.11% -2.04% +1.42% +5.35% 35
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YTD +18.92% +1.47% +1.06% +2.36% +11.45% 48
We end February up 5.50% for the month, once again outperforming the indexes which averaged +3.13% this month. This brings us to +18.92% YTD and more than quadruple what the indexes have averaged over that same period (+4.09%) The Fear and Greed index again reached a high of 71 on February 16, but finished the month at 48. The low for the month was 39 on February 1st.
As the market opened the month on February 1, I made a few trades. I sold out of Cloudflare (NET) at $78.01. I felt like the stock had run up quite a bit, and it was mostly due to hype. They were constantly pumping out information of new additions and features, but had yet to show any results from these. It made me think that if they didn’t absolute crush guidance, the stock would draw back. I was also holding 9 companies while preferring to hold only 8. It had also dropped down to a ??? rating in our rankings and remains there today. Since I didn’t want to add a new position, I split it between three of my high conviction companies, DocuSign, Etsy and Square. They were all rated ??? at the time and I was continuing my mesh between research, conviction and what our formula was telling us.
Late on February 1st, Fulgent Genetics had continued to take off. I didn’t want to stay involved with what was turning into a Casino stock due to the short squeeze, so I sold out at at $142.11 which ended up a return of +165% in just four weeks. Selling out of this left me with only 7 positions instead of my preferred 8.
On February 2nd, I made the decision to reallocate my portfolio once again and start a new position in Digital Turbine (APPS) at $60.76. This was our current #1 ranked stock in our weekly posting on Twitter and was set to announce earnings the next day. I wanted to see if our research and formula were paying off and decided to put my money where my mouth was. You can read more about this and see the results below.
On to the individual results for each company that I invest in. They are listed by allocation from highest to lowest. Five of the companies announced earnings this month, so it kept me quite busy.
Company Allocation Initial Purchase December % Change
Purchase Price % Change since Pur
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CrowdStrike (CRWD) 22.22% 01/01/21 $211.82 +0.09% +1.97%
Etsy (ETSY) 14.22% 01/01/21 $177.91 +10.64% +23.81%
DocuSign (DOCU) 13.08% 01/01/21 $222.30 -2.68% +4.76%
Square(SQ) 12.59% 01/04/21 $219.15 +6.45% +4.93%
Teladoc (TDOC) 12.09% 01/01/21 $199.86 -16.24% +10.57%
Zoom (ZM) 9.47% 01/01/21 $337.32 +0.45% +10.79%
Digital Turbine (APPS) 8.89% 02/02/21 $60.76 +36.05% +36.05%
Shopify (SHOP) 7.43% 01/01/21 $1131.95 +17.51% +13.16%
On the chart above, you get a clear picture of how things are currently allocated. For the “Initial Purchase” column I default to the stock price when the year started for stocks I have owned prior to this year, instead of when I purchased it. I want to see how things go from this point forward. Thankfully all of them are up since purchase in spite of all that happened this past week.
Now on to the discussion of the individual holdings in my portfolio. I’ve decided to list them in alphabetical order by company name (Not stock symbol) because it will make it easier on me from month to month, and easier for you to find the companies that you want to read about.
CrowdStrike (CRWD) - CrowdStrike Holdings offers cybersecurity services through its Falcon platform, which monitors client operations at their endpoint connections to the internet and works to identify and stop threats. The platform learns from attacks made on it and then warns the entire CrowdStrike cybersecurity network about likely avenues for future security issues. After trimming last month at $213.45, I added back this month at $217.48. During the month in between, the investment that I had bought after trimming back on Crowdstrike had performed very well, which in turn decreased my allocation in here since it had slowed. This is still my highest conviction company so I wanted my allocation to be a bit higher than it was. This is currently my only Tier 1 company, which means I will allow it to grow up to a 30% position in my portfolio. It continues to score well in our rankings system and is a solid ??? company.
They will announce earnings on March 16. I am hoping to hear that revenue has increased at least 70% Y/Y. Its valuation has really run up quite a bit over the past quarter and it will need a pretty good sized beat and raise to get its valuation down to a more comfortable level.
Digital Turbine (APPS) - Digital Turbine simplifies content discovery and delivers it directly to the device. Its on-device media platform powers frictionless app and content discovery, user acquisition and engagement, operational efficiency and monetization opportunities. After reading about Digital Turbine on Saul’s board over the past year or two, we added it to our list of companies we track. Once entered, it registered as our #1 company overall to invest in with a ??? rating. Since I had sold out of Fulgent and Cloudflare on February 1, I was down to 7 positions, making this the obvious choice to add. I initiated a 6.50% position, putting it in my third tier. It was also the smallest at the time.
I don’t usually like to start a new position the day before earnings are announced, but as a continuation to mesh my investing style with our rating system, I figured I would give it a chance. Needless to say, it paid off.
Digital Turbine announced earnings on February 3rd. Their accelerated platform momentum drove fiscal Q3 revenue +146% Y/Y. A portion of this was due to the acquisition of Mobile Posse. Gross Margin is a little on the lower side at 43%, but this was an improvement over the 40% they had LY. One key point is that international sales are expanding faster than domestic and are leading the way for the first time. Digital Turbine is also exploring the move to smart TVs instead of focusing solely on cellular phones.
Shares skyrocketed after their earnings release then dropped over the next three weeks. Even so, in less than four weeks, shares were up 36% for us. I’m looking for more of this moving forward.
DocuSign (DOCU) - DocuSign is the market leader in providing electronic signature technology and automation of the agreement process through its cloud platform. DocuSign’s solution addresses the core of every business transaction - the agreement - and makes the process much more efficient, resulting in lower processing cost and time. I added to DocuSign on February 1 after exiting Cloudflare, increasing my position by 24%. This is in my second tier of conviction and has been consistently very highly rated in our system. As with most of our companies, this was beaten down the last week of February. It currently sits as a ??? in our ratings after 7 consecutive weeks as a ???. I’m very curious to see how they report on March 11.
Etsy (ETSY) - Etsy operates a global marketplace where people can make, sell, and buy unique goods online. The company also offers various services to support its sellers. I added to Etsy ($202.94) on February 1 after exiting my Cloudflare position, then again on February 2 ($207.60) when I rebalanced my portfolio after exiting Fulgent Genetics (FLGT) and starting a position in Digital Turbine (APPS). Overall, these two additions increased my position by 37%. With the shares I added the first of January, I’ve now increased this position by 49% since the start of the year. It’s one of our highest rated stocks and one of my highest conviction companies. We have had it ranked ??? for 11 straight weeks. I’ve felt like it was the most underrated company I own, and it’s not even close. And then came earnings…
They had another blowout quarter. Revenue was up 129% Y/Y and actually accelerated from the previous quarter, completely crushing Wall Street’s estimates. They beat by $101M which was 20% more than expected. This was all amazing, but then they said Q1 is looking to come in at a range of +125% - 135%. This too was way ahead of Wall Street estimates.
So many people continue to think that this company was solely driven by masks. Although that did help them gain a lot of new customers initially, this has really paid off for them. Non-mask GMS growth accelerated in Q4 to +118%. This compares to both Q2 and Q3 which showed a +93% growth. As a percentage of overall GMS, masks continued to contract going from 14% in Q2, to 11% in Q3 to only 4% in Q4. In fact, 50% of the 3 million mask-only buyers in Q3 returned in Q4 for a non-mask purchase!
They continue to grow sellers at an amazing sequential rate +19% in Q4 as well as their buyers +18% in Q4. They are now the 4th largest e-commerce site behind Amazon, ebay and Walmart. This will continue to help their growth through brand recognition.
It is hard not to be happy with a quarter and guidance like this. I still believe that they will continue to flourish in 2021 and may consider adding to my position.
Shopify (SHOP) - Shopify’s e-commerce platform allows merchants of all sizes to build an online presence, including storefronts and fulfillment, payment, and shipping services. Announced earnings on February 17. Revenue increased 94% Y/Y which was their third consecutive quarter in the 90s and a considerable beat from the 81% estimate. Profitability has really ramped up as well as many of their add-ons such as Shopify Payments and Shopify Shipping. I did expect them to easily surpass the 81% estimate, thinking they had an outside chance of hitting 90%. I was very pleased to see thy came in at 94%. Although Shopify said they expected………they were asked by an analyst on the conference call how Q1 was looking so far, and the CFO stated they continued to see strong tailwinds thus far. They say it takes 30 days to form a habit. The Covid shift to e-commerce has been going on for a year now. I can’t imagine everyone to suddenly stop shopping online and heading to brick and mortar in droves. Shopify currently sits as a ???.
Square (SQ) - Square is a commerce enablement platform focused on providing card acceptance, business analytics, and other ancillary products to help small merchants grow their businesses, as well as well as utilizing the Cash App ecosystem to broaden their reach to people that are under banked, and wanting to trade including crypto currencies etc. I added to Square ($216.50) on February 1 after exiting my Cloudflare position, then again on February 2 ($226.15) when I rebalanced my portfolio after exiting Fulgent Genetics (FLGT) and starting a position in Digital Turbine (APPS). Overall, these two additions increased my position by 42%. Square remains in my 2nd tier as a very highest conviction for me. Although it sat as a ??? for 9 straight weeks, it has dropped to a ??? over the past two.
Announced earnings on February 23, with revenue up +141% which beat estimates. Of course, revenue was greatly bolstered by Bitcoin trading, which is essentially a zero margin transaction. Therefore, the key number to look at here is how their gross profit is growing. Gross profit was $804 million which was up 52% Y/Y. A little less than half (47%) of their gross profit ($377 million) was driven from the Cash App side of their business. This was up 162% Y/Y, and as I stated last month, was the main reason I started this position. The remaining gross profit was driven by their seller side of the business and was up only 13% Y/Y. I expect as the economy continues to open up more, the seller side of the business will slowly recover from its current state. Make no doubt about it, Cash App is what will be driving things for at least the short term.
Teladoc (TDOC) - Teladoc provides virtual access to healthcare providers with a portfolio of services covering 450 medical subspecialties from non-urgent, episodic needs like flu and upper respiratory infections, to chronic, complicated medical conditions like cancer and congestive heart failure. Announced earnings on February 24th. Revenue was +145% Y/Y (79% organic), while total visits increased by 139%. They received a lot of grief from this report when they offered what was taken as mediocre guidance for Q1. The stock was punished for earnings on top of the normal punishment the rest of our companies took. It ended the month down 24%, but is still up 11% YTD. I want to see how the merger with Livongo continues to mesh, but it looks like there are definitely some synergies early on.
I’m a big believer in Telehealth and think it is not going away. The convenience of it is just too good to pass up, and it has cost benefits for healthcare providers as well. Although the stock has dropped to a ??? in our rankings, I plan to hold it a while longer.
Zoom (ZM) - Zoom Video Communications provides telecommunications services that allow people to connect via video, voice, and chat as well as sharing content. The dedicated cloud-based platform aims to offer a superior user experience compared to traditional teleconferencing options, and its device-agnostic features offer high-quality communications regardless of how users connect to the platform. I added a little more to my position on February 2 ($387.54) during the rebalance of my portfolio. It was only a small addition of about 2%. Zoom had moved up to a ??? in our rankings three weeks ago and then up to a ??? this past week. Like most of our companies, Zoom was severely punished over the last five days, but they announce earnings this coming Monday. Revenue in Q3 was +367%, I’m looking for a range of +335% to +350% for Q4. Zoom is still significantly below their all-time high. I look to see if they can recover some of this next week.
As of now, I do not intend on making any significant changes to my portfolio. If I do decide to sell out of a position or add a new one, I will communicate this through email or on Twitter. One of my triggers to selling out of a position is taking into consideration if a company drops to a ??? in our ratings. Again, this is not an automatic trigger as I like to mesh my current thought process with what our numbers are telling us.
This last week completely wore me out, but not because of the beating we all took. (A major home remodel is behind this) Since I switched to a condensed portfolio four years ago, I have weathered quite a few big drops. I’ve finally gotten to the point where I’m not even phased at all any more. Teaching myself to look at percentages as far as portfolio allocations and increases/decreases help take a lot of the worry away than it would if you focused on the dollar amounts and what that translates to. I really believe this is the best way to invest and will pay off exponentially if you put the work into it.