Disco Gator's October 2021 Portfolio Update

October 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 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 15-30% and it will happen again. It happened twice in 2020, and it has already happened twice this year, with the most recent being in May. Now on to this month’s update…

After my refocus on hyper-growth last month, I felt a lot better about my portfolio in October. It was also very rewarding to see that the five new companies I added were up an average of 21% in the month of October, and are up an average of 13% overall since I purchased them. Of course, this includes Lightspeed (LSPD) which suffered through a short attack right after I purchased my shares.

Another thing I have been doing this year to help “enhance” my portfolio returns is that I have been experimenting with options. I say “enhance” in quotes because it hasn’t really turned out that way for me. My strategy would be working quite well if it wasn’t for one company, Upstart. (Although I do manage some family members’ portfolios, most of which mirror mine, I do not dabble with options in theirs.)

As you may know, I like math and really cool spreadsheets, so I track everything that I do with options. Had I not used options at all this year, my returns would be +49% YTD instead of +41%. Had I just not used options on Upstart, but still used them on my other holdings, my returns would be +55% YTD. The reason for such a large difference is lost opportunity. Although I didn’t technically lose money with options, I lost the opportunity of bigger gains with Upstart was going to the moon due to utilizing covered calls that got taken away.

I’ve since adjusted my options strategies and plan to continue using them moving forward. Of course, this could change if I continue to have such negative effects. The benefits for me is having the cash flow available for when I want to make withdrawals to live off of. For the sake of clarity, when I list my portfolio holdings, these numbers include the funds for any Puts that I may have outstanding. I am happy to report that I have all of my Upstart shares back in hand and look forward to their upcoming earnings.

After waiting until the last day of September to report, I found that it wasn’t any more difficult to do than the way I was previously reporting on the last weekend of the month. I actually liked it better because it gave me true monthly numbers. I have decided to continue doing it after the last trading day of the month moving forward. Of course, October’s final trading day fell on a Friday, so it works both ways this month. I actually went back and updated all of my portfolio and the index numbers from previous months, to coincide with actual monthly reporting in lieu of the week ending numbers I had on previous updates. This is why you may notice some changes from before.

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
 January         +12.72%       -1.11%       -2.04%       +1.42%       +5.35%        35
 February         +5.50%       +2.61%       +3.17%       +0.93%       +5.80%        48 
  March           -9.74%       +4.24%       +6.62%       +0.41%       +0.88%        51
  April           +2.95%       +5.24%       +2.71%       +5.40%       +2.07%        56    
   May            -4.89%       +0.55%       +1.93%       -1.53%       +0.11%        39
  June           +22.40%       +2.22%       -0.08%       +5.49%       +1.83%        41
  July            -5.72%       +2.27%       +1.25%       +1.16%       -3.65%        24
 August           +7.04%       +2.90%       +1.22%       +4.00%       +2.12%        53
September         -0.09%       -4.75%       -4.29%       -5.31%       -3.03%        25    
 October          +8.82%       +6.91%       +5.84%       +7.27%       +4.21%        72
   YTD           +41.15%      +22.61%      +17.03%      +20.25%      +16.32%        72

October was a great month for the market overall with all of the indexes I track performing very well. Personally, my portfolio hit a high of +48.20% on October 14, while our low was +25.98% on October 4. The Fear and Greed index was in a steady climb most of the month. The monthly low was also on October 4, with an Extreme Fear rating of 25. We close the month at a YTD high of 72, which is approaching Extreme Greed. Prior to this month, we hit a 71 on February 16 as well as January 8, so it’s been a while.

After making wholesale changes last month, I pretty much stood pat in October. Most of the month was spent slowly recovering from options and working to get my full position in Upstart back. I had about a half dozen people reach out to me this month on what I was doing with Upstart. They were concerned with its drop from $400 down to the low $300s. For me, I bought some at $326 as well as having some $360 puts assigned. I was happy to get the shares back and my cost basis is much higher than it would be if I didn’t use options. That said, Upstart is still by far my highest conviction company. Even though multiple analysts downgraded the stock the past couple weeks, I believe this is shortsighted and expect big results in a couple weeks. We shall see.

The following chart shows the breakdown of my current positions as well as their individual performance. As part of the changes in my reporting, all of these numbers are for the entire month of October and not listed as any week ending reporting numbers. They are listed by allocation from highest to lowest.

Company                Allocation       Initial         Purchase        October      % Change
                                       Purchase          Price         % Change      since Pur
Upstart Holdings (UPST)	  26.08%        7/9/21	        $115.45	         +1.77%	     +178.94%
Digital Turbine (APPS)    19.55%        2/2/21	         $60.76    	 +0.75%	      +41.64%
Crowdstrike (CRWD)    	  15.08%        1/1/21	        $211.82	        +14.66%       +33.04%
Datadog (DDOG)             9.55%       9/17/21          $143.93         +13.39%       +16.06%
Affirm (AFRM)              8.57%       9/17/21          $115.96         +36.41%       +40.13%
FuboTV (FUBO)              7.24%        9/1/21           $27.51         +24.42%        +8.36%
Asana (ASAN)               7.04%       9/17/21          $114.07         +30.78%       +19.05%
Lightspeed (LSPD)          5.93%       9/17/21          $122.76          +1.31%       -20.42%

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.

Now on to the discussion of the individual holdings in my portfolio, listed in alphabetical order.

Affirm Holdings (AFRM) - Affirm Holdings, Inc. operates a platform for digital and mobile-first commerce in the United States and Canada. The company’s platform includes point-of-sale payment solution for consumers, merchant commerce solutions, and a consumer-focused app. Its payments network and partnership with an originating bank, enables consumers to pay for a purchase over time with terms ranging from one to forty-eight months. October saw another partnerships develop with Affirm adding Target to their listings after previously adding Amazon, Shopify and Walmart. As we head into the holiday season, we should see a lot of usage here. The way the stock price has appreciated so much, I am not sure that their upcoming earnings will support how much it has run up, but I’m still of the belief that it’s not too expensive. I believe that they will guide for further acceleration which could potentially send it even higher.

Quite a few people seem to think that businesses like this are bad for consumers because it enables and sometimes even encourages them to take on more debt than they may be able to afford. There will always be people that make poor decisions for themselves, so I don’t feel like I am contributing to some sort of demise of the public. For every person that makes a poor decision, there are countless others that make great decisions with things like this. Although I haven’t personally used Affirm (yet), I have used other sorts of interest free financing. Why wouldn’t I? When I moved into my last house, I bought all new appliances through Home Depot where I had a year or two to pay it off (I forget which). Instead of spending money there, I kept piling more money into my brokerage account. Decisions like this helped me get to where I am today and contributed to me being able to retire at the age of 48.

Affirm’s stock really took off in October, leading the way in my portfolio with an increase of 36.41%. I think we still have room to grow and look forward to seeing how their next earnings report looks.

Asana (ASAN) - Asana is a leading work management platform that helps teams orchestrate their work, from daily tasks to strategic initiatives. Asana adds structure to unstructured work, creating clarity, transparency and accountability to everyone within an organization—individuals, team leads and executives—so they understand exactly who is doing what, by when. On October 14, Asana was named as a leader in the IDC MarketScape: Worldwide Collaboration and Community Applications 2021 Vendor Assessment. The IDC MarketScape’s analysis highlights the value of Asana’s proprietary Work Graph data model which “facilitates better visibility and aggregated insights for individuals, managers and the enterprise.” The IDC MarketScape also found that Asana’s strengths include the launch of a new suite of features designed to reduce distractions and improve focus, including Video Messaging, intelligent My Tasks and a new desktop app, as well as new Universal Reporting capabilities to help organizations keep track of how work is progressing towards business-critical goals.

Then on October 26, Asana was named to Fast Company’s First Annual “List of Brands That Matter”. This list honors companies that have achieved relevance through cultural impact and social engagement while authentically communicating their mission and ideals. Earlier this year, Fast Company recognized Asana as #15 on its prestigious list of the World’s Most Innovative Companies for 2021.

Although these accolades may not mean much to us as individuals, getting Asana’s name out there in a positive light is always a good thing. In fact, their stock was up 31% in October which was quite a huge jump.

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. Crowdstrike started October down quite a bit from their All-Time High, in spite of putting in another great quarter. Although the stock isn’t exactly cheap, it is pretty much in line with where it has been for the past 4-5 months or so from a valuation standpoint. As competition continues to heat up, we may find this space getting a little crowded. I don’t see anyone pushing Crowdstrike off their perch though, especially if they continue with their beats and raises.

Throughout October Crowdstrike released further enhancements to their product mix and strengthened their partnership with the likes of Alphabet’s Google Cloud, Amazon’ AWS, Okta and others. All reasons that keep me comfortable with my position here.

With last month’s portfolio revamp, Crowdstrike is now the largest company in my portfolio. This is something I will keep an eye on to ensure they are able to keep my portfolio growing.

Datadog (DDOG) - Datadog, Inc. engages in the development of monitoring and analytics platform for developers, information technology operations teams and business users. Its platform integrates and automates infrastructure monitoring, application performance monitoring and log management to provide real-time observability of its customers’ entire technology stack. Datadog will announce earnings on November 4. They have maintained Dollar-Based Net Retention Rates above 130% for 16 straight quarters. As they continue to expand their offerings, they should be able to maintain this even longer. Currently 75% of their customers use two or more of their products. I expect this number to improve as well.

During a recent presentation, Datadog mentioned that their newer products within their Application Performance Monitoring and Log Management continue to grow at triple digits and are now reaching close to $400 million in annualized revenues.

Although they are one of the two most expensive companies I own, I don’t believe their valuation is at any sort of silly level. They announce earnings on November 4 and I am expecting another beat and raise with revenue coming in north of $250 million.

Digital Turbine (APPS) - Digital Turbine is the leading independent mobile growth platform and levels up the landscape for advertisers, publishers, carriers and OEMS. By integrating a full ad stack with proprietary technology built into devices by wireless operators and OEMs, Digital Turbine supercharges advertising and monetization. After a great performance in September, Digital Turbine had an even better October. In spite of these back to back great months, I feel that their stock is still the cheapest and best value of any that I own. Their revenue is the second highest of all my companies (Crowdstrike is the highest) and their Enterprise Value is the second lowest. (fuboTV is the lowest)

I do believe that there are a couple reasons why their valuation is lower. First is their gross margin is only 34% and they mentioned they expected to see it drop some this coming quarter. The second reason is the recent results for Snap. They missed earnings by a large margin, mostly due to Apple’s iOS privacy changes. This made it harder for Snap to get the needed advertising returns. Although Digital Turbine was down 6% the day of this announcement, it rebounded a bit the next few days. Digital Turbine should not be effected much because they are predominantly Android driven.

More are more brands will be looking to get their name out there, and Digital Turbines services seem the best way to make this happen. I expect another great quarter when they announce on November 2nd, as well as impressive pro forma growth.

fuboTV (FUBO) - fuboTV, Inc. operates as a digital entertainment company. It focuses on offering consumers a live television (TV) streaming platform for sports, news and entertainment through fuboTV. Live sports is the primary focus as they are also expanding into sports wagering. On October 6, Fubo Gaming announced a partnership with the Cleveland Cavaliers. This marks their first partnership in the NBA after already securing an NFL deal with the New York Jets. This will continue to expand Fubo’s brand awareness as they look to launch their sports book in Q4. In addition to these gaming partnerships, they continue to expand their regional sports agreements, this month adding AT&T Sports Net Rocky Mountain. Sadly, they have yet to add Bally’s Sports, but then again, few have.

The stock price rebounded quite a bit in October as we eagerly await their earnings release on November 9. I am very curious to see how many new users they have added this quarter. I’ve seen a tremendous amount of advertising for them while watching football, so we will see if this paid off. I am also looking for their margin to improve a little bit as it is way below where I like the companies I invest in to be.

Lightspeed (LSPD) - Lightspeed provides point-of-sale software for retailers and restaurants. It offers workflow analysis, training, configuration, networking and business services. This is essentially a one-stop commerce platform for merchants. There has been a lot of talk about how Lightspeed’s acquisition didn’t seem to mesh with their current business. Although they were complimentary pieces, they hadn’t been integrated so it seemed more of a group of different companies rather than one cohesive unit. This past week they announced their new integrated e-commerce platform and the week before they announced their new Restaurant and Hospitality platform. These new platforms now integrate the modules that they have been acquiring and helps to make it more of a total solution for their customers. Although I am down 20% in my position here, I added more after the attack to help boost my share count up, expecting another great quarter when they report.

Upstart Holdings (UPST) - Upstart provides a lending platform that uses a unique proprietary model driven by artificial intelligence to determine a borrower’s creditworthiness. Upstart’s AI models uses more than 1,600 non-traditional variables to assess true default risk in loan originations. The company operates a platform that aggregates consumers and refers them to banks using their AI technology. On October 6, Upstart announced they are launching their Auto Retail software which is the evolution of their Prodigy Software. This had been expected for a few months now and greatly expands their TAM.

After more than tripling from my initial purchase by the middle of October, Upstart finally started to come back down to Earth. They still finished the month with a small gain, but the stock had close at $390 on October 15. Then came the analyst downgrades.

Within the last month, three analyst updated their status with two downgrading to a Hold and one downgrading to a Sell. Although this sounds pretty negative, the average Price Target of the three was $328 per share. As the stock price fell, I saw this as a buying opportunity. I expect these updates to look shortsighted when Upstart announces earnings on November 9. They seem to have an awful lot of momentum right now.

It was nice to continue my education on my newest holdings and getting up to where I want to be with the knowledge of them. Most of my companies will be announcing earnings in November so I will have a lot to keep up with this month. Of course I expect them all to go well but we know that things don’t always turn out like we expect them to. Unless something drastically negative happens, I expect my holdings to remain intact, although I may shift some of the allocations as I gain more confidence in the newer holdings.