Disco Gator's September 2021 Update

September 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…

I spend a lot of time doing research and find myself over thinking things now and then. Recently I was comparing some of my numbers to other posters’ results as I tend to do. I like to see that I am trending in the right direction as well as comparing what I am holding versus others. In the past, I would sometimes be ahead of others, or occasionally behind, but usually I was in the same ballpark. Sometimes, people would tout the year over year revenue growth their companies were having, and I would compare that to mine as well. Last year, my companies were growing faster than most others (as a whole) and my portfolio seemed to be performing a little better as well. In Q1 of this year, that remained the same and my results seemed to be following suit. Somewhere after this point, I seemed to have lost my way.

As I noticed my portfolio slowly slipping behind others, I found that the growth of my companies as a whole had started to slip noticeably behind most others. I decided to calculate the average growth for the companies held and found that the average position of my companies in our PBMM 100 ranking was 30th. The average rank of others’ holdings was around 17. There were so many companies that were growing much faster than the ones I was holding. In turn, the stock price was performing better for quite a few of these as well. Please don’t misunderstand what I am saying, there are quite a few other variables that are extremely important when evaluating a company. Looking at growth just happens to be one of the easier points to identify. In fact another KPI that I weigh very heavily is a company’s gross margin. The vast majority of my companies were in a similar range as others, as far as this goes, but the growth was lagging significantly behind.
?After realizing this, I decided to make some major changes to my portfolio. For the first time since I switched to a condensed portfolio style, I sold out of more than half of my positions in the same month. As I often mention, I prefer to keep my holdings at eight. In September I sold out of five of my eight positions and entered into four brand new positions and one that I previously held. Details about these changes are below.

Up until now, I’ve always reported the last weekend of the month as it is usually much easier to compile the data that I track. Due to a couple reasons I delayed this until now. The main reason was that due to all of the changes, I created extra work for myself this month and wasn’t ready to send it. The second, and most obvious reason was that all but one of the trading days this week was in the month of September.

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          -12.01%       +4.29%       +6.92%       -0.41%       +0.93%        52
  April           +5.63%       +5.20%       +2.42%       +6.27%       +2.02%        56    
   May            -4.88%       +0.55%       +1.93%       -1.53%       +0.11%        39
  June           +19.68%       +1.82%       -0.28%       +4.45%       +2.88%        44
  July            -3.54%       +2.68%       +1.46%       +2.17%       -4.63%        24
 August           +6.16%       +2.60%       +1.49%       +3.11%       +2.33%        50
September         +0.74%       -4.75%       -4.29%       -5.31%       -3.03%        25    
   YTD           +29.71%      +14.69%      +10.58%      +12.11%      +11.62%        25

September was looking like a great month until this last week hit. Our high for the month occurred on September 23 at +35.27% while our low was +28.04% on September 20. We pulled away even more from the indexes this month as they were all down significantly. The Fear and Greed index actually started out in Greed with a high of 57 on September 1, but ended in extreme fear at 25. The low for the month was 21 on September 20, which coincided with my portfolio monthly low.

As mentioned above, I made some major changes to my portfolio this month. At the beginning of the month, I exited my position in Pinterest (PINS) at $57.26 and entered into FuboTV (FUBO) at $27.51. Although I still expect Pinterest to have a lot of room to grow out in front of them, I feel that Fubo has a brighter future. Fubo’s numbers have been greatly improving, and the stock hasn’t responded to it.

After finalizing my decision to revamp my portfolio, I sold out of DocuSign (DOCU) at $286.08, Roku (ROKU) at $317.10, Square (SQ) at $262.50 and Fulgent Genetics (FLGT) at $88.32. This left me with an extra large cash position. Although I knew I would be adding four companies to replace these four, my overall knowledge of the new additions wasn’t to the level of the companies that I sold out. Due to this, I again adjusted allocations in my portfolio shifting a higher concentration to the three companies that I have the highest level of conviction in.

I then made the decision to open new positions in Affirm (AFRM) at $115.96, Asana (ASAN) at $114.07 and Lightspeed (LSPD) at $122.76, as well as opening a position in Datadog (DDOG) at $143.93 which I had previously held. Due to my better understanding of Datadog, I made this a slightly larger position than the other four positions I opened this month.

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 September and not listed as any week ending reporting numbers. They are listed by allocation from highest to lowest.

Company                Allocation       Initial         Purchase       September     % Change
                                       Purchase          Price         % Change      since Pur
Upstart Holdings (UPST)	  18%	        7/9/21	        $115.45	        +38.11%	     +174.09%
Digital Turbine (APPS)    17%	        2/2/21	         $60.76    	+17.26%	      +13.15%
Crowdstrike (CRWD)    	  16% 	        1/1/21	        $211.82	        -12.53%       +16.03%
Datadog (DDOG)            10%          9/17/21          $143.93          -1.79%        -1.79%
Affirm (AFRM)              7%          9/17/21          $115.96          +2.73%        +2.73%
Asana (ASAN)               7%          9/17/21          $114.07          -8.97%        -8.97%
FuboTV (FUBO)              7%           9/1/21           $27.51         -12.90%       -12.90%
Lightspeed (LSPD)          7%          9/17/21          $122.76         -21.45%       -21.45%

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. On September 17, I made the decision to start a new position in Affirm. Buy Now Pay Later (BNPL) has gained a lot of momentum in 2021 and Affirm is at the front of this. They have partnerships with Shopify and Amazon, and just recently added Walmart to the mix. This could generate revenue growth in the triple digits for the next few quarters as neither Amazon nor Walmart are factored into their guidance. Peloton used to be the bulk of their business, but with these new partnerships, that share is rapidly decreasing. I look forward to continuing to learn more about this company over the coming months.

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. As part of the revamp and getting back to what got me to this point, on September 17, I started a new position in Asana. One of the main reasons I like this company is due to their focus on larger enterprises. This focus has resulted in in strong dollar-based net retention rates (DBNRR) which continues to improve. Revenue and gross profit have been accelerating and look like they may continue to do so.

Out of the five companies I recently added, Asana has guided for the lowest growth for their next quarter at +59% Y/Y. I fully expect that they will beat this number and continue expanding their gross profit with it.

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 announced earnings on August 31, with Revenue of $338M (+70% Y/Y) which was a $14M beat over analysts expectations. Subscription Gross margin was 78% in line with where they have been running. They added $151M in ARR which was another great addition. Crowdstrike continues to turn in strong growth at scale which is becoming very impressive, although not too surprising as that is what we are expecting. For Q3, they guided revenue of $358M which was another raise over analysts expectations. All in all, another great quarter for them.

I added a little to my position in September as I was making large scale changes to my portfolio. I wanted to put a little higher weight on the companies that I have the most confidence in, which Crowdstrike easily fits in.

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. When I was revamping my portfolio, I wanted at least one company that I felt like it would be stable and closer to a “sure thing”. Of course, there is no guarantee that this will play out as well as expected, but it does seem to have far fewer risks than the four companies I have smaller positions in.

I’ve never lost faith in Datadog from when I owned it before. I just felt there were better places to put my money at the time. Now that they have lapped Q2, I expect them to continue their strong growth and turning in great numbers. They guided revenue of +60% for their current quarter but they should come in ahead of that.

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. Easily one of my strongest performers in September as they were up 18%. They were actually quite a bit higher before things dropped off this past week. Due to their strong performance and Crowdstrike being down, they moved up to second position in my portfolio.

They should be announcing at the end of October. I hope that this answers a lot of the questions we have about how the different acquisitions are meshing as well as how their revenue growth is. Although they broke out the results for each acquisition, they didn’t give out this information for their future guidance. This will be necessary when they next report for us to better gauge how their overall performance is. The stock tanked a bit after their last earnings partly due to the low sequential growth they guided for. I fully expect them to come in significantly higher than this when they announce.

Even with the 18% increase in stock price this month, the company is still very cheap based on the information we have. I plan to dig deep into this upcoming earnings report to decide if any changes need to be made to my position here.

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. FuboTV was the first company I added this month when I decided that I wanted to exit Pinterest. Their growth rate has been triple digits and should continue at that for the near future. The reason I invested here was not due to sports streaming. Getting the rights to broadcast these channels gets very expensive and is one of the major reasons you cannot get all of the sports channels on most of the major services. That said, with Fubo you can have access to them which is one of the reasons I have signed up with them.

Where Fubo has an advantage is that their customer base is skewed towards males in the 18-49 year old range. This becomes very attractive to advertisers because they are able to focus on this group and are more likely to reach potential customers this way. Because of this, Fubo’s advertising dollars should continue to grow at a very high rate.

One final reason why I’m invested here is their move into gaming. They have already partnered with the New York Jets on a deal that will have them operating Fubo Sportsbook on premise. Of course, this should bring a lot of attention to their gaming features as they are already meeting regulation guidelines in various areas around the country. They expect some of these to go live in Q4, so we will see what kind of impact this has. It certainly doesn’t have much of an impact on the current stock price as this stock seems overly inexpensive right now. I look forward to seeing how this all plays out.

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. I was a little late to the game with this one. I had numerous correspondences over email with someone that had a much better understanding of this company than I had and they were an early adopter here. I like to read a lot of information about a company before I get involved and I wasn’t comfortable with the information that was available about them. After finding what I could and reading up about them on Saul’s board, I felt I had enough information to take a dip and start a small position.
?Sadly, this one has not started out so well. On September 29 notorious short seller and investment manager Spruce Point Capital released a very bearish piece on Lightspeed. In this report they state that Lightspeed overstated its customer count by 85% and their gross transaction volume by 10%. They end by stating they expect Lightspeed’s share price to drop by 60-80%. This was enough to make the stock drop 14% after it had already fallen with the rest of our companies earlier in the week.

Although there may be some validity to their claims, this doesn’t change the fact that they top line revenue growth is performing extremely well. The report talks about pre-IPO information which I am not all too concerned about at this point. Later that same day, Lightspeed released a statement that Spruce Point’s report contained numerous important inaccuracies and mischaracterizations that Lightspeed believes were designed to clearly benefit Spruce Point. I’ll continue to keep an eye on this but do not plan to sell any shares as of now.

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. If you thought that Upstart had completed their run-up at the end of August, you were sadly mistaken. September saw the stock increase an additional 38%. During the month, WSFS Bank announced that they had launched a personal loan platform, powered by Upstart. In addition to this, Barclays, which is a major Wall Street investment firm, increased their price target to $345 per share.

I’ve been using options the past 6 months to help supplement my income since this is my “job” and how I support my family. Upstart has shattered a large portion of my potential gains and has sent my lost opportunity sky high. Thankfully I am profitable on nearly all of the other companies I invest in so there is a chance that I can get back to even by the end of the year, but we will have to see how things go.

After making major changes to my portfolio this month, I feel like it will take me a lot more effort to continue to get up to speed on my newest holdings. As my record keeping has evolved over the past couple years, I find that I may be able to report on a monthly basis at month’s end instead of waiting until the end of a week to report. I will look into this moving forward to see if this is something I am comfortable with.