First Portfolio Summary

First of all I want to thank everyone for the past 5 or 6 months that I have been learning from this board. So many of you who do the monthly portfolio summaries have inspired me so I thought I’d start the practice in this new year. I am only going to start with my performance since January 1, 2018 as it gives a rather clean starting point. This first summary will be somewhat bare bones but as time goes on I will add additional information and insights. Thank you again to everyone on this board.

To get straight into it: my portfolio closed this month up 23.1%

This is compared to
The S&P 500 : Closed this month up 7.0%
The Russell 2000: Closed this month up 4.3%.

I have been thinking the market has been a little overheated even when the DOW hit 20,000 and now we are nearing 27,000. Large caps have taken off which signals more money from the sidelines is flowing in. Big funds stick to large caps and most mom and pop investors know the big names.

This run goes to show you that market timing is tough. It just frustrating. I think getting a gauge on sentiment is important though. I have been sensing a little bit more euphoria in the past couple months. I mean 23% in one month just goes to show the market is getting a little hot.

To prepare for any downturn all we can do is make sure we know the companies we hold very well and trim the more speculative holdings. I have also set up a wishlist for a correction which will hopefully help me buy when things turn.

New Transactions

This month I only made two transactions. I bought more AYX and I added PSTG. I feel comfortable with both positions. I am a little nervous about the dilution going on with Nutanix so I’ll watch that closely. I also have some second thoughts about TTD but I’ll put that below.

Here are the one month results from the individual stocks in the portfolio:


Square from 34.67 to 46.00   	up  	32.7% 
Shopify from 101.0 to 129.1  	up 	27.8%
Nvidia from 193.5 to 243.3    	up  	25.7% 
Pure Storage 15.86 to 19.91     up      25.5%
[JD.com](http://JD.com) from 46.5 to 50.1        up      21.9%
MercadoLibre 340.8 to 381.9     up      21.4%
Alteryx from 25.27 to 30.48  	up  	20.6%
Arista from 235.6 to 283.5,   	up 	20.3%
Amazon from 1246.9 to 1402.1    up      19.9%
Hubspot from 88.4 to 101.7    	up  	15.0% 
The Trade Desk 45.7 to 51.2     up      12.1% 
Nutanix from 35.28 to 32.99  	down     6.5%

As you can see this month has been overly kind. 11 of the 12 positions are up more than 12%. In one month! I’m not sure how sustainable that is, in fact, I’ll say it is unsustainable but like Saul, I must say I don’t know when the music will stop so I’ll just keep looking for good businesses.

As of January 26, 2018 here are my portfolio allocations:


ANET	23.45%
SHOP	12.20%
MELI	11.73%
AMZN	6.63%
NVDA	6.33%
HUBS	6.01%
TTD	6.05%
SQ	5.43%
AYX	5.04%
JD	5.13%
NTNX	3.90%
PSTG	3.29%
Cash    4.80%

Thoughts on the portfolio

As you can see from the allocations, the top three positions make up nearly 50% of the portfolio. ANET is by far the biggest as you can see. When it was around 190 after last earnings I was just convinced it was going higher so I bought as much as I could.

I added cash pretty recently and I just have yet to deploy it somewhere. Likely candidates are more of SQ and AYX or new positions in OKTA or MIME.

Some things I have been thinking about changing around are my allocations in TTD and AMZN. I love AMZN as a company and respect what it is doing but from a returns perspective it is just getting a little big. Also, the more I have looked into TTD, the less competitive advantage I see. I will be monitoring it’s next earnings report closely. The allocation to TTD should be below SQ and AYX so I might trim soon or ratchet up SQ and AYX.

I’ll provide a brief overview of the companies as most of these have been included in Saul’s write-up and discussed previously on the board. As time goes, these summaries will become more robust.

Company Summaries

  1. Arista

What they do?
Maker of networking equipment.

Why I like it?
Software is worlds better than Cisco’s. Revenue acceleration to over 50% and almost 40% operating margin. Investor’s still see it as a hardware provider but it is so much more. After last earnings report I ramped up my allocation and I’ve been happy with that decision.

  1. Shopify

What they do?
Helps businesses with e-commerce operations.

Why I like it?
Revenue growth is fantastic and it seems to have reasonable operating leverage. Love Tobi, the CEO, and the company looks to be extremely innovative.

  1. MeradoLibre

What they do?
“Amazon” of Latin America

Why I like it?
Big growth runway, deep knowledge of the Latin American customer, and great management team. Revenue has accelerated even in the midst of weird currency issues. The Amazon threat should be given due attention but I think the market is big enough for two and MELI is positioned very well.

  1. Amazon

What they do?
Do I have to explain?

Why I like it?
Absolutely incredible business and rate of innovation.

  1. Nvidia

What they do?
Maker of graphic processing units which are aiding machine learning, AI, the data center, self-driving, etc.

Why I like it?
Really strong competitive advantages compared to Intel or AMD. CUDA has become the standard programming language for AI and NVDA just keeps winning.

  1. HubSpot

What they do?
Maker or marketing software and creator of “Inbound” marketing.

Why I like it?
The earnings are accelerating and revenue has stayed strong. In the marketing software industry it has high brand recognition and strong management. I am not sure about the quality of the competitive advantage here but the company is performing quite well as of now.

  1. The Trade Desk

What they do?
Maker of software that helps ad agencies with programmatic advertising.

Why I like it?
I thought it was a good value for the financials but the price action may be telling us something here. Next earnings will be telling. Still I like the company. 95% customer retention rate has become the standard and the CEO knows the industry very well. I was going to trim but then I saw Snapchat take down its “walled-garden”, something the CEO has been predicting for months now.

  1. Square

What they do?
Full suite of financial services for businesses.

Why I like it?
Great revenue growth, accelerated to 45%. Super innovative, a quality I really love in a company. High brand recognition and great management. I hope to be in this one for awhile. Looking to up my allocation here.

  1. Alteryx

What they do?
Sell self-serve data analytics software.

Why I like it?
I think of it as an extremely powerful Excel. Great gross margin (around 85%), strong revenue growth, opening up data analytics to everyday people without coding. People I have talked to in data analytics really love this product.

  1. JD.com

What they do?
Second fiddle to Alibaba.

Why I like it?
It has a giant competitive advantage when it comes to logistics. The company has built, over the years, an intensive network of distribution facilities, trucks and everything in between. It’s financials are a bit funny because of this but cash flow is so strong. The company is also about 1/9th the size of BABA and I can see it eventually rivaling it as the business models are really night and day.

  1. Nutanix

What they do?
Hyperconverged equipment

Why I like it?
The Net Promoter Score was one of the highest I’d ever seen and it reached 8k customer so quickly. I am unsure about the latest round of dilution and think it will eventually undergo more in the future but the company looks to be firing on all cylinders. We’ll also see how the transition to software only goes.

  1. Pure Storage

What they do?
Maker of flash array storage.

Why I like it?
Very solid financials and a beneficiary of AI actually. Love the 40+% revenue growth and the operating leverage in the latest report was impressive. It is valued like a commodity hardware provider but I think it is really more like Arista, differentiated by it’s software.

Concluding Thoughts

I have a short watchlist that I am keeping an eye out for that includes OKTA, ALGN, TEAM, and MIME. I don’t expect anything close to this month’s performance in the future but we shall see. It will be interesting to monitor the market’s sentiment. To paraphrase Peter Lynch, when the dentist would come up to him at dinner parties with stock tips then that’s a very bearish signal. But for now, we buy the best businesses.

Very best,

Fish

70 Likes

Thanks for sharing, Fish.

A quick observation… you missed an opportunity to explain Amazon as the Mercado Libre Of North America :joy:

Good looking portfolio.

A Peasant

2 Likes

you missed an opportunity to explain Amazon as the Mercado Libre Of North America

Mercado Libre and Amazon are not comparable, there are at least three huge differences:

  1. Mercado Libre has no AWS
  2. Mercado Libre is only peer to peer (as far as I know)
  3. Mercado Libre is fragmented by country, a seller operates in only one country and only in the local currency.

If you want to sell world wide, Mercado Libre won’t do.

Denny Schlesinger

Last year I was thinking of setting up a “flea market” using Mercado Libre. Great customer service! But I gave up on the idea.

2 Likes

Fish, that was an absolutely GREAT summary. It was clear, well-thought out, and makes me jealous. I wish I could write so clearly and succinctly. Your description of what your companies do and why you like them are terrific capsule summaries.

I have a couple of questions about a couple of your percentages:

JD from 46.5 to 50.1 is up 7.7%, not 21.9%
Mercado from 341 to 382 is up 12%, not 21%

Thanks for posting!

Saul

4 Likes

Thanks Saul!!

Good catch.

My mistake. For JD it was from 41.42 to 50.1 and MELI was from 314.66 to 382 so I think the percentages are the same as my first post.

Very best,

Fish

There are other differences between BABA and JD (as well as Amazon). BABA is more than one thing. Their core business is B2B. Their B2C (retail customer facing platform) is Taobao which was morphed into TMall. As a B2B company, actually a facilitator of B2B, they saw no requirement to support logistics. Existing transportation modes, networks and services provided everything necessary. OTOH, JD started as a B2C business and quickly saw that delivery to individual customers (the so-called “last mile”) was a major stumbling block in China. China was (still is) rapidly expanding its transportation infrastructure with world class railroads, airports, and highways, but delivery services are lagging. Logistics capability was a business imperative for JD.

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@Denny S.

Sorry, I’ll quit joking around.

A Peasant

Congrats, Ryan.

I love your allocations.

Just last week someone asked me to elaborate on my definition of “conviction level” and how I go about
assigning a corresponding numerical value to my holdings and how it affects my portfolio construction. I
think I’ll just send him to your post and ask if he has any further questions.

If I were dumb enough to give any advice (and of course I am) a couple of thoughts follow: 1) Personally
I would increase exposure to Square considerably. 2) Going by your performance, I wouldn’t give too much
weight to advice from me or anyone. :slight_smile:

Well done, sir!

Dan

1 Like