Fish's March Summary

Apologies for the late post…

To get straight into it: YTD my portfolio closed: up 20%

January: Up 20%
February: Up 4%
March: Down 4%

This is compared to:

The S&P 500
Closed down 2% for the year so far. It was down 1.7% for the month.

The Russell 2000
Closed down 1.3% for the year so far. It was down 1.5% for the month.

March was insanely volatile for my portfolio as I’m sure it was for many of you. Some days my portfolio was down more than 5% and some days were up more than 3%. We had things like the China Tariff scare, and the FED raised rates, and a lot of other things happened that I can’t think of right now. Being down nearly 6% this month, I wasn’t happy but hey, it happens! All we can do is learn and focus on the future. Here’s to April being a better month.

Transactions

January
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.

February
I bought more of three current holdings: NVDA, SQ, and HUBS.
During the second week of February when we had that extreme volatility I took advantage of that and bought more of the companies I thought didn’t deserve the bigger pullbacks.

March
My two big transactions were selling out of TTD and buying into MDB.

I finally sold TTD because I am still a bit unsure about moat. It was keeping up that important 95% retention rate but revenue was decelerating and I am not sure how much more it can expand margins. Jeff Green is incredibly charismatic but I’m just not convinced the company is backing him up. I could re-enter this one but I’m on the sideline for now.

MDB is exciting. This semi-recent IPO is attacking a huge space in databases. Typically, data is kept in relational databases in a system of rows and columns. Mongo, along with other non-relational database providers allow data to be stored in document form. I have a friend who is a developer and he swears by it but of course there are specified use cases.
I also added to AYX, NTNX, SQ, and SHOP on some of the dips. I trimmed ANET and HUBS a little bit to fit my conviction levels at this point.

Here are the results from the individual stocks in the portfolio for the year so far:


Square from 34.7 to 49.2		up  	41.9% 
Nutanix from 35.3 to 49.1  	       	up 	39.2%
Alteryx from 25.3 to 34.1		up  	35.0%
Shopify from 101.0 to 124.6  	       	up 	23.4%
Amazon from 1189.0 to 1447.3      	up     	21.7%  
Hubspot from 89.5 to 108.3    		up  	21.1%
Nvidia from 193.5 to 231.6		up  	19.7%  
Pure  from 16.7 to 19.96		up 	19.4%
MongoDB from 38.0 to 43.4		up 	14.2%
MercadoLibre 322.6 to 356.4    	        up      10.5% 
Arista from 235.6 to 255.3,   	        up 	8.4%
[JD.com](http://JD.com) from 43.3 to 40.5        	down   	6.5%

As you can see, two of the three stocks at the bottom are not owned by Saul, coincidence… I think not :). Arista’s underperformance in March hurt me as well as the e-commerce companies (@ MELI, JD). Amazon also got hit pretty hard by some Trump tweets about them taking advantage of the Post Offices. Overall, not bad though.

As of March 29, 2018 these were my portfolio allocations:


ANET	14.66%
SHOP	12.75%
AYX	11.18%
MELI	9.92%
SQ	9.53%
NTNX	8.22%
NVDA	7.02%
AMZN	6.19%
HUBS	6.07%
MDB	5.43%
PSTG	4.73%
JD	3.73%

Thoughts on the portfolio

Lately I have been looking at buying and selling stocks based on the percentage allocation in my portfolio rather than the stock price. I have found this helps me prevent price anchoring because I am simply moving up and down allocations rather than being fixated on the price of the stock.

For example if Amazon goes from 1,500 to 1,000 I would first look at the allocation versus simply buying it because it is down a good bit from its high. If I am comfortable with an allocation then I will keep it rather than anchoring.

I am happy with these allocations, I am questioning JD.com even though I really love the business. Frankly, there most likely are better opportunities out there or even to buy more of the same stocks in my portfolio.

I am learning the importance of opportunity cost. JD.com might be a great business but if there is a better opportunity, it is a little silly to hold it because I already bought it. This is called the ‘endowment effect’ where we assign higher values to the things we own. I remember reading about a study where kids where given mugs and they sold them for twice the amount as they were willing to buy them for.

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. This past earnings report was solid in my opinion and it was heavily discussed on the boards. The pesky guidance was what analysts really focused on. I saw two main reasons for the guidance.

  1. Cloud titans only give two quarter of expectations so Arista is not going to make overly ambitious estimates just to get crushed down the line if the titans don’t continue spending.
  2. Arista was not expecting 50% growth in the prior quarters so they have a much higher base to run off of.

2. 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.

The last quarter was spectacular. Everything trended in the right direction and I like their partnership with Apple, continuing the innovation thesis.

3. MercadoLibre

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.

It just reported and I really liked it. The company is copying Amazon’s playbook and it is becoming rapidly more priced like Amazon. This quarter it dipped negatively for earnings because of its move to free shipping. In my opinion, it needs to spend in this crucial period. I also liked that it suspended its dividend because I thought that was crazy when it had the opportunities to re-invest into its business like it does.

4. Amazon

What they do?
Do I have to explain?

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

5. 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. I am excited by the new ray tracing technology as I think that is going to be very big one day.

6. 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.

This past quarter was business as usual. I am getting a little nervous about the moat but it seems to just keep surpassing expectations. In my gut I get a little nervous ramping up this allocation too high but it seems to be growing into a mini-salesforce as of now.

I know some people I really respect have sold out of HUBS so I’m looking at it closely. I think Saul’s reason about the dollar expansion rate is valid. However, the freemium model has quite a churn I’m sure, similar to Shopify. We shall see…

7. 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.

8. 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.

Loved this past quarter from them. Bear had a great write-up on its quarter. The expansion rate stayed high, revenue even ticked up, the company showed operating leverage. What more could you ask for?!

I have been researching this company heavily and I really like what I’m seeing. Enabling the data citizen is a great concept and I think it’s definitely the way the world is moving.

9. 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.

10. 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.

Second to Alteryx, I’ve been researching this one the most. I think the hybrod cloud environment is where data centers are headed especially as IT specialists are realzing the cloud isn’t an end-all-be-all.

11. 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.

12. MongoDB new

What they do?
Maker of noSQL databases.

Why I like it?
Disrupting Oracle, great growth, narrowing losses, high insider ownership with a proven track record. What made me super interested was Mongo 4.0, enabling high security transactions with a couple banks trusting them. Apparently this is a big deal for a noSQL database like Mongo. A big vote of confidence.

Concluding Thoughts

March was tough but I learned a lot about portfolio allocation and keeping my emotions in check. Thanks again to everyone on this board for your contributions. It’s an honor to be part of such a special community.

Very best,

Fish

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Apologies for the late post…

Thanks Fish, Great write-up.