My last portfolio update was on 3/15/2019:
https://discussion.fool.com/gauchochris-portfolio-check-up-31519…
RETURNS ON PORTFOLIO
2018 return: +55.9%
**2019 end of month returns (YTD):**
Jan +26.9%
Feb +39.8%
Mar +49.4%
Apr +57.1%
I have been tracking the days that my portfolio reached an all-time high (peak). In 2018, the peak was Sept 4. The portfolio did not reach a new peak until February 2019. Here are the portfolio peak days:
9/4/2018
2/27/2019
3/14/2019
3/18/2019
3/19/2019
3/20/2019
3/21/2019
4/30/2019
5/3/2019
Since mid-January, I began to track my portfolio’s weekly closing YTD percentage gain. Here are those figures:
1/18/19 23.3%
1/25/19 25.2%
2/1/19 27.3%
2/8/19 30.6%
2/15/19 31.8%
2/22/19 38.6%
3/1/19 35.1%
3/8/19 30.2%
3/15/19 44.0%
3/22/19 49.6%
3/29/19 49.4%
4/5/19 43.4%
4/12/19 49.2%
4/19/19 40.5%
4/26/19 54.4%
5/3/19 57.5%
ALLOCATIONS AS OF 5/3/19
5/3/19 3/15/19 5/3/19 shares only % gain per % move
AYX 23.0% 18.9% 23.0% 1.0%
TWLO 19.8% 20.9% 15.4% 1.4%
MDB 14.1% 15.7% 11.7% 1.5%
ZS 10.8% 10.7% 9.9% 1.3%
OKTA 8.5% 6.0% 8.5% 1.0%
TTD 7.6% 8.2% 6.3% 1.4%
SQ 7.2% 11.7% 6.6% 1.3%
ESTC 4.6% 1.1% 4.6% 1.0%
SMAR 1.9% 1.9% 1.0%
options 9.5%
cash 2.7% 5.0% 2.7%
NKTR 0.0% 1.6%
NTNX 0.0% 0.2%
I noticed that for the first time ever, Saul and I have exactly the same stocks, but we don’t have the same allocations. My allocations are ordered from highest to lowest in a way that reflect my confidence in the business AND my thinking the stock company (and stock) will appreciate going forward. For example, SMAR is the smallest allocation because I do not have confidence that their offering to their customers is as sticky as the offerings of my other companies.
The column on the far right represents the number of call option equivalent shares I own for each actual share. My call options positions are the following:
MDB Jan21 $70 calls
MDB Jan21 $85 calls
SQ Jan20 $50 calls
SQ Jan21 $65 calls
TTD Jan21 $130 calls
TWLO Jan20 $45 calls
TWLO Jan20 $65 calls
ZS Jan21 $65 calls
In aggregate, my options positions (long calls less the negative value of short puts) is 9.5% of my portfolio.
CHANGES IN THE SECOND HALF OF MARCH
Based on that check-up, I made some adjustments that I mentioned in the same post. In the second half of March, I made some additional adjustments:
I added to ESTC as my confidence in its future growth increased. To fund the purchases I took some from SQ and TTD (mostly SQ).
I sold out of NKTR. I love NKTR and have an emotional attachment to it. I still believe that NKTR-214 (and maybe NKTR-262) will be blockbusters, and all the reasons that I owned it are still intact. So why did I sell out? The main reason is that I think that moving the money into my other stocks will give me better returns and more upside potential. I put the money into ESTC. The more minor reason is that even if NKTR-214 and NKTR-262 are effective treatments there could be other treatments developed by other companies that are even better. When I compare this to these SaaS cloud companies, I don’t see their services/subscriptions being as replaceable.
I was still holding on to some NTNX call options. The dollar value of these options was only 0.2% of my portfolio so I previously figured that leaving it shouldn’t matter much and I could make a big return if NTNX gets their act together. I changed my mind, took the capital loss, and put the money into ESTC. Not a major decision either way.
CHANGES IN APRIL
I reduced my position in SQ. I sold all of my high cost basis shares (cost basis in the mid-60s). I kept all my lowest cost basis shares ($17-18-ish and $48).
I sold some of my ESTC.
I bought ZS both shares and Jan21 $65 call options. I like the long-term prospects of ZS and may consider adding more.
I opened a position in SMAR. I like the growth but I am not 100% sold on the sustainability of their service with customers. I’m keeping the position small for now.
My short $100 puts on OKTA expired worthless. I had sold these deep in the money puts when OKTA was at around $82 so I realized a gain of about $18 per share! The reason I sold puts on OKTA is that I believe that the drop from $100 to $82 was unjustified and would be quickly corrected.
I sold May19 $150 MDB puts receiving between about $17 and $23 per share. I realized a gain on the options that I sold for $23 when the price dropped to around $13 but resold the options the next day for about $17. The reason that I shorted the MDB puts is because I believe that MDB will rebound to its all time highs. Hopefully this will happen after another great earnings (I hope) or before. I could be wrong, but we’ll see.
I like to be close to fully invested, but I now keep cash on hand for at least 6-12 months of living expenses. However, I do also leverage using options. I adjust my degree of leverage depending on the market conditions and what my stocks are doing. I suppose this is a form of market timing, but not exactly. When selling puts, we have the luxury of rolling forward indefinitely so we don’t need to be right on timing (only need to be right eventually to come out ahead). It’s also ok to take a loss and switch horses. The most important thing is not to overdo it so that one is never forced to sell in the event of a severe market downturn.
TWLO, SQ, and AYX EARNINGS RELEASES
Three of my nine companies have now reported earnings. All three reports/results have been discussed on this board. My brief take on them is the following:
TWLO: A decent report but a little disappointing. I was expecting a bit higher growth. I still love their business model and their overall execution. I am expecting synergies with legacy TWLO and SendGrid in the remainder of 2019. I am expecting TWLO to keep launching new unexpected offerings that will open new opportunities, further expand their TAM, and further separate TWLO from the competition. The earnings report did not lead me to change my allocation.
SQ: I had been reducing my SQ position in March and April. I am happy with the progress and the growth is continuing nicely. The subscription revenue will overtake the other revenue as the largest source in a few quarters. As long as the subscription growth rate stays high, it should provide an increasing tailwind to growth. In mid-March my position was 11.7% which I think was too high given other alternatives. Now it’s in the right range, I think.
AYX: I think AYX had a great quarter and the guidance (50% growth at the high end is very encouraging)! My position size has grown to be very large at 23%. I would trim some if not for capital gains taxes. I may trim if it grows to a 25% allocation.
TTD: Reports on May 9.
The other companies (MDB, ZS, OKTA, ESTC, SMAR) report later because they have April 30th fiscal quarters.
GENERAL COMMENTS
The growth has continued to be amazing in these SaaS companies. The stock price appreciation has been even more amazing. I share some of the concerns that have been brought up: the share price appreciation cannot continue to outpace the growth in the business growth forever. Yesterday, Saul made the following comment:
Watching Zoom, I don’t know whether its price will come down to an EV/S closer to our SaaS stocks, or whether the EV/S of our stocks will rise closer to Zoom’s, as the public starts looking for other places to put their money that have the attraction of being:
SaaS, high growth of revenue, recurring revenue, high margins, high Dollar Based Retention Rates, etc.
I don’t think that we will find any more grossly underpriced SaaS stocks the way we were able to buy Alteryx and Twilio, for example.
I think this bolded statement by Saul is on our collective minds. I agree that selling out with the hope of a pullback so that we can rebuy lower would be foolish. However, Dreamer’s idea of moving some capital into companies in a different sector may be worth considering….if one can find companies worth buying.
The following is currently keeping me from changing my allocations and approach:
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Our companies continue to post incredible business growth. So long as this continues there will be eventual safety even if there is a multiple compression.
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The businesses that we own are part of the digital transformation that will likely continue for many more years.
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The businesses that we own are dominating their niches and markets. Investing in business that will continue to dominate provides some safety. Picking the companies that will continue to dominate is key.
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The market has not yet (in the last 10 years) reached a state of euphoria. I still expect this to happen at some point in the future. I know many people who are still very frightened from 2000 and 2008. Many of these people are too scared to even invest in stocks. I believe that this will change again. I keep hearing that the retail investor is sitting out this recent rally. There will come a time when stocks will be back in favor with the majority of people. This will likely create another bubble which will be the time to (at least partially) sell out.
Chris