GauchoChris portfolio on 3/2/2018

GauchoChris Portfolio Update 3/2/18

My last portfolio updates were on 9/30/17, 11/21/17, and 1/3/2018………

I wanted to wait until all of my companies reported results before posting my portfolio results. This week we got reports from my last for companies: SQ on 2/27/18 and NKTR, NTNX, and PSTG on 3/1/18.

I had stopped calculating my performance during 2016. However, I went back and took a look at 2017. I calculated that my portfolio balance increased 74.4% from the start of 2017 to the end of the year. However, this does not take into account the money that I added and subtracted through out the year. I added a substantial amount in May while I subtracted a lesser amount a various points throughout the year. My annualized returns adjusted for the timing of my deposits and withdrawals would have been somewhat higher than 74.4% because the funds that I added in May did not have the benefit of the first 4 months of gains. I have resumed calculating my returns starting in January. I am not adjusting the returns for withdrawals and deposits but the percentage gain differences would be very minor because I am no longer adding or subtracting large amounts compared to the total value of my portfolio.

Here are my YTD returns:

1/31/18: +25.7%
2/28/18: +37.6%
3/2/18: +40.9% (S&P500 +0.83%)

The January peak for my portfolio (+28.9%) was hit on 1/26/18. The February peak of my portfolio was hit on 2/28/18, the last day of the month. There was a lot of volatility and in the period between 1/26/18 to 2/15/18 my portfolio sank as low as +8% YTD and then up to +36.6%. The volatility of my portfolio is much higher because I have accumulated a lot of call options. On the flip side, these options positions give my portfolio a lot more upside. I will explain more on the options below.

The last update of my portfolio was on 1/3/2018, and the comparisons between 1/3/18 and 3/2/18 are below:

        1/3/18		3/2/18
cash	 2.3%		 2.0%
AYX	 8.2% (o)	14.2%
ANET	14.8% (o)	14.0% (o)
SHOP	15.3% (o)	13.4% (o)
NVDA	10.0% (o)	11.8% (o)
NTNX	 8.7% (o)	10.0% (o)
SQ	 8.6% (o)	 8.0% (o)
TLND	 8.8%		 6.4%
PSTG	   0%		 5.6% (o)
NKTR	 3.6%		 4.8%
Options	 5.1% (ITM)	 4.7%
Options	 3.9% (time)	 5.0%
HUBS	 7.5%
JUNO	 3.3%
WIX	 1.8%
UBNT	 none		 short puts (added this past week)

In looking at the above portfolio, you will see that I am now down to only 9 positions. This is the lowest number of positions that I have had in 20 years. I had about 60 positions when I started following this board about 4 years ago. I had the goal to reduce to 20. I now think that the optimal number is between 8 and 12. I also have less time to devote to my investing research because I am working a full-time job.

What did I change in the 2 months between Jan 3 and Mar 2?

On January 22 after the boards of CELG and JUNO approved the acquisition I sold all of my JUNO. I liked all of my allocations so I bought back a lot of WIX. I also bought a small trial position in ATRA but later I decided that I was speculating and sold it. On January 22 I also left some proceeds in cash which I used on January 25 to buy more TLND.

Between January 29 and February 1, I sold all the WIX and added to NTNX and AYX. I also opened a position in PSTG.

On February 6, I sold about 10% of my SHOP and split the proceeds to add to AYX and NTNX.

On February 9 after NVDA reported a great earnings and the stock dropped, I sold half of my TLND to add to NVDA. This was when the market was really selling off; TLND hardly dropped but NVDA dropped by a lot so I took the opportunity to make the switch.

On February 26-27, I sold all of my HUBS to add to AYX and buy back about half of the TLND that I had sold to buy NVDA. TNLD and AYX had reported great results. I was thinking that TLND was not getting adequately rewarded for its great performance and its future prospects; I remember wondering when the market would begin to appreciate TLND and thought it might take a few quarters; well I guess I was wrong because TLND has shown significant strength this past week, rallying to reach all time highs. HUBS also reported very good results but I thought that my money was better offer in TLND and AYX than HUBS.

I’ve also made some options trades during the past 2 months. Some were trades and some were a continuation of my approach to build long term upside with call options financed by selling in the money puts with near term expirations when the stock has a catalyst that I think will move the stock up. Usually that catalyst in an earnings date where I think the company will beat expectations that I feel will drive the stock up.

Long call options positions

If you look at my stock allocations, they are very similar to Saul’s. This is not exactly by design but rather that I think I agree with Saul very often and on a few occasions Saul has been influenced by me (e.g. NVDA, NKTR). I guess my point is that if our portfolios are not that different why am I up 37.6% while Saul is up 25% in the same period. The difference is that I have been using an options approach to increase my upside. I am not bragging but rather explaining why there is a difference and how this has worked out. Options can be very risky but the risk if managed carefully can be much less than people might expect. I’m not trying to advocate the use of options and the approach that I have been using could cease working going forward; if this were to happen then returns would be lower than if the options positions had not been set up. Below are the options positions that I currently have in place. My stock allocations are above and my long call options positions are expressed in share equivalents as expressed as a fraction of an option equivalent that I own per actual share that I own. For example, if I owned 1000 shares of SHOP and I also owned 5 long call options on SHOP then I would have 0.5 options share equivalent per share of SHOP that I own.

	Call-share equiv
SHOP	0.76
ANET	0.62
NTNX	0.40
SQ	0.37
NVDA	0.36
PSTG	0.34

The above call options provide me with upside leverage. Most of the options are in the money and most of the options have expiration dates in Jan 2020 (a smaller number expire in Jan 2019) meaning that I still have almost 23 months for the underlying shares to continue to rise. Also, since most of the call options are in the money, for each dollar that the underlying shares rise.

I have some short puts remaining, but all are set to expire on March 16th or sooner. Since I have been selling puts to but leaps sequentially since last March, the value of my call options by far exceed the negative value of my in the money put options.

The options have in the money value and time value. The time value will decay as expiration approaches so I need to think about the chance that a stock will continue to appreciate against the decay. Below is the sumtotal value of all my call and put options as a percentage of my portfolio:

In-the-money value: 	4.7%
Time value:		5.0%

If I wait to long to close the options positions then the time value will disappear so I am betting on the stock appreciation in the next 23 months (in most cases I have the January 2020 calls) will outweigh the decay. Of course, I can change my mind on each position at anytime and close a position. I only own leaps in companies that I believe a) have a lot of growth ahead (secular growth), or b) are substantially undervalued because the market believes growth will be a lot lower than I do. From the list above, you can see which companies those are.

Companies in the portfolio

As I’ve mentioned often before, I like to invest in companies that I believe can growth their stock price by 10X. I believe that to be true for all of the companies that I currently own.

AYX (14.2%)
Amazing growth that continued in their most recent quarter. I opened my position in January and I have high expectations for the company. I added to my position after earnings which was on February 21.

ANET (14.0%)
ANET has been covered so much on this board so I won’t add anything here. I sold some on February 16 after earnings. I also closed all of my Jan 2019 $200 calls. After listening to the call and thinking about the situation, I bought back more than what I sold and I opened new leaps (January 2020 to give me more time). My call options upside is significant.

SHOP (13.4%)
I am very confident that SHOP will increase by 10x. I understand that the valuation is high but I think that the growth rate, which is materially declining, justifies the valuation. I disagree with the whole drop shipper argument, and I recently wrote my opinion about that here:…
As I mentioned above, I did trim some SHOP to buy more AYX and NTNX. However, I have a lot of January 2020 call options all of which are in the money. Therefore, I really have a lot more than a 13.4% position.

NVDA (11.4%)
NVDA is doing amazing things, and it is enabling acceleration of technology. I have probably posted more about NVDA than any other stock. It remains that only stock that I own with a huge market cap, yet I still think that it is possible for NVDA to grow 10x. I added after earnings and I’m looking forward to some cool announcements at GTC I a few weeks. Perhaps there will be some announcements that resume the growth in the stock price.

NTNX (10.0%)
I think NTNX is still substantially undervalued and I took the opportunity to add both shares and leaps in February. I first wrote about it here:……

The earnings report on Thursday, March 1 was great and I believe that what I wrote in September still holds true.

SQ (8.0%)
SQ is doing great. Their report last week was great. They are automatically getting new customers with even the large sellers self-onboarding at an 80% rate. I love the cross-selling that they do. Their cash product now has 7M users, many of whom are monetized. I think their moves with Bitcoin were brilliant and lead a lot of people to use their cash product so that they can buy and sell Bitcoin. My position is only 8% because the market cap has grown to almost $18B. How big can SQ get? Visa has a market cap of $272B and Mastercard has a market cap of $184B. Paypal has a market cap of $95B. I think SQ can become one of these big boys, but I may decide to trim some if it grows substantially from here.

TLND (6.4%)
I really like TLND. Great growth and I believe it’s just starting to get discovered/appreciated. I sold half of my position in February to buy more NVDA, but then I rebought half of what I had sold to when I sold out of HUBS. I do wish I had more shares but I don’t want to sell anything else right now. I definitely would have opened options positions on TLND but options are not available.

NKTR (4.8%)
NKTR! What a great earnings call. It was so good that I listened to it twice. HeartMD wrote an excellent summary of the updates on NKTR:…
I’d like to add a few thoughts. NKTR is in great shape and they have so many ways to be successful. When I compare NKTR to KITE and JUNO, I think that NKTR’s future success is a lot higher than KITE’s or JUNO’s was. Saul sold out because he thinks NKTR is speculative. Biotechs that depend on future drugs approvals rather than cashflows from approved drugs are always speculative. When I look at their clinical results, I am amazed. There are so many trials in I-O for many different cancer diseases, and the clinical results are truly amazing all with drugs that do not need to be custom manufactured and therefore are not expensive or difficult to produce. This is in stark contrast to KITE’s and JUNO’s I-O drugs. In particular, I believe that NKTR-214 offers the most promise because it can be combined with dozens of drugs; I will look for more partnerships with NKTR-214. Can NKTR go up 10x? I think NKTR needs to become one of the big biotechs to achieve that kind of stock growth and by definition if NKTR’s stock rises 10x it will be a big biotech. I decide that I’m not selling or trimming. I want to see the approval of NKTR-181 and I want to see all those clinical results that will be presented between now and the end of 2018. NKTR will be presenting a lot of clinical data before the end of 2018. I had only invested a small amount into NKTR in late August and early September. I am fortunate to have bought when I did as my average cost basis is only $20.45 for an unrealized gain of 403% in only 7 months. I feel even more fortunate to have sold my CELG to buy KITE followed by my sale of KITE to buy JUNO and NKTR. Had I not sold CELG on August 11, 2017, I would have missed the opportunities on KITE, JUNO, and NKTR. I sold CELG at $130 and today the shares stand at $89, down 31%! Phew, I got lucky in a way.

Closing thoughts

First, I’d like to repost what I wrote on January 3 in response to those who were convinced that 2018 could not be as good as 2017:

2017 was a phenomenal year. Some people say this can’t be repeated in 2018. I wouldn’t go so far to make that statement. Will 2018 be a repeat performance for the stocks that we have picked? I really have no idea. But I think it’s feasible and I think it’s certainly possible. It might even be somewhat likely. I know that I tend to be optimistic, but here are some things to consider:

1) If you look at my stock picks, you will see that 9 of 11 are in tech (or at least related to tech). The other 2 are biotechs that have some pretty interesting pivot events likely in 2018. Techs were sold off in December 2017. I think that a bunch of institutional investors rotated out of tech. I think it’s highly likely that there will be (maybe it’s already started in the first 2 trading days of 2018) a rotation back into tech. Investors will look for growth and growth is in these companies.

2) Tax reform has passed and the analysts (and the companies) have not yet have time to revise their earnings forecasts. This will happen soon. Cramer also said this today, and I agree with him. I think it’s highly likely that we will see a rally into earnings and during the earnings reports (late January through February).

3) The Fed raised rates in December. Will they raise 3-4 times in 2018? The real question is whether there will be evidence of inflation. Maybe we will see some movement there or maybe it will be less than the Fed and economists think (due to the deflationary pressure of technology). I’ve posted about my view of inflation and how people over estimate inflation and underestimate the speed with which technology advances. Technology advancement is happening faster and faster every day and it continues to accelerate. This is difficult to observe. Yes, the Fed has increased rates a few times….the pressure on the gas pedal has been lighted but with current rates the gas is still being pressed and the brakes have not been applied. Monetary policy is still VERY favorable to stocks and to growth stocks specifically. Now, with tax reform, fiscal policy will give stocks a very big boost in 2018.

4) Will there be additional fiscal policy that will favor large corporations? That might be infrastructure spending. I think it will be more difficult to get through than the tax reform. However, an infrastructure bill would further fuel growth.

2018 should be really interesting. I’m excited to see what happens. Good luck to everybody!

Well, so far 2018 is better than almost everybody expected. Will it continue? I don’t know but I still do think that it might be likely. I think we certainly could be at a point similar to where we were in 1997 when the market ran up for another 3 years. The euphoria of the late 90s is not here, and I tend to think that another euphoric bubble may well come again in the coming few years. I have positioned myself with enough call options to take advantage of the time when the taxi drivers (well, now they’re Uber drivers) once again give out stock tips.



Thank you GauchoChris.
Great read to start my Sunday off. Hope it is not to late for me to add NKTR manana.

I tend to think we are in the early 1980, and the market can rise for another 15 years.

Nektar,AYX, Talend, Pure Storage, Arista Networks are not financial manipulations, they are fundamental improvements to the world and are creating wealth and spill over wealth.

There was that panic in ‘87 that wiped out the leveraged folks.




Nice year you’ve had so far! As for NKTR what excites me most about 214 and now 262 is the TAM. This isn’t KITE where they are starting off targeting one type of lymphoma and then trying it on others as time goes on. They are using these against several already and not only that, several extremely difficult cancers to treat like melanoma, NSC lung cancer, and renal cell carcinoma that are common. Lots of common cancers + minimal good therapy to date = Large TAM. If the data looks good, this stock has a long run ahead in 2018/19 if it doesn’t get bought out (which I still think is the eventuality unfortunately). Anyway, exciting stuff… for patients and investors.



Loved your write up. Could you include the PSTG details? Thanks.


Loved your write up. Could you include the PSTG details? Thanks.


I’ll second that request…didn’t even notice the first time, but have a 6+% position.

Loved your write up. Could you include the PSTG details?

Thanks, John. Yes, I forgot to include details on PSRG. I only bought it recently. It has been extensively discuss on this board. I don’t think that I can add more value to the discussion at this time. They reported earnings on March 1st and Saul summarized it nicely here:…