GauchoChris portfolio update 1/18/19

Well, 2018 was an interesting year to say the least. At the beginning of 2018, I wrote the following:

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.

In hindsight, 2018 did turn out to be another phenomenal year for our stocks, but the general market did not fair so well with the S&P 500 (adjusted for dividends) dropping by 5.2%.

My previous 2018 portfolio updates can be found here:








Now that 2018 is in the books, here is the complete monthly performance of my portfolio compared to the S&P 500 Total Return (^SP500TR on Yahoo! Finance):

	 YTD	1-mo	^SP500TR     S&PYTD   S&P 1-mo YTD Del MTD Delta
Jan18	 25.6%	25.6%	$5,511.21 	4.9%	4.9%	20.7%	20.7%
Feb18	 37.4%	9.4%	$5,308.09 	1.0%	-3.7%	36.5%	13.1%
Mar18	 40.7%	2.4%	$5,173.19 	-1.6%	-2.5%	42.3%	4.9%
Apr18	 41.0%	0.2%	$5,193.04 	-1.2%	0.4%	42.3%	-0.2%
May18	 55.8%	10.4%	$5,318.10 	1.2%	2.4%	54.6%	8.0%
Jun18	 52.3%	-2.2%	$5,359.01 	2.0%	0.8%	50.4%	-3.0%
Jul18	 51.1%	-0.8%	$5,549.96 	5.6%	3.6%	45.5%	-4.3%
Aug18	104.8%	35.5%	$5,730.80 	9.0%	3.3%	95.8%	32.2%
Sep18	 93.4%	-5.6%	$5,763.42 	9.6%	0.6%	83.7%	-6.1%
Oct18	 62.9%	-15.8%	$5,369.49 	2.2%   -6.8%	60.8%	-8.9%
Nov18	 70.5%	4.7%	$5,478.91 	4.2%	2.0%	66.3%	 2.6%
**Dec18	55.9%	-8.6%	$4,984.22      -5.2%	-9.0%	61.0%	0.4%**
1/18/19	 23.3%	23.3%	$5,314.78 	6.6%	6.6%	16.7%	16.7%

6/18/18	 80.7%	16.0%	$5,329.66 	1.4%	0.2%	79.3%	15.7%
9/4/18	111.9%	 3.4%	$5,721.86 	8.9%   -0.2%   103.0%	 3.6%
10/24/18 40.0% -27.6%	$5,258.61 	0.0%   -8.8%	40.0%  -18.8%
11/20/18 41.0% -13.4%	$5,240.23      -0.3%   -2.4%	41.3%  -11.0%
12/24/18 32.6% -22.3%	$4,672.66     -11.1%  -14.7%	43.7%	-7.5%

As you can see in the table above, my portfolio returned 55.9% in 2018 compared with -5.2% for the S&P 500 (including dividends) for an outperformance of 61%. Clearly, I am very happy with this result. I’ve also added some other noteworthy dates to the table above; these dates show days when my portfolio hit a local peak or trough. I did not consistently track the spikes and dips prior to September so I missed the several market selloffs in February and the months that followed. Some interesting observations can be made.
2018 was a very volatile year, at least compared to 2017. The volatility of my portfolio was amplified because I hold options positions. My portfolio hit a peak on September 4th (up 111.9% YTD) after a tremendous August. On that day, my portfolio was outperforming the S&P 500 by 103%! Since that day there have been 3 major corrections followed by 3 rebounds with local lows being hit on October 24, November 20, and December 24. My 2018 YTD numbers dropped to +40%, +41%, and +32.6% during these 3 corrections. My portfolio’s delta also compressed to around 40% with each bottom. On the rebounds the portfolio climbed back to around +65% to +75%. The S&P 500’s rebounds were much more modest. Now, 1 week into 2019, we are in the midst of another rebound off of the Dec 24 low.

Below were my positions and allocations as of 12/31/18:

	Shares	S+O		11/30/18 (S+O)
AYX	23.3%	**23.3%**	1.0%	21.6%
TWLO	14.4%	**18.3%**	1.5%	18.1%
MDB	13.9%	**15.4%**	1.3%	13.4%
SQ	12.3%	**13.4%**	1.4%	14.7%
NTNX	9.6%	**12.0%**	1.8%	10.6%
TTD	6.9%	**7.5%**	1.4%	4.4%
ZS	6.3%	**6.3%**	1.0%	6.9%
OKTA	2.9%	**2.9%**	1.0%	0.0%
NKTR	2.1%	**2.1%**	1.0%	3.4%
NVDA	0.0%	**0.0%**		3.5%
options	6.0%			
cash	1.8%	1.8%		

The changes that I made during December were the following:

  1. Increased my TTD position
  2. Opened a new position in OKTA
  3. Closed all NVDA stock and options positions (tax loss harvesting on the options)
  4. Closed all NKTR options positions (tax loss harvesting)

Other than the above changes, I did very little tinkering in December. I will note that I used all my available cash (excluding the amount that I need for my 2018 tax bill) to buy OKTA/TTD shares on 12/24/18. My cash position dropped from 3.9% at the end of Nov to 1.8% at the end of December. My allocations are a very good reflection of my relative confidence in each position. AYX has gotten a bit big. My first purchases of AYX were on 1/3/18 so some of my shares have finally become long term lots. I may trim it back soon. The aggregate net value of my options (long calls and short puts) decreased from 10.7% of my portfolio at the end of November to 6% of my portfolio at the end of December. This decline is due primarily to closing of some options positions (decreased leverage) and decrease in the value of my options positions due to underlying stock price drops.

The first half of January saw the market and our stocks rebound. The only trades I have made in 2019 were so trim AYX just a little. I used the proceeds to close out some short put positions as I wanted to reduce leverage as the market rises. When you multiply 1.559 and 1.233, you get 1.92 which means that my portfolio is up 92% since the beginning of 2018 (in 12.5 months). This is still 10% below the September 4th peak of +112%.

Below are my current allocations which include the value of my call options. The percentage to the right of the allocation percentage is the number of call option equivalents that I own for every share that I own. For example, for TWLO I currently own 1 call option share equivalent for every 2 shares that I own. I have no options positions on AYX, ZS, OKTA, or NKTR.

AYX	22.99%	1.0%
TWLO	17.80%	1.5%
SQ	14.47%	1.4%
NTNX	12.66%	1.7%
MDB	12.56%	1.4%
TTD	 7.35%	1.3%
ZS	 5.91%	1.0%
OKTA	 2.84%	1.0%
NKTR	 2.41%	1.0%
cash	 1.57%	

AYX and TWLO are my largest holdings and my highest conviction stocks. I believe that each of these companies can increase 10x from here. I do like AYX more than TWLO because of its higher margins and its smaller market cap. I like TWLO for the number of customers and its lock on modern communications. TWLO also added some amazing new capabilities for customers and these are not yet reflected in the revenues. We could well see further acceleration in growth! I see TWLO as a modern day AT&T.

SQ is still growing like a weed, moving up market, and adding new services and features to further delight its customers. SQ is disrupting the banking industry, and, while there is competition from companies like SHOP and PYPL, SQ’s offering is sticky making switching by customers less likely. Yes SQ is quite large in market cap so it rising 10x may be less likely than for my other companies. But SQ has so much optionality that I’m continuing to stick with it.

NTNX is probably my favorite company for 2019 and the best bargain out there (IMO). But in this case cheap is not bad but an opportunity. It’s my holding on which I have the most call options. Most of these options expire in Jan 2020 because I believe the hidden value will be exposed before then.

MDB is my 5th largest holding and it has been discussed extensively on Saul’s board. I am not concerned my the recent news and have continued to hold all of my shares. I have not added any shares but have traded options on MDB to earn some extra income. I plan on keeping my position until I see evidence of slowing growth or until I like another company better.

My top 5 companies make up more than 80% of my stock holdings.

My smaller holdings are TTD, ZS, OKTA, and NKTR.

I bought TTD based on the discussion of this board and I won’t add any discussion about it here.

In the security space, I prefer ZS over OKTA. While both companies are growing very fast, I see ZS as more disruptive and less likely to get disrupted. I avoided OKTA for almost a year because I was concerned that customers could replace them. I finally bought after the last earnings results. The growth was just too good for me to stay away. However, I am keeping the position small.

I still have NKTR and I still think NKTR-214 will be a big success. The data keeps getting better and NKTR keeps signing up more partners. They closed a deal with Gilead last month, not for NKTR-214, not in I-O but to enhance the immune system’s effectiveness to work in conjunction with GILD’s viral drugs. As with many of the other deals, GILD will be paying for the studies that shows what these partners think of NKTR’s compounds and their prospects. NKTR also created a subsidiary to hold NKTR-181; NKTR-181 might well get approved in less than 6 months. I did sell all my NKTR call options so now I have only shares. BTW, CELG is merging with BMS. I had to smile because the buyout price is $102. I had sold CELG in August 2017 at around $130 to buy KITE which got acquired in short order. I used the KITE proceeds and profits to buy JUNO and NKTR. JUNO was acquired by GILD and I still have the NKTR shares which I bought for $19-22 in late August 2017. I feel very lucky and I can thank Saul for this outcome for if I had not liked KITE I probably would have not sold CELG and never bought any of these other biotech companies. Thanks again Saul!

What’s happening in the market? The market low was December 24 and the Fear Greed Index was at 2 out of 100 on that day. The Fear Greed Index is now at 51 which means that the market is neither Greedy nor Fearful. What a true around and what a buying opportunity December 24 was! 2019 is certainly turning out to be another very interesting year.



Chris, Great update and congratulations on an incredible year. When do you see the NKTR thesis playing out?

When do you see the NKTR thesis playing out?

NKTR-181 approval in the next 6-9 months but that’s just for boost.

NKTR-214 has a lot of trials in the works including the first Phase III studies. Perhaps we can get Phase III results next year and the first approvals toward the end of 2020 or in 2021.

A successful phase III trial or approval could possibly trigger a buyout but I still think there’s a higher likelihood that NKTR will become a large, successful big biotech. NKTR is only an $8B company. I think NKTR will be worth more than either KITE (acquired for $12B) or JUNO (acquired for $9B).

NKTR is my smallest position.