2020 is off to a roaring start. I recently posted my portfolio allocations:
In that post, I explained why I hold what I hold so I won’t repeat it here. Since then I trimmed SMAR a little to add to ZM. I see ZM as a clear winner and I see SMAR more as a very fast growing niche. So here are my allocations as of January 31, 2020:
AYX 34.6% CRWD 15.4% MDB 10.5% OKTA 8.4% TTD 6.1% ZM 5.5% SMAR 4.2% DDOG 3.6% GH 3.4% ROKU 1.2% Cash 7.3% TOTAL 100.2%
The portfolio is up 25.7% YTD in 2020 through the end of January. As of the end of 2019, the portfolio was up 41.8% and it needed to increase another 41% to recover to the all-time high on July 26, 2019. It now needs only 12.2% which could happen in the coming weeks as earnings results start coming in.
The strong performance was driven by increases in most of my stocks (except GH which has dropped since my recent purchases). In particular, AYX and my AYX call options had a lot to do with the performance. AYX is up close to 40% YTD. Also, in late October and early November 2019, I took large positions in AYX leaps (Jan 2022 $90 and $100 strike prices); these options were purchased for $31.90 and $31.65 (per share) and are now valued at $64.40 and $58.40 so up 102% (for the $90 calls) and up 85% (for the $100 calls). These options currently represent 8.2% of my portfolio while the AYX shares represent 25.3% of my portfolio. I’ve been told that I am crazy for having such a large position in AYX. I also have been asked what I intend to do with the AYX position. Will I trim and take some profits? I’ve thought about this and I do intend to take profits on the AYX options at some point. My current intention is to let it ride at least until the holding period for the options crosses the 1-year mark. Assuming that this investment plays out well for me, I will probably have left high state income tax California before I close the positions. With no family left in California and some friends now living in other places, I’ve been increasingly asking myself why I choose to pay >10% of my gains to the taxman. I’ve posted that my target price for AYX in 5 years is somewhere between $400 and $600 per share. The options expire in January 2022 so two years from now. At this point I’ve told myself that I would sell the options when the share price reaches $355. How did I arrive at this number? Given that AYX’s fair value was $130 last Summer and assuming that growth continues at 65% per year for 2 more years, I calculate that the share price can rise to this level ($130 x 1.65 x 1.65 = $354). I’ll adjust my thinking as the earnings results roll in each quarter. Ideally, I ‘d like to get out of the options several months before expiration to avoid any potential short term market declines or sector rotations.
You will also notice that my cash position is 7.5%. Cash at the start of 2020 was more than 10% and this has been a drag on my performance as the cash is in a money market fund which yields only 1.6%. The reason for the cash is a reserve for April income tax payments (my portfolio returns are always pretax figures). In April, I will be paying about 4% of my total portfolio in taxes leaving me about 3.5% cash. This remaining cash is the amount that I reserve for my living expenses since I earn no income outside of my investing.
SaaS seems to be immune to the virus. Little or no exposure to China as there is little or no business for the companies there. Also, general GDP slowing is also not linked to the SaaS companies since most are not linked to the amount of business their customers do but more linked to how many employees/customers/devices use the software services. Digital transformation should continue on regardless of a deceleration in overall economic growth. I’m talking about the SaaS business results (e.g. revenue growth, customer growth, dollar based retention and such). The stocks may decline in the short run if there is a stock market correction but I would expect such a decline would contribute to the coiling of a SaaS spring. So SaaS seems to be well inoculated against direct and indirect effects from coronavirus. I have been reducing the quantity of short puts that I sell so I will have room to increase my short put selling activity if we see panic in the stock market.
I had booked a 5-week trip to Asia (leaving in about 3 weeks). I had plans to go to Shanghai for a week in March. Today, I cancelled that side trip. It’s unclear at this time if this virus will spread to Thailand, Singapore, and Indonesia (where I’m headed). If things get out of hand maybe I’ll head to South America instead…