GauchoChris portfolio update 10/31/2020

The big banks and the giant tech companies (AMZN, MSFT, GOOG, AAPL, FB) have already reported their September quarters. Starting with DDOG and LSPD next week, we are about to get results from the portfolio companies with 30Sep ending quarters.

PRIOR PORTFOLIO UPDATES

2021-09-30 Portfolio Update:
https://gauchorico.com/2021-09-30-portfolio-update/

2021-09-03 Portfolio Update:
https://gauchorico.com/2021-09-03-portfolio-update/

2021-08-13 Portfolio Update:
https://gauchorico.com/2021-08-13-portfolio-update/

2021-07-31 Portfolio Update:
https://gauchorico.com/2021-07-31-portfolio-update/

2021-06-30 Portfolio Update:
https://gauchorico.com/2021-06-30-portfolio-update/

2021-06-04 Portfolio Update:
https://gauchorico.com/2021-06-04-portfolio-update/

2021-05-07 Portfolio Update:
https://gauchorico.com/2021-05-07-portfolio-update/

2021-03-31 Portfolio Update:
https://gauchorico.com/2021-03-31-portfolio-update/

2021-02-12 Portfolio Update:
https://gauchorico.com/2021-02-12-portfolio-update/

2021-01-31 Portfolio Update:
https://gauchorico.com/2021-01-31-portfolio-update/

2020-12-31 Portfolio Update:
https://gauchorico.com/2020-12-31-portfolio-update/

All Portfolio Updates:
https://gauchorico.com/category/blog/portfolio-updates/

PORTFOLIO PERFORMANCE


      **GR YTD	 S&P500 YTD**
Jan	 3.1%	-1.0%
Feb	-1.2%	 1.7%
Mar    -13.2%	 6.2%
Apr	-1.5%	11.8%
May    -17.5%	13.3%
Jun     28.0%   15.3%
Jul     33.7%   18.0%
Aug	73.3%   21.7% 
Sep     74.7%   15.9%
Oct    100.8%   24.0%

The GR portfolio continued to rally into October, posting four more all-time highs (ATHs) during the month. These new highs came after seven ATHs in June, six in July, 11 in August, and eight in September. The portfolio’s peak was reached (for now) on 18Oct at +109.2% YTD. The portfolio fell back slightly to close October at +100.8% YTD compared to the S&P 500 Total Return at +24.0%. The GR portfolio’s +76.7% outperformance in 2021 is on top of outperformances in each of 2017, 2018, 2019, and 2020. GR Portfolio’s cumulative return since that start of 2017 is +2479.6% for a CAGR of 94.3% compared to the S&P 500 (TR) cumulative return of +123.0% for a CAGR of 18.1%.

Of course, we know that the market (and any portfolio) cannot continuously go straight up forever. There are occasional big drops, and such drops are likely to be amplified in a concentrated portfolio. They are further amplified in portfolios with leverage. Since I started tracking the peaks and troughs in 2018, the portfolio has seen four major drops of 35% or more. These drops happen periodically in a concentrated, growth portfolio. I wrote about these big drops in a blog post earlier in 2021. The most recent big drop began in February 2021; this drop was relatively short ending by mid-May 2021. No one can know when the next big drop will occur, but I can be all but certain that there will be another big drop at some point. I expect another 35%+ drop within in the next two years, and I’m always prepared (mentally) for a huge drop of 50%+. Again, a concentrated portfolio of high growth companies will have more volatility than a more diversified portfolio with slower growing companies. Volatility comes with the territory when one invests this way.

2021 Notable Days for the Portfolio

Below are some of the notable days in 2021.


**Date	     YTD Change	Notes**
01/27/21	  -2.2%	local bottom
02/05/21	 +12.6%	new ATH
02/08/21	 +14.0%	new ATH
02/09/21	 +16.6%	new ATH
02/10/21	 +16.8%	new ATH
02/11/21	 +17.8%	new ATH
02/12/21	 +18.3%	new ATH (current ATH)
02/25/21	  -3.4%	-6.3% on the day
03/03/21	  -6.3%	-7% on the day
03/04/21	 -13.6%	-9.2% on the day
03/05/21	 -17.1%	-4.1% on the day
03/08/21	 -22.8%	-6.9% on the day
03/09/21	 -11.0%	+15.3% on the day
03/11/21	  -4.3%	+9.6% on the day
03/18/21	 -10.2%	-6.7% on the day
03/24/21	 -15.6%	-8.6% on the day
03/29/21	 -19.0%	close to 3/8/21 trough
03/31/21	 -13.2%	+6.6% on the day
04/13/21	  +4.0%	+8.0% on the day
05/04/21	 -10.9%	-6.1% on the day
05/06/21	 -21.1%	-9.6% on the day
05/07/21	 -17.5%	+4.6% on the day
05/13/21	 -23.5%	new YTD low
05/14/21	 -16.3%	+10.9% on the day
05/20/21	  -5.3%	+7.1% on the day
05/24/21	  -0.1%	7th consecutive up day
06/10/21	 +11.3%	+5.4% on the day
06/17/21	 +19.8%	new ATH (finally!)
06/18/21	 +23.2%	new ATH; +5.1% on the day
06/22/21	 +27.4%	new ATH; +6.2% on the day
06/23/21	 +28.0%	new ATH
06/24/21	 +28.5%	new ATH
06/28/21	 +30.8%	new ATH
06/29/21	 +31.2%	new ATH
07/06/21	 +33.4%	new ATH
07/09/21	 +33.9%	new ATH
07/14/21	 +25.6%	-4.0% on the day
07/22/21	 +34.2%	new ATH
07/23/21	 +36.9%	new ATH
07/26/21	 +37.0%	new ATH
07/28/21	 +37.9%	new ATH
08/04/21	 +41.2%	new ATH
08/05/21	 +49.1%	new ATH
08/12/21	 +51.2%	new ATH
08/13/21	 +55.9%	new ATH
08/23/21	 +56.0%	new ATH
08/24/21	 +65.1%	new ATH; +5.8% on the day
08/25/21	 +66.3%	new ATH
08/26/21	 +68.1%	new ATH
08/27/21	 +72.4%	new ATH
08/30/21	 +73.3%	new ATH
08/31/21	 +73.3%	new ATH (+0.05% from prior day)
09/02/21	 +74.8%	new ATH
09/03/21	 +79.2%	new ATH
09/09/21	 +82.7%	new ATH
09/16/21	 +83.9%	new ATH
09/17/21	 +85.0%	new ATH
09/21/21	 +85.1%	new ATH
09/22/21	 +88.8%	new ATH (lucky Chinese number)
09/23/21	 +92.1%	new ATH
09/28/21	 +75.0%	-5.5% on the day
10/12/21	 +84.1%	+4.5% on the day
10/13/21	 +95.1%	new ATH; +5.9% on the day
10/14/21	+104.1%	new ATH; +4.7% on the day
10/15/21*	+109.2%	new ATH

*2021 portfolio peak (ATH)

Weekly Performance


**DATE	        GR	S&P500	DELTA**
01/08/21	  6.5%	 1.9%	 4.6%
01/15/21	  6.4%	 0.4%	 6.0%
01/22/21	 10.2%	 2.4%	 7.9%
01/29/21	  3.1%	-1.0%	 4.2%
02/05/21	 12.6%	 3.6%	 9.0%
02/12/21	 18.3%	 4.9%	13.3%
02/19/21	 14.2%	 4.2%	10.0%
02/26/21	 -1.2%	 1.7%	-3.0%
03/05/21        -17.1%	 2.6%  -19.7%
03/12/21	 -6.3%	 5.3%  -11.6%
03/19/21	 -7.7%	 4.5%  -12.3%
03/26/21        -15.8%	 6.2%  -22.0%
04/01/21	 -9.5%	 7.4%  -16.9%
04/08/21	 -3.3%	10.4%  -13.6%
04/15/21	  0.0%	11.9%  -11.9%
04/23/21	  3.1%	11.8%   -8.7%
04/30/21	 -1.5%	11.8%  -13.4%
05/07/21        -17.5%	13.3%  -30.7%
05/14/21        -16.3%	11.7%  -28.0%
05/21/21	 -2.4%	11.3%  -13.7%
05/28/21	  3.4%	12.6%	-9.2%
06/04/21	  2.3%	13.3%  -11.1%
06/11/21	 12.6%	13.8%	-1.3%
06/18/21	 23.2%	11.7%	11.5%
06/25/21	 28.0%	14.8%	13.2%
07/02/21	 28.9%	16.7%	12.1%
07/09/21	 33.9%	17.2%	16.6%
07/16/21	 23.8%	16.1%	 7.6%
07/23/21	 36.9%	18.4%	18.5%
07/30/21	 33.7%	18.0%	15.7%
08/06/21	 46.7%	19.1%	27.6%
08/13/21	 55.9%	20.0%	35.9%
08/20/21	 50.2%	19.4%	30.9%
08/27/21	 72.4%	21.2%	51.2%
09/03/21	 79.2%	22.0%	57.3%
09/10/21	 78.3%	19.9%	58.4%
09/17/21	 85.0%	19.3%	65.7%
09/24/21	 88.9%	19.9%	69.0%
10/01/21	 73.5%	17.3%	56.3%
10/08/21	 76.5%	18.2%	58.3%
10/15/21	106.5%	20.4%	86.1%
10/22/21	103.4%	22.4%	81.0%
10/29/21	100.8%	24.0%	76.8%

ALLOCATIONS


TICKER	Oct21	Sep21	Aug21	Jul21	Jun21	May21	Apr21	Mar21	Jan21	Dec20
UPST	**27.4%**	31.1%	22.3%	13.0%	 7.8%	 6.3%	4.4%	 5.7%	 —	 —
DDOG	__15.6%*__	14.9%*	14.4%*	16.4%*	15.7%*	16.7%*	12.0%*	12.9%*	10.7%	10.4%
CRWD	__14.4%*__	12.1%*	18.7%*	19.1%*	19.9%*	20.0%*	30.2%*	27.7%*	31.2%*	31.5%*
LSPD	**11.5%^**	 8.3%^	 9.5%^	11.1%^	11.3%^	12.1%^	13.1%^	13.2%^	 4.8%^	 3.3%
SNOW	 **7.9%**	 5.3%	 5.3%	 6.0%	 5.6%	 6.8%	 6.9%	 3.0%	 0.5%	 —
AFRM	 **7.9%**	 6.5%	 —	 —	 —	 —	 —	 —	 —	 —
MNDY	 **4.7%**	 — 	 —	 —	 —	 —	 —	 —	 —	 —
DOCU	 —	 6.4%	12.5%	13.2%	12.6%*	 6.6%*	5.7%*	 5.6%*	16.2%*	16.4%*
NET	 —	 5.9%	 6.9%	13.4%	15.9%	15.2%	16.6%	15.2%	17.9%*	17.8%*
DCBO	 —	 1.8%	 —	 —	 —	 —	 —	 —	 —	 —
NEM	 —	 1.3%	 —	 —	 —	 —	1.0%	 1.1%	 1.0%	 1.0%
ROKU	 —	 —	 2.7%	 —	 —	 —	 —	 —	 —	 —
GOLD	 —	 —	 1.5%	 2.0%	 2.0%	 2.9%	1.6%	 1.7%	 1.4%	 3.0%
ZM	 —	 —	 2.5%	 5.5%	 5.8%	10.8%*	11.0%*	12.3%*	11.5%	11.0%
PATH	 —	 —	 —	 —	 —	 —	0.1%	 —	 —	 —
PTON	 —	 —	 —	 —	 —	 —	—	 4.0%	 4.0%	 4.2%
BPRMF	 —	 —	 —	 —	 —	 —	—	 1.2%	 1.3%	 1.4%
Cash	**11.1%**	 6.4%	 3.9%	 1.4%	 6.5%	 3.0%	-0.2%	 1.2%	 0.8%	 0.7%
* includes 2023 LEAPS; ^ includes 17Dec call options

Two positions in the portfolio remain leveraged with long-term call options. I have zero CRWD shares; the entire position is comprised of Jan 2023 call options ($170 and $175 strike prices) that were purchased between 5Mar and 3May 2021. The CRWD allocation changes are amplified when CRWD stock moves up or down. The DDOG allocation is comprised of a 14.6% allocation in shares plus a 1.0% allocation in Jan 2023 call options ($65 strike price). The portfolio also contains short-term call options (bets on 30Sep earnings results) on UPST and LSPD. The portfolio contains 17.2% of its value in the form of call options, 71.7% in stock, and 11.1% in cash. In October, I sold four positions (DOCU, NET, DCBO, and NEM) and added one new position (MNDY). The cash position increased primarily due to preparation for an upcoming (non-stock) investment which will cause the cash to fluctuate for the next several months. For people who watch how I’m invested: ignore the cash position for the next few months as it says nothing about my sentiments on the companies that I own.

The allocation table (above) shows how much the portfolio has changed since the end of 2020. There were ten positions that I owned at the end of last year or at some point during 2021 that are no longer in the portfolio. Furthermore, only three of the stocks owned at the end of 2020 are still in the portfolio. Today, the portfolio is down to seven positions, the fewest since the Spring of 2020 when I briefly consolidated the portfolio down to five positions.

PORTFOLIO CHANGES

Changes since 30Sep2021

  • Sold all DOCU shares: Sold all DOCU at various days in October to buy SNOW, LSPD, and MNDY.
  • Sold all NEM shares: Sold all NEM shares to buy MNDY.
  • Sold all DCBO shares: Sold all DCBO shares to buy MNDY.
  • Sold all NET shares: Sold all NET shares to raise cash for a non-stock investment.
  • Added more to SNOW: Added to SNOW position.
  • Bought MNDY: Bought MNDY using proceeds from DOCU, DCBO, and NEM.

CHANGES EXPLAINED

DOCU: In my past several portfolio updates, I wrote how dominant DOCU is, how profitable (cash flow) DOCU is, how DOCU has a great strategy and great vision, and how DOCU still has plenty of room to run within its target markets. So why would I sell DOCU? It really wasn’t an easy choice to let DOCU go. I do still believe all the above about DOCU, and I don’t think that keeping DOCU in the portfolio would have been a poor decision. My portfolio has outperformed for the past five years in large part because I’ve kept my capital invested in what I believed to be the best of the best. This has meant redeploying from good or even great companies to even better companies. It has meant not feeling too attached to the good and great companies and ruthlessly moving the money to the very best. This is what I think I did with DOCU. We’ll see if the decision turns out to be for the better.

NEM: NEM is a gold (and other metals) mining company and was never a growth stock. I had it in the portfolio as a cash substitute and also as a hedge against the very unlikely (unlikely in my opinion) scenario that paper money would become increasingly worthless. In October, I decided to sell it mainly because I wanted to buy a mid-sized position in MNDY. I also didn’t want to pull from my other holdings.

DCBO: DCBO was a trial position in my portfolio. I decided that the risk/reward for MNDY is better than for DCBO.

NET: I started trimming NET a few months ago. I had felt that the stock price and the business results had started become disconnected when NET was over ~$100/sh. The stock price, in my opinion, was overly valuing NET’s revenue growth. The flurry of new product announcements that began in the Fall of 2020 still haven’t shown up in significant revenue growth acceleration. I would expect that this acceleration is still coming and other investors seem to think so too because the stock price’s rise has be relentless. I had slashed my allocation all the way back to 5%, and I really was intent on letting this remaining allocation ride. That was my plan. So why did I sell the rest? It had nothing to do with my desired allocation in NET but rather a life decision unrelated to my stock portfolio. I needed some cash to purchase a non-stock investment. The only long-term holdings in my portfolio were NET and DDOG; yes, all my other positions I’ve held for less than one year! I definitely didn’t want to let any DDOG shares go so NET was my best choice to raise cash.

SNOW: I’ve heard that my decision to own SNOW has baffled some other investors. And adding to my position in October may come as an additional surprise to them. I’ve said before that I own SNOW to a large extent because SNOW benefits from growth in data, and data’s growth is very fast, perhaps limitless. I also own SNOW because of the Company’s efforts with data sharing. I see data sharing as a very strong differentiator, a moat, and a capability that will not only keep customers locked into SNOW but also led to a virtuous cycle of customer adoption. SNOW’s recent progress on data sharing (see remarks during the Q2 earnings call) and the release of data sharing ecosystems within SNOW’s vertical (advertising and media data sharing ecosystem was recently announced with hints of more data sharing ecosystems for SNOW’s other verticals coming soon) are signs that SNOW’s strategy is unfolding nicely. Thus, I’ve added to my allocation.

MNDY: I was at first not interested in MNDY. The company operates in a space that seems less than mission critical than I’d like for an investment. Also, my failure to make much return in SMAR (another company in the space) had me biased against MNDY. SMAR had good growth but wasn’t making progress toward becoming profitable. I took a closer look at MNDY after Saul and some other great investors showed such great enthusiasm for MNDY. Indeed, the hyper growth in revenue, the blistering customer additions (particularly in enterprise), high gross margins, and profitability all line up to make MNDY a likely great investment. I need to thank Saul, StockNovice, Bear, and Ethan for getting me to take a closer look at the Company.

EARNINGS ARE UPON US

Earnings season is back and many companies have already reported their results. Banks have shown that the consumer is very strong, banks are increasingly willing to lend, and consumers are opening their wallets. To me this is a strong signal that consumer spending will be very strong in Q4. People will want to buy things and go on trips, especially after being locked up for most of 2020; I think that people will borrow to do these things even if they don’t have the cash. All of this bodes well for LSPD, AFRM, and UPST. These three positions are tied to what I see as a boom in spending and borrowing that’s probably going to accelerate strongly and stay elevated for some time. Together, UPST, LSPD, and AFRM comprise almost 47% of the portfolio. The rest of the portfolio is comprised of cloud software companies (DDOG, CRWD, SNOW, and MNDY). The 30Sep results from AMZN’s AWS (+39%), MSFT’s Azure (+48% in cc), and GOOG’s GCP (+45%) demonstrated that the digital transformation and the move to the cloud is continuing very strongly. For these behemoths to continue to grow this fast at scale is a strong signal for the smaller cloud software companies to continue their hyper growth. Thus, I think that portfolio’s companies are all well positioned to report another great quarter. It all kicks off next week with LSPD and DDOG.


		**Earnings Date	   Rev Growth Guide (top)**
LSPD		 4Nov (BMO)		
DDOG		 4Nov (AMC)		  60.3%
UPST		 9Nov			229.0%
MNDY		10Nov (BMO)		 76.1%
AFRM		10Nov (AMC)		 43.7%
SNOW		24Nov (or 1Dec)*	 80.3%
CRWD		 1Dec (est)		 57.1%
*Thanksgiving week may delay SNOW earnings by 1 week

EARNINGS OPTIONS BETS

I deleted this section before posting on Saul’s board. If you are interested in seeing my earnings options trades, please see the portfolio update on my website:
https://gauchorico.com/2021-10-31-portfolio-update/

FINAL THOUGHTS

On one hand, it seems crazy that the portfolio has continued to rally into October after great results in June, July, August, and September. This rally actually started in the middle of May so we are well into the sixth month of the rally. I know there will be another big drop at some point (it’s inevitable). On the other hand, I have some reasons for continued optimism (see below).

*Portfolio shift to FinTech: Some may have noticed that a large portion of the GR portfolio is no longer invested in SaaS. UPST and AFRM together comprise more than 35% of the portfolio. These companies, both non-SaaS, are disrupting personal lending (UPST) and the way that consumers pay for goods and services (AFRM). Both companies are operating in target markets that are enormous, yet they have hardly scratched the surface on market penetration (lending products. Thus, they can continue rapid growth without tailwinds. But the tailwinds are getting stronger. The expiration of the PPP government support will push people to borrow for the things that they want. Borrowing to get what you want today has been a long-standing American way of life. This isn’t going to change, and it creates a big tailwind. Meanwhile, banks are loosening up their willingness to lend which enables consumers to borrow. So we have an increased demand for loans along with an increasing willingness by lenders to lend. Prior to September, UPST has been operating in a headwind environment because PPP dampened the demand for personal loans. AFRM also benefits from the phenomenon described above, but AFRM has also been on a tear in signing up new merchants including Walmart (expanded partnership), Target, Home Depot, American Airlines, and others. Leading into the Q4 holiday season, AFRM now has well over $1 trillion in annual consumer spending through its merchant partners. Continued supply chain woes could soften Q4 consumer spending (for hard goods) to some extent, but the President’s focus on alleviating this bottleneck problem will help normalize things sooner. The supply chain clogs are clearly a temporary problem that won’t deter me from investing in companies like AFRM and LSPD.

*Economy reopening continues: Coronavirus cases continue to plummet which will lead to more and more reopening of economies. During the first half of Q3 when the pandemic roared on, sales of products and services were likely lower than they could have been. LSPD could have been (and likely was) negatively affected, but the Company has growth from its acquisitions and from transitioning its customers to Lightspeed Payments. I believe LSPD’s 30Sep quarter will be good enough, and I think Q4 will be particularly promising given that lower COVID-19 cases means more retail and restaurant business activity. The continued reopening should similarly benefit AFRM.

*U.S. fiscal policy: At the start of last week, the prospects and composition of the two large fiscal spending bills seemed quite uncertain. The negotiations between progressive and centrist Democrats continued, and on Thursday, President Biden revealed a new outline that was quite a bombshell. First, it seemed much more clear that finalized legislation for the two packages (now together $2.75T) might soon pass. This realization means that there is a ton of stimulus (in the form of new fiscal spending) coming. Of course, more spending means more growth which is good for stocks in general. Second, the $2.75T in fiscal spending was previously thought to be funded by substantial increases in taxes (corporate, personal income, and capital gains). This was all outlined back on 12Sep. On Thursday, it was revealed by Biden that the additional fiscal spending would be paid for by a 15% corporate minimum tax and a 5% surcharge tax on annual income over $10M (additional 3% surcharge on annual income above $25M). Wow, that’s really benign compared to what was proposed a month earlier. It now seems that the Trump tax cuts are going to be left in place with no increase in the capital gains tax rate which is a big positive for stocks. Finally, since the new spending seems to be entirely paid for by new revenue, fears about additional deficit spending leading to more money printing and inflation have been further alleviated.

That’s it for October. I plan to post the next portfolio update after CRWD reports earnings in the first week of December.

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