My last portfolio update was posted as of January 18, 2019:
https://discussion.fool.com/gauchochris-portfolio-update-11819-3…
Since that update, I have decided to leave my full-time job and I am now living off of my investments. For that reason, I intend to keep a higher cash balance available so that I would not be forced to sell at depressed share prices should we see any future pullback. I expect that his extra cash cushion will lead me to slightly lower returns going forward. I also have much more time to work on my investing!
Portfolio Performance
I am very pleased with my portfolio’s performance so far in 2019.
YTD Month SP500YTD SP500Mo YTD delta Mo delta
Jan19 26.9% 26.9% 8.0% 8.0% 18.9% 18.9%
Feb19 39.5% 9.9% 11.5% 3.2% 28.0% 6.7%
The YTD gain of 39.5% is on top of 2 exceptional years. Here are a few more performance metrics (all are pre-tax):
Gain since 1/1/18: +117.5% (14 months)
Gain since 1/1/17: +251.4% (26 months)
CAGR since 1/1/17: 79%
CAGR since 6/30/17: 98% (maintained for 20 months)
Now these are incredible returns. How can these returns be explained?
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The main factor is that I owned stocks that have risen steeply in price.
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For the most part I’ve minimized losses on stocks that declined. The big drops were my NVDA and NKTR shares. I completely out of NVDA at the end of December. I also closed all of my NKTR call options at the end of December. I put all of those funds into TTD and OKTA which have both risen sharply in the past 2 months.
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I’ve been using an options strategy buying near term expiring puts to buy and accumulate LEAPS (since about April 2017). This has help increase the returns.
Allocations at the end of February
Shares only % gain per % move
TWLO **20.1%** 15.8% 1.4%
AYX **16.7%** 16.7% 1.0%
SQ **14.6%** 12.7% 1.4%
MDB **11.6%** 9.7% 1.5%
NTNX **10.5%** 8.3% 1.7%
TTD **9.0%** 8.0% 1.3%
ZS **8.0%** 8.0% 1.0%
OKTA **2.7%** 2.7% 1.0%
NKTR **1.9%** 1.9% 1.0%
ESTC **0.6%** 0.6% 1.0%
options N/A 11.3%
Cash **4.4%** 4.4%
Recent change to the portfolio (since 1/18/2019):
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I sold a lot more AYX because the position was large and I wanted more of a cash cushion. On 1/18/2019, I had a 23.3% position and now it’s down to 16.7%. Most of the shares that I sold were sold on 2/19/2019. I left some of the proceeds in cash and put some into TWLO.
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I added to TWLO (on 2/19/2019) after they reported great earnings results.
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I sold about 20% of my MDB position on 2/26/2019. I had about a 14-15% position which I pared back to 11.6%. I was not worried about any exodus of customers but I thought that it would be easier for customers to leave MDB than ZS. I also thought that ZS would have better pricing power than MDB.
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I added all the MDB proceeds to ZS on 2/26/2019 (yes, 2 days before earnings).
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I opened an initial, very small position in ESTC on 2/27/2018, and I added to that position on 2/28/2019 (after earnings).
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I closed the vast majority of short put positions that I loaded up on in late December.
And a day goes by…
I made some adjustments on March 1st. Six of my 10 companies reported results this past Wednesday and Thursday. TWLO and TTD reported previously.
Also, my YTD return dropped to +34.8% from +39.5% the previous day. NTNX is the culprit.
NTNX
The big shocker, of course, was NTNX. This is a big disappointment for me as I had thought that NTNX had the best chance to double in 2018 as the hidden growth became clearer. Well, I was wrong it seems. I had a 10.5% position (including my options positions) on Thursday then after the share price dropped by 1/3 my allocation dropped. I want to sell all my shares but only sold about 1/3 so far. I was hoping for a bounce which hasn’t come yet. I am planning on selling my remaining position during March. My current allocation for NTNX is now 5.0%. Of this allocation, 0.9% is in call options.
AYX
AYX reported another great quarter and the future continues to look bright. Unfortunately, I had reduced my position. Yes, 23.3% was too high. I added back some on March 1st . I may add a bit more as I continue to sell more NTNX. My allocation is now 17.5%. I have no call options positions on AYX.
ESTC
ESTC is a new position for me. I bought a tiny amount the day before earnings and then added a bit more after a great earnings and a 10% share price drop. I had previously avoided ESTC because of the high valuation. The growth rate of 70+% got me to take a small position. I am not sure that I will keep ESTC though. While the company’s revenues are growth faster than my other companies, ESTC is burning more cash. I will look more closely at this before deciding whether to hold or sell. I don’t think I will add. ESTC is currently 0.6% of my portfolio. I have no call options positions on ESTC.
SQ
SQ continued to perform well as shown by their Q4 2018 results. It’s cashflow positive and showing earnings. I am not concerned about their spending which seems to have spooked some investors. I like that SQ is being aggressive with new product and service development spending. I don’t intend to sell or add. SQ is 14.3% of my portfolio including the value of the following call options: Jan20 $50 calls, Jan20 $65 calls, and Jan21 $65 calls. The value of my shares is 12.6% of my portfolio and the rest of the allocation is the value of the call options (including in-the-money value and time value).
ZS
ZS reported another monster quarter. I upped my allocation by a fair amount before earnings. I had sold 20% of my MDB shares to buy these extra ZS shares. My rationale was that ZS is growing faster, is showing positive cashflow, and is probably more sticky (customers less likely to switch away) than MDB. The previous allocation that I had in MDB (around 15%) I thought was too high. After the additional share purchase and the increase after earnings, my ZS allocation is now 10.1%. I have no call options on ZS. I like this allocation level and will likely leave it here.
NKTR
NKTR reported earnings on 2/28/19. I pay no attention to the financials of NKTR as long as they have plenty of cash to fund their clinical development programs. Since they got a huge cash infusion from BMS last year, I know they have plenty of cash. No worries there. What I follow about NKTR is their clinical results. More results came out on 3/1/19. This was the initial result from their Phase 1 combo trial with NKTR-262 and NKTR-212. It was only 13 patients, but I saw the results as incredibly positive. These patients were very sick in terms of their disease progression and previous unsuccessful treatment with other therapies. The side effects from the NKTR treatment was not bad so safety looks good. Responses to treatment was good to amazing but can still get better as treatment continues. And dosing is still being worked out and escalated. I am very optimistic about NKTR-214 and now I am also optimistic about NKTR-262 in combo with NKTR-214. It’s a biotech and a risky stock. Lately, I had been considering selling my NKTR to invest in fast growing SaaS companies. But when I looked at the amount of dollars that I already have in these SaaS companies, I changed my mind. The latest clinical results will keep my in the shares. I will keep my 1.8% in NKTR.
So the above companies reported this past week. TTD and TWLO reported previously in February. Let’s look at those.
TWLO
TWLO reported another amazing quarter. Growth continued to accelerate from 68% to 77%. The company said 10% of the growth was “one-time” due to an election and a large amount of one-time spending from a customer. I think it’s likely that we will have future quarters of such “one-time” revenue so I would not completely discount this extra 10% of growth. I am also very optimistic about Flex and future products and services that will continue to drive hyper growth. In contrast to NTNX, TWLO performed and executed very well with lots of new product offerings. NTNX fumbled under similar circumstances. TWLO deserves to be my largest allocation stock. It’s at 21.2% allocation with 16.6% allocation in shares and the rest in calls options: Jan20 $45 calls and Jan20 $65 calls. These calls were purchased with proceeds from selling puts that expired worthless long ago. So the calls were sort of “free”, but I did actually pay to buy them: the $45% calls are up 599% since I bought them last May and the $65 calls are up 322% since I bought them last July. I can’t add any more into TWLO because the position is already so large.
TTD
TTD also reported a great quarter. The business looks solid and the opportunity for growth looks wide open. I had avoided TTD until November 2018. I added a bunch in late December when I sold out of NVDA and my NKTR call options. The reason I had avoided TTD was in part because of my previous negative experience with CRTO, another company that sells digital advertising. I also was wary of Facebook’s and Google’s dominance in online ads. But as I did with OKTA, I looked at the financials and the growth. These trump my other concerns: as long as the company is growing and performing financially I may put aside my qualitative factor concerns. TTD is a 9.2% position. Of that allocation, 1.1% in in the form of Jan21 $130 call options that I purchased in late December (paid for by selling $150 puts which have since expired worthless). I may decide to add a bit to TTD as I sell my NTNX shares.
MDB
MDB has yet to report their latest results (on 3/13/19). Despite the controversy and recent FUD, I am still optimistic about MDB’s future. I really liked brittlerock’s post:
https://discussion.fool.com/saul-glad-to-see-you-changed-your-mi…
Thanks, brittlerock! I think of MDB that way too. The allocation is at 12.4%. Of this allocation, 2.1% is in the form of call options: Jan21 $70 calls and Jan21 $85 calls that were paid for by selling puts that have long since expired. At this time, I am not planning on adding to or selling any of my MDB position.
OKTA
OKTA will report earnings next Thursday. I was wary of OKTA for a long time because I was concerned about their ongoing/future competitive advantage. I finally bought my first shares in late December after they reported another great quarter in November AND after the stock price dropped significantly. I used funds from by NVDA exit and my NKTR call options sales to buy OKTA at about $55-56 per share. I have no options positions on OKTA. I still like ZS better than OKTA because I see ZS as more likely to retain customers far into the future and because ZS is growing a bit faster than OKTA. My allocation is at 2.9%. I’m not planning on selling unless growth slows significantly or unless the company has some major issues. I may consider adding but I’m not sure yet.
So here are my current allocations (as of March 1, 2019) with possible future plans listed:
TWLO 21.2% no changes planned
AYX 17.5% may add some shares back
SQ 14.3% no changes planned
MDB 12.4% no changes planned
ZS 10.1% no changes planned
TTD 9.2% may add some shares
NTNX 5.0% planning on selling
OKTA 2.9% no changes planned
NKTR 1.8% no changes planned
ESTC 0.6% trial position
TEAM 0.0% on my list to evaluate
cash 5.1% may increase cash more
Other thoughts
The SaaS growth continues in full swing. Stocks are flying up but this is being supported by the continue results in revenue growth. Investors still fear the market which is a good sign for future growth. It also seems like the trade talks may soon have a good outcome. Overall, I remain optimistic, but since I now rely on my investments to fund my life, I need to be a little more conservative. For me this means, keeping enough of a cash cushion to fund my expenses for an extended period. I have also slowed down my put selling efforts and call option accumulation. If we see a major pullback, I’ll probably take advantage again.
Chris