This won’t be a long post. I have made a few changes so I thought I’d give an update.
DATE YTD 1mo YTD_S&P 1mo_S&P YTD diff Jan18 25.60% 25.60% 4.90% 4.90% 20.70% Feb18 37.40% 9.40% 1.00% -3.70% 36.50% Mar18 40.70% 2.40% -1.60% -2.50% 42.30% Apr18 41.00% 0.20% -1.20% 0.40% 42.30% May18 55.80% 10.40% 1.20% 2.40% 54.60% Jun18 52.30% -2.20% 2.00% 0.80% 50.40% Jul18 51.10% -0.80% 5.60% 3.60% 45.50% Aug18 104.80% 35.50% 9.00% 3.30% 95.80% Sep18 93.40% -5.60% 9.60% 0.60% 83.70% high on 9/4: +111.9% Oct18 62.90% -15.80% 2.20% -6.80% 60.80% **Nov18 70.50% 4.70% 4.20% 2.00% 66.30%**
I ended November up 70.5%. After an incredible August, the volatility started. On 2 occasions my portfolio dipped sharply: on 10/24 the portfolio was +40% YTD before rebounding up and then on 11/20 the portfolio dipped to +41% before rebounding. From then end of Nov, the portfolio needs to increase 24% to match the YTD peak of +111.9% on September 4. This could actually happen quite quickly…we will see…
Shares S+O 11/2/2018 (S+O) AYX 21.56% **21.56%** 1.00% 19.02% TWLO 14.22% **18.06%** 1.49% 13.91% SQ 13.54% **14.67%** 1.30% 15.39% MDB 12.54% **13.42%** 1.19% 11.12% NTNX 8.14% **10.58%** 1.79% 13.44% ZS 6.92% **6.92%** 1.00% 7.75% TTD 4.39% **4.39%** 1.00% 0.00% NVDA 1.08% **3.51%** 9.89% 17.55% NKTR 2.37% **3.40%** 2.25% 2.13% PSTG **0.00%** 0.83% options 10.72% 10.18% cash 3.93% **3.93%** 0.38%
Well, my recent shifts to NVDA didn’t work out so well. As I mentioned previously, I shift a lot to NVDA, about doubling my position prior to the earnings. I previously discussed why I sold most of my NVDA after earnings so I won’t repeat that here. The damage was not the terrible though.
My overall options position is not much changed from the prior month. I still own call options in NTNX, NVDA, TWLO, SQ, MDB, and NKTR. I some trading in short puts moving these to positions that have underlying stocks that I think will move in the near term. I moved them to TWLO ($80 puts: now closed after the earnings came out), SQ ($75 puts: may close out this coming Friday), MDB ($80 and $85 puts: will probably close them after earnings this week), AYX ($60 puts: will close soon).
Other changes that I made in November were the following:
- raised cash to pay my taxes in April
- realized losses to reduce my tax bill due in April
- sold the rest of my PSTG
- sold some more NTNX (in the beginning of the month, prior to earnings)
- reduced leverage
- started a position in TTD
Top conviction stocks are still AYX, TWLO, and SQ. Their financial metrics are improving and accelerating. They all have strong competitive advantages which is an essential reason for my conviction. They all have very strong customer count growth.
MDB is also a high conviction stock for the same reasons as my top conviction stocks. I have most of my short puts currently on MDB and will probably close out those on Thursday which is the first trading day after earnings get released on Tuesday (Bush’s day of mourning will be the market is closed on Wednesday).
I reduced both my shares and call options on NTNX prior to earnings. I am comfortable with all the financials, the growth, the NPS, the way they report, etc. The only reason I reduced is because they are in a duopoly with VMWare. The business results so far suggest that these two companies can co-exist without affect pricing and margins. This is probably because there are high barriers for their customers to switch from one to the other. However, there is a strong competitor which is not the case for TWLO, AYX, and SQ (the ecosystem makes switching away from SQ not very easy). Anyway, I now have reduced my NTNX allocation by about 60-65% over the past couple of months. I don’t think I will reduce it further because I still believe that we have a hidden value situation that will be revealed in about 9 months.
Next is ZS which was quite highly valued by has since come down. I will closely watch their revenue growth rate when they report earnings on Tuesday. I like their competitive position and their growth rate.
TTD is a new position that I picked up recently when the stock price dropped. I got in below $120 based really only on the high conviction of Saul and Ticker (and the steep drop in share price). Since I haven’t yet had time to do my own research, I’m keep the allocation under 5%. After I get the time to dig into TTD, I will consider changing my allocation.
Most of my NVDA exposure is now through 2021 call options. Maybe I shouldn’t keep these options and they would probably do better in other stocks like my top 4 positions (AYX, TWLO, SQ, and MDB), but following NVDA has become a hobby and I like rooting for them. Despite my love affair with NVDA, I do still believe it will outperform the market.
NKTR is another company that I like to root for. I think they will become a big biotech or be acquired for at least 2-3x of the current price. I continue to see progress with new partnerships, clinical data, and new clinical trials. Pfizer’s clinical collaboration and PFE’s willingness to cover the cost of the combo therapy trials says a lot to me. I still believe that NKTR-214 will be a big blockbuster. I think that NKTR-262 could also become a very important contributor to value. But I keep my position small because of the uncertainly of timing and trials (and because I see my other companies’ future success as more certain).
The following is off topic so please don’t respond to these comments:
Looking ahead, I still think that Q4 2018 will be a big spending quarter for CapEx which may mean a very strong quarter that gets reported starting in the 3rd week of January. I now question, what will happen after Q4 and how will 2019 look. While I think that all my companies are well positioned to continue their very high revenue growth (regardless of any recession), I am starting to wonder when the next recession will hit. One can never be certain. I will continue to reduce my leverage but if we see more of these correction, I will probably add it back as I have been doing. These pullbacks have been quite good to me and have helped compensate from my recent NVDA losses. Going into December, I am optimistic about overall market action because the Fed seems to be more prudent in its rhetoric. There also seems to be relief from Trump/Xi in their willingness to move trade talks in the direction of a resolution. I think that the market will like all of this so December might be a very positive month…but again, no one can know for sure.