GauchoChris update 12/23/2019

I just looked at the Fear/Greed Index:

A year ago there was a big decline in stock prices and the Fear/Greed Index his a low of 2 (out of 100 with zero indicating the most possible fear) on December 24, 2018. Many were scared but some of us used the opportunity to buy. The index is now at 91 (out of 100 with 100 indicating the most possible greed). The difference is striking. A year ago we were on the verge of a bear market (20% decline from the peak) and the decline to reach that ~-20% was very rapid. Today, the major indices are making daily highs. The interesting thing is that a year ago my stocks were down more (from the peak) than the overall market. This made sense to me. Since July 2019, my stocks declined while the market continued its climb. This didn’t make sense to me so in September I deleveraged and took profits on the vast majority of my options positions. I feel more comfortable and feel that things in our stocks have stabilized. In early November I added most of my leverage back (but all in AYX after a great earnings a big stock drop).

When I speak about my stocks, the allocations are:

AYX:  29.5% includes options
MDB:  12.9% 
CRWD: 11.7%
OKTA:  9.5%
TTD:   7.4% includes options
SMAR:  6.4%
ESTC:  6.2%
DDOG:  3.6%
ZM:    3.3%
cash: 10.2%

Monthly Returns:

1/31/2019		26.9%
2/28/2019		39.8%
3/31/2019		57.1%
5/31/2019		53.2%
6/30/2019		72.0%
7/31/2019		86.6%
8/31/2019		83.3%
9/30/2019		40.1%
10/31/2019		32.8%
11/30/2019		58.7%
12/23/2019              43.2%

Weekly Returns:

1/18/2019		23.3%
1/25/2019		25.2%
2/1/2019		27.3%
2/8/2019		30.6%
2/15/2019		31.8%
2/22/2019		38.6%
3/1/2019		35.1%
3/8/2019		30.2%
3/15/2019		44.0%
3/22/2019		49.6%
3/29/2019		49.4%
4/5/2019		43.4%
4/12/2019		49.2%
4/19/2019		40.5%
4/26/2019		54.4%
5/3/2019		57.5%
5/10/2019		54.0%
5/17/2019		60.2%
5/24/2019		54.8%
5/31/2019		53.2%
6/7/2019		73.6%
6/14/2019		75.0%
6/21/2019		79.9%
6/28/2019		72.0%
7/5/2019		80.4%
7/12/2019		86.2%
7/19/2019		92.4%
7/26/2019	       100.0%
8/2/2019		85.6%
8/9/2019		87.3%
8/16/2019		81.4%
8/23/2019		78.5%
8/30/2019		83.3%
9/6/2019		73.3%
9/13/2019		46.3%
9/20/2019		52.8%
9/27/2019		37.6%
10/4/2019		47.5%
10/11/2019		49.0%
10/18/2019		30.2%
10/25/2019		34.2%
11/1/2019		35.2%
11/8/2019		30.0%
11/15/2019		40.4%
11/22/2019		49.0%
11/29/2019		58.7%
12/6/2019		45.9%
12/13/2019		37.2%
12/20/2019		42.1%

Is the high Fear/Greed Index concerning?
Be greedy when others are fearful and be fearful when others are greedy. I don’t feel particularly greedy or fearful at this time. While the market keeps hitting highs, it really doesn’t feel to me that the highs are that high. The market (S&P500) has had a slow ascent and is only about 14% above the January 2018 peak which is about a 7% per year on average. Also, I think that the Fear/Greed needs to be taken with a grain of salt. So were we to see a general market sell-off, it’s unclear to me how the growth stocks would fare; they may not follow the path of the overall market like they did in December 2018.

Fundamentals on track
The most recent earnings results for my stocks were all decent, good, or excellent. As long as the companies keep growing, the stock prices should follow, and the peak multiples that we saw in July need not be re-attained to return to the July portfolio highs. It’s now been 5 months since the peak. My portfolio is currently up 43.2% YTD. The peak was up 100.0% on July 26. For my portfolio to return to the peak, it would need a 40% increase from today. The fundamentals alone (without valuation expansion or contraction) would require another year or so to get there.

Company Results
AYX (29.6%): AYX had a very excellent quarter. Better than I expected and better than I hoped. Revenue growth accelerated to 65% with all other fundamentals on track. Management commentary matches the business fundamentals that I am seeing. TAM is less than 1% penetrated. I can’t find anything wrong with the company. I increased my position to about 34% after I sold out of my PINS (PINS results were disappointing so I exited the next day). I have since reduced it back to about 29% because above a 30% allocation was too high for me. But I did retain upside by adding a bunch of 2022 LEAPs.

MDB (12.9%): MDB was not completely horrible and they delivered about where I expected them to. I expect that we might see some further turbulence from possible growth deceleration (revenue growth will likely dip to the 30%s next quarter) in future quarters. My position is 12.9% and it’s all in a taxable account with my highest cost based shares up more than 80%. If not for taxes, my allocation would be a bit lower (below 10% probably). I remain confident in the long term (along with not waiting to pay any more taxes in for 2019) with TAM less than 1% penetrated. I’m hanging in there. I’d like to see the TTM FCF start to move in the right direction.

CRWD (11.7%): CRWD delivered an amazing quarter. The numbers looked great and the outlook, based on management commentary, looks like growth will continue to be strong. However, the CEO is the rah-rah type so detecting a downturn based on talk may not be so reliable. I see CRWD being in a virtuous cycle situation. More users makes the product better which attracts more users. Is it a winner take most situation where CRWD’s install base creates a moat? I think maybe…the customer growth seems to suggest the this may be the case. I also like that CRWD keeps increasing the number of modules the average customer buys. And the FCF improvement is encouraging. I’m expecting only limited deceleration next quarter. I increased my position substantially. I’ve also been selling put options because I don’t expect too much more downside. Position is 11.7% and I’m comfortable with that level, but I could see myself increasing my allocation even further. Most of my shares are still loaned out to short sellers so I’m generating some income from my CRWD position too.

OKTA (9.5%): OKTA continues to deliver mid to high 40%s growth. I’m happy with my allocation. I’m accepting the lower growth for what I perceive to be OKTA’s dominant market position. Process toward profitability is improving. Competition seems limited. I’m not planning on changing my allocation.

TTD (7.4%): TTD’s numbers were ok. Not that great. Growth has now dropped into the 30%s at 38.2%. The story seems great and specifically the story for 2020 sounds so promising. Is Green lulling us into a false sense of security or will TTD deliver in 2020. I will be looking for a great 2020. I’m not adding or selling any shares at this time. My position is comprised of 5.7% shares and 1.7% Jan21 $130 call options.

SMAR (6.4%): SMAR keeps delivering growth and very consistently. Growth isn’t slowing and guidance looks like the growth will continue at the same level or high next quarter. Particularly strong is the growth in the higher value customers. Big organizations seem to love Smartsheet. I’ve been in the stock because of the growth and plan on continuing holding until I see slowing. I’ve never been convinced that their offering is indispensable but the numbers suggest that customers see lots of value. Profitability is not a priority but mid-50% growth keeps me in it. I’m not planning on adjusting my allocation.

ESTC (6.2%): ESTC’s growth has been stable around 60% for 3 quarters and next quarter’s guidance suggests that this will continue. No complaints there. They are not moving toward profitability. I also see possible cracks in the strategy. As I understand it, ESTC is the leader in logging and they are trying to leverage this to gaining traction in other areas. Is a common stack compelling for a customers when the other these other offerings (i.e. other than their logging product) are not the best? For example, for endpoint protection, why would a customer choose ESTC when CRWD is the best? ESTC seems to be trying to get customers by offering a lower price and a common stack. I’m not convinced that this will work out for ESTC, and could it be a reason why ESTC is not improving its progress toward profitability (i.e. is sales and marketing cost going to be continue to be high because it’s a big effort to gain customers? CRWD seems to be getting customers so effortlessly). This has me questioning whether I should own ESTC. I expect them to easily beat next quarter’s guidance but I wonder whether ESTC will be relevant in the long run. I don’t think their logging product alone will get them where they need to be to show a profit. I’m not planning on adding and may consider reducing my position. I’d love to see some more debate about ESTC…

DDOG (3.6%): DDOG posted a very excellent quarter. Nothing really wrong with it. Growth is still accelerating! Progress toward profitability continues rapidly. I increased my position but I did so a little reluctantly. The reason is the price. It’s so high and I expect that we may well get a lower price when we approach the IPO lockup expiration in March 2020. When I say that they price is high, that comment is based on the most rosy growth and FCF margins that I can imagine. Here is a link to that analysis:…
The growth in stock price would be a nice return at 25%+. But I think there are better alternatives and I think I may get a better price in a couple of months. I may add on weakness.

ZM (3.3%): I bought ZM recently after a great earnings result and a drop in the stock price. The growth numbers and the profitability progress look excellent. I could see myself adding more to ZM.

PINS: I sold my entire PINS position the day after the last quarter result.

Final thoughts
Well, 2019 is almost over and it’s been quite a crazy year. It’s strange to think about how high the portfolio rose through July and how much it dropped since. All in all it was a great year even if it seems a little disappointing after the July highs. Looking back, after 2017 most did not expect another spectacular year. And again after 2018, many people did not expect another spectacular year. What do people think is in store for 2020? I think the tendency is to expect a return to the 2019 high so perhaps, unlike our thinking at the end of 2017 and 2019, we may be expecting a big 2020. Interesting how that works, huh? I’m kind of expecting another great growth year for 2020 and a return to the 2019 high would be a 40% increase in 2020. Anchoring? Maybe. Will the 2020 presidential election cause turbulence? Maybe. Will 2020 finally be the year that FOMO returns? It’s been so long since we had the FOFO that we saw in the late 1990s so it almost seems like we may never see such FOMO again. Maybe the millennials (as a general group) are permanently scarred by 2000/2008. Who knows. Currently, I do not fear a big drop in our stocks (even with the stock market at all time highs) because multiples in our companies have compressed and because the financial results are improving every quarter which will lead to further compression due to business fundamentals growth.

Happy holidays.




Fantastic post. I really enjoyed reading it this morning, and it provoked a lot of thinking. Here are some of my thoughts:

It’s strange to think about how high the portfolio rose through July and how much it dropped since. All in all it was a great year even if it seems a little disappointing after the July highs.

It’s tempting not to really try to learn from our mistakes, because we can never be perfect, and we certainly never know which way the market will go. Still, I remember vividly my thoughts in July. I was a bit nervous at how our stocks were being valued. ZS at a PS of 42, AYX at 28, CRWD at 59, ZM at 72! It’s obvious to look back now and say they were in a mini-bubble. But it was also pretty obvious then! I was holding a huge cash position and using various other methods of trying to risk-off. Perhaps I should have done more. I think if that happens again, I will keep maybe 5% positions in the companies I like the most, even if I think they’re overvalued. But in July I had 8 or 9% positions in AYX at $130+, SMAR at $50+, ESTC at $90+, and TWLO @ $130+. My logic was that they would all be worth more than that in a year’s time. Looking back that seems like a reason to not sell out, but still to reduce a bit more than I did.

That said, I can’t be too hard on myself. I did some of the right things, for sure. I wasn’t carrying oversized positions, and I broadened my scope to some slower growers like DOCU that weren’t flying as high. Here, though, I feel like I made another error: I took some positions in companies I was less confident in that WERE flying high. At least one: EVBG. I’ll try to remember not to branch out unless there is a strong value component in the thesis.

Be greedy when others are fearful and be fearful when others are greedy. I don’t feel particularly greedy or fearful at this time.

I echo this sentiment as well. Even though things are a lot less expensive now, it doesn’t appear to me that many stocks are woefully undervalued. DDOG is an 11 billion dollar company, ZM 19 billion. I can understand where they are. OKTA is 14 billion which seems steep. TTD at 13 billion is starting to look rather expensive again. I don’t own those two, but I pay attention. SHOP also never seemed to drop much, and carries a PS ratio of 31.

This seems like a time to hold most stocks, but not too get excited about great values. I still like MDB, but I don’t see it as undervalued. I’ve reduced my position in it. Same with SMAR. I’ve added a few new positions like SQ and ZM, but they remain small, because the value seems just ok. Even AYX doesn’t seem crazy undervalued. It is by far my top position mostly based on my strong belief that they will continue to kill it the next few years.

The only things that look extremely undervalued to me are CRWD and ESTC. And I think I can see why…CRWD is still suffering from all the post-lockup selling. ESTC seems to be climbing the wall of worry that’s held them back all year. Both are down with almost all companies that aren’t yet profitable. But they, along with AYX, are my top positions. I feel this is opportunistic, but it makes me want to be cautious. And I do wish I saw more clear opportunities than just one ultra-high conviction stock (AYX) and two undervalued ones.

Enough of my rambling. I told you your post was thought provoking! Thanks again!

Everyone have a happy holiday, and thanks for all your contributions to this board! In the new year, I encourage you all to continue to bring your best arguments for growth companies that interest you – there’s no better place I know to throw ideas against the wall and see what sticks!

Bear / Drew


For me the Fear and Greed index has been a fantastic tool for picking bottoms. Last December when it was flashing extreme fear at historic lows I was buying and buying heavier then I’ve ever bought in my 30 plus years of investing.

I can’t say I’ve used it to mark tops though. I sold 50% of my cloud holdings in my tax free account in June/July, not because of what that index was flashing, but because of the rush of overvalued IPOs coming to market and the nose bleed valuations of the cloud names we were all in.

This past October I was watching the index again fall to extreme lows and decided it was time to reenter those cloud positions, building my positions back up to about 75% of what I had. Still holding about 30% now, but did buy more CRWD this morning.

So today we are at extreme greed highs in the index, but I’m not sure that is flashing a top or not. I was told that extreme greed levels can last a long time. In my experience though extreme fear readings don’t last very long and are great times to pick up shares. I’ll go out on a limb and say though that it works out that way in a bull market. In a bear market I’ll bet the opposite happens. That extreme fear levels last for a very long time.