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%
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%
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.
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.
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.