GolfCaddy4PLynch EOY Portfolio Update

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Year To Date Leverage Point Portfolio vs. Benchmarks:
-NASDAQ +23%
-S&P +28%
-Leverage Point Portfolio +63%

What a crazy year.

My portfolio was up +143% at its peak on November 4. Then it tumbled to +49% on December 13. In six weeks it was down -39% from the ATH. Ouch. But, I managed to finish this year up +63%, more than double the performance of the S&P.

What did I learn this year? Well, obviously I should have sold more at the top.

I tell myself this in every drawdown. The good news is, I am getting better at portfolio management and taking profits when the market is at a near-term peak, but it’s hard. I never want to sell at the time. Just like buying when the market is in decline.

Bye Bye Upstart and Asana
I sold the remaining position I had in Upstart (UPST) when it bounced more than +15% in one day. Upstart may skyrocket when they report earnings in 2022, or it may not. I have no idea. It’s a roll of the dice at this point, and I felt that it was distracting me from my other investments.

I sold completely out of Asana. Why? Their growth is slowing, I don’t like their product roadmap, and I wanted to reallocate to their smaller and faster-growing competitor, Monday (MNDY).

Say Hello Snowflake
With valuations now at more reasonable levels, I resisted the temptation to bottom fish, the strategy du jour. I saw the supposed ‘shopping lists’ circulating on Twitter detailing the drawdowns of trendy stocks that got crushed in the selloff. In my opinion, those are not shopping lists. They are the stocks to avoid. I don’t see a stock like Peloton (PTON) reaching its ATH for years, if ever.

When searching for quality the obvious choice was Snowflake (SNOW). The stock is down only -16% from its ATH in November.

If you’ve been living under a rock and don’t know much about Snowflake (SNOW) here is a quick primer.

Snowflake is a data warehouse platform that sits on top of the three major cloud services from Amazon, Microsoft, and Google. Snowflake describes its service as an ‘elastic performance engine’. Once you’re set up, a Snowflake customer doesn’t need to do a lot of work to scale their systems across these platforms. This is huge. The operational overhead required to manage data in the cloud is significant. For most companies, it’s an area that is hard to staff and is not a competitive advantage. If you want more details on how the service works, there are plenty of write-ups out there like this one from Public Comps.

Here are select stats from their latest quarterly ER:
-Product revenue of $312.5 million, representing 110% YoY growth.
-5,416 total customers.
-Net revenue retention rate of 173%.
-148 customers with trailing 12-month product revenue greater than $1 million.

And if you don’t know, now you know:
-Warren Buffett’s Berkshire Hathaway invested $735 million in Snowflake when the cloud-data platform went public in September.
-Snowflake has set a target of reaching $10 billion in annual product revenue by fiscal 2029.

I Can’t Stay Away from SoFi

Yes, I have been in and out of this a few times. There are two catalysts that I think will drive this higher in 2022:

SoFi has applied for a national bank charter and it’s on track for approval by regulators, hopefully in early 2022. You can read more here.

Biden extended the pause on student loan repayment through May 1, and that is when their student loan refinance business will take off.

This is a high-growth company with a great consumer brand and a lot of room to scale. The membership model is compelling and I think their new app is excellent. With the demise of trading pure-plays like Robinhood, I think there is a large cohort of people looking for a more trustworthy alternative like SoFi. While not growing as fast as other companies in my portfolio, they have been profitable on an EBITDA basis for the past five quarters.

Here are select stats from their latest quarterly ER:
-Added 377,000 New Members, Second-Highest Quarterly Increase in History.
-Total membership is 2,937,000.
-Record Adjusted Net Revenue of $277M (28% YoY Growth) and 5th consecutive quarter of positive Adjusted EBITDA of $10M.
-Expect to deliver $1.002-$1.012B in adjusted net revenue, exceeding our original 2021 full-year guidance of $980M.

If you’re like me, you constantly have to watch ads on YouTube all the time. If you’ve never seen those ads? let me quickly explain what Monday is.

Monday offers a cloud-based office productivity suite that includes project management software and other applications like Workdocs, that are optimized for remote work. Their number one competitor is Asana, but Monday has branched out into other areas that Asan doesn’t cover.

The company is growing rapidly and has maintained 80%+ revenue growth over the past three quarters. With the return to the office now pushed back yet again, I expect the adoption of tools like this to continue to accelerate well into 2022. There was a lot of criticism when Monday went IPO about losses. But as you can see below they continue to shrink the losses as they scale, which is what one would expect with a successful Sass business at this stage.

Here are select stats from their latest ER:
-Revenue was $83.0 million, an increase of 95% year-over-year.
-GAAP operating loss was $29.2 million compared to a loss of $40.6 million, in the third quarter of 2020; GAAP operating margin was negative 35%, compared to negative 95% in the third quarter of 2020.
-Our net dollar retention rate for customers with more than 10 users was over 130%.
-The number of paid enterprise customers with more than $50,000 in annual recurring revenue was 613, up 231% from 185, in the third quarter of 2020.

Leverage Point Portfolio YTD by Month:
Jan: +20%
Feb: +28%
Mar: +1%
Apr: +11%
May +13%
Jun +33%
Jul +34%
Aug +66
Sep +99%
Oct +120%
Nov +97%
Dec +65%

Core Portfolio Holdings:
DDOG 26%
REAL 18%
AFRM 12%
MNDY 11%
SNOW 11%

Summary of Investment Thesis by Company

Below is a concise summary of each company and why they are in my portfolio, in my own words. No corporate jibber-jabber, or regurgitating of marketing.

What they do: Consumer fintech company that offers a full suite of digital-first banking services including student loan refinancing and stock investing.
Why I own it: Profitable on an EBITDA basis and they continue to scale member growth at over 90% YoY for the past four quarters.
What’s unique about them: The membership model is compelling as it should reduce churn and increase LTV.
When would I sell: If customer acquisition slows for any reason it would be problematic for the stock. I want to see it stay at 60% to 70% or more YoY.
Notable News: Still waiting on bank charter approval which should lower operational overhead and increase profitability.

*NEW Monday (MNDY)
What they do: Cloud-based office productivity suite that includes project management software optimized for remote work.
Why I own it: Sustained revenue growth at over 80% for the past three quarters and a steady increase in customers spending over $50K.
What’s unique about them: Others have a similar vision but Monday executes extremely well and is able to roll out new product functionality fast.
When would I sell: If growth in customers spending over $50K was too slow significantly I would be concerned.
Notable News: The launch of Workdocs was the most significant product announcement Monday made in 2021.

*NEW Snowflake (SNOW)
What they do: Cross-cloud data warehouse services that make it easy for companies to manage large-scale datasets with less overhead.
Why I own it: They are on track to meet their goal to grow to $10 billion in annual product revenue by fiscal 2029.
What’s unique about them: Snowflake’s success as a cross-cloud tool has a network effect that drives more developers and partners to the platform.
When would I sell: The company remains richly valued and while the growth is tremendous, the stock may languish.
Notable News: The announcement regarding their Media Data Cloud is an interesting example of Snowflake’s ability to aggregate key partners.

Amplitude (AMPL)
What they do: Enterprise-grade product analytics system that is used to optimize and improve the full user experience.
Why I own it: Guiding for 40% growth for 2022 and expect them to exceed that given their confidence in closing $1M+ customers.
What’s unique about them: They provide recommendations that make analytics actionable. This is the real reason anyone cares about analytics.
When would I sell: If customer acquisition slows for any reason it would be problematic for the stock, particularly whales.
Notable News: Opening a data center in Europe is interesting and to me signals they are in the process of adding a bit European customer.

What they do: A full suite of tools to manage and grow organic traffic to a website across a variety of search engines.
Why I own it: Steady growth is just under 50% and I think there is potential to accelerate as more marketers adopt search in 2022.
What’s unique about them: No competitor offers the full suite of tools in one package and a competitive price point like SEMRush.
When would I sell: It’s possible that growth slows as adding new customers in 2022 gets harder as they increase market share.
Notable News: They launched an App Center that allows other third-party integration to market their tools to SEMRush customers.

Affirm (AFRM)
What they do: Affirm is the market leader in BNPL (Buy Now Pay Later), an alternative to credit cards with better rates and instant approval at checkout.
Why I own it: Massive growth from recently closed partnerships with all major U.S. e-commerce players including Shopify, Amazon, Walmart, and Target.
What’s unique about them: Technology is superior to competitors and the pipeline of product updates is strong most notably Affirm Card offers.
When would I sell: I am closely following active customers and the average number of purchases. I want to see those two grow substantially.
Notable News: Announced Target is now a partner and offers the ability to use BNPL on all the items in a given e-commerce shopping cart.

DataDog (DDOG)
What they do: Observability platform for engineers to monitor systems, databases, and other technologies to get data to improve performance.
Why I own it: Core infrastructure data products like this have high switching costs and once implemented rarely are removed.
What’s unique about them: With more than 350+ integration options competitors don’t seem to be able to offer the same level of extensibility.
When would I sell: The company is now approaching a $50B market cap and that could just make hyper-growth harder to sustain.
Notable News: There is a great post here on Software Stack Investing detailing all the new updates and features.

About Me
I have worked in internet media and technology on the business side my entire career. I live in the SF Bay Area and focus on investing in what I know, high-tech growth companies. I try my best to stay in my circle of competence.

Investing Style
I like to buy small positions, this gets me focused to learn about a company. Then I sell, or I add to it over time in small increments depending on a variety of factors. Some positions I hold for years, others for only a few months. My goal is CAGR. Not 10-baggers and I try hard not to fall in love with a stock. My aim is to maximize my returns and I have no allegiance to any particular method or style of approach.

My portfolio is concentrated and I aim to hold a maximum of 10 stocks at the same time. The fewer the better. I consolidate around my highest conviction picks while looking for new opportunities to cycle into.

I sell on a dime. Which is a massive advantage of retail investing. If there is something I don’t like, I don’t take any chances and I just sell. This is why I take a small position at first and test drive my ideas. If for whatever reason I change my mind, I just take the loss (or gain) and move on. Sometimes, I just decide I want more cash for peace of mind and sell. I can always get back in at a later date if I want.

I have an obvious bias to SF Bay Area high-tech companies and for good reason, it’s an ecosystem that I know well and like. I think it gives me a slight edge, beyond the numbers when investing.

Things I look for in a business to invest are:
Sustainable competitive advantage: This can be superior technology, but it can also be brand, business strategy, or even company culture.
Massive growth runway: The companies I like to invest in have a large total addressable market (TAM) and no obvious ceiling or limit.
Great management with a clear vision: While not exclusively founders, I like management with a track record who can clearly articulate their vision.
Are in hyper-growth mode: Revenue should be growing at least 50% YoY and can be sustained. If it can accelerate, that’s even better.
I have unique insights into it: I look for businesses that I have a personal connection with. Maybe a product I use? Or management I have met and liked.
A business vertical I know well: I focus on businesses and eco-systems I understand intimately and it’s why I have avoided areas like biotech.

And what I avoid:
*NEW No open-source companies: I think the open-source model is flawed when it comes to building a strong scalable business.
No Chinese companies: The SEC’s own guidelines say they are limited in their ability to enforce regulations in China.
No penny stocks: I avoid companies that are under $1B in market cap. Those stocks are too easy to manipulate given the low volume and float.
No stocks on non-U.S. exchanges: Maybe I just haven’t found the right pick, but in general, I avoid foreign listing as they are harder to manage.

Overall Returns Since February 2020
Portfolio returns since I started closely tracking it in February 2020 is 241%.

This post is simply an end-of-month summary. Positions can change immediately. With or without notice. Do not make decisions based solely on my writings. Do your own due diligence and make your own investment decisions. Rember that predictions are hard to make, particularly when they are about the future.