GolfCaddy4PLynch October Portfolio Update

FYI: I am moving my updates to Substack and now calling it Leverage Point. Use this link if you want to read my this with all of the links intact. Let’s just say that the formatting tools on this board leave something to be desired.…

Year To Date Leverage Point Portfolio vs. Benchmarks:
-NASDAQ +21%
-S&P +24%
-Leverage Point Portfolio +129%

I trimmed half of my Asana position on the day they hit a new ATH this month. It was the same day they announced a new set of features they call the Enterprise Work Graph. I wasn’t a fan and didn’t feel it was compelling in comparison to new products from competitors Monday.

While I sat on the cash from the proceeds of that sale I bought and sold tiny small positions in meme stocks (and SOFI) just to entertain myself as I researched new ideas. I had become obsessed with finding something different from the popular set of growth stocks that seem to get all the attention in investment circles. My goal was to find a company that was well-positioned to capitalize on the reopening, increases in holiday spending, and be resilient to supply chain issues.

Added Two New Stocks to the Portfolio
The company that met all my requirements was The RealReal (REAL). A reseller network for luxury products like designer handbags, shoes, jewelry, and watches. What’s different about them is they certify that the products they resell are authentic, not fakes. Something no other reseller market does. My thesis is supply chain constraints will push more shoppers to reseller platforms like eBay, Poshmark, and The RealReal.

The RealReal was hit hard by the pandemic. They closed the few locations they had in key markets and had to lay off staff. But now the business is making a strong comeback as COVID restrictions are lifted and sales pick up. They have ramped up at-home concierge services and opened new locations. Here are some key stats from the last ER:

-GMV of $350 million increased 91% Y/Y and increased 53% over Q2 2019
-Gross profit per order improved $9 Q/Q to $94 per order
-Opened neighborhood stores in Austin, Dallas, and Atlanta in Q2
-Gross Profit of $63.4 million increased 78% Y/Y and 38% compared to Q2 2019

Their full investor presentation from their last ER can be found here.…

Started a 2% Position in Marqueta
They are a newly IPO’d fintech company that provides credit cards technology services. Doordash uses them to process the cards that Dashers use. The stock finally broke out on a lot of positive news, including their partnership with Revenue is growing at a rapid pace (76% YoY in the last quarter). But keep in mind their business model is usage-based.

YTD by Month:
-Jan: +20%
-Feb: +28%
-Mar: +1%
-Apr: +11%
-May +13%
-Jun +33%
-Jul +34%
-Aug +66
-Sep + 99%
-Oct +120%

Core Portfolio Holdings:
-Upstart (UPST) 31%
-Affirm (AFRM) 22%
-Sea (SE) 14%
-Asana (ASAN) 11%
-DataDog (DDOG) 11%
-The RealReal (REAL) 6%
-Marqueta (MQ) 2%
-Cash 3%

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.

The RealReal (REAL)
-What they do: A full-service luxury consumer goods reselling marketplace with both online operations and retail locations in U.S. cities.
-Why I own it: YoY growth and profitability are picking up after a tough 2020 and the reseller model means they are not supply contained this holiday.
-What’s unique about them: They have experts who certify all the goods sold are authentic and take care of fulfillment unlike eBay, Poshmark, etc.
-When would I sell: I want to see both profitability and GMV growth continue, if they slow I would reevaluate if this fits in my portfolio.
-Notable News: I am bullish on the opening of new locations and want to see physical retail expansion continue.

Marqueta (MQ)
-What they do: They offer a set of APIs that make it easy for companies to issue and manage credit cards for a wide range of use cases.
-Why I own it: There is a huge demand in the fintech industry to issue cards and they are the leader in providing solutions to crypto, BNPL, etc.
-What’s unique about them: The credit card system is ancient and still runs on mainframes. It’s a technically complex space with few competitors.
-When would I sell: I want to see total processing volume (TVP) and net revenue continue to grow at over 50%.
-Notable News: They announced partnerships with a few notable companies including, Uber Freight, and Coinbase.

Upstart (UPST)
-What they do: AI-powered lending platform that partners with financial institutions to determine credit worthiness for personal or auto loans.
-Why I own it: YoY growth over 1,000% in the last quarterly ER. The company has huge potential and may someday replace FICO scores.
-What’s unique about them: Technology is far superior to competitors and gives them a competitive advantage over other lending tech.
-When would I sell: Growth could stall out for a variety of reasons in 2022. I am watching marketing costs and the concentration risk with CreditKarma.
-Notable News: They publicly released a version of the auto lending platform which should sustain growth for some time.

Asana (ASAN)
-What they do: Project management and productivity tool for businesses that provide maximum flexibility across multi-team workflows.
-Why I own it: Growth has been accelerating recently with the increased demand for better tools to enable cross-team collaboration with WFH.
-What’s unique about them: They have a flexible product and a strong culture, the CEO maintains a 100% approval rating on GlassDoor.
-When would I sell: I want to see enterprise customers of over $50K continue to grow. If that was to stall or slow down that might be a sign to sell.
-Notable News: They released a new set of features called the Enterprise Work Graph, obviously inspired by Facebook’s social graph.

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 not a partner and offers the ability to use BNPL on all the items in a given e-commerce shopping cart.

Sea (SE)
-What they do: Sea has a unique three-pronged business in digital entertainment, e-commerce, and payments, headquartered in South East Asia.
-Why I own it: They are at the forefront of digital transformation in emerging markets and COVID-19 headwinds will persist globally for a long time.
-What’s unique about them: The entertainment platform is hugely profitable and their tech is optimized for low-end phones popular in emerging markets.
-When would I sell: If the entertainment business hits headwinds that could be problematic as it currently funds expansion. So far, so good.
-Notable News: Announced expansion to Europe and raised additional capital from the sale of bonds to fund expansion, which I like.

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: No significant news announcements since August, stock’s performance has remained steady over the past six months.

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. My goal is to 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 focus (but not exclusively) on SF Bay Area/Silicon Valley companies. 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:
-No Chinese companies: The SEC’s own guidelines say they are limited in their ability to enforce regulations in China.
-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 379%.

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.