Happy Holidays and Some Musings.

Sometimes, I feel like launching my own little company but being inherently lazy, I find it more fun to wager my money on others (with due diligence); companies that are growing incredibly fast and have some hard working CEOs at the helm.

Read this a little slowly and try and see if this perspective helps? I have used this thinking to determine what goes into my portfolio ( specially as we head into 2021).

[ Case Study: ] Let’s imagine that the legendary Saul launched a software service that has taken the world by storm and suddenly millions of users are using his service.

Now let’s try and see what magic Saul did to make his service so successful?

# Saul had an “Aha! moment” and came out with a brilliant idea and patented it ( no one can help you with this except Saul!)

# He hired a few really smart devs ( hope I’m one of them, since he has the resources) to implement his idea.

# The devs wrote the code and deployed the application/service on some public cloud (Azure, AWS, GCP); only a moron would go on-premises!

Saul was thrilled and being an astute businessman with a keen technical inclination asked his devs the following questions…

1. What about Availability and Performance? ?( As he wanted his users to have a great experience on his website and be engaged ); as consumers are really impatient these days!

2. What about Security? (Since he wanted his user data and his own website to be safe and secure.)

3. What about Monitoring? (Since he understands the importance of Monitoring and also that #1 and to some degree #2 are impossible without Monitoring)

4. What about Data Analytics? (Since Saul is smart and understands the value of the telemetry data from his site.)

5. What about Scalability? ( Customers can spike 10x for reasons known and unknown; think covid??)

The reason I illustrate the above “five key areas” is because all software companies that want to be successful have to care about them; there’s no opting out!

… back to the story…

The devs answered Saul’s queries as follow…

1. What about Availability and Performance?
Answer: FSLY, because they are the best in this category. NET was also a great choice and could use them both. (>> sidetracking…in my humble opinion NET has a rockstar CEO while the FSLY CEO fails to inspire.)

2. What about Security?
Answer: CRWD, Best player out there (and probably undisputed) for overall security. No one does Security better than them!

3. What about Monitoring?
Answer: DDOG, Unifies the developers, operations, and security teams into one platform ( and they are just getting started!)

4. What about Data Analytics?
Answer: SNOW, They’re the true Data Cloud and at the same time Cloud agnostic!

5. What about Scalability?
The public cloud providers take a lot of that load and is greatly aided by the CDNs ( FSLY & NET)

SO, WHAT DOES THIS ALL MEAN?

Suppose, let’s imagine that instead of Saul, the business was launched by Bear or muji or some fool like me… What changes?

…Only the business outcome… was that moment of inspiration really a “Aha! moment”? Businesses can go up and can go down “BUT” NOTHING CHANGES as far as the areas we’ve discussed above; which are Availability and Performance, Security, Monitoring, Data Analytics and Scalability.

That’s my “Pick-And-Shovel” play as we’ve already gone past this Paradigm Shift. And the way future businesses are headed. https://discussion.fool.com/paradigm-shift-has-happened-34663619…

If you’ve read this far…

The secondary part of this story is… “What important problem in this world does your application/service solve using software”?

This is where you can dump almost all companies in the market today( financial, health care, business, e-commerce, travel, fitness and whatever you can think of). However, the most important part is that no matter what problems these companies are solving, they HAVE to think about the five key areas above.

Also, did you notice something “very subtle” in that whole story?

Most of the choices were “Developer driven.”. In this age of the cloud, we just cannot ignore the developers ( anyone doing that is missing out the whole story. ). Almost everything that you’re using now ( including reading this page) is in some way dev-driven!

This is the rationale why I’m heading into 2021 in this order>>

(Tier 1: Foundations) CRWD, DDOG, SNOW, FSLY & NET,
(Tier 2: Solving Important Business Problems & built on top of foundations) ZM, DOCU, SHOP, Very small position in some SPACs ( IPOB, MP, INAQ,DM). I sold my PTON position as I needed more cash to increase my CRWD, DDOG positions.

Hope this helped convey my thinking process to some degree and in a small way my give back to this incredible board!

Anyways, the most important part is that this has been a unique year. It’s hard for me to call it good or bad or ugly; depends on the perspective. I once again would like to thank Saul and all of you who contribute to his awesome board! Personally, my portfolio has gained much more this year than I could have ever imagined. It seems almost magical to start the year with ZM and end it with CRWD!!!

At the same time, millions around the world are suffering and let all of us who can, do our little, lend a helping hand to help someone around us.

I’ll be away for a while and wish you all Happy Holidays and a great year ahead!!!

Cheers!

ronjonb

P.S. As I’m getting a little used to twitter I may post some little nothings @cloudandstocks.

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This is the rationale why I am heading into 2021 in this order:

(Tier 1, Foundations) CRWD, DDOG, SNOW, FSLY and NET,
(Tier 2, Solving Important Business Problems and built on top of foundations) ZM, DOCU, SHOP.

Hi Ronjon,

Thanks for all your great posts. I am very similar in how I’m heading into 2021.

Tier 1, (Foundations) CRWD, NET, and DDOG, make up about 72% of my portfolio.

Tier 2, (two stocks of about equal size, make up 17& of my portfolio).
(Solving Important Business Problems), DOCU
(Foundational, but a smaller position than my top three), SNOW

Tier 3, ZM and OKTA, both reduced in size from prior size, make up 11% of my portfolio.

The only significant differences are that you also have FSLY and SHOP, my SNOW position (8.4%) is probably a bit smaller than yours, and I also have Okta.

Best,

Saul

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Ronjob

Just to round out your thesis a little and to put some other companies (back) on the table:

If your development team is of any reasonable size, they will probably be using Jira for development management, if not several other tools from Atlassian (TEAM).

If your product uses telephone-based communications at all, you will probably be working with TWLO.

When the time comes to market your product, you may well jump on the HUBS bandwagon, and you will probably want a support platform such as ZEN (not quite as unique as the other examples, but still very solid).

If the application is an enterprise one, you may well find that your customers want to use OKTA for managing access (in my professional experience, Okta has now become a verb with many companies who talk about ‘Oktifying’ all of their applications).

Cheers

Cham
(based on ongoing experience leading a variety of software companies)

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“What important problem in this world does your application/service solve using software”?

Software does just about everything, software is a brain extender, but Albert Einstein and Richard Feynman didn’t die rich. Big business is about serving big markets with large TAMs with products and services people want to buy and are willing and able to spend money on. That can be food or cars or anything else that “people want to buy and are willing and able to spend money on.”

But the above does not address the secondary market where we put our money to get returns. The industry has to be in the sweet spot of its “S” curve to show maximum growth. There are few companies as successful as Apple and Amazon yet they are not good enough for this board. Fastly has fallen off its pedestal on this board so let me use it for comparison

One year chart: https://softwaretimes.com/pics/fsly-12-19-2020.gif

Louis Navellier uses a system he calls “What is Working on Wall Street Now?” Investing is more complex that just buying good businesses, they have to be in their growth phase and loved by the Street. Like it or not, our fortunes are tied to stocks, not to companies. This is why “value investing” no longer works. In complex systems there are “emerging properties.” The economy – trade – a creates emerging properties called businesses. These businesses create emerging properties called secondary or stock markets. That’s where we, individual investors, play.

Happy Holidays!

Denny Schlesinger

38 Likes

Great thoughts and discussions here…

To add Captain’s point, my perspective is for great investment returns with a growth companies, it is more useful to look for both (1) sustainable, profitable (gross margins) revenue growth AND (2) potential for multiple expansion

Certainly for companies with revenue growing 50%+ rate… specially at >80% rate, your reliance on multiple expansion reduces or even some multiple contraction is ok… and thats exactly whats playing out for many stocks on this board… however, I would argue that a company with more moderate 30% to 50% revenue growth rate but higher multiple expansion has better stock price upside… (and may be lower downside during market gyrations)… ofcoursue if you can find something like CRWD few months back (or LVGO at the beginning of 2020) with both super high revenue growth with multiple expansion potential, it becomes a no-brainer… but those opportunities are less common.

On that note - ronjonb - what is your thought on ESTC.
Peter Offringa of SoftwareStack has very very upbeat analysis of its latest quarter results and raised his outlook (and his personal stake) on ESTC… expecting revenue growth to accelerate in 2021… and plenty of room for multiple expansion (relative to everything else we discuss on this board).

With Sincere thanks to Saul and all contributors on this board.

Happy Holidays to everyone!

nilvest

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about data analytics, why not AYX and SPLK? I get that their growth have slowed but they are also in the midst of a business model turn. Are they too late or could they be a better value than SNOW looking out a year out?

tj

I’m currently on vacation but thought it was important to post this… as many of us are on the same boat!

CRWD is now > 35% position for me ( it has risen and I’ve also added a little recently). As of today, no stock in my portfolio ever exceeded 35%, so this is an exception!!!

How do I feel about it? Well, from an investing standpoint it surely feels a little nervous. However, I decided not to trim CRWD for the following two reasons.

#1. Repercussions of this hack: If you have been following the developments of the SolarWinds hack closely, you probably know that the repercussions of this hack is going to be very broad. My worst nightmare is that, we may hear very frightful news in the next few months of how much information/data has been compromised.

#2. This was a real well planned, patient and stealth operation! Keep in mind that the hackers got into SolarWinds last Oct 2019. They introduced the backdoor into SolarWinds and tested that for months. And finally replaced it with their malicious code in March 2020. And it’s just now that we know about it! Thanks to FireEye!

…So the adversary is there at large and CRWD ( according to what I know) is the only solution to remediate and perform forensics on this right now…

…On a lighter note this also makes me laugh when Jim Cramer and the Cloudflare CEO were discussing this issue a few days back. And Cramer was almost sure that Cloudflare could have prevented this hack and the Cloudflare CEO carefully avoided that question by talking about zero trust :). I wonder what would Cloudflare do with a signed dll?

…Anyways, It is understandable that everyone is trying to take advantage of this situation. However keep in mind that the affected companies are onbaorading CRWD and not NET or any other security company to resolve this issue.

THAT LIST in the original post of how I’m entering 2021 is unchanged. The only exception being that CRWD is a 35% position for me now and I don’t plan to sell a single share as I think that the repercussions of this hack is going to slowly unfold in the next few months.

Going back to basics…Some of you who have read my previous posts on CRWD, since the early days know my conviction about CRWD. This post in May of 2020 talked about CRWDs advantage over MSFT: https://discussion.fool.com/this-is-a-great-point-and-thanks-for…

As a continuation…Since I’m also invested in both FSLY and NET ( and have written in length about both of them on this board), I’m nearing my patience level with FSLY ( just like muji, who I think has already sold out of his FSLY position). My FSLY position is greater than NET and this is what I intend to do…

In the new year ( 1st Quarter, I’ll be building an app. I’ll use both FSLY and NET to build and deploy two versions of this app. ( think like A/B testing). I’m already in touch with the WebAssembly and AssemblyScript folks and hoping to find out first hand how they fare. The reason I’m going to do this is because most of the enterprise devs that I interact with prefer FSLY while most of the free lancers prefer NET. There ought to be a reason for this and I want to find that out by being hands-on! Nothing beats being hands-on!

Just for the records… I’m not just a random person on the internet posing to be a tech guru. I learnt a lot from Saul’s board about investing and am trying to combine that with my tech knowledge to give back a little. FWIW, during my 14 years at MSFT, I’ve shipped almost all versions of Visual Studio and TFS ( from the on-premises versions to the Azure Cloud offerings), Windows 8, the Surface and Xbox Live!

Cheers!

ronjonb

P.S. As I’m getting a little used to twitter I may post some little nothings @cloudandstocks.

101 Likes

Hey ronjonb,

thanks for sharing your thoughts… yes its useful to have that perspective on CRWD… not being a techy, I dont quite understand why CRWD is best positioned, but SWI buying CRWD services says everything to me!!

Looking forward to results of your experiment between FSLY and NET…though I have sold out of FSLY, I am not yet convinced if that was the right move… coming from semiconductor world, I know first hand that performance (speed / latency in this case) of the tech matters a lot… a lot… with increasing AR and VR going forward, FSLY probably has one of the best upside…

Although I like NET with its consistent, solid progress (it is ~5% of my portfolio), I feel that NET share price will not see as much upside as FSLY will in next 12 to 24 months. But I am looking for a proof point to that hypothesis before buying back into FSLY. So look forward to your update.

enjoy your vacation… happy holidays!

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Posted by ronjonb:

CRWD is now > 35% position for me ( it has risen and I’ve also added a little recently). As of today, no stock in my portfolio ever exceeded 35%, so this is an exception!!!

How do I feel about it? Well, from an investing standpoint it surely feels a little nervous. However, I decided not to trim CRWD for the following two reasons.

#1. Repercussions of this hack: If you have been following the developments of the SolarWinds hack closely, you probably know that the repercussions of this hack is going to be very broad. My worst nightmare is that, we may hear very frightful news in the next few months of how much information/data has been compromised.

#2. This was a real well planned, patient and stealth operation! Keep in mind that the hackers got into SolarWinds last Oct 2019. They introduced the backdoor into SolarWinds and tested that for months. And finally replaced it with their malicious code in March 2020. And it’s just now that we know about it! Thanks to FireEye!

…So the adversary is there at large and CRWD ( according to what I know) is the only solution to remediate and perform forensics on this right now…

Thanks for sharing this ronjonb!

I’ve just read that the Sunburst Hackers did try to hack Crowdstrike through Azure but failed. As a result of the difficulty they had investigating this, they developed the Crowdstrike Reporting Tool, and released it for free, to “help organizations quickly and easily review excessive permissions in their Azure AD environments, help determine configuration weaknesses, and provide advice to mitigate risk."

https://www.crowdstrike.com/blog/crowdstrike-launches-free-t…

Crowdstrike is also my highest conviction stock…and had grown to 42% of my holdings. I chickened out yesterday, so now it’s at a mere 26%. One thing I’ve noticed about the companies I’ve learned about via ‘Saul’s Investing Discussions’ board, is that many of them do a lot to help their customers, and so build good will and eventually greater sales. It’s also nice to be invested in a company that is thinking long term enough to do good things, while still making me lots of money.

It’s nice to learn that Crowdstrike was not a victim, and that their response was to help others determine what exposure they might have suffered.

I eagerly look forward to your successful App development, and to learning your Net/Fastly perceptions after personally working with both products.

Best regards and Happy Holidays,
Larry

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