Here it is early! The end of the month summary!

Well I’m going to give my April summary a few days early for two reasons, first because it’s easier to do on the weekend than on a weekday when April actually ends, and since we are in earnings season, to avoid any confusion as to what stocks I’m in, as when someone asked yesterday if I was still in UBNT.

Here’s the summary of my positions as of April 25th.

So far, I’m up 20.0% on the year. The S&P 500 is up 2.9%, so I’m ahead of the S&P by 17.1% after almost four months. Here are my current positions:

My big four from last month are still my biggest positions. I had trimmed SWKS in March when it went over 15%, then again when it went over 16%, and bought some back in a big decline, and had to sell again when it bounced all the way back because my new purchases would have made me over 17%. This month I trimmed a little more to keep it from going too much above 16%, and in the last few days it fell below 15%. This is all totally just adjusting around the edges of my position, dropping the position size from 16.4% down to 15.8%, etc, trying to keep an oversize position from getting completely out of hand. It’s not a significant change in the position. Here they are with their percentage of my portfolio, trailing PE, and percent growth of ttm earnings.

SWKS at 14.7% - trailing PE is 24 - ttm earnings growth is 64%
SKX at 14.4% - trailing PE is 25 - ttm earnings growth is 132%
BOFI at 13.8 % - trailing PE is 20 - ttm earnings growth is 39%
CELG at 10.9% - trailing PE is 32 - ttm earnings growth is 18.5%

SKX has continued to move up in the positions, and passed BOFI in the past few days with its 20% rise after earnings, helped also when I added to my position just before earnings when I saw how low the 1YPEG was. CELG is at a PE over 30, and at a high 1YPEG, so I trimmed it several times in March to keep it from getting too big a position. I didn’t trim any this month.

Note the following:
My big four now make up about 54% of my total portfolio. This is up a little from 53% a month ago and 50% two months ago, in spite of my trimming. They are high conviction though, and this percent doesn’t bother me.
They are in four entirely different fields: microchips, banking, retail clothing, biopharmaceutical. This wasn’t by design, but it sure spreads the risk.
Their average trailing PE is 25.5, which is fine with me.
Their average rate of growth of ttm EPS is about 63.4%, which is even better.

Next we have CRTO which is aspiring to turn it into the big five, largely because I’ve been adding to my position on seeing how tiny its 1YPEG is.

CRTO at 8.2% - trailing PE is 47 - ttm earnings growth is 325% (yes, you read that right!)

Now we drop down again to my middle-size positions, ranging in size from 6.3% to 4.3%, in this order.


XPO and WAB haven’t changed position. I’ve sold AIOCF. It’s hard to say why. I needed cash, and AIOCF was complicated in a lot of ways by being in Canadian dollars, and I sold it. AMBA was in this group last month but I’ve trimmed it because of extreme reliance on two customers for 88% of its revenue, and loads of insider selling. Right now their business is doing gangbusters though, and it’s still a small position. EPAM and SNCR moved up from small positions to middle size ones.

My small positions, running from 2.9% to 2.2%, are


UBNT is gone for all the reasons that have been discussed at length on the board. POL was added back. I have no tiny positions at present, although I experimented with MIDD during the month but decided I had better places for my money.

Since I began in 1989, my entire position has grown to 295.7 times what I started with. That’s not 295.7%. It’s 295.7 times! Basically a 296-bagger on the entire position, not on any one stock, but on the entire position. That’s the power of compounding an average 30% growth annually, and that’s what investing is all about. Not holding on to individual stocks forever so you can eventually say you have a 10-bagger or a 20-bagger in an individual stock while large numbers of your companies have gone to hell and you are still holding on to them. Or hanging on to what once was a great stock even after it has flattened out, so you can still brag that you have a 30-bagger in your portfolio! Right now, I don’t have more than a two-bagger on any of my current stocks, but who cares? It’s what my entire portfolio has done that counts.

You may wonder “How is that possible? Even Buffet doesn’t make 30% compounded.” But Buffet was managing tens and hundreds of billions of dollars. It’s like maneuvering a battleship instead of a speed boat. Or one of those super oil tankers that is three football fields long. Buffet had to buy whole companies, for gosh sake. And he never invested in any technology companies. And mutual fund managers who do well one year have money pour in, and the next year they have to manage ten times as much money, which is a whole new ballgame. And they also have all kinds of restrictions on what they can and can’t buy. I had a lot of advantages.

If you are new to the board and want to find out how I did it, and how you can do it yourself, I’d suggest you read posts #4 through #8 at the beginning of the board, and especially the FAQ/Knowledgebase that Neil keeps for us, currently post #7062, which is a compilation of words of wisdom. There are just a few things I might change now. I said that 25 to 28 stocks were the most you should try to keep track of, but I have cut that down now for myself to 15 to 20. I currently have 15. That means that my biggest positions are bigger (and my smaller ones too) and it lets me concentrate more in my highest conviction stocks. I also have made a major effort to eliminate or reduce my positions in illiquid stocks. For example, I’ve kept INBK a small position because it is illiquid.

Hope this has been helpful.



End of the month summary: Saul kicked butt lol :slight_smile:


Imagine if Saul was into options. Holy Cow!!
Thank you so much Saul for taking your time to educate, amuse and share with each of us.




You said: AMBA was in this group last month but I’ve trimmed it because of extreme reliance on two customers for 88% of its revenue.

A recent Seeking Alpha short article also made this claim:

For the quarter ended January 31st 2015, two customers accounted for 88% of Ambarella’s revenue. These customers are Wintech Microelectronics and Chicony Electronics Co., Ltd.…

More recently this statement has been repeated in other parts of Fooldom (by some fairly well known Fools, and now you!) and characterized as a “customer concentration risk.” In fact, the short’s statement is incorrect, as are any claims that just two customers represent 88% of AMBA’s revenue.

Let me try to explain why.

AMBA is a chip developer with 524 employees, 70% work in Research & Development (R&D). The company employs a fabless manufacturing strategy, meaning they contract with other companies who actually make the chips. In much the same way, AMBA works with a logistics provider, Wintech Microelectronic, to sell almost 60% of its chips in parts of Asia. Wintech works as AMBA’s sales representative. Here is how AMBA describes its relationship with Wintech in its recent 10K (pg 22):

We sell most of our solutions through a single logistics provider, Wintech Microelectronics Co., Ltd., or Wintech, which serves as our non-exclusive sales representative in Asia, other than Japan. Approximately 57%, 56% and 63% of our revenue was derived from sales through Wintech for the fiscal years ended January 31, 2015, 2014 and 2013, respectively. We anticipate that a significant portion of our revenue will continue to be derived from sales through Wintech in the foreseeable future.

Wintech by definition is not a “customer” of AMBA, they are AMBA’s sales representative and logistics provider. They help manage the flow of chips from the company, its contract manufacturers and the end users (i.e. the customers). As such, I do not believe they have pricing leverage over AMBA.

AMBA has two types of customers: Original Design Manufacturers (ODMs) and Original Equipment Manufacturers (OEMs). Here are the details regarding these customers, again from the company’s most recent 10K:

We sell our solutions to leading original design manufacturers, or ODMs, and original equipment manufacturers, or OEMs, globally. We refer to ODMs as our customers and OEMs as our end customers, except as otherwise indicated or as the context otherwise requires. In the camera market, our video processing solutions are designed into products from leading OEMs including Axis Communications AB, Dahua Technology Co., Ltd., GoPro Inc., Hikvision Digital Technology Co., and Robert Bosch GmbH and affiliated entities, who source our solutions from ODMs including Asia Optical Co. Inc., Chicony Electronics Co., Ltd., DigiLife Technologies Co., San Jet Technology Corp., and Sky Light Digital Ltd. In the infrastructure market, our solutions are designed into products from leading OEMs including Harmonic Inc., Motorola Mobility, Inc. (owned by Arris Group, Inc.) and Telefonaktiebolaget LM Ericsson, who source our solutions from leading ODMs such as Plexus Corp.

Chicony is an ODM customer of AMBA. They use AMBA Chips to manufacture cameras for GoPro. Another ODM that uses AMBA chips to make GoPRo Cameras is Sky Light Digital. How do I know that? I checked GoPro’s most recent 10K, here is what it says (pg. 18):

We do not have internal manufacturing capabilities and for 2014 relied on various contract manufacturers, including Chicony Electronics Co. Ltd. and Sky Light Digital Limited/Sky Light Industrial Limited, to manufacture our products.

So if Wintech, who is not a customer of AMBA, represents 60% of the revenue erroneously referred to by the short as sales to a “customer” than that leaves 20% for Chicony, an actual customer of AMBA. But even that number is suspect since GoPro identifies two ODMs that make GoPro cameras. AMBA also identifies Sky Light as an ODM customer. This means that AMBA is not relying on just one manufacturer to use its chips in GoPro cameras. What percent of revenue Chicony represents actually is not clear, but it is likely somewhere around 20%.

Chicony, as an ODM, is not likely to have pricing power with AMBA. AMBA works with ODMs, like Chicony, because they play an important role in providing an efficient link between AMBA and its end customers, like GoPro. Ultimately, it is the end customers who have almost all of the leverage in pricing. And that brings us back to where I started this post: AMBA’s business strategy is to counter this leverage by developing chips that are far superior to others on the market. It invest a significant portion of revenue to stay ahead of the competition through research and development (R & D). That’s why 70% of the 524 actual AMBA employees are in R & D and why the company spent 27% pf its revenue on R&D last year.

Customer concentration may be an issue for AMBA but not through its relationship with Wintech and Chicony, but rather through its reliance on GoPro. All AMBA investors should keep a close eye on the fact that AMBA currently generates about 35%-40% of it’s revenues from sports cameras sold largely by GoPro. That is a issue that needs constant attention, if GoPro sales decline, AMBA revenues will follow suit. If GoPro starts to squeeze AMBA on price and affects margins, that’ll be problem too.

Finally, AMBA will need to continue to diversify its revenues streams in the growing IP Security Camera market, with auto manufacturers (mirrorless cars), with after market car cameras and with cameras on drones. Currently IP Security is a growing area of business for AMBA (altho margins not as good as GoPro), drones and mirrorless cars are markets that could take years to fully develop.

Best, Swift…


Great post Swift on Ambarella. I didn’t reduce my position because of a Seeking Alpha short article, but because a MF paid service recommended reducing by a third after a long 40 post discussion by the people running the service. Your explanation was better than the sum of theirs. Thanks. I didn’t get out though, just reduced size.


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Swift, Here’s the Supernova reasoning for selling a part of AMBA.

This high-quality chipmaker has been a phenomenal success for us, so why would I recommend unloading it? Two general reasons, which I’ll explain one at a time.

There has been a lot of insider selling ever since the company went public in fall 2012. Normally, I don’t pay too much attention to this. However, the scale and pace of these sales raised an alarm. When MF RB recommended Ambarella in September 2013, co-founder and CEO Fermi Wang owned 1.2 million shares, which represented 4.4% of the company. Today, he owns just 141,158 shares, less than 0.5% of the company. Both of the other two co-founders have also significantly reduced their holdings. And the CFO is down by more than 50% from his highest level. I still haven’t found a satisfactory reason why they have sold so much of their stakes. Possibly they were cashing out to secure their own wealth. I can see that, but owning and operating a business is one of the best ways to become very wealthy. Therefore, why sell 90% of your original holdings, as Wang has done?

One of the risks is the extreme concentration of sales to just two customers, Wintech Microelectronics and Chicony Electronics. At the time of the recommendation, the two accounted for 80% of Ambarella’s revenue. Since then, that’s climbed to 89%. While Ambarella has experienced healthy revenue growth along the way (38.5% last year), sales to Wintech and Chicony have grown even faster (45% combined last year). Let me repeat: We knew about this concentration when we bought.

However, several concurrent issues give me pause. For instance, accounts receivable attributed to Wintech and Chicony have grown faster than revenue from those two customers over the past few years. In addition, days sales outstanding has increased steadily and is now at 49.3 days, up from 34.4 days three years ago. All of these are yellow flags that suggest operational problems may be developing here, along with increased risk.

Looking at the downside to these changes, there is the potential that Ambarella will lose control of its pricing, hurting profit margins. Either Wintech or Chicony could — by themselves or in response to pressure from their own customers, like GoPro or Garmin, put pressure on Ambarella to lower the prices it charges for its powerful chips. After all, when you account for 89% of a company’s sales, you can pretty much tell them what price is acceptable to you.

Positive Points
More customers: First, Wintech and Chicony are not the end customers. Companies like GoPro are, and there are more coming end companies coming on line (for instance, the Chinese smartphone company Xiaomi). In addition, potential auto business (cameras to replace side-view mirrors) and increased sales for security (via security cameras or wearable cameras for police) will broaden Ambarella’s customer base.

Second, Ambarella has a pretty strong technological lead, having pretty much turned the pre-existing H.264 codec into the industry standard, and by all accounts it has the best chips out there. Ambarella spends a significant portion of its revenue on R&D (33% a year, over the past four years), which helps it keep its lead.

Third, customer concentration is a known risk. That situation hasn’t changed so much that we need to be more worried than we’ve been.

Fourth, there still appears to be plenty of upside potential, and our downside risk is very small (Ambarella makes up about 2% of our portfolio). That risk/reward view argues in favor of keeping the investment.

The Supernova Bottom Line - After a lot of back-and-forth discussion, we voted. We had just enough votes to trigger a sale (three to two) of one-third of our position. While we might be giving up some potential upside, we are lessening the risk level of the portfolio by lightening the position.

The bear case looks like:
There is extensive insider selling by the three co-founders

The market for GoPro cameras is likely close to saturation

It is difficult to sustain competitive advantage in chips as pricing becomes commoditized

Ok Saul, you posted that here not me! LOL

Yes, that was the discussion that compelled me to write the post. I believe my post above clearly describes why this statement is inaccurate:

One of the risks is the extreme concentration of sales to just two customers, Wintech Microelectronics and Chicony Electronics.

As I have described in my post above, that is just not the case.

Now, repeat after me: “Thou shalt not post (e.g. cut and paste!) information from paid TMF services to the public boards…” :slight_smile:

Best, Swift…

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Amba 1YPEG is at .43. P/E is at 36 and the growth rate is 82%.



Amba 1YPEG is at .43. P/E is at 36 and the growth rate is 82%.

Don’t worry Andy, After digesting Swift’s rebuttal, I bought back some of my reduced AMBA position today.


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