JabbokRiver August Portfolio Update

On Aug 1, my portfolio looked like this:

Upstart (UPST) 22.19%
PureCycle Technologies (PCT) 12.11%
The Trade Desk (TTD) 12.02%
Global-e (GLBE) 12%
CrowdStrike (CRWD) 10.13%
Cloudflare (NET) 9.44%
Braze (BRZE) 7.83%
Aehr Testing (AEHR) 6.92%
Pure Storage (PSTG) 6%

Boy have things changed! It was a busy August.

As of today’s close, it now looks like this:

Aehr Testing (AEHR) 12.14%
Samsara (IOT) 11.55%
Global-e Online (GLBE) 10.65%
The Trade Desk (TTD) 10.64%
CrowdStrike (CRWD) 9.3%
Cloudflare (NET) 8.52%
Braze (BRZE) 8.34%
PureCycle Technologies (PCT) 8.1%
Pure Storage (PSTG) 7.18%
Nu Holdings (NU) 6.4%
Procore Technologies (PCOR) 6.04%

C3.ai (AI) 1.1% (Held on behalf of my brother)

A reminder that I remain fully invested with no cash position. This year I also don’t have new money coming in, so I have to trim or sell something to add or get into something new.

What I Did

Ah, what didn’t I do is more like it. I made changes just about everywhere.

The biggest thing you might notice is that I finally (I know, I know) sold totally out of UPST. “What finally broke the fever?” you might ask. It was their Q2 earnings call.

The numbers weren’t pretty, but the numbers were a slight beat from their guidance last quarter, so that wasn’t a surprise. The guide was a bit lower, but the market in fintech is also still wonky. Their model continues to outperform FICO. Their mission to expand credit access is critically important to me, so I have hung in with the assumption that they, too, were doing all they could to right the ship.

And then came the call. This is the quote from Dave Girouard’s prepared remarks that sent me over the edge:

The notion of building an entirely software-driven credit origination process, one that can run 24/7 in a fully lights-out environment has been with me since Upstart’s founding and was inspired by my years at Google.

Please bear with me as I share a short story. In 2003, I was interviewing for a role at Google. The company was still private at the time, so the world knew little about the financial giants that was growing in Mountain View. At one point in the process, the external recruiter said that I couldn’t interview that week at Google because the entire company was skiing at Lake Tahoe.

I thought to myself, that’s a great company. Then she said, but get this, the company is still making $7 million or $8 million a day in revenue. I thought to myself, no, that’s an amazing company. And the idea has stuck with me since.

It was the most tone-deaf thing I have ever heard in a conference call. Not that my experience is long, but…wow.

I understand he was talking about the origination process and not day-to-day operations. But when a company has been as battered as Upstart has been; when you are trying to disrupt as ancient and entrenched a business as lending; when your mission is key to solving a huge societal problem like inequity in credit access; when you are still sailing into enormous headwinds; defining an “amazing company” as one with a “lights-out environment,” a company where your interview had to be delayed because the whole company was off skiing, was just stunning; and not in a good way.

I mean–he planned to say that. He scripted the shift from a “great company” to an “amazing company” to be defined not as what they were able to accomplish for their customers, not how quickly they could grow revenue or profit, not about their world-changing mission, but by how little the employees had to work.

What I wanted to hear was that they were working round the clock to get it right, both for their shareholders and for their customers. What I heard was a CEO whose dream was not to keep innovating, improving, and giving absolutely everyone who could possibly qualify access to credit, but rather a CEO who lived for the day when no one working at Upstart had to show up at the office and the place could run itself while continuing to fund a lavish lifestyle.

That such a story was part of the prepared remarks just made my jaw hit the floor. And then came the rest of the call where it seemed like both Girouard and the CFO were totally unprepared for questions. After the call I sold down to a 3% position, because I believe Paul Gu is probably working round the clock and he’s very, very good. But when I was still angry a week later and had new places I wanted to put money, I sold totally out.

New Positions

Most of my Upstart money went to beef up my position in AEHR (new in July) and to open a new position in Samsara (IOT). (I added to that initial IOT position immediately after earnings last night when they dropped an awesome report and the stock had a small sell-off. That seemed ridiculous, and it was. The added money did well, as the stock is up 13% today.)

I also added two other new positions in August, trimming all but my newest holdings to open positions in Nu Holdings (NU) and Procore Technologies (PCOR).

Why I Chose Them

As you know, and as my Upstart tantrum shows, management is key for me. Girouard actually had the lowest Glassdoor ratings of any CEO in any company I owned (at least where that info is available). His rating is 75%. But as I look for info on management beyond Glassdoor, I’m finding video interviews invaluable. And, for me, the best interviewer out there is Jon Fortt on CNBC. He does a long-form interview called Fortt Knox Conversations that is just brilliant in showing the true person behind the curtain.

It was this Fortt Knox Conversation with Samsara CEO Sanjit Biswas that finally convinced me to get into IOT, even though Saul and several others have been in the name for some time. I almost posted when I found it to say, “Why didn’t you tell me about Samsara’s awesome CEO???”

As I looked through last month’s reports from others, I saw that Bear was in Procore Technologies (PCOR). I knew nothing about them, but thought if a company had made it past Bear’s screens, it might be worth a look. So I thought, "Gee, I wonder if Jon Fortt has interviewed their CEO. Yep. Found it here.. It took me longer to warm up to Tooey Courtemanche than to Sanjit Biswas, but in the end, I was convinced. So I got in there, too.

I still wanted something else to diversify my exposure, so I thought this time I would simply start with Jon Fortt and see who he had interviewed lately. That morning, a new Fortt Knox Conversation had dropped with David Velez, CEO of Nubank, a fintech headquartered in Brazil. I like the fintech space. I also think there’s a lot of potential in fintech in LATAM. I had considered MELI, which I know some of you are in, but I couldn’t get past the share price. So I listened to Fortt interview Velez. I was hooked. I also watched this interview at Stanford (Velez’ alma mater) And I bought.

Since I was still furious with Dave Girouard, listening to Velez talk about his background, the origin story of his company, and the fact that he and his wife signed on to Buffet’s giving pledge was like taking a warm bath. When asked about the difficult macro for fintech, Velez pointed out that their entire journey as a company has been against a horrible macro and ridiculous odds. They have succeeded in spite of it and are stronger for it.

Buffet owns NU, which didn’t hurt. Fortt interviewed him right after Q2 earnings, where revenue was up 60% YoY and the stock price popped. Here’s a brief overview of their report. And I could get in for just over $7/share instead of over $1,400/share with MELI.

At last I had a fintech with a mission I could be enthusiastic about, with a CEO who is willing to go above and beyond to make that mission succeed with a huge TAM and substantial growth.

I had considered both SoFi and Pagaya, but I didn’t have the sense of mission I wanted with SoFi and Pagaya’s CEO flunked Glassdoor with just a 46% approval rating and some really nasty details in too many of the reviews for my comfort.

I now have just one company, Braze (BRZE), that has not yet reported. It’s up 58% since I bought it in May, and I trimmed it for the very first time to add to IOT after earnings last night. It reports next Thursday.

This is not as organized or complete as I would like, but just this much has taken me most of the day to put together around work commitments. Hats off to those of you who can pull together such detailed reports!

Bottom line is that July was great, the start of August was rocky, but I have ended with my portfolio up 25.5% since the end of May (which is when my TDAmeritrade account moved to Schwab and I lost the prior history). I got clobbered by selling UPST, but am happy with where what remained of my money went. A portfolio in the green is not something I’ve had since early 2021!