Jason’s June Investing Decisions

I’m just a working husband and father that was lucky enough to find Saul’s Board and be that guy able to take full advantage of his generosity in sharing his method for investing in Companies experiencing Hypergrowth. I apparently have a risk profile and a conviction in Saul’s reasoning, as it applies to investing in Hypergrowth Companies, that many just do not have.

Many people who are considered to be the best here often write about what Mr. Market ‘appears to be valuing now’ compared to other times and making decisions based on this (eg: Price/Sales or Growth at all cost vs discounted Free Cash a flow, etc) I’ve tried to extrapolate the past into the future regarding market sentiment myself. I’ll admit now, I have a difficult enough time trying to maintain my own standard for how I personally value a company into which I invest. I’m no longer going to try to guess based on what appears to effect market sentiment presently, as it shows up in share price. I’ll not be trying to guess what characteristics of a company will effect future market sentiment. I believe this is only accurate when looking backward and is inherently a trap I need to avoid. I see many traps when trying to identify characteristics of a company that would make me want to invest in a company. I’ll put the above trap in the category of macro-traps. I don’t see a companies ability to innovate as a trap, as with Cloudflare for example.
At the other end of the spectrum, I’ll mention here what I consider a micro-trap. One in particular has effected Snowflake. I think many are trying to infer what specific customer issues will effect future purchases by looking closely at QoQ revenue growth rates. IMO, this is particularly perilous when trying to do this for a company that has a usage based business model. This business model is more volatile and offers more transparency at the same time.

Saul has written out some amazing standards for how to value a Hypergrowth company. I’ve added a few more for my self, from what I’ve learned from others here (see my July 2021 portfolio summary here:https://discussion.fool.com/jason8217s-july-portfolio-summary-34…. I’m very happy to stick with these for now.

I believe myself to be more focused than many on the method used in decision making than actual results. So, when share prices go up or down I’m not much phased by it, sincerely. If Global Pandemic or Putin going to War with the world hasn’t made me question my investment choices, I think that says a lot.

At the lowest point during this downturn, this month, I was still up 336% for the last 4 years and 5 months, that’s 436% of what I had when I started trying to learn Saul’s method of investing.

Even so, I can’t say I’m not tempted to say I woulda, coulda, shoulda. I will say, I continue to believe in Saul’s proven method of investing in Hyper-growth. After my portfolio achieving a 203% gain in 2020 and getting as high as 91.7% in additional gains in 2021, I believe that a pullback was inevitable. I expected one at some point, maybe not as big as this one​:person_shrugging:???; nonetheless, **I’m not going to try and time the market.**If I did, I’d likely have sold out after the first 75% or 100% or 150% gain or something like that, :unamused:.

Some say we’re at the end of the growth cycle. I say each of the indicators for believing this are transitory. And then we’re off to the next part of the cycle. IMO, the companies in my portfolio will grow revenues hand over fist throughout the cycle, for many years into the future. I’m pretty sure most of the worlds problems are from people trying to be too clever, by some margin.

My performance for each of the last four years, when I started trying to follow the recommendations in Sauls’ Knowledge Base and his chosen posts in the Right Side Panel, here.

2018 > +38.9%.
2019 > +32.9%
2020 > +203% 
2021 > +46.8% 
2021>.     Month.          YTD
July >.    +5%.           +29%
August >.  +24.3%.        +60.5%
Sept>      +2.9%          +65.22%
Oct>     . +16%.          +91.7%
Nov>.     (-)14%.         +54.38%(given in error).  Actual YTD 64.8%
Dec>      (-)11%          +46.8%

2022>.     Month         YTD
January: (-)22.3%        (-)22.3%
February:   6.4%.        (-)17.3%
March:   (-)1.77%.       (-)18.8%
April.   (-)21.76%.      (-)36.5%
May.     (-)25.8%.       (-)52.9% 
June.     + 8.17%.       (-)49% 
           Jun 30 May 31. April 30  Mar 31 Feb 28 Jan 31  Dec 31 Nov 30  Oct 31. Sept 30.  Aug 31. July 31
Upstart     **0.0%**  0.0% 3.30% 3.76% 14.25% 10.47% 11.28% 11.73%.  25.27%  27.52%.  22.47%. 14.76%. 13.85%
Datadog.   **19.23%** 18.87%17.72% 17.39% 14.53% 17.54% 16.60% 16.28%.  11.91%  16.39%.  16.43%.  16.42%.  16.21%.  16.63%
Cloudflare **18.00%** 15.51% 13.90% 19.24% 18.38% 15.22% 13.48% 14.06%.  13.23%.  9.33%.  14.45%   17.60%.  16.48%.  18.92%
[Monday.com](http://Monday.com)  **3.32%** 0.0%15.19% 14.52% 13.44%.15.08% 14.39% 17.92%.  10.37%.  8.72%.   0%.      0%.      0%.      0%
Lightspeed. 0.0%  0.0%. 0.0%. 0.0%.  0%.    0%.    0%.    0%.      9.75%.  8.78%.   4.40%.   0%.      0%.      0%.     0%
Zscaler.    **0.0%**  12.11% 14.87%13.85% 10.79%. 9.26%  8.99%. 8.64%.   7.06%.  6.51%.   0%.      2.75%.   0%.      0%
Snowflake  **21.67%** 22.73% 20.13% 21.04% 11.98% 13.25%.12.69% 11.35%.   8.84%.  7.51%.  10.32%.  12.67%.  12.10%
ZoomInfo.   **0.0%**   0.0% 0.0% 0.0%   9.87% 12.69% 11.11%. 9.22%.   6.72%.  7.09%.   7.75%.   7.98%.   8.12%.  10.50%
Crowdstrike **9.98%** 12.66% 8.75% 3.91%  6.6%   6.51% 11.45%. 10.81%.  6.84%.  8.14%.  19.12%   21.50%.  22.36%.  24.19%
Docusign.   0.0%   0.0%   0.0%.  0%     0%.    0%.   0%.     0%.      0%.      6.32%.  10.88%    6.46%. 7.75%
[Bill.com](http://Bill.com)   **11.41%** 14.03% 5.01% 5.21%  0.0%
MongoDB    **16.39%** 4.08%

Watch List:
ZoomInfo is still an interesting investment to me and I will likely reinvest in them in the future.

When reading the following keep in mind that this portfolio remains ~95% of what my immediate family will live on when I retire in three years. This portfolio is what is in our non-taxable Roth and Rollover IRAs only. We have not added any money to these accounts for many years. To buy something I’ve sold something else. I don’t trade options or use any leverage. I stay fully invested at all times and keep less than 1% in cash.

6 Decisions this month.

What I did:
I didn’t add back what I trimmed from Zscaler prior to their Earnings release.

Why I did it:
It came down to ZS posting another quarter of low billings growth. Now, billings has been light for several quarters. I don’t understand why this is, when Security has all the tailwinds I could ask for.

What I did:
I sold ~11% of my ~23% position in Snowflake (taking it down to ~21% of total portfolio) to add 56% to my ~4% position in MongoDB, just before the end of the MDB Conference Call.

Why I did it:
MongoDB reported increased revenue growth and gross margins in their seasonally slowest quarter. In the CC management tried to set up a slowing down in Q2 FY23, listing one offs of $23M for return to office and Conferences s/p COVID and ‘Macro in Europe’ being a $35-40M hit to their guide; yet, there was a small pop after hours. I do weigh what headwinds each company is facing relative to others. I’m not happy that MongoDB and Snowflake are seeing macro headwinds. I do like that Datadog is not.

Regarding Macro-headwinds, These are not usually within company control and when companies such as Mongo and Snowflake are able to grow revenues hand over fist despite this I’m a very happy investor. Despite this horrendous re-rating of our companies, I’ve learned here to x-out Macro factors, as they apply to investing in general.

I also don’t worry about words like inflection! Which is what I see happening for MongoDB’s business, when these factors are taken out of the numbers. This was an opportunity for me to practice ‘buying on the way up’, which is still difficult for me despite my pontificating for Saul’s wisdom to do so- I wrote about this in my May’s Investing Decisions. I sold the bit from Snowflake only because I had to get the money from somewhere and I was already overweight in Snowflake.

What I did: I sold 15% of a ~14% position in Bill.com to add to MongoDb.

Why I did it: I was going to wait till after Mongo’s likely weak Q2 Earnings to make this trade.; but, I moved up the timeline due to Mongo’s release of ‘queryable encryption’ It’s not often I’ll trade on one data point; but, I must agree that IMO this is another level advancement in security and given I had the plan in place already, here we are.
IMO, this may be a big deal for Mongo.
“Speed is a challenge in encrypted operations, where every extra key check and computation add complications to basic operations. But MongoDB claims that searches performed with Queryable Encryption are impressively fast and won’t cause unreasonable performance losses—a claim that customers will be able to test for themselves with the new preview. MongoDB is also open-sourcing much of the Queryable Encryption system, so users and other researchers can vet its underlying cryptography.”

What I did: I sold 25% of my 12% position in Zscaler (down to a 9% position) to bring my MongoDB position up to 12.75%.

Why I did it: Mongo is up 25% in the last 5 days- What a great time to practice buying on the way up!

Mongo CFO, Michael Gordon, stated in the CC on 6/1, Atlas revenue growing “82% in the quarter compared to the previous year, and now represents 60% of total revenue compared to 51% in the first quarter of fiscal 2022 and 58% last quarter.”

And…my favorite, and most important to me, part of this is that with Atlas eventually providing “up to 90%” of Mongo’s Revenue, per management at a recent Conference, we can expect continued margin expansion as Atlas grows as a % of the overall revenue generator, as observed by their CFO here:
Michael Gordon, CFO, also on the 6/1 CC.
“Gross profit in the first quarter was $214.3 million representing a gross margin of 75%, which is up from the last quarter and up from 72% in the year ago period. Our strong year-over-year margin improvement is primarily driven by improved efficiencies that we were realizing in our Atlas business.”

The announcement that Mongo made yesterday also moved up these last two trades, from what I had planned.
“MongoDB enables strong security defaults to ensure that security configurations such as authentication, authorization, in-transit and at-rest encryption are always on, to make it easy for customers to develop and focus on their business needs. Queryable Encryption adds another layer of security, which is a strong form of technical control enabling our customers to protect data throughout its lifecycle, and you’ll have the ability to run rich queries on the encrypted data.”

I’ve had an eye out for what’s being said about MongoDB needing to address Security features. If management was disingenuous about the relevance of the above announcement, I’ll be keeping an eye on this also, for sure.

What I did: I sold my 9% position in Zscaler at $163 to add 42% to my 14% Cloudflare position, at $53/share, making Cloudflare a ~20% position. And adding to my 12.75% Position in MongoDB at $290, making Mongo just over 16% of my portfolio

Why I did it:
The same reasons I’ve always, for years, had Zscaler at a lesser size than Cloudflare. See Peter Offringa’s reasons on Commonstock here: https://commonstock.com/post/1d15e90f-2b06-4621-bb2a-1e9f3cc…. Many here have been saying basically the same, lately. The reasons I had Zs higher than usual weighting recently was their positioning to benefit from Federal Security spend. I’m just not banking on that as much as I was. Maybe I’m not as worried about having to add on the way up, should Zs crush it in the future.


What I’ve learned from 7 and 1/2 month, -70%, drop in my portfolio value:

  1. I learned which companies were actually high conviction for me, as I consolidated. My knowing what’s in my portfolio (Specifically what value they provide where in our economy, how each company will increase their customer count and specifically how each company will continue to increase their value to each of their customers) is the most important thing to me when investing. And this is easier to keeps tabs on with fewer companies in my portfolio.
  2. I learned to what extent my being enamored by each companies tech has influenced my decision making regarding how closely I’ve been watching each companies top and bottom lines (why I give Snowflake and Cloudflare more slack compared to Monday and Zoom Info). I’m more sure now of my decisions made in how the tech influences their growth endurance (ability to scale as they increase moat and TAM).
  3. I learned to value more my personal level of trust for each member of the company management team. I was faintly aware of the difference between reading a Conference Call and listening to one. Now I’m more willing to change my mind after reading it.

Looking at the three above, was this drop worth the benefit of learning the above? I believe it will be, eventually😁.

What I did: I sold 25% of my Crowdstrike position to add 15% to Cloudflare @$40 and added a little to MongoDB from what was left.

Why I did it:
I can’t say anything’s wrong with Crowdstrike. I see Mongo developing Queryable Encryption and I’m now wondering how well I understand how the layers of security just exactly fit together, that’s all🤷???.
I put the money in Cloudflare because Zscaler is no longer in my portfolio.

What I did:
I sold a bit of Cloudflare and a tiny bit of MongoDB, so that now I could re-initiate a 3.31% position in Monday.com.

Why I did it:
I had sold my remaining 2.25% position in Monday on 5/25/22 so that I could top up snowflake at $115 after Earnings (I am not invested in Snowflake because of how much they charge for storage nor for their Data Lakehouse capabilities more generally). In fact, Snowflake becoming the Data sharing equipped App Platform that sits on top of the Hyperscalers almost requires that their data storage functionality be inexpensive, IMO.

I’ll maintain a relatively low allocation in Monday.com, until I can see if the promise of Monday.com becoming for process automation in the Enterprise what I believe they will become (numbers + narritive). Monday.com taking more market share, perhaps with some market consolidation would convince me to add. So it might be a while before I add to this now small position in Monday

As a habit, when I make investing decisions I’m thinking out 1-3 years. When I do make a short term decision, it’s almost alway based on an obvious market disconnect between how the companies are performing and a share price over reaction based on something outside of what the companies are doing.

Heartfelt thanks to those following the rules of this great Board! I’m grateful to be one in a group of individuals who’ve come together with these rules as an agreed upon standard.

Special thanks to Saul and all the Board Managers for insisting on these now absolutely necessary standards of conduct. https://discussion.fool.com/monday-morning-rules-of-the-board-34…

2020 Portfolio Summaries here: https://discussion.fool.com/jason8217s-2020-port-review-34708368…
2021: Porfolio Summaries here: https://discussion.fool.com/jason8217s-december-portfolio-decisi…
1/31/22 Monthly Portfolio Summary here: https://discussion.fool.com/jason8217s-january-investing-decisio…
2/28/22 Monthly Portfolio Summary here: https://discussion.fool.com/jason8217s-feb-investing-decisions-3…
3/31/22 Monthly Portfolio Summary here: https://discussion.fool.com/jason8217s-march-portfolio-summary- portfolio-summary-35083947.aspx
4/30/22 Monthly Portfolio Summary here: https://discussion.fool.com/jason8217s-april-monthly-summary-351…