You can read this with all the links preserved on Substack.
Year To Date Leverage Point Portfolio vs. Benchmarks:
-Leverage Point Portfolio -47%
Two years of record returns. Now the market collapses and we have one of the worst sell-offs in over a decade?
The blame for all of this falls squarely on the Fed. I get why we needed these policies in 2020. But why did QE continue into 2022 only to end in March of this year?
I don’t need a Ph.D. in economics to know that they have made a huge policy mistake. And the very notion that an average person isn’t smart enough to have an opinion on this is pure propaganda that is disseminated to discredit critics like me.
With inflation running hot, what’s their solution? Well, blow it up, on purpose, because that will lower demand and cool it off.
If it’s all macro, then just stay the course
So what am I going to do? I am going to hold. The only sin my companies have committed is being supposedly overvalued and perhaps not profitable at the moment.
The stocks that I own are all great companies that will survive and thrive over the long term. No one doubts that. Yes, they may be out of favor at the moment. But as long as they are growing, at some point, the market will reward patient shareholders that stay on track.
No changes to the portfolio this month.
Leverage Point Portfolio YTD by Month:
Core Portfolio Holdings:
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.
What they do: DevOps software tool that combines the ability to develop, secure, and operate software in a single application.
Why I own it: Their only true competitor GitHub is owned by Microsoft and this means there is a hole in the market for the des that don’t use MS products.
What’s unique about them: They offer a fully integrated solution for DevOps unlike a lot of other players that offer piecemeal solutions.
When would I sell: GitLab has 30 million free users with just 15,356 paying users, but growth will slow at some point and that’s when I would sell.
Notable News: Not too many news announcements, the Recent quarter showed acceleration which is great.
What they do: Back office accounting system for SMBs to help them pay bills, manage payments, send out customer invoices.
Why I own it: The company has made some smart acquisitions and is growing rapidly as demand for a fully cloud-based solution increases.
What’s unique about them: They simplify the process of approving invoices prior to payment and enable digital ACH bank to bank transfers.
When would I sell: If customer acquisition slows for any reason it would be problematic for the stock. I want to see it stay at 60% to 70% or more YoY.
Notable News: The Divvy acquisition has been significant for them putting Bill.com in a leading position increasing their offering.
What they do: Cloud-based enterprise cyber security that offers a more secure version of what is known as a virtual private network (VPN).
Why I own it: Cyber security is top of mind as the volume and ferocity of cyber security breaches continue to accelerate.
What’s unique about them: ZPA is an easier to deploy, more cost-effective, and more secure alternative to VPNs.
When would I sell: If revenue growth was to slow down to under 50% annual I would definitely sell. A QoQ growth slowdown would be something to watch for.
Notable News: Not too many new announcements, Zscaler is Positioned as a Leader in the 2022 Gartner® Magic Quadrant™.
What they do: Cross-cloud data warehouse services that make it easy for companies to manage large-scale datasets with less overhead.
Why I own it: They are on track to meet their goal to grow to $10 billion in annual product revenue by fiscal 2029.
What’s unique about them: Snowflake’s success as a cross-cloud tool has a network effect that drives more developers and partners to the platform.
When would I sell: The company remains richly valued and while the growth is tremendous, the stock may languish.
Notable News: Not a lot of news except the release of CEO Frank Slootman’s book which I have downloaded, but haven’t started yet.
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: Lots of product development announcements, and this one that flew under the radar. They now offer cashback rewards.
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: There is a great post here on Software Stack Investing detailing all the new updates and features.
The RealReal (REAL)
What they do: Largest market for reseller market for authenticated luxury goods that operates both online and physical locations.
Why I own it: Revenue growth has been at 50% and average order value continues to increase, in December it hit $518 per order.
What’s unique about them: While there are many reseller markets, The RealReal is the largest that is exclusive to authenticated luxury goods.
When would I sell: If growth were to drop below 30% or AOV declines significantly I would be concerned.
Notable News: They just hit 25M members and are by far the largest in the reselling space. No competitors come close.
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.
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. I 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 toward SF Bay Area high-tech companies and for good reason, it’s an ecosystem that I know well and like. I think it gives me a slight edge, beyond the numbers when investing.
Things I look for in a business to invest in 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 open-source companies: I think the open-source model is flawed when it comes to building a strong scalable business.
-No Chinese companies: The SEC’s own guidelines say they are limited in their ability to enforce regulations in China.
-No penny stocks: I avoid companies that are under $1B in market cap. Those stocks are too easy to manipulate given the low volume and float.
-No stocks on non-U.S. exchanges: Maybe I just haven’t found the right pick, but in general, I avoid foreign listings as they are harder to manage.
-No crypto or NFTs: Coins are not fractional shares in a business and have no underlying value other than what someone will pay you for them.
Overall Returns Since February 2020
Portfolio returns since I started closely tracking it in February 2020 is 78%.
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.