Libby's portfolio at the end of Mar 2018

Libby’s portfolio is up 24.5% YTD.

Libby is my computer. As her investment advisor, I suggested she was more suited
for a mechanical, Spock-like approach to investing. So I recommended that she choose
an equal weight portfolio of stocks beginning January 1st using the following simple

  • US or Canada domiciled firm.

  • Annual sales between $100 million and $1 billion.

  • Market cap between $1 billion and $10 billion.

  • 100% cloud computing based business.

Libby scanned over 6,000 public companies and settled on this portfolio of 32 stocks
(below) that met these criteria. There were no additions or deletions from the portfolio
during the 3-month period.

                                      Weight    Weight
Company                   Ticker     Jan 1st   Mar 29th   Return YTD
------------------------  ------     -------   --------   ----------
Appfolio                  APPF         3.13%      2.47%        -1.6%
Alteryx                   AYX          3.13%      3.39%        35.1%
Blackline                 BL           3.13%      3.00%        19.5%
Box                       BOX          3.13%      2.44%        -2.7%
Callidus Software         CALD         3.13%      3.15%        25.5%
Cloudera                  CLDR         3.13%      3.28%        30.6%
Coupa Software            COUP         3.13%      3.67%        46.1%
Cornerstone OnDemand      CSOD         3.13%      2.78%        10.7%
Tableau Software          DATA         3.13%      2.93%        16.8%
Ellie Mae                 ELLI         3.13%      2.58%         2.8%
Five9                     FIVN         3.13%      3.00%        19.7%
Hortonworks               HDP          3.13%      2.54%         1.3%
HubSpot                   HUBS         3.13%      3.07%        22.5%
Instructure               INST         3.13%      3.20%        27.3%
LogMeIn                   LOGM         3.13%      2.53%         0.9%
Mindbody                  MB           3.13%      3.21%        27.8%
Medidata Solutions        MDSO         3.13%      2.49%        -0.9%
MuleSoft                  MULE         3.13%      4.74%        89.1%
New Relic                 NEWR         3.13%      3.22%        28.3%
Okta                      OKTA         3.13%      3.90%        55.6%
Paylocity                 PCTY         3.13%      2.73%         8.6%
Proofpoint                PFPT         3.13%      3.21%        28.0%
Qualys                    QLYS         3.13%      3.08%        22.6%
Q2 Holdings               QTWO         3.13%      3.10%        23.6%
RingCentral               RNG          3.13%      3.29%        31.2%
RealPage                  RP           3.13%      2.92%        16.3%
Shopify                   SHOP         3.13%      3.10%        23.4%
Twilio                    TWLO         3.13%      4.06%        61.8%
2U                        TWOU         3.13%      3.27%        30.3%
Ultimate Software Group   ULTI         3.13%      2.80%        11.7%
Veeva                     VEEV         3.13%      3.31%        32.1%
Zendesk                   ZEN          3.13%      3.55%        41.5%

High                                                           89.1%
Low                                                            -2.7%
Median                                                         23.5%
Average                                                        24.5%

Libby wondered if perhaps a more focused portfolio might give her better returns.
Perhaps that extra return might compensate for the greater exposure to permanent loss
she bears if one of the companies pulls an Enron. She was thinking maybe 10 stocks
rather than 32. So I suggested she do a few trials generating 10-stock portfolios at
random from the original 32 stocks. After four trials she got bored. Here are her results.

                  Trial 1    Trial 2    Trial 3    Trial 4
                 --------   --------   --------   --------
Return           up 29.3%   up 25.6%   up 17.7%   up 21.2%

Libby and I welcome your feedback. We’d appreciate your thoughts on any aspect above.

Note: This is NOT a real money portfolio, and I would NOT recommend any real person
try it.



I see many familiar names on there.

Two that stand out to me:

Coupa Software            COUP         3.13%      3.67%        46.1% YTD
Zendesk                   ZEN          3.13%      3.55%        41.5% YTD

Never heard of Coupa, that I know of. Have heard of Zendesk, but never have looked into it.

Out of curiosity, what determined the “100% cloud computing based business” criteria? The exercise is obviously a screen of companies, but curious what determined that portion.

Zendesk currently has a $4.95B market cap. 39% YoY revenue growth for the 2 most recent quarters, 36% YoY revenue growth for the 2 quarters before that. 2017 revenue of a bit over $430M. $247M of cash and equivalents on its balance sheet (no debt). Not profitable yet. 2017 cash from ops of $42M ($24.5M for 2016).

Coupa Software has a market cap of $2.51B (per Google finance). TTM revenue of $186.8M ($133.8M for prior year period…for 39.6% growth…59.9% revenue growth the year prior). $250M net cash position. $19.77M of CFFO in the TTM, compared to -$20.96M for the prior TTM period. TTM operating expense grew by about $9M more than revenue grew by, so I am not all that interested in digging in deeper at this time.

Following on just a bit with Zendesk, here is a link to their most recent shareholder letter.…

From Slide/page 10, 38% of their revenue is recurring, which was up from 37% and they anticipate their dollar based retention rate to remain in the 110-120% range for the next several quarters.
"Our dollar-based net expansion rate, which we use to quantify
our annual expansion within existing customers, increased
by one percentage point to end the fourth quarter at 119%,
compared to 118% at the end of the third quarter of 2017. Our
dollar-based net expansion rate was 115% at the end of the
fourth quarter of 2016. Consistent with expectations in prior
quarters, we expect our dollar-based net expansion rate to
remain in the 110% - 120% range over the next several quarters."

From page 13:
"For the full year of 2017, net cash from operating
activities was $42.1 million, and we achieved
positive free cash flow of $18.2 million."

From 14:
"For the full year of 2018, we expect revenue to range between $555.0
and $565.0 million, representing growth between 29% and 31% year-overyear.
We expect our GAAP operating loss for the full year of 2018 to range
between $113.0 and $118.0 million, and we expect our non-GAAP operating
income to range between $0.0 (breakeven) and $5.0 million.

For the full year of 2018, we expect free cash flow between $25 million
and $30 million, representing a year over year growth of 51% at the midpoint. "


Libby and I welcome your feedback. We’d appreciate your thoughts on any aspect above.

I once did something similar. When applied to a bull market it beat the pants off everybody Buffett included. When applied to a bear market it failed miserably. My recommendation:

DO a lot of back testing over different market cycles.

Denny Schlesinger


…what determined the “100% cloud computing based business” criteria?

With some effort and expense you can do this yourself, but for now I find it MUCH easier
just to piggyback on what someone else has already done:

If you explore the site you’ll get some insight as to how they put the index together.
You won’t find it all in one place. At least I didn’t.


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Hi Denny,

Not headed in that direction.

Simply wanted to demonstrate that there was another explanation for excess returns during
this three month period besides cause and effect – a few mechanical rules combined with
randomness. And that this second explanation was not just theoretical. I think it makes for
better decision making when we are at least aware of other explanations.

Says NOTHING about anyone’s individual return. Just a general observation.

Says NOTHING about longer time periods. Just confined to the last three months.



Ears, a statistic of one sample is not very reliable. Something you said about small numbers… “1” is small. :innocent:

Denny Schlesinger

Great Post Ears (or Libby),
And interesting that no one is really commenting on what I took to be the main point of the post…and that is that there is a part of the market out there in bull mode and that is the cloud market. A fairly random selection of all stocks related to cloud are up 24% in the first quarter. Not to dissimilar to the portfolios that have been posted so far.

Now I am not trying to say that you should just buy this portfolio and you can do as well as Saul ( or Bear) as others have said here in the past. I am trying to say (as I think Ears was) that it is not some weird circumstance that the stocks followed on this board are doing great when the market is not.

The only real question is whether this is a growing phenomenon or will it run out of steam shortly. I am guessing it is growing and will continue for some time (until it becomes overheated and pulls back). I am increasing in this area but I do not have 90% of my assets in one small corner of the market. For those that do, congrats!! But watch the market carefully (as Saul does every day).

Btw, Happy Easter to All and a special congrats to Saul. The ability to find great stocks and find the corner of the market (cloud) that is exploding well before it does and then put almost everything in it is as impressive as it is rare.



Thanks for your comments, Randy.

The only real question is whether this is a growing phenomenon or will it run out of steam

What’s fascinating is that this phenomenon has actually been going on for quite some time. Bessemer
Venture Partners has maintained an index of cloud stocks going back to January 1, 2011. Since
inception the index is up 528% (as of March 15th). That’s 26% annualized for the last seven years.

I don’t know of any investor who has even come close to beating that return over the last seven
years. But I imagine there are a few out there. I did see one guy on Seeking Alpha that picked up
on it maybe three years ago, can’t remember exactly.

Like you, Randy, I’m NOT suggesting that people can just buy the stocks in the index and expect
they will do as well going forward as the index has done in the past. Economic conditions, investor
expectations, world events – whatever – could abruptly halt or reverse the trend.

But it is fascinating and instructive to track.



Greetings, Libby,

I always wondered who put up with ears every day, but I actually expected it would be a spouse.

When you say you “settled on …” I suspect you pulled every single company you could find that met your basic criteria, and neglected to screen for anything else. If so, my question would be, “Why?”

You did not test or screen for profitability?
You did not test or screen for growth?
You ruled out everything under $1b. Again, “Why?” (Are you ;not looking for small, growing companies?)
A girl as smart as you should be able to conjure up a better selection routine than a “random selection.” I would never use a random selection technique to invest my funds. (But for ears’ funds? Go for it!)

I suggest you would be much better off choosing an actively-managed ETF specializing in cloud companies. While their managers might choose from the same list of companies, they would hopefully choose those that met some performance standards, and allocate accordingly.

Maybe I missed the gist of your efforts here, but I am very biased against random anything in investing. My guess is you’re trying to prove that cloud computing is “hot?”

Say hi to ears and weigh the poor bloke occasionally please. If he isn’t starving yet, it looks like he might well be soon if you continue to manage his funds randomly.


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