Monthly Review Summary
So February…. There was a lot of quarterly reports, dips, gains, posts, and an invasion. All this and my portfolio is back to where it started 28 days prior. That was a lot of work for standing still (at least financially). Although I have my first green shoot. UPST is positive in my portfoliio. Not much but I will take it.
I continued my journey to understanding the numbers a little bit better. When the reports were good or bad my metrics are magical. When they are mixed, well, I am still learning. I am looking at you ZS. Let me explain.
In my business career, the path to success is to identify key performance indicators (KPI). Then pay attention to those handfuls of metrics. That’s it. Don’t get lost in the minutia. What are the 3-5 indicators that you need to be paying attention to. Not 10 or 15… That just creates crazy.
One of the lessons that I heard this month was what are the indicators. Revenue is obvious. DBNRR seems obvious but not all companies report metrics like that. Here is the lesson I learned. Listen to the conference call. The companies tell you what to grade them on. Now it is my responsibility to follow that metric and determine if it is one of my key metrics for them.
I have two analogies that I would like to share with you. GRM and being pulled over by the police. This should be fun…
Gross Rent Multiplier (GRM) is used in Real Estate. This is my primary job and the bonds in my portfolio if you will. When surface scanning for investment properties, GRM is a great tool. It basically tells me if a property is cash flowing positively or negatively without diving into the minutia. So how does it work? You take the yearly rents and divide that number into the current offer price. If that number is under 11, the property most likely will cash flow. If it is over 11 it won’t. How do I know that? How did I come up with 11? This is where explaining GRM to newbies is difficult. They do not believe me. It seems inconceivable that one number could give such clarity. How could this be… Generally, at this point, I tell them let’s look at the detailed numbers and see if it cash flows. We do this exercise several times over several properties and then they start to see the pattern of 11 and under and 11 and over. Stocks have the same kinds of metrics like the rule of 40 or TTM P/S. I am that newbie trying to wrap my head around which quick filter to use (if it exists) and which one to use. So I guess this means I am the stock newbie that I talk about above… On the neverending learning journey.
P.S. GRM is one of many metrics that I use. It is the simplest with the data that is generally available. Taxes for example can be difficult to compute across the country. If I know rents I can figure out the rest. Once I see something interesting I dig into the other KPI for example age or repairs. My analogy for stocks right now would be SQoQ revenue growth of 13-16. That would be a company that I dug deeper into.
So being pulled over is my next analogy. If you look a the laws you can be pulled over for there are thousands of infractions. How likely are you going to be pulled over for eating (distracted driving). Not very. Speeding on the other hand. Yeah, that is the number 1 reason. If you look at the totality of reason to get pulled over the Pareto principle (80/20) kicks in. 20% of the laws generate 80 percent of the tickets.
P.S. So if you don’t want to get pulled over just google the top 10 reasons people get pulled over. Don’t do those and you are highly unlikely to get pulled over. Possible just not probable anymore.
So why not apply that to stocks; the ones that are highly probable. What are the 20% of the metrics that generate most of the leading indicators? Revenue, SQoQ, TTM, FCF, GM, DBNRR, Customer growth. That is my list for now. 7 items. That is approaching my max number as more KPI do not help in my experience. Feedback is always welcome.
PS. Thank you DawsDaws for putting these metrics in my windshield (see what I did there… Cops, windshield. Hopefully someone snorts while they are reading this).
P.S.S. So many other people have said these metrics over and over again. I was not ready to hear it until recently so by random chance Daws gets the credit but really there are a lot of people that have been saying this all along.
My next endeavor will be looking into the rule of 40 and TTM P/S as the equivalent for GRM. And quarterly versus yearly guidance. These seem like good metrics to dive into. Feedback here is also welcome (offline please)
On another note… Upstart is definitely like Tesla in regards to the passion around this company. This passion makes the stock very volatile and very noisy on the boards. Not sure what to make of this however I can see that this stock has a lot of passion around it. Thinking. But not overthinking it.
So how did I do this month?
Portfolio Performance
My Returns -22.42
My Don't Trade Port -13.35
S&P -2.98%
QQQ -4.48%
Monthly Performance
Month % YTD %
-24.32% -24.32%
2.51% -22.42%
Portfolio Allocation and Trades
Stock % of Port. Jan
DDOG 19.41% 19.41%
BILL 13.26% 8.38%
UPST 13.58% 9.61%
S 13.22% 13.48%
MNDY 11.97% 14.63%
SNOW 11.66% 7.78%
ZS 5.78% 2.40%
NET 4.99% 8.68%
TQQQ 4.43% 5.35%
QQQ 0.08% 4.28%
VOO 0.06% 0.09
Cash 1.56 5.50%
AMPL 4.28%
CRWD
Individual Stocks Performance
Stock Yrly Return % chg for mth
DDOG -9.54% 10.27%
BILL -4.29% 26.39%
UPST 4.42% 44.93%
S -12.69% -7.26%
MNDY -46.73% -24.10%
SNOW -7.70% -3.71%
ZS -12.96% -6.99%
NET -11.47% 20.77%
TQQQ -37.96% -15.15%
QQQ. -12.83% -4.48%
VOO. -8.35% -2.98%
AMPL -45.46%
CRWD 8.07%
Cash 1.56%
Trading Activities
All percentages are in total portfolio values
Sold out of AMPL into S, SNOW, ZS, MNDY (pretty much equally)
Reduced NET by half for SNOW and MNDY (before earnings… errr)
Sold DDOG by 2% of port to get it under 20% from its 21.5
Individual Stock Reviews
DDOG
What they do: System monitoring (Observability) with a special focus on cloud apps
Notes: Exceptionally strong SQoQ reporting from Q4 report of 20.6% and increased Gross Margin now in the 80% range. Their next reporting is going to be tough to beat. I however feel confident that DDOG has more growth in it with the AWS/cloud tailwinds.
MNDY
What they do: Workflow automation software for the end-user. They call it a Work OS. Incredibly simple description of a complicated task.
Notes:
I thought their report was pretty decent, however my expectations were not what others were expecting and the stock was punished. This is one of the reasons I am exploring TTM PS and Rule of 40. It appears to me that the market’s irrationalness is my opportunity. Or maybe I am missing other elements. More to learn.
There was a good thread about expectation and Monday that I linked below that is worth a read. Dreamer puts together great counterarguments. He is the classic 10th man rule at work.
They are guiding for 7% sQoQ beat. Assuming their sandbagging is in the 9-10% range that means they will continue to grow at a 15% clip they will grow at a 69% YoY clip (I cannot tell you how please it makes me to be able to write that as I figured it out with my own tracking spreadsheet. Thanks DawsDaws)
The questioning I am pondering as I look at all of the other companies that reported this month is… Does this company have a moat? It seems to be a 15+% grower in a highly competitive market. Should this be such a high conviction? I am leaning towards no. Does Mndy’s moat represent a better competitive advantage to say Bill or DDog. Is it mission-critical (thanks ronjonb)? And what percentage should it hold in my portfolio? Pondering
S
What they do: System Security for the cloud. Seems to be displacing CRWD. Growing quickly off a small base.
Notes:
Did not report
UPST
What they do: AI automated unsecured loans origination moving into auto loans.
Notes:
Trying not to fall in love with this company.
Brittlerock made the statement that he believes that UPST is a generational kind of company, paraphrasing a lot, along the lines of AMZN, Apple, Facebook, and Tesla. I am inclined to join that party.
Listened to the conference call. They are planning on expanding into different markets (like mortgage) in the following years in serial (ie expansion) instead of in parallel. They also stated in the question section that mortgages would most likely happen in ‘23. I see this as an acceleration of this company. They said the word durable multiple times. Seems like they are learning what is important to the market.
Q1 is their seasonally weak season. COVID masked that last year. Don’t plan on an epic beat. It will happen in Q2 hopefully with auto kicking in.
NET
What they do: The 5th pillar of the internet. They help the data get from the edge to the consumer faster. They have also entered the GDPR realm which for most of our companies we follow a requirement of doing business. Add some of the new security offerings and you have a full service provider.
Notes: The most recent quarter was flat in my eyes with my new found way of evaluating a stock. I sold half of my position. Interestingly, it was up big in the post-market and that did not follow through the next day so it appears that I have correctly evaluated what the market was looking for and was able to respond accordingly. That is a big step for me and my stock evaluations.
BILL
What they do: Cloud-based AP/AR automation and streamlining software. Don’t underestimate how many little details this process automates for $89 per month. Underappreciated back-end work that is not scary like S or CRWD. There is also no sexy with this.
Notes: They crushed the earning report. The synergy of Divvy and Invoice2go is showing. I am expecting strong growth off this low base of customers. This is turning into one of my highest conviction stocks.
SNOW
What they do: Cloud-based database system with edges for other data providers to interconnect that helps exchange/share data
Expectations for F21Q4 ( Wednesday, Mar 2)
Working on filling out the data.
Did not report
TQQQ
What they do: Triple leveraged QQQ ETF that I own in an account that is not easy to trade.
ZS
What they do: From the about us section you have no idea. It is a bunch of technobabble. I dislike that. It appears that they offer a zero-trust connection environment focused on cloud apps and their clients. They are replacing the VPN.
Notes:
Their TTM is now approaching over a billion dollars. I see this as a headwind to their growth as the law of large numbers starts to kick in. Funny I wrote this before the CC. The CFO even mentioned this a couple of times.
I need to figure out how the market priced this as the numbers were basically in alignment with what I was predicting yet the market did not like the results so what gives? In reading the newsgroup, it appears mixed. Some like; others don’t. One respected individual pointed out that YoY was the highest it has ever been. While others pointed out the sQoQ as lower than normal. Additionally, the linear expectation of the market seems silly for any company.
This is a company that is performing at a 50% growth rate which is fantastic for a $1B company.
If I have any concern it is the decelerating of 100k user growth 11.2%, 12.6%, 9.2%, 8.4%. (8.4 is the most recent quarter) AND how the market has priced it relative to its growth.
Given a choice between ZS or NET, I think I prefer NET. Pondering
The company recommends that we look at Billings as the leading best indicator. They will not be releasing DBNRR unless it is below 125%. Billing seems lumpy.
This is silly but their sound quality on the call was low brow. Sitting in a conference room with a speakerphone with all of the echoes seems so 2015. 
AMPL (0%)
What they do: They are a digital optimization company whatever that means. Their website does not provide great clarity into their strengths.
Notes: The reported earning 7.8% SQoQ versus 13%-ish for the last couple of quarters. The market acted accordingly with Ampl down 43% after reporting. Thankfully, I sold out of this stock several weeks before they reported because I could not wrap my mind around what they did.
Post that I found helpful this month
Let’s be honest there a lot of great posts. These are the ones that caught my attention this month.
UPST:
https://discussion.fool.com/why-i39m-long-upst-35052549.aspx
https://discussion.fool.com/upstart-earnings-expectations-350526…
Net
Cloudfare building a better internet - https://softwarestackinvesting.com/cloudflare-q3-2021-helpin…
Mndy
Mission-critical as a confidence factor (ronjonb) https://discussion.fool.com/in-my-earlier-reply-in-this-thread-t…
Your expectations (LifeofDreamer) https://discussion.fool.com/mndy-was-fine-your-expectations-are-…
SNOW
Great description of what Snow does (Smorgasbord1) https://discussion.fool.com/what-is-snowflake-35061853.aspx
ZS
Good reflected self piece on evaluating stocks (Baconski)
https://discussion.fool.com/perhaps-i-can-add-some-value-to-thos…
General
Follow the growth estimates(Bear) https://discussion.fool.com/i-was-curious-as-to-why-there39s-so-…
Mute the noise (RonjonB) https://discussion.fool.com/mute-the-noise-35057770.aspx
Earning Thoughts (MajorFool20) https://discussion.fool.com/majorfool39s-q4-earnings-thoughts-35…
Previous Reviews
January 2022: https://discussion.fool.com/liveyourbestlife-january-3921-port-r…
Summing it all up
February was the bottom-forming month (please?) as I see it. If I look at my weekly snapshots, the value of my portfolio is almost identical to where it was 1/31/22. That being said it was a big month where most of my stocks reported pretty decent numbers.
This is the year that my skills and abilities grow so I can better control my stock portfolio’s destiny a little better so when the easier times happen I can maximize my returns acknowledging that this is a never-ending journey. The monthly review combined with listening to the conference call works to reduce my FOMO when listening to all of the noise. And there can be a lot of noise. MajorFool and ronjonb stated it very well. “Mute the noise”. If you look above in the company section, I have my own notes that I can refer back to.
Thank you for reading.
Live
P.S. I wrote this review during the month which makes it a whole lot easier for me to produce. AND it lets me know my thoughts are my own not a rehash of someone else’s monthly review. Just another sign that I am starting to stand on my own two feet. Thank you board.
P.S.S. This editor stinks. I have no idea why it decided to not wrap. If someone could point me in the correct direction, I would appreciate it.