mekong22 Mar 2021 portfolio update

Initial Thoughts About this Market and 2021 So Far

One thing that I’ve found interesting so far in 2021, is how closely the movements in our companies’ stock prices have mimicked 2020 during the same period. Both years, tech stocks started off the year red hot and hit great heights in early to mid February, and in both years, they subsequent sank like rocks, until mid to late March, albeit for very different reasons.

For my portfolio

2020

After being up +57% in the 2019 prior year:

+40%…it moved up another 40% in the first six weeks of 2020
-60%…and then dropped about 60% from the peak over the next few weeks to the low point in mid March

2021

After being up +140% in the 2020 prior year:

+45%…my portfolio was up another 45% during the first six weeks of 2021
-47%…and then dropped 47% over the next few weeks to the low point in late March

I realize that I had some less popular (on this board) investments that caused more volatility during those periods than some other folks that didn’t have quite such extreme gains early in the year or pullbacks afterwards. But for my portfolio, in both years, huge gains over the first six weeks of the year followed by severe drops in the next few weeks. In 2020, the low point hit earlier in March, around St Patrick’s day, while in 2021, the low point (so far!) has been near the very end of March.

Technically this doesn’t tell us anything about what is going to happen in the future, over the rest of 2021. But I get some comfort looking back at last year knowing that after my portfolio dropped by more than half during a four week period in late Feb/early March last year, it proceeded to rise to the point where I was up +140% by the end of the year, which was well above a triple, overall, from the low point.

I could also look back at 2008 when my portfolio also dropped in half over a short period. What happened next? In less than a year, during 2009, I was reaching new all time highs.

So at the end of the day, I like the companies where I have my investing funds today. It sounds cliché, but I liked them in February, and I like them all even better now (in terms of future potential gains) at these valuations. Of course, I don’t like seeing the value of my account drop, but I’m optimistic that these companies are going to continue to perform and grow at a high clip and that the market will recognize their worth, and my holdings should be worth a lot more in a couple years than they are today.

Year To Date Performance by Month


  2021

 +5.0%  YTD Jan 
+14.6%  YTD Feb 
 -9.2%  YTD Mar

Allocation by Company at March 31, 2021


39.2%	MGNI

12.0%	TTD
11.1%	MDB
10.4%	NTNX

 6.6%	DOCU
 6.1%	SMAR 
 5.4%	LSPD
 4.9%	DDOG
 4.4%	TDOC

March Activity

Crowdstrike – Sold all
Alteryx – Sold all
Guardant Health – Sold all

Teladoc – New position

Nutanix – Added a bit
Docusign – Added a bit
Lightspeed – Added a bit

Magnite – Added a tiny amount
Trade Desk – Added a tiny amount
Smartsheets – Added a tiny amount

MongoDB – No change
Datadog – No change

A few words on the Companies I completely sold out of this month:

Crowdstrike

So I’m probably the only person on this board that sold out completely from Crowdstrike this month. I don’t have any negative opinion about their prospects. Those of you that hold CRWD will likely do very well going forward. I’ve noted in past writeups that the main reason I never owned Cloudflare and I’ve never owned very much Crowdstrike is simply because those companies, and more importantly their businesses, are further outside my own personal competence than others that I own. So I just wouldn’t be comfortable owning a large allocation of either of them.

Crowstrike has been a great, albeit small, investment for me. I only initially put about 0.5% of my portfolio into CRWD, all LEAP calls, back in 2019, and they gained about 1,500% or so over that 18 month period, at one point becoming more than 4% of a portfolio that was much larger than it was when I first bought CRWD. I was fortunate that the LEAPs were trading at the time because I wouldn’t have been willing to invest enough in regular Crowdshare common shares back then to make it worthwhile, so I probably never would have invested in them otherwise.

One of the reasons I chose to exit CRWD when I did is because all of my holdings were calls that expired in January ’22 and are all in a taxable brokerage account. There was a time when I assumed I would exercise them to push off the tax consequences and let Crowdstrike continue to grow their business, and my investment. But at this point, I’m not as interested in putting more money into CRWD in January to exercise the options. I also was thinking, it’s more and more likely that income tax rates will increase in 2022. Not only does this discourage me from holding until the new year to push out paying taxes on the gains, I was also guessing that higher tax rates in 2022 could result in a sell off of some high flying stocks that have had big gains in recent years such as Crowdstrike, at the end of 2021. Since I don’t see myself owning CRWD for multiple future years, I didn’t want to put myself in a position where I could be selling into a depressed value so better to sell my holdings now than to hold out until the end of the year. At the time, that was just a guess that growth stocks would drop a lot at the end of the year.

I timed my Crowdstrike exit luckily because I sold all of it the morning after they announced earnings in March when the stock was around $206. It also happened to the be the day that Amazon announced they were expanding their telehealth services to all employees which pushed Teledoc’s stock price lower. So that factored into the timing of when I sold CRWD too, I felt I had a better place to put the funds in TDOC when it dipped, so I was willing to pay the taxes on my CRWD gains and finally had a decent sized stake in Teledoc. I may look back two years from now and regret that swap, but it felt like the right move at the time, so that’s what I did.

Alteryx

Alteryx has been a tough decision for me. Just a few months ago, it was still one of my larger positions. I could easily see the stock selling for a triple it’s current price at some point next year in 2022. So I could definitely regret selling out of the last of my AYX this month. But I just feel more confidence reallocating more funds to other companies, especially as other companies got less expensive as the month went on. I won’t be shocked if I buy back into AYX later this year, but for now, it was just too low on my list to continue to hold.

Guardant Health

GH has been a great investment for me over the past 8 months or so. I noted in an earlier writeup that, from it’s higher prices recently, I’m less confident of outsized returns from Guardant unless lots of things go right for their LUNAR early stage detection program. Maybe GH will rise 1,000% over the next ten years, I won’t be surprised, but again, other companies are high on my confidence list. I had sold all GH that was in my IRA a month or two ago (fortunately at even higher prices) and was planning to hold the last GH until they became long term capital gains in August, but with other companies getting down to low prices, I couldn’t resist and sold off the last of my GH willing to pay the short term tax rates and moved those funds into other things.

My new position:

Teledoc

My new position this month

I owned a little TDOC last year but sold it off before year-end. In my December 2020 writeup, I noted that TDOC might end up being the company that I most regretted not owning at the time. A few weeks later, the stock shot up from $200/share to almost $300/share, at the beginning of 2021, and I thought, Yup, I regret not owning that one and will probably never get back in.

And then it dropped all the way down below $180/share, and I couldn’t resist. I just believe, even in a post pandemic world, TDOC is going to continue to grow at a high clip. I’m betting that Amazon’s efforts are not likely to have a huge impact on Teledoc’s trajectory.

While many types of doctor visits will always be benefited by in-person visits, I think there are still a huge number of things that people go into the office for, that they don’t need to. I think Teledoc is in the right place at the right time and they are going to take more and more market share. Once people realize they can do some basic medical needs via telehealth, they aren’t going back to the old ways. So I’m excited to have Teledoc in my portfolio. And for what it’s worth, I think the share are ridiculously cheap at the moment, based on their valuation, and what I estimate they will be generating over the next few years.

The Rest of My Holdings

Magnite

Magnite is now almost 40% of my portfolio. I haven’t had any thoughts to trim it. I actually couldn’t help myself and bought (very small) additional amounts both when it dipped into the $30’s at the beginning of March, and then again when it dropped to the $30’s a week ago.

Although Magnite is down -20% over the past month, my MGNI percentage has increased, as other holdings dropped by even more. The stock price would really have to go up a lot (probably more than double from where it is now) before I started worrying about owning too much MGNI.

I’ve written a lot about Magnite since November, not too much more to add that hasn’t already been said. I think their business is going to have a fantastic run over the next couple of years and I’m comfortable holding a really big position in them right now.

The Trade Desk

It’s going to be an interesting stretch for TTD over the next few quarters as the navigate the cookie-less future of digital advertising. I think they are going to continue to be the dominant DSP and ride the wave of programmatic advertising growth in coming years. It may not be a smooth ride. The Unified ID that TTD helped develop may not become widely accepted. But I think CEO Jeff Green is going to navigate it and continue to grow The Trade Desk at a high clip. The ride may be bumpy in the near term, so I’m not totally shocked that the market has pulled it back as much as they have, but I did add a small amount to TTD this month, and like their prospects

MongoDB

MDB (along with DDOG) is one of only two companies I own that I didn’t add to during March. The simple answer to why I wasn’t buying more Mongo is…valuation.

Mongo’s valuation got really high in February. It didn’t make me want to sell any shares because I’m confident they grow into it and think I would regret selling any now, almost regardless of price.

Even after the drop from $400/share to the $250’s recently, I still view it as one of the more expensively priced companies I own. But I envision years of consistent high growth for Mongo, a business that is several times bigger than it is today, and lots of rewards for shareholders.

Nutanix

Nutanix continues to be the company with the biggest delta between the value that I ascribe to the company vs where the stock market values it. I truly believe, it’s just a matter of time until the market sees what I see. All they have to do is keep doing what they are doing and I believe this company will be worth much more than they are today. It’s just a waiting game. I’ve been wrong in the past, but I don’t believe I’m going to be ultimately be wrong about this one…time will tell. I added a bit to my NTNX holdings this month, especially in recent days as the stock price hovered around $26.

Docusign

DOCU is a great company that just keeps on getting greater. I’ve also been adding to DOCU during March with a portion of the proceeds from the companies I sold out of.

I actually believe their valuation is cheap right now. They are going to continue to ride the wave of e-signature growth, especially internationally, and then I expect their agreement cloud will be very successful.

And this press release, just a week ago, for their newly launched Online Notary, I think is big news, and hasn’t gotten nearly the attention it deserves!

https://investor.docusign.com/investors/press-releases/press…

Today, most notarial transactions still need to take place in person—the inefficiency and inconvenience of which has been increasingly highlighted over the past year by the pandemic. Designed for the emerging anywhere economy, DocuSign Notary makes it possible to notarize agreements via a secure audio-visual session, thereby adding speed, convenience, and cost-efficiency to this essential business function…

…Notary is built on the company’s flagship eSignature solution and utilizes capabilities added from the acquisition of Liveoak Technologies last year. It uses secure identity-proofing technologies to reduce the risk of fraud and provides a detailed audit trail, including a tamper-evident Certificate of Completion and recorded sessions…

…DocuSign Notary enables real-time remote collaboration between notaries public and signers. All parties can use it from their web browsers, without the need for additional apps, downloads or plugins. In addition, for those looking to automate repeatable notarization-specific tasks, the Notary API can be used in conjunction with DocuSign’s eSignature API.

This company isn’t resting on their laurels, and I’m really confident DOCU will continue to be a great investment going forward.

Smartsheets

Like Nutanix, I believe SMAR is worth much more than the stock market does, and I still do. I guessed, in my December writeup, that SMAR is likely to get acquired during 2021 if the stock market doesn’t start to reflect the true value of the company, and as time passes, I believe that is going to be a more and more likely scenario. I couldn’t help but add some more SMAR in March too.

Lightspeed

Although LSPD isn’t one of my highest conviction companies, I do think they are doing the right things to be in a position to benefit as the global economy reopens. They’re not going to be a 100% organic grower like some of the tech companies we follow, but their acquisitions seem to be smart and reasonably priced. I’m excited to see what the future holds for this business. I added some more LSPD this month given that I wanted it to be a less insignificant holding, and given the cheaper stock price.

Datadog

I might regret not adding to DDOG this month. For me, Datadog is a “steady as she goes” type holding. They consistently perform well, and have been a really great holding for me so far, and I expect they are going to be great going forward. I guess the thing holding me back from adding is that I don’t have much of an understanding of exactly what is protecting them from new companies coming in and doing what they do better or cheaper (similar to one my main hesitations with CRWD and NET). And sure, you could say that about other companies I own above, but in most of those cases, I think the valuation makes the risk/reward a lot more interesting to me. So no concerns for me with Datadog, it’s not just as high conviction for me, personally.

Other Comments

In addition to adding shares to several companies with proceeds from the three companies I sold, I also got a little bit more aggressive with some companies in my IRA where they wouldn’t be tax consequences, by selling some common shares of a few companies and replacing them with call options or LEAPS, where available. I made some of these shifts for the following companies.

Magnite
The Trade Desk
Nutanix
Lightspeed

I just felt that the risk reward was good for outsized returns from the depressed stock prices recently and was comfortable shifting the type of investments held. Had I owned common shares of, for example, DOCU, in the IRA, I probably would have shifted some of them too, but my only DOCU common shares are in a taxable account, and I only have DOCU calls in the IRA, so it wasn’t really possible to do this with all companies that I might have been inclined to.

Don’t get me wrong, I certainly didn’t move all of my common share holdings to calls, e.g. the large majority of my Magnite position is, and continues to be, common shares, despite the calls performing fantastically well since November.

This is one of my favorite times of year to be an investor because most companies get extended time to file their year end earnings and filings, but not for Q1, so the first quarter results come in really soon after the year end was just announced. It doesn’t really kick in for our companies until the beginning of May, but I’m excited for more new data to help evaluate and reevaluate our companies over such a short period of time.

Everyone continue to stay safe, and as always, thanks to everybody so many great discussions about these wonderful companies.

-mekong

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Hi mekong,
Please remember that this board is not for the discussion of pros and cons of options, which are OT for our board. Please limit your discussion of them in the future.
Thanks,
Saul

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Saul

Sure, No problem

I never include details of the option contracts, exercise prices, etc that I invest in, or encourage anyone else to buy options. I believe most investors should not dabble in them until they are very experienced.

I historically included just enough information about my holdings in my monthly writeups so that my returns or actions won’t be misleading to someone trying to understand the summary. So they understand my thought process around the changes made within the portfolio during the month.

For example, I wouldn’t have sold my Crowdstrike this month if I had owned only common shares, so it would be hard not to describe why I sold out of CRWD this month without giving the very brief mention that I did of how the upcoming expiration of those calls factored into the decision. I didn’t want it to sound like I had a negative opinion of CRWD (I don’t) which would likely have been the impression to the reader if I left out any mention of the nature of the holdings. It’s just not as high confidence as my other companies and I was going to face a decision where I had to part ways with it, or change the nature of the holding pretty soon, regardless.

But I have no problem cutting back further in future writeups. If readers are confused about anything, they can always reply to me via email. We do get a lot of users on this board that post reply questions to the board rather than emailing them (possibly because they aren’t aware that the email reply exists) so, especially when I can clarify something within one single, larger post (without adding any new posts and replies) to the board, in the past I would do so to help cut down on and avoid useless responses that clutter up the board.

But again, I don’t mind reducing further, I’ll just post the commentary on the companies, in addition to the summary of returns and overall allocation. That will save me some time and get my updates posted quicker in the future.

Thanks, as always, for all of your efforts here, and for keeping the conversation focused!

-mekong

62 Likes

Nutanix continues to be the company with the biggest delta between the value that I ascribe to the company vs where the stock market values it. I truly believe, it’s just a matter of time until the market sees what I see. All they have to do is keep doing what they are doing and I believe this company will be worth much more than they are today. It’s just a waiting game. I’ve been wrong in the past, but I don’t believe I’m going to be ultimately be wrong about this one…time will tell.

Nutanix is a hybrid cloud/on-premise solution, which is something most companies don’t care about anymore. The move to the cloud has been accelerated by the pandemic, and everyone just trusts the cloud now, so there’s even fewer reasons to host something on your own servers in your climate controlled rooms, performing your own backups and sending them off-site, and dealing with power stability, OS upgrades, etc.

The one bit of hype Nutanix had going for it was a promise that eventually it would enable people to seamlessly move applications from one cloud platform to another. That’s turned out to be more of a hope than a promise, and besides many applications are now cloud agnostic anyway so even that is less valuable than it was just a couple years ago.

Sorry to rain on your parade, but that’s the way I see it.

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Hi Smorg

I’m not suggesting that NTNX is going to grow at 50-70% any time soon. They don’t need to for their stock to potentially be a great investment.

When (I guess I should say “if”) their GAAP revenue starts showing growth in the teens to low 20%'s, which I believe will happen at some point in 2022 if not sooner, then I expect their stock price could easily be at least triple what it is today.

And the best part is that they don’t need to accelerate their business growth in order to achieve those growth rates. They’re already doing it. They’ve been consistently growing their business by well over 20% per year over the past few years. It doesn’t show up in their GAAP revenue growth (yet!) because of their transitions from hardware to software sales and then from software to subscription, and then from their old model of incentivizing salespeople to sell bigger longer term total-value deals, to now selling higher per-annum deals that easily renew at the end of each subscription. I realize that all sounds messy and for anyone not following them closely in recent years, more than enough reason to stay away from NTNX as an investment. I’m not encouraging anyone else to buy them, just explaining why my allocation is what it is.

My expectation is actually that we will see GAAP revenue growth, even higher than the low teens / high 20%'s I mentioned above next year. Heck, last quarter their ACV (Average Contract Value) revenue (which is the best way to evaluate them apples to apples despite the changes in sales models recently) for the quarter grew by +28% compared to the same period of the prior year. Once the subscription renewals kick in for the first time since moving to the subscription model (won’t start significantly until next year, but will be very high gross margin), I expect that ACV growth is only going to rise further. Given that their valuation today essentially factors in near zero future growth, my expectation that the stock price might only triple at some point in 2022, even with relatively slow (compared to hyper growth co’s) growth rates, could turn out to be conservative. Keep in mind, Nutanix’s revenue today is already MUCH higher than most of the companies that get discussed on this board, which is why even those non-hyper growth rates should have such a big impact on their value.

I may turn out to be wrong, it’s certainly by no means a guarantee. It’s obviously a different type of investment than we typically discuss here, which is why I don’t go into much detail on them here. Although Nutanix used to be widely owned by many on this board, it’s no longer the same type of situation that we usually discuss, so I’m fine continuing this discussion off-board if you’d like to discuss further, so we don’t distract from the high growth company conversations.

-mekong

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