mekong22 Sept 2020 portfolio review

This month’s episode of portfolio review should be entitled “mekong will be paying a ton of taxes in 2020”

But that’s not such a bad thing

So last month, I made more portfolio moves than I have in a while, and this month my moves were even more significant.

So long, farewell AMZN and OKTA

This month I finally sold the majority of my Amazon shares. Most of those shares had a cost basis of less than $300/share, so I’ll be taxed on the majority of the proceeds.

I also sold out of my entire Okta stake, which had cost basis of less than $29/share, so lots of taxes will be paid on those gains as well.

Okta, while I think they can continue to grow and do well, I just think there is more potential for bigger gains over the next few years in other companies. Don’t be shocked if I regret selling out of Okta, but I went with my gut and this felt like the right move at the time.

Amazon was a tougher decision. Do I think AMZN’s shares can grow and compound 25%, over each of the next three years. Yes, I definitely think that is possible. In a past life, if I had a stock with big unrealized gains in a taxable account that had a good chance to continue to grow at 15% a year going forward, much less 25%-30% or more, I would have happily held on. Three years of 25% growth, essentially doubles your stock price. That would put Amazon at a $3.2 Trillion dollar market cap three years from now. While that looks like a gigantic number, if anyone can do it, it will be Amazon. Liquidating my AMZN position and paying a boatload of tax this year, has less to do with whether Amazon can be a $3T company in a few years (I do believe they can) and more to do with the fact that I think I own other companies that can triple or quadruple over that same three year period. If that plays out, I will look back very happily on September 2020, despite filling the Treasury department’s coffers with some extra funds today.

I also had a lot of those Nutanix short term calls that more than doubled in value after earnings in August and were expiring in early September. That timing was somewhat lucky as I was forced to sell them when NTNX was near its recent highs, and that freed up some additional funds to reallocate this month, from a tax-free Roth IRA account so no related taxes from those.

I will most likely sell the rest of my Amazon shares in December or January, with pretty much all of the proceeds going to my 2020 tax bill, and will use the remaining proceeds to exercise some Jan’21 MDB calls that have performed very well for me. (my estimated federal tax payments this year already exceeded last year’s total tax bill, so I don’t believe there will be any penalties or interest for holding off on paying the large remaining chunk of my 2020 tax until the beginning of next year).

Without getting political, I also think the odds are slim that my tax rate will go down in the next few years, and very possible to increase. All of that combined with the pullback in stock prices of some of my highest conviction companies in September, and surprisingly reasonable pricing on the new Jan’23 LEAPS when they first started trading this month, was enough to get me to shift allocations as much as I did.

Movin’ on Up!

So where did those funds land?

DDOG – I added funds more significantly to Datadog than any other company this month. With the stock price below $80, and the positive comments from management in their last conference call about accelerating revenue after the period closed, this felt like a no-brainer to me.

TTD, MDB, AYX – We can call these a “mid-sized add” to each, to add to three of my favorite companies, but not as much as I put into DDOG. Trade Desk price had come down from $510, to almost $400, on no news. MDB down from $250, to almost $200, after reporting a very good quarter. And we all know the story with Alteryx, dropping close to $100/share after the disappointing quarter and guidance. The new ’23 LEAPs were especially enticing with AYX, given how much time that gives them to reaccelerate revenue growth, and the possibilities of where higher growth rates and a related expanded multiple could take the market cap to, a couple years from now.

DOCU, TDOC – I also added to these, but they got the smallest allocation of new funds from me this month, still I felt that both were companies that I wanted to have more invested in. My existing DOCU shares have more than quadrupled in a little over a year, and valuation is one of the reasons why I couldn’t bring myself to add much more to this position, but this company isn’t going anywhere and I expect this will become a bigger and bigger company as time goes on. Even after adding a little, TDOC is still one my smaller positions, but another one where I felt it was worth adding a bit to.

Watchlist – The top of my watchlist are still FSLY and SMAR, although I couldn’t quite bring myself to hit the buy button on either of them this month

Monthly Tables

Here is the YTD performance by month:


End of Jan  +15.5%
End of Feb  + 7.0%
End of Mar  -20.0%
End of Apr   +0.6%
End of May  +27.0%
End of Jun  +40.0%
End of Jul  +48.7%
End of Aug  +57.0%
End of Sep  +50.9%

I failed to get on the Zoom train with the smarter individuals on this board, plus big losses this year in a natural gas pipeline operator (KMI) that got crushed by the pandemic, and my results pale in comparison to the fantastic gains we’ve seen from others. And as I touched on above, several of my bigger holdings pulled back a bit with the overall market in September, so I’m down a few percentage points this month. GH has actually been really strong the past few weeks, along with DDOG, mitigating things just a little bit. Hopefully the allocation of my Amazon and Okta funds will prove, in the future, to have been opportunistically well-timed with the pullbacks this month.

My new 9/30 ending allocations, by company, with comparison to last month:


      8/31/2020	 9/30/2020
DDOG	 5.9%	   17.5%
TTD	11.8%	   15.2%
MDB	10.2%	   13.5%
NTNX 	20.6%	   13.4%
AYX	 9.9%	   12.2%
GH 	 5.4%	    7.1%
DOCU	 3.8%	    5.5%
CRWD	 3.9%	    4.6%
TDOC	 3.5%	    4.3%
AMZN	18.9%	    4.3%
ESTC	 1.9%	    1.9%
KMI	 0.9%	    0.4%
OKTA	 3.4%	    0.0%

Not much to add here that I haven’t already covered above regarding my buys and sells this month.

The Companies

Datadog – Great company. Definitely never looked cheap, valuation wise, but I didn’t see it as quite as pricy as it is sometimes considered. We were given a really great opportunity to buy at a good price even after management’s comments foretold what will hopefully be a very positive trend ahead.

The Trade Desk – I’m blown away by how strong the $500+ stock price has been for TTD. I’m frankly surprised by it. There is definitely short term risk of a pullback (granted, I felt the same way when the stock price was $300 a few months ago). This is definitely a company I’m glad I kept adding to over the past few months because that big pullback may never come. I remember when I added at $300, I only bought a small amount thinking I might get more at a lower price. Well the next time I added this month, it was about $425, and here we are at $520 now. But I think there will be a moment when their revenue just rockets up, it may not be until sometime next year, but that new, huge revenue is going to have almost no incremental costs associated with it. The company has set up the biggest advertisers in the world on their system already, as well as the biggest sources of ad space inventory. Eventually TTD will just sit back and watch the register ring as the revenue scales up with no additional effort from TTD, and that’s what you’re anticipating and paying for, by owning TTD today. Although it’s market cap is lower than DDOG and DOCU today, it won’t surprise me in the least if TTD’s valuation is double that of any of the other companies I currently own (excluding AMZN), a year or two from now.

MongoDB – It’s probably not going to shoot up all at once like some SaaS companies, but I will be surprised if MDB isn’t one my most consistent performers for the next few years. They are the leader in a space that is only going to grow.

Nutanix – NTNX is now a smaller percentage of my portfolio today, as the short term calls that had done so well for me last month were nearing expiration and it made sense to reallocate most of those funds into other companies. I’m optimistic, that if they are allowed to continue to execute for another year or more without being acquired, that the stock will perform well.

Alteryx – If they don’t get revenue growth back up, then, even from today’s prices, AYX won’t be a good investment. But data isn’t going to stop growing, and companies aren’t going to stop needing more and more of AYX’s tools to analyze it. Without getting into OT options details, as I noted up top, the new long term LEAP ’23 calls have me salivating for a company like Alteryx that has potential for both multiple expansion and revenue reallocation over the next year or two.

Guardant Health – GH keeps pushing new all time highs over the past week. Those of us that were buying after they received the FDA approval last month (yet the stock price initially stayed close to $80) have made a quick, nearly +40% in just a few weeks. The competition from Grail has been interesting to follow their almost-IPO and then acquisition by Illumina. If Grail eventually emerges as the dominant leader in early detection liquid biopsies a few years from now, GH may not be a good investment. But if it becomes a huge market and Grail and GH both share the market, even if GH has the smaller share, I think the potential can be so great, that it could still turn Guardant into a profit machine. Of course, I’m hoping that GH will ultimately emerge as the dominant leader, time will tell. They have more than enough funding to last them many years if needed. No doubt, this will be a longer term story than the SaaS companies we follow here, and high risk-reward, but I’m willing to follow it with a relatively small percentage of my portfolio, and watch it play out.

Docusign – DOCU was pretty well covered in the short thread up board this week. From here, I view it similarly to how I described MDB above, in the sense that I think they will be a very consistent grower for the next few years, but don’t expect another huge multi-hundred percent jump up in stock price again like they had over the past year.

Crowdstrike – CRWD gets covered well on this board. It’s been a great year for them

Amazon – It feels strange to see AMZN so far down the list this month. My days as an Amazon owner are coming to an end. I covered it above already. Although I’ve only owned the company since 2013 (yes, that 7 year period feels like a short amount of time to me!), it’s been an incredibly profitable run and even if only a couple of the companies where I’ve re-invested these funds are only a fraction of how successful AMZN has been, I will be very happy.

Teledoc – Their recent SEC filings increased the expected growth rate for the combined company with Livongo. They are positioned well in what should be an expanding area of the healthcare industry. I’m happy with the size of this investment in my portfolio as it’s enough to make it worth following but not so large that I feel that I’m depriving other companies I feel more strongly in.

Elastic – Always been a small investment for me, all of it in ’22 LEAP calls that have nearly tripled so far, and are in a taxable account so I’m unlikely to sell them over the next year unless I feel the story has really been negatively impacted. It’s done well for me so far, and I’d be happy with just solid, steady growth in 2021.

Kinder Morgan – KMI is not a growth company so I won’t get into details here. Was one of my top holdings coming into 2020, but they really got crushed by the pandemic. Not only the actual losses, but also the opportunity costs have caused this to have an outsized negative impact on my gains this year.

That’s it for another month. It’s hard to complain about being up 50%+ during a year like this, especially with great potential for these companies for the future. And congrats to everyone that has done so much better!

mekong

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Nice Job Mekong,
You don’t have your money in a tax advantage account like a Roth IRA or 401k? You might want to look into that and move as much as you can into one of those types of accounts, It would really juice your returns.

Also, I have really been surprised by TTD also and the only thing I can think is that people are listening to Barnum Bailey err I mean Jeff Green and not the CFO Blake Grayson, Because Blake definitely let everyone know that Revenue growth would be in the teens next quarter.

All and All a really nice report though, thanks.

Andy

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Thanks Andy

I’ve always been a big fan of Jeff Green. I realize that a lot of folks feel that he’s too much of a salesman, but I think it’s wonderful how he can describe the business and the prospects of a tech company in plain english that, even I, can understand. The TTD earnings calls are among the ones I look forward to most each quarter because I know I’m going to be able to follow most everything discussed. You are definitely right that near term revenue growth probably won’t be that great, but as I noted above, I think the potential for explosive growth at some point soon, maybe next year, is very possible. And I don’t think we’re going to know when until it’s here.

You don’t have your money in a tax advantage account like a Roth IRA or 401k?

We’re getting into portfolio management which is OT so I’ll just reply this once, but yes, I do have funds in both a 401k and a Roth IRA. I don’t include the 401k investments in the summaries I post because I’m pretty limited in where I can invest that money (only in certain funds) so I keep them entirely in a low cost S&P 500 index fund and, although I track it internally from month to money in my own workbook, I don’t include them above since I don’t have the ability to put the 401k to work in high growth individual stocks like the ones we discuss here.

Also, yes, I have quite a lot of my portfolio in a Roth IRA, due to making the max contribution each year and converting two former employer 401k accounts into Roths. I mentioned above that most of my short term NTNX gains last month were in my tax-free Roth IRA. All of my AMZN and OKTA shares were in a taxable account tho.

Any other portfolio mgmt discussion, let’s keep offline and email me so as not to clutter up the board, thanks!

-mekong

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