Two big months in a row!
It’s amazing how quickly things change this year. Mid February I was on top of the world when it comes to my investments. A month later, down in the dumps, and, since then, pretty consistently working my way back up. The past few months, I’ve done very summarized updates, but for the first time since year end, I have enough time to do a more detailed dive, so here we go!
Background
I had a strong 2019, up 57.1%. I said in my December writeup that if I gained just 25% in 2020, I would be thrilled. Then, in the first six weeks of 2020, through mid February, I was up another, almost 40%, which was more $ gains than the 57% the year before. It was crazy. Well I have a lot of call options and a good sized investment in KMI (a natural gas pipeline operator), so my portfolio really got slammed when COVID hit in March. At one point, I think I was down 50% from the high…on my whole portfolio!
But I didn’t sell, I didn’t get conservative right when stocks were at their cheapest. In 2009, I had a very similar experience where my portfolio lost 50%, and within 12 months, I was reaching new highs. I knew this board had uncovered lots of companies that would thrive in a pandemic, so I made some minor reallocation, but overall felt good about where my money was.
The Latest
May is the second consecutive month where I’ve compounded 25%+ on my whole portfolio. Keep doing that a few times and I’ll be buying that private before long 
Here are the results at the end of each month of this year. As usual, these are adjusted for new money added, so only reflects the actual performance of the investments:
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%
Given the economy, given that the S&P is still negative, I’m pretty thrilled to be where i am right now, especially after the huge year in 2019.
May Allocations
Here’s my May breakdown with comparison to December 31st, and to last month:
12/31/2019 4/30/2020 5/31/2020
MDB 15.0% 17.5% 19.0%
AMZN 18.3% 24.0% 18.8%
AYX 12.3% 19.3% 18.6%
NTNX 6.9% 7.3% 9.1%
TTD 18.5% 8.9% 9.0%
DDOG 2.1% 4.3% 5.4%
DOCU 3.5% 5.5% 5.2%
KMI 11.7% 5.7% 4.3%
OKTA 4.9% 3.7% 3.8%
LVGO - - 3.6%
CRWD 2.3% 2.1% 2.7%
ESTC 1.7% 1.1% 1.6%
GH - 0.5% 0.6%
SMAR 1.0%
ZS 1.5%
ZM 0.4%
MDB has moved into the top position in my portfolio. It would have held an even higher percentage, except I sold 2.5% of my portfolio in MDB right at the end of the month, where I feel the stock price has gotten a bit frothy. I have Jan '21 and '22 call options, so I sold off the shorter term '21 ones that are in a nontaxable IRA, but plan to hold all of my regular common shares, the '22 calls, and the taxable brokerage account '21 ones (might even exercise those in January putting more money into MDB, like I did in Jan '20 earlier this year)
AMZN is actually up more than 30% this year, so that allocation has grown since December without any new money invested. My AMZN shares are all in a taxable brokerage account with a very low cost basis. Given how much I think they will continue to benefit from the pandemic and the “new normal”, I plan to continue to hold these shares and not pay the taxes that would result from a sale. If the market cap grew close to $2T, I would almost certainly start to sell some, but that remains a long way off.
New purchase of LVGO in May.
TTD was my largest holding at the start of the year. I sold off half of my TTD when the pandemic hit because I thought advertising budgets would get squeezed, negative impacts from the olympics postponement, possible slowing sales of smart tv’s. Well all TTD has done since then is shoot up like a rocket, so my timing wasn’t great. Last month I said my biggest mistake this year so far was selling TTD to buy more AYX. Well a month later, and AYX’s gains since I made those trades have pretty much equaled them out now, so it’s no longer looks like a poorly timed move. However, I have been moving money back into TTD in May. I think they will be incredible over the next 5-10 years and I want to have a significant stake for that ride.
I said in December that TTD, AYX, and MDB (and to a lesser extent DOCU) were the companies that I think will be huge winners over time and that is why I had so much of my money in them, and continue to. I still feel that those are the companies that, if I had to only own 3-4 companies in my whole portfolio and not look at them for 5 or 10 years, those would be the ones. They may not grow as much as some of the others that are growing at 80-100% today, especially in the near term, but they aren’t priced to, and I think their valuation gains for these will beat many of the higher growth companies we follow over that period.
Large Option %'s
I do have pretty big percentages of some holdings in call options, mostly longer terms ones that expire in 2021 and 2022 (KMI being the exception with many shorter term Jun and Sep '20 calls, many of which will likely expire worthless). Although we don’t talk about options on this board, I include this information because the percentage gains below would look wrong, for many of them, without it.
These companies, I own 100% of my stake in call options:
CRWD
ESTC
GH
These companies I own between 40%-75% of my holdings in options:
TTD
DOCU
NTNX
KMI
These have 25%-35% in calls:
MDB
AYX
And these are all just regular common shares, no options:
AMZN
DDOG
OKTA
LVGO
There are different reasons why I have more options in certain names, I discussed that in my December writeup so won’t go through it again, as it’s the same reasoning.
Year to Date Gains
For anything I owned at 1/1/20, this reflects the YTD gains, and any new purchases or adds, shows the gains since I purchased them in 2020. As I mentioned above, the high options in some holdings will look unusual (e.g. CRWD common shares obviously weren’t up 200%+ this year, but all of my holdings were. KMI wasn’t down -64%, but many of my KMI holdings were shorter term options that are nearly worthless today).
CRWD +205%
DOCU +125%
DDOG +120%
MDB +116%
ESTC +85%
OKTA +70%
AYX +61%
AMZN +32%
TTD +22%
GH +20%
LVGO +4%
NTNX -15%
KMI -64%
Looking at that list, my first thought was, why am I only up 27% this year with all of those big gains? Well unfortunately, CRWD, DOCU, DDOG, and ESTC are some of my smaller holdings. I also note that I never would have replicated that kind of success with some of those names if they were bigger holdings. E.g. if I had 20% of my portfolio in CRWD, there is no way, I would have had all of it, one-fifth of my port, in such risky options, so I never would have made +205% on a much bigger stake in CRWD. I think I mentioned in December that the primary reason I own options in CRWD, and not shares, is because it wasn’t one of my highest conviction stocks but I wanted to participate more if it gained without investing as much money in it (and not taking on as much risk if it sank). I probably wouldn’t have owned any CRWD this year if options weren’t available and I had to buy regular shares, so this worked out quite well, although of course I would have loved to have more, in retrospect.
KMI had an even bigger impact on my portfolio than just -64% of what I owned on 1/1/20, because I (small f) foolishly added to that holding earlier this year which has negatively impacted my overall results further.
May Transactions
I had no transactions in my taxable brokerage account this month, but made some reallocations in the IRA:
Trimming:
AYX
MDB
Buying:
LVGO
TTD
NTNX
Early in the month, I sold some AYX to buy LVGO. Since then, AYX is up +21% and LVGO only +4%, so short term, not ideal, but I like the prospects of LVGO and don’t believe it is as overpriced as other names that are growing at close to 100%, so I am happy to have a relatively small stake in it for now.
After that, my only trades were late in the month mostly due to MDB’s meteoric rise, when I sold my shorter term IRA MDB Jan’21 options and put the proceeds almost exactly 50/50 back into TTD, and into additional NTNX shares.
Company Rundown
MDB - it’s the future, and new standard, of databases, I still see no signs (yet, but eyes opened) of any other non-relational db really competing to become the new standard. More data being created by many sources, including lots of new connected devices, today, will mean more money for MDB in the future.
AYX - (deja vu) Data analysis will just keep becoming more and more important in today’s world.
More data being created by many sources, including lots of new connected devices, today, will mean more money for AYX in the future.
AMZN - AWS rules, Alexa rules, their retail business is dominant. I don’t even want to tell you how many Amazon orders my account tells me I made in the past few months since moving to Florida. They’re gonna continue to rely less and less on USPS UPS and Fedex, lowering their costs. They, along with Google, are considered the worldwide leader in search. Fortunately, I have a low cost basis so have hesitated to sell shares in the past two years and that has worked out really well.
NTNX - I’ve hesitated to say too much about NTNX in these updates lately because it’s a very polarizing stock and many of our members had bad experiences investing in them last year, but I simply can’t resist the opportunity right now, given where the valuation still sits, so I’ll write up more, but will keep it in a separate section below so you can skip over it if not interested.
TTD - As mentioned above, it’s one of my highest conviction companies for the future, the stock isn’t too expensive. I know some here don’t love him, but I think very highly of CEO Jeff Green. He makes their earnings calls easier to understand than any tech CEO I’ve ever listened to. I bought two new smart TV’s this month and every time I think I see an ad that could have been through TTD, dollar signs bounce through my head.
DDOG - I’ve timed my DDOG purchases quite well, not buying when it first IPO’d and ran up, but buying at good valuation points last year, and adding a fair bit more near the lows in March this year. I didn’t realize just how much it has run up in May until now. This would probably be the next company I would add to my list of TTD/AYX/MDB/DOCU as a possible great long term success story and holdings imo.
DOCU - I should have put more into this company when it was cheaper. The call options I bought in June 2019 are up +550% in less than a year! Same thing I’ve said about them in the past, if they just ride the wave of e-signature market growth where they have a dominant position, this was going to be a very good investment. Throw in any success in the agreement cloud or any other add-ons and it would be a “great” one. It’s already been a great one for me so far. Not as cheap as it looked a year ago, but still a great runway ahead.
KMI - this the the natural gas pipeline operator that has dragged my portfolio this year. I won’t say much since they are off topic, but they (as a company and a business, not as a stock) have actually performed really well so far this year, just increased their dividend while most companies are lowering dividends this year, and will probably continue to be a really great long term holding for a high yield portfolio. Unfortunately macro conditions have scared everyone about any company in this market and their stock price has been pulled down with the tide. Going into this year, I truly expected KMI to be my best investment in 2020, I owned mostly options that I felt strongly (without a global pandemic, of course) would grow between 100%-200% this year. If I had a do-over and could go back to the beginning of the year and you told me everything in 2020 would happen the same, except without COVID-19, I think I should have still owned the same KMI stake that I did. I couldn’t have predicted a once-in-100-year pandemic would hit us, unfortunately, that’s what happens when I take on extra risk. Sometimes you win, sometimes the global economy gets shut down.
Even despite this, it’s only May and I’m already back above the 25%+ I hoped I would achieve this year, so all I can do is look forward and make the best moves for the future. Much of my KMI is in shorter term June and Sept calls, so even if KMI’s stock goes up later this year, this will gradually become a shorter part of my portfolio pretty soon.
OKTA - great company, luckily I got some shares in the $30’s/share, but it’s always looked expensive to me as it rose up, and still does. If the stock price came down another 25-30%, I might be adding to it, but I can’t bring myself to put more money into it over other alternatives at this price. But I’m also in no hurry to sell any, especially with it being held in a taxable account with huge gains already.
LVGO - new position, I kind of covered this above already, I like the market they are in, love their growth, the valuation isn’t too crazy, so I’m happy to have a small stake a see how it goes. Unlikely to add more to it tho.
CRWD - They’ve had a great run in 2020 so far. Still not one of my higher conviction companies, still concerned about competition and moat, I know many folks here have already refuted those concerns, but I’m just not comfortable with much more in them. I don’t expect to add to it, but have certainly enjoyed the runup.
ESTC - I said in December that ESTC was one of the companies I might regret the most, not owning more of it. So far this year, they’ve done pretty well, especially nearly doubling from the lows in March. I did take some of my own advice and bought some new 2022 calls april 21st (about five weeks ago) that are already up +97% in a little over a month. Depending how things shake out, and where the price moves, I could see adding a bit more to them.
GH - Happy to hold the very small stake in Guardant Health, all of which are call options. Risk reward seems good, will probably either be a home run or a strikeout.
Nutanix - skip this part if no interest in NTNX
Back to Nutanix. Saul made a good post about NTNX a couple weeks ago where he said that, if you had been holding Nutanix for the past year, even if you didn’t lose much money, your opportunity cost would have been huge by not owning some of the other SaaS companies that have treated us so well lately. And it was a great post, he was exactly right!..but, if like me, you haven’t just been holding higher priced NTNX shares for a year, and you have been opportunistically buying when the prices were dirt cheap (and you feel the company is going to have a bright future), well you would have made a lot of money on NTNX in the past year. Let me explain:
If you read my Dec 2019 update, you know that one of the main reasons why I was reaching new highs in the second half of 2019 while many SaaS companies went down after July is because I bought a lot of NTNX at it’s lows in August which rose close to 50% by the end of the year. Now yes, the stock went down in early 2020 (I still maintain for no good reason, as the business is performing exactly as I had hoped, even better actually, so far this year), which provided a great opportunity to buy more at what I felt were outrageously low prices. Some of the NTNX call options I bought in March of this year are up +125% already and don’t expire until 2022. Most of the regular NTNX shares I added in April are up 50%+ already, and I have continued to buy NTNX at prices near where it trades today, in May, after seeing the latest earnings release and call. So that -15% YTD number above for NTNX YTD only looks that way because the stock was at a peak at 12/31/19, but it doesn’t mean that most of my Nutanix holdings haven’t already been profitable (they have).
Last quarter they exceeded their guidance, and even beat their pre-announced strong results and gave very positive updates about the current quarter. Deferred revenue is growing tremendously. I expect that their cash burn is going to slow considerable over the next couple of quarters. Some of their products, such as virtual desktop have played right into today’s pandemic needs.
I believe the only reason reason the stock hasn’t moved up more significantly is because the company has provided no new guidance, even for the current quarter, and the analysts don’t like that. That’s fine with me, I will keep buying NTNX at today’s prices because, if I was a betting man (and I am), I would bet that NTNX will be my best performing investment over the next 12 months. Their move to subscription has gone much better and faster than anyone could have imagined. That makes the topline growth look worse than how the company has actually performed.
84% of their billings are now subscription, and subscription is now growing at 43%! Just because their GAAP accounting has shown revenues only growing at single digits in recent quarters, really isn’t reflective of how the business has performed. Keep in mind NTNX’s total revenues are still much higher than most of the SaaS companies we follow. It’s a much bigger company with a much lower market cap. For their subscription, which is the large majority of their business, to be growing at 43%, I feel their valuation is incredible cheap.
What about costs, you say? Their costs are so high that they’ve been furloughing staff, right? While other companies we follow keep growing and hiring, right? I would suggest you listen to the discussion of new subscription sales vs renewals on last week’s earnings call. Almost all of their subscription revenue to date has been new sales since they switched over to focusing on subscription. Yes, some of those sales have come from existing previously-non-subscription Nutanix customers, but it doesn’t change the fact that there would have been lots of needed employee touches and hands-on assistance to get the customers switched over to subscription.
We all know from our SaaS company discussions in recent years is that the beauty of subscriptions is that they renew! Almost none of NTNX’s subscription revenue relates to renewals yet. So they are selling 143% of what they sold last year. Very soon, they won’t need to sell all of that new subscription revenue, or incur all of the related costs. When those subscription deals start to renew, that revenue is going to get banked and added to their new customer sales, and the costs related to the renewals are going to be a tiny fraction of what they have had to incur this year, to make those sales today. I’m not even talking about GAAP revenue accounting that pushes out when revenue can be recognized on a new deal, which of course will have an additional impact and lift to future revenue. I’m only talking about billings and the beauty that future, very high margin, renewals will bring, which are really not priced into the company’s shares at all, in my opinion.
If you do still own NTNX or are thinking about buying, I really encourage you to at least listen to that part of the call.
While I wouldn’t put NTNX together with MDB, TTD, and AYX as the companies I am most confident in over the longer 5-10 year term, I believe their stock price will appreciate more in the near, 1-2 year, term. I’ll put a google calendar reminder into May 2021 to remind myself to see if I’m right.
Concluding Thoughts
So that’s it for another month. I could easily see the rest of this year taking back all of my gains for 2020, or doubling them. It’s such a unique time to be alive, and with uncertainties around when the economy will really re-start much, and when employment numbers will rise, even the strongest companies may not live up to expectations. But five years from now, this will all be a distant memory.
I hope you all continue to stay safe and healthy, thanks for all of the great contributions that have been invaluable
-mekong