My 2018 Review

Overall, this was not a good month, nor a good year. Good riddance 2018! There were bright sides though.

My last update was thread 49018. What a volatile month. One week I was down -4.5% one day, up 3.3% the next, down -4.3% again. In one week. November had a week down 7%, followed by the next week up 9.4%. December saw a new worst week, at a 13% loss. For one week. I had my best single day as well at +7.6% on the 26th when the Dow rallied on a one-day record.

I finished the year only up 5.4%, but my benchmark market portfolio was down over 6%. So I beat by roughly 11%, counting dividends. It’s a victory, of sorts, for a trying year for me. While the absolute gains are not great, it is the best market-beat I believe I’ve ever had in a single year.

I’ll stop reminding readers of this next year, but I got into the high-growth in August, near the high, which explains my returns, which are meager by some standards here. I’m looking forward to better results next year.

It has been an interesting 5 months for me. I’ve had times where I was ready to dump this investing model, or just trim back on it, or go all-in. What kept me in the big cap growth names was a belief they would be a buffer to volatility, but lately that has not been the case. Why hang on to big caps with big losses but slower growth, when my other names have tanked by nearly identical amounts but with much faster growth potential? In other words, the big caps have not done much to slow my decline as I thought they would. All this analysis and retrospection has made me really question why I cling to my old ways. I had a lot of assumptions and opinions that are not standing up to scrutiny.

I track myself against a virtual portfolio invested in VOO with re-invested dividends. This lets me know how much all my work is paying off. This is what I call “S&P” below. My starting point was early 2016, where I “bought” enough shares of VOO to purchase my entire balance, and each quarter I “add” shares to take into account the dividend. Then, knowing the current VOO share price, I know how much I would have if I had truly invested only in the S&P 500. This is my benchmark. My goal (until recently) was to beat the market by 1% per quarter. With high-growth I intend to beat by 2% per quarter - why take the extra risk if I don’t get extra gain?

2018 results by month by month


MONTH   ME    S&P   Diff
JAN   10.8%   5.6%   5.2%
FEB   -0.4%  -3.7%   3.3%
MAR   -2.6%  -2.9%   0.3%
APR    0.6%   0.3%   0.3%
MAY    6.2%   2.4%   3.8%
JUN    1.1%   0.3%   0.8%
JUL    1.1%   3.6%  -2.5%
AUG    8.5%   3.2%   5.2%
SEP   -0.5%   0.1%  -0.6%
OCT  -11.2%  -6.9%  -4.4% <— worst month
NOV    0.3%   1.9%  -1.6%
DEC   -6.6%  -9.3%   2.7%
===  ======  =====  =====
AVG.
YEAR   5.4%  -6.3   11.7%

2018 results, monthly cumulative:


MONTH   ME    S&P   Diff
JAN   10.8%   5.6%   5.2%
FEB   10.4%   1.7%   8.7%
MAR    7.5%  -1.3%   8.8%
APR    8.2%  -1.0%   9.2%
MAY   15.0%   1.4%  13.5%
JUN   16.2%   1.7%  14.4%
JUL   17.4%   5.3%  12.1%
AUG   27.3%   8.7%  18.6%  <— high point of year
SEP   26.7%   8.9%  17.8%
OCT   12.5%   1.4%  11.0%
NOV   12.7%   3.3%   9.4%
DEC    5.4%  -6.3%  11.7%

I began actively managing my IRA in mid 2015, and the annual results are:


2015 beat S&P 500 by  2.4%
2016 beat S&P 500 by  9.7%
2017 beat S&P 500 by  6.3%
2018 beat S&P 500 by 11.7% (high-growth started in August)

(The results pre-2015 we do not discuss in polite company.)

What did I change in December? I finally sold out of NVDA and AAPL both. Part of me wonders why I didn’t bail out of NFLX, or at least trim. Amazon I’m hanging onto due to AWS, but also retail. It has not been fun to watch it slide though. I also sold all REITs except IRM. I think Apple has run into its Steve Balmer lull with Tim Cook, and that is not good. NVDA seems to be an inventory problem, and I expect them to bounce back faster than Apple, but not for at least a quarter.

I bought more shares of existing companies I am in. But added no new names. And cash is sitting at 12%.

Current holdings, largest to smallest:


VMMXX  12.1%
PSJ    11.2%
TWLO    8.4%
MDB     7.8%
AYX     7.7%
AMZN    7.5%
TTD     6.5%
CRM     6.5%
NFLX    6.3%
OKTA    6.2%
PYPL    6.1%
SQ      4.6%
ZS      4.6%
IRM     2.5%
ILMN    2.3%

MDB is my best performer by far. Of the high growth companies I own I feel I know this one the best. Amazon is number 2 performer for me. I sold my NVDA shares at a big overall loss and was my worst performer when I sold it. It was historically one of my top 3 names for a LONG time. Same for NFLX now, which I am now at break-even overall. I need to find a reason to continue to hold NFLX, or it will go as well.

The rapid fall of NFLX, NVDA, AAPL and even AMZN has made it so that I really don’t ever want more than 8% in any single name, no matter what I think of the company. And I need to just never, ever fall in love with a company’s story. I did that with NVDA and AAPL both. I’m still doing it with NFLX. As I get even more comfortable with the volatility and this style of investing I’ll probably start hitting allocations for single names as high as 15%.

The fact I don’t want to hold too much in any given stock, coupled with not finding enough single names to own, is why I invest some of my money into PSJ. This is a software ETF that invests in many of the types of companies discussed here, and gives me a bit of broader exposure and lets me stay invested when I don’t find a stock I want to invest in singly.

An interesting year to say the least. I hit my all time high and got my “second comma” in the IRA, only to lose it when the portfolio plunged more than 25%. Volatility ramped up high. I discovered and wrestled with and came to peace with high growth investing. And managed to live through a steep market decline with some but not much panic, still beating the market and staying above my glide path for my retirement goals.

For 2019, I’m going to watching the few big cap names I have left. AMZN, NFLX and CRM. All three have had recent death crosses, and while I’m not big on technical analysis (and is OT here anyway), it does make me pause. SQ is close to one as well, and it is my worst performer. Interestingly, even though nearly everything has dropped hard recently, almost none of my high growth names have had a death cross, but all of my big-cap did. Enough of this technical analysis stuff though.

Finally thanks to everyone here. Writing these monthly updates for my portfolio have really made me think about what I’m doing month to month. I’m actually keeping a copy of each one locally so that I can review what I’ve been doing and why. I feel like its been a big help to me as an investor.

Oh, and looking forward to, hopefully, second comma coming back home to me in 2019.

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What kept me in the big cap growth names was a belief they would be a buffer to volatility, but lately that has not been the case. Why hang on to big caps with big losses but slower growth, when my other names have tanked by nearly identical amounts but with much faster growth potential? In other words, the big caps have not done much to slow my decline as I thought they would. All this analysis and retrospection has made me really question why I cling to my old ways. I had a lot of assumptions and opinions that are not standing up to scrutiny.

Hi bjurasz, thanks for posting your review. I like the way you really try to analyze what you are doing right and what you have been doing wrong, and how you can improve. Don’t berate yourself being down from August. I am down from August too, and the indexes are way down. A very insightful and well thought out post.
Saul

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here are returns that I can dig and that are closer to what I got!
wheww… I thought I was the ugly ducking here. SaaS focused/concentrated portfolios did extremely well this year (and over the past couple).

You had much in money market. I have other things than SaaS for balance.

tj

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Congrats on a pretty stellar year. I’m happy with my returns and this board as well as the Fool helped me get in early on some good winners for me this year. MDB, AYX, ABMD, NTNX, TTD among others. I’ve owned those for most of the year or the whole year. My heavy investment in NVDA hurt, but even with that, good year.

I’ll take the companies individually. Some are so obvious or have been commented on so much they don’t require much else to comment on. Those are AYX, MDB, TTD and TWLO. Crushers.

Some thoughts on NTNX. Been there since OCT 2017 so I have a good cost basis. It’s understandable that the stock has been under pressure because they are transitioning the way they report earnings. Nothing has really changed about the company or it’s technology and the fact that Hyper Convergence is realizing a disruption of the enterprise computing infrastructure.

A thread from NPI On is Hyper Converged Crossing the Chasm that discussed the market for hyper converged and how right about now HCI is overtaking Converged Infrastructure in total sales. CI declined yoy and HCI grew at close to 68%.

https://discussion.fool.com/is-hyper-converged-crossing-the-chas…

A couple of other points about Nutanix. Nutanix is changing the way they report earnings not “transitioning to a software company”. They have always been a software company, never anything else. They have never designed or built a single piece of hardware. They only ever designed and built the OS that runs an enterprise infrastructure management platform that is installed into the nodes that build said infrastructure. Compute, Storage, Networking, Virtualization, and now Multi/Hyrid Cloud management all largely automated and controlled via a largely automated proprietary software program through a unified dashboard and one-click management. Don’t worry about understanding “what HCI is”, that’s all we need to know about Nutanix Core.

Some things have evolved for them. They started with selling contracted hardware nodes with their software attached through licenses that typically matched the life cycle of the device. They started to sell the same licensed software for other OEMs to pass on with the sell of those company’s nodes. Then they started selling those licenses to be downloaded to a number of other certified devices. Then, instead of licenses they sold that same software via subscription terms.

License terms live and die with the device(non portable). Subscription terms live and die by the length of the subscription terms. A company can update or switch devices and still have the rights and entitlements to the software(portable). Subscription terms sales more than doubled yoy and are approaching license terms.

Why this is important. ALL of the revenue is recognized at the transfer of control of the device for license. License revenue lives and dies by the sale of new devices. Cyclical by nature.

On the other hand, Subscription revenue lives on (think of the 73% growth in deferred revenue) whether a new device is sold or not, “ratably over the course of the contract”. Of course with (because of ASC 606) largest chunk occurring during period where device is sold.

From the earnings slides. Look at the billings slide. At the bottom of that slide they went back and retroactively applied ASC 606 going back to FY Q1 2016 to provide yoy growth comparisons starting in Q1 2017. Here is billings growth staring FY Q1 2017 to Q1 2019 in %.

87, 50, 36, 30, 23, 60, 67, 66, 50

Revenue for same period.

88, 64, 54, 50, 39, 45, 55, 49, 44

I believe we can see that growth has been cyclical (related to hardware sales). But there appears to be a tightening of the extremes. Related to transitioning to subscription terms maybe?

2018 saw Nutanix enter into the SaaS market. Approaching 11,000 enterprise customers and overseeing the infrastructure of those companies gives them an opportunity in solving some of the problems those companies experience in that environment.

Take XI Beam. The problem is that in a multi/hybrid cloud environment enterprises are paying for public cloud IT they are not using. To make it short “Nutanix Beam is a SaaS platform that enables companies to optimize their AWS (or Azure) costs through AI-powered optimization and one-click execution.”

I suggest that 2019 will be a year where Nutanix SaaS add-ons to their impressive Enterprise Cloud OS customer base is where they become cool again…again.

Darth

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