My portfolio at the end of Aug 2020
Here’s the summary of my portfolio at the end of August. As usual, I did it in the last weekend of the month. Please note that when I discuss company results, I almost always use the adjusted values that the companies give.
SORRY EVERYONE, BUT THIS WILL BE A MUCH SHORTER REPORT
I’m having lots of pain and discomfort with a broken shoulder and lots of swelling, and it’’s difficult to concentrate, and very difficult to type and format a typical long write-up with one hand. This will therefore be very abbreviated.
In August my portfolio went back and forth, staying in a range between a high of up 145.6% ytd, and a low of up 98.2% ytd. The low was just 19.3% off the high. (198.2/245.6), and obviously, even at the very low I had no concerns, as my portfolio value had still roughly doubled year-to-date. The portfolio closed the month at up 132.9% (or roughly 233% of where it started the year). This was down 2.2 points, or one percent, from July’s close.
MY RESULTS YEAR TO DATE
My portfolio closed this month up 132.9% (at 232.9% of where it started the year)! Here’s a table of the monthly year-to-date progress of my portfolio for 2020.
**End of Jan + 21.3%** **End of Feb + 22.9%** **End of Mar + 13.4%** **End of Apr + 33.3%** **End of May + 73.6%** **End of Jun + 115.9%** **End of Jul + 135.1%** **End of Aug + 132.9%**
HOW DID THE INDEXES DO?
Here are the results year to date:
The three indexes that I’ve been tracking for years closed this month as follows.
The S&P 500 (Large Cap)
Closed up 8.6% YTD. (It started the year at 3231 and is now at 3508).
The Russell 2000 (Small and Mid Cap)
Closed down 5.4% YTD. (It started the year at 1668 and is now at 1578).
The IJS ETF (The S&P 600 of Small Cap Value stocks)
Closed down 17.9% YTD. (It started the year at 160.8 and is now at 132.0). So much for value stocks outdoing overpriced growth stocks!!!
These three indexes
Averaged down 4.9% YTD. Gained about 6.2 points this month, which wasn’t bad!
If you throw in the Dow, which started the year at 28538, is now at 28654, and is up 0.4%, … and the Nasdaq, which started the year at 8973, is now at 11696, and is up 30.3%, … you get up 3.2% for the average of all five of them YTD. The average gained 7.4 points for the month. And if you remove the two outliers (the Nasdaq and the IJS), it’s practically the same result, up 1.2% for the remaining three.
WHAT DID I LEARN FROM ALL THIS?
First, an average of the market indexes is up about 3%, while a portfolio made up of our stocks is up 133%.
Second, intelligent stock picking does work, in spite of anything you may have heard to the contrary. Picking concentrated portfolios of stocks that will be winners, the way we do, beats investing in Indexes and ETF’s, and by huge amounts. We are not magicians. We just invested in great companies. Of course they are overvalued!
Third, in the Covid pandemic market, large caps (s&p, dow, nasdaq), greatly beat out small caps (russell, s&p small cap value). Tech stocks did best (nasdaq), value socks did worst, and our recurring revenue, high growth, SaaS tech stocks did the best by far.
How often have we heard that no one can beat the indexes? That stock picking is a waste of time and effort? That we will all “return to the mean”? That books have been written that prove it? Well, guess what, Folks, the books are wrong!
And if you look at the past years you will see that picking our “overvalued” stocks has done enormously better than investing in cheap, or “undervalued” stocks.
Again, my results are without using any leverage, no margin, no options, no penny stocks, no fancy stuff, just investing long in great individual companies. And I’ve told you each month what my positions are, and what proportion of the portfolio they are, so anyone who doubts it can check for themselves. And I’m no genius. Plenty of other people on the board have done about the same, and some even a lot better .
To simply state my goals, I’m merely trying to measure my performance against that of the average return for an investor in the stock market, and combining those five indexes should give a pretty good approximation.
LAST FOUR MONTHS REVIEW
May was another very positive month for the portfolio, and I made some changes during the month. I exited Roku early in May.
I went back into Coupa, starting at $172.50, and adding as it went up, after exiting my last big chunk of it in April at about $163.00. (Note that I didn’t even think about the fact that I was buying it at a higher price than the one I had sold it at. That was irrelevant). At the end of June it was at $227.50, up a substantial 32% since that first repurchase early in May.
I sold almost 40% of my Alteryx at roughly $130 for reasons I discussed on the board, and took a 4.0% position in Livongo at $53. I added to Datadog after its spectacular earnings report. All of the above was concentrated near the beginning of the month, but in the last week of May I took a 3.6% position in Fastly at about $39.98, thanks to all the intelligent discussion on the board. It closed June at $86.51, up a rather astonishing 116% in a month…
In my End of the Month Summary for May I linked to what I thought was my biggest mistake in April (selling Coupa), and a deep dive into Coupa and why I was buying it back, to another update about why I was selling Alteryx and buying some Livongo and Datadog, and finally, to why I bought Livongo.
In June I added no new positions and deleted no positions. I increased my Fastly position as much as I could, but I was limited because I didn’t have anything I was really anxious to sell. I mostly trimmed Livongo, as I felt that Fastly’s growth potential, like many of our companies, was based on the growth of data and usage and thus was basically unlimited, while Livongo’s was large but that they’d eventually come to the end of it in several years. There is a limit to how many illnesses can be usefully managed by little devices on-line, but data increases forever. It may be a mistake but that’s what I did. I also trimmed a tiny bit of my Okta and Alteryx for cash to buy more Fastly.
I decided to increase my Fastly largely because they gave guidance for revenue growth of 54% next quarter, which is up 16 percentage points sequentially(!) from the 38% growth in the quarter they just announced. They implied that this was due to increased usage because of the move to the Cloud, accelerated by the pandemic. Well, This was an extraordinary sequential gain in the growth rate, but in the world we live in, no CEO going out on a limb and forecast 54% growth unless he’s
“sure” they will have revenue growth of 60%, at least, next quarter. I’m happy with my purchases. As you remember, my initial 3.6% purchase was at $40 at the end of May. I bought more this month at $45 and $47, and added small bits at various prices from $51 to $64, and this week, a couple of tiny adds even higher, happily adding at “worse and worse value points”, as Fastly continued to rise. I bought at the price it was at. It closed June at $86.51, up over 100% in one month, and up 33% even from my $64 purchase a week ago. It is worth reflecting that if I HAD waited for “better vaue points”, I would have missed the entire 100% rise trying to save 2% or 3%…
And then, with my portfolio more than doubled in size in six months, when I decided to set 4.6% aside in cash, I sold out of my Livongoat $75.56 to raise part of the cash. That was up 26% from my May purchase price in a month.
July I sold out of my remaining Coupa to add to Fastly.
Then, after reading the initial write-up on the British tech company Blue Prism early in the month by Ethan, I got excited and took a 3% small position. But then I started thinking to myself: “I think we made a real mistake here!”
After re-reading the information in the write-up, going on to the earnings report, the comments on Blue Prism board threads by guys with much more tech knowledge than I have (and who are actually working in tech in the field), I became concerned that I was investing in:
a second tier, troubled, company
with rapidly slowing growth, rapidly shrinking market share, losing gobs of money, very negative cash flow, clunky interface, using programs based on very old technology, with poor marketing, getting left behind by the category leader, with a falling price for the last year and 9 months, and a lower price even than the price two years ago.
It seems very much as if we are hoping for a turnaround or an acquisition instead of investing in a category leader.
I asked myself “What am I doing investing in a company like this?”
I sold it all at a small loss (5%) less than a week after I bought it. I’m perfectly aware that my decision may turn out to be a mistake, but that’s what I did and I have no regrets. Oh, I put most of the money into a new little position in Cloudflare, and a some into Zoom and Fastly. I also kept trimming Alteryx and a little of Okta and added to Crowdstike and more to Fastly.
August I sold out of Alteryx for what I think are obvious reasons, keeping just a half percent position to keep it on my radar. I reduced Fastly and increased Cloudflare to equalize the positions. I added small amounts of Alteryx money to Datadog, Crowdstrike, and Zoom, as well as to Cloudflare.
Okta issued quarterly results yesterday, which seemed strong, solid, and steady to me. Notably, operating income, net income, and EPS were all positive numbers, up from losses the year before. Adj gross margin and adj subscription gross margin at 78.9% and 82.8%, were the highest they have ever been, RPO was up 56% yoy, net expansion rate was 121%, up from 118% a year ago, etc.
HOW THE INDIVIDUAL STOCKS HAVE DONE YTD
Here’s how my current positions have done this year. I’ve arranged them in order of percentage gain. As always I’ve used the start of the year price for stocks I’ve been in all year, and my initial buy price for stocks I’ve added during the year. Please remember that these starting prices are from the beginning of 2020, and not from when I originally bought them if I bought them in earlier years.
For example, I bought Alteryx and Okta originally at $27.72 and $29.95 over two and a half years ago, but they are listed below at entry prices of $100.07 and $115.37 because those are the prices at which they started 2020.
**Zoom from 68.04 to 299.27 up 339.8%** **Crowd from 49.87 to 118.64 up 137.9%** **Fastly from 39.98 to 94.57 up 136.5% (Bought in May)** **DataDog from 37.78 to 82.98 up 119.6%** **Okta from 115.37 to 207.98 up 80.3%** **Alteryx from 100.07 to 120.99 up 20.9%** **Cloudflare from 34.97 to 39.65 up 13.4% (Bought in July)**
The biggest change this month was in Alteryx which fell from up 75% at the end of July to up 21% now.
I also should remind you of the weekend after Zoom’s last earnings report, when there were eight articles on Zoom by different writers on Seekin Alpha, and all eight warned that Zoom was overpriced and that you would do best to sell out. Zoom was at $207 at the time, and is now about $300.
As often happens at times of great stress and uncertainty, I sold off lower conviction positions and concentrated my funds in my highest conviction companies. This brought me down in April to just five positions, but I’m now back up to six, plus the tiny one in Alteryx.
My portfolio now has three positions clustered around 24%, followed by three clustered roughly around 9%. Keeping the number of my stocks down really makes me focus my mind and decide which are really the best and highest confidence positions.
Here are my positions in order of position size, and bunched by size groups…
**.** **Zoom 24.9%** **Crowdstrike 24.8%** **Datadog 22.9%** **Fastly 9.7%** **Cloudflare 8.9%** **Okta 8.7%** **Alteryx 0.5%**
I can’t update this section this month, for the reasons mentioned at the beginning of this post. I hope to be back to normal next month.
Let me remind you first, that I have NO IDEA what our stocks will do next month. I’m terrible on predictions. But I know that the businesses of our companies will do just fine for the most part.
I feel that my portfolio is made up of a bunch of great companies. But that’s just my opinion, and I can’t say often enough that I’m not a techie and I don’t really understand what most of them actually do at all ! I just know what great results look like. I figure that if their customers clearly like them and keep buying their products in hugely increasing amounts, they must have something going for them and, as I’ve often said, I follow the money, the results. And I listen to smart people about the prospects of these companies.
When I take a regular position in a stock, it’s always with the idea of holding it indefinitely, or as long as circumstances seem appropriate, and never with a price goal or with the idea of trying to make a few points and selling. I do, of course, eventually exit. Sometimes it’s after months, and sometimes after years, but I’m talking about what my intention is when I buy.
I do sometimes take a tiny position in a company to put it on my radar and get me to learn more about it. I’m not trying to trade it and make money on it, I’m just trying to decide if I want to keep it long term. If I do try out a stock in a small position and later decide that it’s not what I want, I sell it without hesitation, and I really don’t care whether I gain a dollar or lose one. I just sell out to put the money somewhere better. If I decide to keep it, I add to my position and build it into a regular position.
You should never try to just follow what I’m doing without making up your own mind about a stock. In these monthly summaries I’m giving you a static picture of where I am currently, but I may change my mind about a position during the month. In fact, I not infrequently do, and I make changes in the position. I usually don’t announce these changes until the end of the month, and if I’m busy or have some personal emergency I might not announce them even then. And besides, I sometimes make mistakes, even big ones! Don’t just follow me blindly! I’m an old guy and won’t be around forever. The key is to learn how to do this for yourself.
Since I began in 1989, my entire portfolio has grown enormously.
If you are new to the board and want to find out how I did it, and how you can try to do it yourself, I’d suggest you read the Knowledgebase, which is a compilation of words of wisdom, and definitely worth reading (a couple of times) if you haven’t yet.
A link to the Knowledgebase is at the top of the Announcements panel that is on the right side of every page on this board.
For some additions to the Knowledgebase, bringing it up to date, I’d advise reading several other posts linked to on the panel, especially:
How I Pick a Company to Invest In,
Why My Investing Criteria Have Changed,
Why It Really is Different.
Illogical Investing Fallacies
I hope this has been helpful.