My portfolio at the end of 2018

My portfolio at the end of 2018

Here’s the summary of my positions at the end of 2018. Please note that I almost always use the adjusted figures that the companies give.

Here’s a table of the monthly progress of my portfolio this year:

**End of Jan 	+16.9%**
**End of Feb	+21.4%**
**End of Mar	+29.1%**
**End of Apr 	+25.8%**
**End of May	+38.3%**
**End of Jun	+44.3%**
**End of Jul	+55.3%**
**End of Aug	+86.0%**
**End of Sep	+86.8%**
**End of Oct	+47.7%**
**End of Nov	+80.5%**
**End of Dec	+71.4%**

My portfolio closed 2018 up 71.4% in the midst of the biggest meltdown of stocks in years. Many others on the board had similar results, a little better or a little worse. We are not magicians. We just invested in great companies. 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!

Believe me, when we started the year, I never would have expected this kind of result even if it had been an okay year for stocks in general. After finishing 2017 up over 84%, I wrote:

Don’t expect a result like that from me… next year, or any year… It ain’t goin’ to happen!

This year my portfolio’s closing percentage of up 71.4% wasn’t quite at that 84.2% but I am astonished by it and very happy with it. And I achieved it in spite of a wild and crazy last few months of year with most of the general indexes hitting “Bear Market” territory (down 20% or more from their highs), and all of them hitting “Correction Territory” (down 15%), and with a real Bear Market frenzy in all the media the last few weeks.

I have to admit that it was pretty wild for my portfolio too! To summarize (rounded off to the nearest whole number):

On Sept 11 my portfolio hit its high for the year at up 96%
By Oct 24 it had dropped 26% to up just 45%

On Nov 7, just two weeks later, it was back up to up 85%
By Nov 20, just two weeks after that, I was down again to up just 50%

On Dec 3, two weeks later, I was again back up to up 86%
By Dec 24, I was back down to up just 48.5%

And on Dec 31st, one week later, I finished the year at up 71.4%.

Talk about volatility!

While I was bouncing up and down in this range, the market as a whole was steadily descending. On Dec 24, when I had fallen to where I was UP only 48.5%, the five market indexes were DOWN an average of 14.3%. That’s not down from their highs, that’s down from ZERO! The average of the indexes finished the year well into minus territory (see below).

Let me tell you that that was not at all the story line that all the skeptics of our investing style had been feeding us. Our overpriced, no-earnings stocks were supposed to get killed when the market was down. We were told they would fall “much more” than the indexes, “multiples” of what the indexes fell. In fact, just a week ago, one of them posted that our SaaS stocks would lose 60% to 70% of their value over the next month or two. My portfolio rose from up 48.5% to up 64.6% the next day.

I want to thank you all from the bottom of my heart! This has been an amazing two years and I truly couldn’t have done this well without you! This has been a cooperative effort in which we have all helped each other to find great stocks, discuss them, and evaluate them. I have certainly got many of my stocks from posters on this board. Thanks to you all!

If I look at my two-year results, from the beginning of 2017, my entire portfolio is up 216% (that’s at more three times of where I started, more than a triple for my entire portfolio), while the average of the three indexes I usually follow is up less than 2% in that time, the advantage of intelligent investing in high growth stocks becomes abundantly clear.

Now here are some Long-Term, 10 and 20-year results:

For the last 10 years (since the end of 2008), my portfolio is up 1,036%. (It’s at 1,136% of where it started, or more than 11 times where it started, a more than an 11-bagger, for those who count baggers.)

For the last 20 years (since the end of 1998), it is up 7,667% (It’s at 7,767% of where it started, almost 78 times where it started, or almost a 78-bagger.)

I can even stretch it out to 25 years (to the end of 1993) with some confidence. From there it is up 20,385% (or at 20,485% of where it started, 204 times where it started, or approximately a 204-bagger.)

Please note that my 10-year results at the end of 2018 were much better than they were a year ago at the end of 2017, because that horrendous year, 2008, finally rode off into the sunset. However also note that those 20 and 25 year results include both the 2000 bursting of the Internet Bubble, and the 2008 Great Recession. Not bad, huh?

Please keep in mind that those results were without leverage, just investing in ordinary stocks, no margin, no options, no penny stocks, nothing oddball. Yep, stock-picking doesn’t work. There are books written that prove it! :grinning:

Looking back, it was also interesting to see that at the end of 2017, a year ago, my biggest percentage gainers for that year weren’t SaaS stocks at all, but Kite, a little biotech that was up roughly 250% after being acquired, and LGIH, a homebuilder. This year was much different, as you know.

Let me remind you that I’m no good on timing the market, and I don’t try. If I did, I would probably have exited all my positions at the end of April 2017, when I was up 26% in four months and was “aware” that “it couldn’t continue” like that. After all, it had already beaten my total results for 2015 and 2016. It was time to get out and wait for a pullback. Ha! I would have missed all the rest of 2017 and all of 2018. We never pulled back to the levels of April 2017 again, or anything close!

Well-intentioned people have been warning us constantly that another bear market and/or recession is coming. “The bull market is too old.” or “The market is too high.” or “This technical indicator proves it.” Honest to God, I’ve heard that all of their charts and indicators proved it in 2010, 2011, 2012, 2013, 2014, 2015, 2016, and again last year in 2017. Eventually they’ll be right (we may even have started a Bear Market in December), and they will say “See! I told you so! I was right all along!” But what a price those people paid for “keeping their powder dry” and staying out of this market for the past ten years, waiting for the big correction that never came.

Picking good companies makes much more sense to me than trying to pick good companies AND trying to time the market too. I have stocks in a small group of remarkable companies, in which I have high confidence for the most part. I feel that they mostly dominate their markets or their niches, they are category crushers or disruptors, they have customers that absolutely need them, they have long runways, and they will have great futures.

The three indexes I traditionally have followed are down 11% for the year. When you throw in the Dow and the Nasdaq, the five indexes averaged down 8.5%, being held up slightly by the Nasdaq. (details further down). Clearly, picking stocks that will be winners, the way we do, has beaten investing in ETF’s and Indexes, and by huge amounts.

The three indexes that I’ve been tracking against closed the year as follows.

The S&P 500 (Large Cap)
Closed down 6.6% for the year. (It started the year at 2684 and is now at 2507).

The Russell 2000 (Small and Mid Cap)
Closed down 12.5% for the year. (It started the year at 1542 and is now at 1349).

The IJS ETF (Small Cap Value)
Closed down 14.1% for the year. (It started the year at 153.6 and is now at 131.9).

These three indexes
Averaged down 11.1% for the year.

If you throw in the Dow, which is down 5.6% and the Nasdaq, which is down 3.9%, you get down 8.5% for the five of them, on the year.

If you compare that loss of 8.5% with my gain of 71.4% I must say that it doesn’t make investing in the averages seem “conservative”, to put it mildly.

Why do I use those three indexes? Well, they give me 500 large caps (the S&P), 2000 small and mid caps (the Russell), and 600 small cap value stocks (the IJS), which combined ought to give me a very representative set of standards to compare against. These are the indexes I’ve been comparing against, and I will probably continue to do so. I have felt that they give me a pretty good approximation of how the market overall is doing. However, the last four months I’ve also thrown in the Dow and the Nasdaq, so as to hit all the major indexes. I may continue to do that, although I consider the Dow a nonsense index with 30 stocks weighted by stock price, instead of market cap like the S&P and most other indexes…. Weighted by stock price! Just think about that! It’s a total anachronism.

(The averages would be very slightly higher if you use the S&P with dividends added, but I’m continuing to use the straight values for consistency with past results. I consider the roughly 0.1% per month that the average of the three indexes would be changed by including S&P dividends to be irrelevant considering the magnitude of the differences between our results and the results of the indexes.)

HOW CAN WE EXPLAIN THE DISPARITY between our results and the averages? Well this was the year that Software-as-a Service (SaaS) blossomed, and we were here to profit from the revolution. I have to say again that we seem to have caught a secular wave, in which our companies are exploding in function and importance as well as in revenue, which is mostly recurring. It’s the wave of big data, the cloud, artificial intelligence, and all enterprises, whatever field that they are in, using more and more software, and wanting to use the cloud, AI and the rest… I had some big winners outside of that area, but it’s been that big wave that has carried us. And, in general, most of our companies provide the picks and shovels for enterprise companies switching over to the cloud, and the enterprise companies NEED what our companies have to offer.

One or two critics on the board have said I shouldn’t compare against the market, but should compare against indexes of Cloud and Internet-based stocks because they are closest to what ours are like. I think that that is fallacious and ridiculous. I don’t compare against stocks that are just like mine. What would be the sense of that? You can only compare against indexes of stocks just like mine when you already know what I’ve invested in, and know how well they have done, and then look backward to figure out some index close to my stocks. What would that prove? It’s so silly as to be laughable.

To simply state my goals, I’m trying to measure my performance against that of the “average return for an investor in the stock market,” not the return of someone who is smart enough to invest in the same “kind” of stocks I’m in. It’s as simple as that.

I continue to believe that intelligent stock picking with a modified buy-and-hold strategy can beat any index or average? How could it not? When an “average” is just that: an average of good, mediocre, and poor companies?

The stocks I’ve been in for at least the past six months (since the end of June), are Alteryx and Square (which I started the year with), Twilio, Okta, Mongo, and Zscaler. They make up just over 75% of my portfolio.

Current positions added since the beginning of 2018 have been:

**Jan -  	Twilio, and Okta.** 
**May – 	MongoDB** 
**Jun - 	Zscalar** 
**Oct - 	The Trade Desk** 
**Nov -	Elastic, Abiomed, and Guardant Health**
**Dec - 	Nutanix, Vericel** 

Here’s my last four months review:

September. I sold out of Pivotal when it had a disappointing and confusing conference call. Many others said they did the same independently. It’s been discussed at great length so I won’t go further into it.

I tried out a little (under 1%) position in Nvidia again, but didn’t hold it for more than two days, I think it was. I bought a starter position in Arena Pharma, not knowing much about it, but relying on Bulwinkle who knew quite a bit about it.

And, as I wrote the last two months, I segregated away a certain amount of cash out of the market. Why? You ask. Well, I’m getting not only older, but old, and there’s a limit to the amount of years I have left to live. I want to have enough set aside for my family. I can also cover our living expenses more easily as we live a reasonably simple life. And besides, it’s too much work for an old guy.

October. Early in the month I sold my little try-out position in Arena and bought a smaller position in another little biotech, Amarin, which was also discussed on the board. Why? Arena had two or three years until marketability (if everything went right), while Amarin had its product out there already, approved and on the market, although its market might not be as large as claimed. I also bought a starter position in The Trade Desk at about $121, after reading a lot of positive opinions about it on the board, even though I have been stung in the past by advertising companies.

November. In my end of October post I mentioned starting two try-out positions in Amarin and The Trade Desk. My position sizes were 0.6% and 1.7%. The two try-outs had very different outcomes. I sold out of Amarin by November 9th, and bought a lot of TTD, building it up into a 8.6% position.

At the end of October I also had two small (3% and 2%) positions in PayCom and Wix, which I had started in August. One was up 3%, and the other was down 2%, at the end of October, and I rated them each at three stars of confidence (out of six). I sold out of both of them in early November. Paycom’s results were good but so-so at the same time. They said they had a lot of extra expenses which would continue into the next quarter. I like Wix, but this is the third time I’ve tried it and I can’t seem to get enough confidence in it to stay in it.

I decided to take a new position in Elastic in the first week of November with an average buy-in point $65.50. It’s still a small-medium position at 6.4%.

I sold out of Nutanix for cash. As you all know, I had been reducing my stake for quite a number of quarters. It had become a complicated, hard to figure out, low-confidence position, and went into my “too-hard-to-figure-out-what-is-going-on” basket. It seemed to me that you have to make too many guesses at what is actually happening. Some said that this is like the hidden growth with Twilio some months ago. It didn’t seem that way to me. Twilio was crystal clear. One company, Uber, which had been a big customer, was reducing their purchase and taking it in-house, while the rest of revenue was growing 60% or more, every quarter. It was simple and spelled out clearly by the company. With Nutanix, I couldn’t tell what the heck was going on any more. I’ve read commentaries on the board since then that made me think that Nutanix will do fine after all. Who knows? I wrote here that I may re-enter some time, and I actually did in December.

I trimmed a little Twilio when it went over a 20% position.

I added two small biotech positions in Abiomed and Guardant Health in the last two weeks. I said that I was not sure that I would keep them, but that I was leaning that way. I said that I would keep them small.

December. Early in the month Mongo, Okta, Elastic and Zscaler all released their October quarter results at once. They were all beautiful results, and the four of them rose an average of 9.5% the next trading day, but fell back a good part of that the day after that, when the indexes were down a substantial amount. I added to all four of them, continuing to trim New Relic and finally sold out of it for cash as it continued to not rebound off its lows and I didn’t know why not, which made me very uncomfortable!… Square was also way down from its highs too, but I was assuming that was because Sarah Friar, the CFO, was leaving them.

At the end of the second week, I decided to buy back into a 4% position in Nutanix. I cut my position in Square by about half and used that cash to buy the Nutanix and add to Mongo, Elastic, Okta, etc. Then during the next week, with the big sell-off, I sold another quarter of my Square and added to Alteryx, The Trade Desk, Mongo, Twilio, Nutanix, Okta, etc.

Why would I cut Square? That’s a good question. I had been pretty enthusiastic about it before. Well, part of the reason was that I had written in post #49288… that companies like Mongo, Okta, Zscaler, Elastic, Twilio, and Alteryx have huge goals, and huge expectations of literally taking over worldwide fields of storage, identity, security, search, communication, and data analysis, and have huge runways, while other companies are successful in little niche markets but have limits to where they can go. This may help explain higher prices in relation to revenue for the Zscalers, Twilios, and Alteryxs of the world.

Well, I thought about Square and how its market is unbanked tiny merchants, (and restaurants), and
first of all, their clients will be hit hard in any recession, and
second, while they can go up-market from ‘tiny’ merchants to some ‘very small’ merchants, they are really in a small niche with no way to actually take over the world, and
thirdly, thinking of leadership, their admired CFO, Sarah, left, and their CEO, who was also responsible for being the CEO of Twitter as well, responded to the crisis of his CFO leaving by abandoning both companies and going off on a meditation retreat in the South Pacific,
fourthly, they have plenty of competition (PayPal, etc), while companies like Alteryx, Twilio, Okta, Zscaler, etc, don’t seem to have much effective competition, and
fifthly, unlike the above mentioned SaaS companies, Square has gone down, and down, and down, much more than the SaaS companies, and hasn’t bounced with the them either, and
finally, Square’s market cap is $23 billion and that is much harder to quadruple than a company with a market cap of $3 billion.

I don’t feel I need to sell out of all my Square. After all, their rate of growth of adjusted revenue for the last 7 quarters has been accelerating each quarter, and has been (in percentage of growth): 39…41…45…47…51…60…68%. That’s pretty amazing, but I felt that it sure shouldn’t be my 3rd largest position, and probably shouldn’t be in the top half of my portfolio. I started reducing my position at $71.60, but to be honest, the average price of my sales was more like $64.00. Square closed the year at $56.09

Okay, why did I buy back into Nutanix? Well, a lot of the posts on the board influenced me, and press releases from Nutanix, and Bert’s enthusiasm, but probably the straw that broke the camel’s back was when Bert quoted the Morgan Stanley analyst who said that Nutanix was the most innovative company she had seen in almost 20 years of experience. However, it’s only a 4.5% position, and it will have to prove itself.

Finally in December I also added another small biotech, Vericel, that Ethan had brought to the board. All three of my little biotechs moved down with the market and didn’t move with my SaaS stocks, but then bounced later. They march to a different drummer.

Here’s how my current stocks have done this year. I’ve arranged them in order of percentage gain. 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.

**Twilio from 25.70 to 89.30		up  247.5%**
**Alteryx from 25.27 to 59.47		up  135.3%**
**Okta from 29.95 to 63.80		up  113.0%**
**Square from 34.67 to 56.09		up   61.8%** 
**MongoDB from 43.48 to 83.74		up   92.6%**
**Zscaler from 35.84 to 39.21,  	   	up    9.4%**
**Elastic from 65.50 to	71.48		up    9.1%	(new in November)**
**Abiomed from 303.0 to 325.0		up    7.3%	(very new)** 
**Vericel from 17.25 to 17.40		up    0.9%	(new in December)**

**Guardant from 38.35 to 37.59	      down    2.0%	(very new)**
**Trade Desk from 121.0 to 116.1        down    4.0%	(new in October)**
**Nutanix from 45.00 to 41.59	      down    7.6%	(new in December)**

Exited positions this year showing my gain or loss from the beginning of this year, or from when I first bought if it was during the year, and my average exit price.

**Shopify  from 101.0 to 145.0	up 		43.6%**
**Pure  from 16.72 to 22.50	up 		34.6%**
**Nvidia from 193.5 to 248.0	up  		28.2%**
**Nektar from 59.7.0 to 76.0      up  		27.3%  1st time**
**Talend from 37.48 to 47.50      up  		26.7%** 
**Hubspot from 88.4 to 108.0      up  		22.2%** 
**Nutanix from 35.28 to 43.10	up 	  	21.9%**
**Amarin from 19.40 to 22.75	up 		17.2%** 
**Arista from 235.60 to 274.0,    up     	        16.3%**
**Pivotal from 19.18 to 22.00	up  		14.7%** 
**MongoDB from 38.00 to 43.50   	up 		14.2%  1st time**
**PayCom from 120.20 to 124.50	up	  	  3.6%**

**Wix from 96.3 to 95.2		down	  1.1%  3rd time**
**Wix from 102.5 to 98.1		down	  4.3%  2nd time**
**Mime from 32.34 to 30.85	down	  4.6%** 
**Arena from 41.60 to 39.40	down	  5.3%  try-out in Sept**
**LGIH from 75.0 to 71.0 		down 	  5.3%** 
**MongoDB from 41.00 to 38.65	down 	  5.7%  2nd time**
**Wix from 69.2 to 61.8    	down	 10.7%  1st time**
**New Relic from 102 to 83    	down	 18.6%**
**Nektar from 103.0 to 54.0       down	 46.6%  2nd time**

POSITION SIZES. I’m still trying to keep my portfolio concentrated and streamlined. I’m now at 12 positions, 4 of which make up 63% of my portfolio, and 8 of which make up 91%. The smallest four include three little try-out bio-techs that I’m just thinking about and may not keep (although I probably will). By the way, keeping my number of 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. Note that Alteryx and Twilio positions are larger than I usually like, but they are very high conviction Category Crushers.

**Alteryx 		20.4%**
**Twilio			20.1%**
**Zscaler		 	12.8%**
**Okta			10.1%**
**MongoDB 		 9.1%**
**The Trade Desk	         7.8%**
**Elastic			 6.4%**
**Nutanix 		 4.6%**
**Square			 2.6%**
**Abiomed			 2.4%**
**Vericel			 2.0%**
**Guardant Health	         2.0%**

My top stocks are Twilio and Alteryx. As you can see, they are by far my largest positions. Alteryx and Twilio are each over 20% of my portfolio (mostly because they were already my first and second positions when they each announced great results and bounded ahead in price). They are both small companies but in my opinion they have each created their market categories and each dominate the market they are in with no credible competition (except do-it-yourself). I’d have to call both of them Category Crushers. I wouldn’t recommend to anyone to have over 40% in two stocks, but that’s the way it is.

I’ll start with Alteryx. This is my largest position at 20.4% of my portfolio. What they do is to enable non-techies to quickly and easily analyze data. Their clients therefore love them. They announced splendid third quarter results this month, and had a euphoric conference call. Their revenue percentage growth looks like this:

**2016:          57  67**
**2017:  61  50  55  55**
**2018:  50  54  59** 

That looks solid as a rock to me. And note that that 59% revenue growth was a re-acceleration from 54% seequentially, and from 55% a year ago.

Their adjusted gross margin was 91%, up from 86% a year ago. That’s 91% gross margins!

Their deferred revenue at the end of the year the last four years, in millions of dollars, has gone: 29, 44, 71, 114…. Take a good look at that!

Their dollar based net retention rate has been over 130% for the last eight quarters. Before that it was in the 120’s, so it’s improved with age and size.

Their number of customers, 4315 at their last report, is almost quadruple the number of customers that they had three years ago, and up 41% yoy.

The number of shares is growing fairly slowly, which is remarkable for one of these super fast growing companies.

They feel they have no competition. From one of their conference calls: “We are in a space where there’s little to no competition and a much larger TAM”..

I didn’t sell any at all during the last six months, and added trivial amounts opportunistically. They finished the year up 135% for the year. I still feel very justified in calling Alteryx a Category Crusher, with very high confidence level. I’d give it six confidence stars out of six.

Next Twilio, a 20.1% position. They provide communication services and they seem to have no viable competition in what they do besides “do-it-yourself”. One company, Uber, who had been a big customer, decided to do-it-yourself, which caused weak year-over-year revenue growth comparisons for Twilio over the past year. That is, if you can call 40% revenue growth weak…that was the lowest yoy comparison, back in the December 2017 quarter… Revenue growth is now back up to 68% and climbing. It had always stayed above 60% year-over-year growth if you excluded Uber.

Twilio announced results for the September quarter in November and proved it is a Category Crusher, a Juggernaut, a One-of-a-Kind company, and a pure phenomenon of nature. Its revenue growth accelerated from 41% a year ago to 68% this quarter. The last five quarters’ growth rates have been:
68% !!!

Most companies would cut off their right arm for that 41% growth they had a year ago, but that growth rate is now up to 68% !!! And accelerating. It was 70% growth excluding Uber!!!

Now look at dollar based net retention rate: 122% a year ago. That was great. But now it’s 145%. That’s greater! The last five quarters have been:

They hit adjusted profit in the June quarter unexpectedly, making 8 cents, and this quarter they made 15 cents.

They had 61,153 Active Customer Accounts up from 46,489 a year ago.

They had a euphoric conference call:

… I think that that means there’s a runway for us for many, many years to be replacing old legacy technology… I think there is going to be no shortage of opportunity for us to do that for years to come.

They are also euphoric about their new Flex call center product, for which the beta was oversubscribed, and which they just released for general availability. They also launched Twilio Pay, Twilio Autopilot, Twilio Super Sim, acquired Ytica, and extended their partnership with T-Mobile by creating a new developer platform for the T-Mobile Narrowband IoT network, a new network technology for the Internet of Things (IoT), that has the potential to open up a substantial market for new categories of lower-cost, battery-efficient, internet-connected devices that don’t exist today.

I’ll give it six confidence stars as well. To be honest, probably seven stars on a one to six scale. Do I like it? I’ll let you figure it out. Actually I think of each of these two companies as juggernauts. They are each a one-of-a-kind company. Each controls its space and is growing like mad. Oh, by the way, the day after results were released Twilio rose $24, which was 35% in one day!!! (As I remember it, anyway). I’m not the only one who feels this way.

Zscaler has moved into third place at 12.8% of my portfolio. I’ve been building my position gradually. This company has an interesting, innovative, and revolutionary idea in Internet security (and insecurity). They feel that putting a hardware firewall around a company doesn’t work anymore, now that the enterprise company is partly in the cloud and people can sign in from anywhere, and sign on to other outside programs from within the enterprise. Zscaler provides native cloud-based security, and as far as I can tell they are far and way the leader in this, if not the only player. They have 100-plus data centers all around the world, which would be very difficult for most potential competitors to replicate. Zscaler has been operating them for ten years.

Here’s what their earnings looked like:
• Revenue up 59% to $63 million. This was an acceleration from 49% growth a year ago, and from 54% sequentially
• Calculated billings up 56% to $65 million
• Deferred revenue up 68% $165 million
• Adj net income of $2.0 million, improved from a loss of $7.5 million. (They hit a profit before they expected!)
Adj op income was 2% of revenue or $1.2 million, improved from a loss of 19% of revenue or $7.4 million.
Adj EPS was 1 cent, improved from a loss of 7 cents
• Op Cash Flow was 17% of revenue or $11.0 million, improved from a loss of 11% of revenue or $4.4 million
• Positive free cash flow was $5.2 million, or 8% of revenue, improved from negative $8.9 million, or 22% of revenue
• Deferred Revenue: $165.3 million, up 68%
• Cash $314 million, up $15.5 million and no debt.
• Named a leader in Gartner Magic Quadrant for the 8th year in a row.
• Zscaler Private Access (ZPA) became the first zero trust architecture to achieve AWS Security Competency status.
“We are very pleased with our operating results, which show the leverage in our business model. Going forward, we will continue to aggressively invest in our business to pursue our large market opportunity."
It is one of four cloud service providers selected to pursue Joint Authorization Board (JAB) FedRAMP certification, at the High Impact level…. This sets the stage to further expand its growth within the Federal market.
Total backlog, which represents remaining performance obligations, was $411 million, up 77% from $232 million a year ago.

Total gross margin was 82%, up 2% sequentially and 2% yoy

Total operating expenses grew 29%, but decreased as a percentage of sales to 80%

“While we are pleased with our profitability ahead of schedule, we’ll continue to aggressively invest for growth. We believe we have a unique opportunity to disrupt and to capture a large market opportunity. We plan to achieve sustained profitability and positive free cash flow sometime in fiscal 2020.”

In my opinion Zscaler is a Disruptor, a Category Crusher, and a juggernaut like Twilio and Alteryx. The traditional security providers can’t compete with Zscaler because their businesses are built around high-priced hardware and firewalls, and they don’t have the data centers all over the world that Zscaler has. I’ve been building my position gradually. I also added a small amount to Zscaler this month, and I give it a five out of six confidence rating. It sells at a high valuation though, as you might expect.

Okta is fourth and is up to a 10.1% position. It just reported in December. Once upon a time I had rated it at just three stars of confidence because I didn’t know enough about the tech to tell whether they could be replaced by someone like Zscaler. I later raised it to a four-star confidence level, having learned, through Puddinhead’s and Brittlerock’s great posts… and… and others, that they are complementary and not really competing companies. After they released their October quarter results which were way beyond all expectations, I raised them to five stars.

What Okta does is control individual sign-on to all the apps you use using a native cloud SaaS platform. It’s called identity and access management. It is loved by the people who use it, because they no longer need a million passwords for each program they sign on to. It only has one real competitor, Sailpoint, who apparently can only really compete for on-premises projects.

Okta is growing revenue at 58% and its net loss is down to 4% of revenue, improved from 11% sequentially, and from 27% a year ago. That’s enormous improvement. It seems to be in command of its own future.

I added to my position after earnings. I also wrote a discussion of its earnings here:…

This is a Disruptor and Category Leader, and a Cloud-based New Market Stock. I’d now rate it five confidence stars.

MongoDB is in fifth place and is a 9.1% position. It has pretty much invented its solution and category, although it does have competition. It’s the leader in NoSQL data storage and this last quarter its revenue growth was 57%. It has chosen to put almost all its money into growing, and thus its adjusted loss was about 24.5% of revenue, although that loss is down from a loss of 44.5% of revenue the year before, and from 37% sequentially. I wrote up my take on their earnings in post #49379…. I’ll call Mongo a Disrupter, a Category Leader, and a Big Data New Market Stock.

Bert likes it, the MF likes it, and Mongo has come out with Atlas which gives it a fully managed cloud solution, and Steppenwulf said that:

MongoDB is the story of 30 year old technology (SQL) being replaced by more modern technology. This story is only tangentially about the cloud - with or without the cloud, the amount of data is exploding and old technology can’t handle it….

Bert wrote last quarter: MongoDB reported a simply monster quarter… Investors in high-growth IT names are ultimately going to have to own MDB, unless it gets bought by a legacy rival.

Apparently AWS developed a local competing program, using the free MongoDB program, and modified it themselves without paying Mongo. I was afraid other large tech companies could do the same. I didn’t understand all the ins-and-outs of what was going on so I reduced my position somewhat. Then I saw that the price held up just fine and that the market didn’t consider it any threat, so I bought back a lot of what I had sold. I give it four confidence stars rating out of six, because I really don’t understand what it does, what its competitive position is, and what its dangers are. It was in danger of slipping into too-hard-to-understand box, but it obviously hasn’t.

The Trade Desk was a new 1.7% try-out position at the end of October. Now it’s up to a 7.8% position and is in 6th place in my portfolio. I posted a deep dive six weeks ago. Here’s the link to it:… If you are interested in the company it’s worth reading. There’s been a lot of discussion since, but no real news. I’d rate them a four star based on their confidence in themselves, but they are new to me, and an advertising company after all, so I doubt that I will ever have the confidence to rate them higher. They seem to be a Leader in a rapidly growing market.

Next, is Elastic which I started in November and is now a 6.4% position in 7th place. This is a very recent IPO, and it’s has a very high sales to market cap ratio, but it’s growing revenue at 70% to 80% yoy, so what would you expect? Here’s an explanation of what they do, borrowing from Matt’s (TMF BreakerForce’s), discussion.

They are a SaaS company and they do “Search” but it’s nothing like a Google Search, it’s a different animal altogether. When you hail a ride home from work with Uber, Elastic helps power the systems that coordinates nearby riders and drivers. When you shop online at Walgreens, Elastic helps power finding the right products to add to your cart. When you look for a partner on Tinder, Elastic helps power the algorithms that guide you to a match. When you search across Adobe’s millions of assets, Elastic helps power finding the right photo, font, or color palette to complete your project. As Sprint operates its nationwide network of mobile subscribers, Elastic helps power the logging of billions of events per day to track and manage website performance issues and network outages. As SoftBank monitors the usage of thousands of servers across its entire IT environment, Elastic helps power the processing of terabytes of daily data in real time….

You get the idea. It’s a different kind of search, a lot of which I don’t understand at all. I’ll leave you with this, and you can research the rest if you are interested.

Here’s my take on their last earnings:…

I think of it as a Category Crusher, but I rate it as only 4 stars of confidence because it’s a relatively new position.

I took back a position in Nutanix after selling out last month. You can read all about my ambivalence about this company by going through the last few end-of-the-month summaries. They are now a 4.5% position, and in eighth place in my portfolio.

Square is down to 2.6% of my portfolio, and is in ninth place. I explained why I decreased my position in my four month summary above, and will recap it below.

Its stock price was traumatised by their CFO, the charismatic Sarah Friar, leaving to be CEO of a little start-up, which I personally thought was a terrible decision on her part, but maybe she was seeing the same problems I was.

Square announced incredibly good results this last quarter. Its total revenue has grown year-over-year by 39%, 41%, 45%, 47%, 51%, 60%, and 68% in its last seven quarters. Instead of revenue growth returning to the mean, as they get larger their rates of revenue growth has increased each quarter, and accelerated. That 68% was up from 60% in the June quarter, and from 45% in the Sept quarter a year ago. Extraordinary!

How is that happening? It’s because its Subscription and Service Revenue which is its high margin revenue, the good stuff, is growing at over 100% (last seven quarters it’s grown year-over-year by 104%, 97%, 86%, 98%, 98%, and finally 131% and 155%(!) the last two quarters.

Adjusted EBITDA was $71 million, up over 100% from $34 million the year before, and was 16.5% of adjusted revenue.

They’ve been adjusted profitable in 2016 and 2017, and 2018 so far… and profits are growing. We also learned that Square’s Cash App passed PayPal’s Venmo in total downloads (which was a big surprise for most of us.

Square also released Square Payroll App in September, and Square Payroll and Square Terminal in October, and Square Reader SDK, and Square Installment somewhere in there, so Square is still rolling along for now!

As far as Sarah Friah leaving, I’ll miss seeing her but Square will probably get along without her.

So why in the world did I cut my position so markedly? Well, part of the reason was that companies like Mongo, Okta, Zscaler, Elastic, Twilio, and Alteryx have huge expectations of literally taking over worldwide fields of storage, identity, security, search, communication, and data analysis, while other companies are successful in little niches. This may help explain higher prices in relation to revenue for the Zscalers, Twilios, and Alteryxs of the world. They have huge runways in front of them.

Well, Square’s market is unbanked tiny merchants, (and restaurants), and
first of all, their clients will be hit hard in any recession, and
second, while they can go up-market from ‘tiny’ merchants to some ‘very small’ merchants, they are really in a little niche market with no way to take over the world, and
third, thinking of leadership, their admired CFO, Sarah, left and their CEO, who was the CEO of Twitter as well, responded to the crisis of his CFO leaving by abandoning both companies and going off on a meditation retreat in the South Pacific,
fourth, they have plenty of competition (PayPal, etc), while companies like Alteryx, Twilio, Okta, Zscaler, etc, don’t seem to have much effective competition, and
fifth, unlike the above mentioned SaaS companies, Square has gone down and down and down, and hasn’t bounced with the rest, and
finally, their market cap is $23 billion and much harder to quadruple a $23 billion company than a company with a market cap of $3 billion.

I sold what I sold at an average price of about $64. It’s currently at $56. I don’t feel I need to sell out of all my Square, but I felt that it sure shouldn’t be my 3rd largest position, and probably shouldn’t be in the top half of my portfolio. I’ll call it a Rapidly Growing Company in a Rapidly Expanding Market, and I’ll rate them three confidence stars out of six.

Finally, I took small positions in medically related companies, Abiomed and Guardant Health, at the end of November. I added a third, Vericel, early in December. These are still low-confidence positions.

First Abiomed. This company has been discussed at great length on the board, but I’ll say something about what they do and give you some of its statistics. What they do is sell a little device called an Impella that is a miniaturized pump. The Impella is temporarily implanted in the heart using minimally invasive techniques during heart surgery that is due to any one of various cardiac emergencies. The Impella pump then helps the damaged heart pump blood, which allows high-risk procedures to be performed more safely, and with shorter post-surgery recovery times. (This is a very rough idea. I’m not a cardiac surgeon. For more knowledgeable details see the post and thread started by HeartMD earlier in November, and the great post by TMF Typeoh).

But wait! This sounds like hardware! What are you doing investing in a hardware company! – Good question! This is not like a hardware company that sells refrigerators, where the consumer may keep it for ten years and then buy a different brand. This is not like a tech hardware company where the customer company may decide that this year’s model is good enough to keep another year, or decide not to reorder this quarter because they decided to slow their own expansion. The Impella is a one-time use device. It’s “use one, order one.” It’s recurring revenue. Cardiac crises aren’t cyclical. They aren’t affected by the economy. No heart surgeon is going to say “The economy looks like it’s going into a recession so I won’t do this surgery.”

How about competition? The only competition seems to be 20-year-old technology, an intra-aortic balloon pump. The pump costs $800. The Impella costs $24,000. Which do you think is more cost effective? The Impella, of course. Patients have much better outcomes with fewer complications and get out of the hospital 2 to 12 days earlier. That’s why more surgeons use it each quarter, and why last quarter’s cohort of cardiac surgeons, that was appropriately cautious with a new device, used it on more surgeries this quarter, and will use it in even more cases next quarter. And indications are expanding.

How about financial results?
Revenue last quarter was growing 37%, accelerating from 29% in last year’s quarter. They are very careful and train everyone who will use the Impella. They also have someone in the OR to answer questions in as many as 70% of surgeries.
Gross Margin is about 84%, flat with the year before.
Operating Margin was 28%, up from 24% a year ago, and from 14% the year before that.
TTM EPS is $4.54 …up 124% from $2.03 a year ago. (That’s GAAP, which is all they give, so it may possibly have some phony stuff in it).

For right now I’ll say it’s a Category Crusher in its niche, with no viable competition. There are some big companies that could compete, but it would take an enormous investment, and large studies to get approval (and would it even be ethical to put a patient on Brand X in a study, when Impella works so well?) And even if you got approval, then you’d have to convince surgeons to try your brand instead of the brand they are familiar with in a life-or-death situation. I’d say Abiomed no realistic chance of competition emerging any time soon. I’d give it three confidence stars for now, until I get to know it better.

Next, Guardant Health, a new IPO, which has about doubled since its IPO. To way over-simplify, they do cancer biopsies by drawing blood instead of cutting the patient open. They call these “liquid biopsies.” Their workhorse is called Guardant360 …As you might expect, patients greatly prefer them to a biopsy, and biopharmas working on immuno-oncology are another very large set of customers. Guardant now works with more than 40 biopharma partners and reported 67% growth in test volume in the Sept quarter. Clinical growth was slower, as the test, although fast tracked, has not yet been approved. None-the-less, Guardant has got reimbursement approval from BC/BS and Cigna as a medical necessity for a type of lung cancer. And even Medicare has approved reimbursement in one of its areas of the country. All this without yet getting FDA approval.

Guardant has a new test released last year, and growing fast, which has more tests in a single panel. It’s more expensive but biopharmas seem to love it. (GuardantOmni)

They are one-third owned by SoftBank, who is also partnered with them to expand in Asia.

In October they had a lung cancer study published in JAMA Oncology (and carried out at the U of Penn cancer center, which shows that their liquid biopsy outperforms tissue biopsy alone in identification of targetable mutations.

Sept results showed revenue up 95%, gross margins at 54%, up from 22% on greater volume and more Omni tests. Operating expenses rose only 15% with 95% more revenue. Net loss was down 26% from the year before, but was still 113% of revenue. (They have more than 10 times the cash they burned through in the quarter in cash, raised in the IPO mostly, but no chance of running out of cash).

After I wrote the above I read Ethan’s great write-up from last weekend, which explained the abnormally low growth in operating expense. (The operating expenses were GAAP, and therefore had a large junk factor). Here is the explanation from Ethan:

Operating expenses up 15% to $35.8 million. This isn’t an apples to apples comparison because in the same quarter in 2017 they spent $9.1 million to buy back stock from some officers. If you account for that then opex is up 57%, mostly in R&D and S&M to develop LUNAR, OMNI, and work on FDA approval for 360.

Aside from additional indications they see three main drivers for themselves in 2019:

The first is FDA approval of Guardant360 with a pan-cancer tumor-profiling label;
The second is pan-cancer Medicare coverage, based on FDA approval.
The third is results from their NILE study, a prospective trial measuring Guardant360 head-to-head versus tissue in a first line non-small cell lung cancer. NILE, if it successfully demonstrates non-inferiority of Guardant360 for biomarker discovery, could enable a blood-first paradigm in clinical testing. (Note that it doesn’t have to be better than a tissue biopsy to win, just not inferior, in which case doctors and patients would probably choose it).

Note that they have competition from Ilumina, and maybe others, but that Guardant is way ahead at this point in time, and that SoftBank is a potent partner. I’d give it two-and-a-half confidence stars for now.

I feel that most of 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 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.

And let me conclude with one additional thought (very slightly paraphrased) that Mauser posted a year ago. It’s wonderful, and I don’t want you to miss it: What matters is what you buy, not what you didn’t buy. The latter will ALWAYS include stocks that beat your performance. What an insightful thought!!! It can really help you to quit berating yourself about the ones you missed, as long as the ones you bought did well. It has helped me.

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 that Neil keeps for us, which is a compilation of words of wisdom, and definitely worth reading (a couple of times) if you haven’t yet.

I hope this has been helpful.


For Knowledgebase for this board,
please go to Posts #17774, 17775 and 17776.
We had to post it in three parts this time.

A link to the Knowledgebase is also at the top of the Announcements column that is on the right side of every page on this board.


Finally in December I also added another small biotech, Vericel, that Ethan had brought to the board. All three of my little biotechs moved down with the market and didn’t move with my SaaS stocks, but then bounced later. They march to a different drummer.

Saul this is precisely why back in april I began searching for high growth stocks that weren’t SaaS businesses. I was very cognizant of trying to avoid deworsification. Ultimately I found it difficult to measure businesses against AYX, OKTA, et al. I already had a substantial position in abiomed that had grown a silly amount since 2014. I’m hoping VCEL can be as profitable, they certainly are small compared to their potential TAM but they still have a lot of proving to do. I built up VCEL and ABMD during times when our SaaS companies got into really really high valuations by trimming the SaaS companies. GH is more speculative for me, 2019 should be interesting for them. All in all it has been nice to have two different “groups” of excellent companies that don’t always move in tandem.

Congratulations on a great 2018, may we have many like it.

all the best,


Hey guys, I’m puzzled that over 90 people have rec’ed my end of the year but there has only been one comment (from Ethan). I’d really welcome any questions people have, or agreements or disagreements like: I agree with what you decided on Square because… or I disagree with what you decided on Square because… or Getting out of Nvidia when you did was brilliant because… or I don’t understand why you exited Nutanix and then got back in, or What the heck are you doing in three little biotechs? or Why did you exit a great company like Wix?, or whatever. Feel free. That’s what the board is for.


Saul, it’s News Years Day!!! Some aren’t even up, let alone walk talk and think stocks.


…back in April I began searching for high growth stocks that weren’t SaaS businesses. I was very cognizant of trying to avoid deworsification. Ultimately I found it difficult to measure businesses against AYX, OKTA, et al. I already had a substantial position in abiomed that had grown a silly amount since 2014. I’m hoping VCEL can be as profitable, they certainly are small compared to their potential TAM but they still have a lot of proving to do. I built up VCEL and ABMD during times when our SaaS companies got into really really high valuations by trimming the SaaS companies. GH is more speculative for me, 2019 should be interesting for them. All in all it has been nice to have two different “groups” of excellent companies that don’t always move in tandem.

Hi Ethan,
Yes, I agree that none of these have the huge open runway that the SaaS stocks have, but I’m keeping the positions small. ABMD and VCEL have niche markets but no viable competitors. GH has a huge potential market, but also has huge, well-financed competitors who are just a few steps behind it. They also have a lot of things that have to go right in the next six months (FDA approval, Medicare reimbursement, etc), so there is a lot more potential profit but a lot more risk.



Challenge accepted!

In all seriousness, had time to read and rec, but not reply yet. Plan to reply today/night.

Busy day watching two kiddos and watching UCF beat LSU. OT but worth it!

UCF 2011 grad (I know, I know… I’m a youngin)

Hey All,

What stood out to me regarding your comments on Square were a couple bolded points. Especially the first and fourth points:
“first of all, their clients will be hit hard in any recession”
Although this is probably true with must during a recession, the folks I notice using Square in my everyday life are likely most vulnerable. Think the local community farmers market, small part-time café close by my office, local mom and pa types.
“fourth, they have plenty of competition…“
This worries me. I’m not as skilled as most of you at picking up on clues for this risk. Sure, their growth rates begin to stagnate, but it seems there are others who pick-up on more subtle clues earlier on during a CC, financial report, etc.

Regarding biotech…I was stung bad in the past and simply try now to avoid biotech. Doesn’t make it right, but I would need to read more competing arguments from the Fools here. Ethan makes a good point about lowering risk in his portfolio with “two different “groups” of excellent companies that don’t always move in tandem.”

PS -can someone pls remind me how to italicize quotes? I haven’t posted in a long time :slight_smile:


PS -can someone pls remind me how to italicize quotes?

Surround the text with < i > and < /i > (no spaces).

1 Like

I agree with your assessment of Square. It’s been my worst performer and I kept thinking of trimming it back for many of the reasons you stated. I’ve been seeing more point of terminal sales devices in small merchants that are not Square. And the CFO departure, I almost sold then. What kept me in was its a Stock Advisor pick plus I’m trying to cut down on churn. This is a time when I need to churn however.

Per NVDA, I underestimated the Crypto impact (probably because they themselves played it down, what a mistake that was) and I overestimated how much their software impacts them. Their SW rocks, but it needs their HW to run on. Plus this whole ML/AI thing is still more infancy than reality. I cut my shares at a loss, unfortunately. As an aside, the fact Apple services needs Apple HW to run on is also why I cut my AAPL shares. I’m not sure how they plan to grow services if their HW is stalling. NVDA was fantastic for me, until it wasn’t. And it fell fast.

I’m glad to see people looking beyond SaaS. This is a great boat to be on but it cannot last forever. Seeing people willing to look beyond that is a good sign to me. I’ve been trying to look into IoT and 5G as the next growth, but that all seems to be tied to existing large companies (Ericson, NXP, Qualcomm, etc). The lone small-ish company I know if is my employer, ARM, who is not publicly traded. Still looking.


Hi Saul,
I really really appreciate your contribution to run this board and all contributors!!!
I know this board in 2018 and have been copy, paste and study your post hard with my husband. It opens a totally new investment world and great hopes for us!!!

Sorry this’s my first post, and last night party at friend’s house until 1:30am.
Plan to study your monthly/yearly report today.


Well, since you asked for more comment!

  1. I wouldn’t be comfortable with two 20% allocations. Although I do think the world of both those companies (AYX and TWLO).

  2. I’m glad you added NTNX back. I was starting to feel like I needed to rethink my thesis because both you and tinker had gotten out. Now with both of you back in I at least have some good confirmation bias and we can all be wrong together!!

  3. I’ve been having the same thoughts about square. Since I’m still adding money to my portfolio every month I chose to build up other positions around it. SQ use to be a 11% position for me, now it is down to a 6.5% position. My reasons were similar to yours in that I didn’t think Square would be able to weather a recession like our other companies, the leadership changes and retreats spooked me , SQ is preparing us for increased expenses next year which I don’t think will be taken well by the market, they operate in a difficult enviroment, and SQ has gotten really really complicated. I have a hard time knowing how to value their business.

  4. re: but I’m keeping the positions small. ABMD and VCEL have niche markets but no viable competitors.
    Yeah, I agree with present opportunities neither of them can grow as big as our cloud guys. VCEL is only a 700 million company, they can easily grow into a 5 billion + company. ABMD is a 14.5 billion company and in the beginning innings of their market penetrance. I see a very probably path to another 5x if not 10x growth. I think VCEL could be a 30-50% growth a year stock, abmd probably a little less, 20-40%? Either way, both have plenty to run and quickly enough to be great investments for the years to come.

  5. re: Alpo8181 “regarding biotech…I was stung bad in the past and simply try now to avoid biotech. Doesn’t make it right, but I would need to read more competing arguments from the Fools here. Ethan makes a good point about lowering risk in his portfolio with “two different “groups” of excellent companies that don’t always move in tandem.””

Alpo8181, I hear you about avoiding stuff that has stung you in the past. I do think it is helpful to drill down why you got stung. Biotech is a pretty huge space that can accomodate many different styles of investing Biotech with no product and hoping for some clinical study to get you a product is pretty close to lottery “investing” Both these companies have FDA approved products, no real competitors and revenues no where near their growing TAMs to address. ABMD is profitable and VCEL is almost there. I wouldn’t call either of them speculative like many biotechs. GH is much more akin to a fun speculation for me although I will say they have a product that they are already actually selling so it isn’t quite as risky as investing in some of the biotechs that don’t even have a product they are selling.




Square was the first time I’ve seen you make a decision that felt like it was based more on qualitative that quantitative.

I saw reasons such as

  • What about a recession. I’ll let this one speak for itself. A recession would slow all growth, however, when I see SQ it’s at restaurants, local shops and small merchants. I’d say they are all banked.

-frustrations that the CFO hasn’t been announced or replaced (even though previously you noted high faith in the former Goldman exec leading the search)

-the fact that a CEO who runs two companies took a vacation — I think we all could agree rest would be needed if you ran two companies like he does. I for one don’t subscribe to criticizing when people take vacations. I get exhausted trying to raise a two year old, I couldn’t imagine thousands of people in emerging technology companies.

  • You are worried about competition, but given SQ accelerating growth and performance, shouldn’t competition be concerned about SQ? At JUST a $23B market cap, they are accelerating into PayPals $100B market cap and owning the point of sale systems at service industries while EXPANDING offerings beyond ease of transaction into financing, processing, payroll, etc etc, with eyes beyond. The numbers say SQ is winning.

Just offering some critical pushback and observation of the counter argument.

For what it’s worth - I see SHOP, not PYPL, as emerging SQ competition. SQ + Weebly and I’ve also seen SHOP POS systems this holiday season.

My final thoughts are ones that I always have on my own portfolio, how do I balance proven performance with speculative growth. I hold positions that I hold smaller convinction with great growth spectulation (similar to your biotech buys). They are my first place to cut during pullbacks. My portfolio has some work to do, but I hope to receive crictical thoughts and feedback to round out the pros and cons of investing thesis.

Just a Fool’s pushback.


Hey Saul,

I’ve already posted this over on the Square Premium Board last week and will post here as well:

I’m worried about Square for two dependent reasons. First, you’re correct in thinking that growth could be affected by a recession. Square could create the stickiest, most beneficial ecosystem in the world, but if their customers aren’t making money, then neither will Square.

I knew this when I bought the stock, but the thing that really pushed me over the edge was the amount of debt that they had ($1.02B) compared to their cash ($1.17B). Neither of these two in isolation would concern me alot (ie if it were declining growth or high debt), but both together worry me. And I understand that only a portion of their debt comes due in the next 12 months, but I’m not one to predict how long a recession lasts. Just two quarters ago, Square was in a much better place financially ($933MM cash vs $363MM debt), but they issued a ton of debt with little increase in cash, I think because of their Weebly acquisition. Spending money on growth is fine, but it put them in a less desirable financial situation.

What I do disagree with is the statement that Jack Dorsey should be blamed for taking a meditation retreat. No one knows the exact reason why Sarah Friar left, but to say that he “responded” by abandoning both companies assumes that this was the reason why he left. One can’t assume cause and effect (Jack could’ve had that trip planned for a long time, feeling that he needed time to set himself right after running two demanding companies, who knows?). If we’ve learned anything from Elon Musk, its that running multiple companies pushes people to their limits, who’s to say that a trip to South Asia wasn’t absolutely necessary?

On the other hand, Jack Dorsey could’ve actually did it in response to Sarah, again, who knows. My point is that we can’t be so quick to jump to conclusions because we just don’t know. Therefore, I personally wouldn’t include that as a reason to sell my stock.

Cloud Atlas


NTNX is a classic wait and see position. They are “difficult to understand” but they are also undoubtedly leading and have a CEO that knows where he is going and - while you might get confused when he says it - he is confident and pleased I’m their approach

And their customers agree. NPS of 90

And their performance agrees. Not stock performance. Revenue performance. Fastest to $1B is a big deal.

NTNX checks the box on execution and meeting customer needs better more so than the some others. They built the HCI and they are now expanding off of it.

The harder question is do you believe in their expand strategy. Disaster Recovery, etc.

Time shall tell. I’m in a holding pattern with this one. I still believe it may be compressed and capable of yielding 50% CAGR over the next couple of years


Since you asked for comments! :slight_smile:

TWLO - agree
AYX - have concerns over lack of cloud strategy, but mgmt seems aware. Basically the heavier data analytics tends to take place “on prem” or in company-owned data centers vs the cloud, so they are not bucking the trend in a bad way or anything. Just makes me itchy.
ZS - was surprised how large your allocation became, but have liked this company since pre-IPO, but it has always seemed expensive. But security+cloud+saas is a great place to be.
OKTA - I haven’t researched enough. My company uses it, fyi. Just seemed too niche and unsure of moat, but again I haven’t researched it much.
MDB - like them, but wonder how long they can keep high valuation if they don’t show ability to make profit. Like AYX, being tied to “data” is a great place to be moving forward, imo.
TTD - big fan. I would recommend not thinking of them as advertising…they are a data/tech company that caters to one of the biggest industries out there (ad market).
Elastic - see “data” comments for MDB and AYX…great market, just also pricey stock from start of IPO.
NTNX - surprised you re-entered…I probably missed the “why” behind this. I am closest to this company, so it is tough for me to get on board. But then I do agree that HCI will continue to grow for foreseeable future and they are a leader in that space. Wall Street will want to see if they can make money as the companies they compete against (like NetApp or VMware) do turn a profit.
SQ - this space seems so crowded…like everyone jumping into fintech it seems. Doesn’t mean they won’t do well, but I prefer companies focused on Enterprise or larger companies and not SMB, as I understand that world a bit better.

Your 3 biotechs seem out of place to me compared to the above, so not sure what to make of them. I love future/science and big fan of concepts of biotech/gene editing, etc… but outside of investing in ILMN in 2016-2017, I have struggled to get on board, largely because success tends to be so non-linear with these stocks and I lack patience and prefer to see Qtrly updates where I can gauge progress more easily.

I learned a lot from you and your board this year. Maybe it is an echo-chamber phenomenon in that I like so many of these stocks, but then I remind myself that you are just as new to these stocks and that 2-3 years ago we would have been talking about BOFI and P/E ratios on your board a lot more. Outside of the biotechs that I am abstaining from, I think all the companies you invest in are fantastic. I only struggle with the valuations of some. When 2018 started, most of those companies in your port were of lower P/S ratios, with the big exception of SHOP, I believe. So now at start of 2019 they seem to be starting with more upside “built in”.

But my major investing flaw as I self-critique is that I trade in/out too much and overthink things sometimes. My goal for 2019 is to stay in these great companies, and rather than trading completely out, pare up/down as little as needed for my sanity, and truly hold until I believe the thesis is broken.

I appreciate what a great role model you are in being able to ignore the market noise and not form emotional attachments to your stocks and I am hoping to emulate that more in this new year.



Well Saul,
Great timing on ANET and NVDA. Both stocks I’ve been building new positions in since late November as they have been crushed. So what would it take for you to reconsider each as investable again. I bought both because I believe they can both come back, hopefully I’m not mistaken. I’m also very willing to hold positions long term. Your thoughts?

Also I did notice that you sold WIX. Why? I’m thinking of selling WIX and doubling up my position in AYX. Both very small positions in my overall portfolio. Your thoughts?

Thanks as always.



Excellent EOY results! I am up 45%. I did not find the board until April this year, so nNot as good as you but still quite incredible when the I see other indexes are down for the year! The more I think about it, the more it almost seems impossible. Thank you so much for your efforts and encouragement during the difficult times (not that they are over). It truly helped me.

SQ - I had many of the same thoughts as you, but like others was a little hesitant to let some of it go because it had been so high. It must be one of those investing terms (one that is not good) but I cannot think of it right now. I also very much like the fact that you decided to hang on to some. I am holding a little more than you because they seem to have so much optionality which David Gardner loves. 2.6% seems extremely low for a company with such opportunity. I do not see a broken thesis at all. I get the recession slow down bit but they are growing like crazy in so many areas, and who knows, they might start to move into the enterprise more and more like SHOP is doing as we speak. The debt part is definitely a big factor for me as well like CloudAtlas mentioned. Having said all of that, I am not criticizing you because I agree, that as great as it is, it is still not as great as many others.

NTNX - Agree, thinking many of the same things as you. I actually was shocked when you sold out with Bear. It was confusing and I am still more confused than with the other names but still like what I can understand. Bert kept pushing it and making great arguments for it. Austin and others as well. NTNX really seems like they are trying to take over the world in their arena as well. As Tinker mentioned, they also seem to be finally moving in the right direction as far as stock price. I don’t like the massive competition, but they are also moving into these other areas and I see some optionality, that could open them up to more opportunities. Also, Saul, thank you for asking those questions about the shareholder letter. The responses were great, and they really helped me to think through how Pandey is probably looking at things. Agility, velocity, etc.

ESTC - Again, Bert (thank you again Saul for continuing to mention his Ticker Target service, it has been soooooooo helpful and the worth is well beyond the small price) has many things to say about it that were helpful in making my decision. They are spending so much money, but as you said, they are growing SO FAST! I have concerns as Dreamer mentioned with valuations. Same with ZS, but ZS is running that business so well.

ABMD - I keep thinking of ISRG here and love the no competition. Again, great company but not as great as the 5 above. Good growth, great margins, profitable, excellent retention rate.

TWLO, AYX, MDB, ZS, OKTA - All rock stars. The more I dug into the numbers of my companies, the more I liked these better and better and thus why they should have much larger positions than SQ and TTD, imo. I was thinking, “Square is awesome and TTD is great, but these other businesses seem so much better”.

My favorite quote of yours is the part where you said, Mongo, Okta, Zscaler, Elastic, Twilio, and Alteryx have huge goals, and huge expectations of literally taking over worldwide fields of storage, identity, security, search, communication, and data analysis, and have huge runways, while other companies are successful in little niche markets but have limits to where they can go.

What a great way to think about it. Each of these companies is hitting the respective parts of the whole. I would include Nutanix in there as well. I know it can’t go on forever, but for now, this seems like it could be the new FAANG.

Thank you, Saul and everyone else who contributes to the board. May 2019 be a bright and shining year for everyone (maybe even the indexes).



“first of all, their clients will be hit hard in any recession”
Although this is probably true with must during a recession, the folks I notice using Square in my everyday life are likely most vulnerable. Think the local community farmers market, small part-time café close by my office, local mom and pa types.

“fourth, they have plenty of competition…“
This worries me. I’m not as skilled as most of you at picking up on clues for this risk.

Hi Christian (Alpo),
Yes, my wife and I were at a Xmas market in Union Square in Manhattan (temporary stalls, set up for three or four weeks before the holidays). The merchant we were buying from had a snazzy, modern little white device that took credit cards, and I had a feeling of pride of ownership, thinking that’s my Square. But I looked and the device said Shopify on it.??

Now, this would be a tiny peripheral market for Shopify, and won’t add anything to their total revenue, but it’s Squares core, their bread-and-butter. Worrisome.



OKTA: It only has one real competitor, Sailpoint, who apparently can only really compete for on-premises projects.

Hey Saul,

As you may know, OKTA and SailPoint (SAIL) are much more partners than they are competitors. OKTA controls access to the network while SAIL governs where you can go within the network. SAIL’s website has a five-minute video demonstrating the OKTA/SAIL partnership. Link: (…). Click “Watch Demo.”

I’ve come to realize that these partnerships are significant; 80% of SAIL’s new business involves a partner. I do not know what the comparable number for OKTA. Anyone know?

As you may have guessed, I’m long both OKTA and SAIL. Some numbers…

   					        OKTA		SAIL
Market Cap					7.3B		2.1B
Revenue (TTM)					364M		238M
Price/Sales					20X		9X
Forward P/E					NM		96X
NM - Not Meaningful

	% YOY Revenue Growth			
FY18			2017	
Q1	67		Q1	NA
Q2	63		Q2	NA
Q3	61		Q3	NA
Q4	59		Q4	53
FY19			2018	
Q1	60		Q1	40
Q2	57		Q2	39
Q3	58		Q3	52
Q4	40*		Q4	5*

    • Guidance
      NA - Not Available

The jump in SAIL’s Q3 growth rate and low guidance is attributable to federal contracts closing earlier than expected. Next quarter’s report will be interesting.

Together OKTA and SAIL seem to be a strong business and investment(?) partnership.

More importantly, let’s all have a healthy and prosperous New Year!


Saul, (i’m awake now) first of all a happy new year to you and yours and congrats on your outstanding year. I have mentioned this before, your ability, sixth sense, intuition or whatever it is, to always get out of Companies at the right time(shop,nvda,anet,pvtl,pstg)and now reducing substantially sq is uncanny. Whereas others stay the course and “hope”(based on what they read)that a ntnx,wix,tlnd,whatever, will pay them back handsomely in later months/years,you don’t take this chance. This to me is your secret sauce. It enables you to sell(mostly at a reasonable high), raise cash elsewhere for adding to your high conviction stocks like twlo or ayx(or finding an MDB) and you don’t look back to what if, but concentrate on what you have at present and not what you could have had and looking back over the year apart from Nktr and a few others that were relatively low positions for you and made losses your top winners make up the difference. As a matter of interest, if you do not include Twlo, MDB and Ayx, what would your year end numbers be? Regardless, I remember when you excited LGIH and I at the time couldn’t really understand why, but I do now.

I happened to come across some notes I made on 2/27/18(prices shown on left, end of year on right) which I owned in one account and it reads like this. Hope it comes out alright, bad at formatting.

Baba.188.75. EOY 137.19 EOY=End of Year.
Amzn 1485.34 1506.50
Aapl 172.50 158.16
Anet 244.66 210.70
brk 200.73 204.31(B shares)
lgih 65.00 45.70!!!
LMT 355.41 261.00
Nvda 242.15 133.95
O 49.50 63.05
Shop 134.18 138.50
AYX 33.75 59.30!!!

The above speaks for itself and proves the way you do business. In March and over the next few months I sold or reduced everything from this portfolio(one of three) apart from Aapl. O and Amzn. Started buying Twlo, ZS, MDB, Pvtl, TTD, and adding to Ayx. No longer have Ntnx,pvtl,tlnd,sq. Your category crushers report was invaluable to me. I do not have your incredible ability to time the market as you seem to be able to do and unfortunately for me having owned Aapl for many years and yes, fallen in love with the stock, took quite a beating this year, hence my portfolio only showing a 22% increase(aapl well over 30% of my port, yes, not wise) and although I was not criticizing others for 'hoping" that it will come back, I am basically doing the same thing. I have been buying more at give away prices(I believe) and not listening to yours and other’s methods which are tried and tested…

Well, onwards. In retrospect, I am content(sort of) with my 22% considering that aapl is down from its high by some $75.00 but then I look at Nvda and others and that also took some beating, its just that you saw this before us mere mortals. You can’t teach gut instinct but can get better at seeing the signs.