My portfolio at the end of 2018

Investment Analysis Clubs Saul’s Investing Discussions
21

Thanks Ethan,

I’m not comfortable with two 20% positions either, but I keep a close eye on them, and if I reduced one of them, it’s hard to find another company I’d feel more confident about.

I hope Nutanix works out, for all of us.

Glad you see Square the same way I do. It’s nice to have some validation, as you pointed out about NTNX.

Regarding your comments about biotech:

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.

That’s the way I see it too.

Saul

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22

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

Hi JAF,

No, I make qualitative decisions all the time. Think why I got out of Nvidia and Pure. Hardware makers and they didn’t seem right to me. Wix, foreign stock and I just couldn’t get comfortable with it, Arena, too long to wait, I wouldn’t invest in Tesla right now, no matter how good their numbers, because of Elon’s flaky behavior this year (not even counting how capital intensive they are), etc.

With Square, sure you can find fault individually with each of my six reasons: there may not be a recession, CFO’s have a right to leave, CEO’s have a right to a vacation, even in the middle of a crisis of sorts, competition can be beaten, its market cap is large but not THAT large, etc, but if you put it all together, why should I keep a huge position in a company with all those issues, when I can invest in companies growing equally as fast without them?

Saul

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23

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

Hi cloud atlas,
Sorry, I was just being ironic about that. I didn’t mean it literally. He may have had the trip planned for months. It just was one more factor that made me uncomfortable. I realize that I wasn’t clear about that.
Saul

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24

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

Hi JAF, I hope you are right, as I’m back in it.

Saul

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25

Hi cloud atlas,
Sorry, I was just being ironic about that. I didn’t mean it literally. He may have had the trip planned for months. It just was one more factor that made me uncomfortable. I realize that I wasn’t clear about that.
Saul

Haha, no problem. I now understand that it was one of many factors that made you feel uncomfortable about the stock.

26

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.

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.
Dreamer

Hi Dreamer, I like your goal for 2019, and thanks for all your kind words.

Saul

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27

Hi Chris (Edmund Muskie)

No current interest in either Arista or Nvidia. No interest in buying companies because they are cheap.

Also I did notice that you sold WIX. Why? I’m thinking of selling WIX and doubling up my position in AYX.

Alteryx is in the process of leasing its software potentially to every enterprise on the planet and it currently doesn’t seem to have any competitor who can do it better. A very large runway.

Wix sets up websites for free for people and pays for it by inserting a “This website set up by Wix” little ad on them. It then tries to upgrade all these free websites to paying websites, and hopes for just a tiny percent of them to upgrade. That’s a small niche market that has worked quite well but will run out of people who want a free website and then have a reason to upgrade it to paying.

Saul

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28

Thanks Daniel (danstocks) for your insightful comments. Hope to see you posting more on the board in the future.
Saul

29

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.

Thanks Ross for explaining that so clearly. It really wasn’t clear to me how closely they work together. Okta is growing much faster than Sail, but Sail is no slouch either.
Saul

30

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…

Hi Branmin, Are you holding Apple just because you feel it’s now cheap? Do you have a fact-based reason for adding to it, besides it being “cheap”? Cheap is a bad reason!

Think of it this way: “It’s just 30% of the money in my portfolio. I have a lot of stocks that I can see quadrupling in the next four years. Is that 30% of my portfolio likely to quadruple in five years? Is it even possible? Could I put that money to better use?”

That takes it away from being your beloved Apple stock. It’s just 30% of the money in your portfolio.

Best,

Saul

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31

Meant for my last post on NTNX to be for this thread but it can apply to bjurasz post too.

One of the other companies I find compelling that Saul is trying out is Guardant Health. I find that what they are doing is part of the end game to what Gene Sequencing can bring to the world.

So far I lucked out as sorts with it. Bought a small position in the pre market the day Saul announced that he entered. Maybe with the help of that announcement the stock shot up 27% that day. After some further research that day into the stock(and the company) I sold for a six hour 25% gain. It now sits a few pennies above where I bought in the pre market. Was just too good of a temporary pop.

Why I took that one day gain is that I think for the short term that was the best I could expect. The 95% revenue growth during most recent quarter was amazing and while the 45 or so P/S was scary high, if that growth continued that’s not so much a problem. So I started a position to try it out. Went on to look at it a little closer that day as it continued its climb. Looking at the forecast, however , I saw that what they guided equated to about 26% growth yoy for the fourth quarter. Maybe they substantially beat that, but even so I was concerned about that. What will happen to that 42+ P/S ratio when growth slows that substantially? Even if it’s only temporary as they acquire new clients and await FDA approval. Thus I took my gains, figuring there is time with this one. Still interested in the company and realize I may regret that decision.

Also, I’m not sure whether to consider Ilumina to be a direct competitor. Guardant is actually an Illumina customer. From prospectus.

We rely on Illumina as the sole supplier of the sequencers, and as the sole provider of maintenance and repair services for these sequencers.

And the sole supplier of the consumables used in the testing that GH does. They do list Ilumina among their potential competitors though as Illumina does a tremendous amount or research and partnerships in these end-game fields. Not sure though if Illumina intends to be a direct competitor with a similar product of their own or is primarily interested in seeding the total market and being the supplier of those sequencers, support, and consumables among several field.

Will watch GH closely and will probably enter again at some point when it appears more favorable. Or watch and wonder what I was thinking.

Back in ABMD now, too. Good business model, virtual monopoly, small penetration into potential market, historically attractive valuation(but not cheap).

Darth

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32

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)

I don’t know if anyone else caught this, but it tells me you are in pretty good health, never mind the square stuff (which I agree on). My portfolio breathes a sigh of relief.

So I am looking at this book I bought. “One Up On Wall Street” by Peter Lynch and decided my time would be better spent studying your New Year’s post and all the replies thank you very much.

John

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33

Saul and Saulians… wish you all happy new year and very prosperous 2019.

Hi Saul,

Thank you for great detailed report.

TWLO, ZS makes most sense to me and I have ~15% and ~10% in them respectively.

I am glad that you are back into NTNX. I do worry that it may not show up in share price performance for another quarter but by late this year, this company should be able to get out of comparison of Hardware sell drag and show accelerating growth. I have tried to model their Y/Y growth for next few quarters. My model says they will increase from 13% last Q to 30%+ y/y by end of 2019 (say Oct / Nov 2019 report).
Time will tell… but I feel this is important because most of my success has come from betting on these transitions. (TWLO ofcourse is great example that this board is aware of… I have seen similar transition with Splunk, Zillow and few others in the past).
I hold about 4% in NTNX now with call options to double it and prepared to double again this year provided the thesis plays out.

I have gradually overcome my hesitation in OKTA, specially since I see that its eco-system can be tremendous in value and difficult for anyone to replace AND customers to avoid using OKTA. However, I still think its a niche and keep lower size position.
BTW - I see DOCU as similar to OKTA (as in - a cloud based service that makes life easier… bring value of proven eco-system but still addressing a niche unlike salesforce etc) but may be with much larger market opportunity. It has larger (~2x) revenue base and lower growth rate (in 30%s) compared to OKTA; yet worth looking due to longer run way. I have been in and out of DOCU and looking to build a position depending on cash availability.

Great insight into those bio/ med tech names. Thank you.

I am shocked and surprised by your thoughts on SQ. As others have mentioned, I don’t see any of the points you mention as 100% objective read and also meaningful reason to move away. However, after reading a couple of times, I see your point on “if there are too many questions in your head, why not more money to higher conviction stock”.

To me, I think SQ is unmatched in its ability to deliver meaningful, new products with customer success and revenue growth… thats exponentially growing its business. Its absolutely the next Amazon in my mind. It is one stock that I hope to NOT sway out of without clear proof that my thesis is broken.

Last but not least, I have been building relatively large (>5%) position in TSLA over last two months. I feel like the transition story I mentioned above for NTNX will happen much faster with TSLA.
If you read Phil Fisher (who probably had more influence on Warren Buffett’s success than Ben Graham had), Phil offers an example of a factory based business (cant remember product). His point is, after initial product is successful, a new company needs to build a factory to expand capacity. While the factory is being built, financials suddenly start looking terrible and stock gets hammered. However, once the factory is built and production starts ramping, the financials continue to enhance many quarters in a row and that drives stock price up for while. In modern America, this is the first such example I can see… and add on the top all the genius of Musk and you have the recipe for a huge run.
(I hear all craziness around Musk this year but you need to read / listen to Musk’s biography by Ashlee Vance. It takes that craziness to build what Musk has built and you cant expect it any other way.)

Nilvest

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34

“Hi Chris (Edmund Muskie)

No current interest in either Arista or Nvidia. No interest in buying companies because they are cheap.”

Saul,
Thanks for the reply.
I didn’t state that I bought them because I think they are “cheap”. My original question was what would it take for you to reenter either stock.

I entered the stocks because I consider them now good values going forward. I know this is not your investing style, so I wouldn’t ever expect you to buy the stocks right now. For me I like to be a bit more diversified, so I will never have the kind of year that you have had this year. I’m a bit more of a turtle then a hare investor. I love to be in small cap names like you present, but I would I’ll also hold a BRK, and I’ve held stocks like AMZN and AApL for a very very long time. NFLX is another one I’m only adding to, and will hold it for the next 10 years as long as the story remains intact.

Chris

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35

“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).”

Hello Saul, I am completely new to investing (actually started on October)and, honestly, most of what you discuss is all new and foreign to me.

So I don´t have any questions or comments, but I want to say thank you for your kind heart and guidance. I am learning lots.

My best wishes for you and your family (as well as for everyone in this board)for this new year.

Thanks again!

Ferran

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36

Saul,

Your longterm performance is incredible! You have been compounding at 24% per annum for 25 years, which puts you amongst the world’s very best investors.

Stan Druckenmiller compounded at 30% for 30 years, Peter Lynch did around 27% over a much shorter time frame, Buffett has compounded Berkshire’s book value by around 20% over 40 or 50 years, so your 24% CAGR over 25 years is truly exceptional!

Hats off to you and kudos. You are a master investor.

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37

Your longterm performance is incredible! You have been compounding at 24% per annum for 25 years, which puts you amongst the world’s very best investors.

Thanks so much for your kind words Growth Monkey.

Saul

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38

I have owned many of our saas companies and I am trying my best to NOT price anchor. As I head into the new year and I am looking to add additional dollars to my highest conviction holdings (“the best of the best”) I would value your input. As an example I had bought TWLO back when it was about $33 and have continued to add all the way up to $84. With my additional funds I am tempted to increase my position further, but I am a bit hesitant. Same with OKTA, MDB and others.

Someone asked me the above question off-board. I think it’s an important enough question to answer on the board for everyone’s benefit. First of all, I can’t tell anyone what stocks to buy. I don’t know your financial circumstances and I’m not a financial advisor. You have to decide for yourself. I also don’t know how big your positions are, and what you are comfortable with. As far as myself, I believe in adding to my highest conviction stocks, and those would include the three you mentioned (Twilio, Mongo, and Okta). If it’s new money and it’s just incremental additions, I wouldn’t worry about the present price. I prefer to add to stocks that are going up rather than look for cheaper entry points. But that’s just what I’m comfortable with and it may not be right for you.
best,
Saul

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39

Branmin, the more I think about it it comes back to Apple and Amazon becoming the first two companies to ever hit a trillion dollar market cap, back in September. Now do you think Apple will hit $2 trillion (much less $4 trillion) in market cap in the next four years. Are there that many iPhone and Mac buyers in the whole world to sell that many. And if they did, what would they do the next year to keep revenue even flat, or even keep it from falling. It just seems impossible to me. Too big!
But again, that’s just me and how I see it.
Saul

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40

Understand Saul and we could go back and forward on this but your points are valid. However, having owned this Company for nearly 20 years, you can imagine what my numerous split adjusted share price is and I hold onto this to fall back on…just in case. This is my 401k, my personal non vanguard index fund, my get out of jail card.

Could it eventually become an Enron, AOL, etc? I don’t know. Do I want to sell some and use funds to “possibly” quadruple my money as you say…? I’m in a position where I don’t need to do so and am content for now particularly with the dividend I receive, which more than takes care of my expenses.
Along with Amzn and a lovely monthly chk from owning O, plus a few other dividend paying stocks mixed with our usual discussed Conpanies, on reflection, in a safe place, for now with this diversified mix.
Best. Bran.

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