My portfolio at the end of August 2018
Here’s the summary of my positions at the end of the insane and ridiculous month of August. This month the last week ended on the 31st, so you get a full five weeks worth. Note that I almost always use adjusted figures when the company gives them.
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, are category crushers or disruptors, and that they have long runways, and will have great futures. I very recently wrote up their stories in my post called Category Crushers and my portfolio, post #45099, http://discussion.fool.com/category-crushers-and-my-portfolio-33… so I will give a greatly shortened version of my stock descriptions this month only, and mostly just tell you what I’ve done and what I think.
I’m sure that you understand that my results are ridiculous and embarrassing and it’s very hard to discuss them without seeming to be bragging, in fact without bragging. That makes me uncomfortable but it is what it is, so I’ll go ahead and brag.
As you know, last year (2017) was an extraordinary year in which I finished up 84.2%. At the end of the year I begged everyone not to expect that this year would be anything like that. I’ve kept saying that each month this year, but our stocks keep going up in spite of my warnings, and in fact my portfolio is way, WAY ahead of the 49% that it was up at the end of August last year. In fact, it’s actually ahead of that 84.2% I finished last year with, and it’s only the end of August!!!
This month, August, my portfolio closed at the remarkable result of up 86.0% for the year so far. In fact, if you consider my results since the beginning 2017 to today, my whole portfolio has well more than tripled so far in a year and eight months! It’s actually at 343% of where it started 2017. That’s beyond remarkable, it’s ridiculous!
In words instead of percentages, it means my portfolio has grown to almost three and a half times where it started just over a year and a half ago. (You can check the calculation with a little hand calculator: 1.842 times 1.860 equals 3.426, or 342.6% of where it had started).
To quickly summarize:
So far this year my portfolio is up 86%%
For the trailing 12 months it is up 130%
Since January a year ago it is up 243%
Please keep in mind that that result was without leverage, just investing in ordinary stocks, no margin, no penny stocks, nothing oddball. Yep, stock picking doesn’t work. There are books written that prove it .
I’d like to bring up a sort of odd question here for your consideration, because I’ve been wondering about it, and it puzzles me. My question, and it’s a serious one, is how come all the smart guys, with MBA’s, who have studied all this stuff and gotten Masters degrees in it, who understand all those terms in the 10-Q’s, and all those squiggly lines on their technical graphs that I don’t have a clue about, and who probably even understand what these companies are actually doing, how come these guys can’t do what I, and Chris, and Bear, and others on our board are doing??? Why is my common sense investing producing so much better results.
That’s not an idle question; someone just recently linked to an article pointing out that Hedge Funds, for instance, were on average trailing the S&P significantly this year. Trailing the S&P! I was wondering whether these guys are paralyzed by having too much information, too many contradicting facts in face of what is essentially a binary decision (to buy or not)? Whether they are limited in what they can invest in? Or what? These are the guys with the business training and education. And probably a lot of technology education too. I’d be interested in your ideas about this. As far as I know, no one is doing as well as we are doing! No one seems to be as successful as we are, not investing in common stocks anyway. Why? Why? What I am doing just seems like common sense investing.
The three indexes that I’ve been tracking against closed Friday as follows. The results are given from Jan 1st to date:
The S&P 500 (Large Cap)
Closed up 8.1% for the year. (It started the year at 2684 and is now at 2902).
The Russell 2000 (Small and Mid Cap)
Closed up 12.9% for the year. (It started the year at 1542 and is now at 1741).
The IJS Small Cap Value ETF
Closed up 12.5% for the year. (It started the year at 153.6 and is now at 172.8).
These three indexes averaged up 11.2% for the year so far. And if you throw in the Dow, which is up 5.0% and the Nasdaq, which is up 17.5%, you still get up 11.2% for the five of them. That means my portfolio is not only beating the indexes but is up 7.7 times as much as the indexes.
Why these 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. I’m sure some people will say “Why not drop this index and add that one?” but these are the three indexes I compare against currently, and I will probably continue to do so. I think they give me a pretty good approximation of how the market overall is doing. The last three months I’ve thrown in the Dow and the Nasdaq as well, so as to hit all the major indexes. I may continue to do that.
(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.)
The skeptics visiting our board have said, “Anyone can be a genius in a raging Bull Market!” Raging Bull Market??? The three indexes I follow are up an average of 11.2% so far this year. Last year they were up 14.4% on average. If we combine the two years together, the indexes are up all of 24% while many of us are up well over 200%. It’s hard to explain a 243% gain as being due to the market being up 24%, or my 86% gain this year as due to the markets being up 11%. Think of it this way: this month alone my portfolio tacked on 31 points (from up 55% to up 86%). The markets have tacked on just 11 points in eight months!
How can we explain the disparity between our results and the averages? 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 recurrent. It’s the wave of big data, the cloud, artificial intelligence, and all the rest. I had some big winners outside of that area, but it’s been that big wave that has carried us. Let me quote (with permission) an excellent analogy from an email from FlyGal:
I have studied economic history over the years and I do think that this period of time is a great transformation.
One of the things that happened in the transformation from waterpower to electricity is this: when electricity was first introduced they simply electrified water-powered factories. Water-powered factories had generally been built vertically to convey power through a series of belts from the water wheel [they weren’t built for electricity, but for water power]. The electrified ex-waterpower factories were not really much more efficient, as goods in production still had to be carried from floor to floor. But when NEW factories were built after electricity was ubiquitous, they were built in the horizontal model (taking into account that they’d be powered by electricity, not water) and they were much more efficient.
Until recently business just bolted computers into their existing operations. But the real period of efficiency is arriving now as businesses are built from start to really take into account the power of computers.
Cloud computing is so much more efficient. One of the big things that I think people miss, when evaluating companies related to cloud computing, is the efficiency with which they operate compared to enterprise computing. There are lots of enterprise shops, but all new endeavors go to the cloud because it’s just that much more efficient. Legacy systems still run at the enterprise level, but even those enterprise businesses will start most NEW functions in the cloud.
And, I, Saul, just want to remind you all that in general, our companies are built for the cloud from the ground up, and they provide the picks and shovels for enterprise companies switching over to the cloud.
One or two chronic 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 compare against The Market, meaning all the companies out there that people invest in. I don’t compare against the stocks that are already in my portfolio … …or against stocks that are just like the stocks that are in my portfolio, which amounts to the same thing, and which is what these critics are saying I should do. What would be the sense of that? You can only know to compare against indexes of stocks like mine when you already know what I’ve already invested in, and know how well they have done, and then look backward to figure out some index close to my stocks. What nonsense.
Consider an investor who figured out that a certain industry was going to boom…let’s say natural gas, just for an example. This wasn’t at all obvious at the time, but he figured it out, and he changed his portfolio and bought the best ten natural gas stocks he could find, and sure enough, natural gas boomed and his stocks beat the overall market by a mile, and then some wiseguy comes along and says “Oh! That wasn’t so smart. You shouldn’t compare against the Market. You should compare against an index of natural gas stocks, etc.” Isn’t that ridiculous?
Finally, let me point out that I’ve been comparing against the S&P (“The Market”) since I started this board in Jan 2014, over four and a half years ago, long before I ever heard the term SaaS (as far as I can remember) and certainly before I ever invested in a stable of SaaS related stocks. I’ve compared against The Market irrespective of what my stocks have been. They’ve included companies in fields as varied as banking (Bofi, Signature Bank, First Internet Bancorp, and others), biotech (Celgene, Kite and Nektar), real estate (LGIH), a gas station and general store chain (Casey’s General Stores), a 3-D printing company (Arcam), medical device firms (Abiomed, Intuitive Surgical), some solar companies (SolarEdge, Solar City), an electric car company (Tesla), etc, etc. My goal will always be to make money to support my family, and not to beat some index made up of a collection of stocks that’s almost the same as the ones I happen to be in at the moment. That is just 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 stocks I’m in, or the same “kind” of stocks I’m in. It’s as simple as that. I never guarantee to be in the best stocks in my category. I’ve always said there will always be stocks that will do better than mine (or yours). I just want to do well and make a good rate of profit, and a better one than the market as a whole is producing.
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. At that time, in just four months my results had already dwarfed those I had in the entire years of 2015 and 2016, so back then at the end of April 2017, up 26% seemed like a ridiculously enormous amount to be up in just four months, and my stocks seemed way “over-bought.”
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?
Here’s a little table of the monthly progress of my results so far 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%**
The stocks I’m still in since the beginning of 2018 are Alteryx, Nutanix, and Square. They include three of my five largest positions (Twilio and Zscaler came later), and they make up 41% of my current portfolio, and they are up an average of 115% year to date.
Current positions added since the beginning of 2018 have been:
**Jan - Twilio, and Okta.** **May – Pivotal, and MongoDB** **Jun - Zscalar** **Jul - New Relic** **Aug - Wix and PayCom** small positions
Here’s a last four months review:
May In the beginning of May, when Arista sold off, I added a lot of it at about $243. Later in the month, when I wanted money to buy other things that I felt had a longer runway, I sold off most my position at about $258…. MongoDB again! Have I ever been back and forth on Mongo! I changed my mind a bunch of times this year. I finally started a new position in June at about $43.48, and kept it and built it up… I also took a position in Pivotal, thanks to Steppenwulf’s great write-ups…
Finally, I sold out of the remains of my Nvidia position at $248, for cash to buy other things. It had been in a trading range between $215 and $250 for 20 weeks, which is a long time for a company that was supposed to be conquering the world. [At the end of July it was still at $252, nine additional weeks later, while my portfolio had gone from up 38% at the end of May to up 55% then. And now, at the end of August it is at $281, up 13% in three months from where I sold it, while my portfolio has risen almost 50 points from up 38% to up 86%. I know everyone loves Nvidia, and it controls the future and all that, but it’s still a huge company that would be difficult to double or triple in size, and mostly a hardware company at that. I used the funds to buy more stock in other companies that looked better to me. Please remember that companies that I sell often continue to go up, and some stocks I buy go right down. God knows I make mistakes regularly.
June I sold out of the rest of my Arista early in the month… I was reducing Nektar all month, but planning to keep a token position, but sold out of the last of it at the end of June to buy Zscalar… I took a small position in Wix early in June, but sold it back in the same month, to buy Zscalar… I reduced Pure Storage to buy Zscaler.
July I took a small position in New Relic… I continued to reduce my position in Pure Storage, and coincidently was the only one of my stocks that was down in July… I also trimmed a little bit of Pivotal… I kept building my position in New Relic, and added to Zscaler as well… I have also segregated away a certain amount of cash.
August I had reduced my Shopify position gradually over a couple of months but it was still one of my major positions. However, in early August I sold out of it in shock when their rate of revenue growth, which had been falling every quarter, precipitously fell in a quarter when the economy was very strong and in which Square, in a market quite similar, had huge results, following on top of increasing rates of growth in all the quarters where Shopify had falling rates of growth. My average sale price for Shopify was about $145, about 537% of my initial purchase price which was $27, two years before. By the way, Shopify is currently still about where I sold it ($145.73), while Square has risen enormously since then. In fact, if I look back to my End-of-July post, Shopify was at $160.15 and Square was at $69.85. Shopify is now at $145.73, down 10% for the five weeks, and Square is at $88.64, up 27% for the five weeks.
I also decided to sell my small position in Pure at about $22.50, and I trimmed Nutanix a little (it’s still a 8.7% position), and trimmed Pivotal a little (it’s still a 6.7% position and has never been a very large one). My reasons for trimming these two is alluded to in my Category Crusher post linked to above… I put the money from these various sales and trims mostly in Twilio, Square, Zscaler and New Relic, and a little in Alteryx and Okta, and started small positions in Wix and PayCom, inspired by Bear’s enthusiasm for them over the months…
And, as I wrote last month, I have continued to segregate away a certain amount of cash. 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 have enough set aside for my family. I can cover our living expenses more easily as we live a reasonably simple life. And besides, it’s too much work for an old guy.
Here’s how my current stocks have done in the first eight months of the 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 60.71 up 213.9%** **Square from 34.67 to 88.64 up 155.7%** **Alteryx from 25.27 to 58.05 up 129.7%** **Okta from 29.95 to 61.83 up 106.4%** **MongoDB from 43.48 to 71.96 up 65.5%** **Nutanix from 35.28 to 56.32 up 59.6%** **Pivotal from 19.18 to 27.75 up 44.7%** **PayCom from 120.20 to 155.12 up 29.1% (new this month)** **Zscaler from 35.84 to 42.79, up 19.4%** **Wix from 96.30 to 111.1 up 15.4% (new this month)** **New Relic from 102.00 to 102.76 up 00.7%**
My recent big stars have been:
Square, up 156% this year so far, and quintupling in price (up 506%) since I bought it at $17.50 just a year and five months ago, in March of last year.
Nutanix, which at $56.32, is up 162% from when I bought into it ten months ago at $21.50.
Twilio and Okta, up 214% and 106% from when I bought them in January, just over seven months ago.
Alteryx, up 130% this year so far from $25.27 to $58.05
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%** **Arista from 235.60 to 274.0, up 16.3%** **MongoDB from 38.00 to 43.50 up 14.2% 1st time** **Wix from 102.5 to 98.1 down 4.3% 2nd time** **Mime from $32.34 to 30.85 down 4.6%** **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** **Nektar from 103.0 to 54.0 down 46.6% 2nd time**
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 the market is in a bubble.” All of their charts and indicators proved it in 2010, 2011, 2012, 2013, 2014, 2015, 2016, and again last year in 2017. I’m hearing convincing stories about bond yields now foretelling a crash, and interest rates rising. The only trouble is that I’ve heard similar convincing stories about other technical indicators every year. Eventually they’ll be right, and they will say “See! I was right all along!” They may be right now! I certainly don’t know.
Of course a marked correction or bear market will come eventually.They always do. And rising interest rates, tariffs, and trade wars do eventually stop market rises. Look, the next Bear Market may start on Tuesday for all I know! But we never really know when. And what a price those people have paid by “keeping their powder dry” and staying out of this market for the past nine years, waiting for the big correction that never came.
Picking good stocks makes much more sense than trying to pick good stocks AND trying to time the market too. Just my opinion.
Now let’s look at my position sizes. I’m still trying to keep my portfolio concentrated and streamlined. I’m now at 11 positions, 9 of which make up 95% of my portfolio, and the other two are small positions that I’m just getting comfortable with. 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 the 11 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 17.2%** **Twilio 16.6%** **Square 15.0%** **Zscaler 9.4%** **Nutanix 8.7%** **MongoDB 7.9%** **Okta 7.6%** **Pivotal 6.7%** **New Relic 6.1%** **PayCom 2.5%** **Wix 2.3%**
For this month only, with the exception of Nutanix, which just released earnings this week, I’m going to refer you to my Category Crusher post http://discussion.fool.com/category-crushers-and-my-portfolio-33… which is only two weeks old, and in which I discussed each of my stocks, and I have little new to say.
I feel that my portfolio is made up of a bunch of great companies. But that’s just my opinion, and I can’t say often enough that I’m not a techie and I don’t really understand what most of them actually do at all ! I just know what great results look like. I figure that if their customers clearly like them, and keep buying their products in hugely increasing amounts, they 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.
With regard to Nutanix’s results two days ago, I’ve recently posted my thoughts, but here they are again for those who haven’t seen them. Basically my thoughts about Nutanix’s results are the same as those of Bert and others: the results were misunderstood by robo-analyzers. They were great results! Let’s look at some figures:
Gross revenue was just up 20% from last year, but that’s only because they weren’t counting $95 million of hardware that would have been counted in the same quarter last year. Put that back in for an apples-to-apples comparison, and revenue was up 58%!
Subscription revenue was up 49% as reported, which is the future of the company.
Deferred revenue is huge (more than twice as large as the quarter’s entire revenue) and was up 71% yoy!!! Yes, up 71%. And up 17% sequentially.
Gross billings were “only” up 37%, but Subscription billings were up 66%.
Free cash flow was positive $6.5 million, up from negative $6.5 million a year ago.
For the fiscal year ending this quarter, Free Cash Flow was positive $30 million up from negative $36 million a year ago!!!
Operating cash flow was $23 million up from $6 million yoy.
For the fiscal year ending this quarter, Operating Cash Flow was $93 million up from $14 million a year ago!!!
Is there anyone left who doesn’t think that this was a blow-out quarter?
Adjusted Net Loss was 6% of revenue, improved from 10% of revenue a year ago.
Adjusted loss per share was 11 cents, improved from 17 cents yoy and from 21 cents sequentially, and which is the smallest loss in cents that Nutanix has ever had.
Customers were 10,600, adding 1000 new customers in the quarter. Note that’s not in the year, that’s in the quarter.
They had their biggest deal ever this quarter, a $20 million deal with a part of the Dept of Defense. (We know from previously that it was the US Air Force.)
That’s just some of the information. This was a great report. I added a tiny bit just after the opening at $56.92, but remember that this is just my opinion. Do your own research and make your own conclusions, and I promise I won’t be annoyed if you decide differently.
Finishing up. 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 just try to 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 posts #4 through #8 at the beginning of the board, and especially 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.