My portfolio at the end of August 2018

[XMFBreakerTinker]

Smorg,

Here is a good start on Zs:

https://www.nojitter.com/post/240173625/zscaler-private-acce…

Cannot find the link on my Windows computer now to Zenith, but GE’s CIO gave a talk as to how Zscaler enabled GE to get rid of their data center and instead, with much more security, use the internet as their network. That is the disruption. Moving to SD-Wan is yet another area where Zscaler disrupts.

I will link to the Zenith presentations tonight when I get back to an Apple device.

However, I have linked to the above and to the Zenith user convention previously. Microsoft had presentations from their CEO and CIO (all this for a tiny upstart Zscaler, whom is enabling the security from Azure for 365), Siemens gives a story similar to GE, VMWare uses Zscaler as its go to security, as does Salesforce (but the presenter from Salesforce you can skip, she mostly gave a talk about the charity she is promoting), At&T and Zscaler for SD-Wan, basically all of them but the Salesforce talk will pretty much sum it up for you with the context of the linked article above.

Keep in mind that no one else runs an appliance free security product that is 100% cloud as Zscaler does. Whether or not relevant, Symantec, the only other competitor in the leader quadrant in this category (no one else, not even Cisco made the leader quadrant) just reported that their billings declined 20% and the Board of Directors is under attack by the largest shareholder to redress the issue (Symantec had bought Blue Coat - which was #1 and sells tons of appliances in the data center). Was this because customers no longer want to deal with appliances anymore when they can go to the cloud? Perhaps.

But once you review the prior thread on Zscaler here, and review the above and the presentations that I will link to again, that will give you a good gist of it all.

Oh yes, also read their earnings call. They have only had one. That is very informative.

Tinker

[XMFBreakerTinker]

https://www.zscaler.com/zenithlive-2018-live-stream

Here is the link to the presentations. You need to give your email with this link however. The other link I have you do not, but I do not have that other link.

Again, I would start with GE and then Siemens, skip Salesforce presentation, but the rest all worth viewing.

Tinker

[Smorgasbord1]

As I interpret the news, there are two reasons to move from cloud to premises:

1.- Security, the cloud is more vulnerable to attack so you take strategic, security sensitive apps back to your premises.

2.- Latency, apps that require massive data transfers suffer the most from cloud latecy so you take AI apps back to your premises.

In my view, neither reason is completely clear-cut.

Yes, you can make your private data center more secure than a public cloud, but not all companies provide the financial backing and employ people with the knowledge to do so. As we’ve seen, the private infrastructures of big companies with purportedly professional IT departments like Target and TJ Max were successfully hacked (as have dozens of other private clouds). In Target’s case multiple malware alerts were ignored. Some prevention functionalities were turned off by the administrators who were not familiar with the FireEye system. https://arxiv.org/pdf/1701.04940.pdf

And the public cloud is getting more secure all the time. For instance, AWS has been in the process of getting more and more of its services to pass FedRAMP (https://aws.amazon.com/blogs/security/aws-achieves-fedramp-j… ). FedRamp is a compliance standard needed to execute government agency cloud-hosting contracts. AWS is also a PCI DSS 3.2 Level 1 Service Provider, the highest level of assessment available (PCI DSS is generally needed to deal with credit card data, for instance). How many companies can run a private cloud that meets those standards? Some have to, of course.

Note I’m not saying the public cloud is more secure, I’m just saying that it takes a very high degree of knowledge to implement better security in a private cloud than you get for cheap in a public cloud.

As for Latency, even completely in-house applications often need to communicate with remote offices and traveling employees. If one is really interested, this article (https://www.interxion.com/globalassets/_documents/whitepaper… ) is an interesting look at what contributes to application latency, and how it affects some applications more than others. One could even argue that deploying your application in a public cloud enables you to take advantage of geographically distributed servers to reduce latency for a geographically distributed workforce. And Amazon now provides Direct Connect, which establishes a dedicated network connection between your network and one of Amazon’s locations, further reducing latency.

Of course, as the article points out, Today’s modern data centre isn’t just a bunch of rack-mounted servers but a complex web of hypervisors running dozens of virtual machines. This introduces yet another layer of complexity, since the virtualised network infrastructure can introduce its own series of packet delays before any data even leaves the rack itself! . Note that Nutanix run private cloud servers are heavily dependent on virtualization for easy of deployment and management.

It’s interesting that as Cloud Services starting hitting the market, many in the business doubted they would take off, precisely because of the concerns that Denny raises. Yet, what we’ve seen is that the public cloud has steadily gained in popularity despite those headwinds. And even Nutanix doesn’t claim those as advantages, but instead focuses on cost and ease of use. I still believe the trend is towards running in the cloud versus onPrem, but there will always be applications developed for one that should be migrated towards the other. I don’t think Nutanix has a bad business model, but I do think its ultimate popularity is quite limited.

[Smorgasbord1]

Microsoft had presentations from their CEO and CIO (all this for a tiny upstart Zscaler, whom is enabling the security from Azure for 365)

OK, since this is the second time you’ve posted this I feel the need to correct it. Zscaler is NOT providing the security, nor enabling the security, for Office 365. Zscaler is but one of a variety of security choices one can choose when deploying Office 365: https://blogs.technet.microsoft.com/onthewire/2017/05/03/off…

First, let’s understand that there are 3 methods to deploy Office 365 on Microsoft’s network:
• Direct Routing
• Proxied Access
• ExpressRoute

Of these, Microsoft recommends Direct Routing due to the efficient, low impact manner of egress, allowing connections to flow direct, using the protocol of choice, this method is the recommended method to connect your Office 365 services wherever it is possible. (link above)

Using Zscaler is only an option if you choose Proxied Access, which Microsoft doesn’t recommend due to potential performance issues, and even then there are security alternatives: Whilst not a recommendation for any vendor over another, Microsoft are working with various vendors such as Zscaler and Bluecoat to help better align cloud proxy products to best practices for Office 365.

So, let’s be careful not to overstate Zscaler’s market penetration.

how Zscaler enabled GE to get rid of their data center and instead, with much more security, use the internet as their network.

Again, let’s not go overboard here. Zscaler is a security solution, not a data solution. Adding security doesn’t get rid of data centers. You still need to store your data! See slide 4 in this Zscale presentation showing their ideal world still incorporates a data center.

What Zscaler is prompting is that their security is good enough and easy enough that a company’s users can access everything over a Zscaler-secured internet and keep them off your corporate network. In most cases, however, you’ll still have that corporate network.

So, yes, it looks like I should do a deep dive on what Zscaler really is and does due to much mis-information being spread out here.

[XMFRob]

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. – Saul

Perhaps your question is rhetorical, but please bear with my opinion.

I started investing when I was twelve. I had no guide, no teacher, just “book learnin’” and reading articles. I looked at lots of different ideas and gave them thought based on observation. I made progress. I was disappointed to find out that my older brother didn’t even know there were no-load funds and I explained things to him…but that’s hard to listen to from your much younger brother. I discovered arbitrage in high school, taking advantage of a takeover of the company I worked for (25% error in market pricing because it was thinly traded!). I was further disappointed in my broker while in college as he recommended a company to me because it was using lasers… without giving any other reason to buy it. Over the years, I learned quite a bit about investing. Including that “common sense” stuff you mention. Including the idea that you buy to hold…but that doesn’t mean it always makes sense to keep holding.

I started my MBA at U of Michigan (at that time, a highly regarded graduate business school) at the age of 31, deciding to focus on marketing…and finance. I learned all the stuff a good MBA is supposed to know. But fortunately… by that time I had enough practical knowledge to recognize that finance theory was a lovely theory, but useless for investing. I…um… reduced my focus on the finance side of my MBA after a while.

In my opinion, a lot of highly educated people are very impressed with how educated they are and how much they “know”. But many of them don’t have the humility or open mindedness to recognize there are other ways to look at their sphere of knowledge. Some of those other ways are even better than what they already know.

I know that might sound mean. I don’t intend it to be so. It’s more a reflection on the human condition. We’re all flawed in various aspects.

So… let us pursue our lives as best we understand it, keeping an open mind to consider new ideas.

Rob
Rule Breaker / Market Pass Home Fool & STMP/MTH Maintenance Coverage Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.

[Smorgasbord1]

I wrote: See slide 4 in this Zscale presentation showing their ideal world still incorporates a data center.

I left out the link. Here it is: https://www.zscaler.com/resources/solution-briefs/zscaler-co…

[Funwopt]

Saul,

I haven’t finished all the responses but my answer for the question is that others believe that diversity lowers their risk. However by lowering their risk they also lower their returns since how can they possibly choose 100s of stocks that all advance at the same rate as your smaller subset. If there were that many stocks out there with those advances than everyone would have returns similar to yours.

Don

[thejusticier]

I think it is a matter of being in the right stock in the right period. SaaS businesses have been on the rise since after the financial crisis and it is riding an epochal expansion and are hitting various adoption curves. Plus the general market has been rising since 2009. These businesses have been sailing with very strong winds behind them. Some have IPOed just a couple of years before but I think the shift to such model and the exploding adoption of this sort of usage make the stocks discussed in here very potent.

Not making any judgement here but it is not about intelligence. It’s just about being in the right stock at the right time. Most of the stocks discussed in here fall in this category.

If you have more cash or more in good stocks like DIS or SBUX or BKNG or FAANG etc… your returns have not been nearly as high. DIS and SBUX have not moved since 2015 but they are gigantic winners for long term investors.

I hear the saying ‘I cannot time the market’ often. Nobody can really. There is some illusion of being in tune with the market for a short period but then you get out of phase and you can’t catch it for a while. The market pushes some stocks more today and some others tomorrow. Who can know the timing for the change? No one.
But it is good to ride a tangible transformation in process. Putting all your money in that is not what everyone would do. Catching the next wave is not guaranteed.

tj

[thejusticier]

"Beyond concentration however, what is truly amazing is that you ( and this Board) have been able to find so many High Conviction Stocks. Brokers use to say that having 1-2 multi-baggers in a life time was sufficient. You list 10-11 multi-baggers in one post. "

I think the way things are talked about here you would never experience a 10X or a >100X simply because none of the stocks are held for much more than 1 year or 2. At the slightest sign of growth deceleration, the stock is dumped.
Some stocks do rise a lot within those short periods but I don’t how one could hold it for longer just by focusing on each quarter’s numbers so sharply.

Maintaining a concentrated portfolio means you put a good % into one stock and if it happens to grow in a short period than you just enjoy that ride up (and sell some when you feel it has become too ‘high’ or when it stumbles during a quarter). One will never get a X10 or a X100 from one stock.
On the opposite side, one could invest a small amount and just hold it and hope for a 10X or a >100X. The money does not come so fast and it may not even happen. But when it happens, it can become a sizeable portion of your portfolio. You cannot ‘brag’ about it today but maybe one day.

tj

[gdett2]

Saul,

What I have for my wife is a living document which I update when needed and give to her to keep on her laptop.

It is my version of a “Letter from You Dead Husband” which was created in Rule Your Retirement a number of years ago.

In it, I have all the things outlined that she needs to be aware of like automated payments and other banking issues, where documents like deeds, oil leases, easements, titles and others are stored, the names and locations of all accounts (which has been trimmed down over the last 13 years), how to handle RMD’s for my traditional IRA (her’s is fully converted) and a few other points like a list of people/companies like lawyers we have business with.

Part of the account info is disposition info. In the document, I maintain an updated list of specific companies to sell along with closing all open option positions. Included is the phone number for her to call to do this.

Another part of this section is what to do with a portion of the cash, going into a few ETF’s like VOO, VO, etc. I give her percentages and show her how to do the calculations, emphasizing that the numbers don’t have to be exact.

Our accounts all have an added beneficiary registered for final disposition when we are both gone.

The most important point of the entire document is to ease the transition of management at a difficult time. To outline the steps needed and the resources available along with a plan to act as a guide.

Does that help you?

Gene
All holdings and some statistics on my profile page
http://my.fool.com/profile/gdett2/info.aspx

[SaulR80683]

The most important point of the entire document is to ease the transition of management at a difficult time. To outline the steps needed and the resources available along with a plan to act as a guide. Does that help you?

Thanks Gene, I have one like that called “In Case Something Happens to Me.” It’s an attempt at least but I’m not sure how much it will help in a time of crisis like that.
Best,
Saul

[strelna]

For those of us (aka ‘the chronics’!) who think Saul’s results are stupendous but his chosen market indexes to compare his results against the strangest of quirky indulgences, here is a better and surely more rational one. Using the average of the performance of two market behemoths in the Saas space, Adobe and Saleforce, to represent a ‘No Work, Less Risk’ (NWLR) benchmark for the Saas space would obviously be a much better comparator.

Saul is up 86% YTD (NWLR benchmark 50%) and 130% TTM (NWLR benchmark 65%). A magnificent and awe-inspiring outperformance as usual by Saul, totally vindicating his methods and the value of this board (though not his benchmarks!) for those who enjoy high gains and excitement.

[gdpr-Meghan1]

+1 … I’ doing ok investing my own money in individual stocks. But I also have a 401(K) that is in mutual funds.

The funds do ok showing share price appreciation but I don’t really know what they invest in. Sure I could go look but that’s why I’m paying for a manager, right?

I have ~20 stocks that I own and maybe twice a year prune something (sorry BUD) and replace it with something else (hello RACE) that looks like it has a better 5-year outlook. Actively managing my portfolio keeps me ready to manage it when that’s the only income I’ll have in retirement.

[sjo]

mfoDon
OT - if you’re interested in being able to trade stocks in your 401-K, rather than being limited to the hand full of mutual funds offered in your employer’s plan, call your brokerage company and inquire about an option you may have called a Personal Choice Retirement Account (PCRA). I have been doing this for years, and with two different employers. It has given me far greater flexibility and has allowed me to increase the amount I’m able to invest in the stocks we follow on Saul’s discussion board.

sjo

[JamesBrown]

I have exactly the same problem Chris, and exactly the same lack of a good answer.

Every year between Christmas and New Year’s Eve, I write a letter to my spouse called “In the Event of My Death.”

In it, I try to tell her all the things that I can think of that she’ll need, like:

The name and phone number of my boss, to explain why I haven’t been showing up to work.

Where my will is located, and how it should be handled.

The insurance that she’s entitled to, some from my work, some privately purchased.

How to start Social Security survivorship benefits.

What investments I have (taxable, ROTH IRA, 401K, etc.) and what she should do with them. I generally concur that she should sell most everything and invest in Scott Burn’s Couch Potato Portfolio or (more simple) just a Vanguard Lifecycle Retirement fund.

Who to contact to sell my comic book collection.

It also allows me to say some words that I probably don’t say often enough, like how much I love her, how proud I am of the son that we made, and how happy she’s made me over these nearly thirty years. I tell her that on our anniversary she should take herself out to the nicest restaurant in town, raise a glass of expensive wine, and salute our life together.

You know what’s funny (to me)? When I give her the latest letter, she tucks it away in a safe place . . . and doesn’t even read it.

[mauser96]

It’s obvious one can’t invest directly in trends - one has to invest in companies.

But one can invest in several companies that seem to be leaders of the trend, then follow the money to thin them down. That has worked well for me, a rising tide raises all the ships that have not already sunk or have big holes in them.

[mauser96]

I cannot time the market often. Nobody can really.
That may be the same as saying “I can’t run a 4 minute mile therefore nobody can”… Of course it depends on what you mean by "timing, " but in fact one can usually find evidence based data to determine when the odds are starting to shift towards probabilities of a bear market. And when established bear markets are close to their typical climactic end. Institutional restraints mean many are unable to use this data even if they gather it, but that does not apply to individuals.

But Saul doesn’t like it so I will post no more about it here.

[LovePeace]

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???

Because having an open mind, a positive attitude, and control over one’s ego can take you much farther than simple intelligence. I think you have all of those qualities.

Peace,
Dana
and thanks for all you do and all you are

[bjurasz]

Most of the “professionals” value avoiding losses for their clients more than going against group thinking and investing in unkown stocks to generate oversized returns.

I don’t think we should be demonizing this so much. I also don’t think there is that much mystery about this topic. First and foremost, not everyone can stomach a concentrated growth portfolio, and that’s ok. But specifically to the topic of loss avoidance, this is absolutely very true and very real. I believe it was in Freakonomics that I first got introduced to this. Consider this thought experiment. Go on the street and randomly ask strangers to wager $1 on the toss of a fair coin. You might get a lot of takers. Do the same with a $20 wager and you will find dramtically lower takers of your offer. Odds have not changed! Now, have them wager only $5 to your $20 and the story changes again. The lesson is the pain of loss is often greater than the joy of gain. Professional money managers realize this. There is more to investing than just profits and losses.

Bill Jurasz

[shikotus]

I spoke to a couple of hedge fund friends of mine re: the question of why can’t the hedge funds replicate similar returns. The hedging/risk management answer offered by some others above is only a small part of the true reason for this phenomenon. The real and primary reason is that these strategies don’t scale from a market liquidity perspective when you are trying to deploy truly large sums of money (hundreds of millions of dollars or more). This seems counterintuitive at first. But consider this example.

Let’s take Alteryx, a company with a 1.8 billion market cap, and a sizable chunk of your portfolio. Let’s say the stock costs $50. If you are a small individual investor with a portfolio of a few hundred thousand to a few million dollars, you are likely buying hundreds or maybe a few thousand shares of this stock at a time. That’s peanuts to the market - the liquidity is sufficient to support your transaction without moving the price. But if you are trying to buy something like a $100,000,000 worth of Alteryx, it’s a very different story. You are buying something like 5% of the entire company in one fell swoop. You can’t actually go into your TD Ameritrade account and make that trade for 7 bucks. Go take a look at the Level II quotes for Alterix right now. You’ll see that even with a trade of just a few thousand shares, you’ll basically fill the first 10 levels of the book. Start going beyond that and you are going to start getting filled at ridiculous prices as you start moving the market. Now you are no longer buying at $50, you are buying at $55, $60, $70 and beyond. Your trade is ruined. You don’t want that.

So what do you do? Well, you engage dealers (or your broker does on your behalf). Dealers will take your $100,000,000 request and try to find sellers for you without moving the market too much. They will have to spread the trade into many pieces over many days. They will call other dealers and see if others are looking to sell and try to make private deals for chunks of your big trade. Moreover, if they are trading on exchanges, they’ll need to worry about all the algorithmic trading that’s been unleashed in the market - computers trying to detect big deployments of money and trade into them. So they will need to be extra careful in deploying your money. Instead of buy, buy, buy, your trade will look more like buy, sell a little less, buy a little more, etc. etc. Your big trade will turn into hundreds or thousands of little trades in the attempt to keep the pricing at least somewhat reasonable. Of course, each dealer needs to eat. So they will do all this for a fee - something like 1 to 2 percent. Now the bigger the trade the more dealers will need to work on it, because there is now human interaction involved, and that does not scale very well. And each dealer involved will take their fee.

Now imagine that you are not trying to deploy a measly $100m, but you are actually large hedge fund with pension funds as you clients, trying to place billions of dollars at reasonable prices. You will need a small army of dealers now. Each charging a fee for their work. By the time you are done deploying that much money into the market, you’ll be pretty lucky (and pretty happy!) with a 10% return after all the fees. And you will also need to have a much larger portfolio, because unless you are planning to buy up small companies whole, you can’t spread that much money over 10 small cap stocks like you have.

Now add actual hedging and risk management concepts on top of that equation and I think you’ll have a complete answer to your question.

Turns out having too much money actually IS a hard problem.