My portfolio at the end of Feb 2019

My portfolio at the end of Feb 2019

Here’s the summary of my positions at the end of February. As I usually do, for my own convenience, I’m figuring as of the last weekend of the month, and the remaining days will spill over into March. Think of it as a four-week summary, if you prefer. Please note that I almost always use the adjusted figures that the companies give.

Last month I gave you 13 month and 27 month results as well as one month results but, as I said I would do, I am back now to just giving my results for 2019.


I thought I’d start this month with some observations about diversification. If you look at my positions with nine or so of them out of twelve being SaaS companies of one kind or another, some might think “My God! You aren’t diversified by industry at all!!!” But let’s look at them alphabetically and see if they are diversified by industry:

Alteryx makes it easy for any enterprise in any industry to organize and analyze data. In fact they apparently make it easier than anyone else can, and so easy that almost anyone can do it. Any enterprise in any industry is pretty diversified, isn’t it?

Coupa makes it easy for any enterprise in any industry to manage their spending and procurement, which is much more complex and complicated than it sounds. In fact they apparently make it easier than anyone else can do. That’s pretty diversified too, isn’t it? And what they do has almost no overlap with Alteryx.

Docusign is the master of digital document signing, used from buying a house to buying a business or signing a contract, and in addition makes it easy for any enterprise in any industry to to prepare, manage, sign, and store documents digitally within its platform, which is much more complex and complicated than it sounds. In fact they apparently make it easier than anyone else can. That’s pretty diversified, isn’t it? And what they do has almost no overlap with Alteryx or Coupa.

Elastic makes it easy for any enterprise in any industry to do amazingly complicated and varied searches as an integral part of their business (for example finding the nearest Uber car), which is much more complex than it sounds. In fact they apparently make it easier than anyone else can. That’s pretty diversified, isn’t it? And what they do has almost no overlap with Alteryx, or Coupa, or Docusign.
. Etcetera on down through the alphabet to:

Zuora, which makes it easy for any enterprise in any industry to manage billing and revenue recognition, as well as management, for subscription sales, which is apparently much more complex than it sounds. They even have quite a number of our SaaS companies as customers so we know that they must make it easier than anyone else can. And, while half of their business is from the tech industry, they also dominate verticals as different and varied as newspaper digital subscriptions and the auto industry. That’s pretty diversified, isn’t it? And what they do has almost no overlap with Alteryx, or Coupa, or Docusign or Elastic or any of the other companies in my portfolio.

Are my positions diversified by industry? I’d argue that they are as diversified as they can get. I didn’t want to bore you by going through all my positions, but as you can see, they are an amazing group of companies who serve enterprises in every industry on the planet, and if that isn’t diversified, I don’t know what is.

Another way to look at it is this. Our companies sell subscriptions to software that helps all the other enterprises in the world run their businesses more efficiently and more profitably. They have a very positive return on investment. Our companies aren’t selling luxury or prestige items, they are selling products that make other business run more profitably.


My portfolio closed February up 28.0% year-to-date.
It got a headstart from the remarkable 16.5% at the end of January, (but we all knew the market would pull back in February after that ridiculous rise in January… didn’t we?)

I must point out that I also got a big lift on Friday, as most of you did, when The Trade Desk was up $47 or 31%. I wonder if that analyst who downgraded them the day before got fired? I also should point out that the Trade Desk was “overvalued” on Thursday, and it had had a had large run-up since the market low in December (those are the “reasons” that the analyst downgraded it). And that’s why I don’t pay attention to “overvaluation” if the company is a blockbuster (I know that my saying that offends some people who believe religiously in valuation and create all kinds of tables to evaluate and compare it) – and why I never sell out of a position simply because the price of the stock has gone up.

Here is the monthly progress of my portfolio results since the beginning of 2019:

**End of Jan 	+16.5%**
**End of Feb	+28.0%**

At the start of the year I would have been happy with a 28% gain for the entire year. Now here it is in two months. We are doing well so far this year, but we are not magicians. We are simply 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!

Does anyone still believe that our overpriced, no-earnings stocks will get killed when the market goes down. We were told they would fall “much more” than the indexes; “multiples” of what the indexes fell. Well last year the average of the five market indexes was down 8.5% and my portfolio was up 71.4%, and others on the board were up a little more or a little less. Kills that theory…

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 my portfolio had already beaten my total results for 2015 and 2016. It was time to get out and wait for a pullback, right? 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! So I’m not timing this year either. I’m riding with the market and will see what it brings.

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, again in 2017, and loads of it in 2018, especially in December. Eventually they’ll be right, 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.


Let’s look results year-to-date. The three indexes that I’ve been tracking against for ages closed year-to-date as follows.

The S&P 500 (Large Cap)
Closed up 11.4% year-to-date. (It started the year at 2507 and is now at 2793).

The Russell 2000 (Small and Mid Cap)
Closed up 17.9% year-to-date. (It started the year at 1349 and is now at 1590).

The IJS ETF (Small Cap Value)
Closed up 18.8% year-to-date. (It started the year at 131.9 and is now at 156.7).

These three indexes
Averaged up 16.0% year-to-date.

If you throw in the Dow, which is up 11.6% and the Nasdaq, which is up 13.5% you get up 14.6% for the five of them year to date.

For the past 14 months (since the beginning of 2018), the five indexes are up 4.9%. If you compare that result with my portfolio’s gain of 119.4% in those 14 months (1.714 x 1.280 = 2.194).

Read that again: 4.9% for the indexes, 119.4% for my portfolio. I must say that it doesn’t make investing in the averages seem “conservative”, to put it mildly. Clearly, picking stocks that will be winners, the way we do, has beaten investing in ETF’s and Indexes, and by huge amounts.

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). I have felt that they give me a pretty good approximation of how the market overall is doing. However, in recent months I’ve also thrown in the Dow and the Nasdaq, so as to hit all the major indexes. I probably will continue to do that.

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, and combining those five indexes gives a pretty good approximation,

(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 these are the years the Cloud has come into its own and the years that Software-as-a Service (SaaS) blossomed. 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 software, big data, the cloud, and AI. All enterprises, whatever industry they are in, are using more and more software, wanting to use the cloud, AI, and the rest, and needing the software that our compaies are leasing. 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.

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 my last four months review:

November. In October post I started 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 mid-size position.

At the end of October I also had two small (3% and 2%) positions in PayCom and Wix. One was up 3%, and the other was down 2%, 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 that 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. [Saul here writing currently – I often write that you shouldn’t follow me blindly but make your own decisions because I make plenty of mistakes. Here’s an example. Paycom is up a huge bunch since I sold it in November. Wix is no slouch either.]

I took a new position in Elastic in the first week of November with an average buy-in point $65.50.

I sold out of Nutanix for cash. I had been reducing my stake for a number of months. 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. I read commentaries on the board since then that made me think that Nutanix will do fine after all. I wrote here (in November) 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 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 4.5% 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? Well, 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. This made me think about Square and how its market is tiny merchants, (and restaurants), and: their clients will be hit hard in any recession, and while they can go up-market from ‘tiny’ merchants to ‘very small’ merchants, they are really in a small niche with no way to actually take over the world. As far as leadership, their admired CFO, Sarah, left, and their CEO went off on a meditation retreat in the South Pacific. They have plenty of competition (PayPal, etc), while companies like Alteryx, Twilio, Okta, Zscaler, etc, don’t seem to have much effective competition. And unlike the above mentioned SaaS companies, Square went down much more than the SaaS companies, and hadn’t bounced with the them either, and finally, Square’s market cap is $23 billion, which is much harder to quadruple than a a market cap of $3 billion.

I had said that I didn’t feel I needed to sell out of all my Square. After all, their rate of growth of adjusted revenue for the last 7 quarters had been accelerating each quarter, and had 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.

Okay, why did I buy back into Nutanix? Well, a lot of posts on the board influenced me, and press releases from Nutanix, 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 I only started with a 4.5% position, and it will have to prove itself. (As of now, the end of February, it’s an 8.5% position).

Finally in December I also added another small biotech, Vericel. 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.

In January, I was busy. I sold out of Vericel which I had recently added, feeling that of the three try-out biotechs, it seemed to have the smallest niche. I took small positions in three little SaaS companies (Anaplan, Zuora, and DocuSign). But I said that these are really smallish get-to-know-you positions and may be gone in a couple of weeks, or a month, so please don’t buy them because I dipped my toe in! I later exited my small position in Abiomed for cash to add to these and other positions.

In January, one of my stocks, MongoDB, had a very uncomfortable month, with Amazon entering the field as a competitor, and then Red Hat, representing the open-source point of view, attacking Mongo too, for veering away from pure open-source. I read all the positive opinions on Mongo which seemed very convincing, and all the negative opinions on Mongo, which also seemed very convincing, and decided, since I have zero technical knowledge to help me decide which is right, or if the truth is somewhere in-between, that Mongo was just too much of a battleground stock for me, and I sold out of part of my position, and then all of it.

I was in no way sure that I was correct in doing so. I said that I may have been completely wrong. In fact the preponderance of evidence seemed to be that this could be even a positive for Mongo, and I knew that they will have great results for their Jan quarter, but it made me worry about the long term viability of their open source business model. I said that I simply had other companies without that kind of issue and existential worry. Again, it looks like I was completely wrong but that’s what I did.

I continued to build up my Nutanix position throughout the month, encouraged by its partnership with Intel, Darth’s great collection of comments by users, Bert’s enthusiasm, the general release of Xi cloud services, and Nutanix achieving FedRamp ready designation. I also added to Okta, Elastic and others.

February. In January I had sold out of my Mongo position. Here’s a synopsis of what I wrote:

I am in no way sure that I was correct in doing so. I may have been completely wrong. In fact the preponderance of evidence seemed to be that this could be even a positive for Mongo, and I know that they will have great results for their Jan quarter, but it made me worry about the long term viability of their open source business model… As I said, I simply have other companies without that kind of issue and existential worry. Again, I may be completely wrong but that’s what I did.

Well I decided that I had been wrong and I bought back into Mongo early in February, and I currently am up to a 3.5% position.

Square was 2.6% of my portfolio at the end of December, 4.7% at the end of January, and is now up 5.2%, although the price has dropped from $78 to $76 while everything else is going up. I have added significant amounts as my confidence has returned as they keep coming out with amazing new products, and the CEO has regained seriousness. I still feel though that it doesn’t belong in my top four positions.

To get money for these purchases I reduced Alteryx from 20% plus to 17%. (Having 0% in Mongo and 20% in Alteryx just didn’t make sense to me). I have no current plans to reduce Alteryx further.

I also exited my speculative position in Gardant Health after thinking about all the things they are hoping for in the next six months which might not happen just the way they think. I decided I would rather speculate in little SaaS companies instead. [Saul currently again: I was wrong again, they shot up the week after I sold out, this time because of a prominent recommendation. In my defense I had no way of knowing the recommendation was coming].

I added trivial amounts to my huge Twilio position after great earnings, and to my smaller Elastic and Nutanix positions as well. (They are now 20.9%, 6.8% and 8.5% positions).

I had taken small positions in three little SaaS companies (Anaplan, Zuora, and DocuSign) in January, and said that these were really get-to-know-you positions and may be gone in a month, and asked you to please don’t buy them because I dipped my toe in! This month I did exit my smallest one, Anaplan and replaced it with Coupa. Nothing wrong with Anaplan. I just liked Coupa better.

Here’s how my current positions 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. Please remember that these are from the beginning of this year, and not from when I originally bought them if I bought them in earlier years. I’m including my mini-positions in this list but remember that they are recent, small, and possibly transient.

**Trade Desk from 116.1 to 197.7          up   70.2%**
**Square from 56.09 to 76.08		up   35.6%** 
**Okta from 63.80 to 84.17		up   31.9%**
**Elastic from 71.48 to 94.15		up   31.7%**
**Twilio from 89.30 to 116.55		up   30.5%**
**Nutanix from 41.59 to 53.08	        up   27.6%**
**Zscaler from 39.21 to 49.78  	        up   27.0%**
**Alteryx from 59.47 to 73.64		up   23.8%**
**Docusign from 43.75 to 53.99 	        up   23.4%**
**Zuora from 19.80 to 23.97 		up   21.1%**
**Mongo from 95.0 to 106.2		up   11.8%	new this month**
**Coupa from 91.95 to 94.74		up    3.0%	new this month**

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. Please remember that these are from the beginning of this year and not from when I originally bought them, if I bought them in earlier years.

**Guardant from 37.59 to 41.50	     up    10.4%**
**Anaplan from 28.75 to 31.05 	     up	    8.0%** 
**Abiomed from 325.0 to 334.0	     up     2.8%** 

**Vericel from 17.40 to 17.38	   down     0.1%**
**MongoDB from 83.74 to 76.20	   down     9.0%** 

Note that all of these except Mongo were little try out positions, and that I actually have bought Mongo back, so the identity of my primary positions has not changed since the end of last year.

Square, Alteryx, Twilio and Okta have all been in my portfolio for more than a year now, although I did reduce my position in Square a couple of months ago and built it partially back this month. Square is up 335% (that’s 4.3 times what I paid for it, or more than a quadruple), since I first bought it in March 2017 at $17.50, getting close to two years. Twilio is more than a quadruple in a year, at 4.5 times what I paid for it in January a year ago ($25.70) and up 354%. Alteryx is up 166%, or is at two and two thirds times what I paid for it in December 2017, just over a year ago, at $27.72. Okta is 2.8 times what I paid for it ($29.95), also last January, up 181%.

This is how you make money in the stock market, buying exceptional companies and holding them as long as the story doesn’t change.

And another point from this is:

Just imagine if I had decided that these companies were overpriced and I had decided to “wait for a better entry point” or “buy on a pull-back” or “wait until it hits my entry point,” and it never did? How would I feel now? You can guess.

Do you think I care, or even remember, if I bought Twilio at $25.90, $25.70, or $25.50, now that it’s over $116.50? I know that I belabored this in the Knowledgebase, but the decision that matters as far as making money in the market is “Do I want a position in this company?” and not “Can I buy it 25 cents cheaper?” I think that you guys, who put in buy orders for stocks you want below the market and hope that they will fall to your price, are out of your minds! But that’s just my opinion.

POSITION SIZES. I’m still trying to keep my portfolio concentrated and streamlined. I’m now at 12 positions, 4 of which make up 62% of my portfolio, and 8 of which make up 89.5% of my portfolio. What’s remarkable is that those 8 are exactly the same, and are in exactly the same order as they were at the end of January, with the exception of Twilio and Alteryx which changed places (although they were essentially tied last month). [Saul here again: I wrote that during the week, but on Friday, of course, Trade Desk passed Elastic with that 31% rise, and is now in 6th place]

The remaining 10.5% of my portfolio includes the last four positions starting with Mongo at 3.5%, and the three little SaaS companies that I’m still thinking about. 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 the Twilio and Alteryx positions are larger than I usually like, but they are high conviction Category Crushers.

**Twilio			20.9%**
**Alteryx 		17.1%**
**Zscaler		 	12.7%**
**Okta			11.3%**
**Nutanix 		 8.5%**
**The Trade Desk	         7.1%**
**Elastic			 6.8%**
**Square			 5.2%**
**MongoDB			 3.5%**
**Zuora			 3.0%**
**DocuSign		 2.6%**
**Coupa			 1.4%**

My top stocks are Twilio and Alteryx. As you can see, they are by far my largest positions. Last month they were each over 20% of my portfolio, and together made up 40.5% of my portfolio. This month I reduced Alteryx a bit and they make up 38.0%. 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

Twilio is a 20.9% position. It provides communication services and it seems to have no viable competition in what it does besides “do-it-yourself”.

In February Twilio announced enormous results for the December quarter and proved it is still a Category Crusher, a Juggernaut, a One-of-a-Kind company, and a pure phenomenon of nature. Its base revenue growth accelerated from 40% a year ago to 77% this quarter! It was up 21% sequentially! The last five quarters’ growth rates have been:
77% !!!

Most companies would cut off their right arm for that 40% growth they had a year ago, but that growth rate is now up to 77% !!! And accelerating. It was 79% growth excluding Uber!!! Yes I know that they made excuses for the great growth and said it was partly due to one big customer, and partly due to the acquisition. But these companies always try to damp down expectations like that, so they can beat expectations regularly. Next quarter they will have a different excuse for their great growth and for their low guidance.

Now look at dollar based net retention rate: 118% a year ago. That was great. But now it’s 147%. That’s greater! The last five quarters have been:

They hit adjusted profit in the June quarter unexpectedly, and have stayed profitable since.

They had 64,286 Active Customer Accounts up 31% from a year ago. But, from the Conference Call: Together, we and Sendgrid have more than 140,000 customer accounts. It doesn’t take much imagination to think about the cross-selling that can come both ways from that!!!

And the average revenue per customer continues to grow at a 25% to 30% rate.

Back a quarter ago they also 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.

There was a lot of obsessing on our board and elsewhere about “weak” guidance. For the life of me I don’t understand why anyone even looks at the guidance figures for these companies. Have you ever seen even one of our SaaS companies that doesn’t simply destroy their guidance at least 95% of the time? Why waste your time. Follow the actual results! Twilio was up over 50% in less than two months from the December bottom when the earnings were released. Perhaps that accounts for the lack of a further bounce.

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.

Next is Alteryx. This is my 2nd largest position at 17.1% 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, and had a euphoric conference call. I won’t get involved with their preliminary results for the Dec quarter because they are preliminary. They announced them early because they were changing accountants. This was because their current accountant, Price Waterhouse, was reselling so much Alteryx solutions to their other clients, that they could no longer consider it non-material, and wanted to avoid any conflict of interest. Thus their choice showed that they were happier having Alteryx as a valued technology partner than keeping it as just one more accounting client.

Going back to the Sept quarter results, 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.

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.”

They finished 2018 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. I reduced my position from 20% to 17% this month for cash to buy back into Mongo. (Having 20% in alteryx and 0% in Mongo just didn’t make any sense).

Actually I think of both of these two companies as juggernauts. They are each a one-of-a-kind company. Each seems to control its space and is growing like mad.

Zscaler is still in third place at 12.7% of my portfolio. I’ve been building my position gradually. It 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 difficult for most potential competitors to replicate. Zscaler has been operating them for ten years.

Here’s what their last 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% to $165 million.

Adj net income of $2.0 million, up from a loss of $7.5 million. (They hit a profit before they expected!)

Adj operating 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, up from a loss of 11% of revenue or $4.4 million

Free cash flow was $5.2 million, or 8% of revenue, up from minus $8.9 million, or 22% of revenue

Cash $314 million, up $15.5 million, and No Debt.

Named a leader in Gartner for the 8th year in a row.

Zscaler Private Access (ZPA) became the first zero trust architecture to achieve AWS Security Competency status. It is one of just 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 a year ago, and about SIX TIMES this quarters revenue!

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, as you might expect.

Okta is still fourth and is an 11.3% position. 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 great posts by Puddinhead, Brittlerock, 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.

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.

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

Nutanix is in fifth place, and an 8.5% position. I had sold Nutanix in November but bought it back in December, and doubled my position or more in January, and added a tiny amount in February. You can read all about my ambivalence about this company by going through the last few end-of-the-month summaries, and you can learn why I bought it back from the 4-month summary above. I also found the comments from users that Darth found on Gartner to be very impressive. I expect that within a few quarters the effect of the removal of the hardware will be long behind us.

The Trade Desk announced stupendous results Thursday after the market and rose $47, or more than 31%, on Friday. It was a new try-out position four months ago, at the end of October. Now it’s now a 7.1% position and is in 6th place in my portfolio. I posted a deep dive two and a half months ago. I’d rate them four and a half stars based on their results and their confidence in themselves, but they are an advertising company after all, which is a field that I have zero confidence in, even though I feel that this is a very innovative and creative company, so I doubt that I will ever let the position get very big. The Trade Desk seems to be a Leader in a Rapidly Growing niche Market within the larger field of advertising, which up to now is controlled by the behemoths.

Next, is Elastic which I started in November and is now a 6.8% position and 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 dating 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.

I think of it as a Category Crusher, but I rate it as only 4.5 stars of confidence (up from 4 stars last month), because it’s a relatively new position, and because its business model has it start out letting companies use its basic solution for free, and then selling them extras. Since they are growing revenue at 70%, who am I to complain?

Square, in 8th place, was 2.6% of my portfolio at the end of December and 4.7% at the end of January, and is now back up to 5.2% as I regain confidence in them. I explained why I had decreased my position in my four month summary above.

Its stock price was traumatised in December by their CFO, the charismatic Sarah Friar, leaving to be CEO of a little start-up.

Square announced incredibly good results last quarter (Sept 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, and now Square Card and Square Payments, 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? Read my reasons in my 4-month summary above.

I didn’t feel I need to sell out of all my Square, and I’ve added a considerable amount back in January and February as I’ve regained confidence with the hiring of a new CFO and with some of their announcements of creative new products, 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 to four confidence stars out of six.

MongoDB. As you remember, I sold out of Mongo in January, but decided I had made a mistake and bought back in in February, at a significantly higher price than the one I had sold at. Such is life. You can’t go back in time and buy it two weeks ago. [smiley face]. It’s now in 9th place at 3.5% of my portfolio.

This company has pretty much invented its solution and category, although it does have competition. It’s the leader in NoSQL data storage and 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 to quote Steppenwulf:

MongoDB is the story of 30 year old technology (SQL) being replaced by more modern technology.

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.

Amazon 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 couldn’t understand all the ins-and-outs of what was going on so I sold out. Then I came to understand that this would probably be a plus for Mongo as Amazon copying Mongo indicated that what Mongo had developed was something valuable and important, but that most people will go with the real thing, rather than the copy…

At the end of November I took small positions in a couple of med-tech related companies, Abiomed and Guardant Health. I added a third, Vericel, early in December. I said all along that these were low-confidence positions, and I sold two of them in January, Abiomed and Vericel. There was nothing wrong with them, I just liked my other companies better. I kept Guardant Health as a flat-out 2% speculative position. I ended up selling Gardant as well in February, as I decided that while the possible pay-off was enormous there were a lot of things that could go wrong in the short term, and I’d rather speculate in some little SaaS companies. I can always buy back into Gardant if the good things they hope for come through.

In January, I added three new little SaaS companies, Docusign, Zuora, and Anaplan. In February, I switched the smallest, Anaplan, to Coupa.

Docusign was brought to the board by Growth Monkey, and I have built it up to a 2.6% position. It seems to be a Category Crusher with no competition except “cats and rats” as Bert referred to them. It’s dominant in its market with a 38% market share and the closest competitior at 13%. The cats and rats generally just provide document signing remotely, which is easy, but that’s just a small part of the whole complex picture of what Docusign provides.

To quote Growth Monkey, it has 454,000 paying customers; out of which 53,000 are enterprise customers. Total customer count has grown by 47% CAGR over the past five years and its enterprise / commercial customer count has grown by 60% CAGR. This is no cats and rats company itself! Its customers include Verizon, T-Mobile, FedEx, Unilever, Visa, Bank of America, Dropbox, Stripe, Workday, Berkshire, Deutsche Bank, etc. This is a land and expand model with a current net retention rate at 114%, and almost all recurring revenue.

Docusign is really a new IPO and we only have three quarters of results, but subscription revenue is 95% of total revenue, and both are growing at roughly 37-38%, while Billings growth has gone 33%, 32%, and 40% the last three quarters. It has been operating cash flow positive for the last six quarters, as far as I can tell. Its adjusted EPS is minimally positive, and its adjusted gross margins are in the 80.0% range these three quarters, up from about 78.3% for the same three quarters last year. It seems to have an enormous potential runway in front of it, and I thought it were worth a try.

I currently don’t have any spare money to enlarge my position further, but a return just to its August high of $68 would give it approximately a 40% gain from here, and new highs would be correspondingly higher.

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 must have something going for them and, as I’ve often said, I follow the money, the results. And I listen to smart people about the prospects of these companies.

Zuora is an interesting company for us. It recognized that all the companies that are moving to a subscription model for sales, whether entirely or in part, and whether software or hardware, are dealing with very complex accounting and revenue recognition issues, and they have the software to make it easy for them.

Growth Monkey presented Zuora to the board in January, and Swift also gave us a deep dive in January, and Ethan advised caution, also in January.

Bert first wrote it up April 2018, shortly after its IPO, when it had run up to a much higher price than presently, and Bert felt it was interesting but too expensive. More recently he thinks it is a buy.

Zuora grows revenue in three ways:

  1. New cutomers
  2. Expanding within the customer, and
  3. They get a small cut of their customers’ subscription revenue that goes through their system, which grows as their customers’ revenue grows.

They land and expand in entire industry verticals, one they have software specialized for the vertical. Once they have one or two companies they can use those as references to sign up others. For example, read this amazing description of just one vertical:

Newspapers today are finding growth again through digital subscriptions. We saw the shift early and began to focus on this industry years ago. We started working first with News Corp UK in 2011. They publish the Times of London and The Sun. That helped us land the Financial Times later that year. Then Fairfax Group of Australia, in 2012; The Guardian, in 2014; The Wall Street Journal and The Telegraph in 2015; and then the Seattle Times, The Boston Globe; The Straits Times, of Singapore; The Bonnier Group, which publishes the biggest newspapers in the Nordics. We also landed magazine publishers, like Time UK, which is now TI Media; Bloomberg; and Penske Media, who owns Rolling Stone and Variety Magazine. So you’re seeing the network effect really starting to take hold. And we also expanded to other media companies like HBO, Perform Group, and also B2B publishing companies like S&P Global. Today, we’re working with about 20 major newspaper publishing groups. We help them launch new digital offerings, experiment with new bundles, scale their businesses, and handle different payment methods around the world.

How’s that for amazing? And how about automobile industry:

Our market is predicated on not just more and more companies launching subscription services, but entire industries shifting. Over the last few months, we signed on Toyota, as well as Kia Motors, along with our existing customers, GM, Ford, Peugeot, and Renault. We are now behind the connected car initiatives of six of the world’s top 10 auto manufacturers. This is an entire new vertical for us that didn’t even exist five years ago, and it’s a great, great example of how our strategy of land and expand within entire industries can lead to long-term durable growth.

They figure they have a 10 year lead on everyone else and that they will continue to grow at over 30% for at least a decade.


When I take a regular position in a stock, it’s always with the idea of holding it indefinitely, or as long as circumstances seem appropriate, and never with a price goal or with the idea of trying to make a few points and selling. I do, of course, eventually exit. Sometimes it’s after months, and sometimes after years, but I’m talking about what my intention is when I buy.

I do sometimes take a tiny position in a company to put it on my radar and get me to learn more about it. I’m not trying to trade it and make money on it, I’m just trying to decide if I want to keep it long term. If I do try out a stock in a small position and later decide that it’s not what I want, I sell it without hesitation, and I really don’t care whether I gain a dollar or lose one. I just sell out to put the money somewhere better. If I decide to keep it, I add to my position and build it into a regular position.

You should never try to just follow what I’m doing without making up your own mind about a stock. In these monthly summaries I’m giving you a static picture of where I am currently, but I may change my mind about a position during the month. In fact, I not infrequently do, and I make changes in the position. I usually don’t announce these changes until the end of the month, and if I’m busy or have some personal emergency I might not announce them even then. And besides, I sometimes make mistakes, even big ones! Don’t just follow me blindly! I’m an old guy and won’t be around forever. The key is to learn how to do this for yourself.

Since I began in 1989, my entire portfolio has grown enormously.
If you are new to the board and want to find out how I did it, and how you can try to do it yourself, I’d suggest you read the Knowledgebase, which is a compilation of words of wisdom, and definitely worth reading (a couple of times) if you haven’t yet.
A link to the Knowledgebase is at the top of the Announcements panel that is on the right side of every page on this board.

For some additions to the Knowledgebase, bringing it up to date, I’d advise reading several other posts linked to on the panel, especially
How I Pick a Company to Invest In,
Why My Investing Criteria Have Changed,
Why It Really is Different.

I hope this has been helpful.



By the way, this is a real lot of work to put together, and format and put out every month. Do you think it’s worth it? Is it too long to read through? Do you get bored? Do you find it valuable as is? What do you think?



Definitely definitely worth it

I look forward to it every month

Abundance of thanks. I know you put in a ton of work




Thank you for the effort to write your monthly summary. I, like so many others, look forward to it each month and find it to be incredibly valuable content. You typically get 100 or so recs on it each month which means your monthly summary has lots of admirers.

As I mentioned in another recent post, your clarity of communications, common sense investment approach, and this board are a true blessing and have literally changed lives for the better. I hope you feel good about that.



Saul, not only are your monthly summaries worth the effort, they are proven to be to many of us the best advice anywhere. Your thoughts and investment philosophy are making a profound difference in our portfolios and our financial future. When I retired a few years ago I had a plan to draw down our savings, instead with the guidance from you and this board, it’s growing, often more than when I was working. Not only does that provide comfort it opens up possibilities that weren’t even considered before.
A sincere thanks, Steve


Definitely worth it. I find the most value in your portfolio and percent invested in each company as well as any moves you made in the past month and why.

To save time, you or a delegate can post a company description describing what the company does and how it generates money and reference those posts in your monthly summary instead of providing detailed company descriptions in your monthly summary.



From the bottom of my heart, YES it is worth and moving. The last one you posted I went over it several times and keep referring to it as I was considering positions during the month. I was looking forward to the next one.

As a beginner investor, to see how someone with your experience and results thinks is truly valuable. It also opens a lot of room for enriching, humble and wise conversation.

I understand it is a lot of time and not sure it it is necessary to that length every month, but I am sure many agree with me that it makes a huge contribution to many people´s lives.

Thanks again!!!



Yes Saul, these monthly reports are invaluable. Much of the talk on the boards is about individual stocks. I like seeing these reports to see how the individual relates to the whole.

Thanks for all your time and effort.



Just to put your post in (my) context. I was watching an interview with Warren Buffett this morning and turned the sound down so I could focus my entire attention on your post.

Many Many thanks for taking the time to put it together, Saul. Your allocation discussion/thoughts are incredibly valuable.


Absolutely worth it for me. Especially because I use the reports as kind of a mental blueprint to judge the companies I am invested in. So, beside the details about the companies, I absolutely love the lecture to learn for my own process. Thanks so much for that.

Thank you for the monthly summary Saul, I look forward to it each month, and find myself checking over the weekend I know its going to be released to see if it is out yet.

I am surprised you like and have taken a small position in Zuora.

The 3 quarters since going public, revenue growth has been 60%–>47%—>33%.

So far a lot of service revenue is needed to support the subscription growth, cash flows and margins are heading the wrong way.

I guess it speaks to how much you like the potential of the company.




Truly, thank you! I very much appreciate your very hard work. I believe it is more than worth it for me. It is definitely not too long to read through (it was and is much shorter than a Jeff Green Conference Call). There is absolutely nothing boring about it. It is actually inspiring, encouraging, insightful and very helpful! I feel very selfish, but I really hope you continue to put them out. Having said that, I have learned so much from you in the last 10 months. My portfolio has gone from 50 stocks or so down to 13. And my gains have gone from 10-20% to almost 75%. Talk about value!

Thank you again for all of your effort.



“Do you think it’s worth it? Is it too long to read through? Do you get bored? Do you find it valuable as is? What do you think?”

I read it through start to finish, every month, but don’t feel a sense of obligation - you give a lot and if you scaled it back, I think we’d understand.

BTW, the section on how owning a lot of SaaS stocks doesn’t mean over exposure was very worthwhile.

I try to use “Recommend It” as “thanks” to avoid cluttering the board, but I’ll say “Thanks” again, as I get a tremendous amount from this board.




I look forward to reading these reviews every month. I was checking on the weekend to see if you posted as I had a little time to read on the weekend. These are beyond helpful. I have reduced my positions from 55 to about 30 although it is a still a work in progress.

My goal is to reduce them to about 20 gradually.

Thank you so much!


Your posts are extremely valuable, imo.

To save time on your end:
I don’t think you need to explain, each time, the indexes you measure against or whether you are diversified or not. Maybe just provide a link to a post of yours covering that or to the knowledge base, etc…

My biggest values in reading your summaries are:

  1. changes you made and why (why you dropped a company / why you added a new company or doubled down on an existing position)
  2. your allocation mix (just something I always struggle with and so I find it interesting)
  3. your comments on why you like a company (since these have already been done by you separately in most cases, you could save time on your end by linking to the favorite summary post of yours on that stock, and then only write in additional comments if you have newer thoughts to add)

thanks for all you do!



Some comments. It is obviously a great deal of work for you to put this together. Although i have enjoyed your posts for some time, it is within the last year that i have been reading your monthly updates and based on your expositions, i have investigated certain companies and invested in several SaaS companies. My results aren’t close to yours, but i still have positions in companies like Sherwin Williams and Berkshire Hathaway and our portfolio philosophies are different (i have 26 companies now and like certain TMF positions that aren’t covered here). From you sharing your work, advice, candor, and warnings, i have benefited a great deal (e.g. the last 4 months have seen about 25% return), and hope to be able to continue to invest (perhaps in some of these very same positions) in paradigm changing, fast growing, and profitable companies alongside some of my other investments.

The board is a very good community. TMF provides a platform (thank you TMF), but you and now the other Saul-board team have set some rules (norms) that support sharing valuable information, keep the fluff down, and keep it constructive.

The monthly updates create a rhythm or routine which i use as a check in mechanism. I don’t post much because we are trying to keep posts that say me-too down to a minimum and many issues are very well covered by board members. So every month, like one of the posters above, I put everything away and read your work. Then about two or three days later, I read it again and compare it to posts on this board (e.g. MDB debate). I compare it to other articles and posts at TMF and sometimes during a portfolio review, I might look at it and other materials again.

I read what you write understanding that you have warned us time and again that there are no promises in life, to do our own work, and follow our own investment decisions. I also read it thinking that it may help you clarify your thinking a bit. If it ever stops serving you, i wonder about you continuing to do it…so i read it knowing that you could change it, stop, or keep doing it for a long, long, time. Whatever works best for you - but i appreciate it to the highest! Thank you.




Do you think I care, or even remember, if I bought Twilio at $25.90, $25.70, or $25.50, now that it’s over $116.50? I know that I belabored this in the Knowledgebase, but the decision that matters as far as making money in the market is “Do I want a position in this company?” and not “Can I buy it 25 cents cheaper?” I think that you guys, who put in buy orders for stocks you want below the market and hope that they will fall to your price, are out of your minds! But that’s just my opinion.

This is some of the best advice you can get for aspiring investors.

Don’t chase that last $0.25 when building a position.


Saul, I just wanted to note your work here is a real gift to me. While the format is long, I find it incredibly helpful because it not only shows what you have done but how you think.

Thank you for all your efforts.


1 Like


Congratulations on your great performance! And thanks for putting in the time and effort in preparing your monthly summary.



Bored! You have got to be joking! It’s the equivalent of reading a new book full of short stories each month and watching the adventures unfold.
Too detailed? Nah. Without butter there is no bread.

The author of the book I read never disappoints. A masterpiece. Long may it continue. From the bottom of my heart to you, your lieutenants, your assistants(all the great posters here) TMF…a big thankyou. Please don’t shorten anything.