To get straight into it: my portfolio closed this month up 24.8%
January: Up 20.8%
February: Up 4%
This is compared to:
The S&P 500
Closed up 2.3% for the year so far. It was down 4.7% for the month.
The Russell 2000
Closed up 0.5% for the year so far. It was down 3.8% for the month.
I have been thinking the market has been a little overheated even when the DOW hit 20,000 and now we are nearing 27,000. Large caps have taken off which signals more money from the sidelines is flowing in. Big funds stick to large caps and most mom and pop investors know the big names.
This run goes to show you that market timing is tough. It just frustrating. I think getting a gauge on sentiment is important though. I have been sensing a little bit more euphoria in the past couple months. I mean 23% in one month just goes to show the market is getting a little hot.
To prepare for any downturn all we can do is make sure we know the companies we hold very well and trim the more speculative holdings. I have also set up a wishlist for a correction which will hopefully help me buy when things turn.
The pullback in February was not super shocking. There’s no way I should be up more than 20% in one month! But after some of my stocks had pulled back it didn’t really seem like a big discount because their prices were where they were at just a couple weeks before. Sure, they were off 15-20% of their all time highs but that is just anchoring to that price. So I didn’t pour a lot of extra money in but just the cash I had in my brokerage.
New Transactions
January
This month I only made two transactions. I bought more AYX and I added PSTG. I feel comfortable with both positions. I am a little nervous about the dilution going on with Nutanix so I’ll watch that closely. I also have some second thoughts about TTD but I’ll put that below.
February
I bought more of three current holdings: NVDA, SQ, and HUBS.
During the second week of February when we had that extreme volatility I took advantage of that and bought more of the companies I thought didn’t deserve the bigger pullbacks.
Here are the results from the individual stocks in the portfolio for the year so far:
Shopify from 101.0 to 137.0 up 35.6%
Alteryx from 25.27 to 33.38 up 32.1%
Pure St. from 16.72 to 21.71 up 29.8%
Square from 34.67 to 44.85 up 29.4%
The Trade Desk 46.41 to 59.94 up 29.2%
Nvidia from 193.5 to 245.9 up 27.1%
Amazon from 1189.0 to 1500 up 26.2%
Hubspot from 88.4 to 101.7 up 25.8%
MercadoLibre 322.6 to 387.3 up 20.1%
[JD.com](http://JD.com) from 43.28 to 48.35 up 11.7%
Arista from 235.6 to 245.9, up 4.4%
Nutanix from 35.28 to 35.60 up 0.8%
As you can see this year has been overly kind. 19 of the 12 positions are up more than 20%. In two months! I’m not sure how sustainable that is, in fact, I’ll say it is unsustainable but like Saul, I must say I don’t know when the music will stop so I’ll just keep looking for good businesses.
As of February 24, 2018 here are my portfolio allocations:
**ANET 20.13%**
**SHOP 12.81%**
**MELI 11.77%**
**HUBS 7.54%**
**NVDA 7.48%**
**AMZN 7.02%**
**AYX 6.63%**
**SQ 6.61%**
**TTD 5.61%**
**NTNX 5.16%**
**JD 4.86%**
**PSTG 4.32%**
Thoughts on the portfolio
I feel blessed to be up this month considering the strong downward move from Arista as a 25% position when it hit $307. Now just base don price action I am more balanced. But it was a good lesson in portfolio management. Having a company without a lot of recurring revenues as that big of a position is dangerous. I think Saul understands this superbly in his portfolio allocations. Arista is still a fantastic company but they just don’t have the same revenue visibility as AYX or SHOP.
I’ll provide a brief overview of the companies as most of these have been included in Saul’s write-up and discussed previously on the board. As time goes, these summaries will become more robust. This month I have added some thoughts on the most recent earnings of some of the companies.
Company Summaries
- Arista
What they do?
Maker of networking equipment.
Why I like it?
Software is worlds better than Cisco’s. Revenue acceleration to over 50% and almost 40% operating margin. Investor’s still see it as a hardware provider but it is so much more. This past earnings report was solid in my opinion and it was heavily discussed on the boards. The pesky guidance was what analysts really focused on. I saw two main reasons for the guidance.
- Cloud titans only give two quarter of expectations so Arista is not going to make overly ambitious estimates just to get crushed down the line if the titans don’t continue spending.
- Arista was not expecting 50% growth in the prior quarters so they have a much higher base to run off of.
- Shopify
What they do?
Helps businesses with e-commerce operations.
Why I like it?
Revenue growth is fantastic and it seems to have reasonable operating leverage. Love Tobi, the CEO, and the company looks to be extremely innovative.
The last quarter was spectacular. Everything trended in the right direction and I like their partnership with Apple, continuing the innovation thesis.
- MeradoLibre
What they do?
“Amazon” of Latin America
Why I like it?
Big growth runway, deep knowledge of the Latin American customer, and great management team. Revenue has accelerated even in the midst of weird currency issues. The Amazon threat should be given due attention but I think the market is big enough for two and MELI is positioned very well.
It just reported and I really liked it. The company is copying Amazon’s playbook and it is becoming rapidly more priced like Amazon. This quarter it dipped negatively for earnings because of its move to free shipping. In my opinion, it needs to spend in this crucial period. I also liked that it suspended its dividend because I thought that was crazy when it had the opportunities to re-invest into its business like it does.
- Amazon
What they do?
Do I have to explain?
Why I like it?
Absolutely incredible business and rate of innovation.
- Nvidia
What they do?
Maker of graphic processing units which are aiding machine learning, AI, the data center, self-driving, etc.
Why I like it?
Really strong competitive advantages compared to Intel or AMD. CUDA has become the standard programming language for AI and NVDA just keeps winning.
Great quarter as usual. What’s new?
- HubSpot
What they do?
Maker or marketing software and creator of “Inbound” marketing.
Why I like it?
The earnings are accelerating and revenue has stayed strong. In the marketing software industry it has high brand recognition and strong management. I am not sure about the quality of the competitive advantage here but the company is performing quite well as of now.
This past quarter was business as usual. I am getting a little nervous about the moat but it seems to just keep surpassing expectations. In my gut I get a little nervous ramping up this allocation too high but it seems to be growing into a mini-salesforce as of now.
- The Trade Desk
What they do?
Maker of software that helps ad agencies with programmatic advertising.
Why I like it?
I thought it was a good value for the financials but the price action may be telling us something here. Next earnings will be telling. Still I like the company. 95% customer retention rate has become the standard and the CEO knows the industry very well. I was going to trim but then I saw Snapchat take down its “walled-garden”, something the CEO has been predicting for months now.
The market loved the quarter. Revenue up 42% and GAAP earnings up 64%. Bear and DreamerDad had a great back and forth about the company. I can really see both sides because I personally feel the same way as both of them about this company. The CEO is awesome but he may be too awesome. I love listening to him but I should be focusing on the business results. I’m still going to keep a close eye on this one.
- Square
What they do?
Full suite of financial services for businesses.
Why I like it?
Great revenue growth, accelerated to 45%. Super innovative, a quality I really love in a company. High brand recognition and great management. I hope to be in this one for awhile. Looking to up my allocation here.
- Alteryx
What they do?
Sell self-serve data analytics software.
Why I like it?
I think of it as an extremely powerful Excel. Great gross margin (around 85%), strong revenue growth, opening up data analytics to everyday people without coding. People I have talked to in data analytics really love this product.
Loved this past quarter from them. Bear had a great write-up on its quarter. The expansion rate stayed high, revenue even ticked up, the company showed operating leverage. What more could you ask for?!
What they do?
Second fiddle to Alibaba.
Why I like it?
It has a giant competitive advantage when it comes to logistics. The company has built, over the years, an intensive network of distribution facilities, trucks and everything in between. It’s financials are a bit funny because of this but cash flow is so strong. The company is also about 1/9th the size of BABA and I can see it eventually rivaling it as the business models are really night and day.
- Nutanix
What they do?
Hyperconverged equipment
Why I like it?
The Net Promoter Score was one of the highest I’d ever seen and it reached 8k customer so quickly. I am unsure about the latest round of dilution and think it will eventually undergo more in the future but the company looks to be firing on all cylinders. We’ll also see how the transition to software only goes.
- Pure Storage
What they do?
Maker of flash array storage.
Why I like it?
Very solid financials and a beneficiary of AI actually. Love the 40+% revenue growth and the operating leverage in the latest report was impressive. It is valued like a commodity hardware provider but I think it is really more like Arista, differentiated by it’s software.
Concluding Thoughts
I need to be smarter about my allocations. That is something I need to improve on as an investor. If you all have any thoughts about how I should think about allocations when running a concentrated portfolio that would be awesome. I think about it concerning conviction levels but that basically changes quarterly so that is not a solid foundation. Thanks again to everyone on this board for your contributions. It’s an honor to be part of such a special community.
Very best,
Fish
