My portfolio at the end of July 2017

My portfolio at the end of July 2017

Here’s the summary of my positions at the end of July. In spite of the last two days it was another amazingly good month! As I usually do, I’m closing my books at the end of the last full week of the month, pushing Monday the 31st into next month’s calculation. Please note that any PE’s that I give are always based on adjusted earnings, usually as the company has given them, but very rarely with small modifications of my own. This month I hope to do a brief review of each stock too.

We are now seven months through the year. At the ends of February, March, April and May, I wrote that results had been beyond my expectations. At the ends of April and May I wrote that I thought that this incredible pace was unlikely to continue. But even June was up 1.9%. And here we are and July was another really strong month for my portfolio. It peaked on Wednesday at up 49.9%, and finished the month at up 45.7% for the year.

The three indexes that I’ve been tracking against are doing pretty well for the first seven months of the year, and the three average up 5.5%:

The S&P 500 is up 10.4% for the year, and up 2.2% for the month. (It started the year at 2239 and is now at 2472)
The Russell 2000 Small Cap Index is up 5.3% for the year, and up 1.0% for the month. (It started the year at 1357 and is now at 1429)
The IJS Small Cap Value ETF, which so excelled in 2016, is up 0.9% for the year, and up 1.0% for the month. (It started the year at 140.0 and is now at 141.3)

These three indexes (that I’ve been tracking against) averaged up 5.5% for the year so far.

People ask, “Why these three indexes?” In the past, I hadn’t paid attention to indexes, just to my own portfolio, but when I started this board I started comparing to the S&P 500, as that is what the Motley Fool compares against. Then I started thinking that gave me an unfair advantage, as the S&P is all large caps, and the smaller caps that I largely invest in tend to do better over the long term, so I added comparisons against the Russell 2000, a standard for small and mid-size companies. Then last year, someone kept telling us that the IJS, which closely tracks the S&P 600 Small Cap Value Index, has the best long term results. So I figured okay, I’ll add in value oriented small cap stocks to compare against. This gives me 500 large caps (the S&P), 2000 small and mid caps (the Russell), and a 600 small cap value index with a very good past record (the IJS), which ought to give me a very representative set of standards to compare against. I’m sure some people will find fault with this and say “Why not drop this and add that?” but those are the three indexes I compare against currently, and I will probably continue to do so. I think they give me a pretty good approximation of how the market is doing.

My portfolio peaked earlier this week after a tumultuous month, and it finished July up 45.7% for the year so far, up from plus 38.1% at the end of June.

My first four months were up a bunch each month and I wrote in my April summary that I am aware that there’s no way this can continue like that all the way throughout the year, and that there were bound to be reverses. But I’m no good on timing the market, and I don’t try. If I did, I might logically have exited all my positions at the end of April, when I was up 26% in four months and was “aware” that it couldn’t continue like that (but it’s now up almost 20% more). That’s the trouble with trying to time the market. I have enough trouble trying to find great companies. A correction will come. They always do. But I don’t know when, and I don’t guess.

I should state here that I continue to believe that intelligent stock picking with a modified buy-and-hold strategy can beat any index or average. How could it not? When an “average” is just that: an average of good, mediocre, and poor companies?

Here’s a little table of my results so far:

**End of Jan 		+ 8.5%**
**End of Feb		+13.9%**
**End of Mar		+20.4%**
**End of Apr		+26.1%**
**End of May		+36.2%**
**End of Jun		+38.1%**
**End of Jul		+45.7%**

Here’s how it happened: There was nothing magical about it. The stocks I was in went up! I’m sure that some of you have done even better.

Here’s how my stocks have done in the seven months since December 31. I’ve arranged them in order of percentage gain. In previous months I separated the stocks I’ve been in since the beginning of the year from those I’ve added since, but I don’t think anyone is interested in the historical details of when I added stocks. I’ll put them all together, using 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. At any rate, the stocks I’ve been in since the beginning of the year are Amazon, Arista, LGI Homes, PayCom, Shopify, Splunk, and Ubiquiti, and they make up 58.4% of my portfolio, including my top three positions.

For those who want a time frame, current positions I’ve added since Jan 1st have been:
Jan – Kite
Feb – Talend
Mar – Mulesoft, Square, Hubspot
Jul – New Relic, BlackLine


**Kite** from 47.50 to 111.40, 	**up 134.5%** 
**Shopify** from 42.90 to 93.00, 	**up 116.8%**
**Arista** from 96.80 to 150.40, 	 **up 55.4%**
**PayCom** from 45.50 to 70.50, 	 **up 54.9%**
**LGI Homes** from 28.73 to 44.00,   **up 53.2%**
**Square** from 17.50 to 26.20, 	 **up 49.7%** 
**Talend** from 26.80 to 37.77, 	 **up 40.9%** 
**Amazon** from 750 to 1020, 	 **up 36.0%** 
**Splunk** from 51.15 to 60.05, 	 **up 17.4%** 
**Hubspot** from 62.40 to 72.55, 	 **up 16.3%** 
**BlackLine** from 37.40 to 39.10,    **up 4.5%** 
**Mulesoft** from 22.25 to 22.49,     **up 1.1%** 
**New Relic** from 47.2 to 47.5,      **up 0.6%** 

**Ubiquiti** from 57.80 to 53.3,    **down 7.8%**


**Horton** from $8.31 to $10.44,      **up 25.6%** 
**Horton** from $10.90 to $12.75,	  **up 17.0%** 
**Nvidia** from $146.3 to $166.1      **up 13.5%** 
**Signature Bank** from $150 to $160   **up 6.7%**
**A O Smith** from $51.10 to $53.80    **up 5.5%**	
**Twilio** from $28.85 to $30.00	   **up 4.0%**	
**Nvidia** from $149.5 to $154.4       **up 3.3%** 
**Wix** from $73.25 to $74.00          **up 1.0%**					

**The Trade Desk** from $51.90 to $50.65 **down 2.4%**

I also exited four biopharmas in July (Cellectis, ZioPharma, bluebird, and Matinas) at prices ranging from a gain of 20% (Cellectis) to a loss of 42% (Matinas). All of the positions were tiny and none of the results were material as far as my portfolio results.

Okay, now you have an idea why my portfolio is up.

I’d like to note that since 2010 (with fears of a double dip recession), 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.” All of their charts and indicators proved it in 2010, 2011, 2012, 2013, 2014, 2015, 2016, and they still say they prove it now.

Of course a marked correction will come eventually. Look, it could come next week, for all I know! But we never really know when. And what a price those people have paid in staying out of this market for the past seven years. Picking good stocks makes much more sense than trying to pick good stocks AND trying to time the market too.

Okay, let’s look at my position sizes. I’m still trying to keep my portfolio concentrated and streamlined and I’m currently back down to 14 positions with no tiny try-out positions.

Here are the positions in order of position size. You’ll see by observation that after the huge drop from Shopify to LGI Homes, the rest decrease more gradually from one to the next. When I wrote up New Relic, I explained why I was keeping it a relatively small position for now:

**Shopify   		14.8%**
**LGI Homes		10.0%**
**PayCom			 9.3%**
**Square			 9.1%**
**Arista		 	 7.4%**
**Talend			 7.3%**
**Splunk			 7.2%**
**Hubspot			 6.4%**
**BlackLine		 6.1%**
**Mulesoft	         5.7%**
**Ubiquiti		 5.4%**
**Amazon			 4.4%**
**Kite			 4.3%**
**New Relic		 3.5%**

Let’s start with Shopify, my very oversized position.

Shopify helps small merchants, and increasingly larger ones, open and operate online stores. It’s growing VERY fast, and has grown to be my largest position. At the start of the year it was at $42.90. In April they announced new features like a card reader integrated with their system and the Unity Buy SDK which lets game programmers insert a Shopify store right in their game to sell game emblazoned knick-knacks. At the end of April it was up to $76 and 17.2% of my portfolio. I wrote then that I’ll probably let it run a little further. When it got to $94 in May, its position size was becoming way too high for my comfort (19.8% or so), so I trimmed some in May, June and July, all at an average price of about $92. Its position size now is 14.8% of my portfolio (which even after the trimming is way oversized compared to the rest of my stocks, and roughly 50% larger than my number two position, so my trimming it certainly doesn’t show any lack of faith in the company)

By the way, I have to thank the MF for this one. When they recommended it two months in a row in the middle of last year they got my attention, as I’d never seen them recommend a stock twice in a row before.

Here are the results for the Mar quarter:
Total revenue was up 75%. In the real world companies don’t grow revenue at 75% per year! That’s amazing.
Subscription revenue was up 60%. This is almost all recurring revenue.
Merchant Solutions revenue was up 92%!
Gross profit was up 80%

The percentages of growth of each metric are stupendous(!) even as they slow slightly with size as Shopify grows.

Adjusted net loss was just 2.7% of revenue.
Cash was $396 million in cash, up from $392 million sequentially, and $189 million a year ago.

In May they had a secondary of 6.3 million shares at $91. That’s a lot of money and they had no trouble selling them.

In July they announced an alliance with eBay, adding millions more potential merchants to their universe.

Shopify’s growth is slowing slightly with size but it remains an incredible success story. I know that it’s too big a position and I’m bringing the percentage size down gradually, but for now it is what it is.

LGI Homes is still in second place at 10.0%. It’s a small home builder that specializes to selling first homes to apartment dwellers. Its 2016 annual earnings were up 36% from 2015. It started this year at $28.75. LGIH had weak closings in Jan and Feb, reflecting weak sales in Nov and Dec, but they held their guidance for the year. During April when LGIH got down in the $30 range, some members of our board talked about selling out of their positions (which I advised against) before earnings. After earnings it moved up nicely and is now at $44.00 (up about 47% from then in three months). In the first quarter conference call they explained the weak closings in Jan and Feb as follows:

The primary reason that our closings are down year-over-year as that we had strong closings in December 2016 and our inventory of completed homes (available to sell) during Q1 was not as high as we would have liked….We believe the situation will correct itself in the next few months as we are bringing new inventory online with additional homes under construction and the completion of new development sections. Sales over the last 90 days have been very strong. We have had over 500 net sales in each of the month of February, March and April. We currently have more homes under contract than we have had at any one time in our company history. Based on our backlog, we expect to close between 450 and 500 homes in the month of May, resulting in an absorption pace north of six closings… and right on track to meet our goal of closing more than 4700 homes for the year….

They did even better than they promised, closing 525 homes in May, and then an enormous 623 homes in June. Their current PE is 13.0, by the way. I did trim a little bit of it in June, and a little less in July, when I needed some cash to buy stocks which had sold off for no reason, and LGIH was not only second only to Shopify in size, but was up while everything else was down. It’s still my second largest position.

Paycom is still in third place at 9.3%. It helps small and mid size companies do payroll and human services with an integrated solution, and has been growing like mad. As a sideline of sorts it helps its customers with paperwork for filing taxes and forms for the Affordable Care Act. After the election it fell 25% from $52.50 to $39.50 in two weeks, in spite of revenue up 40% and EPS up almost 100% mostly because the Affordable Care Act looked like it was going to be repealed.

Then revenue for the December quarter came in up 35%, and up 13.6% sequentially. GAAP EPS for the year was up 100% from 37 cents to 74 cents, and adjusted EPS was up 117% from 40 cents to 87 cents, and people stopped obsessing over the ACA when the company pointed out it was only a small part of their business. The price rose to $57.50 at the end of March, and is $70.50 now. I added a bunch in February, mostly from $43.50 to $48.50, and added tiny amounts three times in April. In May they announced Mar quarter results, which included revenue up 33%, adjusted earnings up 42.5%, and recurring revenues at 99% of total revenues. As of this weekend it doesn’t even look as if their ACA business is in any danger of going away. I haven’t bought or sold any since April.

Square is in fourth place, at 9.1% and at a price of $26.20. I had taken a tiny position in January, but sold it in early February. My reasoning at the time for getting out was: It lives in a crowded space, and a tough neighborhood. It’s growing revenue and adjusted EBITDA okay, but I’m not sure that they will have a large TAM to grow into in this space.

I bought back in in March at an average price of about $17.50, and added to my position in April, and added more in May at about $19.75, on the way up. I haven’t bought or sold any since.

So why did I buy back in? What follows is mostly taken from Matt’s intro to the Square in Dec. (slightly edited):

Square’s original purpose was to allow any vendor or merchant with a mobile device to be able to accept card payments anywhere, anytime. Since then, it has evolved into a much more robust payments solutions business.

It offers basic payments solutions:
point of sale (POS),
online, and

It also provides more sophisticated services under subscription and service revenue that their merchants seem to love, including customizable platforms for merchants. Three of the company’s fastest growing services are: Instant Deposit, Square Capital, and Caviar. Let’s take a closer look at these three:

Instant Deposit - This service allows retailers to receive money instantly in their bank accounts upon swiping a customer’s credit or debit card, instead of waiting up to four days, which creates cash flow problems for small businesses. For each instant deposit, Square charges 1%. This is incredibly lucrative for Square, as it amounts to little more than a three-to-four day loan at 1% (which is a huge compound rate, at little risk).

Square Capital - is a service that facilitates loans to Square’s merchants, who can pay the loan back gradually, as a percent of transactions. The average loan size is about $6,000. These loans especially appeal to small businesses that don’t normally have access to capital to cover unexpected expenses, or purchase new equipment. And, because Square is so familiar with its customers’ businesses, it can choose whom to offer these loans to with a high amount of accuracy.

Caviar - might seem an odd addition to this list of catalysts for a payments solutions company. After all, restaurant delivery service is fiercely competitive. However, Caviar has quickly grown since coming aboard. In the first year and a half, weekly order volume was up eleven-fold since its acquisition in Aug 2014. Square added a pick-up service recently. The most important thing is that restaurants that use it often sign up for all the rest of Square’s services.

Square announced March results in May, and everything was great. Revenue was way up. Adjusted EBITDA was positive $27 million rising from a loss of $9 million, Gaap Net Income was minus $15 million, up from minus $49. Adjusted earnings were 5 cents, up from a loss of 5 cents. Transaction-based revenue was $403 million, up 34%. Subscription and services-based revenue was $49 million, up 106%, from a year ago, and this growth accelerated from 81% growth sequentially.

Arista is up to fifth place at 7.4%. Arista does something tech-wise that I don’t understand, but what I do understand is that it was founded by a small group of very smart people who used to work at Cisco. They developed a better way of doing whatever it was, but Cisco didn’t want to deploy it (the legacy dinosaur’s dilemma) because it would undermine their legacy products. So the Arista guys (and gal) left, started their own company, and got sued by Cisco because they are taking market share left and right.

Arista got up to about $100 in January, but then US Customs reversed a previous decision and decided to provisionally bar their imports as possibly infringing on Cisco, and the price dropped to $88 in a day. They worked their way back to $100 as people realized they can manufacture in the US (which may be at a slightly lower margin). In February they announced December quarter earnings and the price jumped 18% in a day and finally closed the month at $120.60. They continued moving up and are now at $150.40, as the threat from Cisco’s law suits diminishes.

The Mar quarterly results looked like this:
Revenue up 38.5%. (This is an acceleration. Last quarter they were only up 33.5%)!
Adj gross margin of 64.2%, was flat (down 0.2%) from the year before.
Adj net income up 46%. (last quarter they were up 35%)
Adj earnings of 93 cents, up 37% from 68 cents.

In July, the Patent Office determined that two patents that Cisco was suing over were invalid, so Arista urged the ITC to rescind its import ban, given that the Patent Office had invalidated Cisco’s patents. But the ITC said that the Patent Office rulings aren’t enough and we have to wait for a final decision.
Nevertheless, the risk of the Cisco suits seems to be fading, and Arista keeps introducing amazing new products. After having trimmed a little in June, I added some back in July.

Talend is in sixth place at 7.3%, and a price of $37.77. It’s rising in percent and place because the price has been rising steadily and I’ve been adding a little to my position as well.

Bear had brought Talend to the board in February. Here’s his explanation of what they do:

Data Integration is another rapidly growing area within the “big data” landscape, and Talend is carving out a niche, especially integrations including cloud sources, and Hadoop, I think Talend’s growth thus far speaks volumes, and I also believe big data is such an emerging tsunami that there will be plenty of integrations to go around, whether Talend gets all of them or not.

I (Saul) wrote it up early in May, which I won’t repeat, but briefly, what I like most about it is that its revenue growth is actually accelerating. It was up 44% this quarter compared to up 34% a year ago. I consider it a catgory crusher as well as a disrupter, as it seems to have no effective competition at present. In the conference call the CEO said:

…our win rates remain ridiculously high, which is evident from the growth rate… The market dynamic is that the large (legacy) players continue to be challenged, and long term I think most of the competitive battle is going to be fought with very small players that are trying to get up to scale right now. So we’re in this kind of special period in the middle right now (with no functioning competitors) and we’ll see how long that lasts.

I’d never heard a CEO say “our win rates remain ridiculously high” before. I can’t say I mind it.

Splunk is in seventh place at 7.2%, but note that stocks can change places from day to day with market action, as they are close in position size. Splunk is a company that is riding the big data wave. It collects, organizes and analyzes loads of miscellaneous machine data for companies. Its pricing plan is based on the amount of data it analyzes for a company, rather than a number of seats purchased, and the secret sauce is that companies keep analyzing more and more data. They announced April earnings in May and crashed after earnings, down to $56.90. (They had warned when they gave January results that they were changing from a perpetual license model to a subscription model and that this might cause some turmoil in their sales force). They are now at $60.05. This is what those Apr quarter results looked like:

Total revenues - up 30%.
Subscription Revenue was up 48% (as you’d expect with a move towards a subscription model), but license revenues were only up 17%. Remember that a lot of subscription revenue gets deferred.

Adj earnings were a loss of 1 cent, compared to a loss of 2 cents the year before, and were a disappointment, but should have been anticipated with the change in model.
Op cash flow was $41.4 million, up from $35.7 million
Free cash flow was $35.8 million.

Splunk wins an incredible number of awards. Forrester awarded their enterprise security solution their highest possible score. They got a 5-star review from SC magazine. They won three awards in TechWorld’s Techies 2017: Best Security Technology of the Year, Best Cloud Technology of the Year, and the Grand Prix Award. They won Best Hybrid Cloud solution in The Cloud Awards. LinkenIn named them one of the best companies in the US at attracting and keeping top talent. And the list goes on…
I added a little in June, but trimmed it back in July at $61.50 when I needed cash…

Hubspot is in eighth place at 6.4%. What does it do? Hubspot pioneered inbound marketing. What’s that? Inbound marketing refers to bringing customers to you, rather than going out and chasing them. As your customers get more technically savvy, reaching out to them isn’t as effective as it used to be (they do their own research online, they don’t answer their phones if they don’t recognize your number, unsolicited marketing emails go to their spam folders, ad-blockers block your online ads, etc). Inbound marketing is about building up an online presence that will bring in leads over time through social media, search engine optimization, blogging, etc, etc, and everything is stored in a single database with full integration amongst all the tools.

Traditionally, businesses use separate tools for each of these functions, which makes it very difficult to pull together a total view of marketing performance, and followup sales performance, for various marketing channels. As the CEO put it:

Our customers, need a blog, need a website, need social media monitoring and need search engine optimization, and typically that will be four different vendors they’ll have to deal with in order to get that right. And that’s pretty painful.

Hubs pulls everything together into a unified, easy-to-use, platform. They say clients increased the number of leads generated by 5.7 times after one year of using the platform, on average.

That’s what they do. Here are some highlights from the great March quarter they recently reported:

Total revenue was $82.3 million, up 40%
Subscription revenue was $77.5 million, up 41%
Other revenue was $4.7 million, up 18%
Adj operating margin was positive 1.6%, up about 7.7% from minus 6.1%, a year ago.
Adj operating income was $1.3 million, up from a loss of ($3.6) million.
Adj net income was $1.2 million, or positive 3 cents up from a net loss of ($3.9) million, or ($0.11) per share.
Cash was $160.6 million
Free Cash Flow - generated $11.6 million, up from a loss of ($4.9) million a year ago.

Most recently they’ve added an integrated sales product to their marketing product. They consider this a pretty big deal. They’ve also been acquiring, taking a $15 million position in startup PandaDoc, whose software helps businesses create documents and track them across various departments. PandaDoc had previously announced an integration with HubSpot’s customer relationship management software in April. HubSpot had taken a position in another startup called Terminus, which specializes in “Account-based marketing” the week before, and in July Hubspot announced that it has acquired Kemvi, an artificial intelligence and machine learning startup that helps sales reps deepen their relationships with prospective buyers.

I didn’t either buy or sell any HubSpot this month. In fact, I haven’t sold any at all since I took this position in March.

BlackLine is in ninth place, at 6.1% of my portfolio. I just took my position about a week ago and wrote a long evaluation of it, which I won’t repeat. I like this company.

Mulesoft, a recent IPO which I took a position in in March, and quadrupled the position size since, is in tenth place at 5.7% of my portfolio. Mulesoft is a disruptor and an unrecognized category crusher. It’s in a field where the legacy companies have essentially no growth at all, and Mulesoft grew revenue 71% last year. It basically has no effective competition in what it does. I wrote it up the board on March 25th. Here is a link to the thread.…

Bert also wrote it up, liked everything about it, but then said he couldn’t recommend it because it was overvalued (which happens to be one of the MF Rule Breaker criteria for a stock recommendation).

The price had moved up from $22.50 where I had bought most of my position to over $26.00 but dropped back to $22.50 this week after reporting June results. I think what spooked people was that subscription revenue was only up 54% and deferred revenue was only up 50%, when expectations were for more. This is a subscription, land-and-expand, type company. The CEO explained that now that they are not only coordinating applications, but establishing an application network, analyzing, and providing security for the whole thing, the client company is putting a lot of responsibility in their hands so the deals are bigger, companies are doing more due diligence and approval takes longer. I think that also spooked some people.

Ubiquiti is in eleventh place, at 5.4% of my portfolio. That’s a drop of 2% in position size, which is due to my taking advantage of the rise to $53 to sell back the excess I had added in May when the stock fell to $47. I’m cautious because this is still an internet hardware company, after all, with no recurring income and moving into new fields which involves some risk, given their crowd sourced sales model.

In May they reported March quarter results, beating their guidance midpoints throughout:
Record quarterly revenues of $218 million, up 30%.
Gross Margin of 45.4%
Adj net income up 22% year-over-year
Adj EPS of 78 cents, up 24% from 63 cents

Their new Enterprise line revenues topped cash-cow Service Provider revenues for the first time, and were up 60%, and up 16% sequentially.

Their current price is $53, up about $1 from the end of June. Their PE is 17.9. Analysts just don’t believe that anyone can continue to be as successful as they are with such an unconventional model. I think they may succeed, but I don’t want to have an overly large position.

Amazon is currently in twelfth place at 4.4% of my portfolio at a price of $1020. Amazon seems like a steady grower to me. No longer a wild grower like Shopify, but more an anchor type stock for my portfolio. That’s not because it’s a staid company or out of ideas, but simply because of the size of the company. That makes it not one that I can see tripling in price in the next few years, which is part of why I chose it as the one to trim to raise cash when I needed cash in March. I timmed it some more this month when I needed cash. I’m also a little concerned about possible anti-trust action when they are publically feuding with the President, and when I see figures thrown around like 45% of all online commerce going through them.

Amazon announced its June quarter results this month. They announced loads of marvelous products introduced, expansions of services and lots of entertainment produced in-house. However, they seem to have gone off and forgotten again about being profitable. I’m more comfortable with my position size down around 4.5%.

Kite is in thirteenth place at 4.3% at a price of $111.40. I explained on the board, in a long thread, why I had exited the other three CAR-T stocks this month and focussed my position in Kite, so I won’t repeat my explanations.

New Relic is in fourteenth and last place at 3.5% of my portfolio and a price of $47.50. It’s a new position that I took this month and I wrote up an extensive evaluation of the company at the time. When I wrote it up, I explained why I was keeping it a relatively small position for now

Positions I’ve exited this month

Hortonworks I had sold in April. I had good reasons, so I wrote to Bert asking how he dealt with the issues that were bothering me. He reassured me at the time, and pointed out again the large amount of deferred revenue. It’s subscription income and comes in at high margins. So I took a small position back, starting at $10.90 but adding as it rose and fell. Then I sold out a week ago at about $12.75, for reasons I have elaborated on at length on the board.

Nvidia was an atypical stock for me as, when you boil it down, it’s a hardware manufacturer that sells greatly enhanced microchips, but I took a small position in early June at an average price of $149.50. Although it got up to $159.00 during the month, I changed my mind about it and sold out on the way down at $154.40, which happened to be a small gain, but that wasn’t why I sold it. Then I saw it auto company after auto company partner with it, it was rated number one on that MIT list of Smart Stocks, it came out with a special chip for the Bitcoin Bubble, and I changed my mind again and took a very small position back at $146.30 a month ago. I finally decided I wasn’t comfortable with it at all, company after major company was annoucing competing products, and I said to myself, do I really want to be in one of these hardware stocks. I sold out at $166.10, It happened to be a gain too, but I would have sold out equally if it was at at a loss. It’s just not my kind of company. I know that it may turn out to have been a big mistake, but that’s life.

I also sold out of four small bipharma positions: ZioPharma, bluebird bio, Cellectis, and Matinas, for reasons I’ve discussed at length.

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

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

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

Since I began in 1989, my entire portfolio has grown enormously. If you are new to the board and want to find out how I did it, and how you can try to do it yourself, I’d suggest you read posts #4 through #8 at the beginning of the board, and especially the Knowledgebase that Neil keeps for us, which is a compilation of words of wisdom, and definitely worth reading (a couple of times) if you haven’t yet.

I hope this has been helpful.


For Knowledgebase for this board,
please go to Post #17774, 17775 and 17776.
We had to post it in three parts this time.

A link to the Knowledgebase is also at the top of the Announcements column
on the right side of every page on this board


Great post, as always, Saul.

However: The S&P 500 is up 10.4% for the year, and up 2.2% for the month. (It started the year at 2239 and is now at 2472)

The S&P was actually up 11.67% as of yesterday. Just looking at the prices apparently does not include dividends. I use this link:

Arista does something tech-wise that I don’t understand…

They make ethernet switches, which has been Cisco’s bread and butter for decades. However, instead of each switch being its own separate entity, Arista’s switches use SDN (Software Defined Networking), which enables the entire network (no matter how complex) to be modeled and controlled via software. In a typical non-SDN setup, routing is based on packet destinations, but in an SDN world, you can control routing based on both source and destination, and thus be more flexible or treating certain sources with higher priority, etc. Security is also improved since you have more control.

Amazon announced its June quarter results this month. …they seem to have gone off and forgotten again about being profitable.

My interpretation of the results is that Amazon decided they needed to invest more in infrastructure. Revenue for the quarter was higher than expected (actually increased almost 25% YoY!), but Amazon then invested more than expected in overseas, on its video library, and on AWS infrastructure. Those all seem like good investments to me, and I bought shares on the dip.

Nvidia …I took a small position in early June …I changed my mind about it and sold out on the way down at $154.40… and I changed my mind again and took a very small position back at $146.30 a month ago…I sold out at $166.10. I know that it may turn out to have been a big mistake, but that’s life.

My head’s still spinning on this one. Nvidia’s a tough call - great potential, but priced too high and I believe that there’s going to be some rough spots as Data Center/Automotive don’t grow fast enough to replace declines in gaming. I’ll consider those buying opportunities, and I do believe in Nvidia’s future, at least from what I can see today.

I understand the view that at the end of the day, the company is a chipmaker - with all the problems and competition that brings - but Nvidia’s advantages include its CUDA programming environment, which is more software than hardware. It’s a great solution that has the benefits of lock-in to Nvidia’s products. So, it’s not so quite clearcut. And even chip-wise, it’s architecture isn’t an ARM license nor is it an x86 clone, so there’s some real uniqueness there. But, I can’t and won’t argue with staying away from the stock today. It’s probably a good move as I expect there to be better buy points in the future.


Just looking at the S&P prices apparently does not include dividends.

Thanks for the link Smorgasbord. I’ve copied it and now I hope I remember to use it.

They make ethernet switches, which has been Cisco’s bread and butter for decades. However, instead of each switch being its own separate entity, Arista’s switches use SDN (Software Defined Networking), which enables the entire network (no matter how complex) to be modeled and controlled via software…

What a great description of what Arista does! Thanks! I will incorporate it.

My interpretation of the results is that Amazon decided they needed to invest more in infrastructure.

Here I disagree with you. Amazon ALWAYS wants to invest more in infrastructure, but it’s been over 20 years now. Other very successful companies invest in infrastructure AND make money. Bezos simply doesn’t care. I guess I’m just annoyed. Not annoyed enough to sell out, but annoyed for sure. I currently can’t imagine any circumstance in which Bezos won’t want to invest ALL of amazon’s revenue in new ideas and new infrastructure…EVER! The market does seem to tolerate it though… so far. Maybe forever, what do I know?



Amazon ALWAYS wants to invest more in infrastructure, but it’s been over 20 years now. Other very successful companies invest in infrastructure AND make money. Bezos simply doesn’t care.

Amazon was one of those stocks that I never got on board with. Maybe if Bezos had laid out his Master Plan like Elon did, I would have. Anyway, the infrastructure things seem important now, especially for AWS. Without AWS and international how does Amazon continue to grow? Look what happened with MSFT when everyone had a PC and MS Office.

Anyway, I bought at 1002 and it closed at 1020 that day. Of course, if The Market Correction hits now I’m toast, but can’t time those things anyway.

My problem is I don’t have enough SHOP. I guess I should sell some aggressive PUTS.

I have some money in the Vanguard version of both a small-cap value index and a mid-cap value index. YTD, the mid-cap did much better than the small-cap. I guess I’d compare my own portfolio to some kind of composite of the two, but I haven’t developed this idea beyond what I just mentioned here.

I’m not sure how these indexes are weighted. I was just reading about equal weighting vs. the market cap weighting used in the S&P 500, and how the kind of weighting can have a large effect on how often shares are traded in an index, potentially making them not very passive and having higher transaction costs.

I can see your reasons for being wary about semiconductor stocks. I’ve had good results with your past recommendation of Skyworks, but its volatility makes me nervous, and at its current valuation has me eyeing the exits.

But what about manufacturers of chip-making equipment, such as Lam Research (LRCX) or Applied Materials (AMAT)? There are fewer of these companies, and they seem more stable than chip makers. I was hoping to say that AMAT shares are now above their peak in the dot-com boom, but a peek at the chart tells me that this isn’t the case. Well, at least they’re within shouting distance at over 85% of their high.

LRCX is priced more than 300% higher. (For comparison, Cisco is around 40%, and Oracle is around 110%.)

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Amazon is investing heavily in India. They are pretty much locked out of China and competing head to head with Ali Baba (Taobao, Tmall, etc.) in India. Bezos considers second place a loss. He does not like to lose.

I’m long Amazon, I think Bezos well understands what he’s doing. The ecommerce game is still very young. Taken from an international perspective, there’s still a lot of competition. Ali Baba has been pretty much locked out of the US due to the high rate of counterfeit products sold on the site. It’s been bad enough that even the Chinese officials have taken note. Ali Baba recently took down over 3,000 listings of fake products. They’ve also got a small army of employees who have only one job, find listings of fake items. And even more recently they’ve employed AI in order to review every new listing for signs of fake products (not surprisingly, Amazon has the same problem, but to a lesser degree with counterfeits).

Though they seem similar Ali Baba and Amazon have different business models. Ali Baba does not take ownership of any product, they take a commission from each sale. As such, they have historically not been concerned about counterfeit products, they earned a commission whether the product was as represented or not. But, Jack Ma quickly learned that investors care about IP violations, and if it gets bad enough, even the Chinese government will take notice. He now calls fake products a “cancer.”

Meanwhile, aside from Ali Baba, Amazon is facing stiff competition from an Indian rival, Flipkart. Flipkart was started by former Amazon employees who modeled the site on Amazon. It’s now the largest ecommerce site in India. In 2015, Bezos said that Amazon would invest over $2B in India, we’re seeing that now. India holds huge potential with over a billion in population and a rapidly growing middle class with disposable income to spend on non-essentials.

Maybe Bezos doesn’t care about earnings, or maybe he just cares about expanding Amazon’s reach and functionality more. I believe that Bezos believes that despite Amazon’s size, it’s still in its infancy and still highly vulnerable. The landscape of enterprise history is littered with companies that once dominated their industry but are now out of business or a mere shadow of what they once were.