My portfolio at the end of May 2018
Here’s the summary of my positions at the end of May. As usual, I figure as of the last weekend of the month. This month it came out to be four full weeks, and three trading days get added to June. Think of it as a four week summary if you prefer. Any PE’s that I give are always based on adjusted earnings, which very rarely may have small modifications of my own.
As you know, last year (2017) was an extraordinary year, in which I was up an incredible 97.0% at the end of November, and finished the year up 84.2%. At the end of the year I begged everyone not to expect that this year would be anything like that. Well, last year at this point, I was up 36.2%, and this year (with three trading days still to go in May), I’m up 38.3%. That not only beats last year’s May, but even beats the 38.1% I was up at the end of last June. Look, I know that that is crazy and that it can’t continue this way, it really, REALLY, can’t (!) but that’s the way it is, as of now.
The three indexes that I’ve been tracking against closed Friday as follows. The results are given from Jan 1st to date:
The S&P 500 (Large Cap)
Closed up 1.4% for the year. (It started the year at 2684 and is now at 2721).
The Russell 2000 (Small and Mid Cap)
Closed up 5.5% for the year. (It started the year at 1542 and is now at 1627).
The IJS Small Cap Value ETF
Closed up 5.6% for the year. (It started the year at 153.6 and is now at 162.2).
These three indexes
Averaged up 4.2% for the year so far. (So it’s clearly a raging Bull Market that’s accounting for my 38% gains.)
How can we explain the disparity between our results and the averages? I have to say again that we seem to have caught a secular wave, in which our companies are exploding in function and importance as well as in revenue, which is mostly recurrent. It’s the wave of big data, the cloud, artificial intelligence, and all the rest. I had some big winners outside of that area, but it’s been that big wave that has carried us.
I’m sorry to keep disappointing the scoffers who say our gains are all due to being in a Bull Market, and those who are sure that our comeuppance is imminent. I have say: “What Bull Market?” The indexes I follow are up an average of 4.2% so far this year. Last year the three indexes averaged up 14.4% while many of us were up 60% to 85%. If we look at the last 17 months since Jan 1st of last year, the indexes are up all of 19% while many of us are up well over 130%, and anyone with a hand calculator can calculate that I am up 155% in these last 16 months (1.842 times 1.383 = 2.55). It’s hard to explain a 155% gain as due to the market being up 19%.
You may ask, “Why these three indexes?” When I started this board I started comparing my results to the S&P 500, because that’s what the MF uses. Then I considered that smaller caps tend to do better over the long term, so to be fair I added the Russell 2000, a small and mid-cap standard. Then in 2016, it was claimed that the IJS, which tracks the S&P 600 Small Cap Value Index, has the best long term results. So I added the IJS. This gives me 500 large caps (the S&P), 2000 small and mid caps (the Russell), and 600 small cap value stocks (the IJS), which combined ought to give me a very representative set of standards to compare against. I’m sure some people will say “Why not drop this index and add that one?” but these are the three indexes I compare against currently, and I will probably continue to do so. I think they give me a pretty good approximation of how the market overall is doing.
(The 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 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.)
Let me remind you that I’m no good on timing the market, and I don’t try. If I did, I would probably have exited all my positions at the end of April 2017, when I was up 26% in four months and was “aware” that “it couldn’t continue” like that, just like I am now. In just four months my results had already dwarfed those I had in the entire years of 2015 and 2016. Back at the end of April 2017, up 26% seemed like a ridiculously ENORMOUS amount to be up in just four months, and my stocks seemed way “over-bought.”
But if you or I had sold out then, because we “knew” the market was overpriced and we decided that we could wait for a pullback to buy back in, we never would have bought back, because the market kept going up and our stocks never came back even close to where they had been, much less given us a pullback, and we would have thus missed all the rest of this enormous rise. And that’s the problem with trying to time the market!!!
This February the market took a 10% nose-dive and everywhere I looked people were analyzing the reasons that the market was tanking, discussing how relations between long term and short term yields, and other technical indicators, were the reason the market was tanking, and warning about previous corrections that took months or years to recover from. A lot of people were “going into cash,” “protecting myself with options,” and all the rest of it. Look, you should always have enough cash to live on for as many months as you feel you could need (more if you are retired than if you have a salary coming in obviously), but trying to guess what the market will do (“market timing”) is a losing proposition.
I continue to believe that intelligent stock picking with a modified buy-and-hold strategy can beat any index or average? How could it not? When an “average” is just that: an average of good, mediocre, and poor companies?
Here’s a little table of the monthly progress of my results so far this year:
**End of Jan +16.9%**
**End of Feb +21.4%**
**End of Mar +29.1%**
**End of Apr +25.8%**
**End of May +38.3%**
The stocks I’m still in since the beginning of 2018 are Alteryx, Arista, Nutanix, Shopify, and Square. They include four of my five largest positions and they make up 56.5% of my current portfolio. You can see that most of the little buys and sells I recount are mostly just nibbling around the edges of my core positions.
Positions I’ve added since the beginning of 2018 have been:
January - Pure, Twilio, and Okta.
February – None
March – Nektar (which I had sold in February)
Apr – None
May – Pivotal, and MongoDB (which I had sold out of in April)
Here’s a last four months review:
February: I sold back Mimecast which I had taken a small position in the month before, to raise cash to add to my Pure Storage. I also finished selling out of LGIH, which I had been doing for several months. During the February mini-crash I sold out of Nektar for money to add to my Nvidia. Finally, I sold out of Wix, which has always been a low conviction company for me, although people whose opinions I respect like it a lot.
March: I decided to take a full position back in Nektar as I learned more about it, and also took a much smaller position in MongoDB. To raise money to buy them I trimmed some Hubspot, and some Talend, and I trimmed some of the Nvidia I had added in February. (Remember that I have no new money coming in and when I want to buy something I have to sell something). Then when the market collapsed (and especially Nvidia collapsed after a great investor conference, and Shopify collapsed after another short attack), I sold the rest of my Hubspot, and the rest of my Talend, and about half of the Mongo that I had bought, and added to Nvidia, Shopify, Nutanix, Twilio, and Nektar.
April: During April I sold out of the other half of my small position in MongoDB for cash for things I liked better, but I then bought it back when it fell because of lockup expiration worries, and finally I sold out again to buy more Twilio, Okta, Pure, and a little Nektar. I also net trimmed my Nvidia and Shopify to buy more Twilio and Okta. (I really like Twilio and Okta).
May In the beginning of May, when Arista sold off, I added a lot of it at about $243. Later in the month, when I wanted money to buy other things that I felt had a longer runway, I sold off a very large part of my position at about $258. I discuss this decision further in my discussion of Arista below. MongoDB. Have I ever been back and forth on Mongo! I bought a small position in February at about $38.00, and I sold out at about $43.40 in March, to raise cash. I bought a small position back in April at about $41.00 but then sold it later in April at about $38.65. I started a new position, for the third time, this month, at about $43.48. I believe I’ll keep this one. I also took a small to medium position in Pivotal, after reading Steppenwulf’s great write-ups and researching some myself. Finally, I sold out of the remains of my Nvidia position at $248, for cash to buy other things. It had been my smallest position at the end of April, and has been in a trading range between $215 and $250 for 20 weeks now, which is a long time for a company which is supposed to be conquering the world. I know everyone loves it, and it controls the future and all that, but it’s still a huge company that would be difficult to double or triple in size, and mostly a hardware company at that, and I used the funds to buy more stock in companies like Twilio, Square and Nektar, which don’t lay claim to controlling the future, but which look pretty good to me.
In considering my sales of Nvidia and partial sale of Arista, please remember that companies that I sell often continue to go up, and some stocks I buy go right down. God knows I make mistakes regularly.
Here’s how my current stocks have done in the first five months of the year. I’ve arranged them in order of percentage gain. I’ve used the start of the year price for stocks I’ve been in all year, and my initial buy price for stocks I’ve added during the year.
Twilio from 25.70 to 53.25 up 107.2%
Okta from 29.95 to 51.88 up 73.2%
Nutanix from 35.28 to 52.50 up 48.8%
Square from 34.67 to 55.77 up 60.9%
Shopify from 101.0 to 143.6 up 42.2%
Alteryx from 25.27 to 32.49 up 28.6%
Pure from 16.72 to 20.26 up 24.0%
Arista from 235.60 to 255.75, up 08.6%
MongoDB from 43.48 to 44.99 up 03.5%
Pivotal from 19.18 to 18.12 down 05.5%
Nektar from 103.0 to 79.96 down 22.4%
By the way, my big stars have been Nutanix, Twilio, and Okta. Nutanix, at $52.50, is up 144% from when I bought into it just over six months ago at $21.50. Twilio is up 107% from when I bought it just over four months ago in January, and Okta is up 73% from my purchase, also four months ago in January.
With regards to Nektar, I took this current position in March and it was my second purchase as I had sold out of the first one in February for a 27% gain. My initial purchase price this time was $98, but my average purchase price was $103, so to be fair I used that, as I bought most of it during a single week. I have a considerable loss on my position at present, but there hasn’t been any company specific bad news, and there is no news yet from the key study which has just begun.
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.
Nvidia from 193.5 to 248.0 up 28.2%
Nektar from 59.7.0 to 76.0 up 27.3% 1st time
Talend from 37.48 to 47.50 up 26.7%
Hubspot from 88.4 to 108.0 up 22.2%
MongoDB from 38.00 to 43.50 up 14.2% 1st time
Mime from $32.34 to 30.85 down 4.6%
LGIH from 75.0 to 71.0 down 5.3%
MongoDB from 41.00 to 38.65 down 5.7% 2nd time
Wix from 69.2 to 61.8 down 10.7%
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.” or “This technical indicator proves the the market is in a bubble.” All of their charts and indicators proved it in 2010, 2011, 2012, 2013, 2014, 2015, 2016, and again last year in 2017. I’m hearing convincing stories about bond yields now fortelling a crash, and interest rates rising, but I’ve heard other similar convincing stories about other technical indicators every year. And so have you! Eventually they’ll be right, and they will think “See! I was right all along!”
Of course a marked correction or bear market will come eventually. And rising interest rates do eventually stop the market rises. Look, it could start next week for all I know! But we never really know when. And what a price those people have paid in “keeping their powder dry” and staying out of this market for the past eight years, waiting for the big correction that never came.
I realized a couple of months ago that I’ve been writing the above in my monthly summary every month and those people have continued to be wrong, and wrong, and wrong. And wrong by a huge magnitude of missed gains. Picking good stocks makes much more sense than trying to pick good stocks AND trying to time the market too.
Large caps (S&P) were up much more than small caps (Russell and IJS) last year, which doesn’t sound like people are wildly casting aside caution. But what do I know?
Now let’s look at my position sizes. I’m still trying to keep my portfolio concentrated and streamlined. After selling out of Nvidia and taking the positions in Pivotal and MongoDB, I’m up to 11 positions, which is a pretty good level for me (maybe one more than I’d like). By the way, keeping my number of stocks down really makes me focus my mind and decide which are really the best and highest confidence positions. Here are the 11 positions in order of position size.
**Nutanix 14.3%**
**Shopify 14.0%**
**Alteryx 14.0%**
**Twilio 13.3%**
**Square 11.4%**
**Okta 8.6%**
**Nektar 7.9%**
**Pivotal 6.7%**
**Pure 4.0%**
**MongoDB 3.7%**
**Arista 1.0%**
It’s a very concentrated portfolio. With 14 positions, an “average position” is about 7%, but with just 11 positions, an average position is a 9% position. Nutanix is still in first place, Shopify is in second, Alteryx in third, and Twilio has had a meteor-like rise to fourth, partly because I added to it, but mostly because of its price rise.
Eye-balling the list you can see that Nutanix, Shopify, Twilio and Alteryx are all close together, between 14.3% and 13…3%, with Square close behind them at 11.4%. These are followed by Okta and Nektar at about 8.0%, Pivotal at 6.7%, and Pure, and Mongo (the new position) at about 3.75%, and Arista, greatly reduced.
Nutanix was a new position in September,. It was discussed at great length on the board at the time and, like Alteryx, with a lot of skepticism. I entered at about $21.70 with a fairly good sized position. I added a small amount in February at about $31.25 and some more at $33.00. I wasn’t going to add in March as it was already a large position, but I couldn’t help myself and added some during the sell-off. I didn’t add or subtract in April. It rose to new highs in May, which put it well over 16% of my portfolio and I trimmed a little bit at $58.50, but I bought back at least as much Friday at $53.25. It’s still my largest position at 14.3% of my portfolio. It closed Friday at $52.50.
Note that I bought it and praised it a lot when it was in the low $20’s. Now eight months later, it’s over $52, up 144% in eight months. Sure, stock picking doesn’t work. We’ll all return to the mean some day. Statistics prove it! Hah!
Nutanix reported awesome January quarter results in March. This included revenue up 44%, billings up 57%, software billings up 60%, deferred revenue up 57%, cash flow from operations up 135%, free cash flow up over 300%, million dollar deals up 104%, and they have a Net Promoter Score of 90 !!! (For those who aren’t familiar with it, NO ONE gets a Net Promoter Score of 90 !!! It means just about all your customers absolutely love you.)
Nutanix outdid the January quarter results when they reported April results last Thursday. Here’s what the results looked like:
• Revenue: up 41%, but this is with the elimination of approximately $52 million in pass-through hardware revenue that they are no longer counting. If you adjust for that and compare apples to apples, revenue was up 65.5%. That’s really glorious growth!
• And for a little consensual validation, in his note sent to his newsletter subscribers, Bert called this a blow-out quarter and came to the same 66% real revenue growth figure that I did.
Software and support billings up 67%
• GAAP Gross Profit up 58%
• Adj Gross Profit up 57%
• GAAP Gross Margin: of 67.0%, up from 59.5%
• Adj gross margin of 68.4%, up from 61.2%
• Adj Net Loss of $34.6 million, improved from a loss of $45.7 a year ago.
• That’s a loss of 12% of revenue, down from a loss of 22% a year ago, as well as the dollar loss decreasing.
• Adj net loss per share of 21 cents, improved from a loss of 32 cents.
• Cash was $924 million
• Deferred Revenue: $540 million, up 62%
• Operating Cash Flow: $13.3 million, improved from a loss of $(16.0) million
• Free Cash Flow: $(0.8) million, improved from $(29.2) million
Nutanix’s area is “hyper-converged infrastructure” in data storage. Gartner rated Nutanix first on completeness of vision, and first on the ability to execute. It sells hardware, but what counts is its software and operating system. In fact, it is doing away with the pass-through zero-margin hardware that it was selling, and pivoting to be a pure software company (also moving towards a SaaS model). This makes their revenue growth look deceptively slow because of hardware sales no longer being counted, and because of subscription revenue being counted only month by month, even if all paid in advance. (Pretty odd to talk about revenue growth of 44% looking deceptively slower than reality, isn’t it?)
In May Nutanix announced at least three new products: Nutanix Beam, Nutanix Flow, and Nutanix Era. I don’t have a clue what they do. At the end of April there was also a rumor that their Xi product would be delayed, which tanked the stock. This proved false, and the stock rebounded and went on to new highs in May. I trimmed a little when it grew to substantially above 16% of my portfolio, but bought back a bunch on Friday.
Shopify is in second place at 14.0%. It had been my largest position for a long time. It grew very fast and got to be a much larger position than I was comfortable with (22% at one point), and well above what I recommend, and I eventually trimmed it down. I added a bunch back in May at $143.80. It closed Friday at $143.64.
Revenue growth is slowing slightly with size but it remains an incredible success story. After four years of compounding 100% revenue growth, they “slowed down” in 2017 to grow revenue just 73% over the previous year. They announced another good quarter for March. Here’s a little excerpt of what they reported for their March quarter:
Total revenue was up 68%.
Subscription revenue was up 61%.
Monthly Recurring Revenue (MRR) was up 57%.
Shopify Plus revenue (big companies) was 22% of MRR, up from 17% a year ago.
(Note that that actually means that Shopify Plus revenue was up over 100%. Here’s the calculation: If last year MRR was $100, Shopify Plus was $17. This year MRR revenue was up $57 so it was $157. Shopify plus was 22% of that, which comes to $34.54, which is up 103% from $17.00).
Merchant Solutions revenue was up 75%.
Gross Merchandise Volume was up 64%
Gross profit was up 71%
Adj operating loss was 0.1% of revenue, up from a loss of 3.4% a year ago.
Bert pointed out that Shopify is moving much of its infrastructure from self-owned data centers to AWS. Initially that has led to some duplicative costs. However, gross margins rose a bit anyway due to the higher margins inherent with Capital and Shipping. He felt that as Shopify moves to the cloud, depreciates its own data centers, and eliminates duplicative costs, gross margins can easily increase by 10%.
In March Shopify announced frictionless checkout with Google Pay, and that Shopify merchants can now enable Google Pay with a single click.
They also announced expanded integration with Instagram. The “shopping on Instagram” feature that allows businesses to tag products in Instagram posts is now enabled for merchants in eight additional foreign markets: “This strategic expansion unlocks potential for our merchants to sell to Instagram users all over the world”.
I bought Shopify in 2016 at about $27. It closed Friday at $143.64, so in spite of the short attacks, it’s at about 532% of what I first bought it maybe a year and nine months ago, (more than a 5-bagger, for those who count that kind of thing).
In February, Tim Cook from Apple visited Shopify to see how they were integrating enhanced reality into their platform to help their merchants sell products. It seemed to indicate some potential alliance between the two companies, which would certainly be more good news for Shopify.
In May Shopify announced a whole panoply of new services. That’s when I decided to add.
Alteryx is now at 14.0%, and in 3rd place. It was a new position in December. It finished May at $32.49, up 28.6% for the year so far, but it had been as high as $38.10 a month ago. In May it sold off, first due to Tableau announcing a vaguely similar product. I’m no techie, Bert doesn’t feel that Tableau’s product is any threat to Alteryx. Then they bounced back, but fell again when they announced a convertible bond offering (like everyone else!). I added a tiny bit at $31.00 and another tiny bit at $33.25. Here are some results from the Mar quarter:
Loss of -1 cent beats by 6 cents.
Revenue of $43 million beats by $3 million
Revenue was up 50% (but growth slowed from 61% a year ago)
Dollar-based revenue retention rates were above 130% for the 6th consecutive quarter.
• Adj gross margin of 90%, up from 84% a year ago.
• Adj operating loss of $(1.3)million, up from a loss of $(3.6) million.
• Adj operating margin was minus 3.0%, improved from minus 12.5% !!!
• Adj net loss was $(0.6) million, improved from a loss of $(3.7) million.
• Adj net income per share was a loss of 1 cent, up from a loss of 6 cents.
• Cash was $206 million, compared with $194 million sequentially. Op cash flow for the quarter was $12.1 million, up from $5.0 million a year ago. Note that that’s positive cash flow!
• They ended the quarter with 3,673 customers, up 43%. Added 281 net new customers in the quarter, up from 237 a year ago.
• Achieved a dollar-based revenue retention rate of 132% for the quarter.
• New customers included some well-known companies such as 3M, Intel, Merck, Waste Management, Barclays Bank and Under Armour. And they emphasize that they are beginning to see larger lands.
Twilio is now in 4th place at 13.3% of my portfolio, and a price of $53.25, which is up 28% from $41.65 at the end of April, and up 107% from my original purchases in January. That’s up 107% from January of THIS YEAR. I added a lot at the end of April at $40 to $42, and added some more tin May at $44. It closed Friday, as I said, over $53.
I had been in and out of Twilio last year, selling out because of all the worry about it becoming commoditized in the future. This current position was a new small position I took in early January. It’s grown as my conviction has grown, and as the price has risen. It’s a wonderful example of not price anchoring, and buying with rising prices instead of looking for sell-offs. I first bought between roughly $24 and $27. The next month the price shot up and I bought an equivalent amount mostly between $30 and $32. Then, I added another bunch between $40 and $42, and this month a little more at $44. I wrote the following in April:
I came back to it in January because the numbers talk, and their non-Uber/non-FB revenue is growing at 60% and will hopefully soon make the Uber situation fall into the rear-view mirror… this is disguised, or camouflaged, growth!
I then gave an extended explanation of why I called it camouflaged growth. Well they reported March quarter results in May and my take is that they turned the corner on revenue growth, dollar-based retention rate, etc. They raised guidance for the full year, a lot. This is a great stock to hold!
Bert’s take was: We believe that the runway for Twilio is enormous that it’s in early innings, and that it should be a part of any high growth portfolio. For the 3rd time in a row, it achieved more than 60% revenue growth, excluding Uber.
Square is in fifth place, at 11.4% of my portfolio, and up 61% to $55.77 from $34.67 at the end of the year. I started my position a year ago March 2017 at an average price of about $17.50, and the price is up 219% since then. Yes, you read that correctly, up 219%, more than tripling. As I wrote above, Sure, stock picking doesn’t work. We’ll all return to the mean some day. Statistics prove it! … Hah!
Square is growing revenue like mad. For the last five quarters it grew revenue at 39%, 41%, 45%, 47%, and 51%. Revenue growth has been accelerating! And they guided to 49% for next quarter, which they obviously expect to beat. Subscription and Service revenue, the good stuff, was up 95% for the year, and 98% last quarter (and obviously becoming a larger part of adjusted revenue). Square also has a lot of recurring revenue. It has been adjusted profitable for the past eight quarters (two years), but not a huge amount. And they raised their GAAP net income guidance for this year up to breakeven at the high end (which I assume they plan to beat). They have an 80% self-onboarding rate. They have a net promoter score of 70! Square is amazing! I added a bunch this month at $49.50 to $53.00.
Okta was another new position in January, a small cyber-security firm that is now in sixth place in my portfolio and an 8.6% position. They IPO’ed in April, 2017, about a year ago. What they do is called Identity and Access Management, or IAM. They are a SaaS company, and are still racking up big losses in net income and even in cash flow. Their TTM revenue is $260 million, which is up 62% from TTM revenue of $160 million a year ago. Here are some of the data from the January quarter results. It’s hard to even imagine a better quarterly report than this one:
• Total revenue was $78 million, up 59%.
• Subscription revenue was 93% of total revenue, and was up 64%.
• International Revenue was only 15% of total revenue, but was up 85%.
• Billings were up 67%. What’s even better is that they were 135% of Total Revenue, so book-to-bill ratio was an enormous 1.35
• Customers with revenue over $100,000 were up 56%. Similar to last quarter, the majority of these customers were new customers, demonstrating the success we are having with the enterprise market.
• Over 400 net new customers was also the largest number of additions we’ve ever had. We ended with over 4,350 customers, up 40%.
• Our strong TTM dollar-based retention rate was 121%. This shows the ongoing success we are having expanding within our existing customer base.
• Subscription gross margin was 81.1%, up 1.7%.
• Total gross margin continues to trend higher and reached a new high of 74.1%, up over 4%. Our gross margin has been steadily increasing.
• Gross profit was $58 million, up 69% year-over-year.
• Adj Operating Loss was $11 million, improved from a loss of $13 million.
• Adj Operating Margin was a loss of 14% of revenue, up from a loss of 26% of revenue last year.
• Adj net loss was $10 million, improved from $13 million a year ago.
• Adj net loss per share was 10 cents, improved from 14 cents a year ago.
• Operating cash flow was $0.2 million or 0.2% of revenue, compared to a loss of of $6.7 million or 13.7% of revenue, a year ago…
• Free cash flow was minus $2.2 million, or 2.8% of revenue, improved from minus $9.8 million, or 20.1% of revenue, a year ago.
I think that it’s great that there is still so much skepticism about it on the board and elsewhere… If everyone was gung-ho, I’d be worried. I added small amounts early in May, mostly around $41.90 and $43.00. If you remember I took this position back in January at $29.95 and I kept adding all the way up to $43.00. It closed Friday at 51.88.
Nektar. I bought back into Nektar at the beginning of March. It’s in seventh place at 7.9%. It fell into the $70’s due to what seems to be irrelevant negative results by other companies spilling over, and is now in the process of bouncing back. There has been no negative company-specific news from Nektar, or about Nektar. There is no news yet from the key study that has just begun. I recently wrote up a summary of their terrific conference call, which started a long thread, so you should be able to find it. I’m feeling more and more confident about this company. When the price fell on a misunderstanding two weeks ago I added a small amount at $76.80, some more at $79.00, and some more at $83.50. I think Nektar could be on its way to becoming a biotech powerhouse, but the jury is still out on the final results. It closed Friday at about $80.00
Pivotal is a new position this month, having IPO’ed in April. Steppenwulf brought it to the board and I did a sort-of deep dive. It’s been enormously discussed on the board, and Bert has written about it twice. It’s in eighth place currently at 6.7% of my portfolio. I mostly bought it around $19.18 and it closed Friday at $18.12.
Pure Storage was another new position in January, and it’s now in ninth place at 4.0% of my portfolio. I was encouraged to enter it by reading Bear’s and Ant’s posts. It’s busy right now replacing spinning disc storage for enterprises with flash arrays, as I understand it. And once that’s through they will replace first generation flash arrays with NVMeoF-enabled flash storage. And then the next advance, and the next. And meanwhile the demand for data storage will be expanding exponentially. At least that’s the investment thesis. And Pure is the leader in the leader’s quadrant on Gartner. But keep in mind that I am a tech illiterate. I don’t really understand much of all that above, and I am relying on other people’s advice. Here’s the kind of thing I do understand: It’s a little from the Jan quarter results, and it’s pretty “Wow!” kind of stuff.
Key quarterly highlights:
• Record quarterly revenue: $338 million, up 48%
• Record full year revenue: $1023 million, up 41%
• Record GAAP operating margin: -4.7%, up 14%
• Record adj operating margin: 8.3%, up 10%
• Record adj income per share of positive 13 cents, up from a loss of 2 cents a year ago.
• Record operating cash flow of $59 million and free cash flow of $38 million, and record full-year operating cash flow of $73 million and free cash flow of $7.7 million.
I had taken my position in January at $16.72 and trimmed just a little for cash at $23.30 in May. It closed Friday at $20.74.
MongoDB I just started a small position, for the third time this year, at an average price of $43.48. It’s in tenth place currently at at 3.7%.
Arista In April I trimmed a little at about $255 for cash to add to Twilio and Okta. In the beginning of May, when it sold off, I added a lot at about $243. Later in the month, when I wanted money to buy other things that I felt better about, I sold off about nine tenths of my position at about $258. It closed Friday at 255.75, and is now in eleventh and last place at a 1.0% position.
Arista was founded by a small group of very smart people who used to work at Cisco. They developed a better way of doing something (using SDN), 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. They have been moving up steadily as the threat from Cisco’s law suits diminishes.
So why did I sell so much? What has started to bother me is that they keep forecasting growth at 25% for the year. Now after the December quarter we made excuses for the guidance. After they repeated it in the March quarter report we gave them a pass on giving conservative guidance that they expect to beat, not having vision past six months, having a tough comparison with a big year last year, having a cautious new CFO, etc.
However, when I thought more about it, it’s the “not having vision past six months” that caught my attention. And they are probably telling the truth. That’s a profound concept to consider. It reminded me that Arista, as brilliant a company as it is, is a hardware company at core, and it still has to wait for orders from a coterie of giant customers. Been there, done that. I don’t want that kind of company to have such a huge place in my portfolio. They may beat by a mile, as they did last year, in which they didn’t see the beat in advance either, but they may not. They simply can’t have the visability that a company with recurring revenue has. Bert thinks they will beat their estimates handily. I, on the other hand, realize that they probably really actually don’t know! And if so, what does that imply for the long term future?
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. And besides, I make mistakes sometimes, even big ones! Don’t just follow me blindly! I’m an old guy and won’t be around forever. The key is to learn how to do this for yourself.
Since I began in 1989, my entire portfolio has grown enormously. If you are new to the board and want to find out how I did it, and how you can try to do it yourself, I’d suggest you read posts #4 through #8 at the beginning of the board, and especially the Knowledgebase that Neil keeps for us, which is a compilation of words of wisdom, and definitely worth reading (a couple of times) if you haven’t yet.
I hope this has been helpful.
Saul
For Knowledgebase for this board,
please go to Posts #17774, 17775 and 17776.
We had to post it in three parts this time.
