My Portfolio at the end of November, 2018

My portfolio at the end of November 2018

Here’s the summary of my positions at the end of November, which was another wild and difficult month for stocks, and especially for tech stocks. As always, I do my monthly summary at the end of the last full week of the month, so you got five full weeks this month. Note that I almost always use adjusted figures when the company gives them.

This has been a wild two months, and I should note that no one can predict a down market like the one we have been in for the last two months with any accuracy. It’s a force of nature, with no rationality attached to it, like a hurricane. It’s been a two-month correction in technology stocks, so we should have gotten killed! …Right? That’s what all those guys have been telling us who have been saying we are buying all these over-valued stocks with no earnings, and when the market falls, our portfolios will fall many times faster and shrink away to nothing. We’ll be down 60% on the year, or more!

So what did happen to my portfolio? On September 11th it was up about 96% year-to-date, and by Oct 24th it was 26% down from that top, and was up “only” 45%. And that’s when things got even wilder. Two weeks later (Nov 7th), it was back to a gain 85%, and two weeks after that (Nov 20th), back down to a gain of 50%. And, at Friday’s close, after this sustained and very unpleasant turmoil, my portfolio is up 80.5% year-to-dateBut wait! We were supposed to get killed in a two-month tech correction!

So how did I compare with the indexes! Well they hovered around breakeven, from positive a few percent to minus a few percent, and back again.

The three indexes I traditionally have followed are up just 0.2% for the year. When you throw in the Dow and the Nasdaq, the five indexes average up 2.0%, being held up slightly by the Nasdaq. (details further down). Clearly, picking stocks that will be winners, the way we do, has beaten investing in ETF’s and Indexes.

And if you figure from the beginning of January a year ago (2017), I am up 232% (that’s about three and a third times of where I started, more than a triple for my entire portfolio), while the indexes are up all of 17% in that time, the advantage of intelligent investing in high growth stocks becomes abundantly clear.

Please keep in mind that those results were without leverage, just investing in ordinary stocks, no margin, no options, no penny stocks, nothing oddball. Yep, stock-picking doesn’t work. There are books written that prove it :grinning:.

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, and again last year in 2017. Eventually they’ll be right, and they will say “See! I was right all along!” They may be right now! I certainly don’t know.

This has clearly been a marked correction, but a bear market…? I don’t think so. But I’m no market-timing expert and we may not be out of this yet! But what a price those people paid by “keeping their powder dry” and staying out of this market for the past nine years, waiting for the big correction that never came.

By the way, it never even crossed my mind to sell out during this correction. In retrospect, there are probably two reasons for this:

First, I had such a large cushion of profits that even at the lowest close (which was in October) I was nowhere near even down to where I had started the year (I was up 45% from there, in fact), so I never actually felt threatened.
Second, as I have mentioned several times over the past six months or so, I segregated enough cash in my account for my family and I to live on for a reasonable amount of time. By the way, I also didn’t consider reinvesting that cash near what I thought might have been the bottom because the money was truly “set aside” in my mind. I really don’t try to guess the market in order to actually make decisions about my investing (although I did see some support when my account bounced seven times in the same range over the course of the year).

Picking good stocks makes much more sense than trying to pick good stocks AND trying to time the market too. Just my opinion. 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, are category crushers or disruptors, have customers that absolutely need them, have long runways, and will have great futures. I wrote up their stories in August in my post called Category Crushers and my portfolio, post #45099,… . As that’s quite a way back now, I’ll give you an updated version in this post.

The three indexes that I’ve been tracking against closed Friday as follows. The results are given year to date. I’ll also tell you how they did during the month.

The S&P 500 (Large Cap)
Closed up 2.8% for the year. (It started the year at 2684 and is now at 2760). It gained 3.7% in November.

The Russell 2000 (Small and Mid Cap)
Closed down 0.6% for the year. (It started the year at 1542 and is now at 1533). It gained 3.2% in November.

The IJS ETF (Small Cap Value)
Closed down 1.6% for the year. (It started the year at 153.6 and is now at 151.2). It gained 1.9% in November.

These three indexes
Averaged up 0.2% for the year so far.

If you throw in the Dow, which is up 3.3% and the Nasdaq, which is up 6.2%, you get up 2.0% year-to-date for the five of them, and they gained 2.9% in November.

If you compare that monthly gain of 2.9%, and year-to-date gain of 2.0%, with my portfolio which went from up 47.7% to up 80.5% in the same period of time, I must say that it makes investing in the averages seem… trivial, for want of a better word.

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

(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.)

The skeptics visiting our board used to say, “Anyone can be a genius in a raging Bull Market!” Raging Bull Market??? The three indexes I usually follow are up an average of 2.0% so far this year. Last year they were up 14.4%. If we combine the two years together, the indexes are up all of 16.7% while many of us are up well over 200%. It’s hard to explain my 232% gain in the two years as being due to a bull market, with the market being up 17%, or my current 80% gain this year as due to a bull market, with the markets up 2%.

How can we then 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 recurring. 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. And, in general, 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.

One or two critics on the board have said I shouldn’t compare against the market, but should compare against indexes of Cloud and Internet-based stocks because they are closest to what ours are like. I think that that is fallacious and ridiculous. I compare against The Market, meaning all the companies out there that people invest in. I don’t compare against the stocks that are already in my portfolio … …or against stocks that are just like the stocks that are in my portfolio. What would be the sense of that? You can only compare against indexes of stocks just like mine when you already know what I’ve invested in, and know how well they have done, and then look backward to figure out some index close to my stocks. What nonsense! It is just so silly as to be laughable.

To simply restate my goals, I’m trying to measure my performance against that of the “average return for an investor in the stock market,” not the return of someone who is smart enough to invest in the same “kind” of stocks I’m in. It’s as simple as that.

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. Look, at that time, in just four months my results had already dwarfed those I had in the entire years of 2015 and 2016, so back then 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.” Of course, I finished the year up 84% and would probably have kicked myself if I had sold out at up 26%.

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%**
**End of Jun	+44.3%**
**End of Jul	+55.3%**
**End of Aug	+86.0%**
**End of Sep	+86.8%**
**End of Oct	+47.7%**
**End of Nov	+80.5%**

The stocks I’m still in since the beginning of 2018 are just Alteryx and Square. They include two of my top three positions, and they make up about 32% of my current portfolio.

Current positions added since the beginning of 2018 have been:

**Jan -  	Twilio, and Okta.** 
**May – 	MongoDB** 
**Jun - 	Zscalar** 
**Jul - 	New Relic**
**Oct - 	The Trade Desk** 
**Nov -	Elastic, Abiomed, and Guardant Health** 

Here’s a last four months review:

August I had reduced my Shopify position gradually over a couple of months but it was still one of my major positions. However, in early August I sold out in shock when their rate of revenue growth, which had been falling every quarter, fell precipitously in a quarter when the economy was very strong, and a quarter in which Square, in a related market, had huge results following accelerating rates of growth in each of the quarters in which Shopify had falling rates of growth. My average sale price for Shopify was about $145, about 537% of my initial purchase price which was $27, two years before.

I also decided to sell my small position in Pure at about $22.50, and I trimmed Nutanix a little, and trimmed Pivotal a little. (it had never been a very large position). … I put the money from these various sales and trims mostly in Twilio, Square, Zscaler and New Relic, and a little in Alteryx and Okta, and started small positions in Wix and PayCom.

September. I sold out of Pivotal when it had a disappointing and confusing conference call. Many others said they did the same independently. It’s been discussed at great length so I won’t go further into it.

I tried out a little (under 1%) position in Nvidia again, but didn’t hold it for more than two days, I think it was. I bought a starter position in Arena Pharma, not knowing much about it, but relying on Bulwinkle who seemed to know quite a bit about it.

And, as I wrote the last two months, I segregated away a certain amount of cash out of the market. Why? You ask. Well, I’m getting not only older, but old, and there’s a limit to the amount of years I have left to live. I want to have enough set aside for my family. I can also cover our living expenses more easily as we live a reasonably simple life. And besides, it’s too much work for an old guy.

October. Early in the month I sold my little try-out position in Arena and bought a smaller position in another little biotech, Amarin, which was also discussed on the board. Why? Arena had two or three years until marketability (if everything went right), while Amarin had its product out there already, approved and on the market, although its market might not be as large as claimed. I also bought a starter position in The Trade Desk at about $121, after reading a lot of positive opinions about it on the board, even though I have been stung in the past by advertising companies.

November. In my end of October post I mentioned starting 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 8.6% position currently.

Why did I sell out of Amarin. Several reasons, six in fact.

First, the CEO, on the earnings conference call, sounded to me like a huckster pumping the stock. (Just my opinion).
Second, they seemed like a one-trick pony. When analysts asked about pipeline of future products they kept saying that they were putting all their effort into this one.
Third, they indicated that they’d have to raise money (sell more stock or take on debt) to be able to build their marketing effort to increase sales (hire more S&M personnel), so they stated that it would be a while until they had positive cash flow. (If ever?).
Fourth, while their product was approved, its market seemed smaller than they thought, and their patent runs out in 9 or 10 years.
Fifth, they had already run up 600% or 700% in the last month or two, since they had pre-announced their results.
Sixth, all our great companies were way down, so I sold Amarin for cash.

In fact this was a very, very clear Sell in my opinion. By the way, I had no idea that when they announced their great study results officially a few days later, that the shorts would attack, saying that the placebo they used in the study biased the results because it had mineral oil in it. I thought this was far-fetched but that it would cast a cloud on the results which would be hard to totally remove. I simply had decided that Amarin may do well, but that I had what seemed to be much better places for my money.

At the end of October I also had two small (3% and 2%) positions in PayCom and Wix, which I had started in August. One was up 3%, and the other down 2%, at the end of October, 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 which 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.

I decided to take a new position in Elastic in the first week of November… As you remember, that first week was wild and I bought between $62 and $70 spread fairly evenly during that week, with an average buy-in point $65.50. It’s still a smallish position at 4.2%.

I sold out of Nutanix for cash. As you all know, I’ve been reducing my stake for quite a number of quarters now. It’s become a complicated, hard to figure out, low-confidence position, and went into my “too-hard-to-figure-out-what-is-going-on” basket. You have to make too many guesses at what is actually happening. Some have said that this is like the hidden growth with Twilio some months ago. Not True! Twilio was crystal clear. One company, Uber, which had been a big customer, was reducing their purchase and taking it in-house, while the rest of revenue was growing 60% or more, every quarter. Everything about what was going on was simple and spelled out clearly by the company. With Nutanix, I can’t tell what the heck is going on any more. Been there, done that. But just because it’s too hard for me to figure out doesn’t mean it won’t do just fine, honest-to-God. Make your own decisions. This is not one to just follow me on.

I trimmed a little Twilio at $95.20 and $95.90, when it went over a 20% position.

I added two small biotech positions in Abiomed and Guardant Health in the last two weeks. I am not sure I will keep them, but I am leaning that way. I will keep them small.

Here’s how my current stocks have done in the first eleven 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 94.49		up  267.7%**
**Alteryx from 25.27 to 60.18		up  138.1%**
**Okta from 29.95 to 63.65		up  112.5%**
**Square from 34.67 to 71.12		up  101.4%** 
**MongoDB from 43.48 to 82.90		up   90.7%**
**Trade Desk from 121.0 to 142.5    	up   17.8%	(new in October)**
**Abiomed from 303.0 to 332.7		up    9.8%	(very new)** 
**Zscaler from 35.84 to 39.26,  	   	up    9.5%**
**Elastic from 65.50 to	71.45		up    9.1%	(new in November)**

**Guardant from 38.35 to 35.73	      down    6.8%	(very new)**
**New Relic from 102.00 to 87.19        down   14.5%**

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.

**Shopify  from 101.0 to 145.0	up 	43.6%**
**Pure  from 16.72 to 22.50	up 	34.6%**

**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%** 
**Nutanix from 35.28 to 43.10	up 	21.9%**
**Amarin from 19.40 to 22.75	up 	17.2%** 
**Arista from 235.60 to 274.0,    up     	16.3%**
**Pivotal from 19.18 to 22.00	up  	14.7%** 
**MongoDB from 38.00 to 43.50   	up 	14.2%  1st time**
**PayCom from 120.20 to 124.50	up	 3.6%** 

**Wix from 96.3 to 95.2		down	  1.1%  3rd time**
**Wix from 102.5 to 98.1		down	  4.3%  2nd time**
**Mime from 32.34 to 30.85	down	  4.6%** 
**Arena from 41.60 to 39.40	down	  5.3%  try-out in Sept**
**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%  1st time**
**Nektar from 103.0 to 54.0       down	 46.6%  2nd time**

Now let’s look at my position sizes. I’m still trying to keep my portfolio concentrated and streamlined. I’m now at 11 positions, 4 of which make up about 64% of my portfolio, and 7 of which make up 87%. The smallest two are try-out positions that I’m just thinking about and may not keep (although I probably will). 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 Alteryx and Twilio positions are larger than I usually like, but they are very high conviction Category Crushers. Also note that my top four positions are still in the same order as last month.

**Twilio			20.0%**
**Alteryx 		19.2%**
**Square			12.8%**
**Zscaler		 	11.8%**
**The Trade Desk	         8.6%**
**Okta		         8.0%**
**MongoDB 		 6.7%**
**Elastic			 4.2%**
**New Relic		 3.9%**
**Guardant Health	         2.7%**
**Abiomed			 2.1%**

My top stocks are Twilio and Alteryx. As you can see, they are by far my largest positions. Alteryx and Twilio are each over 19% of my portfolio (mostly because they were already my first and second positions when they each announced great results and bounded ahead in price). 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. I wouldn’t recommend to anyone to have over 38% in two stocks, but that’s the way it is.

Let me take Alteryx first. 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 this month, and had a euphoric conference call. 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. And note that that 59% revenue growth was a re-acceleration from 54% seequentially, and from 55% a year ago.

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 grew only 4% from a year ago, which is remarkable for one of these super fast growing companies.

They feel they have no competition. Here’s from the conference call: “We are in a space where there’s little to no competition and a much larger TAM”..

I didn’t sell any during the month. I added trivial amounts at $44.60 and $50.90. 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. Their low close of this correction was about $43 and they are now back to about $60, which is up about 40% from that low.

Next Twilio, a 20% position. They provide communication services and they seem to have no viable competition in what they do besides “do-it-yourself”. One company, Uber, who had been a big customer, decided to do-it-yourself, which caused weak year-over-year revenue growth comparisons over the past year. That is, if you can call 40% revenue growth weak…that was the lowest yoy comparison, back in the December 2017 quarter… Revenue growth is now back up to 68% and climbing. It had always stayed above 60% year-over-year growth if you excluded Uber.

Twilio announced results for the September quarter in November and proved it is a Category Crusher, a Juggernaut, a One-of-a-Kind company, and a pure phenomenon of nature. Its revenue growth accelerated from 41% a year ago to 68% this quarter. The last five quarters’ growth rates have been:
68% !!!

Most companies would cut off their right arm for that 41% growth they had a year ago, but that growth rate is now up to 68% !!! And accelerating. It was 70% growth excluding Uber!!!

Now look at dollar based net retention rate: 122% a year ago. That was great. But now it’s 145%. That’s greater. The last five quarters have been:

They hit adjusted profit in the June quarter unexpectedly, making 8 cents, and this quarter they made 15 cents.

They had 61,153 Active Customer Accounts up from 46,489 a year ago.

They 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.

They are also euphoric about their new Flex call center product, for which the beta was oversubscribed, and which they just released for general availability. They also launched Twilio Pay, Twilio Autopilot, Twilio Super Sim, acquired Ytica, and extended their partnership with T-Mobile by creating a new developer platform for the T-Mobile Narrowband IoT network, a new network technology for the Internet of Things (IoT), that has the potential to open up a substantial market for new categories of lower-cost, battery-efficient, internet-connected devices that don’t exist today.

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. Actually I think of each of these two companies as juggernauts. They are each a one-of-a-kind company. Each controls its space and is growing like mad. Oh, by the way, the day after results were released Twilio rose $24, which was 35% in one day!!! (As I remember it, anyway). I’m not the only one who feels this way.

Twilio’s low daily close was about $64.0, about four or five weeks ago. It is now at $94.5, or up 48% from that bottom.

Square is next and makes up 12.8% of my portfolio. It has so many moving parts, in so many markets, that various pieces of it could be Category Crusher or Category Leader or Disruptor, or Rapidly Growing Company in… Well, you get the idea. It’s like the blind men with the elephant. Their stock price was traumatised this month by their CFO, the charismatic Sarah Friar, leaving to be CEO of a little start-up, which I personally thought was a terrible decision on her part.

Square announced incredibly good results this quarter. Their total revenue has grown year-over-year by 39%, 41%, 45%, 47%, 51%, 60%, and 68% in its last six quarters. Yes, you read that correctly! It’s not a misprint. Both Twilio and Square accelerated to 68% growth in the September quarter. Instead of revenue growth returning to the mean (whatever that means) as they get larger their rates of revenue growth has increased each quarter, and accelerating! 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 six 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. I almost thought it was a misprint at first, but for verification, PayPal fired their Venmo chief, for what I think is the second time in less than a year).

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, so Square is still rolling along!

As far as Sarah Friah leaving, yes, she was charismatic and a great spokesman for the company, but she was the CFO, for God’s sake! She didn’t design all those wonderful new Apps. I’ll miss seeing her but Square will get along without her.

Their high close was about $99.00 in September. I sold a little for cash and then bought some back and then sold a little for cash, and probably sold a little more than I bought, but didn’t make any change in the core of my position, which is still my third largest position. They are now at $69.84, which is down 29.5% from their high, and it’s that large drop from the high which is why they are just a 13% position. It’s a “Sarah Friah leaving” drop.

I’ll call Square a Rapidly Growing Company in a Rapidly Expanding Market, and I’ll rate them five confidence stars out of six.

Zscaler is next at 11.8% of my portfolio. I’ve been building my position gradually. Their quarter ended at the end of October so they won’t be reporting until early December. This company 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 almvery difficult for most potential competitors to replicate. Zscaler has been operating them for ten years. It is growing revenue at 50% and growing billings at higher than that. Their adjusted net loss is 5% of revenue. (Compare that with Mongo’s loss of 37% of revenue, a little further down the page!)… Zscaler sounded pretty euphoric too, in their conference call:

Zscaler delivers advanced security and policy enforcements, no matter where the users are, connecting users to the nearest Zscaler data center, hence taking the shortest path to the application…

…We believe we are the solution to secure the cloud-first, mobile-first, world. We have 10 years of operational experience running our security cloud at scale. We process in excess of 45 billion internet requests per day during our peak periods. Each day, we detect and block over 100 million threats and perform more than 120,000 unique security updates. This cloud effect delivers far superior security than traditional appliances for all of our customers… We feel the world is coming towards us!

There was no new news that caught my attention during the month. Their low close was at $32.25 and they are now at $39.25, which is up 22% from the low. I added some during the month.

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 though, as you might expect.

The Trade Desk was a new 1.7% try-out position at the end of October. Now it’s up to a 8.6% position and is in 5th place in my portfolio. I posted a deep dive a few weeks ago and here is the link to it:…

Okta is next and is a 8.0% position. It’s another that reports in December. I had previously rated it at just the three star level in my Category Crusher post because at the time I didn’t know enough about the tech to tell whether they could be replaced by someone like Zscaler. I’ve now raised it to a four-star confidence level, having learned, through Puddinhead’s and Brittlerock’s great posts… and… and others, that they are complementary and not really competing companies. I would suggest that if you are invested in Okta or Zscaler you read those enlightening posts.

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. It only has one real competitor, Sailpoint, who it turns out can only really compete for on-premises projects.

Okta is growing revenue at 60% and its net loss is down to 11% of revenue. It seems to be in command of its own future.

There’s been no new news of note, but there has been lots of discussion on our board. I didn’t sell any during the month, and bought a trivial amount at about $47.60. Their low close was at about $47.80 and they are now at $63.65, which is up 33% from that low.

This is a Disruptor and Category Leader, and a Cloud-based New Market Stock. I’d now rate it four confidence stars (and rising).

MongoDB has pretty much invented its solution and category, although it does have competition. It’s the leader in NoSQL data storage and this last quarter its revenue growth accelerated to 61% from 51% the year before. It has chosen to put almost all its money into growing, and thus its adjusted loss was about 37% of revenue, although that loss is down from a loss of 65% of revenue the year before. Mongo is about a 6.7% position. It also ended its quarter at the end of October and won’t be reporting until December. 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 Steppenwulf said that:

MongoDB is the story of 30 year old technology (SQL) being replaced by more modern technology. This story is only tangentially about the cloud - with or without the cloud, the amount of data is exploding and old technology can’t handle it….

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.

Apparently AWS 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 didn’t understand all the ins-and-outs of what was going on so I reduced my position somewhat. Then I saw that the price held up just fine and that the market didn’t consider it any threat, so I bought back a lot of what I had sold. I give it four confidence stars rating out of six, because I really don’t understand what it does, what its competitive position is, and what its dangers are. It was in danger of slipping into too-hard-to-understand box, but it obviously hasn’t.

Next, is Elastic which I started this month and is now a 4.2% position in 8th place . This is a very recent IPO, and it’s selling at a very high sales to market cap ratio, but it’s growing revenue at about 80% yoy, so what would you expect? There have been a lot of deep dives and discussion on the board so I won’t repeat them except to tell you 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 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 intrested. I think of it as a Category Crusher, but I rate it as only 4 stars because it’s new to me.

New Relic is a relatively new position, and only 3.9% of my portfolio.

What does it do? To quote Bear, New Relic monitors web and mobile applications in real time, detecting issues before they become problems, and helping companies figure out where the pain points may be before it costs them sales, or even customers.

This is called the APM space (or the Application Performance Monitoring space). They are adding NPM (or Network Performance Monitoring), and they have developed a realtime Dashboard. To quote the MF:

New Relic makes software that ensures that everything behaves the way it should whether applications are in the cloud, on premises, or part of a hybrid system. As a pioneer of what it calls Application Performance Management (APM), it allows companies to see what’s working, what isn’t, and why. That’s important for making sure your back-office systems function the way they should, and it’s critical for understanding your customers’ experience… New Relic is a “land and expand” business. While older APM software tends to be expensive and difficult to use, New Relic’s platform works entirely in the cloud, making it easy to add new applications. It’s also cheap.

How are they doing? They grew revenue at 35% in the September quarter. That was amazing by old standards, but it’s slower than most of my other companies. However, earnings per share are something else again:

At the end of Sept 2016 their TTM earnings were minus 75 cents.
At the end of Sept 2017 their TTM earnings were minus 35 cents.
At the end of Sept 2018 their TTM earnings were plus 49 cents.

Read that again! APM may not be sexy, but that sequence is!

Their adjusted gross margin is 85% which isn’t bad either.

Their TTM adjusted Free Cash Flow margin has gone from minus 56% to plus 9% in six quarters.

Their adjusted Op Margin percent has gone from minus 44% to plus 8% in the same six quarters.

In October they acquired the technology and hired key members of the team behind CoScale, a Belgian company with deep experience monitoring container and microservices environments, with a special focus on Kubernetes.

Also in early October Bert took a position.

New Relic’s high close was at $113.4 a few months ago and they are still down at $87.2, which is down 23% from the high, while a lot of my companies are back up near their all-time highs. (Nutanix, which I exited, is even further off its high, down 30% from its high).

I’d call them a Category Leader and a company that took an old space that was going nowhere and turned it into a cloud based New Market space. As you can see, their results looked great, but they dropped further than my no-profit-at-all stocks, and then bounced back much less. I don’t mind if a company falls when all its peers fall, or if I can see that some good news is being misinterpreted as bad news, but when a company is acting poorly and I don’t have a clue why, I worry. Therefore I reduced my confidence level to three and a half stars and reduced my position size. Hopefully when I have another quarter of results under my belt, I’ll feel better about it.

Finally, I took small positions in two medical related companies, Abiomed and Guardant Health. These are still low-confidence positions.

First Abiomed. This company has been discussed at great length on the board, but I’ll say something about what they do and give you some of its statistics. What they do is sell a little device called an Impella that is a miniaturized pump. The Impella is temporarily implanted in the heart using minimally invasive techniques during heart surgery that is due to any one of various cardiac emergencies. The Impella pump then helps the damaged heart pump blood, which allows high-risk procedures to be performed more safely, and with shorter post-surgery recovery times. (This is a very rough idea. I’m not a cardiac surgeon. For more knowledgeable details see the post and thread started by HeartMD earlier in November, and the great post by TMF Typeoh).

But wait! This sounds like hardware! What are you doing investing in a hardware company! – Good question! This is not like a hardware company that sells refrigerators, where the consumer may keep it for ten years and then buy a different brand. This is not like a tech hardware company where the customer company may decide that this year’s model is good enough to keep another year, or decide not to reorder this quarter because they decided to slow their own expansion. The Impella is a one-time use device. It’s “use one, order one.” It’s recurring revenue. Cardiac crises aren’t cyclical. They aren’t affected by the economy. No surgeon is going to say “The economy looks like it’s going into a recession so I won’t do this surgery.”

How about competition? The only competition seems to be 20-year-old technology, an intra-aortic balloon pump. The pump costs $800. The Impella costs $24,000. Which do you think is more cost effective? The Impella, of course. Patients have much better outcomes with fewer complications and get out of the hospital 2 to 12 days earlier. That’s why more surgeons use it each quarter, and why last quarter’s cohort of cardiac surgeons, that was appropriately cautious with a new device, used it on more surgeries this quarter, and will use it in even more cases next quarter. And indications are expanding.

How about financial results?
Revenue last quarter was growing 37%, accelerating from 29% in last year’s quarter. They are very careful and train everyone who will use the Impella. They also have someone in the OR to answer questions in as many as 70% of surgeries.
Gross Margin is about 84%, flat with the year before.
Operating Margin was 28%, up from 24% a year ago, and from 14% the year before that.
TTM EPS is $4.54 …up 124% from $2.03 a year ago. (That’s GAAP, which is all they give, so it may possibly have some phony stuff in it).

For right now I’ll say it’s a Category Crusher in its niche, with no viable competition. There are some big companies that could compete, but it would take an enormous investment, and large studies to get approval (and would it even be ethical to put a patient on Brand X in a study, when Impella works so well?) And even if you got approval, then you’d have to convince surgeons to try your brand instead of the brand they are familiar with in a live-or-die situation. I’d say Abiomed no realistic chance of competition emerging any time soon. I’d give it three confidence stars for now, until I get to know it better.

Finally Guardant Health, a new IPO, which has about doubled since its IPO. To way over-simplify, they do cancer biopsies by drawing blood instead of cutting the patient open. They call these “liquid biopsies.” Their workhorse is called Guardant360 …As you might expect, patients greatly prefer them, and biopharmas working on immuno-oncology are a very large set of customers. Guardant now works with more than 40 biopharma partners and reported 67% growth in test volume in the Sept quarter. Clinical growth was slower, as the test, although fast tracked, has not yet been approved. None the less Guardant has got reimbursement approval from BC/BS and Cigna as a medical necessity for a type of lung cancer. And even Medicare has approved reimbursement in one of its areas of the country. All this without yet getting FDA approval.

Guardant has a new test released last year, and growing fast, which has more tests in a single panel. It’s more expensive but biopharmas seem to love it. (GuardantOmni)

They are one-third owned by SoftBank, who is also partnered with them to expand in Asia.

In October they had a lung cancer study published in JAMA Oncology (and carried out at the U of Penn cancer center, which shows that their liquid biopsy outperforms tissue biopsy alone in identification of targetable mutations.

Sept results showed revenue up 95%, gross margins at 54%, up from 22% on greater volume and more Omni tests. Operating expenses rose only 15% with 95% more revenue. Net loss was down 26% from the year before, but was still 113% of revenue. (They have more than 10 times the cash they burned through in the quarter in cash, raised in the IPO mostly, but no chance of running out of cash).

After I wrote the above I read Ethan’s great write-up from last weekend, which explained the abnormally low growth in operating expense. (The operating expenses were GAAP, and therefore had a large junk factor). Here is the explanation from Ethan:

Operating expenses up 15% to $35.8 million. This isn’t an apples to apples comparison because in the same quarter in 2017 they spent $9.1 million to buy back stock from some officers. If you account for that then opex is up 57%, mostly in R&D and S&M to develop LUNAR, OMNI, and work on FDA approval for 360.

Aside from additional indications they see three main drivers for themselves in 2019:

The first is FDA approval of Guardant360 with a pan-cancer tumor-profiling label;
The second is pan-cancer Medicare coverage, based on FDA approval.
The third is results from our NILE study, a prospective trial measuring Guardant360 head-to-head versus tissue in a first line non-small cell lung cancer. NILE, if it successfully demonstrates non-inferiority of Guardant360 for biomarker discovery, could enable a blood-first paradigm in clinical testing.
Note that it doesn’t have to be better than a tissue biopsy to win, just not inferior, in which case doctors and patients would probably choose it.

Note that they have competition from Ilumina, and maybe others, but that Guardant is way ahead at this point in time, and that SoftBank is a potent partner. I’d give it two-and-a-half confidence stars for now.

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 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.

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. 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 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 Posts #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 that is on the right side of every page on this board.


The pictures…,TT…



With confidence stars

Twilio			20.0%  ******+
Alteryx 		19.2%  ******
Square			12.8%  *****
Zscaler		 	11.8%
The Trade Desk	         8.6%
Okta		         8.0%  ****
MongoDB 		 6.7%  ****
Elastic			 4.2%  ****
New Relic		 3.9%  ***1/2
Guardant Health	         2.7%  **1/2
Abiomed			 2.1%  ***


With confidence stars

Twilio			20.0%  ******+
Alteryx 		19.2%  ******
Square			12.8%  *****
Zscaler		 	11.8%  *****   (It was at the end of the write-up)
The Trade Desk	         8.6%  *****   (Based on my glowing comments and the build out to 8.6% in a month)
Okta		         8.0%  ****
MongoDB 		 6.7%  ****
Elastic			 4.2%  ****
New Relic		 3.9%  ***1/2
Guardant Health	         2.7%  **1/2
Abiomed			 2.1%  ***

As always, awesome review!

In regards to GH you said this Note that they have competition from Ilumina, and maybe others, but that Guardant is way ahead at this point in time, and that SoftBank is a potent partner

Don’t forget, Illumina just bought PacificBio because it was easier than competing, so don’t be surprised if same thing happens to GH within 2 years.

Fantastic results, Saul!
I’ve benefited massively from concentrating my portfolio along the lines that you suggested and am now up 70% vs my former diversified portfolio of 62 companies, thanks to you.
There’s just one question I have and it relates to NVDA which I never bought.
As far as I can tell you bought it and sold it within a couple of days, which was wise.
But in your portfolio summary:
Nvidia from 193.5 to 248.0 up 28.2%
So did you buy it previously or was this just a typo?
I’m just a bit confused about this.
Cheers, PB.

Sir, I did not post TA stuff on this board as Saul has asked me not to. What I posted was a collection of the stock charts that represent his position as I like to have them to look at and I figured others might too. It is only TA if I talk about the charts, speculate on what patterns and volume mean, etc.

Thank you.


Nvidia from 193.5 to 248.0 up 28.2%

That was earlier in the year. I tried to like Nvidia several times because so many people raved about it, but I always sold it to put the money somewhere else.

1 Like

Ah, OK.
I tried to like NVDA too but could never bring myself to buy it once I realised that it was at the forefront of the bubble known as crypto-mining.
Cheers, PB.

My apologies Puddin, I jumped the gun. I’ve requested to have my post deleted.


Awesome, I also started a position in Elastic recently at $63 and then added some more at $67. Reading the posts on here and exploring the companies webpage was pretty impressive. Didn’t realize how pervasive they were throughout the search world. And have to love their growth rate of almost 80%. Wonder how long that momentum can last? Look at everywhere they are in the customer stories link. seems ubiquitous, yet lots more opportunity. And their customer love it.

Also just bought back into ABMD for the same reasons you mentioned. Including HeartMDs really great write up. I was a holder in ABMD from low $100s. Sold most when it hit $420ish and hit a P/S of 35. Seemed crazy high at the time and at the time the growth slowed a little. Now it’s about a 21 P/S and growth/adoption looks to be accelerating. That razor and blades business model, life saving, procedure result improving, low current market penetration, and no to low competition is what originally attracted me to the company.

Also been big into TTD for awhile and have added several times recently. Now my new number 1. AYX, SQ, and MDB are also up there now.

Now hopefully they don’t go all NVDA on me now.