MY portfolio at the end of Oct 2019

This is my summary of my positions at the end of October. As usual, I do my summaries at the last weekend of the month. As always, I’d welcome questions or comments on what I did or didn’t do, and I will try to respond. Please note also that in my discussions of company results, I almost always use the adjusted values that the companies give.

By the way, if you have a tendency to skip through parts of my monthly summaries, feeling they look familiar from the month before, I’d suggest that you read through instead, as I constantly make changes and include new reflections, thoughts, and observations each month, even in parts which superficially may seem repetitive. Also some ideas are worth reminding yourself of, even if you’ve read them before. This month the report is largely rewritten and revised.

This has been a tumultuous few months. I was up 77% at the end of July, up 64% at the end of August, and then a meltdown of our SaaS stocks hit and I finished September up only 22% ! I hit a low this month (this last Tuesday, actually) of up just 9.9%, and finished October (just 3 days later) at up 19.7%.

If you want to learn more about why our companies have such high valuations , I really suggest you reread the explanation in June’s summary.

I said at the beginning of this year, that I would be happy with a gain of 25% for the whole year, after the huge gains the last two years. Well, my portfolio closed this month up only 19.7% year-to-date, after hitting a high of 77.4% at the end of July. It seemed remarkable to me that while literally all of my stocks were hit hard, and some were down more than 50% from their highs, I was never concerned, undoubtedly because I had lived through many of these drops previously, and especially because, in spite of the drops, I was always in positive territory for the year, with my lowest daily reading being up 9.9% year-to-date (roughly 2% more than the average annual rise for the S&P to put it in perspective).

How upset could I reasonably be, when at the bottom of a horrendous meltdown for all my stocks to way-oversold levels, I was still up for the year? It sure says a lot about the validity of our investing premise! Others on the board were still up lot more than me. Being up for the year, on top of the two hugely positive past years, and having confidence in one’s companies, sure helps one’s peace of mind.

At any rate, I stayed consistent with my investing plan of staying fully invested and not trying to time the market, a plan which has paid off for me very well over 30 years of investing.

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

**End of Jan 	+16.5%**
**End of Feb	+28.0%**
**End of Mar	+36.9%**
**End of Apr	+40.7%**
**End of May	+42.2%**
**End of Jun	+57.7%**
**End of Jul	+77.4%**
**End of Aug	+64.0%**
**End of Sep	+22.1%**
**End of Oct	+19.7%**

This is a little reminder for those who haven’t been through this before, and for those who have but don’t remember. Although this has been scary, it’s not unique, and we tend to forget it happens with some regularity and doesn’t mean the world is coming to an end. For example let’s look at last year, 2018:

On Sept 11 last year my portfolio of SaaS stocks was up 96%.

On Oct 29, a month-and-a-half later, it was up just 45%. (That’s 51 points less)

Two weeks later, on Nov 7, it was up 85%! It had bounced 40 points from that up 45% in two weeks. Even though the market as a whole melted away again, hitting a huge low on Dec 24, my portfolio finished the year at up 71.4%, just a few trading days later, up over 20 points in the last three-and-a-half trading days.

And for those saying that the SaaS stocks will never again see this year’s highs again, and other such foolishness, let’s check: Let’s look at last year’s 51 point drop from up 96% to up 45%. They certainly could have said the same thing then: that our stocks would never see 2018’s highs again!.

But at this year’s high of up 77%, my portfolio had gained 204% from the beginning of last year, or more than twice that 96% gain that it topped out at last year. And it was more than four-and-a-half times the gain I would have had if I got scared out at the up 45% bottom last year. I hope that that helps put things in perspective. This drop was NOT the end of the world.

I wrote last month that I felt that our stocks were massively oversold, and said that if I was a betting man I’d bet that my portfolio will finish this year up 10 points, at least, from Sept’s close. That meant finishing the year up 132.1% or more. I felt that the chances that the market for our rapidly growing stocks would be able to maintain a massively oversold position for three months is infintesimaly small. I still feel the same way.


At the end of August I thought our SaaS companies would have clear sailing for the rest of the year. Well that shows how little I can time the market. I was totally wrong. There was a 20% to 30% fall for our stocks in Sept, and more in Oct, and a lot of talk about repricing of SaaS stocks, sector rotation, recession coming, and all the rest. It’s been pretty scary, if it’s the first time for you. I’ve felt annoyed, but this time I’ve never been scared. What’s to be scared about? We aren’t investing in high capital expense, low margin companies, with high debt, that make things like automobiles, refrigerators, sneakers, and houses, that people can decide to just go another year or two with the old ones, or even with microchips or tech appliances, where orders can totally dry up, and revenue can actually FALL. Our companies are in the biggest wave of our time, the wave to bring all the enterprises of the world into the Cloud and AI. And they sell subscriptions to the software that enterprises use to run their businesses. This software saves the customer costs, rather than costing it extra money. People may hold off on buying a new refrigerator in a recession, but no enterprise is going to pull out the software that they use to run their business, and that is saving it money. Our companies may see their RATE of revenue growth fall, but they are extremely unlikely see their REVENUE fall unless we see a repeat of 1929, and half their customer companies go bankrupt .

And where else is someone going to go to look for companies growing at 50% to 90%? And which have high gross margins too? And have subscription-based recurring revenue? And most with over 120% net retention rates? And which reduce costs for their customers so they are valuable additions and not extravagances? But that’s just the way I see it, and you have to decide for yourselves.

Right now, I wouldn’t dream of having a large cash position. Why would I raise cash when my stocks are lots cheaper than they had been with no company specific bad news at all? I’ve just been selling lower conviction stocks and adding to higher conviction ones).

Look, I don’t know the future, but I am surely not going to sell out of great companies because their share prices have fallen, or because the market is going down, unless to put the money in companies I like a little better…My portfolio closed 2018 up 71.4% in the midst of the biggest meltdown of stocks in ten years. Many others on the board had similar results, a little better or a little worse. We are not magicians. We just invested in great companies.

Picking good companies makes much more sense to me than trying to pick good companies AND trying to time the market too. I have stocks in a small group of remarkable companies, in which I have high confidence for the most part. I feel that they mostly dominate their markets or their niches, they are category crushers or disruptors, they have customers that really need them, they have long runways, and they will have great futures.

All enterprises, whatever industry they are in, use more and more software. 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.


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

The S&P 500 (Large Cap)
Closed up 20.6% year-to-date. (It started the year at 2507 and is now at 3023).

The Russell 2000 (Small and Mid Cap)
Closed up 15.6% year-to-date. (It started the year at 1349 and is now at 1559).

The IJS ETF (Small Cap Value)
Closed up 16.6% year-to-date. (It started the year at 131.9 and is now at 153.8).

These three indexes
Averaged up 15.3% year-to-date. The average was up 1.9% last month.

If you throw in:
the Dow, which is up 15.6%, and the Nasdaq, which is up 24.2%, the average of the five indexes is up 17.1% year to date.

Since the beginning of last year (2018), when the average of the indexes was down 8.5%, the five indexes are up 7.1%. (0.915 x 1.171 = 1.071).

My portfolio’s gain of 105.2% in those 22 months (1.714 x 1.197= 2.052), is still immeasurably ahead of the averages’ gain of 7.1%, but that doesn’t change the fact that this was a very challenging couple of months.

And again, my results are without using any leverage, no margin, no options, no penny stocks, no fancy stuff, just investing long in great individual companies. And I’ve told you each month what my positions are, and what proportion of the portfolio they are, so anyone who doubts it can check for themselves. And I’m no genius. Plenty of other people on the board have done about the same, a little more, or a little less, but about the same.

To simply state my goals, I’m merely trying to measure my performance against that of the average return for an investor in the stock market, and combining those five indexes should give a pretty good approximation.


July was a quiet month which means I was basically happy with my positions. I did take back a small position in Crowd at $73, and then grew it to 4% after great earnings. I got the funds for the most part by trimming my Trade Desk position and taking a little from my small Square position. Trimming Trade Desk turned out to be very bad timing as Amazon announced later in the month that it will open its platform to Trade Desk. It’s just a reminder that I don’t always get it right. However, my Trade Desk position was still twice the size of my Crowd position, so no worries and no regrets.

August. Let’s look at it alphabetically. In the first half of the month I added a little to my Crowd position. Then I finally started to lose patience with Mongoand I trimmed just a little. I’m well aware that losing patience is not a valid reason for trimming, but I’m human too, and when I needed cash, that’s one of the places I looked. I added some back to Trade Desk after their great earnings, replacing some of the shares that I had prematurely sold last month, and brought it back to a 10% position. Then there is Twilio. I was really a bit disappointed having been taken in by all the exaggerated hype about how Flex and Sendgrid were going to explode their revenue. I guess I was expecting a lot more than we got. So when I wanted money to add to my Trade Desk position, I reduced my position in Twilio a bit. It was still about tied with Okta for 3rd place but at 13.1% down from 17.5% in July.

Zscaler suffered a decline due to a negative article by a boutique analyst company and I added more shares even though it was my largest position at the time. I added a small amount to Smart.

I made no significant changes in Alteryx, Okta, or Zoom. And finally I took a little 0.8% position in Guardant Health after their excellent results.

And how about Square ??? You’ll remember that at the end of last month it was in last place at 2.5%. When the share price fell precipitously after earnings (dropping its position size even further) I thought that it was ridiculous and I added a goodly sized amount at about $69. But it just seemed too complicated for me, and I sold out of my small position completely. I didn’t look back, and it never crossed my mind to get back in. I almost felt a feeling of relief that I was out.

Why? Well, look, Square was still bouncing around slightly lower than where it was well over a year ago … while at least four of my other nine companies were up over 100% just from the beginning of this year. I seem to have been correct last December when I sold most of my previously large Square position.

My reasons at that time were: First that its customers were unbanked tiny merchants, and also restaurants, both of which would be hit hard in a recession. Second, they were really in a small niche, and while they could move upstream somewhat, there was no way they could “take over the world” the way some of my other companies could. Third, Sarah Friar left, and although she was adequately replaced, it now seems possible that, as CFO, she saw the handwriting on the wall… that Square might continue to be a successful company, but that the glory days were over. That’s a complete speculation of course. She may have also disagreed with the focus on bitcoin. Back when she left I couldn’t understand why she would leave a prominent successful company like Square, where she got enormous exposure and became an icon in the investing world, to join a little no-name company that no one ever heard of. Fourthly, Square has plenty of competition (PayPal, Shopify, etc), while companies like Alteryx, Twilio, Okta, Zscaler, etc, don’t seem to have much effective competition. Fifthly, Square’s market cap was over $20 billion and that is much harder to quadruple than a company with a market cap of $3 billion. And you can add two more factors, first, their relatively low gross margin compared to our other companies, and second, Jack Dorsey in a recent conference call saying “I love bitcoin!” which promises even more focus on bitcoin. Well, I probably should have listened to those reasons and put the money somewhere more profitable sooner, but I often have to bounce around a little before I get it right. At any rate I sold out at an average price of about $69.50. Remember that I first bought it in March 2017 at $17.50, which comes out to about a quadruple in under two and a half years. It is currently at $62.90 (end of Oct).

September. I sold out of my very small Guardant Health position when I needed cash. On the drop of our Saas companies, I added a little to my Alteryx, a lot more to Crowd, a little to Mongo, a lot to Okta, to Zoom and to Zscaler. I also took a little position back in Elastic (2%), and on the last day of my month, a little 1% position in DataDog. To raise the cash, I sold a bunch from my Trade Desk position, and cut my very large Twilio position in half, and sold out of Smartsheets. The reasons I chose those are: Trade Desk because it’s part of a complicated advertising scene instead of a SaaS company, and Twilio because its relatively low margin, and because it acquired a large, much slower growing company. Comparing the combined revenue to last year’s revenue makes it look like it’s growing at 90%, but it grew organically at 56% and Sendgrid was growing at 20%-ish, so that in three quarters when you are comparing apples to apples it will look as if revenue growth dropped from 90% this year to 40% next year. Finally, I sold Smart because I felt that they weren’t making any progress towards arriving at breakeven. Not saying I was correct with any of these sales, just telling you what I did when a bunch of super companies were on sale.

October. Datadog just started the last day of Sept, and it is now a 12.3% position, and my third largest, in just a month. I can’t remember ever building a position as quickly as that, except perhaps Alteryx, almost two years ago. Coupa wasn’t even a position last month, and it is now my sixth largest at 8.7%. I didn’t keep those a secret but I wrote them both up during the month. Where did the money come from? A lot from Zscaler, as I described earlier this month, and as I described it again in my Zscaler summary below, and the rest partly from Trade Desk, for reasons I have described several times. I also trimmed a little Mongo, and a little more Twilio, and sold out of my tiny Elastic position (see my mid-month summary). I trimmed 2% from Alteryx, as 22% was too large a position. I feel happy with my current portfolio allocations.

Here’s how my current positions have done year-to-date. I’ve arranged them in order of percentage gain. I’ve used the start of the year price for stocks I’ve been in all year, and my initial buy price for stocks I’ve added during the year. Please remember that these starting prices are from the beginning of 2019, and not from when I originally bought them if I bought them in earlier years.

**TradeDesk from 116.10 to 202.62	        up   74.4%**
**Okta from 63.80 to 107.99		up   69.3%**
**Alteryx from 59.47 to 93.27		up   56.8%**
**Twilio from 89.30 to 106.98		up   19.8%**
**Zscaler from 39.21 to 42.86		up    9.3%**
**DataDog from 31.92 to 34.30		up    7.5%   new in Oct**
**Coupa from 129.20 to 133.90		up    3.6%   new in Oct**

**MongoDB from 131.47 to 125.78         down    4.3%    3rd   time**
**Zoom from 77.63 to 63.45	      down   18.3%	new in May**
**Crowd from 73.06 to 50.11	      down   31.4%   new in July** 

As you can see from this, Alteryx, TradeDesk, and Okta are each still up more than 50% so far this year, while Zscaler has lost almost all its gains and Mongo just never got going. On the other hand, the smaller positions that I have taken since May, like Zoom and Crowd, and that missed the first half of the year gains, are down considerably. Crowd especially got hit hard. It and Zscaler seem to have been hit the hardest in the decline.

Exited positions this year showing my gain or loss from the beginning of this year, or from when I first bought if it was during the year, and my average exit price. Please remember that these are from the beginning of 2019, and not from when I originally bought them if I bought them in earlier years. You’ll note that almost all of these were tiny little try-out positions that I ended up deciding against, and don’t represent actual churn of the body of my portfolio

**Square from 56.09 to 69.50 		up   23.9%** 
**Docusign from 43.75 to 56.80	        up   23.4%**
**Zuora from 19.80 to 24.00 		up   21.2%**
**Elastic from 71.48 to 83.80		up   17.2%**
**Guardant from 37.59 to 41.50	        up   10.4%  	1st time**
**Anaplan from 28.75 to 31.05 	        up    8.0%** 
**CrowdStrike from 60.80 to 64.81	        up    6.6%**
**Mongo from 95.0 to 99.9		        up    5.2% 	1st time**
**Coupa from 91.95 to 93.13		up    3.0%**
**Abiomed from 325.0 to 334.0		up    2.8%** 
**EverBridge from 73.58 to 73.95	        up    0.5%**
**SmartSheets from 39.21 to 39.22	        up    0.0%** 
**Vericel from 17.40 to 17.38	      down    0.1%**
**Guardant from 70.70 to 69.50          down    1.7%      2nd  time** 
**Mongo from 83.74 to 76.20	      down    9.0%  	2nd  time**
**Nutanix from 41.59 to 36.00	      down   13.4%**
**Guardant from 99.20 to 82.90          down   16.4% 	3rd   time**
**Elastic from 90.64 to 74.60           down   17.7%** 

Alteryx, Twilio, Okta, Trade Desk and Zscaler have all been in my portfolio for a year or more now. In spite of this huge sell off, they’ve done well since I bought them

Twilio is a quadruple in a year and ten months, at 4.2 times what I paid for it in January a year ago ($25.70). It is up 316%.

Okta is well over a triple, at 3.6 times what I paid for it ($29.95), also a year and ten months ago. It is up 261%.

Alteryx is a triple, at 3.36 times what I paid for it in December 2017, a year and eleven months ago, at $27.72, or up 236%.

Zscaler is up 20% since I bought it a year and four months ago in June 2018, at $35.84. It got killed in this decline.

And finally Trade Desk is up 67%, in a year, from when I bought it at $121.0 last October.

This is how you make money in the stock market, buying exceptional companies and holding them as long as the story doesn’t change. As you see just above, the great majority of my portfolio’s profit came from companies that I bought and held on to, and let them double, triple or quadruple.

And another great point from this is:

Do you think I care, or even remember, if I bought Twilio (for example) at $25.90, $25.70, or $25.50, now that it’s a quadruple and its price is $106.98? Think about that for a moment! The decision that matters as far as making money in the market is “Do I want a position in this company?” and not “Can I buy it 25 cents cheaper?” If you have a stock that you want to buy because you believe it will triple or quadruple, and then you put in a buy order for it 25 cents, or 50 cents, or even a couple of dollars below the market, and hope that it will FALL to your price, you are out of your mind! But that’s just my opinion.

If you want to be in a company because you think it’s a great company and that its stock will go up, at least take a starter position that you can add to. Don’t wait around for the sell-off that may never come.

I’m still trying to keep my portfolio concentrated and streamlined. I’m at ten positions now which is still quite concentrated. My top two positions (Alteryx and Okta), make up about 34% of my portfolio, so the portfolio is less concentrated than a month ago when the top two made up 41%. The next two positions (Datadog and Mongo), at 12.3% and 10.4%, make up about another 23% of my portfolio, again less concentrated than last month when the 3rd and 4th positions came to 27%. Then come five still good sized positions (Zscaler, Coupa, Twilio, Zoom and Crowd), at 9.4% down to 6.9%, making up 40%, and finally TradeDesk at 3.9%. 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, and bunched by size groups. Alteryx didn’t fall as much as the others in September, but didn’t rise as much as some this month as a consequence. Zscaler is reduced, partly because it fell a great deal, but also because I trimmed it quite a bit, and finally because it hasn’t bounced the way some have, but continued to fall this month. The big changes are the additions of Datadog and Coupa in 3rd and 6th places


**Alteryx 		18.7%**

**Okta		 	15.2%**

**Datadog			12.3%**

**Mongo 		 	10.4%**
**Zscaler			 9.5%**
**Coupa			 8.7%**
**Twilio			 7.7%**
**Zoom      		 7.4%**
**Crowdstrike		 6.9%**

**The Trade Desk	         3.9%**


Alteryx is now at 18.7% of my portfolio, and in first place. They will announce earnings next week. What they do is to enable non-techies to quickly and easily analyze data. Their clients therefore love them.

Their revenue percentage growth looks like this:

**2016:          57  67**
**2017:  61  50  55  55**
**2018:  50  54  59  57**
**2019:  51  59**

As you can see, it looks solid as a rock. Revenue not only is growing, but the rate of growth is growing.

Their adjusted gross margins were 90% and 91% for the last two quarters!

Their dollar based net retention rates were 134 and 133.

Their number of customers, which is almost triple the number of customers that they had three years ago, was up 35% and 34% yoy.

They feel they have no competition. From one of their earlier conference calls: “We are in a space where there’s little to no competition and a much larger TAM.”

We’ve had some discussion on the board about whether Alteryx is really a SaaS company, since it’s not on the cloud, and whether or not it really matters as its revenue is recurring and its net expansion rate is 134%.

Here’s a paraphrase of Ethan’s post from the Analyst Day in June.

AYX has a Net Expansion Ratio of 134% overall, but 143% with global 2000 customers which is pretty crazy. Customers with over $500,000 annual recurring revenue (ARR) have a 70% increase per year!!! That is an insane number. Customers with over $1,000,000 have a 50% increase.

They really harped how Alteryx simplifies and automates complex processes They identify their ease of use as the number one reason people choose Alteryx. If you look at the Gartner peer review website you will see similar things in the reviews.

Long term goals are:

Gross margin 90-92%
Operating Margin 35-40%
FCF Margin 30-35%

The stock finished 2018 year up 135% for the year, and they are up 57% this year on top of that, in spite of the big sell-off. I feel very justified in calling Alteryx a Category Crusher, with very high confidence level. I’d give it six confidence stars out of six. It seems to control its space and is growing like mad.

Okta in second place, is a 15.2% position, and is at a five star confidence level. 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. Last quarter the rate of revenue growth “fell” from 58% to 50% sequentially. That’s the bad news. The good news is that it became evident from the conference call, and from their recent acquisitions, that they do a lot more than smart sign in, more than I can understand, for sure, and it seems likely their revenue growth will take off again. I only sell out if the story has changed for the worse. I don’t see that the story has changed. This is a Disruptor and Category Leader, and a Cloud-based New Market Stock.

Datadog is a new position that I built from zero to 3rd place, at 12.3% of my portfolio in a month. That’s really extraordinary for me, so let me tell you a bit about Datadog: It is a SaaS software company that leases subscriptions to software that monitor infrastructure, analyze application performance and provide log management. Recently it has added new products that provide what it calls experience monitoring (what the experience of your customers are, as close as I can figure it), and a network performance management product.

What makes it unique is that its competitors have single products that work in silos, while Datadog intergrates them all and its “three pillars of observability can be observed on a single pane of glass.” That’s hard to beat. As Bert says, “DataDog basically set out to create a platform that has broad appeal to developers and operations managers. To accomplish that, it built a product that is self-serve in nature and supposedly can be installed in minutes. And having a platform that offers all the monitoring and analysis of logs in a single platform is more unique than you imagine.” And that ability users have to look at their entire IT operation holistically and on a single pane of glass is a great differentiator.

The IPO said that 60% of their new customers are landing with more than a single product, up from 15% just a year ago, and 40% of all customers use more than one product, up from 40% a year ago. That implies both that their new products are incredilby good, and that they are very efficient in selling them.

They have a calendar fiscal year and in 2018 they grew revenue at 97%. They will probably grow at about 80% this year in spite of being distracted by the IPO. That’s a little behind Crowd and Zoom, the two superstocks, but not by much. They’ve had positive operating cash flow both of the last two years, at least, and their adjusted net loss was only about 5% of revenue.

MongoDB is now in 4th place at 10.4% of my portfolio. I’ve been in and out a couple of times, each time having to buy back at a significantly higher price than the one I had sold at. That’s life! I won’t sell out again except for bad operational results, which I don’t think will happen.

Mongo has pretty much invented its solution and category, although it does have competition. It’s the leader in NoSQL data storage. It has chosen to put almost all its money into growing, and thus is still running an adjusted loss, which was 28% of revenue for 2018, down from a loss of 49% of revenue in 2017. I really don’t like that. (Under the new ASC 606, the loss was only 19.5% of revenue for 2018).

What has changed Mongo is Atlas, which gives it a fully managed cloud solution, and Atlas is growing at about 240%, although off a small base.

Here are some highlights from the last quarter:
• Total revenue was $99 million, up 67%.
• Subscription revenue was $94 million, up 71%.
• Adj gross profit was $71 million, for a 72% adj gross margin.
• Adj op loss was $15 million, improved from $18 million
• Adj op margin was minus 15% up from minus 30% a year ago.
• Adj net loss was $15 million or 26 cents per share, improved from $17.5 million or 34 cents a year ago.
• Cash was $437 million
• Op cash flow was minus $13 million
• Free cash flow of minus $14 million, improved from minus $18 million a year ago.

They adopted ASC 606 effective Jan 31, 2019 and applied it on a full retrospective basis.

• They made significant product announcements in June: MongoDB 4.2 added… extended its expertise beyond the database to a data platform with Atlas Data Lake and Atlas Full-Text Search, and Charts. We also unveiled our vision for Realm, the mobile database acquired in May.
• Saw growing momentum with all three major cloud providers.

Conference Call – [Last month I included a lot more but my post became so long I had to split it in half, so for more information on the conference call read last months summary].

One of our key competitive differentiators is the freedom to run anywhere, and our customers can choose Atlas to take advantage of the benefits of each major cloud provider as they see it fit. We continue to see rapid adoption of Atlas, which grew over 240% and now represents 37% of total revenue compared to 18% a year ago and 35% last quarter.

We grew our customer base by over 800 customers sequentially, bringing our total count to over 15,000, up from over 7,400 a year ago, or up over 100%. The growth in our total customer count is being driven in large part by Atlas, which had over 13,200 customers at the end of the quarter, compared to over 5,300 a year ago.

Our net ARR expansion rate in the quarter remained above 120% for the 18th consecutive quarter. We ended the quarter with 622 customers with at least 100,000 in ARR, up from 438 a year ago.
We continue to expect that we will see some modest reduction in overall gross margin, as Atlas continues to be a bigger portion of our revenue. Atlas revenues are recorded on a consumption basis, whereas Enterprise Advanced includes a term license component that is recognized upfront. Atlas also has a lower overall gross margin than Enterprise Advanced because of its infrastructure component. That said, Atlas is accretive to dollars of gross profit. Finally, many Atlas customers pay us monthly in arrears versus annually upfront for Enterprise Advanced. In other words, Atlas which is an increasing portion of our overall business, usually does not involve an upfront cash payment nor does it impact our deferred revenue balances. We believe that offering customers the ability to pay as they go is a key benefit of the cloud model. We’re seeing a lot of interest from very, very large organizations. I think previously we talked about banks, insurance companies, tech companies and so forth, all very, very interested in Atlas. And we’re really, really excited about the interest level.

We expect to burn cash in the third and fourth quarter of fiscal 2020, as we continue to make significant investments in the business.

We don’t see any headwinds in terms of competition. It is a big market. There are a lot of competitors, but we feel really good about a competitive differentiation, as evidenced by our growth rates, as evidenced by some of the most sophisticated customers in the world choosing MongoDB for some very, very mission critical workloads.

I’ll call Mongo a Disrupter, a Category Leader, and a Big Data New Market Stock, and I’ll give it four and a half confidence stars for now.

Zscaler was my second largest position at 18.8% of my portfolio last month. I reduced it greatly this month and it’s currently a 9.5% position and my 5th largest. Here’s the story, reprinted from my post on the 14th of this month.

Zscaler hit its peak at about $89 in July. It was tied for my largest position with Alteryx at about 18%. Over the next few weeks it drifted down with the market to about $82, but then, near the end of August, it suffered a large decline attributed to a negative article by a boutique analyst company, and I increased my number of shares at $72.50 even though it was one of my largest positions. I thought that that was a ridiculous response to an analyst article.

However, over the next two weeks, leading into earnings it continued to fall, with panic feeding into itself, so that five weeks ago it closed at $64 dollars. (Down from a high of $89, remember!) Even excellent earnings didn’t help as the sell off in SaaS stocks in general hit, and it dropped in the next week to $47.50!!! It was down almost 47% from its high on no clear bad news at all.

I had not added since that purchase at $72.50 because I didn’t understand what was going on. I knew that they had guided conservatively but all these companies do that so that they can beat. I knew that they were encountering longer sales times with larger enterprises, but I also knew that they had hired a superstar to take over sales and marketing motion. I added a considerable amount at an average price of about $49 or so.

But then I reconsidered, and over the past six weeks I greatly reduced my position. Well why?

First of all, I do feel that the old firewall paradigm, as represented by Palo Alto, is obsolete. The CEO of Palo Alto, the number one in security, making a huge point of crowing about how his company beat out Zscaler, a little company one-tenth the size of Palo Alto, in a few sales, shows how scared they are. Think about it! Why would a really dominant company even mention, or care about, beating out a little company a tenth their size, ordinarily? Unless they fear that that little company has a better product!

But now that the legacy security companies are aware of the threat to their very existence, they will fight tooth and nail, with lies, and false and distorted claims, and whatever they can, to hold on to the bulk of their business for as long as they can. Zscaler may take over a large part of the security world, but it definitely won’t do it overnight. It will be a long struggle.

Second, Zscaler was clearly worried about their lengthening sales cycles as the early adopters have been worked through and they have to sell to the C-level executives of larger enterprises, who may know nothing about security but will worry about changing their security system, may have IT departments worried about losing all their beloved hardware (and maybe their jobs, some of which will become unnecessary), and who have the CEO’s of their legacy security companies, who they have known for years,whispering in their ears. Clearly Zscaler made the right move in hiring someone really competent in order to deal with this situation, but you don’t overhaul a sales process overnight. There may be a couple of disappointing quarterly reports before things pick up (or don’t pick up).

So here I am, with Zscaler, with a tailwind of inevitability, sure, but who is asking huge enterprises to revamp their entire security systems, and which has a lot of temporary obstacles in its path which may cause growth rates to diminish in the near term, like desperate large competitors, customer IT departments that don’t want to lose their jobs, and enterprise CEO’s who don’t really understand security… while I have other companies, growing like mad, and without these execution problems, so it made sense for me to reduce the size of my Zscaler position from huge to just large (and it is still a large position), and to use the cash to buy into companies like Coupa and Datadog. There isn’t any relationship at all to “momentum,” but rather it’s evaluating what is going on and acting on it. So far it’s been a good call as Zscaler is currently at $42.86, considerably lower than it was when I sold.

Coupa is another new stock this month and is now in 6th place at 8.7% of my portfolio. You’ll remember that it had been one of the four little second-tier Saas companies that I had taken trial positions in but sold out of in March. My reason for selling was that they were all growing at 30% to 40% and had net retention rates of just 110% to 120% and I could do better elsewhere.

I had lost sight of Coupa until recently when one of the portfolio summaries that others have joined me in posting alerted me. When I sold in early March, the percentage revenue increases for the past two years had looked like this:

**2017: 	44%		41%		43% 	        34%**
**2018:	41%		37%		38%		42%**
**2019:	39%**

**It looked very unexciting. But since then the two quarters that have reported have given a different picture:**

**2017: 	44%		41%		43% 	        34%**
**2018:	41%		37%		38%		42%**
**2019:	39%		44%		54%**

Thus we had 44%, up from 37% yoy, and up from 39% sequentially… Which was followed by 54%, up from 38% yoy, and up from 44% sequentially. That was very impressive.

Subscription revenue was up 46% and 51% for the two quarters.

Adjusted Op Income for the two quarters was $2.2 million, up from $0.3 million, and $4.8 million up from $4.0 million (all positive numbers).

Adjusted Net Income for the two quarters was $2.1 million, up from a loss of $0.1 million, and $5.3 million up from $3.3 million (last two quarters again were positive numbers).

Adjusted TTM EPS was positive 23 cents

Calculated Billings were up 50% and 57% for the two quarters.

This was a different picture than the one I had been looking at, and I decided to take a position.

For a little background on the company, here’s a little paraphrased excerpt from the introduction to Bert’s multi-page write-up in January. Bolding is mine.

Coupa is a leader in the e-procurement space. It has continued to exceed its targets for growth, earnings, and free cash flow. It has built a substantial competitive moat that may not be fully appreciated. It has grown its TAM prodigiously by expanding into ancillary spaces that enhance the value of e-procurement. At this point, it seems destined to become the absolute leader in its space, and to achieve the kind of profitability that leaders often deliver in the enterprise software world.

Twilio is down to a 7.7% position, down from 17.5% position three months ago, and has dropped to seventh place. I explained in my four-month summary above why I halved my position size.

Twilio provides communication services and it seems to have no viable competition in what it does besides “do-it-yourself”. For the March and June quarters its reported base revenue growth accelerated from 46% a year ago to 88%, and from 54% to 90%. The last seven quarters’ growth rates have been:

40%, 46%, 54%, 68%, 77%, 88%, 90%

However the 88% jump was partly due to one big customer, and partly due to the acquisition of Sendgrid, and the 90% jump was from combining the revenue from two companies for the entire quarter, and comparing it with Twilio’s revenue by itself the year before. The organic growth increased from 54% a year ago to 56% now, which looks much less exciting, and is down from the 68% and 77% growth rates which followed that 54%. And the reported growth rates will plummet in 3 quarters when they start comparing to quarters where Sendgrid was already included.

Now the dollar based net retention rate: The last four quarters have all been above 140%, but that’s not including Sendgrid either, and will be lower in the future.

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

They had 162,000 Active Customer Accounts, a little less than triple the number they had a year ago. This was driven partly by customer acquisition but mostly by their SendGrid acquisition.

They continue to have euphoric conference calls:

… 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. …It’s still day one of this journey.

There was a lot of obsessing on our board and elsewhere about “weak” guidance. For the life of me I don’t understand why anyone even looks at the guidance figures for these companies. Why waste your time unless reduced guidance is due to an actual problem with the business (ie Nutanix). Follow the actual results! There has also been concern that Twilio is too big, that the Sendgrid acquisition caused dilution, or that it would slow down growth. Some of that is valid, and is part of why I reduced my position. We’ll have to see what happens.

In July Twilio announced the first roll-out of its Narrowband IoT collaboration with T-Mobile. Not one that moves the needle by itself, but just another reminder that Twilio isn’t sitting still, and that IoT could become another large market for them. They then announced a half dozen more new products at their conference a week after earnings. I’ll give Twilio four and a half confidence stars now, down from six. With the way they were enthusiastically talking about Flex 18 months ago (an “oversubscribed beta”, etc), I expected it would be doing somethng significantly by now, and four months after the acquisition of Sendgrid there was nothing to show for it (which may be just impatience on my part, again.) No further plans to taper my position. At 7.7% it remains good sized.

In 8th place at 7.4% of my portfolio is Zoom, which at first I said was multiples too high. What happened? Well, I thought about the reasons for the high valuations of our SaaS stocks, and that changed my mind.

There were a couple of long write-ups on Zoom a few months ago, around the time of their IPO, which you might want to look at. Here are some financials, which include their July quarter results, and which will probably amaze you.

**Fiscal		 Q1	 Q2	  Q3	   Q4	      YR**

**2017: 	        xx	 xx	  xx       xx	      61**
**2018		27	 33	  41       51        151**
**2019		60       75       90      106        331**
**2020	       122	146**

**% Increase**
**2018						     149%**
**2019		122	 127	  120    108         119%**
**2020		103	  96**

**Adj Gross Margins %**
**2018		81	 82	   82       80          81%**
**2019		82	 84	   84       86          84%**
**2020 		81	 82**

**Gross margins look great.**

**Op Cash Flow (millions of dollars)	Yr Total ($)**
**2017:  						 9** 
**2018:  						19** 
**2019:  	03	 14				51**
**2020:		 22	 31** 

**TTM Op Cash Flow is thus currently $87 million**

**Free Cash Flow (millions of dollars)	Yr Total**
**2018:	   					xx**
**2019:   -01	 08				30**
**2020:	         15	 17** 

**TTM Free Cash Flow is thus $55 million.Note that those cash flow numbers are positive numbers! I don’t think that any other of our SaaS companies have cash flow numbers like those**

**Cust with ARR over $100,000	At year end**
**2017						 54**
**2018		                                143** 
**2019		184				344**
**2020:		405	 466**

**% Increase !!!!!!!!**
**2018						165%**
**2019			                      	141%**
**2020		120%  104%**

**These figures don’t need any explanation and show how well the business is doing.**

**Customers with over 10 employees	 (in thousands)**
**2017: 					        11**
**2018						26**
**2019		32	37			51**
**2020		59	66**

**% Increase**
**2018			   			137%**
**2019						 97%**
**2020		86%   78%**

**Dollar based net retention rate**
**2019		     138	 139	  140** 
**2020	    >130    >130** 

• Adj Operating Income was $20.7 million, up from $4.5 million a year ago.
• Adj Operating Margin was 14.2% up from 6.7% sequentially.
• Adj net income was $24 million up from $5 million, and up from $9 million sequentially
• Adj EPS was 8 cents, up from 2 cents
• Cash was $755 million
• Op Cash Flow was $31 million up from $14 million a year ago.
• Free cash flow was $17 million, up from $8 million.

For a word on customer wins:
HSBC is one of the largest financial services organizations in the world with over 3,900 offices in 67 countries. It will standardize on Zoom’s platform by deploying to 290,000 hosts and to 5,500 conference rooms. HSBC will consolidate onto Zoom’s video-first unified communications platform for both internal and external meetings. This enterprise-wide deployment represents one of the largest customer commitments to Zoom in our history and reflects our growing momentum with global customers. (Awesome) In the financial sector Moody’s and Morgan Stanley also became Zoom customers in Q2

One example of Land and Expand was with a large luxury brand. This customer began their relationship with us last year and quickly deployed Zoom meetings to approximately 3,800 users to replace their legacy conferencing provider. Because of their trust in Zoom, they then invited us to provide a modern solution for the phone service in their corporate offices and stores. After a full evaluation, they selected Zoom Phone in Q2. They cited call quality, ease of use, cost savings, and the unified Zoom platform of meetings, chat and phone as important benefits to their organization. They have already begun the rollout of 4,700 Zoom Phone licenses within their organization. They also plan to roll out Zoom Phone to their 750 domestic retail stores starting in early 2020, and in the rest of the world soon thereafter. (Also awesome)

I doubled the size of my Zoom position in Sept. I was very impressed with the HSBC win. “290,000 hosts and 5,500 conference rooms” is enormous in a single sale. I’m also impressed that this company is so profitable at such an early stage. Yes, I know that there is a lot of argument about whether or not they have a moat.

Crowdstrike is in 9th place at a 6.9% position. It’s a recent IPO and there were a couple of extended threads on Crowd in July on the board, so I’ll just give you my take on their earnings report (which caused them to sell off).

Let’s start off with revenue. It was $108 million, up up 94% from $56 million yoy, and up from $96 million sequentially. If you just look at those numbers in isolation they look fantastic, but I have to admit I was expecting considerably more. The last four quarters they had grown by $9, $10, $14, and $16 million sequentially, so growing by only $12 million sequentially was a disappointment.

Then we’ll look at subscription revenue. That was up 98%, and made up roughly 91% of total revenue. Can’t complain about that.

And their ARR (Annual Recurring Revenue) is $424 million, up from $208 million a year ago, and from $90 million two years ago. That’s zowie!

But how to reconcile the “paltry” $12 million in sequential total revenue growth with the huge, accelerating customer growth? I’m not kidding about huge. January fiscal year-end customers in 2016 thru 2019 were


Just look at that stack for a minute. And in the last two quarters they already grew by a little more than they grew all last year, and they now have 3789. And they say that they are focusing on larger customers, and those customers are asking for longer contracts.

Let’s see if that makes sense. Longer contracts mean more dollars that they have signed up but can’t recognize yet, so that helps us to understand. Also, they have a land and expand sales plan so those new customers will increase their spend in the future.

Okay, Gross margin! Was 36%, 54%, and 65% of total revenue for the past three years. This quarter it was 71%, and subscription gross margin was 74%, up from 70% yoy.

Adjusted net profit margin was -173%, -114%, and -56% the last three fiscal years, and this quarter it was -21%. That gives an idea where it is going.

Dollar based net retention rate was “over 120%” for the umpteenth consecutive quarter.

Op Cash Flow was neg $6 million, improved from neg $29 million a year ago.

Free cash flow was neg $29 million, improved from neg $36 a yr ago.

Cash was $827 million.

That gives you a thumbnail sketch.

Now here are some quotes and paraphrases from the conference call:

CrowdStrike stops breaches, and we are transforming endpoint security. Our clear technology differentiation is driving our growth which continues to significantly outpace the industry. In addition to stopping breaches, we help customers simplify their security stack with our single agent architecture and cloud modules. This sets us apart from others in the security industry. We reached a new milestone with 50% of our subscription customers having adopted four or more cloud modules. The strength of our Falcon platform is also rapidly gaining industry recognition.

To help foster innovation within the CrowdStrike store ecosystem, we have established the Falcon Fund. Our cloud-native open architecture was built to provide a shared security ecosystem where developers and partners could dramatically shape the future of security in IT operations. Through the Store, third-party applications can be developed utilizing the massive amounts of endpoint data that our lightweight agent already collects. The Falcon Fund will invest in the next generation of innovators, leveraging the Falcon platform to solve the most pressing security and IT challenges.

CrowdStrike was cloud native from day one and we enjoy first mover advantage in cloud delivered endpoint protection. We have the architecture that others strive to emulate and we possess unique technology that allows us to operate effectively at scale. We are putting growing distance between ourselves and competitors. This is reflected in our position in the Gartner Magic Quadrant versus all other fossilized and NexGen players.

Our rapidly growing international business highlights the global nature of the security industry, the massive market opportunity in front of us, and our continued success penetrating these markets

We’ve seen a tremendous increase in Spotlight. And why are we seeing that? Well, it just works. Companies don’t want other agents on their system if they have a scalable agent, which is going to deliver real time vulnerability information. That’s what they’re looking for. And the ability to actually have a customer try it with their own data, with our frictionless in-app trial, I think has been a big boon to us. So we’re seeing a lot of activity there.

If you look at our threat intelligence modules, our Falcon X, the ability to automate a triage process and take something that would normally take eight hours and reduce that time to five minutes with our Sandbox technology, and our malware search capabilities and our integrated intelligence, these have been very, very well received. And again a tremendous - we’ve seen tremendous adoption in those areas.

So the feedback has universally been customers actually accelerating moving to CrowdStrike from our competitors as they try to transition from an on-premise solution which has been slow and cumbersome.

And as other competitors try to accelerate their move to the cloud it actually just creates another opportunity for us. If they are going to look at a cloud vendor they might as well look at the best out there. So we like that dynamic.

Q - But it would be really great to hear from you guys in terms of where and when you actually do see Palo Alto and how they stack up?

A - Well, we don’t see much of them to be candid, and if you look at the Gartner Magic Quadrant rather than me saying where they stack up, you can tell where the analysts think they stack up. And it’s not even close to us. So I’ll the reader be the judge of that.

Saul here: Okay, so what did I do? I roughly doubled my Crowd position too on the way down. But please don’t just follow me. Decide for yourself. I make mistakes I can assure you.

The Trade Desk is in 10th place at 3.9% of my portfolio.
They had incredibly strong earnings report and conference call in August, which was extensively discussed on the board.

Revenue was $160 million, up 42%
Adj EBITDA was $58 million, up 57% from $37 million yoy, and was 36% of revenue.
Adj Net income was $46 million, up 68%, and was 28.5% of revenue.
Adj EPS was 95 cents, up 58% from 60 cents a year ago.

I’d rate it four confidence stars now, because of my mistrust of a complicated advertising milieu, but I feel that this is a very unique innovative and creative company. The Trade Desk seems to be a Leader in a Rapidly Growing niche Market within the larger field of advertising, which up to now is controlled by the behemoths.

I feel that most of my portfolio is made up of a bunch of great companies. But that’s just my opinion, and I can’t say often enough that I’m not a techie and I don’t really understand what most of them actually do at all ! I just know what great results look like. I figure that if their customers clearly like them and keep buying their products in hugely increasing amounts, they must have something going for them and, as I’ve often said, I follow the money, the results. And I listen to smart people about the prospects of these companies.

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

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

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

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

For some additions to the Knowledgebase, bringing it up to date, I’d advise reading several other posts linked to on the panel, especially:

How I Pick a Company to Invest In,
Why My Investing Criteria Have Changed,
Why It Really is Different.
Illogical Investing Fallacies

I hope this has been helpful.



Formatting error on Zoom. This is how it should have read:

**Op Cash Flow (millions of dollars)	Yr Total ($)**
**2017:  						 9** 
**2018:  						19** 
**2019:  	03	 14				51**
**2020:   22	 31** 

**TTM Op Cash Flow is thus currently $87 million**

**Free Cash Flow (millions of dollars)	Yr Total**
**2018:	   					xx**
**2019:   -01	 08				30**
**2020:	 15	 17** 

**TTM Free Cash Flow is thus $55 million.Note that those cash flow numbers are positive numbers!** 
**I don’t think that any other of our SaaS companies have cash flow numbers like those**



Thanks Saul. The performance reviews by you and some of the others on this board are one of my favorite things about it.

I was always in positive territory for the year, with my lowest daily reading being up 9.9% year-to-date (roughly 2% more than the average annual rise for the S&P to put it in perspective).

Another perspective on this that this 2% really turns out to be 25% (2% divided into 7.9%). In other words, if this difference was maintained in just three years your return would be double that of the S&P.

Not too shabby!

All of your efforts are much appreciated. Take care.



I was always in positive territory for the year, with my lowest daily reading being up 9.9% year-to-date (roughly 2% more than the average annual rise for the S&P to put it in perspective).

Another perspective on this that this 2% really turns out to be 25% (2% divided into 7.9%). In other words, if this difference was maintained in just three years your return would be double that of the S&P.

Not sure how you reached that conclusion Jeb. If I did 25% better than the S&P each year, that’s not additive.

If the S&P compounds 8% growth per year for three years it would be up a total of 26% (1.08 x 1.08 x 1.08 = 1.26)

If my portfolio compounds 10% growth per year for three years it would be up 33% (1.10 x 1.10 x 1.10 = 1.33)

After three years I would only have grown 27% more than the S&P, not double. (33% growth divided by 26% growth = 1.27)

If you meant four years, it would be growth of 36% for the S&P and 46.4% for me, which would mean I was 29% ahead of the S&P.




I was using the Rule of 72 (incorrectly). I was figuring if your returns are 25% more when compounded you double in 3 years, but I see my error.

Always learning.



Thanks once again for a detailed and highly informative report. I know I am not alone in expressing deep appreciation for the fact that you so freely share your thoughts and wisdom gained from years of successful investing experience. I’ve followed this board nearly since its inception. I always look forward to and carefully read your posts and especially your monthly summaries (and occasional mid-month activity reports). I am not nearly as interested in your positions as I am in your lucid explanations of why you hold and why you trade.

I am sure you are aware that I do not post my portfolio and seldom state my trade activity. It is not that I am selfish or embarrassed or any of those kinds of reasons. It is primarily that I don’t feel that I have a lot of new information to add, especially with respect to financial analysis. My strengths and therefore my contributions are largely based on 30 years of experience in a very large IT shop where I closed my career in a position of high influence over the direction of the corporation with regard to data/information management (I wrote the approved definitions for my company that distinguished between data and information. In condensed form, if it is manipulated by a machine, it’s data. If it is perceptible to and consumable by a human, it’s information).

Even though my experience base with respect to the specific technologies is rapidly growing stale and I make little effort to KUTD as I was pretty well burnt out when I retired, I still have a pretty good understanding of the basic technologies and I feel a good deal of the historical perspective I gained is still relevant. I also feel that having been close to the internal decision making process in IT for most of my career my experience is relevant because even as the technology rapidly changes, I have reasonably high confidence that management decisions remain driven by the same factors that they were for virtually my entire career. The specific technologies play a role, but they are just another factor, certainly not the only one and often not even the deciding one.

I am also very familiar with the mindset of techies. Over my career I saw many people come and go. I was one of the “old guard” that remained in the company, though my role in IT went through many changes. IMO, irrespective of chronological age, techies share a lot of common characteristics. Even though they are not the decision makers, they play a significant role in the decisions that get made because they form the knowledge pool that must be taken into consideration when big decisions are made. So, my experience is the basis of my contributions to this board. It is far more relevant now than it was when we were investing in sneakers and home builders.

On to observations - - -

One thing I’ve been slow to pick up on is what you appear to mean with the words “when the story changes.” Most of the time, this applies to the specific company you are talking about, but I’ve discovered that not too infrequently it is the relative story rather than the specific story. What I mean by that is you have no income stream and hence no new money for investing. And, you like me, stay fully invested or nearly so most of the time. So when you wish to make a new purchase, the money has to come from somewhere. That means you’ve got to sell something. But, you already feel that you are invested in the best and smartest investment out there. That presents somewhat of a conundrum.

Along comes Zoom (I’m long), Datadog (I’m long), Coupa (no position) and you want to invest in these companies as you feel the opportunity is too good to pass up, but in order to do so, you are forced to take a hard critical look at all your current category crushers in order to decide what to sell in order to raise the cash for the new investment. Sometimes, the decision isn’t that hard as there was some new news during a recent conference call or from a competitor that makes the decision a bit easier. But sometimes you’re decision is not driven by news that directly reflects on the companies you end up selling (i.e., Alteryx). The decision is a relative one in which you compare your current portfolio positions with respect to the new opportunity. Maybe, as in the example just cited, it’s based on the dominance of one position. Maybe you’ve lost patience with a growth lull (i.e., Mongo, you even said you know this is not a valid reason to sell, but it was your reason).

Personally, I find pulling the trigger to sell a far more difficult decision (most the time) than the decision to buy. Buying (unless I’m adding to a position) always involves a new, unfamiliar relationship. Selling is shedding (in whole or in part) and established, familiar relationship. I’m hard wired to remain loyal to established relationships. It’s difficult for me to treat my investment relationships differently than the way I deal with life in general. I continue to learn from you, sometimes slowly.

But it is these relative decisions that set us apart. Let me explain. During my career I watched two database products dominate the industry. First, the IBM product, IMS DB/TP (that translates to Information Management System Database/Teleprocessing). IMS was not the only database product, but it was by far the dominant one. So far as I know, it only ran on IBM equipment, or near end of life IBM OS compatible equipment made by IBM competitors (we had a couple of red boxes in our predominantly blue shop. I have no idea if IMS was hosted on them). At the time I was pretty young but I was a spec writer and tester. I didn’t write code and I wasn’t a DBA. What I observed was folks around my age or younger come into the shop fresh out of college. They’d gather 12 - 18 months training at the company’s expense and work on usually only one development project and then market their newly gained, high demand skills to another company (virtually never a competitor), getting a significant salary boost in the process. It was not all that unusual to see the same face return 12 - 18 months later at an even greater salary. The knowledge pool that got built up around IMS (as well as the fact that it was an IBM product - “no manager ever got fired for buying Blue” was a common saying) helped cement it as the dominant database product. I doubt that all the competition combined matched IMS sales figures (that’s pretty much a WAG, but an “educated” WAG). But, IMS had a fatal flaw. It was modeled the same way business organizations are built. It was hierarchical. I won’t digress into an explanation of why this is bad, trust me, it has the potential of creating a lot of data integrity problems. And that potential often became a reality. GIGO - garbage in, garbage out. When you’ve got different outputs, some of which are supposed to share the same values but it doesn’t, which one are you going to trust?

But data integrity problems alone did not lead to the demise of IMS. There were lots of other organizational reasons (sometimes called “data silos”) that created these problems. Faulty database design was not really the main culprit. The biggest flaw for IMS was that it only ran on big metal. A new paradigm in computing began to take hold. It was smaller, geographically distributed boxes linked together via a network and the UNIX operating system that eventually killed IMS. As I mentioned. IMS was designed to run in the data center on “big metal”. Oracle (and numerous competitive products) was designed to run under UNIX. It was years before Oracle came out with a relational DBMS that could be hosted on IBM mainframes.

Even though the relational model was created by an IBM mathematician, IBM was slow to develop a relational DBMS. They were caught in the common dilemma of slaughtering a cash cow in order to keep up with innovation. However, the argument for distributed computing under UNIX took hold more rapidly than most observers initially thought possible. It was technically up to the challenge of supporting the computing needs of mainline, mission critical business processes, and the ability to incrementally scale capacity while (more or less) avoiding hardware vendor lock-in due to the common OS was just too financially compelling. Incidentally, I was the manager in charge of the group that established internal standards for applications (written in C, a computer code that one of my gurus referred to as a write only language) and database design (with Oracle as the DBMS) when the company I worked at transitioned to distributed UNIX architecture.

Why did Oracle, in the face of a lot of competition quickly become the undisputed winner? Well, partly is was the technology. UNIX is not vanilla. We had a standard of “POSIX compliant”, but virtually every vendor claimed POSIX compliance - - - with extensions. In other words, every vendor’s flavor of UNIX was in some ways different. Ellison offered several flavors of Oracle so it ran on machines from the most dominant vendors: IBM, HP, Sun and I thing two or three others. And then there was Larry Ellison. He was a charismatic tech leader who had the ability to smile and tell convincing lies through his teeth. Oracle rapidly issued new upgrades (which were upsells) with the claims of all sorts of new, highly desired functionality that was often too buggy to use. But, with a fair degree of reliability, bugs from the previous version were generally repaired. So with each upgrade you were really buying the reliable functionality of the previous version and maybe some new, usable features. As you might imagine, this kept my database standards group very busy.

Why am I relating all this history? In a word, Mongo. I’ve seen this movie twice before. First with IMS which didn’t offer a separate investment thesis and then again with Oracle which did offer a fantastic investment thesis, but I just wasn’t into investing at the time. But the latest sequel to this movie is Mongo. You might have your doubts as to whether or not it’s the clear winner, but having watched the movie close up before, I haven’t any. Especially since the release of Atlas that runs under AWS, GCP and Asure. It will take a colossal management screw up (always possible) to unseat and inhibit the long term growth of Mongo (which is a stupid name IMO, oh well).

What I’m saying in a rather long winded manner is we can see what makes horse races. Saul gives Mongo 4.5 stars out of six. I’d give it 7 stars out of 6. Of course, Saul and I are both getting on in years. He has a few years on me and neither of us may live to see this whole movie. So maybe impatience with the here and now is warranted. Each passing quarter of “I could’ve done better if I were more impatient with X and more aggressive with Y” is a quarter we won’t see again.

Is the race between quarter horses or milers? It makes a difference.


Mine is a shortwinded response to Zscaler plus a question

So here I am, with Zscaler, with a tailwind of inevitability, sure, but who is asking huge enterprises to revamp their entire security systems, and which has a lot of temporary obstacles in its path which may cause growth rates to diminish in the near term, like desperate large competitors, customer IT departments that don’t want to lose their jobs, and enterprise CEO’s who don’t really understand security… while I have other companies, growing like mad, and without these execution problems, so it made sense for me to reduce the size of my Zscaler position from huge to just large (and it is still a large position), and to use the cash to buy into companies like Coupa and Datadog. There isn’t any relationship at all to “momentum,” but rather it’s evaluating what is going on and acting on it. So far it’s been a good call as Zscaler is currently at $42.86, considerably lower than it was when I sold.

Your take on IT departments is spot on! I’ve been on both sides, selling and buying IT and I know from this experience the incredibly powerful influence IT departments exert, not necessarily for the benefit of the hand that feeds them. Complexity is the enemy of adoption and so is stonewalling by IT departments. Good call!

The long term prospect is real but how long did it take Mac to recover from IT stonewalling in the mid 1980s? Fifteen, twenty years?

The question: do you recall what made you rotate from banks, shoes, and other industries to SaaS? I’d love to hear that story.


Denny Schlesinger


The question: do you recall what made you rotate from banks, shoes, and other industries to SaaS? I’d love to hear that story.

Hi Denny, to tell the truth, I can’t really remember. I do remember that I got of BOFI because I thought it was sleazy and skating on the edge and hiring people with very doubtful pasts, etc. I got out of Skechers because when I was buying a pair in a Skechers’ store they gave me something like 40% off all of them if I would by three pairs (as I remember it). It’s also the problem with anyone who builds stores. You run out of good places to put them quickly and you start cannibalizing one store with another. And you can grow the number of stores by 50% at first but a couple of years of that and you are having to build impossible numbers of them to continue growth. The store I bought those shoes at closed down this year, by the way. I should mention that I still wear ONLY Skechers shoes, because they are so comfortable.


I should mention that I still wear ONLY Skechers shoes, because they are so comfortable.

Last December I visited Curaçao and bought a pair of Skechers shoes. Now in Portugal I bought a pair of locally made leather shoes for the Winter at half the price. They are half as comfortable! :wink:

Denny Schlesinger


Brittlerock and Friends,

Forgive Monkey for writing yet another message of appreciation, but it has to be done. Your post(s) above about your real-world, hard-won experience in the IT world and how that translates into a 7 star confidence level in MDB is exactly the kind of investing information that the bots, the wall-street analysts, the momentum gamblers, the literal gamblers, or anyone else, really, doesn’t have access to. The actual banana value of this information and the generosity of spirit with which you share it is way beyond the pay grade of my abacus.

But this analysis narrative does actually translate into an actual reality bound category I call “Sleep-Well-at Night” meaning a stock equity holding which will go down and up according to market whimsy in the short term, but about which zero flying rotten bananas are given in the long term, hence the capacity to sleep well in some high-up branches in the jungle while the rest of the critters go on screeching and making a ruckus.

Sleeping Well at Night is a very high priority for Monkey, thereby allowing his position in Mongo to reach the Top 3 level––and, currently after reading what you wrote above––gets Monkey further thinking about what would preclude it from reaching the very tippity-top of the tree-line?

So thank you Brittlerock and Saul for your continued quest to fill Monkey’s banana bucket while simultaneously being able to catch a lovely snooze in his hammock without the greying of his fur.

With gratitude,

Monkey (substantial position in MDB and about to get higher, odds are)



I have read several times that you bought in and out of a stock… Like MDB. Have you ever analyzed how you would have fared had you stuck with your original purchases? I am not talking about when you get out all together, like with Sketchers, but when you vacillate on a holding.


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It is always possible in theory to be more perfect … but one works without hindsight and with the whims of the market, so second guessing is an exercise in futility.



My question is not about having second sight, or even second guessing yourself. It does have to do with psychology, however. If after trading In and out of thesame stocks numerous times, but find you would have been better off staying with your first inclination, than perhaps you will have learned something.

I try to learn something from each of my trades. Self analysis can be a good thing.


Saul - first thank you so much for your post. I am learning a lot. I mistakenly have known about this board for about 6 years and have not pulled the trigger on reading the knowledgebase til now. I was too focussed on trading which takes up too much time and I am not successful at it. Had I followed the recommendations here, I would be much richer. Live and learn. I hope you are around for many more years for us all to learn more.


But it is these relative decisions that set us apart. Let me explain. During my career I watched two database products dominate the industry. First, the IBM product, IMS DB/TP (that translates to Information Management System Database/Teleprocessing). IMS was not the only database product

Why am I relating all this history? In a word, Mongo.

I want place an addendum here and say I believe you are both correct in the potential success of Mongo but for other reasons.

I work in Software Engineering and have done so for 20+ years. I started coding large enterprise systems in Java and over the years have learned lots of different languages (JavaScript, Scala, Kotlin etc.) and now lead teams of engineerings on high throughput, low latency, critical systems.

My experience of Mongo as a company (10Gen a few years ago) has been appalling - they tried to modify our NDA during evaluation stage to take any IP of new products they discovered while working with us and removed any of our rights to those products. It leaves a bitter taste still.

At the same time, there was an explosion by an anonymous blog post stating everything wrong with MongoDB including cascading failures, faulty data integrity (transactions reporting as completed when they weren’t) etc. All 10Gen’s CTO could say was “what are the support ticket numbers?” A pathetic response, at best. For those of you that don’t know, data integrity is key in any system. Without it, we just get the wrong answers and tracking down WHY is extremely difficult.

Now let’s turn to today. Mongo are going gangbusters. They now have transactions spanning clusters and I have found on their own JIRA board with just a few seconds of searching a couple of bugs submitted saying it is terrible at best.


this does not matter.

IMO, IT execs look at features such as cloud agnostic, Atlas, full text search and any other products that will get them up and running quickly for a fast route to market/solution to their issues. They want to alleviate their pain quickly.

If the Mongo issues I described emerge, by that point there is a general consensus in the company of “the engineers have to fix it” and the Mongo contract has already been signed.

They clearly have a fantastic sales arm and product strategy. From an engineer’s POV, their tech execution leaves us wanting.

The sales decision is disjoined from the production performance of the system the Mongo products are used in but it doesn’t matter.

The metrics say it all and I plan on opening a position in Mongo too.

Thanks again for everyone’s contributions.

Much appreciated.


Point being that I perceive Saul as someone who isn’t likely to worry about things like that. He makes buy and sell decisions based on what seems right at the time. Occasionally, he may go in and out and in again, but not often and always because it seems like the right thing to do at the time. Even if it turns out that staying in the whole time would have been a good thing, one would have to compare it with what was done with the money while he was out, which easily could have been better yet. And, supposing on some particular occasion it would have been better to stay in, changing that would require changing the rules of how he makes decisions about in or out … rules that have been working pretty d**m well up to now.

To be sure, less experienced investors might well learn a lesson or two about being less jumpy, but Saul? :slight_smile:

Saul, Congrats !! keep inspiring and helping the community here. I am a newbie. Could not find the announcements panel to read the knowledge base. Could you please share the link or screenshot?


Look to the right side of this page------------------------------------------> for knowledge base

Datadog just started the last day of Sept, and it is now a 12.3% position, and my third largest, in just a month. I can’t remember ever building a position as quickly as that, except perhaps Alteryx, almost two years ago.

Hi Saul,

I have to wonder why such a large position in DDOG. I look at the following as negatives:

  1. no real evidence of moving toward profitability: last 10 quarters of operating margin (oldest to recent):
    -3%, -7%, -1%, -2%, -1%, 0%, -9%, -11%, -14%, -4%. These numbers are not horrible but they have been moving in the wrong direction for the 4 quarters.

  2. DDOG seems really expensive compared to other companies. EV/Sales is 37 which is almost twice as high as AYX and considerably higher than CRWD even though CRWD is growing faster with slightly higher gross margins.

I think people pay attention when you take a huge position quickly. If I recall your Alteryx purchases correctly, I don’t recall you buying in that much (pretty it grew into a larger position through appreciation). I have a tiny 1% position in DDOG but it seems really expensive compared to our alternatives. I’d love to hear what is it about DDOG that you like so much. I think you must think that growth will remain really high for a while. Thanks.



If I recall your Alteryx purchases correctly, I don’t recall you buying in that much (pretty it grew into a larger position through appreciation).

That happens not to be correct. In Saul’s month-end summary for December 2017, the first one where he owned Alteryx, it was a 12.1% position.

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As a real estate developer with only basic knowledge of the engineering concepts that are often discussed on this board, I must say that I come away from Hyperion’s reply to this post a bit confused.

Hyperion; when somebody of your background and experience posts on this message board, I tend to listen closely, try to learn something and then weigh the opinions of educated and experienced professional such as yourself when evaluating my holdings (i.e. Mongo).

I am wondering if I have the correct take-away from your post. It seems to me as if you are saying:

  • Your experience with Mongo was appalling,
  • You worked with Mongo on a professional level and was left with a bitter taste in your mouth
  • You are aware of other engineers that have posted horrible things about Mongo on various tech-boards,


  • all of this does not matter to you because Mongo has a really slick sales team,
  • the customer wants to be up and running quickly and Mongo can give deliver customers an inferior product that gets them there,
  • then, once the proverbial poo hits the fan; Mongo is out and dumps all the bugs and issues on the customers’ engineers
  • But, your going to overlook all of that because the “metrics say it all”

Is that really the thesis in a nutshell? Or, am I missing something?