Here’s the summary of my portfolio at the end of October.
It was a quiet month, overall. My portfolio finished October at up 82.8% YTD (or at roughly 183% of where I started the year). I hit a high of up 87% on Monday and settled back slightly from there. My low for the year in mid-May was down 18.5% ytd, so this is a rise of roughly 124% for my entire portfolio in less than six months. (182.8/81.5 = 2.243 which is a rise of 124.3%)
If you take my portfolio’s results from last year (2020) of up 233% (or 3.33 times what it started with), and multiply those results by this year’s up 83% gain, you will see that the portfolio has sextupled in a year and ten months. (3.33 x 1.828 = 6.09 times what it started with on Jan 1, 2020).
Remember that this was done with no leverage, no options, no margin, no penny stocks, no fancy stuff, just a concentrated portfolio of high growth companies.
That is such a preposterous and ridiculous result that, as I’ve said before, it’s hard for even me to digest it. As I’ve said before, humans aren’t supposed to get results like that, but our companies keep on turning out extraordinary results. But wait, here come the four year and ten month results:
FOUR YEARS AND TEN MONTHS RESULTS
You will hear an incessant chatter from know-nothings telling you that no one can beat the averages and that stock picking doesn’t work, and books have been written to prove it, and that we will all return to the mean, so I thought that I’d give you some facts about that. Here are my last four years of results compounded, which you can compare against the S&P. Remember that I’m not just picking my results off the wall. I posted my positions and their sizes every month of those four years so any one who wanted to check me out could have done so. It’s real, and others on the board have done approximately the same, some a little better and some a little worse, but in the same range. It can be done, although I strongly doubt that we will ever have another year like 2020.
**2017: + 84.2% $100 becomes $184.20** **2018: + 71.4% $100 becomes $171.40** **2019 + 28.4% $100 becomes $128.40** **2020 + 233.3% $100 becomes $333.30**
In four years those numbers compounded to 1, 351% of what I started with, that’s thirteen and a half TIMES what I started with, or up 1,251% in four years.
During that time the S&P was up 67% in four years. That’s up 67% compared to up 1,251%!!! You can add a few percent by adding in dividends, but that doesn’t change the comparison at all.
If you are thinking that that’s impossible and that noone could do that , here is what GauchoRico posted for his four year results: He was up 1,135% in those same four years. https://discussion.fool.com/gauchorico-portfolio-update-1312021-… Pretty much the same thing! It’s not a fluke.
And then, if you add in this year’s ten month results we have 13.51 times 1.828 = 24.7. It thus compounded to almost 25 TIMES what I started with in January of 2017, or up 2,370% !!! in four years and ten months, which is really, really, crazy numbers.
Tell me again that active intelligent stock picking doesn’t work! The only ones who say that are the people who don’t know how to do it.
Read the Knowledgebase several times. And the other articles on the side panel. And the posts with lots of recs by people you trust, and you may learn how to do it too.
I am no good at timing the market and I haven’t tried, but have just stuck with strong, rapidly growing, high-confidence companies. I can’t tell you what the market will do Monday, or next month, or the next three months, or six months, but I can tell you that these companies are very successful, and that I can sleep well with them in my portfolio.
MY RESULTS YEAR TO DATE
My portfolio closed this month up 82.8% (at 182.8% of where it started the year)! Here’s a table of the monthly year-to-date progress of my portfolio for 2021.
**End of Jan + 2.5%** **End of Feb + 0.3%** **End of Mar - 13.0%** **End of Apr - 0.2%** **End of May + 4.1%** **End of Jun + 16.5%** **End of Jul + 21.9%** **End of Aug + 50.9%** **End of Sep + 71.3%** **End of Oct + 82.8%**
A thought about this: Since many of us were up more than 200% last year (more than tripling our entire portfolios), it seeemed logical to assume that our stocks (and way of investing) had overshot by a lot, were way overvalued, and would fall back this year. But here we are, ten months into the year, and we are actually up ridiculous amounts again, in spite of wildly overshooting last year, and living through some large pullbacks.
”SELL IN MAY AND GO AWAY !!!”
Do you remember that famous Market Timing jingle? Well, in mid-May I was down 18.5% ytd. I’m now up 82.8% ytd, and I’m up 124% since mid-May.
So much for market timing based on averaging what happened in particular months in previous years and acting on the basis of that, instead of acting on the here and now! In fact, so much for market timing!
HOW DID THE INDEXES DO?
Here are the results year to date:
The S&P 500 (Large Cap)
Closed up 22.6% YTD. (It started the year at 3756 and is now at 4605, up 3.4% for the month).
The Russell 2000 (Small and Mid Cap)
Closed up 16.3% YTD. (It started the year at 1975 and is now at 2297, up 2.2% for the month).
The IJS ETF (The S&P 600 of Small Cap Value stocks)
Closed up 27.2% YTD. (It started the year at 81.3 and is now at 103.4, up 2.5% for the month)
The Dow (Very Large Cap)
Closed up 17.0% YTD. (It started the year at 30606 and is now at 35820, up 2.9% for the month).
The Nasdaq (Tech)
Closed up 20.3% (It started the year at 12888 and is now at 15498, up 3.0% for the month).
These five indexes averaged up 20.7% YTD. At the end of September they were up 17.4%, so they gained 3.3 percentage points in October while my portfolio was tacking on 11.5 points.
In fact, in the last six months the “markets” gained 0.9%, 1.9%, 0.7% and 0.9%, fell 1.8 points, and gained 3.3 points for a total gain of 5.9 percentage points in those six months, just less than 1% per month, so our huge gains weren’t carried by a rising tide that lifted all the boats.
During that same time my portfolio went from down 0.2% to up 82.8%, adding on 83 percentage points.
In the next two weeks we will have earnings from ZoomInfo, LightSpeed, DataDog, Cloudflare, Upstart and Monday, as far as my stocks are concerned. By the end of the month CrowdStrike and Snowflake (no current position) will report, and Zscaler in early December.
LAST THREE MONTHS REVIEW
August was an excellent month for our companies. ZoomInfo, Datadog, Lightspeed, Cloudflare, and Upstart all reported excellent quarterly results, and Snowflake posted good enough results that I could exit without pain. I’ll tell you about them below individually, but I should mention that Upstart totally blew it away and is now a huge 23% position. Since it is taking up so much space, it has to some extent crowded out and reduced the percentages of my other leaders so don’t be surprised.
I exited Docusign again, and probably will stay out, just because I liked the other companies better. I also exited Snowflake after earnings, because the story was just too complicated for me, with their slowing customer acquisition and slowing RPO (which they had previously told us was the most important metric to watch), and the company’s convoluted explanations and excuses, and our attempts to explain this, like maybe increased usage is using up the RPO, but then they emphasize that customers don’t use much in the first year, and if they actually did have more usage eating up the RPO, why is revenue growth coming down. It’s all just a mess to figure out.
Let me be very clear about this. I think both of these companies will continue going up. These are not Fastly stories. It’s just that I can’t invest in all the good companies in the world. I keep a concentrated portfolio, and there are other companies that I’d rather be invested in.
What did I do with the money? My ZoomInfo is now up to a normal size position, double where it was at the end of July, and I’ve taken a new position in Monday which CloudL wrote up on the board a couple of weeks ago. In addition I added to my Lightspeed and Zscaler positions. I also had added a lot to my Upstart before earnings.
September was less exciting. I still have the same eight positions that I had at the end of August, and in roughly the same order except that I’ve added to Lightspeed and trimmed Cloudflare and Crowdstrike and I’ve also added back a small 1.6% position in Snowflake, just because I think it’s a very important company to keep in sight. And I’ve trimmed Upstart because the position has gotten too big, but it’s grown to over 27% now in spite of all my trimming.
October had no earnings announcements and was a relatively calm month. Upstart, at $390, reached 31.5% of my portfolio at one point but is now down to back to just 26.4% at a price of $322. But Upstart bounces like that. Datadog is still in second place, and Cloudflare in third after another week in mid-October of announcements of new products and enhancements. After wondering why Cloudflare kept going up I decided to go with the flow and let it rise, which it did, rising to $195 from $134 a month ago.
Monday, which I just bought in August, is now in fourth place, and is probably my second highest confidence position, after Upstart. It just took me a while to build a position because of low volume and a wide spread, and subsequent short sharp movements up and down for no reason except someone buying or selling some shares. Crowdstrike announced that they have formed an alliance which indicates, perhaps, that they are forming a security cloud. I again exited my tiny position in Snowflake, to put the money somewhere else. During the month Lightspeed had to fight off a short attack. Then in the last two weeks it announced a comprehensive restaurant solution and then a retail one, showing that it had incorporated its acquisitions just fine. Finally, I’ve taken a little 3.6% position in a small company that I’m not ready to talk about yet.
Please remember that I could change my mind about any one or more of my positions tomorrow, depending on new information or other factors, and I won’t do another update until the end of the month. Make your own decisions. Don’t just follow mine. I make mistakes at times! Guaranteed!
HOW THE INDIVIDUAL STOCKS HAVE DONE YTD
Here’s how my current positions have done this year. I’ve arranged them in order of percentage gain. As always, 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. I tend to keep buying as the price rises, so my average price is almost always higher than my starting price.
Please remember that these starting prices are from the beginning of 2021, and not from when I originally bought them if I bought them in earlier years.
**Upstart from 92.20 to 322.04 up 249.3% buy in Apr** **Cloudflare from 75.99 to 194.72 up 156.2%** **Zscaler from 186.70 to 318.86 up 70.8% buy in May** **DataDog from 98.44 to 167.12 up 70.0%** **Lightspeed from 58.15 to 97.69 up 68.0% buy in May** **ZoomInfo from 47.34 to 67.22 up 42.0% buy in Apr** **Crowdstrike from 211.82 to 281.80 up 33.0%** **Monday from 360.51 to 371.83 up 3.1% buy in Aug**
How often have you seen people say (even on our board), “ABC has gone up 40% in two months (or 50% or 60%), so it’s valued too high now and I’m selling out to wait for a 20% or 30% pullback.”
Notice that they didn’t say that the picture for ABC had changed, or that there was anything wrong with ABC’s business, or that there was any bad news, etc, it was just that it had moved up 40% or 50% so they were selling out. Let me point out that if you make a practice out of selling out after a 40% move, you will never get the ten times 40% (400%) gains that I’ve had in Datadog and Upstart for instance.
Just think, if you had bought Cloudflare when I did at $35, and a couple of months later it was up 60% at $56, and you had said to yourself, “Wow! Up 60% in a couple of months! And then recited one of those platitudes like “You never go broke taking profits!” and you sold out and took your profits. Well, you took a profit of $21, and left another $139 (so far) per share on the table, more than six times the profit you took.
I was adding to Cloudflare at that point, not “taking profits,” and only started trimming afterwards when the position got too large for comfort.
The lesson is don’t sell out just because the stock has gone up, unless your position has gotten too big, and then just trim it. You will make your big money on the stocks that keep going up.
I now have eight positions plus a small try-out position that I’m not ready to discuss yet, and nine positions is near the top of my comfort range. I have a huge (26.4%) position that Upstart has grown into. Am I comfortable with a 26% position? Not really, but I’m not currently considering reducing it.
Here are my positions in order of position size, and bunched by size groups. You will see that Cloudflare and Monday have moved up and Lightspeed got clobbered by a short attack.
**Upstart 26.4%** **Datadog 15.7%** **Cloudflare 13.8%** **Monday 10.4%** **Crowdstrike 8.5%** **ZoomInfo 8.3%** **Zscaler 7.5%** **Lightspeed 7.1%**
COMPANY REVIEWS Please note that when I discuss company results, I almost always use the adjusted values that the companies give.
I’m going to discuss them in alphabetical order this month but I will start with Upstart again: I could tell you that their last earnings report was a complete blow-out and that they knocked it out of the park, but that would be a complete understatement!
I told you all about them in the last couple of monthly summaries. This time I’ll just tell you what’s new in October.
They are hiring and expanding like mad. They leased an entire office building in Easton, in Columbus, Ohio, and are doubling staff to more than one thousand employees. They had topped 500 jobs already, and are expanding further now. Columbus had already passed the headcount of Upstart’s California headquarters this spring.
“With the success we’ve had, the operations team tends to scale directly with the business. It became apparent we needed a lot more space."
My Take: A clear sign that business is booming and they see no major problems on the horizon
They launched their Upstart Auto Retail software, based on the Prodigy acquisition, now, for the first time, this new software will provide access to Upstart-powered auto loans as well. This was four to six months before it was scheduled. The AI-powered lending to a limited number of dealers. It will be available in early 2022 to all dealers using the platform.
Prodigy Software was acquired by Upstart in April of this year. Since the beginning of 2021, the number of dealerships (“rooftops”) signed up for the software has nearly tripled. More than $1 billion of vehicles were sold through the Upstart Auto Retail platform in Q2 2021 (before the Upstart instant financing). Now it’s adding that instant financing, and dealerships will be able to instantly offer Upstart powered affordable financing.
My Take: Again, definitely a sign that they are continuing to move at the speed of light. This company is extraordinary.
**Cloudflare (NET)**has been a star of my portfolio, quintupling and a half since I bought it last year, but to tell the truth… I don’t understand why it’s going up like that, it’s growing revenue steadily at 50% or so, which is slower than my other positions, and it seems more focussed on growing than on being profitable. I had tapered them from a 18% or so position down to 8%, but this month they are back up to 14%
So what is the market seeing that I’m not? I suspect that there is a perception that this company is on its way to take over the cloud world . Well, maybe it is!
From Sept 29th through Oct 29th Cloudflare rose from $115 to $195. That’s about 70% in a month. I truly feel sorry for those who totally sold out in August or September simply because Cloudflare was rising more than they thought it should, and they thought it was too expensive, or valued too high.
Crowdstrike announced their report for the quarter ending in July in September. It was a very solid “boring” quarter but a lot of us were disappointed. We expected more growth with break-ins and breaches all over the place, but they just hit 70% revenue growth, flat with the quarter before, down from 84% yoy, and showing no reacceleration.
“Wait!” you say, “You were disappointed with 70% revenue growth! You’ve got to be kidding!” You have a point, but we were. Like I said, it was a good solid quarter.
You want an example: Free Cash Flow Margin was positive 22%, up from 16% a year ago, from minus 27% two years ago, and from minus 64% three years ago. Clearly they are going in the right direction, but we were still left wondering why revenue wasn’t growing faster.
Then in October they announced that they have formed an alliance, the CrowdXDR Alliance with a bunch of other prominent security companies, which indicates, it seems, that they are forming a security cloud.
My Take: I’m holding my position.
DataDog is in second place currently in my portfolio. They posted great June quarter results in August, as we predicted, having finally lapped that Covid quarter in 2020. Revenue was up 67%, accelerating from 51% in the March quarter. Adjusted net income was 11% of revenue, up from a LOSS of 5% last year. Operating Cash Flow was $52 million, up from $25 million last year. Free Cash Flow was $42 million, up from $19 million last year. They are doing just fine.
Lightspeed also had blow-out earnings announced in August.
Revenue was up 220%, and 41% sequentially, but that was counting acquisitions. Organic revenue was up 81%, which is nothing to sneeze at either, and accelerating from 48% in March.
ARPU, or Annualized Revenue Per User, was 230 up from 160, which is pretty great too.
Gross Merchandise Volume was roughly triple a year ago.
Transaction Based Revenue (Payments) was up 453%.
In October they got hit hard by a short attack which has been thoroughly discussed on the board, and which they seem to have largely put behind them, with announcements of an extension of Lightspeed Capital, and then, on Thursday, a new flagship Lightspeed eCommerce solution. They did fall in price though during the monthm due to the short attack, while our other stocks as a whole were rising, which gave them a much smaller piece of the pie.
At the end of last month (September), Lightspeed was at $121 and was a 10% position. With the short attack they fell to what is now a price of $98, which dropped them to about 7.1% of my portfolio because my portfolio as a whole was rising. I also trimmed a tiny bit to invest in other positions with clearer situations. I have no current plans to trim further, and am more likely to add back if some cash becomes available.
Monday. CloudL brought this gem to the board several months ago. They have grown to be my fourth largest position and my second highest confidence position, behind Upstart. They are a fairly recent IPO and reported revenue up 94% in their first quarter as a public company. They help people work together and cooperate, and yes, I know that there are lots of other companies in that field, but none that I know of growing revenue at 94%. The number of enterprise customers over $50,000 was 470, up 226% from 144 a year ago. That’s not a misprint! … 470 up from 144 are the real numbers. They seem to be rapidly moving towards profitabilty, and there’s lots more good stuff, but I’ll let you research the rest. Pay attention and be careful of the buying process if you decide to buy any as it is a high price/low volume stock, with a wide spread between bid and asked.
ZoomInfo is an 8.3% position which is essentially tied for 5th through 8th place with three others. They will report earnings this Monday, Nov 1st.
Here’s a comment from the Morgan Stanley analyst in the previous Conference Call:
…all the growth metrics are accelerating up and to the right. Is it fair to say that there’s a fundamental shift that’s happening right now, and that shift is actually accelerating in its pace, and you guys are really seeing the benefit flow through your growth?
What was the analyst referring to? Well their yoy revenue growth, which had been going along at a pedestrian 42%, 40%, 41%, all of a sudden, in the December quarter, accelerated to 45%, followed by 48% in the March quarter, and 57% in the June quarter. These are rates it had never seen before. International revenue is growing at 75%. Operating cash flow was $89 million, which is more than 50% of revenue, and Free Cash Flow was $92 million, even more.
From the Conference Call:
Our Intent products, which find consumption patterns to help go to market teams identify and gauge prospects, experienced significant growth with active users growing more than 5x yoy.
Streaming Intent and custom Intent bookings, which became available after we acquired Clickagy, have nearly doubled sequentially in EACH of the last two QUARTERS.
And ZoomInfo Recruiter, while still small, saw the number of seats grow over 10x sequentially in the quarter.
They raised annual revenue growth guidance seven points, from 41% to 48%.
Saul: Well, I feel that this is one of my only companies that is clearly undervalued. This is a company with a Free Cash Flow Margin of 53% of revenue, for gosh sake! Gross Margins were just under 90%! And the list goes on.
Zscaler was a position that I took back in May. They announced results in September. Here are some fiscal year results
• Revenue: $673 million, up 56%, and revenue growth up from 42% last year. .
• Gross Margin was 81%.
• Adj op income was $78 million, up from $38 million last year
• Adj net income was $76 million, up from $41 million
• Adj EPS was 52 cents, up from 24 cents
• Op Cash flow was $202 million, up from $79 million last year
• Free cash flow was $144 million, up from $27 million!!!.
• RPO was $1553 million, up 98% !!!
• Current RPO is 49% of that, or $761 million, which is 13% and $88 million more than their ENTIRE revenue for this fiscal year just finished (which was $673 million)!!!
• NRR was 128% up from 120% a year ago.
• Cash was over $1.5 billion
Their alliances with Crowdstrike and other partners are really moving along. There have been worries though that their growth will start toslow because of the Law of Large Numbers.
They just got approval to operate at the Dept of Defense Impact Level 5: (“Government agencies and their contractors will be able to use Zscaler’s Zero Trust platform for systems that manage their most sensitive Controlled Unclassified Information (CUI) as well as unclassified National Security Systems (NSSs).”)
Has to be good news.
Let me remind you first, that I have NO IDEA what our stocks will do next month. I’m terrible on predictions. But I know that the businesses of our companies will do just fine for the most part.
I feel that 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. First of all, you may have a completely different financial picture than I have. Different income, different assets, different debts, different expenses, different financial responsibilities, etc. Besides, 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.