I started to follow this board early this year thanks to the introduction of this board from a gentleman: Paul Maxime.
I just started growth investing for 1 year and without a salary from a job, my net worth is up 49% as of today! i took me almost 1 year to basically master the growth investing.
Thanks to this board. After following this board for almost a year, I was able to reduce the number of stocks to 5! I was holding 30 dividend stocks for a decade. Then changed to 200 growth stocks… Then down to 30 growth stocks then down to 20 growth stocks. Finally down to 5 growth stocks. To cut down to just 5 stocks, I have to be extremely selective about the revenue growth rate.
I learned from this board to be an aggressive capital allocator. Maybe I became a lot more aggressive than many here. Many love Cloudflare. Cloudflare didn’t fit my latest revenue growth requirement. So Cloudflare is not on my current holdings.
I joined Rule breaker to help appreciate MF to enable this wonderful board to exist. MF recommendations don’t help me much because I do my stock screening but I want to help as payback for this board.
As a big thank you, I want to share some of my investment ideas.
Here’s a new growth stock I bought recently with 10% allocation. I think they have a strong business model and show resilience with strong growth after the COVID lockdown.
Open Lending Corporation (LPRO)
It IPO’ed in May 2020 through a reverse merger.
What it does:
It provides loan algorithms to financial institutions and automotive lenders for car loans and gets paid upfront. It’s a tech company, not a loan company so it has no loan risk. From what I understand, it doesn’t write loans. It helps lenders to estimate risk and approve loans and take some fee out of each loan.
-5-second underwriting decisions!!
-Not SaaS but Net loan retention rate: 121% as of 2019.
-It was started in 2000. It has 15 years of proprietary data.
It had positive EPS before COVID and I expect it’ll resume profitability very quickly.
-It’s B2B. Not B2C. Its customers are lenders.
Revenue per loan:
“Today, Open Lending Generates ~$1,160 in revenue per Loan(1) on Average Comprised of
Program Fee, Admin Fee, and Insurance Profit Share”
1, Program Fee (~$470) (1)
? Fee-based on the initial loan amount
? Recognized upfront and for the majority of loans is paid upfront
Administration Fee (~$65)
? Fixed % fee of monthly earned insurance premium
? Paid monthly over the life of the loan
Profit Share (~$625) (2)
? Fixed % of the monthly underwriting profit for all lenders
? Recognized upfront and received from the carrier over the
term of the loan"
From investor presentation:https://investors.openlending.com/static-files/e594310c-7338…
Market cap: 3.6 B
The revenue: growth rate is mid to upper tier. A fast-growing non-SaaS tech company is hard to come by.
2018: 52.19m 61% Y/Y
2019:92.85m 78% Y/Y accelerating growth.
Last 4 Qs revenue::
17.43m (Effects of COVID)
22.07m 26.6% Q/Q
29.76m 34.84% Q/Q
As we can see, the revenue growth came back rapidly. It’s on track to continue previous revenue growth.
I just bought a 10% position on Dec 07, 2020.
My full position size is 20%.
I decided to put my background at the end because it’s out of topic.
it may help those newcomers sitting on the fence to get into growth stock investing. For experienced people, you may skip.
My longer background and some thoughts:
I am from Canada. I studied electrical engineering but worked as a buyer for an IT company for a decade. I’ve read many books about investing over a decades. Now I concluded most of them are noise. Did you see you don’t have to have finance or business degree to be a good investor?
I retired early at the end of 2019. Early this year, I messaged Saul asking about his withdrawal rate at the time when he retired. He didn’t reply. Now I know why. The conventional 4% withdrawal rate is irrelevant for hyper-growth stocks investors!I retired with a small margin of safety living on the dividend. The 3% dividend yield is just enough to pay my living expense. So any big surprise expenses will cause financial stress. I was aware of growth investing a few years ago and that the revenue growth rate is a key factor to determine investment return. Bought a couple of growth stocks but sold them shortly after because they don’t pay a dividend! I just didn’t have enough confidence myself to fully embrace growth stocks fully and aggressively.
Stressed, I tried to get better ROI. I’ve converted to growth stock style on my own with 200 equal weight growth stocks from a growth stocks ETF! It did ok. It generated 30% per year vs SP500 10%. Not bad! But it’s a lot of work to keep all the transactions. Can you imagine filing taxes for 200 stocks?? and I can’t follow up with each company and I didn’t follow. I just bought and sat on my ass waiting. . The reason I am confident enough to reduce the growth stocks from 200 to 30, and then to 5 ~10 is that I’ve been watching the board for almost a year and learned what’s it’s like to do concentrated growth stocks investing. On top of learning on this board, I’ve set aside 3 years of cash and I also have cashflow coming every month from another investment method which is out of topic for this board so I won’t discuss. It just creates lots of cashflow for me, more than my previous job. So I don’t depend on the growth stocks for living expenses. I can be extremely picky and focused and not worry about the growth stock returns. I let them compound.
2010 to 2019: I solely invested in dividend stocks averaging 12% per year return
2020: Jan to June 200 growth stocks averaging 30% per year. Criteria: minimum of 20% revenue growth.
July 2020: Cut down to 30 growth stocks: Averaging about 50% per year. Criteria: minimum of 30% revenue growth.
Dec 2020: Cut down to 5 to 10 fastest growth stocks: I expect averaging 50% to 100% per year. Criteria: minimum of 60% revenue growth.
Did you see the pattern? With a basket of stocks, the higher the revenue growth rate, the higher the return is!
I exited ZM due to uncertainty ahead. With rapid Q-Q revenue increase, there has to be stagnation ahead. The stock price will wait for revenue to catch up. and I also exited DDOG due to the recent growth slowdown. SaaS revenue is very sticky. A slowdown is a big red sign. I don’t hope for comeback of growth unless it’s showing. It is what it is.
I also sold any stocks growing less than 60% per year.
The result of my current portfolio:
SNOW(20%), CRWD(20%),FRHC(20%), PTON(17%), AHCO(10%), LPRO(10%), LMND (2%)