Othalan's April 2020 Update

At times like the past two months I realize more than ever how perverse I must seem to most people in the world. I am by nature a traveler and an adventurer. I have been on the road exploring the world for nearly a decade. In these years of wandering the world I have realized I am never so content as when in the midst of turmoil and chaos with no ability to see the light at the end of the tunnel.

Thus these last two months I am both delighted and bored in near equal measure as the world and my investments all go crazy in a surprisingly boring and predictable way. As the world turns chaotic in a way I’ve never seen, I end up sitting in my hotel room in Thailand reading books and enjoying the sunshine. Similarly, as the stock market panics and drops, my portfolio goes right on ticking along in a most satisfactory manner.

2020 Portfolio Performance:

__Month   YTD     S&P500(*)   VSMAX(*)__
Jan    21.92%    -0.22%       -2.09%
Feb    21.83%    -8.69%      -10.66%
Mar     9.48%    -20.17%     -30.48%
Apr    22.05%    -10.14%     -20.47%

High: +34.13% on 19 February
Low:  -19.93% on 16 March

(*) I compare against the S&P 500 and the mutual fund VSMAX as these were my primary investments before utilizing Saul's methodology and represent how I fare compared to my previous naïve self.

Positions as of 30 April 2020:

ZM    22.1%
CRWD  19.6%
AYX   18.2%
DDOG  17.9%
OKTA  13.8%
TTD   10.8%
ROKU   1.0%
COUP   0.7%
Cash   0.1%

The astute reader will note the above totals 104.3% indicating a use of 4.3% Margin.

General Comments

Watching my portfolio drop in March, I have to admit I flinched. As I live off of my investments, it was a challenge to watch my portfolio drop in March. Between 12 March and 18 March I sold a total of 3.4% of my portfolio value and left it in cash. From an investment perspective, the timing was abysmal but my nerves needed that small bit of consolation even though the vast majority of that amount was in a retirement account where I cannot access it for many years.

Comments on Investments

Zoom Video Communication (ZM)

I have to admit I was skeptical of ZM as an investment. I have long loved the technology because I found it works in environments where every other video conference software I’ve had the misfortune to use has failed. Even on the most slow and unstable of networks I almost always have audio at a minimum and surprisingly often I have full video. Yet I could not see why they were a compelling company for investment.

All that changed with the Covid-19 pandemic. Zoom became a household name overnight and I had no hesitation making it my largest position once I saw the inevitability of stay at home orders around the world and the rise of Zoom as the go-to solution for video conference.

Recent weeks have seen Zoom targeted by doubters, hackers, short attacks and outright character assassinations. Far from deterring me, I see this as the validation that Zoom has suddenly become a big league player and a worthy investment.

Management could never have foreseen this pandemic and the windfall to their business it provided nor could the ever have planned adequately for the fallout. Nonetheless they managed to prepare a system so robust that usage increased 30x in a few months with no system failures, no outages, no major bugs, and no loss in quality. The worst of the security flaws discovered so far have been corrected rapidly and the company continues to focus on updating its security to the rigorous demands of a customer base it could never have envisioned last December. As a software engineer by trade I am impressed. As an investor I am comfortable with my investment.

Alteryx (AYX)

Previously my #1 position, I have slowly been decreasing my position in AYX. I have lost no confidence in the company, I simply have no understanding of how well they will weather the “coronavirus storm.” As revenue is subscription based I have no worries of a loss in revenue yet I have no understanding of their sales model and how fast or slow they may be growing in these uncertain times.

Crowdstrike (CRWD)

Crowdstrike has already mentioned to investors that its sales force is unhindered, and perhaps even helped, by the current environment of work from home orders. I have also seen hints in news articles that security is becoming a more important concern in recent months and that Crowdstrike is a name which comes up repeatedly. I have thus increased my position size significantly though I am cautious and watching closely to decide if this was the correct choice.

Datadog (DDOG)

As with AYX I have no insight into how DDOG is faring in terms of its sales, however the fact that Datadog is designed to facilitate remote system maintenance has me thinking this stock may fare reasonably well. I have thus not touched this position.

Okta (OKTA)

Same comments as for Datadog above, except my confidence level is lower.

The Trade Desk (TTD)

I have held my investment in TTD steady in part because it is likely political advertising will be significant in 2020 and because I believe investors have been underestimating the usefulness of advertising during the coronavirus lockdown period.

Roku (ROKU)

New investment for me as of 30 April. I am not yet convinced it has a place in my portfolio.

Coupa (COUP)

I have sold the majority of my investment in Coupa. Looking back on recent months its performance has consistently trailed my other investments. I don’t see anything wrong with the company I simply don’t see it as good as my other options. It is with great irony that I say this watching the stock outperform everything else I own the past few days yet such is the fickle nature of the stock market.

MongoDB (MDB)

I have sold out of MDB. I still believe they have an amazing product compared to other available options yet growth has clearly slowed down and they no longer fit the description of a company that has a place in my portfolio.

Red Violet (RDVT)

When Saul first brought this stock to the attention of the board I was willing to give it the benefit of the doubt with a small position. That changed when it became clear its target customer base (real estate agents) would have far less business than normal this year. I sold, though only after debating the issue for far too long.

Shopify (SHOP)

I have been looking into Shopify again to determine if it might be a worthy investment. Could the world be turning to online business to such a degree that Shopify gets a significant boost out of post-pandemic changes to world business? I am undecided but beginning to look into the current state of the company and if it might be an interesting investment at this time.