Othalan's January 2024 Portfolio Update

Othalan’s January 2024 Portfolio Update


I am not dedicated to monthly updates as are some on this board (my most recent was April 2020) so take this update as much as a review over recent years as for the current month.

Before I continue … Thank you Saul for sharing your wisdom with us. An equally hearty thank you to everyone who has come to this forum to share bits of wisdom on the companies we follow and to help our collective knowledge of investing grow bit by bit with each insight in each new post.

WARNING: I have a high risk tolerance, tend to keep my portfolio concentrated, and view any losses as an opportunity to learn rather than any form of failure. Use this post as advice at your own risk!

I have been investing since 1999 but only actively investing in stocks since January 2016 when I discovered Saul’s board and realized his strategy suits me nearly perfectly. I have a few notable differences in my personal strategy compared to Saul as described in the Knowledge Base (Part 1 Part 2 Part 3):

  • I tend to prefer steady high growth over maximum possible (hyper) growth.
  • I pay a bit closer attention to macroeconomic trends.
  • I keep a portion of my investments in an index fund when I don’t have a better idea.
  • I use options.

OT: A brief word on my use of index funds: I am a big fan of index funds as a way to get consistent returns with minimal effort. Better than cash when I don’t have a great idea for where to invest my money as I am not always so adept as others on this board at identifying the best investments. The IGV ETF is my current fund of choice. As this is off-topic for the board, I will not comment further on mutual funds nor answer questions.

OT: A brief word on the cash balance and my use of options: Since November 2023, I have allocated a portion of my portfolio to learning about using options with my investments as a possible different dynamic to my income stream. This necessitates a cash balance which would otherwise be invested in stock or my current index fund of choice. My monthly performance since 2023 includes returns from options but my portfolio allocation does not reflect any option positions. As this is off-topic for the board, I will not comment further on options nor answer questions.

2024 Performance and Positions

YTD Return: 6.16 %

Current Positions:

| Symbol | Allocation | Reward | Risk   |
| ------ | ---------- | ------ | ------ |
| CRWD   | 14.63 %    | Medium | Medium |
| (cash) | 14.28 %    |        |        |
| IGV    | 13.88 %    |        |        |
| IOT    | 12.57 %    | Medium | Low    |
| DDOG   | 10.89 %    | Medium | Low    |
| ELF    | 10.06 %    | High   | High   |
| AXON   |  9.97 %    | Medum  | Low    |
| MNDY   |  7.78 %    | Medum  | High   |
| ZS     |  4.95 %    | High   | Medium |
| CELH   |  1.00 %    | Medium | High   |

Risk / Reward levels indicate my current feeling on the risk and reward.

Watchlist Companies:

Nvidia (NVDA)
Cloudflare (NET)
Snowflake (SNOW)

Performance History by Year

| Year |    YTD   |
| -----| -------- |
| 2016 |   9.82 % |
| 2017 |  76.88 % |
| 2018 |  31.17 % |
| 2019 |  38.15 % |
| 2020 | 177.02 % |
| 2021 |  25.55 % |
| 2022 | -63.57 % |
| 2023 |  22.64 % |
| 2024 |   4.10 % |

Performance History by Month

| Year | Month     |   MTD   |    YTD   |
| ---- | --------- | ------- | -------- |
| 2023 | January   |  6.83 % |   6.83 % |
|      | February  | -0.12 % |   6.70 % |
|      | March     | -2.24 % |   4.31 % |
|      | April     | -9.85 % |  -5.97 % |
|      | May       | 18.08 % |  11.04 % |
|      | June      |  0.37 % |  11.45 % |
|      | July      |  6.44 % |  18.63 % |
|      | August    | -8.06 % |   9.06 % |
|      | September | -3.78 % |   4.94 % |
|      | October   | -7.88 % |  -3.33 % |
|      | November  | 18.88 % |  14.92 % |
|      | December  |  6.71 % |  22.64 % |
| 2024 | January   |  4.10 % |   4.10 % |

General Commentary

I largely neglected my investment portfolio from October 2021 through October 2023. This period taught me a few invaluable lessons in investing with the companies we discuss on this board:

  • Beware of companies which look to have good returns at the moment but do not have compelling long-term prospects. Hyper growth stocks can fall sharply when growth slows down or macroeconomic conditions change and the price may never recover. If there the long term prospects are not highly compelling, it is better to sell earlier rather than later. These types of positions require very close monitoring.
  • Steady growth in a company is invaluable and has always given me better long-term results than even my best (luckiest) hyper growth investments.
  • Sustainable medium growth potential at low risk is often better than high growth potential at medium or high risk.
  • Stay aware of macroeconomic conditions. While I never worry if my entire portfolio drops at once, even a small awareness of macroeconomic conditions will give insights into how long the downturn is likely to last. As this is off-topic for the board I will not comment further on strategy regarding macroeconomic conditions.

CrowdStrike (CRWD)

A recent accidental discovery perusing my investing history taught me a sobering lesson:

Never bet against CrowdStrike!

I have been invested since 2019 and for most of that time it has been one of my largest positions. My regret? I have sold the majority of my shares. It always seemed the right choice at the time as my position in CRWD grew too large for comfort. Yet as I looked back over my investing decisions I have rarely had a better place for my money.

The consistency of CRWD is what has made it such a great investment. Revenue, Earnings, and Free Cash Flow all increase at a steady pace and the stock price has, accordingly, risen at a steady pace. Management seems to have adeptly navigated growth from a small- to mid- to large- corporation. Their product, security, has been important for many years and will likely continue to be important for many years to come. Customers have come to trust that CrowdStrike will provide them with quality security solutions.

CRWD has recently reach an all-time high, my first investment to do so since the large selloff of 2022. As might be expected, the valuation is very high. Yet as I look at the steady growth, I have to admit that the valuation is acceptable if CrowdStrike continues to grow at this fast steady pace. Revenue growth has inevitably slowed as the company grows (the law of large numbers), but the transition has been smooth enough there has never been a shock to investors precipitating a large drop in stock price.

The below data should give a good representation of the consistency of CrowdStrike. Not the fastest growth, but its consistency has made me more money than any other investment in my portfolio by a significant margin.

Revenue, EPS, and FCF by Fiscal Quarter

NOTE: The last data point is the forecast for FY2024Q4 and will likely improve.

Revenue Growth Year-Over-Year

NOTE: The last data point is the forecast for FY2024Q4 and will likely improve.

Samsara (IOT)

Samsara is a new position for me in January. My thoughts on the company can be summed up in a recent comment in another thread, which in brief states that I appreciate their focus of learning from customers and their ability to provide a product which scales well.

I do not expect Samsara to ever provide super high growth, however my analysis is that there is very little risk. The greatest difficulty in owning the stock is that appreciation in the stock price tends to be lumpy with a large jump at earnings followed by months of slow decay in the price. This is not an investment for the impatient!

DataDog (DDOG)

DataDog has been one of my larger investments consistently since 2019, though if I had been paying closer attention I would have significantly decreased my position size a long time ago. I remain invested in the company because, like CrowdStrike, they seem to have ably transitioned from hyper growth to (merely) high growth while maintaining a reasonable long-term outlook. However, I am far less certain of the consistency and prospects compared to CrowdStrike so DDOG is a top candidate to decrease my position size as I identify better locations for my money. This has been a slow process as I am not unhappy with DDOG, I am simply not happy either.

E.L.F. Beauty (ELF)

I resisted investing in ELF when it was first mentioned on this board because I consider it to be at a very high risk of changing fashion trends. What eventually convinced me to invest was that they have been very successful at targeting a market segment which is often overlooked: Women with limited money who want a quality product which is environmentally friendly.

To understand my concern, consider the slogans I found on their websites. The below statements have a Dilbert-worthy quantity of pop-culture buzzwords.

Clean beauty should be readily accessible to all, that’s why our award-winning makeup and skincare continues to be available at affordable drugstore prices. Always vegan, our professional quality cosmetics are filled to the brim with cruelty-free goodness, and never tested on animals – garnering the Leaping Bunny! stamp of approval. In efforts to reduce our environmental impact, e.l.f. Cosmetics launched Project Unicorn, a commitment to stripping down cluttered packaging for more sustainable options. Since 2019, e.l.f. has eliminated over one million pounds of excess packaging waste.
- E.L.F. Cosmetics Homepage (small text near the bottom)

We are bold disruptors with a kind heart. We build brands that disrupt norms, shape culture, and connect communities through positivity, inclusivity, and accessibility.
- ELF Beauty Homepage (animation at the top)

My largest concern is that if the company or its management is ever found to violate these lofty feel-good ideals, their customers could abandon the product en masse leading to a price drop with no warning.

On the other hand, there is no denying that these slogans are precisely what their target audience is looking for. Furthermore, management has capably broken created a new brand competing against well known and entrenched brand names and successfully grown to a scale which is seems to be exceedingly rare in the cosmetics industry.

My end conclusion is that the market is likely underestimating this company even after their many successes.

Axon (AXON)

Not much to say on Axon. They seem to have quality products, steady growth, and a loyal customer base. There seems to be very little risk of a price drop in the stock so I am invested while I watch what happens.

Monday (MNDY)

I appreciate Monday because they have been moving towards a consistent healthy cash flow for a long time, even when most SaaS companies were spending lots of money to expand business. While I appreciate the opportunity available in expanding business for a new product, I have also seen that growing too fast can be a risk if management is not up to the task managing of the rapid growth or the larger company size.

However, the company is also based in Israel. While the company does not (yet) seem effected by current events in the country, I have been considering decreasing my position size and consider this a high risk position at the moment.

Zscalar (ZS)

I have been invested in Zscalar off and on since 2018, primarily on the premise that internet security is very important in the world today. However, I have never been comfortable with the company for reasons I have not been able to put into words. So I am yet again invested in the company, but I have kept the position size small.

The most recent earnings looked great except for an unusually low number for expected billings. I will be keeping a close watch on the company for the next earnings release.

Celsius Holdings (CELH)

A new position this month while I learn about the company. I do not see a reason to be invested in this company and expect to sell in February.

Watchlist Commentary

My watchlist companies are entirely around companies who provide tools which might be relevant to upcoming AI technologies:

NVIDIA (NVDA) is the most obvious as they are the current market leader in hardware required for AI technologies. However, I find it difficult to see a large growth potential for a company with as high a market cap as NVDA. I have some minor exposure to NVDA using options but have so far hesitated at opening a position.

Cloudflare (NET) was a medium-size position in my portfolio until November 2023. I exited because I felt I had better places for my money and because I felt NET had little in the way of a competitive advantage beyond brand name recognition. However, I have kept it on my watchlist for the moment in case it becomes relevant.

Snowflake (SNOW) was another medium-size position in my portfolio up until November 2023. I have never been comfortable with the company or its valuation, but I also keep encountering reasons it should improve. The latest rumor is related to AI. I keep this company on my watchlist in case the story seems to improve yet for the moment I am determined to stay away unless hard numbers improve.

EDIT: Minor tweaks for clarity.
EDIT: Include 31 January 2024 in monthly performance.