Pikatrain's portfolio at the end of Septembe

Date 10/3/2020

Previous month:
August 2020 https://discussion.fool.com/my-portfolio-at-the-end-of-august-20…

== My annual return ==

2017 0.56% (About ~2 months, not investing too much)
2018 2.30% (Mostly FANG-alike stock, technical)
2019 14.34% (Give up stock selection, switching to ETF: QQQ, SPY and keep only Amazon)
2020 83.34% YTD

A little break down of 2020

JAN 26.40%
FEB 31.91% * Decided to use margin and option to sell short stocks
MAR -24.22%
APR -50.48% * Decided to switch to Saul's strategy at its lowest point, about -74% in mid-April
MAY -9.08%
JUN 24.76%
JUL 40.15%
AUG 42.38%
SEP 83.34%

The above return is based on both my retirement account and my investment account. Note that I’m much more conservative in my retirement, where I use no margin and no option.

I made one of my stupidest mistakes around Feb. I got greedy and arrogant. I felt that I could somewhat predict the general market trend. I believed that COVID would continue to ruin the stock market. I was once at 50%+ YTD in mid-March, where I did some short-sell SPY and stocks like the cruise line companies. What caught me out of a surprise is that the stock market bounced back in April, and I still thought it would go lower. I was totally wrong – not just about the stock trend but also my ability to predict the market.

To make it worse, I was arrogant, and I actually put my money mostly in a triple-leverage inverse ETF like SQQQ or SPXU. And a 20-25% bounce-back basically wiped out all my winning (+50%) and made me lose 75% of my (non-retirement) investment since I was short-selling with leverage.

== Account activities and why ==

I feel uncertain about the future, mostly due to the coming election, COVID vaccines, and my position size. The size of my investment account is a good problem to have and a key motivator. I’m not comfortable anymore with losing the majority of my investment. When I started switching to the growth stock-picking strategy, my investment account is at its lowest balance, worth probably just three months of my after-tax income. It’s no longer the case.

I decided to reduce significantly on my leverage (margin). I have to trim quite a bit. I sold out COUP and MELI. And I trimmed more on FSLY and a bit on DDOG.

I asked myself whether I will buy a stock if I just get a surprise bonus. The answer is NO to COUP and MELI. I lost about 20% on buying MELI and hold it for just a short period. When I trimmed a stock, whether I made money or not is not my concern. My loss (or not) won’t affect a stock’s future growth.

COUP: I trimmed the stock for the same reason people don’t want to invest in COUP. Its growth rate is slowing down. COVID hits hard on many businesses, including airlines, theme parks, brick-and-mall companies. Almost every company needs procurements, but if generally speaking economic is bad, the amount a company spends on procurement can only reduce. No matter how COUP is, the company operates within a big pie that is shrinking, or at least not growing. As I explained in the past, I see no reason to invest a company facing headwinds during the COVID while there’are companies out there with tailwinds. Similar reasons apply to why I sold AYX in July.

MELI: I decided to keep either Square or MELI. I feel that I don’t have any connection in the market they operate. And generally speaking, the eCommerce growth rate is already steady. I don’t expect another big boom comparing Q4 against Q3. I decided to sell MELI because I lose 20% on it already. I have a good year that I have to pay quite a bit of short-term capital gain, and my tax rate is very high (fed plus state as income). If two stocks are similar to me, I prefer harvesting some tax loss to provide room to balance my account.

FSLY: I have more confidence in FSLY than NET. I have discussed FSLY in the last month. Nothing change. Comparing to ZOOM, CRWD, and DDOG, I’m less confident in FSLY.

OKTA: I added OKTA around $196 and sold it at 214. I was thinking of diversifying a bit on my investment. When I decided to reduce my margin significantly, I chose to give up OKTA. I make only a little on OKTA, comparing to other stocks, so the capital gain tax is also a reason. I just have more faith in other stocks.

DDOG, CRWD, ZM: I trimmed them when they exceed 30% of my portfolio. I can’t sleep well when all my money is bet on one company, no matter how confident I am.

== My investment principles ==

When I foresee an uncertainty, I usually choose to be conservative. I believe the investment is a marathon, not a sprint.
My tax rate is very high, so if there are two stocks to trim, I will consider tax implication, especially due to short-term capital gain, into my decision process. Namely, if two stocks are similar to me, I often sell the one I make less (or lose the most).

I added more allocation on the top-tier companies when other investors in the forum seem to have very high confidence, for example, DDOG. I usually avoid a stock when Saul (or any other experienced investor) gives some little “experiments,” or their conviction is low (<10% of their portfolio). I am fine with only keeping 4-5 stocks, and I don’t see a reason to diversify by adding 10-20% in another 1-2 low confidence stocks.

I’m usually 100+%. When a stock drops more than 10%, and the NASDAQ also heads down 5+%, I typically add more by either moving money from my savings account or with margin. When NASDAQ is hitting a new high for the 2nd or 3rd day, I usually trim my portfolio to bring down the margin or make room for cash.

I generally avoid stocks where I can see a clear headwind in the next six months, no matter how awesome the management team and the product are. An example is AYX, where I decided to give it up quite early. I am confident that they are going to have a headwind during COVID. If in the earning call, the CEO/CFO says they are going to have some bumping rides (or headwind or slow-down) in the next few months, I trust them 100% because they have no incentive to lie for such a statement.

In 2020 August, I started to take some small percentage (5-10%) of companies that I believe will bring some disruption to the existing business model. I made mistakes (not keeping my investment w/these disruptive innovations) in the past. I once owned Amazon at $140 in 2010 and Tesla at $200 in 2019 (i.e., $40 since it split 1 to 5). I sold those stocks at a 50-100% return. After some thinking, I decided to reserve 20% of my investment in these “disruptive” companies. My definition of disruptive innovation is that a company will put other companies out of business (soon or in the next few years). My question to these investments are, “which companies are they replacing or going to replace now?” My current top choices (in September 2020) are PTON and SQ.

== My allocation on 9/30/2020 ==

ZM 30.72%
DDOG 25.02%
CRWD 20.20%
FSLY 15.06%

SQ 8.99%

P.S. Leverage 1.13x (reduced from 1.71x)
P.S. Retirement target 36% (an increase from 19% or 4.75 Unit)
The retirement target is calculated based on the famous 4% rule. I calculate the total annual expense I need, including everything (travel, rent, tax, etc.) This is just some estimation I derived from the Wealthfront app and my monthly spending pattern. When it hits 100%, theoretically, I’m financially free – I can withdraw 4% from my investment and retire. However, I love my job, so I won’t quit if I were to reach the target tomorrow.

I know this is a subjective number, but I think it’s important to include this number here because, apparently, I will become more and more conservative when I’m getting older or closer to my retirement target (namely, financial freedom). Naturally, when my portfolio is getting bigger and harder to recover from mistakes, I will be more conservative.

== Why I picked these stocks ==

Nothing changes from the last month, except I’m thinking of adding either PTON or SNOW.

SNOW: I am in the tech industry, and I had an opportunity to dive deep into snowflakes from a user’s perspective. I know it’s ridiculously expensive, but I will tell you they a crazy moat. Once you sign up for snowflake, you cannot get out of it, and you can only pay more and more month over month. It’s like healthy cocaine.

Let me tell you a little bit about a snowflake. Firstly, it’s competing against google BigQuery or Amazon Redshift. It allows people to write SQL (a scripting language that every analyst knows and taught in the database class at School). You can consider it’s a super-powerful EXCEL cell operation. The first application is for the company to produce and calculate finance and business reports for executives. You basically write some SQLs and run it periodically to generate reports. Engineers and scientists can use the same tool to produce an aggregated calculation from “raw data” one collected from the web or mobile activity.

Snowflake is better (or at least on par) with Amazon and Google’s solution. But please note that SQL is a standard, but they are not 100% compatible. So migrating from one to the other is not a trivial task. We are talking about months or even a year-long migration where a company needs to go through SOX compliance and other finance regularizations. And once you start to use it, you have to pay more when you have more data. I cannot figure out a way to get out of it. They are killing traditional solutions like Vertica and Oracle, so the market space is huge.

To make it more attractive, SNOW allows a company to be cloud-neutral, meaning that (while taking some effort), one can easily move from GCP to AWS. This is a good value proposition for executives because this is giving them some leverage to negotiate with these cloud providers on costs.

In other words, if I were the CEO, I can mandate everyone to move ZOOM to Google Hangout, and probably none can say NO to me with a good business reason. But even I were the CEO, and I want to get rid of SNOW, my CTO and CFO will scream to me and tell me they need at least one year plus 50 headcounts to create a migration group. The moving cost can be easily 10M+ for a public company. And why you want to pay $10M to move to something inferior or similar? I don’t think any board will approve this.

If CRWD’s fee is proportional the traffic a company gets, the SNOW is proportional to the data size a company gets and the value a company wants to get from data. I’m talking about ETLs or preparing features for AI/ML. That’s why I say it’s healthy cocaine to help you lose weight (cost). Companies will pay more if they don’t use SNOW.

The only concern is that SNOW is competing with Amazon, Google, and Microsoft in a market they want to get in – data warehouse. Vertica and Oracle are way behind – I believe they are losing the race. I usually won’t invest in a company directly competing with the following: Redshift(AWS/AMZN), BigQuery (GCP/GOOG), and Synapse (Azure/MSFT). It’s a bit scary if you are old enough to recall how IE (an inferior product at the time) destroy Netscape by making the service free (or super cheap).

I read many technical reports, and SNOW is currently leading in terms of technology. And they can seduce companies to be “cloud-neutral.” But these corp giants often give service for free (for a year or two) to seduce adoption where SNOW cannot offer this. Without a deep discount, their cost is similar. And it’s tough to predict what’s happening in two years because technology shifts so fast.

I plan to add some portion of their stocks pull back a bit. And I can wait. I think when COVID is over, they will even grow faster. It’s not a tailwind for SNOW, but they have a very strong moat and value proposition.

PTON: After the COVID, I stop going to the gym, and I exercised at home. Both my wife and I love indoor cycling. We did not buy a Peloton because it’s ridiculously expensive, and we thought COVID would be over in months.

I do start to change my lifestyle, where I feel it’s easier to just have some healthy exercise at home over the weekend. If the COVID is over, I probably won’t go to the GYM during weekends. I think my question is whether I believe COVID will exist for another six months. If my answer is yes, I will add PTON as I see no other choice. Indoor cycling is so far the most “fun” and “popular” exercise my wife and I enjoy, while my son enjoys the Ring Fit adventure.


PTON: After the COVID, I stop going to the gym, and I exercised at home. Both my wife and I love indoor cycling. We did not buy a Peloton because it’s ridiculously expensive, and we thought COVID would be over in months.

I do start to change my lifestyle, where I feel it’s easier to just have some healthy exercise at home over the weekend. If the COVID is over, I probably won’t go to the GYM during weekends. I think my question is whether I believe COVID will exist for another six months. If my answer is yes, I will add PTON as I see no other choice. Indoor cycling is so far the most “fun” and “popular” exercise my wife and I enjoy, while my son enjoys the Ring Fit adventure

What a great post. Thank you and I usually try to keep a low profile on this wonderful forum of Saul’s but I believe I have some recent Peloton information that might be helpful.

Here is a link to Peloton’s no-interest loan to buy one.


My daughter sent me that link. She was all excited yesterday when we went to IKEA to buy her a bunch of furniture. Her and her boyfriend both ordered Pelotons. He had one already and my daughter loved it. I kept quizzing her, because she truly does love hiking and jogging outdoors, and she kept raving on and on that she can get a workout on her short lunch break. She now has a job with Apple Computer and they want all employees working from home. She said that her friends and her can “ride together” with the apps on the bike, and also, her friends can come over and they can do a group class off the bike.
After GouchoChris’s excellent September portfolio report and his love of Peloton combined with my daughter’s input I decided to add Peloton to my meager assortment of stocks. Thank you Saul et al.

Bringing sloppy trading habits to a left-brained bean counting stock market.