As I mentioned, I sold my entire PVTL position the day after the earnings results came out. The main reason for selling was the slowing yoy growth. Looking only at the recurring revenue, the growth looks like this:
Q1 18: 83.5% Q2 18: 82.0% Q3 18: 74.4% Q4 18: 58.2% Q1 19: 68.7% Q2 19: 50.9% quarter just reported Q3 19: 48.3% midpoint of guidance Q4 19: 37.2% midpoint of guidance
Management’s reluctance to discuss some of the growth drivers was another reason. Why are they not being more transparent? Maybe it’s nothing, but it adds to my doubt.
The above two reasons were enough for me to redeploy my money into 2 companies that appear to me to be killing it. ZS’s billings was amazing. I don’t like the valuation so much but that growth was enough for me to boost up my position to about 6%. I’ve posted a lot about NVDA lately and their product releases, their explanations about how they fit into their huge target markets just really increased my confidence that this company is going to continue to grow for a long while still. I increased my position to about 9.3%. This year I’ve sold and added partial NVDA positions a bunch of times.
Here’s another way I look at the PVTL sale. I figured that this stock is likely to languish for a while, at least until the Q4 numbers come out. Maybe their Q3 results will boost the stock back up but I think it probably more likely that it would take a super strong Q4 result before the stock can really take off. I could be completely wrong about this, but I’ve decided to place my bets on ZS and NVDA for now. I may change my mind on PVTL in 3 or 6 months, and that’s the nice thing about selling a position at a loss…no taxes will be paid on this decision and I can always change my mind as new information comes in. A year ago I probably would have not sold PVTL, probably because I would have been concerned about making a mistake. Now I look at this differently…if I feel I am making a good decision based on the current information available then there is no mistake. If the outcome is worse than the alternative that I didn’t choose then that’s ok too. In the case of PVTL, ZS, and NVDA I felt that I got new information that I could act on to get a better future outcome. Every day we new information and we analyze this information to alter our previous view. I think that as investors if our view of reality has changed then it is our duty to align our portfolios to this new reality.
Another example is LGIH. I think that the situation with LGIH changed but I think that my decision to sell last year also had a lot to do with new information that I got from other stocks. By comparison these other stocks seemed so much better. Which stock do I want to cut to make funds available to add to these other stocks. LGIH was for me the obvious choice. In the past I might have considered LGIH to me my stock. The one that I analyzed and the one that I followed and wrote about. I would have been influenced to hold on to it just because of all the effort that I had put into studying it. I think that this can be detrimental to portfolio performance. This is how Saul is ruthless. He sees things for how they are and makes decisions based on nothing more that his view of the situation. No falling in love with a company. No extra points for having spend hours studying a stock over a long time period. It’s really simple: is stock A better than stock B? If yes, then move some money from B to A. If stock C comes along that’s even better then move some money from A to C.
So back to PVTL, NVDA, and ZS. The new information that I got about these companies prompted me to move my capital. The previous allocations that I had on these 3 and the allocations that I had on all my other stocks also influenced where I put the money from the PVTL sale. For example, I would have added a bunch to NTNX if it wasn’t already such a huge position in my portfolio.