Portfolio Review 28 Apr 2022.md
This time in my portfolio review, I’ll cover the individual stocks since the big themes haven’t changed. I’ll also detail some of my personal goals and thinking around portfolio management.
I’m down -26% which has removed all my 2021 gains and some.
I try to keep things simple. My portfolio management guidelines looks like:
- Keep a cash cushion for living expenses. We have probably 2+ years of cushion.
- Investing in companies I’m interested in.
- Trimming and adding as stocks go up and down, buying at better value points (a la TomE).
- No margin, or options, or shorting (yet).
I’ve underperformed Saul et al for several years and I admit the Fear of Missing Out was significant at times.
However, and this is probably the most important point:
I’m here to learn.
It takes me by my estimate, about 10 years to become “good” at something. Thats just my speed and I can’t expect to be good at investing before spending the time. Somewhat unfortunately, I also can’t expect to be good at investing until I’ve watched lots of money vanish on market vagaries.
However, I’ve noticed I’ve become more relaxed as I’ve seen more of these corrections.
Was Kipling talking about the stock market?
- If you can trust yourself when all men doubt you, but make allowance for their doubting too;
- And lose, and start again at your beginnings and never breathe a word about your loss;
- Beat our mortgage rate.
- Beat the indexes.
- Earn about USD$30k per annum, similar to a PhD stipend.
- Investigate whether 15% to 25% return per annum is feasible in the long term.
- To learn. About the market, about the companies and the future, and mostly about me.
- Trimming and adding.
- Just being zen.
- Valuation - price paid always matters.
In size order:
- CRWD 12% - my biggest position.
- TEAM 1%
Crowdstrike is well known here so won’t elaborate more other than (as mentioned below) they’re a strong, long-term performer with access to a lot of revenue and cash flow. I think security tends to be a winner-take-most market, and I’m thinking CRWD is a ‘safe’ choice for CIO’s, CISOs, Governments etc.
Google is my main longer-term AI play. If “AI is the new electricity” then Google is the main player, with acres of data, expertise and processing power.
The major challenge with the AI play is that a) it will take how ever long it takes, and b) I predict the results won’t be linear improvements, and therefore difficult if not impossible to see coming.
It’s the whole lillypad problem:
“Problem 1: In a lake, there is a patch of lily pads. Every day, the patch doubles in size. If it takes 48 days to cover the entire lake, how long does it take for the patch to cover half of the lake?”
However, Google itself at the moment is a very strong company, with oodles of free cash to spend, and on a daily basis seems more critical to (and criticised by? ) the world. There was some angst about TikTok detracting from YouTube ad revenue, but that to me is a short-term issue.
Microsoft is a diversified power house at the centre of (completely made up number) half the worlds computing.
It’s the only tech company that spans such a wide range of human computing requirements, from gaming to enterprise. It missed the ad, mobile boats, but that was before Satya Nadella’s time. He’s very focused on datacenter, cloud, AI, and keeping people using Microsoft.
They’re looking to buy Activision the game publisher, to strengthen their Xbox portfolio, but I imagine they’ll still release on Playstation as well. Buying ATVI might be an ‘easy’ 18% return by June 2023, although it seems the market is guessing it won’t go ahead.
Datadog is a funny play in some ways. There is oodles of competition (SPLK, ESTC, SUMO, NEWR, Grafana, Prometheus …), and seemingly not much to distinguish Datadog from that competition, but they outpeform quarter-after-quarter.
That says a lot in my book.
One of the interesting things about that whole space is everyone is moving outside of the core logging, application performance management space, particularly into security which brings them into CRWD’s orbit. CRWD for their part are moving into log management, with their Humio acquisition.
Is that because the loging, apm space is too small? Or is it because their underlying technology is set up to process large scale time-series data and security is a natural fit?
I’ve owned ZS for a long time, through a lot of various ups and downs and the question I keep asking myself as a pretend CIO, “if not ZS then what?”
If you want to get all your web traffic for your enterprise secured and you don’t want to keep upgrading your firewalls, then…?
Well, the answer (at least in share price terms) is PANW!
But I still think ZS has a strong place in the future for those companies not already committed to the Palo Alto ecosystem.
Mercado Libre hasn’t been a great choice so far (although it’s only down 10% since my first purchase which makes it… one of my best performers ), but since I subbed out Amazon for it, I guess it’s not all bad. It’s a choice based on the big them of Ecommerce, and how much of human commerce will still migrate to the internet.
They’re a big player in Latin America, which is not the stablest of regions. But they’re also more behind on internet penetration, and maybe that gives a tailwind to MELI.
Upstart, how we love to discuss you. I’m taking this as simply an “AI” play on upgrading the FICO model, and every smaller bank that can’t develop (and validate and test and update and refine and…) their own models will jump to Upstart.
FICO seems to be something that needs to be upgraded, and Upstart are in a good position to do that in my opinion.
My analysis doesn’t get much more in the weeds than that. This one can grow organically, unlikely I’ll add more until we see more traction from car loans which depends on supply chain issues and the whole macro space.
Cloudflare is an odd company. Seen by some as a future public cloud, seemingly picking off the rough spots of AWS, and having good success with larger customers, they are moving way beyond their CDN roots.
They really offer a distributed compute network, which offers compute, security, cdn, compliance, and network analytics.
High on my list of stocks to add to.
I sold ASAN after last earnings which were disappointing, particularly what I felt was the disconnect between the positive rhetoric and the guidance. I was so disappointed I sent a message to IR@asana who never replied…
So MNDY is a separate play in the work transformation space. I don’t like the space that much, so am watching MNDY carefully. It’s on probation, saved by its stellar growth.
Another AI play to a large degree. Nvidia is in an interesting space wrt AI, in that their graphics cards, and more importantly, their CUDA application programming interface have to some degree defined where AI is going.
Some of the most popular AI methodologies are so popular because of how well Nvidias cards and code support those methods. Other methodologies could well be more effective but are consigned (at this point) to being very slow.
Nvidia is positioned well for the future, with significant positioning in AI, Gaming, embedded processing (eg: autonomous vehicles), metaverse, etc.
The biggest ‘issue’ for NVDA is how successful they have been. Their gross margins are 65% which is a pretty big incentive for particularly the hyper-scalers to develop their own competing chipsets.
Was a Beth Kindig recommendation. The investment has performed poorly, but the company is kind of intriguing. If you believe that everything is going to be either Apple (TV), Google (Chromecast), Amazon (Firestick) or some variety of smart TV, then what place for ROKU?
They also got caught in the NFLX vortex…
But on the other hand, their last earnings call was solid, ARPU up, active subs up, revenue growing strongly. And Beth’s thesis revolved around their data capture ability, streaming eventually replacing legacy pay TV, and their first party viewing data. That thesis still seems to be intact as far as I can see.
SentinelOne is another board favourite, yet another cybersecurity company that has replaced CRWD for many here. My judgement is still with CRWD, but S is a much smaller company ($1.529b and $223.42m TTM revenue) so maybe will continue growing faster.
I’m less certain about S than many so it’s a much smaller position for me. I think there’s a tendency to focus on winners, and CRWD has much more cashflow, much bigger R&D spend, more S&M and a very efficient sales and marketing model.
Snowflake is another board favourite, the epitomy of “nothing is too expensive”! It’s currently at a EV/S of 44, which is way down from what it was. The thing with SNOW is it has significant revenue ($1.21b TTM) and it is growing prodigiously. Those two things don’t really sync up, unless theres a huge market being tapped.
As far as I know, Microsoft and Amazon are the biggest competitors, but also partners, since SNOW runs on the public clouds. Another case where the hyperscalers have their cake and eat it too
This is probably the stock I’ll add to first, although the EV/S is still eye-watering. I’m a long way down but it’s still a small position for me as befits my uncertainty about their staying power and the recency of the IPO.
A phoenix from the ashes? AYX was a board favourite, and did pretty well until it didn’t. They’re back, still with the same business, in the same growing space (data analytics pipelines), but with a brand new management team.
I think their positioning is strong, the big trends are there, and the management team have all the incentives in the world to right the ship. Speculative, but watching with interest. Earnings tomorrow (3rd May).
My beloved Sketchers has been a solid performer for a long period of time. I bought them recently again on weakness, and actually quite enjoy following them as a counterpoint to all the tech.
Very solid company and executing really well on a world scale.
I also think shoes are kind of a Product-as-a-service, because you kind of have to subscribe (repurchase) on a regular basis. I also like their “we’re not Nike” positioning, aiming for an older audience who don’t want to spend zillions on feet coverings. eg: Very heavy into Golf, recently using Martha Stewart (who is 80yo) in their ads (https://www.youtube.com/watch?v=zQS7Cea-n10).
I can’t ever see Nike targeting the “gardening generation”!
My single worst purchase this year Shopify is going head to head with Amazon, building out a distributed retail network versus Amazons more centralised model.
I’m a big believer in ecommerce, but am getting to grips with Shopify again, so this is a tiny position for me.
Atlassian is central to software development for a large chunk of the world. Jira (issue and project tracking) is ubiquitous, and they’re all over a lot of the rest of the “tools that support software development” space.
Very much the picks and shovels model. Again, a recent (and not very successful to date) addition, but very much in with the theme of more software.
This (and next) quarters earnings season is going to be very interesting. To date, it’s looking pretty strong for tech. Macro headwinds abound, and there is a real possibility that those headwinds become problematic for the economy. Whether that corresponds to weaker tech earnings however…?
Good luck to all.