Saul's early results for June

Investment Analysis Clubs Saul’s Investing Discussions
1

Saul’s early portfolio results for June 2024.

I’m giving them early as I’ll be traveling at the end of the month and thought I should update you, even if it is a week early.

I must be feeling a lot better because I paid a lot more attention to my portfolio this month and made several major changes, which you will see below.

Here’s the table of the monthly year-to-date progress of my portfolio for 2024. I’ll present them as starting from 100% of my starting value and figure from there.

End of Dec 100.0% starting point

End of Jan 101.7%

End of Feb 125.4

End of Mar 127.2

End of Apr 117.4

End of May 121.7

End of Jun 121.7

There sure hasn’t been a lot of change in year-to-date progress in the last four months, since the end of February.

Here’s what my postions looked like a month ago (end of May):

Elf 20.9%

Axon 16.6%

Celsius 16.5%

Samsara 13.9%

Nvidia 10.5%

Crowdstrike 7.5%

Monday 4.4%

Nu Holdings 4.4%

And here’s what they look like now, at the ‘end’ of June:

Elf 20.0%

Axon 17.6%

Nvidia 15.4%

Celsius 10.8%

Crowdstrike 9.3%

Nu 5.9%

SuperMicro 4.9%

Transmedics 4.5%

Nextracker 4.0%

Monday 0.8%

Samsara 0.6%

I had bought back a smallish position in Nvidia in April, and in May I enlarged it, to a 10.5% position and now it’s up to a 15.4%, and in third place after ELF and Axon. I decided to pay attention to results (as I normally do), instead of worrying about not understanding its technology. Its quarterly results announced last month were fantastic. For example revenue up 262% yoy and up 17.6% sequentially. However it is important to remember that that year-over-year revenue growth will be dropping rapidly as they lap the beginning of their rapid growth a little over a year ago. What’s important to watch is sequential growth. For example, if they can keep up the 17.6% for four quarters they will end up with about 91% annual revenue growth. They also had a 10-for-1 split which took place on June 7th. That brought the share price from the $1100 per share range to $110 per share range, where it will be more accessible to smaller investors.

To balance Nvidia’s large increase, my Monday position changed from a 16% in March down to a 7% position in April and to 4% in May, and is now less than a 1% position, all largely because I trimmed it down. I used to have a great deal of confidence in Monday, but now, after some hesitation and seesawing, I’m almost out. Why? Because they keep talking about how great their new products are, and how well they are being taken up, and about all the new large customers they are getting, but each quarter revenue just grows by the same roughly $13-$14M sequentially. It has grown revenue by about the same number of dollars each quarter for roughly eleven quarters, since mid-2021 ! Well a sequential revenue increase of $12.4 million was enormous 11 quarters ago, when the previous quarter was $71 million (up 17.5% sequentially), but up $14 million is piddling this quarter when the previous quarter was $203 million (up 6.9%). This is resulting in a hugely lower and lower percentage sequential growth, even though their product introduction has been very interesting. I’m not implying that management is exagerating. I just don’t see how revenue can be growing so slowly if what they say is true, so I’ve decided to pretty much exit for now, and I recognize that it may be a mistake, but I had other places I preferred to put the money. [Granted, next quarter sequential revenue may be up a little more because of a price rise, but that doesn’t mean the business is increasing, just that they are charging more.]

ELF also had astoundingly good results and has grown into my largest position. In the board thread on ELF’s results I warned against paying any attention to their comically low guidance. After all they grew revenue by 71% yoy, and grew it sequentially by 18.5%, and then forecast revenue growth for the year at 20% to 22%!!! It’s as if they were saying “Okay, you guys are insisting that we give estimates, so here are some silly ones. If you take such a ridiculous estimate seriously, that’s your problem!” Oh, and their adj EBITDA grew 93% yoy, and gross margins were 71%, an incredible number for a company selling physical products. And they are hugely taking market share from everyone else. I had trimmed it recently when the position size got too much over 20%, but from now on I may let it grow a little. Its stock price is back up to its all time high.

Axon is still in 2nd place and I have no worries about it. They still seem very steady to me. Their revenue was up 34% in the Mar quarter after having dropped back to up 28% yoy in their Dec quarter, and it was up 6.7% sequentially after being up only 2.0% this same quarter last year. And their adj EBITDA was a record and up 67% yoy. Their Cloud and Services Revenue (recurring revenue) was up 52% and their Annual Recurring Revenue (ARR) was also up 52%. They are doing fine.

Nu had a great quarter. For a couple of figures: Adj Net Income was $443M, up 136% yoy (more than doubling) from $188M a year ago, and up 11.9% from $396M sequentially**.** Revenue was $2.7B, up 64% yoy. Monthly average revenue per active customer of $11.4 rose from $10.6 sequentially and from $8.6 yoy. The monthly average cost to serve an active customer held stable at $0.9. (They estimate the cost for most incumbent banks to be about $6.00, and they are at 90 cents). Gross Profit: $1.18B, up 76% yoy (Foreign Exchange Neutral). Gross Profit Margin stood at 43.2%, up from 40.2% a year ago…. With incredible results like that I can’t turn down a position, even if it is a bank in Latin America. And I’ve grown my position size from 4.4% to 5.9%. That may not look like a lot to you but it’s one third higher than it was a month ago.

My Crowdstrike position grew from 7.5%. to 9.3%, a good part due to the stock price increase. I don’t think it will ever grow revenue at 50% a year again, but it’s dominant in its field and has turned into a money making machine instead. I’m happy with my position.

A month ago Celcius was my third largest position at 16.5% and now it is down to a 10.8% position, largely because of the stock price falling by a third but also because I’ve started trimming it as well. The unexpected large fall in revenue growth slapped us in the face with how much their growth is dependent on Pepsi, and under Pepsi’s control as well.

Samsara on the other hand is mostly out of my portfolio. There are too many uncertainties and I felt I had better places for my money. I’ll grant you, that that is a huge change from my overconfidence in them six months ago, and it may be a big mistake. I’ll try to write more about them next month

I’ve added small positions in SuperMicro, TransMedics, and Nextracker, all very rapid growers currently. Not sure I’ll hold all of them, but I may.

And I did continue to take out small amounts of cash into my permanent non-investing position that I referred to as my permanent safety fund below.

IF YOU ARE WONDERING HOW MY STYLE OF INVESTING DOES LONG TERM

If you are wondering how my style of investing does long term, here are the last seven years and five months, starting with 2017, when we started investing in SaaS companies.

**2017 84.2%

**2018 71.4%

**2019 28.4%

**2020 233.3%

**2021 39.6%

**2022 -68.4%

**2023 26.7%

And first six months of 2024 +21.7%

That compounds to 919% of what I started with in seven years and six months, more than 9 times what I started with, even including the horrible 2022 sell off.

Okay, let’s look at a longer time frame. How about the last 31 years, going back to 1993 when I started seriously keeping track every week. If there is no sign on the yearly results it means that the total portfolio was up that much percent for the year. In other words, 21.4% means up 21.4% and 115.5% means up 115% (more than doubling, not up 15.5%).

**1993: 21.4%

**1994: 15.4%

**1995: 43.4%

**1996: 29.4%

**1997: 17.4%

**1998: 4.9%

**1999: 115.5%

**2000: 19.4%

**2001: 46.9%

**2002: 19.7%

**2003: 124.5%

**2004: 16.7%

**2005: 15.6%

**2006: 8.6%

**2007: 22.5%

**2008: –62.5%

**2009: 110.7%

**2010: 0.3%

**2011: –14.5%

**2012: 23.0%

**2013: 51.0%

**2014: –9.8%

**2015: 16.0%

**2016: 2.5%

**2017 84.2%

**2018 71.4%

**2019 28.4%

**2020 233.3%

**2021 39.6%

**2022 -68.4%

**2023 26.7%

**2024 21.7% …(So far)

I’ll let you compound it for yourself. The compounded number is so large that I’m embarrassed to write it down.

If you aren’t sure how to compound, start with 1993, 1994, 1995, etc and then start with $1 or $100 (your choice) and then to multiply by 1.214 x 1.154 x 1.434 … etc. When you have a number like -62.5 in the crash of 2008 you multiply by 0.375 because you ended the year with 0.375 of what you started the year with.

If you started with $1 and you have a result like 9.75 it means that you have almost 10 times what you started with, and if you have a result like 137.5 it means you have more than 137 times what you started with. As you will see, it compounds to a lot more than that.

Please understand though that I don’t have all that money. I’ve been retired since June of 1996 (for about twenty-eight years) and my family has been living off my investing for all that time. That means renting and buying houses or apartments, all the family food, eating at restaurants, buying cars, taking airplane trips, and there was clothing for all of us, furniture, hotels, sending my daughter to college and grad school, medical bills, electricity bills, computers, home repairs, phone bills, the whole works, for twenty-seven and a half years.

What those numbers compound to is what I would have had if I could have left it all in to compound , but I took out money for our full expenses every year, as well as for emergency money set aside. Just for example, if that compounds currently to 200 times what I started with in 1996 when I retired, every single ten dollars that I took out for our family to live on in 1996 would mean two thousand dollars less I’d have now (200 times), and so on each year.

I have kept a permanent safety fund out of the market that I could live off for several years if necessary, and I feel everyone who does not have a secure regular source of income should do the same. I have gradually added to it over the last sevaral years, moving some funds gradually from my investing pool to my out-of-the-market pool. Given our advanced ages, my wife and I probably have enough to live for the rest of our lives with our out-of-the-market pool, with a little left over for our children. I add a little to our out-of-the-market pool almost every month.

I have learned long ago that sticking with great companies wins out in the end, and beats market timing, even though living through the 2021/2022 decline was very difficult.

FINISHING UP

Let me remind you first, that I have NO IDEA what our stocks will do next month. I’m terrible on predictions. But I know that the businesses of our companies will do just fine for the most part.

When I take a regular position in a stock, it’s always with the idea of holding it indefinitely, or as long as circumstances seem appropriate, and never with a price goal or with the idea of trying to make a few points and selling. I do, of course, eventually exit. Sometimes it’s after months, and sometimes after years, but I’m talking about what my intention is when I buy.

I do sometimes take a tiny position in a company to put it on my radar and get me to learn more about it. I’m not trying to trade it and make money on it, I’m just trying to decide if I want to keep it long term. If I later do decide that it’s not what I want, I sell it without hesitation, and I really don’t care whether I gain a dollar or lose one. I just sell out to put the money somewhere better. If I decide to keep it, I add to my position and build it into a regular position.

You should never try to just follow what I’m doing without making up your own mind about a stock . First of all, you may have a completely different financial picture than I have. Different age, different income, different assets, different debts, different expenses, different financial and family responsibilities, etc.

Besides, in these monthly summaries I’m giving you a static picture of where I am currently, but I may change my mind about a position during the month. In fact, I not infrequently do, and I make changes in the position. I usually don’t announce these changes until the end of the month, and if I’m busy or have some personal emergency I might not announce them even then. And besides, I sometimes make mistakes, even big ones! Don’t just follow me blindly! I’m an old guy and won’t be around forever. The key is to learn how to do this for yourself.

THE KNOWLEDGEBASE

Since I began in 1989, my entire portfolio has grown enormously. If you are new to the board and want to find out how I did it, and how you can try to do it yourself, I’d suggest you read the Knowledgebase , which is a compilation of my “words of wisdom”, and definitely worth reading, (a couple of times), if you haven’t yet. It’s on the panel to your right.

I hope this has been helpful.

Saul.

134 Likes
2

Please don’t be afraid to comment, question, or criticize. Because this is called “Saul’s Board” doesn’t mean on-topic criticism is forbidden.
Saul

24 Likes
3

Hi Saul,

I was curious if your recent philosophy on hardware companies has changed recently because of the scale some hardware companies are operating on. Or I was wondering if this part of the Knowledge Base should be updated?

I look for recurrent revenue . I want my company to have last year’s revenue repeating this year and building from there, and not a company that has to go out and grow by selling the whole thing over again. God, this is important! It usually means software , and a SaaS model, and NOT selling things . You just can’t keep growing at 40% selling things.

It seems like with Nvidia and Supermicro they are selling things, but the customer will likely come back in some years to repeat purchase. Or maybe the AI trend is big enough we don’t even need to worry about replacement machines for the ones being sold.

Would you say “this time it’s different” applies to some hardware businesses now?

19 Likes
4

“It seems like with Nvidia and Supermicro they are selling things, but the customer will likely come back in some years to repeat purchase. Or maybe the AI trend is big enough we don’t even need to worry about replacement machines for the ones being sold.”

You are correct wpr101, I didn’t bring it up to date. And the SaaS companies aren’t growing at 70% per year any more because they have gotten too big for that. But, Nvidia, while it is selling things, is very different than the company selling overcoats or refrigerators, because it has so much demand that it can’t keep up and has orders already for next year and the year after, and probably the year after that, and for way more revenue than this year’s. At least that’s the way I see it.

43 Likes
5

WPR

Re: “I was curious if your recent philosophy on hardware companies has changed recently because of the scale some hardware companies are operating on. Or I was wondering if this part of the Knowledge Base should be updated?”

In the late 80’s or early 90’s, I asked a computer nerd at our plant which company in the computer tech space I should invest in. The immediate response was NVDA, because of its creative, innovative hardware.

This same company has been selling stuff for 35-40 years, but not the same stuff. Perhaps the accurately disparaging conclusion about long term holds of companies selling hardware, may not apply to a few innovative companies like NVDA, who are continuously reshaping themselves by selling into markets today that did not exist yesterday.

Graydrake

27 Likes
6

Agreed, and I would add:

If you analyze the language (…which seems to me to be highly scripted, in advance) used recently when $NVDA’s “partnerships” are announced, there is a heavy emphasis on the notion that the “partners” will be hard-coupling themselves to $NVDA’s software.

IMO it’s quite evident that $NVDA aspires to be primarily a software company in the same way that $ANET insists it is primarily a software company. The reason: software is harder to de-couple from than hardware.

In other words, $NVDA is leveraging the current insatiable demand for its products into practically-guaranteed future sales of both hardware and software. Not 100% SaaS, but it’s partially SaaS, and $NVDA is carefully setting things up for recurring hardware sales as well.

IMO $NVDA is a perfect example of an additional type of invest-able recurring-revenue model.

49 Likes
7

Absolutely accurate. I keep reading articles about Nvidia’s imminent competition which will dethrone them with cheaper more powerful chips. Not one of these authors acknowledges that Nvidia is so much more than a chip designer.

After investing millions upon millions of dollar on software wedded to Nvidia hardware no one in their right mind would decide that they will switch to a different hardware platform.

If starting from a green field, a would be competitor might be considered and maybe even purchased, but I find that a pretty unlikely scenario as well. Same problem, it’s the software, it’s the entire system and not just the chips in the boxes. Nvidia sells optimized systems, that’s a great deal more than GPUs.

18 Likes
8

We are in the middle of this exact situation where I work. We have a directive to get some AI systems for a pilot program. It is going to be Nvidia chips either way. The options are 1) buying an integrated solution from Nvidia or 2) hardware from Dell (with Nvidia chips inside) PLUS software from Nvidia. I am not a decision-maker on this but will be involved with the implementation and ongoing management of the system. Either way it pans out, a good chunk of money will be going Nvidia’s way and this is only a small scale install at an organization with a sizeable budget.

25 Likes
9

While not an exact analogue, Apple’s example seems instructive. They were long considered simply a (niche) pc company, then came the ipod, iphone, ipad, etc etc. All this is very tightly wound around their software, apple store, itunes, etc. The hardware itself is profitable, and the ancillary products even more so. They also have pricing power in their app store that supplies a very very solid revenue (pure profit) stream, one that is very similar in character to saas…

Could it be that nvidia is quietly, in an aikido kind of way, sneaking up on a similar position? Everyone is focused on their GPUs, but as powerful and indispensible as they are, maybe the GPUs are best thought of as the hook.

25 Likes
10

It’s chicken egg. The software stack would be meaningless without the GPUs. The GPUs are not nearly as valuable as the potential they offer without the software stack. The two are joined at the chip.

16 Likes
11

Classic technology story; first the hardware, then platform, then apps. Recall Apple upon the smartphone introduction and their multi-year profit ramp. History shows, when you own the stack, you make a lot of money for a long time. NDVA empowers the app developers and will make a lot of money for a long time.

-zane

16 Likes
12

Saul,

Regarding MNDY you point out they were stuck adding $12-14m new revs for past several Q’s. Looking forward at their guidance for the Q2 period, if they have a typical beat they should add ~$18m rev sequentially this quarter (a good step up from that range). Sure some of that is the price increase, but they upped their FY guide by more than what they expect from the price increase (+$16m vs. upping expected price increase rev by $5-10m). So they are seeing better the expected pickup of their 2 new products. The Dev and CRM products are showing promising acceleration in the customer numbers they reported, and this should eventually drive their revenue growth after the price increases run through the customer base.

My opinion this company is executing very well relative to what is a very tough environment for SaaS right now.

Bnh

21 Likes
13

Hey Saul, I had a question for you regarding measuring your own performance, returns, and a possible way to benchmark your style of investing.

For a long time I’ve heard investors say if you had only bought companies like Microsoft or Amazon and just held them all the way how great the returns would be. This gave me the thought to look up the CAGR return of Microsoft assuming someone went allin with a 100% portfolio of Microsoft right after the IPO in 1986 and held up till 2024. Being allin on Microsoft from the start was a 29% CAGR over the years, and the S&P500 during that time was 8.69%, so Microsoft beat the S&P500 by 20.31 percentage points.

I was curious how your investing approach compares to the allin portfolio on the best performing stock of the last 40 years, and was interested to see that the Knowledge base mentioned you had a 32% CAGR from 1989 to 2007. The S&P500 during that time had a CAGR of 8.15% so your portfolio beat the S&P by 23.85 percentage points, and ahead of the returns an allin portfolio with Microsoft got.

Next I was looking to validate my own results and was fortunate enough to find a deposit slip from an account in 2010 that only had one deposit and no funds ever added. The portfolio was a concentrated growth portfolio mostly similar to the approach used on the board, and the CAGR from 2010-2024 was 34.3% with the S&P CAGR during that time at 11.28% or beating the average by 23.02%.

I believe these results prove the validity of your approach, and that a good objective way to measure results is not necessarily against the S&P500 itself, but against an allin portfolio of the best performing stock from the S&P over the long term.

To simplify the concept, let’s say the market gets a 10% per year return, and the very best performing stock over a long time frame gets 30% CAGR return, beating the market by 20 percentage points. If your own portfolio has beaten that 20+ percentage points over the S&P500, I believe that is the ultimate validation of the board’s approach because it is beating the results of an allin portfolio of the best performing stock.

Let’s say someone gave a person a stock tip of MSFT in 1986 and said this will be the biggest company by 2024. The concentrated growth portfolio can still amazingly outperform that allin portfolio with the stock tip.

I was wondering if this way to benchmark the results makes sense to you?

2 Likes
14

Hi wpr, I may disappoint you, but I’m afraid that setting your goals against the very best long term stock in the S&P is an unrealistic yardstick.

First, you have no way, back 20 or 30 years in the past, to know which will be the best longterm out of 500 different stocks for those 20 or 30 years.

Second, your portfolio is always an average of the stocks in it, and you aren’t comparing the best in your portfolio against that best S&P stock. Each year you are comparing the average growth of all your stocks against the growth of the long term best stock in the S&P.

So, I feel it makes much more sense to compare your 20-year average against the S&P 20-year average.

And besides, you don’t have to be the best of the best to be a success at investing. You just need to make enough money to achieve your, and your family’s, realistic goals.

Best,

Saul

49 Likes
15

Thanks for your thoughts on the topic. I was curious because I’d seen the following passage in the Knowledge Base before, similar to your response here.

It’s not a game where there is just one winner. We can all be winners. The goal is not to have the best record. Not even to beat a benchmark like the S&P. The goal is to be successful, to make enough money at investing to support your family eventually and be able to purchase the goods and services that you need in life. I have never dreamed that I’d be the best investor in the world, or the most successful. Worrying about that will make you crazy. I just want to be a good, successful, investor.

I’d also seen you mentioned you started tracking weekly results in 1993 when you decided to serious about investing. For myself I only started tracking results more recently and it seemed like beating the S&P in the long term may be a low bar to set with a concentrated growth portfolio. Wasn’t sure where’d you land on the topic, that is helpful.

5 Likes
16

Morgan Housel wrote an article “The Agony of High Returns” when he was with TMF, back in 2018: The Agony of High Returns | The Motley Fool

Monster Beverage (NASDAQ: MNST) was the best-performing stock from 1995 to 2015. It increased 105,000%, turning $10,000 into more than $10 million.

But this isn’t a retrospective about how you should wish you owned Monster stock. It’s almost the opposite.

The truth is that Monster has been a gut-wrenching nightmare to own over the last 20 years. It traded below its previous all-time high on 94% of days during that period. On average, its stock was 26% below its high of the previous two years. It suffered four separate drops of 50% or more. It lost more than two-thirds of its value twice, and more than three-quarters once.

So, the CAGR numbers you posted are hindsight based.

Additionally, companies like Microsoft, Amazon, Apple, and now Nvidia are uber successful for businesses and markets that simply didn’t exist when you could have first invested in them. Even if you could have predicted Amazon would expand from selling books to selling everything online, you couldn’t have predicted it would invent the Cloud. Invest big in Nvidia in 2000 because it would dominate something called AI a quarter century later? Impossible.

In the mid 1990’s Microsoft employees would joke to each other about “$50,000 snow blowers” that they purchased by selling stock that then went up a lot. MSFT is up 200X since then. Even employees couldn’t predict where the company would be 30 years later.

26 Likes
17

Agreed. But Saul is right - comparing to the best stock is not a reasonable approach as odds are very small that you will choose the best to go all-in early on.

I think comparing against S&P is not the best tool because our beta is so high. As all of us who were wounded (some mortally) in the 2021-2022 bloodbath can attest to, this beta really hurts us on the down and we should be rewarded for taking it on. If I only beat the S&P by a bit carrying this level of beta, it would definitely not be worth it.

I have always used QQQ as my benchmark. QQQ as most of you know is the top 100 Nasdaq and right now of course heavily concentrated in mag 7. If you look at performance on Seeking Alpha, QQQ trounces S&P and is basically a passive buy and hold. It has lower beta than what we hold but higher than the S&P.

IMO if we can’t beat QQQ then we are not outperforming passive buy and hold which is why we compare to begin with. Is all this effort worth it?

Fortunately for many of us it is but this is the better comparison.

32 Likes