Saul’s Portfolio at the end of July.
I’m doing much better and am back almost to normal physically this month.
MY RESULTS MONTH BY MONTH FOR 2023
Here’s a table of the monthly year-to-date progress of my portfolio for 2023. 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 109.7% End of Feb 107.0% End of Mar 105.8% End of Apr 91.9% End of May 106.3% End of Jun 119.0% End of Jul 127.5% End of Aug 124.5%
Here’s what my postions looked like a month ago (end of July).
Aehr 18.4% Samsara 15.9% Monday 15.0% Global-e 13.5% Trade Desk 13.2% Bill 8.7% Tesla 5.1% Axon 3.6% Enphase 3.4% Pure 2.5%
And here’s what they looked like at the end of Aug:
Aehr 20.4% Samsara 18.5% Monday 16.2% Trade Desk 14.6% Global-e 13.4% Axon 10.2% Remitly 2.6% Nvidia 2.5%
Out of the ten positions I had at the end of July, the top three then, which were Aehr, Samsara, and Monday, are still the top three now, and in the same order, and they have grown in percentage of my portfolio from 49.3% a month ago, to 55.1% now.
Why? Well Samsara has risen in my confidence level, partly because of Muji’s incredible 2-part write-up for his HHHYPERGROWTH newsletter subscribers, and partly because of my own thinking about them. Oh, and they reported excellent results on the 31st, after the close. Read the conference call transcript!
And Monday. Well their last three quarterly reports have been excellent in spite of many people feeling that a company in this field can’t succeed. I’d suggest reading one of Bert Hochfelds excellent recommendations on it in Ticker Target.
And Aehr, well they didn’t rise so much because of a rise in my confidence level (it was already high), or because of sudden good news, but because Aehr stock rose in price by 23% in the last four days of the month.
No, that’s not a misprint . It wasn’t the last four weeks, or the last four months, it was the last four DAYS !!! I’m not exactly sure why, but I expect that it was partly because of the investor conference they just had, which probably caused other investors’ confidence levels to rise to the levels mine were at.
In fact the entire top five of my positions from a month ago are still the top five, but TradeDesk and Global-e have changed 4th and 5th positions (for no particular reasons).
My top five positions at the end of July added up to about 76% of the portfolio with the remaining five positions making up the remaining 24%. Now those same five positions make up 83%, and with my sixth largest position, Axon, added, it’s 93% of the portfolio, so it’s a very concentrated portfolio.
At the end of July I also had quite small positions in Bill, Tesla, Enphase and Pure Storage. All gone. I also bought and sold small positions in Enovix, Transmedics, and Datadog during the month, just searching for keepers, and my two really small ones now, Remitly and Nvidia, may go the same way.
You may say to yourself “What the heck is Saul doing, selling in and out of 6 or 7 positions?” but keep in mind that my six main positions now make up 93% or so of the portfolio, and look how stable they have been! And, for instance I’ve had a position in Monday for 17 months, I had one in Datadog for four years before exiting, Crowdstrike and Cloudflare each for a year and four months, etc. Yes, I know how to hold a position.
Addendum: Friday update
For a quick update, as of Friday’s close (the day after the end of the month), my portfolio is up 28.0% instead of 24.9%. Samsara moved up into 1st place by a nose, beating out Aehr by 20.4% to 20.1%, after having risen 13% in one day on Friday. I attribute the rise partly to the earnings release on Thursday afternoon, and partly to the amazing article by Muji for subscribers to his newsletter HHHYPERGROWTH, which also came out on Thursday.
Some of my friends sell and go into cash when the price goes up , thinking they can guess the top. I tend to buy more, as I see the price rise as a verification. Both methods have their advantages, but I feel that selling when the price goes up works in a weak market, but in a market that is taking off it doesn’t work at all.
Consider 2020 when my portfolio rose by 233% in one year, to 333% of what I started with. If I had taken profits and gone into cash after the first 20% rise, trying to catch a top, I would have missed the last 213%. And what happened in 2021? well I was up another compounding 93% before the market started down in November. What that means is that I was at about 640% of what I started with, a year and eleven months before.
Even if I hadn’t gone into cash in 2020 until I was up 30% or 40%, trying to guess tops and going into cash would have meant a huge opportunity loss of hundreds of percentage points. And then when the market had dropped 20% or 25% in late 2021, I would probably have finally put my cash to work, gotten in, and tried to catch a bottom, and then ridden it all the way down in 2022. Guessing tops and bottoms is not for me.
Besides which , from a practical point of view, it’s hard for me to sell in and out to try to catch tops and bottoms, hard both psychologically and financially.
I’m pretty sure though that I won’t let any position size get over 25%, as a position size that large generally means that I have turned off my critical faculties, and it usually ends badly.
I hope that these discussions were helpful.
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 year or so, 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 some left over for our children.
MY TOP TWO POSITIONS
I thought I’d say a little about my #1 and #2 positions, Aehr and Samsara, as these certainly aren’t household names.
Aehr is a tiny company. Its current market cap is just under $1.5 million. What it does currently is provide equipment to test silicon carbide chips (for which chips demand is exploding). It sells the equipment not to end users like car companies, but to the chip manufacturers themselves. It also sells them consumables which are used in the testing. The way I think about it is that at this time Aehr has what I consider a functional monopoly as the chip manufacturers almost have to be able to assure the end user that an Aehr machine has tested their silicon carbide chips before the end user will accept them. Aehr is net income positive.
Here is Sjo’s excellent take from the William Blair conference in June, shortened and paraphrased in places by me. There have been lots of excellent posts about Aehr on the board
AEHR’s wafer level test and burn in system allows them to test the device before it’s put into the car. It has a consumable part (recurring revenue). This market will be growing 30-40% at least until the end of the decade.
• Every one of the silicon carbide suppliers in the world is in some form of engagement with AEHR because of their unique solution. AEHR says they think they’ll see a significant market share and perhaps a dominant market share. [This is sandbagging.]
• Adding everyone’s growth up, there’s still not enough supply of silicon carbide to meet demand.
• Silicon Carbide - Biggest opportunity they’ve seen. Its growth should peak in about 2026. This is a new market.
• A normal testing system in their space costs about $18 million for one or two wafers at a time. Aehr’s system holds 18 wafers in the same footprint and costs just $2.5 million vs. $18 million. Customers say that without wafer level burn-in, you could never use the silicon carbide wafers. So AEHR is enabling this technology. AEHR has a bunch of new patents that give them a moat and a true IP differentiation.
For now, they have a head start and they’re working with the automotive manufacturers to get the AEHR system built directly into their assembly lines. Not aware of anyone trying to knock it off currently, perhaps in the future China will.
• Silicon Photonics – Has the potential to be bigger than silicon carbide. Every device must be burned in and it takes 3X longer and a higher temperature to burn in. AEHR’s tester is 3X as expensive as their silicon carbide tester. Nobody else can do a 2,000 watt wafer and nobody can do a full wafer in any form of silicon photonics burn in except AEHR, so they have a huge differentiator. Silicon photonics allows you to send signals up to as much as 1,000X faster than you can send an electrical signal.
If this moves to transceiver business and optical IO (OIO), the TAM can explode. It’s probably a couple/few years out, but something is pulling this in. Something else is brewing. AEHR is spending a lot of time designing a higher voltage testing system to differentiate themselves even more.
Trend is towards silicon carbide and gallium nitrite.
AEHR’s market cap is just $1.5B, at present (9/1/2023)
Updraft that AEHR has clearly caught is testing silicon carbide and gallium nitrite.
Drivers: shift to clean energy is driving it, as AEHR burns in (tests) every one of their wafers before the guts/circuits are applied to the silicon carbide wafer.
5G infrastructure is driving silicon photonics.
Companies are trying to put multiple chips into one device package, and AEHR does their testing before the chip is installed in the device.
Silicon carbide is a new type of semiconductor in Tesla’s inverter that’s embedded in their car.
In an electric vehicle, you get 10-15% more battery use/capacity, and it charges more quickly with silicon carbide. That’s it, that’s the big driver.
Every semiconductor has a failure rate and over time, the likelihood that it will fail goes down. If a semiconductor has not failed after 1 year, it’s not going to fail. AEHR basically ages the wafer so it’s as if it’s aged about a year, so their chip failure rate is at an acceptable rate to manufacturers and their customers.
Test could take you up to 24 hours, it’s very capital intensive. That’s good for AEHR because they sell the equipment (the “razor” which is 2/3 of the overall revenue) and the individual die (the razor blade, which is 1/3 of the revenue). They test the chip in the die form, and every one of their customers they’re talking to is interested in doing it this way.
Customers must be confident that AEHR can supply them with the consumables and the equipment. They do not supply it to anyone else. 2/3 of revenue comes from testers and aligners and 1/3 of the revenue comes from the consumable. Over time, if companies don’t need to purchase more testers and aligners (equipment), they’ll still have to purchase the consumables that comprise 1/3 of the revenue.
Galium nitrate. There will be fewer small players and they’ll be acquired. They’ll need burn in and they’ll see business this year from it. Silicon nitrate will be at the high end.
Silicon photonics will be a really huge deal. AEHR is seeing this recover since the pandemic. Something is going on related to optical IO, which has a tendency to be a game changer. I should be sure to look into this.
Optical IO, it’s coming. If you start stitching this together because the communications bandwidth is becoming limited and Optical IO can increase this by 1,000 X. This could be a really big opportunity for AEHR that could become a driver for them. This will be very disruptive and you’ll hear a lot about this over the next year. They expect revenue recognition this year from it.
As you lay out the 4 types of chips, please discuss market sizes and opportunities for
Silicon Carbide -Biggest opportunity they’ve seen. Its growth should peak in about 2026. This is a new market.
Gallium Nitrite (GAN) has the opportunity to be bigger than silicon carbide. This probably won’t be burned in. If a chip goes to Apple, it will need to be burned in, and it will get burned in.
Silicon Photonics – Has the potential to be bigger than silicon carbide. Every device must be burned in and it takes 3X longer to burn in, and a much higher temperature. AEHR’s tester for this is 3X as expensive as its silicon carbide tester. Nobody else can do a 2,000 watt wafer and nobody else can do a full wafer in any form of silicon photonics burn in except AEHR, and they have a huge differentiator.
If this switches to transceiver business to optical IO , the TAM can explode. It’s probably a couple/few years out, but something is pulling this in. AEHR is spending a lot of time designing a higher voltage testing system to even more differentiate themselves.
Samsara is 10X larger with a market cap about $16M. What they do is provide companies with software, and sometimes hardware, that will help them manage their moveable, and sometimes not moveable, assets to save lots more money than the service costs them. They are putting it all together into a platform.
Their revenue this quarter grew by 43% and ARR grew by 40%. Their gross margin was a record at 75%. Adding their FCF for the past two quarters gives you positive $3M. That was improved from a LOSS of $89M yoy in one year! That’s a $92 million swing. They added a record number of $100k customers this quarter, and their total number of $100k customers was up 53% yoy.
Now if any of this interests you I’d recommend the many good posts on the board as well as muji’s extraordinary deep dive that he sent out to his subscribers
I have learned long ago that sticking with great companies wins out in the end, and beats market timing, but living through the 2021/2022 decline was very difficult.
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.
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.