Saul's portfolio at the end of Feb 2023

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SAUL’S PORTFOLIO AT THE END OF Feb 2023

After reading please let me know what you think. Don’t be afraid to comment or disagree on the board with things I say! People do it all the time. (I may disagree with you back though. That’s the way life is.)

As I usually do, for my own convenience, I am ending the month on the last weekend of the month, and Monday and Tuesday will spill over into March. If you want, you can think of it as a four week summary. :grinning:

Well January and February have been going up and down like a yoyo. By the 3rd trading day of January (Jan 5th), my portfolio was down 12.6% ytd, to 87.4% of what I started with. Four weeks later, on Feb 2nd, I was up 22.0%, which meant that the portfolio had risen 39.6% (122/87.4 = 1.396, or you can round it up to up 40%) in a month. A week later I was only up 6.5%, and a week after that back up 21.6%. And I’m finishing February at up 7.0%. After recovering from the first swoon in early January, my portfolio has never been in negative territory again this year.

Let me be clear , I don’t have confidence that we are really on the way up and out of this horrible bear market but it’s awfully nice to see the portfolio up on the year instead of down. :grinning:

The good news is that, on average, the stock prices of our companies, on average, are at roughly 35% or 40% of what they were they were at in November of 2021, while their revenue, on average, is probably about 60% or 70% higher, with better profitability, better operating margins, and more cash flow.

It’s evident now that our companies were probably overvalued a year ago. But it’s also clear that they were beset by wildly extraordinary circumstances. Indeed, a lot of things have occurred that could not possibly have been anticipated or foreseen, all leading to the the wildly risk-off mentality in the current market, that has sent our stocks to what seem to be ridiculously undervalued levels at present. The markets, and our stocks walked into a series of once in 50 year storms, all hitting almost simultaneously!!! I discussed them last month and won’t repeat them.

You just can’t say “I should have expected this!” Some things happen that you can’t anticipate or expect.

I was aided by a useful thought that several of our companies CEOs have expressed. It was something like “Hey guys, this current macro turmoil may affect our current results, but it will pass! Yes, it will pass! And it doesn’t change our long term outlook at all!” That confirmed my thoughts and helped me quit to focussing on the very short term. After all, I don’t know what the next few months will bring.

Look, I can’t tell you what will happen next month, but I think our stocks are for the most part quite undervalued at present and the bots and sellers have way overshot, but that’s just my opinion.

We are now in the midst of Dec and Jan quarter results. I predicted that revenue growth rates will be downfrom a year ago because of macro conditions, but many old line companies will actually have lower revenue than a year ago, which is a big difference.

What I mean by that is that, if we do get a recession, our companies may have revenue growing by “only” 40% or 50% (way down), while the old line companies may have revenue shrinking by 20% to 25%. So we will be looking at 145% of last years revenue for our companies, while they will be looking at 75% or 80% of last years revenue.

I really can’t tell you how the market will react, whether it will be “Oh how awful, just 50% growth”, or “That’s where my money should be, it’s the only thing growing”.]

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 learned long ago that sticking with great companies wins out in the end, and beats market timing, but living through this decline has been awful.

I can’t give you a date when the current turmoil will end, though I hope it is close, but I know thatour companies have secure recurring revenue, and that they are growing very rapidly, at rates almost never before seen for companies at their scale, and considering these facts really makes our companies seem way oversold to me. But that’s just my opinion. I know literally nothing about technical analysis or economics and I have no training as a financial advisor. So don’t just follow what I am doing. Make your own decisions.

MY RESULTS MONTH BY MONTH FOR 2022

Here’s a table of the monthly year-to-date progress of my portfolio for 2023.


End of Jan up 9.7%
End of Feb up 7.0%

Last year, by the end of January, my portfolio was down almost 30%, so this year has been a definite improvement!

CUMULATIVE RESULTS

For those wondering about the long term results of investing this way.


2017 – up 84.2%
2018 – up 71.4%
2019 – up 28.4%
2020 – up 233.3%
2021 – up 39.6%
2022 – down 68.4%
2023 – up 7.0% so far

Cumulative – up 537.8%

Okay, in spite of the worst sell off you could possibly imagine in our stocks, my portfolio still has 638% of what I started with six years and two months ago. That’s almost SIX AND A HALF TIMES what I started with. In the same time the S&P 500 has risen 76.6%. That’s up 76.6% compared to up 538%, compared to sextupling and a half! Figure out for yourself which method gets you the best results!

HOW DID THE INDEXES DO?

Here are the results year to date:

The S&P 500 (Large Cap), Closed up 3.4% YTD. (It started the year at 3839.5 and is now at 3970.0).

The Russell 2000 (Small and Mid Cap), Closed up 7.35% YTD. (It started the year at 1761 and is now at 1890.5).

The IJS ETF ,The S&P 600 of Small Cap Value stocks), Closed up 9.75% YTD. (It started the year at 91.3 and is now at 100.2)

The Dow (Very Large Cap), Closed down 1.0% YTD. (It started the year at 33147 and is now at 32817).

The Nasdaq (Tech), Closed up 8.9% ytd. (It started the year at 10466 and is now at 11395).

These five indexes averaged up 5.7% ytd.

LAST THREE MONTHS REVIEW

December. I took a tiny try-out 1.5% positions in ENPH (solar energy) and in TMDX (medical transplant technology), but then closed out ENPH. I don’t know yet whether I will keep TMDX. I sold most of my Crowdstrike and a little bit of my large Cloudflare positions and, with the money, in addition to the TMDX, I added to Sentinel, Snowflake and Monday, and a little to Bill.

January. Snowflake is still at 25%. Bill inched up to 22%. I’ve reduced Datadog, Cloudflare, and Sentinel by about two to three points each to a current range of about 14.2% to 13.2% of my portfolio (still quite large). I’ve built Monday and Transmedics up about 3 points and 4 points to currently about 6.7% and 5.4%. I’ve sold out of my little Crowdstrike position.

February. I initially bought more Bill on the decline, feeling that it was greatly oversold, but after thinking about it, I sold back what I had bought and a bunch more. It’s gone from my 2nd largest at 22% a month ago, to my smallest position at a third that size (which is still respectable), due to the stock price falling, and my trimming. I had trimmed a little Cloudflare before earnings but bought back even more afterward, so that it is now in 3rd place at 16%. I trimmed a little Datadog both before and after earnings and I am content with a 12% position, down from 14% last month. I had added to Monday in January and early February, and then a lot more after results, and it’s gone from next to smallest to an astounding 2nd place in my portfolio, at 18.4%, in one month. I made no significant changes to Sentinel and it’s at 14.1% and in 4th place. I sold a small amount of Snowflake when I became a little uncomfortable with how large my position was getting, but it’s still at 24% and well out in first place. I added a small amount to my Transmedics’ position almost every week for two or three months, but it’s still, even after a 20% rise after earnings, my second smallest at 8.6%.

Please remember that I could change my mind about any one or more of my positions tomorrow, depending on new information or other factors, and I may not do another update until the end of next month. Make your own decisions. Don’t just follow mine. I make mistakes at times! Guaranteed!

POSITION SIZES

I have gradually concentrated my number of positions in this macro environment, and currently have one very large position, four large ones, and two smaller ones. That’s definitely more concentrated than I like, but it’s hard to find other companies to add, as I’d have to sell part of one of these.

Here they are in order of position size, and bunched by size groups.


Snowflake    24.0%

Monday       18.4%
Cloudflare   16.0%
Sentinel     14.1%
Datadog      12.0%

TransMedics   8.6%
Bill          6.9%

JUST FOR INTEREST, HOW THEY DID SO FAR THIS YEAR


My portfolio:

NET from $45.21 to $59.20   up 30.9%
TMDX from $61.70 to $78.61  up 27.4%
MNDY from $122.0 to $154.7  up 26.8%

S from $14.59 to $15.46     up  6.0%
DDOG from $73.5 to $76.7    up  4.4%
SNOW from $143.5 to $148.4  up  3.4%

BILL from $109.0 to $86.0  down 21.1%

You probably noticed that the 2.7 point drop in my portfolio’s performance this month (up 7.0% ytd, compared to up 9.7% a month ago), was entirely due to Bill, and to some extent Snowflake, and reflecting Bill’s worrisome results and posture, and worries about Snowflakes coming results, it being a usage based company. All the other companies were up from last month, except Datadog which dropped a tiny half point.

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Saul’s Portfolio at the end of Feb 2023 — Part 2

COMPANY REVIEWS

Please note that when I discuss company results, I almost always use the adjusted values that the companies give.

I sometimes mention what I might do about each position, but DON’T just follow me. Make your own decisions. I may change my mind tomorrow and probably not mention it for a month. And what I invest in may not be right for you. And besides, I don’t understand anything about the tech.

Bill

They announced results of their Dec Q on Feb 2nd. The numbers have been discussed extensively on the board so I won’t repeat them, but I will give you my impressions and thoughts. Here they are:

The results hit me, like everyone else, as a shock. Revenue growth fell from 94% in the Sept Q, and from 190% a year ago, to 66% this quarter. That’s a SHOCK! They say that they are seeing macro effects which make trying to find lots of new customers a waste of money, so they have decided to down-focus on customer growth, and hiring new sales people, and focus on profitability, cash flow, and spending on improving their offering to their clients. Whether that’s the best thing to do, I don’t know, but I assume they know better than me. However I am impressed that they seem to have enough control over their business to have swung it in one quarter with wild increases in operating profit, net profit, and FCF, but the overall tone was one of “We can’t grow much in this macro so we are hunkering down”. Their guidance was for 48% revenue growth at the midpoint next quarter.

Market Reaction – Bill sold off about 27% the next day. The bounce back since has been minimal, and they broke through and went down even further on Friday.

My Reaction - This was not a disaster but it changes the picture greatly. They could still have a large bounce back when macro changes. Divvy is still growing very fast. They are turning out profits and cash flow. But the company is hunkering down for now, and I decided I’d be more comfortable with a third of the huge position that I had before earnings, and I trimmed accordingly. I have no current plans to add or to trim further at the present moment but I will modify my position according to what I see and feel.

Perspective - At the market peak in November 2021 (as of the Sept 2021 quarter), Bill had $308 million in trailing revenue. Now, they have $857 million in trailing revenue (or 2.8 times as much revenue, almost a triple).

On the other hand, the stock price at the high was $257, and it is now $86, or 33% of the high price.

In simplistic terms, you are getting 8.4 times as much revenue per dollar of stock price now as you would have gotten then. Even accounting for some dilution over the past year, you are getting a heck of a lot more revenue now.

They also lost 32 cents per share in that quarter (EPS), and this quarter they made 42 cents per share, and have improved FCF similarly.

That gives you an idea why, although I cut my position by two-thirds, I haven’t sold out.

Cloudflare

Cloudflare announced December quarter results on Nov 9th. The numbers have been discussed extensively on the board so I won’t repeat them, but I will give you my impressions and thoughts. Here they are:

My quick summary: This company had been delivering revenue growth in the high 40% to mid 50% range for many quarters sequentially. In addition they innovate and come out with new products and improvements at a pace that neither I, nor anyone else, has ever seen before. Quarterly revenue growth this quarter slipped to 42%, but they finally showed that they can make a profit and collect FCF, and management was incredibly positive in their presentation. For example(all quotes may be paraphrased):

“We expect to be free cash flow positive in 2023, and in the years after that.”

“We still see a clear path to NRR over 130% … and we won’t be satisfied until we get there.”

“In 2022, we had over 400,000 people apply for about 1,300 positions. That has allowed us to continue to hire incredible talent while remaining disciplined in overall compensation”.

“As our products become more complicated and we are selling to larger and larger customers, it’s increasingly clear that we need to step up our game in S&M…”

“Marc Boroditsky joined us last quarter to lead our sales organization. Last week, he briefed us on his first 100 days. My initial reaction, if I’m honest, was embarrassment over some of the basic things we should have been doing better. But my second reaction was excitement, as there are so many opportunities for us to improve.”

“I’m aware that these efforts can take time. That’s why we’re not relying on any improvement in S&M efficiency, or any rebound in the economy, as we formulate our guidance.”

I should point out that they had record operating income, operating cash flow, and free cash flow.

Market Response – Cloudflare initially rose about 10% after announcing results, but have settled back with the market and are now up only 2% since announcing results, BUT, as you remember, they are up 31% ytd, the most of any of my companies…

My Reaction – Management came to the realization that they have over-focussed on R&D without enough focus on actually marketing and selling all those wonderful new products, and they have started to correct that oversight. That sounds extremely positive to me. They haven’t included any improvement from the new S&M, or from macro improvement, to their guidance, so I would guess they will beat their annual guidance considerably. I added to my position, and Cloudflare is back up to 16% and in 3rd place in my portfolio.

Perspective – Cloudflare’s November 2021 high share price was around $221, about 3.7 times the current price of $59.20, while current trailing revenue is about 1.49 times trailing revenue back then, so you are getting about 5.5 times as much revenue per dollar of stock price now as you were getting then, and the company now is profitable and cash flow positive, as well.

Datadog

They announced Sept quarter results before the market on Thurs Feb 16th. The numbers have been discussed extensively on the board so I won’t repeat them, but I will give you my impressions and thoughts. Here they are:

Datadog is truly dominant in its field, but their revenue is usage based and they may struggle for a number of quarters, as their customers continue to apply “optimization” to their usage. Longer term they will probably do just fine, with easy comparisons to this year. Revenue growth this quarter fell to 44% from 84% a year ago, and from 61% sequentially. That’s a massive slowdown.

They are moving into security in a big way and succesfully, In October, at their DASH conference, they announced 30 or so new products and new features, looking like another Cloudflare for innovation. Datadog is shifting further left, giving developers observability and security earlier in their product development.

Market reaction – The stock price fell 10% in the two days after results were announced, but these were down days for most of our companies so it’s hard to judge.

My reaction – I had gradually trimmed for about 5 weeks before earnings, and trimmed again in the premarket after earnings were announced. Datadog is now my smallest position of my big five at about 12%, but still a very respectable position.

Perspective – Datadog’s November 2021 high share price was up around $200, about 2.6 times the current price of $76.70, while current trailing revenue of $1,680 million is about 1.9 times trailing revenue of $881 million back then, so you are getting about about 4.9 times as much revenue per dollar of stock price now as you would have gotten then, and they are now profitable and very cash flow positive, as well.

Monday

Monday reported results of their December quarter on Feb 13, and they were great. The numbers have been discussed extensively on the board so I won’t repeat them, but I will give you my impressions and thoughts. Here they are:

I’ve been adding small amounts for the last couple of months in spite of my annoyance about all the offices they were opening, etc. but because the business was doing well, the stock price was doing well, and because of their new products, like Monday Sales CRM, that they were selling to larger enterprises, and weren’t even yet selling yet to exisiting customers. This quarter they made it clear that I had been correct in adding, as revenue was up 57%, gross margin was 90%, strong demand for their products, etc.

Here’s a couple of example of their enthusiasm:

“Customers tell us they love Monday sales CRM as it’s more customizable and easier to use than any traditional CRM tools. As we begin to slowly roll out monday CRM to our existing customers, we remain focused on adding more powerful features and functionality to make it the best CRM in the industry.”


Sales CRM total accounts

1st Q -   187  + 187
2nd Q -   532  + 345
3rd Q -  1366  + 834
4th Q -  2458  +1092

S&M was 54% of revenue, down from 79%. We had a lower S&M spend due to the fact that it cost us less to acquire customers. It can be because of some of the the competitors have pulled back. And we believe this is an opportunity for us actually to take market share and to grab land. We see that we can get the same ad placements for a lot lower cost. So that’s essentially what we mean when we say less competition. We are able to be in first place while paying way less. And we get a lot more customers in because of that. Also, this year, we’re going to expand our marketing channels, a more B2B enterprise focused marketing.

Market reaction - They had closed the Friday before at $131. They then announced on Monday morning, and by Tues they closed at $164, and on Weds at $170. They are now about $155, up 18% since announcing results.

My reaction – What an entirely different story than all the caution we were hearing everywhere else! They see opportunity and are going for it full speed. I kept adding and by now Monday is in 2nd place in my portfolio at 18.4%.

Perspective – Monday’s current share price of $154.70 is about 34%, of the November 2021 high share price of about $450.

The current trailing revenue of $519 million is about twice the trailing revenue of $263 million back then.

That means that you are getting 5.75 times, almost six times, the amount of revenue per dollar of stock price that you were getting back then.

And they are now profitable and very cash flow positive, as well.

And just by the way, on Friday, Goldman Sachs just named Monday as one of their seven top choices for 2023 for bullish clients (Crowdstrike was another of the seven).

Sentinel.
Waiting for results. In December I gave a very long discussion of Sentinel, which I won’t repeat. Here’s a link to that discussion, which I feel is very worth reading if you have interest, pro or con, in Sentinel: Saul's portfolio at the end of 2022 - part 3

Snowflake .

Waiting for results. A little apprehensive because they are also a usage based company, but the ROI their customers experience may keep them out of too much optimization.

Transmedics

They reported December quarter and annual results this Wednesday after the close.

The numbers – Revenue for the quarter was up 225% (remember that it’s small numbers here). Gross Margin was 66%, down a little due to so much demand that they had to use charter airplanes at times to fulfill. While revenue more than tripled, operating expenses were up only 50%, leading to net income margin improving from minus 130% a year ago to minus 21% this quarter. Guidance for next year was revenue up 51% or so [Profound sandbagging: ie. If everything goes wrong, this is what we expect. Look, if they flatlined at this quarter’s revenue for the next 4 quarters, with no growth at all, 2023 would be up 34.3% over 2022! And they guided for up 51%!]

Market reaction – The stock price rose 20.55% the next day.

My reaction – I have added almost every week for the last three months or so. I added a little more after results were announced. It’s now an 8.6% position in 6th place

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.

I feel that my portfolio is made up of a bunch of great companies. But that’s just my opinion, and I can’t say often enough that I’m not a techie and I don’t really understand what most of them actually do. I just know what great results look like. I figure that if their customers clearly like them and keep buying their products in hugely increasing amounts, they must have something going for them and, as I’ve often said, I follow the money, the results. And I listen to smart people about the prospects of these companies.

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 do try out a stock in a small position and later 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

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I really, really don‘t want to add here, but in this case it seems necessary.

You know, if you read comments like the one from Zeelotes it really makes you feel like you missed something, even to be a little bit dumb. And then if you just write „Zeelotes - this is a board ONLY for the discussion of high growth companies“ it makes it seem like this board is just to closed minded and proud to think about such a „superior“ method.

So this explanation is especially for the many people reading here, that maybe just starting out with investing and question their thinking now.

What Zeelotes uses is simple technical analysis and general market health indicators - I also use similar techniques to determine when to buy/sell an ETF that is a part of my portfolio. BUT this is no magic formula! It just worked so well from 2020-2023 because we had a period with extremely clear and strong up/down trends. If this is not the case, and it is not the case 95% of the time (looking at the last 100 years), this kind of approach produces much less impressive results (whipsaw in sideways markets). The reality is, you will underperform most of the time but sidestep the big declines. As simple as that.

There are quite a few good studies and I back tested A LOT for myself. There is only one valid conclusion to make. IF executed perfectly, this is a way to reduce volatility and get more or less the same results over time. Again, IF executed perfectly!

There are good traders out there and it also can be an interesting way to combine both worlds. But by no means is this a SIMPLE way to be successful.

To this quote another one seem‘s to be fitting quite well…

„The more confidently someone predicts what will happen in markets next…
The more skepticism we should approach those opinions with.“

Have a good Sunday you all

(Until this get’s deleted, and rightfully so! At least there is a little context)

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I’m sorry Zeelotes, but this is simply not a board for mechanical investing and technical analysis. You’ll need to go back to the Mechanical Investing board for that and I’m deleting your post.
Saul

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For enquiring minds, :grinning:
Since I ended my month at the last weekend of the month, for anyone interested in how I did at the end of calendar February:

My portfolio was up 8.8%.
The S&P was up 3.4%.
Saul

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