Saul’s Portfolio at the end of March. You may not recognize it!
It’ll be hard to recognize my portfolio as I’ve made so many major changes in my positions, and in what I am looking for in a position, since the end of February, so I’ll start there, with my positions. Unfortunately I came to these changes late, and it would certainly have been better if I had made them six months or a year ago, but that’s easier to say looking backwards.
Here’s what my positions looked like A MONTH AGO , at the end of February:
And here’s what my positions are NOW: Please be aware that the top four are so close that they can change order from day to day. It may be more useful to think of them as if they are in a statistical tie for the first four places in my portfolio
So let’s look at what happened to each one:
Snowflake’s position size was trimmed by a third from 24% to 16%, still a respectable position, but in the pack and no longer the way-out-front leader. Great long term outlook, but right now it being consumption-based means an amount of uncertainty that’s hard to quantify, even for the CFO. I’m more comfortable by far with its current size.
Monday was at 18.4% and has dropped slightly to 16.7% (due partly to a slight bit of trimming), but it is in first place out of those four who are tied statistically.
Cloudflare has moved up slightly from 16.0% to 16.6%, and is now in the same statistical four-way tie for 1st place. They have a great long term outlook like Snowflake, and have a more predictible present than Snowflake.
Enphase , wait a minute, where did they come from??? Well they are new this month and I built them into a 16.4% position and the same tie for the first four places. I started a thread about them two weeks ago and it’s had a large discussion. They are that company that sells microinverters, and now batteries, and is moving to an entire integrated energy system for solar energy for homes and small businesses. They have the tailwind of the whole shift to renewable energy and climate change.
Sentinel is now at 10.8% and in 5th place. Yes, I know, I’m one of the very small group who still likes them, but I do.
Now we come to four more companies , that, like Enphase, are “new-to-me”, and new kinds of companies for me. We’ll start with Global-e who helps merchants sell merchandise to customers in other countries, and also makes it easier for the customers to shop from the merchants. It’s mostly luxury goods that are worth buying from another country (more info below). They are in 6th place at 8.6%.
Then, Samsara, with the interesting ticker IOT. They help companies manage objects like 18-wheelers, farm machines, manufacturing machines, etc. They can offer companies an immediate, large, and “hard” ROI which is very attractive in the current environment.
(What’s a “hard” ROI? Well they can explain to a fleet owner that each truck he includes in the plan will cost him $400/yr, but he will save about $2,500/yr, per truck, just in reduced idling time. How can you say no to that?). It’s in 7th place.
Next we have Transmedics, which I have discussed before (heart, liver, and lung transplants, etc).
And Procore, who does something similar to what Samsara does, but focussed on construction sites. Like Samsara, they also offer an immediate, large, and “hard” ROI. They are in 9th place in my portfolio.
Datadog is in 10th, way, way, down from where it was earlier in the year. As with Snowflake, Datadog is consumption-based which means an amount of uncertainty that seems hard to quantify, even for the company itself, as far as both how much uncertainty, and uncertainty for how long a time. It’s now under 1% of my portfolio and I’d call it just a placeholder position at this point.
Bill is gone. I know that there are very sensible people who are playing Bill for a turnaround, or counting on Divvy, one of their acquisitions, to bail them out. But what I heard in the conference call was a company saying that spending money on growth, on acquiring new customers, just wasn’t working for them in this market, so they were just going to hunker down and not worry about growth. The new customers that they were getting were largely through their bank partners and brought in little actual revenue, which was decelerating each quarter. I’d rather invest in companies that were still going all out to take over the world, and doing it profitably.
So what am I doing with these changes? How does it change my portfolio?
Good question! Well I still have SaaS companies and consumption based companies like Sentinel, Snowflake, Monday, Cloudflare, and Datadog, who have benefits that are harder to pin down into a clear ROI (like security, for a good example), and services that are easier for a customer to decide to do without in a tough environment, but these companies now just make up about 50% of my portfolio instead of 100%. Companies, also growing fast, but with with clearer immediate benefits, now make up the other 50%.
What do I mean by “benefits that are harder to pin down into a clear ROI” ??? Well, let’s look at security, for instance. Everyone knows that it’s important but how do you put a dollar value on that and prove to a customer that it’s valid, when the customer is trying to cut unnecessary costs. Compare that to saying “Pay us $400 to take care of that truck and we’ll save you $2500 in idling costs, just for a starter!”
I also still have companies like Sentinel and Transmedics, which, although they are growing rapidly, aren’t yet making profits, although they are moving towards that goal. However, I’m moving towards having my biggest positions in companies that are already profitable with positive free cash flow, AND are growing fast even in this troubled macro climate.
Well January, February and March went up and down like a yoyo, but didn’t go much of anywhere for my portfolio. I finished the month of March at up 5.8% for the 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 (although Friday certainly looked like it), but it’s awfully nice to see the portfolio still up on the year instead of down.
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 thatmany of our companies have secure recurring revenue, and 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%
End of Mar up 5.8%
Last year, by the end of January, my portfolio was down almost 30%, and it was still there with worse to come, at the end of March, so this year has been a definite improvement!
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 5.8% so far
Okay, in spite of the worst sell off you could possibly imagine in our stocks last year, my portfolio still has 631% of what I started with six years and two months ago. That’s roughly SIX AND A THIRD TIMES what I started with. In the same time the S&P 500 has risen 81.0%. That’s up 81.0% compared to up 530.6%, compared to sextupling and a third! 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 7.0% YTD. (It started the year at 3839.5 and is now at 4109.3).
The Russell 2000 (Small and Mid Cap), Closed up 2.4% YTD. (It started the year at 1761 and is now at 1802).
The IJS ETF ,The S&P 600 of Small Cap Value stocks), Closed up 2.5% YTD. (It started the year at 91.3 and is now at 93.6)
The Dow (Very Large Cap), Closed up 0.4% YTD. (It started the year at 33147 and is now at 33274).
The Nasdaq (Tech), Closed up 16.8% ytd. (It started the year at 10466 and is now at 12222).
These five indexes averaged up 5.8% ytd.
LAST THREE MONTHS REVIEW
January….Snowflake was still at 25%. Bill inched up to 22%. I’d 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’d built Monday and Transmedics up about 3 points and 4 points to currently about 6.7% and 5.4%. I’d sold out of my little Crowdstrike position.
February. I initially bought more Bill on the decline, feeling that it was oversold, but after thinking about it, I sold back what I had bought and a bunch more. It’d 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 to 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 almost every week to my Transmedics’ position, but it’s still, even after a 20% rise after earnings, my second smallest at 8.6%.
March – I described what I did this month in the section above called POSITIONS.
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!
JUST FOR INTEREST
How these companies did since the beginning of this year (whether I owned them back then, or not). As you can see I would have done a lot better if I had known about and taken a position in IOT or GLBE at the beginning of the year, or even PCOR or TMDX, instead of sticking with, SNOW, Datadog and Bill. As you can see, Sentinel, Monday and Cloudflare were the only ones I had been holding that rose significantly more than the averages.
IOT from $12.43 to $19.72 up 58.6%
GLBE from $20.64 to 32.23 up 56.2%
NET from $45.21 to $61.66 up 36.4%
PCOR from $47.02 to $62.63 up 33.2%
TMDX from $61.70 to $75.73 up 22.7%
MNDY from $122.0 to $142.7 up 17.0%
S from $14.59 to $16.36 up 12.1%
SNOW from $143.5 to $154.3 up 7.5%
DDOG from $73.5 to $72.7 down 1.1%
ENPH from $265.0 to $210.3 down 20.6%
BILL from $109.0 to $81.1 down 25.6%
Please note that when I discuss company results, I almost always use the adjusted values that the companies give. I sometimes mention what I did or 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.
Why Cloudflare? When you sold down Datadog and Snowflake and Bill?
My quick summary: Cloudflare 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. They had record operating income, record operating cash flow, and recordfree cash flow. 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.”
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 16.6% and in 2nd place in my portfolio.
Well why did you almost sell out of Datadog?
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.
However, revenue growth this quarter fell to 44% from 84% a year ago, and from 61% sequentially. That’s a MASSIVE slowdown.
And then, on top of that, they guided to 29% growth next quarter (down from 83% the same quarter the year before). Read that again:… 29% revenue growth, down from 83%, yoy !!!
And they guided to 24% growth for the fiscal year, down from 63% last year. That’s 24% down from 63% !!!
Sure they were sandbagging but I would have been negligent to not have exited and looked for a better place for my money. They may not do that badly but the CFO who gave those estimates was saying that because of their consumption model, he can’t tell either.
And how did Monday get to first place???
I’d been adding small amounts for the last couple of months 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 new larger enterprises, and weren’t even yet selling yet to exisiting customers. This quarter they made it clear that I was right, as revenue was up 57%, and gross margin was 90%, showing strong demand for their products and no need to cut prices.
Here’s a couple of examples 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.”
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… Also, this year, we’re going to expand our marketing channels, a more B2B enterprise focused marketing.
Saul here, 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 ahead. I kept adding and by now Monday is at the top of the pile in my portfolio at 16.7%.
And here are some quotes from a new Bert Hochfeld article that just came out in March. As the quotes are from my notes they are bound to be paraphrased here and there.
Monday’s latest quarter was exceptionally strong with revenues, earnings and free cash flow margins far exceeding expected levels.
Of more importance, unlike many other high growth IT companies, it raised guidance for both earnings and revenues.
It is enjoying important market share gains as it pivots its sales effort to larger users.
Unlike competitors it isn’t having to lay off empoyees to achieve improvements in adjusted operating margins.
It has achieved notable early success in its strategy to leverage its workflow technology to penetrate adjacent market opportunities.
Bert’s conclusion is that Monday is winning the market share battle, that its strategy of penetrating adjacencies is achieving noticeable success, and the company is in the early stages of a pivot to achieving non-GAAP profitability and significant positive free cash flow margins. Here’s what he said.
“I recommend the purchase of Monday shares. Monday is one of the larger companies in the workflow management space. It appears that it will become larger than both Atlassian and Asana in terms of workflow management software revenues this year, while Smartsheet remains somewhat larger. I think that it will continue to grow faster than its competitors, gain share and ramp profitability over the coming quarters.”
Saul here: I agree with Bert
Why did you cut back Snowflake so much ?
They showed that even in the middle of this last quarter, when they gave guidance for the quarter, even they couldn’t tell what was going to happen and they had to reduce guidance severely a quarter after they gave it. That’s too much uncertainty for a 24% position, but I haven’t given up on it. It’s still a 16% position after all.
What is Samsara (IOT)?
This is a company that sells software and hardware that helps companies manage things successfully and save money and make money, so they provide a very visible ROI. They do this through installing IOT endpoints, and uses AI and ML to analyze the data coming in and make instantaneous recommendations. Currently 85% of their business is managing fleets of trucks, and they hope to move into other verticals in a big way. As intjudo put it in his excellent post:
Their Sales Pitch
50% reduction in driver accidents
40% decrease in idling time per subscribed truck (…which they claim is worth $2500/year)
76% increase in Dispatch productivity “improving service and the bottom line” resulting in a 20% increase in vehicle utilization.
A major reduction in CO2 emissions.
…all for an annual cost of $400 per truck!
Bert Hochfeld recommended them as a buy in Jan 2023, as an exception, inspite of their negative FCF.
Why an e-Commerce company like Global-e?
Global-e handles all the complications of cross-border sales for mostly large well-known retail companies (like shipping, permits, taxes, returns, refunds, the whole works, in 28 languages and over 100 countries) . It’s still a small company with $409 million revenue for 2022, and it’s growing quite fast.
In 2022, it had $409 million in revenue, up 67% yoy.
In 2021, it had $245 million in revenue, up 80% yoy.
The last two quarters it grew revenue at 79% and 69% yoy, which was accelerated from 77% and 54% gains the same quarters the year before.
Adj gross margin was 41.1%, up 3.8 points from 37.3% a year ago.
As far as operating expenses, S&M expenses for the quarter were only $8 million or 5.7% of revenues, and G&A expenses were only $8.9 million or 6.4% of revenues, and R&D was 12.8% of revenues.
In 2022 their NRR was 130% and their gross retention rate was 98%!
They had $49 million in adj EBITDA, for the year which comes to about 12% of revenue. Their EBITDA for the last quarter was 15.7%.
Op cash flow for the quarter was $61 million, up from $24 million a year ago,
It has positive EBITDA every quarter . So note that the huge “losses” it refers to in its press releases are imaginary GAAP, and due to the rise in the stock price, which causes repricing upwards of the outstanding warrants that Shopify holds, causing the obligation to go up so GAAP profits sink because the stock price went up. There are also some intangibles and SBC. It’s completely non-cash GAAP make-believe.
It should be able to keep expanding for quite a number of years, but it’s an e-commerce company so I shouldn’t buy more than a 10% position as it may be affected by economic conditions, although it certainly doesn’t seem to be yet.
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.
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.