Stocknovice's End of Year Portfolio Review

My first try at one of these. The original intent was for my eyes only. However, I’ve learned a ton from others’ recaps and decided to post it just in case I can give some small amount back. I apologize for the long intro I added, but thought it might lend some perspective to others who are relatively new to this board and/or high-growth investing.

For background I started investing in the mid-90s. I joined MF in ’97 and started tracking returns in ‘02. According to MF my XIRR has beaten the S&P by ~2% yearly. Most of this was buy and hold luck – SBUX in ’06, BRK-B in ’07, AAPL in ’08. This past June – after a rollover and a buyout – I found myself with 25 positions and ~28% cash. I wanted to reallocate, but was short on ideas. I realized I needed to better educate myself if I wanted to keep managing my own portfolio. Otherwise, I should just buy an index fund and call it a day.

After poking around I found myself wading through a ton of old posts on Saul’s and NPI. The commenters were clearly more advanced than I was. They discussed stocks in a way that was smart and rational. There was the occasional digression on both boards <grin and wink> but in general they stuck to trying to help each other find quality stocks. They discussed ideas, checked each other’s work and most importantly periodically broke down what went right or wrong. In all honesty it reminded me of what MF was like before so many marketing emails found my inbox. I knew these people were on to something because their discussions were based mostly on rational thinking, due diligence and common sense. After lurking for six weeks or so, I’d decided where I was going to put my idle cash.

Some users have recently commented they feel they found high-growth investing at just the wrong time given the market downturn. HERE’S LOOKING AT YOU KID!! I made my first growth purchases August 27 and built out positions throughout September. I knew I was buying on the way up at market highs but also know trying to time the market is a fool’s (small f) errand. I allocated all my cash and started selling some of my historical “winners” to continue streamlining. Then October hit…

And like everyone else I watched the red appear on my screen. Not just little bits of red either. Big, sloppy waves of it. My portfolio dropped over 10% and I ended the month trailing the S&P for the first time all year. “No big deal,” I thought. I knew this bull market couldn’t last forever and I’d seen dips before. I survived 2000 and 2008. In fact this was probably the least concerned I’d ever been. At first I found it odd. Why weren’t these wild swings bothering me more? While I knew my bigger percentage losses weren’t that different than the past, the pure dollar amounts were undoubtedly the largest I’d ever experienced.

As I thought about it, I began to understand why I remained so calm. I already knew historically the market always bounces back. However, this time I not only had history on my side but I also had more conviction in the companies I owned than ever before. Simply put, my portfolio made more sense. It was tailored to my style at my risk and my allocation levels. I knew exactly what I owned and more importantly exactly why I owned it. I told myself I was comfortable riding this out, and imagine my swagger as I was totally vindicated by my market-beating November! Then along came December…

And a historically bad month forced me to double check everything. And you know what? After rerunning the numbers, rechecking my math and rereading the boards I find I still have confidence in what I’m doing. The easiest way to beat the market is to invest in market-beating companies. While I’m keenly aware some of these picks won’t pan out, I strongly believe I’ve taken more ownership of my portfolio and greatly increased my chances of success.

Unlike many here and at NPI, I did not have a big first-half cushion to offset a roller coaster last three months. I also put a large chunk of cash back into the market at an unfortunate time (not a wrong time mind you, just unfortunate since you can’t time the market). You’ll see some serious laggards below. That being said, I ended up pulling out a comeback win over the S&P despite huge ebbs and flows along the way. As I write this my main takeaway from 2018 is not that I beat the market. It’s that I became a better investor due mainly to the regulars on these boards who are so willing to share their knowledge. I owe a big thanks to all of them and look forward to continuing to learn in 2019.

12/31 Portfolio and Year-End Results:


	%Port	1st Buy	      XIRR	vs S&P
TWLO	12.2%	08/27/18	7.3%	18.7%
MDB	11.5%	08/29/18	11.0%	22.5%
AYX	11.4%	08/27/18	4.2%	15.8%
TTD	9.7%	06/08/17	12.4%	18.4%
ZS	7.9%	08/27/18	2.6%	9.0%
OKTA	7.6%	06/15/18	1.4%	11.6%
SQ	7.2%	08/27/18	-32.7%	-20.9%
NEWR	5.0%	08/29/18	-15.8%	-3.4%
NTNX	4.6%	08/30/18	-25.3%	-12.2%
PAYC	4.2%	09/10/18	-12.1%	-1.3%
WIX	3.9%	09/04/18	-12.0%	-0.4%
SHOP	3.4%	08/06/18	-2.4%	6.2%
ILMN	2.9%	02/01/18	6.0%	18.0%
ABMD	2.3%	12/03/18	-3.7%	5.3%
BIP	2.1%	01/07/11	40.6%	20.4%
VCEL	1.4%	12/20/18	16.0%	16.0%
Cash	2.6%			
				
	**Growth (from 8/27):**	-8.8%	2.3%
		**2018 Total:**	-2.3%	4.0%

Stock Comments:

I’m currently down from 25 to 16 positions. I’ll be selling BIP this week. I see myself settling somewhere in the 12-15 range during 2019. Feedback on any of the thoughts below is gladly welcomed.

ABMD – Their main product is a pump that lessens strain on the heart during treatments and surgeries. Revenue grew 34%, 40%, 36%, 37% the last 4 Q’s. Gross margins in the low-80’s with 83.5% guided medium-term. Operating margins have risen from 14% in Q217 to 24% in Q218 to 28% in Q219, so they are leveraging earnings. They do have one-product risk, but it’s quite a product and they have plenty of room to grow with no real competition. They’ve said their full-year guidance MO is to hold the high end in Q1/Q2 while raising the low end as needed. They reassess the high end in Q3. They’ve come through with the low end raises the first 2 Q’s. I’m hoping for a high end raise next report.

AYX – Obviously popular here. They have accelerating revenues with 90% gross margins and 41% customer growth. International revenues last Q were up 99% YoY and are now 29% of total revenues. They’re guiding just north of $200M this year with a TAM they estimate at $30 billion and view as “uncrowded”. They appear to be firing on all cylinders.

BIP – A pre-Saul purchase and former Hidden Gems rec. The company is structured as a Master Limited Partnership so there are potential tax implications when selling even though it’s in an IRA. I sold a portion in September. The rest should be reallocated shortly after the New Year.

ILMN – Another pre-Saul stock. Given its market cap I’d say ILMN’s prospects are more solid growth than hyper growth. I don’t see genetic sequencing going away any time soon and they are clearly a category leader. They are on pace to grow EPS 43% this year with gross margins >70%. YoY comps will get tougher after big jumps this year, but I’m content to hold at least a little longer.

MDB – It’s a big data world and MDB is changing the game. Their non-relational database products are as flexible as any in handling today’s varied information. Last Q showed 57% revenue growth, 59% subscription growth and 69% customer growth. Their relatively new Atlas product grew 300% YoY and now accounts for 22% of total revenues. Plenty of runway here.

NEWR – Solid rather than sexy. Revenue growth isn’t as high as some here at “only” 35% and 36% the last 2 Q’s. However, it’s backed by 85% gross margins and operating expenses that grew only 16% and 22% during the same period. They’ve turned their TTM EPS from a $.35 loss in Q218 to a $.50 profit in Q219. Bear and Saul have helped a lot in understanding the numbers here.

NTNX – After last Q’s mixed reviews I trimmed profits on a couple small purchases that were ahead of the market. As you can see, the rest of my shares are down. The main reasons I still hold some are here: https://discussion.fool.com/i-apologize-for-any-redundancy-as-we…

OKTA – A product my company uses. My first purchase was pre-Saul off a Fool rec. Their revenue (58%, 60%, 57%, 58%) and customer growth (40%, 40%, 41%, 42%) are pretty much clockwork. Gross margins just hit an all-time high of 75.8% and they were FCF positive for the first time. Net loss has shrunk from 26.7% of revenues in Q318 to just 3.7% in Q319. They are enthusiastic about their opportunities and continue to back it up with their results.

PAYC – Like NEWR, steak over sizzle. Revenue growth is holding steady around 30% while keeping expenses in check. Adjusted gross margins have sat ~84% the last two years. They recently ranked 5th on Fortune’s 2018 list of 100 fastest growing companies and are seeing lots of cash hit the bottom line. FY17 earnings were $1.30. They are already at $2.06 (+59%) this year with a quarter to go.

SHOP – An admittedly weird position. I made a starter purchase in early August, then watched as others dumped it. I considered selling, but the price generally held and I had other money I wanted to allocate first. I recently added a small trading position when I thought the market overreacted to their secondary offering. In both prior offerings SHOP dipped below the issue price ($154 this time) only to rebound. I’m betting the same happens again (similar argument here https://investorplace.com/2018/12/buy-shopify-stock-on-weakn…). So far, so good on that call but it’s lower conviction. I’m likely to either trim the trading position or sell the whole lot in the early part of 2019.

SQ – My biggest gap between financial logic and stock price emotion. Adjusted revenues (51%, 60%, 68%), subscription/service revenues (98%, 127%, 156%) and GAAP gross profit (47%, 52%, 61%) are all accelerating off considerable bases. Gross margins sit in the low-80’s. They are on track for $.45 EPS this year after losing $.17 in 2017. And despite all that they are my biggest current loser. I know the stock had REALLY run up through September (bad timing!) and their rock-star CFO left, but sheesh. A stock I’m paying close attention to heading into 2019.

TTD – One of my highest conviction stocks. Also one of my few remaining pre-Saul purchases, having first bought in June, 2017. I’ve added quite a bit along the way. More thoughts here: https://discussion.fool.com/daniel-your-post-is-much-appreciated…

TWLO – Seemingly everyone’s favorite. Their business is humming, their numbers are accelerating, their expansion rate just jumped to 145% and they are posting sustained profits. Hard to find anything to really dislike here.

VCEL – My “try it to see if I like it” position. I haven’t used this strategy much, but feel comfortable enough to give it a try based on what I’ve learned. I originally had ARNA in this slot after bulwinkl’s rec. I switched when VCEL dropped back below $15 in the recent carnage. Thanks to putnid (https://discussion.fool.com/vericel-34054824.aspx) and Ethan (https://discussion.fool.com/vcel-q3-stock-up-40–34054972.aspx?s… and more recently https://discussion.fool.com/fuma-i39m-glad-someone-else-is-final…) for the idea. ARNA’s thesis relied on FDA approvals. VCEL’s is seeing if they can expand their current MACI knee surgery product. I feel VCEL is a better opportunity to track a small company and potentially learn something.

WIX – Revenue growth in the 40’s all year while operating expenses have stayed in the 20’s. They generate lots of free cash and have gross margins pegged at 80%. EPS has swung positive in a huge way and they’ve expanded their products to grow with their users. They just released Ascend, an all-in-one business product with 20 different tools to help clients start and grow their business. The stock price has lagged, but I’m willing to wait given their strong numbers and lower multiple. Not to mention Bear keeps pounding it into my head.

ZS – Their 100% cloud security is ahead of the curve and perfect for our fragmented, remote worker world. It replaces the need for both a firewall out and VPN in. Revenues and gross profits are accelerating while expenses are declining. They just posted their first profitable Q ahead of schedule and project sustained profits by FY20. They feel 80% gross margins are reasonable even as they invest for growth. They’re expensive but I’m buying what they’re selling.

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My first try at one of these. The original intent was for my eyes only. However, I’ve learned a ton from others’ recaps and decided to post it just in case I can give some small amount back. I apologize for the long intro I added, but thought it might lend some perspective to others who are relatively new to this board and/or high-growth investing.

Stocknovice, you are no novice! That was one of the clearest, most sensible, most introspective, summaries I’ve read in a long time. It was great! Thanks.
Saul

10 Likes

Agree with Saul. This is not the portfolio, nor the thoughts, of a novice. Great work, sn. Hope you’ll start doing portfolio write ups often!

My favorite part: And a historically bad month forced me to double check everything. And you know what? After rerunning the numbers, rechecking my math and rereading the boards I find I still have confidence in what I’m doing. The easiest way to beat the market is to invest in market-beating companies.

A particularly timely point, but your entire journey resonated with me, as I had almost exactly the same experience here 2-3 years ago.

Best,
Bear

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