stocknovice's January Portfolio Review

Oh well. So much for that January Effect (…

2022 Results:

	Month	YTD	vs S&P
Jan	-24.6%	-24.6%	-19.4%

January Portfolio and Results:

	%Port	%Port	
	31-Jan	31-Dec	1st Buy
DDOG	26.1%	26.0%	12/09/19
ZS	19.1%	19.5%	06/10/21
MNDY	17.6%	20.6%	09/20/21
S	10.5%	6.6%	12/13/21
SNOW	8.6%	6.8%	12/02/21
BILL	8.5%	6.5%	10/20/21
NET	5.3%	5.1%	08/07/20
CRWD	3.8%	4.2%	06/12/19
AMPL	-	4.7%	10/20/21
Cash	0.5%	0.0%	 
		Return	vs S&P
	Month:	-24.6%	-19.4%
	2022:	-24.6%	-19.4%

Past recaps:

December 2018:…
December 2019 (contains links to monthly reports):…
December 2020 (contains links to monthly reports):…
December 2021(contains links to monthly reports):…

Stock Comments:

What a bizarre stretch. One of the noisiest months ever for my portfolio was paired with one of the quietest for actual news. I even double-checked investor relations pages to make sure I wasn’t missing anything major. Below are January’s surprisingly slim pickings…

AMPL – Amplitude unfortunately lost its spot despite zero company news. I sold last week to boost my higher conviction basket of, SentinelOne, and Snowflake. With deep discounts everywhere, I found myself wanting more of these triple-digits growers than a smaller firm still trying to earn its hypergrowth stripes. AMPL remains interesting enough I’ll be closely watching February 16 earnings. However, it would take a significant beat to make me reconsider this decision.

CRWD – CrowdStrike itself issued no news, but I did come across this article naming it an initial partner in a new cybersecurity service from consulting giant Deloitte (…). Designed for enterprise clients, this solution will “provide an integrated, unified, composable and modular managed detection and response suite to clients, including threat detection, response, and remediation capabilities.” While a decent feather in CRWD’s hat, I’m much more interested in the Q4 numbers and update on potential government business we’ll likely get in early March. Being honest, I can’t say CrowdStrike will make it that far if another holding posts a February blowout and deserves a bigger allocation. We’ll see.

BILL – Other than appointing a new Senior VP of Finance and Accounting, was very quiet this month (…). Here’s hoping it posts raucously loud earnings on February 3.

DDOG – Datadog released a couple pieces of positive news this month. First it announced a global partnership with Amazon Web Services (AWS) in which the companies “will work together to develop and deliver tighter product alignment in the future” (…). This deeper integration should only increase DDOG’s exposure on the world’s biggest cloud provider.

Next, Datadog achieved FedRAMP Moderate-Impact Authorization with the US government (…). This designation meaningfully expands the number of federal customers who can consider Datadog for their monitoring, observability, and security needs. With 2022 likely a big year for federal IT spending, this is good news and great timing.

Full disclosure, I trimmed this position a couple times in January to keep it in the 25% range. It wasn’t that DDOG had a strong month as much as the stock declined less than others around it. The plan for now is to take the rest into February 10 earnings. I’ll hopefully be forced to trim again, but this time because Datadog posts yet another stellar report. :crossed_fingers:

MNDY – Nothing but crickets from this month. I’d expect earnings at some point in February, though I’ve yet to see an official date. Another big quarter would likely ease a lot of the market’s recent concerns.

NET – Sheesh. Even attention hog Cloudflare was shockingly silent this month. What the heck is the world coming to? Earnings February 10.

S – Ahh, there we go. SentinelOne (S1) was the one firm releasing a significant amount of January news, and I found all of it positive. First was an integration with ServiceNow unifying the companies’ IT and security efforts (…). Joint customers will now be able to “accelerate a coordinated, comprehensive, and automated incident response plan across endpoint and cloud environments.” This is a nice win for S1.

Next was the announcement of additional partners to SentinelOne’s platform marketplace (…). The new additions will strengthen S1’s offerings in Zero Trust, cloud ransomware security, threat simulation, and automated vulnerability management. The more the merrier as far as I’m concerned.

Mid-month saw an expanded partnership with Amazon Web Services (AWS) (…). This arrangement makes SentinelOne a launch partner for three new security services being offered by AWS. There’s a fair amount of technical detail in the release for anyone interested. I’m only conversant enough to know this is yet further validation of S1’s platform.

Later was news Big Four accounting firm KPMG will adopt S1 “to accelerate investigations and response to cyberattacks [along with] leveraging SentinelOne for compromise assessments across its customer portfolio” (…). KPMG is a major player in the world of financial auditing and tax advisory services. That means clients trust it with extremely sensitive information. KPMG is now telling the world it trusts SentinelOne to help keep that information safe and secure. Nicely done.

Last was a note Barracuda Networks has chosen SentinelOne to help identify and respond to cyberthreats (…). An IT security company with 200,000+ global customers, Barracuda “selected SentinelOne to strengthen its endpoint protection and response portfolio due to SentinelOne’s superior API capabilities, flexible workflow integrations, and platform efficiency.” Given S1’s current customer count of 6,000, that’s a lot of potential business to sell into. Let’s hope it can take advantage.

Rapid and accelerating growth is one of the major reasons for my December SentinelOne purchase (…). I see every one of these recent announcements supporting that trend. S1 certainly has a right-place-at-the-right-time feel to it entering the year. I’m eager to see if it can keep executing. Our next earnings update should come in early March.

SNOW – The first Snowflake news this month was the ancillary announcement of a new book by CEO Frank Slootman (…). “AMP IT UP: Leading for Hypergrowth with High Expectations, Urgency, and Intensity“ outlines many of the strategies influencing SNOW’s current culture including:

Raise Your Standards: be mission-driven, combat incrementalism, and place execution ahead of strategy.
Align Your People: empower your team with a shared mission; hire drivers, not passengers, and get the wrong people off the bus.
Sharpen Your Focus: put analysis before solutions; prioritize more and multitask less.
Pick Up the Pace: speed up timelines, seize the moment to ramp up speed, and deliver.
Transform Your Strategy: sharpen your peripheral vision to expand your reach and growth potential.

While the book seems to be more about Slootman’s management philosophies than SNOW’s business, it should provide insight into some of the methods behind the company’s recent success. Being honest though, I see nothing special in the points above. In fact, I’d say most are concepts regurgitated by just about every CEO who’s ever CEO’d. It’s never about the slogans you adopt. It’s solely about your ability to execute. That’s where Slootman has excelled his entire career. And it’s that level of execution I’ll continue to expect in 2022.

As for company business, Snowflake recently announced it now supports ITAR Compliance on both Microsoft’s Azure Government cloud and Amazon’s AWS GovCloud (…). ITAR is a strict set of US regulations for agencies and organizations in defense-related sectors. This designation will “further empower public sector agencies with the ability to seamlessly and securely unlock value from data, while adhering to the strict compliance requirements of the agencies and organizations with data that is subject to ITAR.” Management has consistently touted the public sector as a major vertical. This status should only strengthen its appeal to those customers.

SNOW also gained some street cred when a Dresner Advisory market study stated 100% of Snowflake’s customers would recommend it to other organizations for the fifth straight year (…). It was also ranked an Overall Leader in both customer experience and vendor credibility. The report called Snowflake “best in class for virtually all product measures including scalability, usability, ease of installation, ease of administration, customization and extensibility, and ease of upgrade/migration to new version.” Not bad for a company trying to be everything to everybody in the world of data management.

Having done nothing but execute since coming public, all signs point to Snowflake having a strong 2022. We’ll get our final update on how 2021 played out when the company reports its Q4 on March 2.

ZS – Like CrowdStrike, ZScaler released no formal company news this month. Also like CrowdStrike, ZS was named an initial partner in Deloitte’s new cybersecurity service (…). ZScaler’s business has accelerated nicely the last few quarters, and I strongly believe it will continue to do so. We’ll find out for sure in next quarter’s report, which will likely be released in early March.

My current watch list in rough order is Amplitude (AMPL) and ZoomInfo (ZI) with a passing eye on 2019/2020 holding MongoDB (MDB). With a full slate of earnings on deck, I don’t see much value in spreading myself too far beyond those additional names.

And there you have it. Blech. Sometimes when there’s nowhere to hide, you simply have to stand there and take your lumps. This round of lumps included a January 27 low of -35.4% YTD and -49.6% below my all-time high just ten weeks earlier. It’s one of my most severe beatdowns ever with a dollar loss I’d rather not think about (shoot, I just made myself think about it again). Most of my last half-dozen or so pullbacks settled in the -35% range before trending back up. This one blew past that mark, though it hasn’t been just my companies suffering. The entire market has seen a broad, swift decline in recent weeks. In fact, I’ve even seen articles comparing this drop in the tech-heavy Nasdaq 100 to the historic plunges of 2008 (…) and 2000 (…). Scary stuff, I’ll admit. The silver lining is it also provides increasing hope we are creeping ever closer to the bottom of this cycle.

Sadly, this is one of those moments where all the Buffet/Munger quotes on conviction and perspective become painful reality. At the end of September I wrote:

_Was this week’s pullback a minor blip or the start of something bigger? I have no idea, though I know a major drop is inevitable at some point. Am I worried about it? Not really. One of the things I’ve learned is if you’re on the right track, you’ll not only see higher highs at each peak but higher lows in each valley. Lucky for us, a double in four months leaves a lot of wiggle room on the way down. For example, if September’s late fade is actually the start of our next 30% pullback – just to pick a scary number (_editor’s note: boy, was I light on that number :roll_eyes:) – it’s comforting to know our next low would still be 40% higher than the last one. Here’s the quick-and-easy math:

• Starting at $100 for the last low…
• a 100% return from May to September bumps it to $200…
• minus a 30% drop leaves $140…
• which would make the hypothetical next low 40% higher than our last one.

And that 40% spread will only get bigger if this week is simply a temporary dip on the way to higher highs before the next correction. Unfortunately, in the thick of those corrections we often forget the market has a perfect track record of eventually resuming its up-and-to-the-right trek over time. We individuals are simply chasing a similar shape for our portfolios. The hope, of course, is creating the steeper upward slope of market-beating returns. Easier said than done, but it helps to remember the market’s history and math are both strongly on our side.

The good news for me is my portfolio rose another 26% from those words through my November 9 high. The bad news is that hypothetical 30% drop has been closer to 50% thus far. The broader point still stands though since even after this gut wrenching drop my January valley settled roughly 10% higher than that May low (I now sit more than 25% above).

Zooming out further, I have now written 37 recaps since January 1, 2019. During that stretch I’ve experienced 26 months of positive returns and 11 negative. That’s a 70% hit rate. A quick search says the S&P has posted 65% positive months in the 100 years from June 1920-June 2020 (…). In that respect I seem to be somewhere in the bandwidth of normal. But what about the quality of those returns?

Here are my top 10 months over that span :tada::partying_face::tada:

• May 2020: +29.1%
• July 2020: +22.1%
• June 2020: +21.5%
• January 2019: +21.0%
• April 2020: +20.8%
• August 2021: +20.3%
• September 2020: +18.9%
• June 2021: +18.4%
• November 2019: +18.1%
• November 2020: +15.6%

…along with the bottom 10 :grimacing::nauseated_face::face_vomiting:

• February 2020: -2.8%
• February 2021: -3.0%
• October 2020: -5.5%
• December 2021: -8.4%
• December 2019: -8.7%
• November 2021: -9.8%
• March 2021: -15.9%
• March 2020: -20.0%
• September 2019: -23.7%
• January 2022: -24.6%

Thankfully, things look slightly less painful from that angle. In fact, there are four additional months of double-digit gains too low to make the cut. Tom Gardner of the Motley Fool once said, “Stocks always go down faster than they go up, but they always go up more than they go down.” That indeed appears to be true. Since committing to this style at the start of 2019, our portfolio has gained 349.5% (so almost 4.5X) versus 80.1% for the S&P. It’s also fair to note I trailed the market at times YTD in both 2018 and 2021 before squeaking out wins both years. At this point, I have ZERO reason to believe the process that led to those results is suddenly and permanently broken. Good companies always win the day over time, and that’s not just some fluke of recent years. It’s a lesson the market has proven repeatedly throughout history. It makes little sense to think that dynamic is somehow over now (though it can certainly feel that way at times like these).

Please don’t read the above as any sort of victory lap. It’s most certainly not. Frankly, it’s not even a half-assed consolation prize after such a brutal month. I mean, it’s not like there’s any guarantee we won’t sink even further from here. This is nothing more than the perspective of having enough history to step back and take a longer view. I’d suggest others do the same if your record keeping allows it. It might help (but then again, it might not :grimacing:).

I don’t follow a ton of feeds, but those I do have recently been littered with rattled investors seeking reassurance during a terrible stretch. Regulars like Saul, Bear, and TMB have already graciously provided their thoughts. I guess this is my best effort even if all I’m doing is reassuring myself. Yes, I have the comfort of a bigger buffer than many. But that wasn’t always the case. In fact, one of my first high-growth experiences was slamming headfirst into a similar plunge (…). Recalling all the drops I’ve survived – including those infamous biggies of 2008 and 2000 – I wish I could say I had a shortcut for grinding it out. Unfortunately, there isn’t one. The only way I’ve found to recoup the losses is keep plugging along until the market resumes its normal trek of up-and-to-the-right. My condolences to those hitting this kind of rut for the first time. If you end up sticking around, I hate to tell you it won’t be the last.

But who knows? Maybe I’m way off base and the world no longer needs what my companies offer. I doubt it though. Despite the widespread and indiscriminate stock cuts the last couple months, I have yet to see evidence the underlying businesses aren’t executing as well as ever. It’s important I remember that’s why I bought them in the first place. That’s why I’m letting others worry about omicron, interest rates, the Russia-Ukraine border, and whether the British prime minister threw unauthorized parties during lockdown ( I’ll be focusing on this next round of earnings instead. That’s when we’ll find out what the market really thinks about these firms. In the meantime, there’s not much I can do but hurry up and wait (…).

Thanks for reading, and I hope everyone has a much kinder February.