The SailingDev’s Portfolio end of June 2024

[SailingDev]

The SailingDev’s Portfolio end of June 2024

Last month I started posting monthly portfolio reviews. My first post was on a different board, but Saul has kindly invited me to join his board and post here.

Here you can find my previous month’s review: The SailingDev’s Portfolio end of May 2024

Portfolio Return

End of June 2024 Portfolio

$IOT
I already had trimmed Samsara for a while now. And after their latest report, I decided it’s a good moment to exit completely.

$PSTG
I started to get a bit apprehensive about Pure Storage as I think it’s getting too expensive for their current and expected growth levels. Price has increased 87.19% YTD as the company is expected to benefit from strong tailwinds from the data center buildup. I trimmed a bit and I will trim it further.

$TSM (72.42% YTD) is in a similar bucket for me but I have not made any move yet. I want to wait for their Q2 2024 results, in a couple of weeks, before I make a decision.

$ELF is getting quite expensive too for that matter. But compared to the other 2, there is growth here at least. Still the market might overreact if the expectations are too high and they are not met. I might trim it down to 5% on one of those 7% green days, if we’ll see them again next month.

$NXT
I started a very small position in $NXT on their recent pullback a few days ago. I keep looking for a good energy play, but in the case of $NXT, there are a lot of strong bear-arguments against it too (pun intended).

And in the call they discussed how their adjusted Gross Margin was 30% in Q3 and Q4, but that they’d be lowering prices and even with the tax credits they only expect a high-20’s GM this coming year. They talked about expected pricing pressure.
For the full year, GM was 28% of revenue and EBITDA was 21% of revenue. Sounds unlikely they’ll wring out more in either place. So profits will grow about like revenue does.
Source: PaulWBryant @ Introducing Nextracker (NXT) - #20 by PaulWBryant

Nextracker is the market leader in intelligent solar tracking solutions with a 30% market share, significantly ahead of its competitors. They benefit from high demand, bolstered by favorable industry trends and governmental support. This positions them well in an expanding solar market.

On the downside, Nextracker faces significant pricing pressure, which could impact their margins despite strong revenue growth. I also don’t understand the risk regarding any dependence on government incentives. There is also increased competition and the potential for stock dilution.

I don’t plan to bring this to a full starting position (5%). I might even get out completely if I find a better energy play.

Other small movements
I have slightly decreased my $AMZN allocation, just to bring it more in line with my cost basis of the other mega-caps. The difference in their current allocation is just based on their performance actually. It’s possible $AMZN will do relatively better than the other mega-caps I have. But as a rule, if there is any bias in the allocation, I would like to reward the winners and not the laggards.

I have also continued to increase my allocation for:

• $NU
• $ZS
• $MELI

Now they are full starting positions.

[Graydrake]

Sailing

Very nice report!

You mentioned some tickers in your portfolio were over priced and I noted you had a couple of value metrics in your monthly report. Which metrics do you use to assess when hypergrowth stocks are overpriced?

Graydrake

[SailingDev]

Thank you for your kind words, Graydrake!

I track several metrics, including P/FCF, P/E, PEG, among others. I don’t have any strict limits in place because these companies operate in different industries. Therefore, I also compare how expensive they are relative to their competitors and their past performance (individually). While the metrics for $ELF are indeed high, that alone is not my primary concern.

In my original post, I intended to convey that I monitor certain stocks (PSTG, TSM, and ELF) that have experienced significant price surges without any new developments or news. They are growing fast, but sometimes the price accelerates even faster. And when that happens I try to pay attention.

I only trim and sell if I believe I have better positions to move into. I try to maintain a portfolio balance of 90% stocks and 10% cash, avoiding any attempts to time the market, as I usually find myself mistaken in those predictions. My natural pessimism often contrasts with reality, so I’m trying to adhere to a simple rule: staying roughly 90/10 invested. Additionally, I am still in the accumulation phase, adding to my portfolio monthly. If I were retired and living off my portfolio, I would adopt a more conservative approach.

[Graydrake]

Thank you for your response.

As a relatively new member my in depth activity in hypergrowth tickers is limited, but the quality of Saul’s concepts cannot be ignored.

I understand spreadsheets are a negative word here, but as a guy with memory constraints, visual trends seem to trigger actions that would have otherwise been missed using memory alone. In this regard, I do a monthly update of a spreadsheet for 3 year growth, profitability and value metrics in many of the tickers being discussed here, seeking meaningful trends. While I am not looking for go-no go triggers, I appreciated your words on metrics that may influence your entry, trimming and exit decisions.

Graydrake

[SailingDev]

While trends and historical data are valuable, I believe they represent just one piece of the puzzle. The notion of an efficient market assumes that all available information is already priced in, but in reality, markets are far from perfect. If the market were truly efficient, we could rely solely on past trends and signals to predict future performance. Yet, the most significant investment opportunities often stem from elements that can’t be quantified on a spreadsheet. Probably an overused example, but take the launch of the iPhone. When Steve Jobs introduced it, many in the media and industry were skeptical, even dismissive. Even Apple fans. But there was a segment of forward-thinking individuals (me - too bad I was still too young and too broke at the time) who recognized its revolutionary potential. We saw beyond the initial negativity and understood the massive impact it would have. This kind of insight – recognizing a game-changing innovation before the market fully appreciates it – is something no spreadsheet can capture. And they can provide huge returns!
I do continue to use fundamental analysis as a tool, but I place a stronger emphasis on the market “zeitgeist”. The most valuable signals often come from identifying something that the market will become enthusiastic about before it actually does. It’s about reading between the lines of public perception and media sentiment to spot those hidden gems that will eventually shine. Sometimes they can also be a good value investment at that specific point in time, but more often, these opportunities will appear overpriced.

And then comes the even more difficult question of when to trim or exit a position. I believe this decision should be driven by recognizing when the hype surrounding an asset has grown excessively. When the market has fully priced in the innovation, or when there are significant changes in a company’s ability to execute, it may be time to reconsider the holding. However, it’s often wiser to err on the side of holding too long rather than exiting prematurely and missing out on further upside. This leads to the broader discussion of portfolio management. Our conviction in various investments will differ, and if one position grows larger than our confidence in its future potential, it might be prudent to trim it. Or, if we have greater conviction in a new opportunity, reallocating resources could make more sense. Navigating these decisions is incredibly complex, but that’s what makes investing so fun for me.