WSM’s portfolio 31 Jan 2022

I do these write-ups as a form of discipline for myself and often make changes to my portfolio as a result of doing them. It’s a great process for me, hope it helps others too.


Jan	 -27.1%


Jan	  +7.6%
Feb 	  +7.7%
Mar 	  -6.0%
Apr 	  +4.6%
May	  +6.6%
Jun	 +24.1%
Jul	 +22.1%
Aug	 +79.4%
Sep	 +83.9%
Oct	+101.1%
Nov	 +70.6%
Dec	 +53.2%
Jan	 +11.8%

Since my ath in October, my portfolio lost just under half of its value and all but nullified my total return for last year. That hurts, of course. It hurts a lot less when I remind myself that I was up 220% in 2020. So I’m still up more than 3x in two years, even after the carnage of the last 3 months.

While waiting for real news from our companies, I’ve been reading Morgan Housel’s book “The Psychology of Money” in the last days, and I found his chapter 15 to be highly relevant to what’s been happening the last three months. It’s entitled “Nothing’s Free”. and he makes the point that there is always a price to pay for receiving something of value, although the price is not always obvious until you have to pay it. And the price for the returns of the stock market is volatility.

He likens people who try to get the rewards of the stock market without paying the price of volatility to car thieves who try to get a car without paying for it. He then goes on to make the point that this price, volatility - seeing your portfolio drop by 20% in his example, is a fee (for getting something good), not a fine (for doing something wrong). He believes that this way of looking at it is crucial. Volatility is the fee that you have to pay to enjoy the returns of the market, not a fine for doing something bad. If you try to avoid the fee, you end up paying double - by selling at the bottom or buying at the top, or both.

“Market returns are never free and never will be. They demand that you pay a price, like any other product. […] The trick is convincing yourself that the market’s fee is worth it. That’s the only way to properly deal with volatility and uncertainty - not just putting up with it, but realizing it’s an admission fee worth paying.”

He makes this point about investing in a diversified portfolio in the general stock market. For a concentrated portfolio of the most most disruptive companies on the planet his point is doubly relevant.

It means that the price I and the rest of us on this board have to pay in the form of volatility is orders of magnitude higher than for the market as a whole. But the returns as well, if done right. It also means that if an investor is not prepared to pay the fee for this type of investing, then he or she must not expect the returns. And are better off investing in lower volatility options like general market ETF’s and accepting the lower returns as a result.


In January I revisited the theses of all of my holdings and repositioned accordingly. I bought one new position, and sold two. Both sells were driven by customer growth not making the cut.

I sold Pubmatic because SaaS valuations have been pummelled and currently offer great value and very high predictability, much more predictability than ad-tech. I also know SaaS very well - much better than I will ever understand ad-tech, and in this environment, I want to be invested in stuff I really understand. Pubmatic’s current hyper-growth is driven by very high NRR. Their new customer additions have not been a driver as it’s been very limited. In the land and expand model there has been no land, it’s all been expand - Q3 Revenue growth was 54% and NRR was 157%, meaning that contribution from new customers must have been negligible/negative. Also, NRR will drop off due to the company being seasonal. I wrote it up here:…

I also sold Snowflake because of slowing growth in large customers and overall customers. If you think about it, not that different from why I sold Pubmatic. Pubmatic’s NRR was 157% and my analysis is that this will slow, and they have not been adding enough new customers. My decision on Snowflake was orders of magnitude more marginal, but the essence is the same. Their customer growth has slowed in the last quarter (however you cut it), and their NRR is astronomical at 173%, but by my analysis this will also reduce in future as it is currently boosted by a catch-up in spending after a slowdown during COVID (I called this a “covid bump” in my analysis linked below as I thought it was clear from the context but reading some of the responses to my post it is clear I should rather have called it a “post covid bump”). Perhaps NRR won’t drop this coming quarter, but the quarter after, or the one after that. If their customer growth reaccelerates this coming quarter, of course that will change things, but until then I’m very happy to wait on the sidelines, given Snowflake’s valuation and absolute market cap relative to my other holdings. Here’s my more in-depth write-up, with plenty of people who don’t agree in the thread btw, so make up your own mind:…

I bought a position in Cloudflare again, and highlight why below.


Below is the composition of my portfolio end Jan, split per conviction tier. I’m down to eight positions.

**Monday			21.6%**
**Datadog			20.0%**

**Zoominfo		15.0%**
**SentinelOne		13.6%**
**Upstart			10.2%**
**Zscaler			 9.3%**

**Cloudflare		 5.2%**
**Amplitude		 4.9%**


This month I’m focusing on the impact of the sector rotation on my holdings and contrasting that with each co’s last quarter’s revenue and customer growth rate as well as how efficient their growth model is, expressed as the rule of 40. I calculate this by adding the yoy growth rate to the adjusted operating margin. The “rule of 40” is a metric that aims to make explicit how well the company is doing two things simultaneously and trading off the one vs the other: growth and profitability. Essentially a company that has a score above 40 is exceptional as it’s able to grow super-fast and/or has great margins.

My thought process is that if the rule of 40 metric is good, then the balance of growth and profitability is in order. And if customer growth - a leading indicator - in combination with historical revenue growth - a lagging one which is influenced by NRR - are robust, I can sleep very well given the current level of the share price (which I’ve also cross-referenced by doing a DCF valuation). Essentially I look at the drop in share price and compare that to the other metrics to gauge if it should bother me. If the other metrics are bigger than the share price drop then, all things being equal, I will be ahead a year from now. If the market rerates the shares higher (with higher multiples), then I will be more than all right.

Also, for this review, I calculated what revenue number would make me happy vs what they guided for at the top end for the coming quarter’s results, and what I need to believe they will do to achieve same. (MNDY)

**% down from ath:		-53%**
**Last q yoy rev growth rate:	95%**
**Customer growth yoy:		231% ($50k ARR+)**
**Rule of 40:			84%**

The key metric that I look at with Monday is that customer growth number which grew by 231%. That’s defined as customers who will spend $50k or more in the next 12 months. Clearly a leading indicator and orders of magnitude higher than their revenue growth.

Noteworthy news for Monday was the Okta report for 2021 which makes for interesting reading. On page 11 it shows the fastest growing apps in their ecosystem, and Monday came in 4th together with a bunch of other collaboration and security tools.

I liked this quote and it’s implications for my portfolio: “Remote work and security tools have the wind in their sails”…

For Q4 they guided for $88m revenue and I’m hoping for $96m which would be 16% qoq and 92% yoy, a slight deceleration vs what they did in Q3. For them to do that, they would need to grow total customers to about 160,000 at an ARPU of around $600 per customer (they have not reported total customers that frequently so I had to make an educated guess here).

Datadog (DDOG)

**% down from ath:		-27%**
**Last q yoy rev growth rate:	75%**
**Customer growth yoy:		66% ($100k ARR+)**
**Rule of 40:			84%**

Datadog’s numbers are all trending up and to the right with that customer growth number of $100k+ ARR customers growing to 66% yoy from 60%, 51%, 43% and 49% in the prior 4 Q’s. So very strong acceleration in this key metric. Overall customer growth decelerated a bit in Q3 from Q2 to 34% yoy from 36% yoy but this does not worry me too much given their focus on larger customers. ARPU has been trending up nicely too in the last quarter, up by 31% yoy, faster than previous q’s - driven by their increasingly successful move of the sales motion to larger customers.

They guided to $292m for Q4 and I’m hoping for something around $308m which would equate to 73% yoy. To do so, they would need to grow customers to about 18,700 with an ARPU of around $16.5k per customer - or sequential growth in ARPU roughly in line with what they did in Q4 in the prior two years.

Zoominfo (ZI)

**% down from ath:		-33%**
**Last q yoy rev growth rate:	60%**
**Customer growth yoy:		74% ($100k ARR+)**
**Rule of 40:			99%**

This is starting to become a top conviction company for me; the highest rule of 40 of my portfolio, except for Upstart (which is the highest, believe it or not). ZI didn’t decline by as much as some of my other holdings (“only” 33%…), presumably because it is already very profitable and cash generative. In my portfolio, companies with lower negative operating margins declined less than ones with positive operating margins (except for Upstart, which I guess proves the rule).

They guided to $207m for Q4 and I’m hoping for something around $224m which would equate to 61% yoy - a further acceleration from the 60% in Q3. I’m also waiting with bated breath for the NRR number, which I believe will be up substantially from the previously reported 108% in Q4 2020.

Upstart (UPST)

Ah, Upstart. I thought that perhaps I should skip any write-up given the excess of opinions raised and rather just wait for earnings to put an end to the speculation, but nevertheless scribbled a couple of thoughts below to add to the clamour…I trimmed my position a lot after Q3 earnings, but then kept it quite large and rode it down with increasing wonder. I remain a believer as I wrote here:…

**% down from ath:		-73% (!!?)**
**Last q yoy rev growth rate:	249%**
**Customer growth yoy:		210% (partner banks & CU’s - 31 vs 10 in the prior year)**
**Rule of 40:			262%**

So clearly the drop in share price is not based on actual past performance, but because it overshot on the way up, and on current expectations of Upstart’s imminent demise on the way down (which I, for one, believe may be greatly overblown).

I think fundamentally, to invest in Upstart, one has to believe that AI can do a better job at underwriting risk for loans compared to old mechanistic formulae. If that is the case, then UPST will do exceedingly well. If not, they’re dead in the water, and have always been. I struggle to see how AI can be inferior given the real change in capabilities of more recent AI vs older AI and what they’ve demonstrated they can do already.

Also there are just too many parts of the bear thesis that I don’t buy. The bear thesis, among other things:

Personal loans - Upstart are at the limit of what they can achieve here. I don’t think so. I think the personal loan market is expanding (taking share from credit cards and expanding due to finding “hidden prime” customers), driven by Upstart, and that Upstart’s market share is still small. I think there’s plenty of room left to grow in personal loans.

Macro - worsening macro environment will be bad for lending → terrible for Upstart! Why? I tend to think if the economy does relatively poorly and people get into trouble, they will need personal loans to make ends meet, to pay off that credit card that got out of hand, to pay for tuition, etc. So I disagree on this one, and am rather taking the CFO’s and Transuinions sides here - both say that the changes in the macro environment will be good for loan demand and Upstart.

Delinquencies are increasing → red flag! The mix of the securitisations that have been compared on the board are different between the two vintages (as discussed here:…), and therefore not comparable. The 2019 ones have better risk, lower rates and lower delinquencies; the 2021 ones have higher rates, worse risk, higher delinquencies. That would also gel with the fact that they’ve been doing more, lower value loans in 2021. So delinquencies rising is a red herring, not a red flag imho.

More recent loans are closer to loss projections than in the past → red flag! This is not a bad thing imo. The CFO told us that the environment last year (stimulus checks etc.) made them overperform against their loss projections, which he views as a bad thing. He basically said that means the AI was too conservative and did not get the pricing right, and that customers are therefore overpaying. His aim is to be accurate, not to be conservative so he was planning on improving this aspect. He also said he thinks that in the coming period loss ratios will creep up. So the fact that more recent loans are closer to their loss projections seems to be expected.

Auto will never contribute meaningfully this coming year - disaster! Who knows? Certainly no-one knew they would shoot the lights out on personal loans in 2021 like they did. So who can say what will happen in auto? But even without auto I believe personal loans could be good for substantial growth.

So in summary nothing has really changed since Q3 earnings for Upstart; I think the thesis is still intact and I’m going to wait it out and will see what the results bring. My feeling is that the market is too pessimistic right now.

So here goes. I’m hoping that they produce around $285m in revenue in Q4 vs guidance of $265m. To achieve that, they would need to do about 450k personal loans - an increase of 25% qoq - at an average of about $630 revenue per loan - same as in Q3. Or they could do less loans at a higher revenue per loan (and yes, I know I’m mixing all revenue in that average).

I think the most important metric will be what they guide for next year. I’m hoping for a $1.15bn revenue guide (up ±40% yoy) for next year, and flat qoq guide sequentially for Q1 or up 136% yoy in for Q1.

SentinelOne (S)

**% down from ath:		-43%**
**Last q yoy rev growth rate:	128% (!!)**
**Customer growth yoy:		140% ($100+ ARR)**
**Rule of 40:			59%**

SentinelOne is growing like wildfire, but has the lowest rule of 40 score of my portfolio at “only” 59. The reason for this is that they are still investing exceptionally heavily in front of current revenue in order to grab as much market share as possible. At the rate they are growing, I’m perfectly happy with that. However, I expect an improvement here going into the next Q, as the CFO hinted that they are aware that margins are also important, leading me to think this could be better in the coming quarter. I’ll still be looking mainly at revenue growth though.

They guided to $61m for Q4 and I’m hoping for something around $69m which would maintain their growth rate at above 120% yoy, which is what I’d like to see at their scale and level of investment in S&M.

ZScaler (ZS)

It would seem that ZS is uniquely positioned to benefit from increased urgency from the US government - but also other Western Governments, in light of the increased recent tensions with Russia:…

**% down from ath:		-32%**
**Last q yoy rev growth rate:	61%**
**Customer growth yoy:		53% ($100+ ARR)**
**Rule of 40:			71%**

ZS has been accelerating at a very steady pace over the last two to three years, and seem to only now be hitting their stride. They were growing in the 40%’s in FY20, in the 50%’s in FY21 and in the 60%’s in Q1 FY22, with all metrics pointing in the right direction for further acceleration.

They guided to $242m for Q2 and I’m expecting around $255m which would equate to 62% yoy - a further slight acceleration from the 61% in Q3.

Cloudflare (NET)

**% down from ath:		-57%**
**Last q yoy rev growth rate:	52%**
**Customer growth yoy:		71% ($100+ ARR)**
**Rule of 40:			49%**

I started selling Cloudflare last year in June and July and exited after Aug 5 earnings, as I just wasn’t seeing the acceleration of revenue that I was looking for, given their furious pace of innovation. I was also subsequently confused by their R2 product as I wrote here:…

Their latest quarterly report, which I listened to again recently, convinced me otherwise and led me to take a position again. Revenue started to accelerate, and more importantly key metrics started to point to more acceleration to come.

The most important of these are their total customers and their their $100k+ customer cohort. Customer growth in Q1-Q3 of 2020 was 21% → 24% → 25% vs 34% → 32% → 31% in 2021 and for the >$100 cohort 65% → 65% → 63% in 2020 vs 70% → 71% → 71% in 2021.

This accelerating customer growth in combination with steadily increasing NRR (at 124% vs 116% a year ago) has started to move the needle on revenue growth.

But the thing that convinced me was that they said on the conference call that this year Q3 was subdued vs last year, and crucially that the growth in Q3 came at the end of the Q, which essentially front-loads Q4:

“I will note that Q3 2021 was different in many ways in Q3 2020. While last year, the seasonality of summer seemed to disappear as people canceled vacations and worked without a break. This year, much of the world came out of lockdown in a parent desperate need of a vacation. July and August were quieter than normal and the quarter ended up being more back-end loaded than we usually see.”

He also said that Q4 started out exceptionally strong:

October started out very strong. In just the first week, a prominent social network chose Cloudflare One as their Zero Trust solution, finding a contract worth at least $1 million annually. That same week, one of the largest video conferencing services came under attack and onboarded onto Cloudflare, signing an $8 million annual deal. They push a lot of traffic, and we believe we are the only network provider with its scale and agility to have been able to onboard them over a weekend.”

These comments make me believe we are in for a very good Q4.

Prince also spent quite a bit of time explaining R2, and put my concerns to bed about them competing on price. There is a strong strategic reason behind R2:

So I think that it’s early days in terms of R2. But what I think that we hope is that R2 can be very disruptive in the market and not only allow us to capture more of the object store spend, but also put downward pressure on all of the different cloud providers to eliminate their egress fees. It is completely absurd that these companies are charging nothing to send data to them, but then charging what can be massive markups, 80x what the wholesale price is to take data back out. And we don’t think that’s sustainable, and we want to push that down. The reason why that’s attractive to us is we think that our long-term opportunity is really to be the fabric that connects together the various cloud providers. And in an ideal world, what we hear from customers is that they want to use some cloud flare services, but they want to use Google services and Microsoft services and Amazon services and pick the best of what they need across all of those different providers in order to deliver a more robust application. And I think that is the inevitable way that the market will play out over time and that being that fabric that can connect those different networks together is a very powerful position for us to be in. And so R2 is both, I think, an opportunity for us to grow TAM, but it’s also an opportunity for us to accelerate what I think is the inevitable next generation of the cloud, which is allowing customers to pick the best of breed across multiple clouds.

In addition, just as the story seems to be changing for the better, Cloudflare’s share price got beaten down to levels last seen about a year ago. So I took a position again and will be looking to add.

Cloudflare guided to $185m for Q4 and I’m pencilling in closer to $195m. In order to get there, they will need to add about 7m total customers to 139m and increase ARPU by about 8% sequentially to roughly $1,400 per customer.

Amplitude (AMPL)

**% down from ath:		-55%**
**Last q yoy rev growth rate:	72%**
**Customer growth yoy:		54%**
**Rule of 40:			67%**

Amplitude’s guide has been discussed at length on the board (essentially they are low-balling given that it’s only their second report as a public company) and is probably part of the reason why it got clobbered as much as it did in this rotation, together with it being a very recent IPO, so without much of track record.

They guided to $47m for Q4, or 46% growth, which would be bad, as that would be a big sequential deceleration. I’ve pencilled in at least $55.5m which would be a continuation of the qoq run-rate growth and good for 71% yoy. Given that they went from 45% yoy in Q3 a year ago to 50% yoy growth in Q4 a year ago - i.e. 5%pts acceleration a year ago, anything less than $55.5m would be a disappointment to me as I’m looking for acceleration from them, given their current scale.


That’s a wrap, and about as far as I’ve ever gone in terms of trying to read the tea leaves. Let’s see what actual results bring.

Happy Investing, all!

  • WSM

Previous reviews:

Dec 2021 full-year:…
Nov 2021:…
Oct 2021:…
Sept 2021:…
Aug 2021:…
July 2021:…
June 2021:…
May 2021:…
April 2021:…
March 2021 Q1 ytd:
Dec 2020 full year:


A typo was pointed out to me off-board re Amplitude. The revenue I’m expecting for the upcoming quarter is at least $51.5m (not $55.5m) which gives an increase of 71% yoy.



It means that the price I and the rest of us on this board have to pay in the form of volatility is orders of magnitude higher than for the market as a whole. But the returns as well, if done right. It also means that if an investor is not prepared to pay the fee for this type of investing, then he or she must not expect the returns. And are better off investing in lower volatility options like general market ETF’s and accepting the lower returns as a result.


Interesting perspective. I certainly agree that volatility and downs associated with it trigger emotions in people. People don’t like to lose money even if the “loss” is temporary. Some high growth stocks that investors can buy will yield higher returns than the market in the long-run. We try to differentiate the companies that will outperform from those that may be considered growth stocks but won’t outperform. If one looks over a whole up/down cycle then the carefully picked high growth stocks will outperform the market. But I would not call volatility a fee or a price as there is no actual cost when one looks over the long-run; of course, it assumes that one holds through the cycle (or multiple cycles if one unluckily bought at the top of a cycle); there’s only outperformance, no volatility price/fee. I think we need to flip your logic on its head and say that those who invest in ETFs or the market are the one who are paying the price/fee. They are accepting lower returns for lower volatility. They detest the downs of volatility so much that they take the lower/more stable returns. Yes, we are willing to endure the downs that come with volatility. I think this distinction is important for the following reason. If you take a person who lets his emotions get the better of him then he may take action at the wrong time (buys growth stocks high and then sells them low).

Maybe you are correct that nothing is free, and there is a price/fee for us. It’s not volatility. The fee for us is learning how to pick growth stocks and then doing all the homework needed to distinguish the best from the rest. This takes time and effort. Someone who buys the market or the ETF need not do any work; they can choose to go to the ballgame or watch Netflix instead. Perhaps the people who buy high and then sell low were those who didn’t really do their homework but rode the momentum or “borrowed” conviction from those who did the homework. Such “borrowed” conviction doesn’t endure so well when things are falling.




Thank you for another greatly detailed end of the month summary. I really appreciate your contribution to the board.

Regarding you said:
Noteworthy news for Monday was the Okta report for 2021 which makes for interesting reading. On page 11 it shows the fastest growing apps in their ecosystem, and Monday came in 4th together with a bunch of other collaboration and security tools.

I liked this quote and it’s implications for my portfolio: “Remote work and security tools have the wind in their sails”…

Is it possible that you got Okta’s report from last year and not the latest one? It’s a little confusing since the report from 2021 (the one you looked at) looks at the data from 2020 and therefore the 2022 report looks at the data from 2021.

Reading the report from 2022 I see that Monday is still among the 10 fastest growing apps. Down from number 4 in 2021 (with 149% YoY growth) to number 8 in 2022(with 103% YoY growth).

Here’s the link, see page 19.…

While comparing both report I noticed that almighty Snowflake went from 273% growth in 2020 to 105% in 2021 according to Okta’s data. So Monday showed solid resiliency by only going down from 149% to 103%. Another data point that was positive for Monday’s thesis.

Also noteworthy:
For the first time ever, five different collaboration tools made the list: Notion,
Figma, Miro, Airtable, and
Me again. I think it’s fair to assume that collaboration tools still have a strong “wind in their sails“.

We shall see when they report in a couple weeks!