Ouch. September sucked. But it helped remind me that the market can be beaten (even though one needs to look no further than Saul’s record to come to that conclusion). That’s because what happened to our portfolios in September is not possible. Theoretically that is. The Economist in the 27 Sept 2023 edition stated that, since 1928 the S&P has dropped 55% of the time in September vs 40% for the average of all other months.
Clearly that is not possible if the market was efficient, which theory tells us is the case. Given that it has happened - again - the market cannot be efficient. Not even theoretically imho…
In September we got collectively hit by the Fed. Once more. If only they were more often right with their dot-plots. While I’m quoting the Economist like a fan-boy, here’s another article to make my point (note the date): April 22, 2022: The Fed that Failed…. Basically The Economist said in April 2022 that the Fed had indicated a very small interest rate increase, of 0.75% in total for 2022, in December 2021. And as of April 2022 the expected increase of 2.75% was already more than 3x higher than what they indicated only four months earlier. And then The Economist went on to suggest that 2.75% was also way too low, and predicted an eventual Federal Funds rate of 5-6% (and a recession). They were saying - in April 2022 - that the Fed was still behind the curve and will, in fact not follow their “dot plot”. And they’ve since been proven right.
So fast-forward to today. My take is that The Fed will remain hawkish until they don’t. Like in 2021/22 they were dovish until they weren’t. I think the Fed won’t follow their (average) dot plot; they will (like in 2021/2) do the opposite of what they’ve been signalling when the economy finally succumbs. But that’s just me. And that’s about as far as I’ll go macro-wise, as it’s off-topic for the board. I’m including it, though, as the back-story for why I don’t have a huge cash position at this time, and as a reminder of what interest rate expectations did in 2022 and again this month to valuations.
For the remainder, I’ll stick to just the companies, and keep it short. I loved @PaulWBryant 's lesson from @SaulR80683 , and especially loved this snippet about which companies to look for:
Below I’ll very briefly touch on what I believe the short-term catalyst is for each of my companies.
Performance
| 1 Jan 2023 to | YTD Return | %pt mom change of starting capital |
|---|---|---|
| Jan | +7.2% | +7.2% |
| Feb | +17.3% | +10.1% |
| Mar | +15.1% | -2.2% |
| Apr | +2.1% | -13.0% |
| May | +23.4% | +21.3% |
| Jun | +31.2% | +7.8% |
| Jul | +37.3% | +6.1% |
| Aug | +43.7% | +6.4% |
| Sept | +30.2% | -13.5% |
Changes
I’ve been selling Okta to buy other positions that have fallen more this month, and finally sold out completely on Friday. Nothing wrong with the stock or prospects, it just fell less than some of my others.
I took a position in Tesla and I don’t even own one, and took, and grew a rather substantial position in ELF even though I can’t spell “makeup”. Figuratively speaking.
I also increased my Monday position, and again on Friday, decided to keep a bit of dry powder, emulating some of my more successful board brethren.
Lastly, after thinking through my reasons for owning Pagaya (gambling, really, if I’m being honest), I decided to sell the small position I had.
Current portfolio
Celcius - remains my top position. They remain in hyper-growth - 112% yoy revenue growth in the last quarter and 18% net profit margin! They should beat current published consensus Q3 revenue estimates by a wide margin when they report based on market surveys. The catalyst in this case is just continued growth. And Q4 will be an easy comp. Rule of 40 on op margin of 131%!
Axon - this is a very solid performer - 34% yoy growth and 24% net profit margin, with a visionary founder and a hard-nosed culture. I think their hardware revenue will rebound in the next couple quarters and their cloud business keeps on growing into a bigger part of the overall business as it’s growing faster (51% yoy last q), thereby improving the overall business model and growth rate.
AEHR Test - growth was only 10% last quarter but I expect at least 60% yoy for next year based on the large number of new customers signed up. Last year about 80% of revenue came from just 1 SiC customer. And they have since added 5 more of similar potential size. So by my rough calc, the catalyst is having a potential 5x revenue from recently signed up customers. Net profit margin was 30%, where will it go once they add so much incremental revenue? in the NVIDIA 50% range?
Monday - they just keep on executing extremely well. 42% yoy growth and 4% net profit margin in the last quarter, with very solid customer growth metrics and a lot of operating leverage kicking in. And a world-beating 90% gross margin. Continued execution is the thesis here.
ELF - colour me converted. They grew 76% in the last quarter and managed a 29% net profit margin on that (for a rule of 40 of 104% on op margin). And they just made an acquisition which should further boost growth, and they are expanding internationally. They are riding strong societal trends and have a marketing machine which is probably the source of much of their competitive advantage. This twin engine will not likely peter out quickly I don’t think.
Samsara - great company, doing vehicle tracking and telematics right, and expanding into adjacencies. They just grew at 43% yoy with a 2% net profit margin and a lot of operating leverage (+10%pts yoy on operating margin). And they turned FCF positive for the first time last quarter.
Tesla - one can write a book about this one 
It is by far the biggest company in my portfolio. The numbers are staggering to me - bigger quarterly revenue than Nvidia. And they just grew that by 47% yoy, up from 28% in the previous quarter. The CEO seems to really believe that FSD will arrive this year and Dojo gives them a lot of optionality and potential AI upside. I’m cognisant of the fact the the CEO is probably not the most stable, predictable individual around. But he executes. I’m happy with the current size of the position given the potential upside.
Confluent - revenue growth was 36% in the last quarter and they delivered a -9.2% operating margin which improved a remarkable 24%pts yoy. They are one of only a few non-profitable companies in my portfolio; they will need to continue to show some leverage in the coming ER to stay. Their >130% NRR is fantastic in this environment, and they could benefit from more demand for real-time data for operational and AI purposes.
Nvidia - yes, well, fine. The foundation for the AI revolution. They sell every H100 that they manage to make. Nuf said.
Global-e, Dlocal, Pure Storage and Transmedics are smaller size positions which I may add to or eventually exit. Here is why they are still in the portfolio - each has a near-term catalyst.
For Global-e it is the launch of their Shopify product. For Dlocal it is a continuation of the inflection in Latam and a stabilisation in Africa. For Pure it is a potential Meta order (for their supercomputer, which is supported by Pure and which is not included in their forecast) and traction from their new products. And for Transmedics it is showing that growth has not flatlined after the transition to an in-house fleet of (expensive) jets.
In closing
I do these write-ups for myself - to reflect. But I also do them as an invitation for debate. Previously, I’ve been called out on how many stocks I have in my portfolio, and that has helped me think about them individually, critically evaluate them again and right-size my allocations. I’ve also been questioned about Pagaya, and that led me to conclude that the challenge was warranted, and I sold.
I wish someone talked me out of SentinelOne, Bill and Transmedics earlier this year.
So please engage if you think anything I’m doing looks suspect, or if you vehemently agree.
That’s the spirit of this board: constructive debate.
Thanks, and good luck to all of you!
-wsm