WSM's portfolio review April 2022

wsm007 · May 2, 2022, 11:55am

April was terrible for me too; it’s all been said by others so I won’t repeat it here. The reason I’m down more than most others with a similar portfolio is because I’ve been leveraging up as the stocks continued to crash with some call options (OT so I won’t discuss the details) and borrowed money. And if one is leveraged (actual borrowing or options), losses and gains are amplified.

2022 YTD RESULTS PER MONTH

Jan -27.1% Feb -23.9% Mar -33.8% Apr -43.4%

APRIL REVIEW

I made only one big change and a couple of smaller, incremental ones this month.

I took a 10% position in Snowflake again. After Q3 I was worried that their customer growth was slowing down, and I decided to wait on the sidelines until Q4. To be honest I only properly thought through the Q4 numbers in April, and decided to take a bite when the valuation dropped below Cloudflare’s. Now Cloudflare is a great company, but Snowflake is better: it’s got a bigger TAM, is growing faster, is more profitable, better CF generation, etc etc. As I had to get the money somewhere, I did three things: I went on margin, and I lightened up on my Cloudflare and Monday positions.

I’ve never before gone on margin, but there’s a first for all things. Let’s see how that pans out; I would definitely not recommend that to anyone else, though.

Because nothing changed in terms of the numbers, and that is my primary way of looking at my companies, I’m only going to discuss Snowflake below, as that is the only new position. For all of the others, my thoughts remain the same as last month. End of May will be a very different story though as most will have reported.

POSITION SIZES

Below is the composition of my portfolio end April, with the percentage end Mar in brackets. The top 4 make up 76% of the total portfolio.


**Datadog			24.6% (21.1%)**
**[Bill.com](http://Bill.com)		18.6% (13.0%)**
**Zscaler			17.1% (15.9%)**
**SentinelOne		16.2% (13.9%)**

**Snowflake		10.2% ( - )**
**Monday			10.3% (16.3%)**
**Upstart			9.6% (7.0%)**

**Cloudflare		2.4% (13.0%)**

**Cash			-8.9% ( - )**

SNOWFLAKE (SNOW)

After again listening to the call reading Peter Offringa’s excellent piece on Snowflake ( https://softwarestackinvesting.com/snowflake-updates-q4-fy20… ) and the valuation falling to its lowest since IPO, I took a rather large position again. The key things that made me retake a large position:

The RPO and billings performance in Q4 which were incredible and both of which are leading indicators even for a consumption-based monster like this
The CFO repeatedly saying that NRR will definitely come down - I made the point after Q3 that this will most probably happen (Bear made the point too) and now it’s clearly baked in and out in the open so when it happens it won’t be a surprise
The repeated hints by the CFO that Q1 will be a blowout CF quarter - I think this will be important in this market (ZI was down relatively less than other of our holdings, I presume due to great CF generation)
A resumption in sequential customer and F500 acquisition growth - to 528 added from the dip of 426 added in Q3 for total customers and to 14 from the dip of 8 in Q3 for F500
The commentary about the runway left with all of these customers and CFO comments about them going for quality of customers rather than quantity
Unbelievable confidence as expressed by S&M employee growth - from 1672 to 1891, up 13% sequentially and 50% yoy (vs up 7% sequentially and 27% a year ago) and an improvement in sales efficiency as measured by customers landed per S&M employee
Analysts harping on about the efficiency gains that they passed on to customers as a bad thing whereas management believes this is actually good and will lead to an accelerating migration of workloads to them. I agree and the message to customers is also a great one, and one that will resonate even more in this current environment.
The AWS tailwinds that Peter described and which was very apparent with the enormous growth in the amounts co-sold with Azure and AWS.

CLOSING

I don’t have a crystal ball, but I take heart in a couple of things at this time.

First is that Warren Buffet, the old value hound is buying equities again like crazy - it was even mentioned in the Economist.

Second is that Microsoft, Amazon and Google had strong growth in their Cloud offerings which bodes very well for our companies.

Then I really take heart in this little gem which I found last week - how Buffet invested earlier in his career when he had much less capital. In 1951, when he averaged 75.8% vs the Dow’s 21.3%, his top 5 holdings were 97% of his porfolio, and his largest was Geico, at 53%. So clearly having a concentrated portfolio is not crazy. In fact it is the only way to seriously beat the market.

And lastly, moving to growth investing specifically, here are two quotes for you:

”If you are in the right companies, the potential rise can be so enormous that everything else is secondary. Every $1,000 I and my clients put into Motorola in 1957 is now worth $1,993,846 — after all the ups and downs of the stock and of the market…
If I’d sold Motorola because I thought it was overpriced 10 or 15 years ago, chances are I would not have known when to get back in, and I would have missed a tremendous profit. If one of my stocks gets overpriced, I warn my clients that things may be unpleasant for a little while but it will rise to a new peak later.”

And the second one from the same author:

“If I have a deep conviction about a stock but it has not performed after three years, I will sell it. If I think management or the basic situation has deteriorated, I will sell”

Guess who said those two things? Philip Fisher, one of the original growth investors. Back before I was born. And I’m no spring chicken anymore I doubt that this time will be different.

Good luck, all.

WSM

Previous reviews:

wsm007 · May 3, 2022, 2:02am

It’s from the Economist’s “World in brief” service for April 30th:

“Berkshire Hathaway, the conglomerate run by Warren Buffett, announced its results at its annual meeting in Omaha dubbed “Woodstock for capitalists”. In the first quarter of 2022 the company earned $5.5bn, down from $11.7bn a year earlier. Operating earnings, which exclude some investment results, were almost unchanged at $7bn. Despite struggling stockmarkets, Mr Buffett has been on a buying spree of late; he spent $51.1bn on equities in the quarter.”

brittlerock · May 3, 2022, 11:18am

Just a short note about selling when the market sours . . .

When the pandemic hit in 2020, I felt this time it really was different. We had not had a cataclysmic event of this nature within anyone’s memory. I let fear overwhelm rational thought and sold pretty much everything. That was stupid. Fortunately, I returned to my senses after not too long and had just shy of 100% returns for the year. While that’s truly astonishing, it’s also worth noting that many members of this community simply did nothing and were rewarded with closer to 200% returns for the year.

So, this time around I have pretty much just stood pat while my portfolio’s value has suffered significant erosion. I won’t pretend that it hasn’t been rather painful. Even though I have a great deal of confidence that it will recover, it does appear that the recovery is going to be several more months in coming. We don’t discuss geo-political events and macroeconomics on this board, but one would have to be very sheltered to fail to see how these forces directly impinge on most of our investments.

But here’s the thing, if I had sold out earlier in this down cycle I know I would have believed that it had bottomed out and bought back in before now. We’ve had more than one false start on what looked like a recovery. If one takes the impact of taxes into consideration, I would be even worse off had I sold and then bought back in.

As Saul has mentioned more than once, when it comes to timing the market, you have to be right twice, you need to sell near the zenith and buy near the nadir. I imagine there are some people who can read the tea leaves successfully and accomplish this. I am not one of them.