Added to ZS, WORK, PD, MDB, ROKU, ESTC, ZM, CRWD
|Sep 10|| 8|
Here is a beautiful picture of a field full of flowers. Enjoy it for a moment. Okay, now let’s talk about how painful this week was for our portfolio. Remember, to scroll up to the beautiful flowers if you need a break from the pain below.
I’m kidding… we have so much to be thankful for. Most of it, we take for granted (speaking for myself). Being down 16% in seven days is painful. But in the grand scheme of things, it doesn’t matter one bit. Especially after a week where we saw Hurricane Dorian devastate the lives of so many. My thoughts and prayers are with all those who were impacted.
If anyone has a link to a good charity raising funds to help relief efforts, please share it with me.
I want to start by saying THANK YOU!! We ended last week with 786 total subscribers (41 paying). As of Sunday September 8th, we are at 852 total subscribers (53 paying). That’s week-over-week growth of 8.4% for total subscribers and 29% for paying subscribers. That just blows my mind.
One of three things happened. A: people love seeing my portfolio have a terrible week, B: people felt bad about my portfolio having a terrible week, or C: someone shared this with their followers.
I’m mostly joking. I think the growth was a result of a couple of our readers sharing this with their followers @Cindybisv. Cindy is a GP at Zillionize, has a very informative Twitter feed, and has become a great friend. The other was a friend who goes by “Champico”. He hangs out a bit out of the public view so I won’t share his info unless I get his approval which I haven’t asked for yet…I appreciate you both so much.
I write these to help myself think and hopefully inspire others. Follower numbers and paid subscriptions aren’t my primary focus. But it feels incredible to know that many people find this valuable enough to allow these to take up valuable space in your inbox (and mind) and/or start a paid subscription.
The free and paid versions of this newsletter are exactly the same. However, if you start a paid subscription, you get a virtual hug which is priceless. If you want to do that, click this button:
IS THIS 2000 AND 2008 ALL OVER AGAIN?!?!?!!
I used all caps there because it feels like that’s what most headlines in the financial media look like. Some are not that dramatic, but you get my point.
The simple answer is no. In my opinion, this is nothing like 2000 or 2008 again. These worst-case scenarios are what people immediately jump to because if you went through them, they are likely the most traumatic financial events you can remember. If you didn’t go through them (like me) then you have certainly read about and been reminded about them by others as what could happen.
In 2000, many “dot com” companies that had zero or almost zero revenue and no actual product. Here are a couple quotes from Wikipedia about the event.
Between 1995 and 2000, the Nasdaq Composite stock market index rose 400%. It reached a price–earnings ratio of 200, dwarfing the peak price–earnings ratio of 80 for the Japanese Nikkei 225 during the Japanese asset price bubble of 1991. In 1999, shares of Qualcomm rose in value by 2,619%, 12 other large-cap stocks each rose over 1,000% value, and seven additional large-cap stocks each rose over 900% in value. Even though the Nasdaq Composite rose 85.6% and the S&P 500 Index rose 19.5% in 1999, more stocks fell in value than rose in value as investors sold stocks in slower growing companies to invest in Internet stocks.
At the height of the boom, it was possible for a promising dot-com company to become a public company via an IPO and raise a substantial amount of money even if it had never made a profit—or, in some cases, realized any material revenue.
We are no where near these levels of insanity. Over the last 5 years, the Nasdaq Composite is up less than 100%, the masses are not investing in companies up 2000%, 1000%, or 900% in a year (if you know of any let me know! 😊). Most importantly, although some “cloud” companies are trading at very high P/E and P/S rations, the ones we invest in a providing transformational (money-saving & business growing) capabilities to their customers and growing their revenues by 40%+ year-over-year.
Here is a quick look at Microsoft’s quartlerly revenue growth and stock price increase in the 4 years leading up to the dot com bust. Almost 1000% price increase supported by less than 200% revenue growth.
Here is a look at The Trade Desk’s quarterly revenue growth and stock price increase over the last almost 4 years. 610% price increase and 426% revenue growth.
This is certainly not an academic study and the sample size is very small. But in general, this is how the companies I invest in look. Significant stock price increase supported by significant revenue growth. I also believe the companies I invest in are just getting started and will continue to innovate and grow their total addressable markets similar to what Amazon, Google, Apple, and the other greatest companies of our time have.
We had no idea they would grow their product lineups or total addressable markets as drastically as they have.
I will be wrong about several of these companies and that’s okay. I’ll monitor their businesses for signs that they aren’t as strong as I believe the are and will do my best to sell when that is the case. However, I believe we own at least a few winners who will absolutely transform entire industries (and even create some). The returns from those winners is all we will need for a lifetime of successful returns.
Unless of course we sell them because we’re scared they are going to drop over the next 30-days.
Our portfolio over the last week
Over the last 7-days, we’re down $77,547 or 16%. This has probably been our worst week ever. There are three important points I focus on during times like these.
1: Perspective. If we zoom out to year-to-date numbers, we are up $123,997 or 33% since January 1st and up 200%+ over the last 5 years. So by my advanced math, our YTD gains will melt-away over the next three weeks. I’m kidding… I hope. These draw downs happen. From Sep - Nov 2018 I was down 35%, then the portfolio regained almost all of that in December.
2: Focus. We are investing in what I believe are the world’s most innovative Founder-led companies. A down day, week, or year in their stock price won’t matter over the next 10 years. If the businesses start to show signs of weakness or I feel there’s a better place to invest, I’ll sell positions. But I won’t sell because their stock prices go down when their businesses are doing great.
3: Mindset. If we are adding to our investments monthly and 5+ years from needing our money we should want our companies to keep growing revenues 40%+ year-over-year and have stagnant or declining stock prices for as long as possible. That allows us to buy more shares of great companies at lower prices.
What I didn’t add to
I didn’t add to AYX, TTD, or TWLO because they are all over 15% of my portfolio. I’m very confident in these companies and could see them all being 10x their current market caps in 10 years.
What I added to
These are the positions I added to listed in order from largest position size to smallest after recent purchases. I added to these because I wanted to increase the position sizes and because I believe in the long-term prospects of each of these businesses. Pager Duty (PD), Slack (WORK), Crowdstrike (CRWD), and Zoom (ZM) are new IPOs in 2019 and relatively unproven as public companies. However, I believe each of them are leading the disruption of old-established industries with best-in-class, cloud-first products. Over the next 10 years, I see all four being established leaders and having products in industries that don’t even exist today.
MDB - 15%
Price added: $140.40
Market Cap: $7.4B
ZS - 8%
Price added: $64.05
Market Cap: $7.8B
ROKU - 8%
Price added: $161.08
Market Cap: $18.7B
PD - 5%
Price added: $32.49
Market Cap: $2.2B
ZM - 3%
Price added: $78.38
Market Cap: $21.4B
WORK - 3%
Price added: $27.38
Market Cap: $13.5B
ESTC - 2%
Price added: $85.33
Market Cap: $6.5B
CRWD - 1%
Price added: $66.89
Market Cap: $15.2B
I’m not a huge fan of Jim Cramer because he seems to change his mind daily. That’s kind of part of his business model as he needs his show to stay exciting and grab viewers’ attention. I do enjoy some of his interview though. Here are two interviews with the CEOs and Founders of Alteryx and Zoom from yesterday. Do these CEOs seem concerned their businesses are disintegrating?
Let me emphasize the point that I have no idea what’s going to happen over the short term. I could be wrong about all of these companies and we could be witnesses the demise of my portfolio. I don’t believe that is the case and I’m continuing to follow my plan. We keep money we won’t need for the next 5 years invested in the best Founder-led businesses we can find and we add to our investments every month.
Thank you all so much for reading and helping to support my goal of making investing accessible to anyone with an internet connection. If you enjoy this please hit the ❤️ at the top of the page (this helps others find us on substack.com), share with friends, and/or start a paid subscription for $5/month or $50/year.
I am not a financial advisor and you are responsible for your own financial decisions. Investing in individual stocks has inherent risks. This newsletter is designed to document my journey as an individual investor and inspire others to take ownership of their finances. I am not against index funds. They are a great option. But I love the process of researching and investing in the world’s best Founder-led companies and I believe that by doing so, we can significantly outperform the market.