Time got away from me and I couldn’t get last week’s update out last Friday. This week will be a little weird. Today we’re covering last week (week ending October 11th) and on Friday, October 18th, we will be back on schedule. I am considering moving portfolio performance updates to once a month which will give me more time to focus on covering individual companies. Would love to hear your thoughts/preference. Reply to this email and let me know!
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All results through October 11, 2019.
7-Day return: +1.57%
Year-to-date return: +25%
Holdings & allocation %
Alteryx (AYX): 19%
The Trade Desk (TTD): 19%
Twilio (TWLO): 16%
Mongo Database (MDB): 16%
Okta (OKTA): 7.6%
Zscaler (ZS): 7%
Anaplan (PLAN): 6.5%
Pager Duty (PD): 5%
Zoom (ZM): 3%
Slack (WORK): 2.5%
Datadog (DDOG): 2%
Elastic (ESTC): 1.5%
Crowd Strike (CRWD): 1.5%
Short 1 x CRWD January 17, 2020 $60 Put
Short 2 x PD Feb 21, 2020 $25 Puts
Short 1 x ZM Jan 17, 2020 $65 Put
Short 2 x ZS Jan 17, 2020 $45 Puts
I am also long some calls on NTNX and NKTR which are basically a lost cause. Big time losses on those.
What I’m thinking
For now, it appears most of the #SaaSpocolypse has passed us. I made that up, but it’s the best I can do to describe what happened to basically all of the companies I own (and most “high-growth” companies) over the last month or so. It was tough to watch my portfolio meltaway from being up more than 60% YTD in July to up around 15% YTD at the low point about a week ago. I view that as part of the game when it comes to this type of investing.
My belief that I am investing in some of the best companies in the world remains. I also believe that at least some of these companies will continue to grow for many years to come and reward investors handsomely. That’s why I stayed fully invested during the recent sell-off and why I intend to stay that way.
The Top 4
I’m very comfortable with my top 4 holdings (AYX, TTD, TWLO, MDB). I don’t plan to make any changes to them unless one surpasses 20% of our portfolio. Then I’ll look to trim it down to under 20%.
The Middle 4
I’m a bit less confident in the middle 4. Or at least in Anaplan and Pager Duty. I believe Anaplan is basically creating their own industry with connected planning and they appear to be a clear leader. But I want to see them execute well in the next quarter. I strongly believe in Pager Duty as well and the service they offer is critical to businessess where downtime costs hundreds of thousands or even millions of dollars per minute. However, I won’t buy any more shares until management shows continued strong performance in the face of the competitive environment that seems to be keeping pressure on the share price. Simon Erickson from The Motley Fool did a great Tweetstorm on the company recently which confirmed some of my thesis. Simon is a great investor and his vote of confidence is reassuring.
Simon Erickson@TMFInnovatorPager Duty $PD Day 1: Company Overview (S-1 Prospectus; ~3 hrs) As a first step, I want to learn about how the company makes money & why it's valuable to customers. Don't worry about the jargon; focus on the main idea & critical questions. https://t.co/iGisi03ew9 1/8 https://t.co/sWUrTnMrAb
The Bottom 5
I am a big fan of pretty much everything about Zoom and plan to add shares over time (especially if I sell something else). There’s a lot of fear of competition and lack of moat, but I think Zoom’s numbers prove those fears wrong (at least so far). I do believe Zoom has a moat since they’ve built out the hosting capabilities for their cloud-first products since day 1. They’re also building strong partnerships with companies like Verizon and deepening their offering with Zoom phone. The world is moving to more of a distributed model and Zoom enables companies to work remote in ways they never could before. One reason shares may have sold off recently could be lockup expiration. I’m not one to make short-term predictions (here comes a short term prediction) but I think we will see a 10%-20% gain in Zoom’s share price over the next month to 10 years (see what I did there?).
What can I say about Slack? I’ve been dead wrong on it so far. I’m keeping my 2.5% position and not adding to it anymore. I still believe in the company and management. I think much of the Microsoft Teams fear is overblown and similar to my Zoom thesis, Slack in leading the way into the future of work. To my knowledge, Teams doesn’t offer anything close to this type of workflow capability or nearly as many (if any) integrations like Slack does.
Datadog, Elastic, and Crowdstrike are all companies I plan to add to. Especially if I sell PD or PLAN and/or if the share prices keep coming down for no apparently good reason.
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