Happy Saturday Friends,
After receiving feedback from a few of our readers, I’ve decided to begin sharing dollar amounts in our updates. I'm doing this because I want to show other home investors the power of investing and also share my experience investing as my portfolio (hopefully) grows over time.
Please comment or reply to this email and let me know how you feel about me sharing dollar amounts.
While we’re on the social feedback topic I want to say thank you! We received a few likes (click that heart up top under the title!) on some posts last week and one of them showed up in the “top 50 posts” page on www.substack.com (the host for this newsletter) which helps people find us.
Shameless plug, keep the likes, comments, and shares coming. I appreciate your time and interactions = )
Alright Austin, get to the review already
As the title says, this was a good week. The portfolio increased by 7.46% and by $30,091.10 to a total value of $421,089.79.
When my wife and I talked about this week we were just struck by how powerful long-term investing truly is. That is more money than her and I make combined in three months. I started this portfolio with around $8,000 (that I quickly lost 50% of) in 2011.
I’m sharing these details because until recently, I never thought something like this would be possible for us.
But long-term investing works.
Here’s our 30-Day, 1-Year, and Since Inception returns versus the SPX which is a benchmark that tracks the S&P 500 performance. So the SPX return is what we would have had if we were invested in a S&P 500 index through someone like Vanguard, Fidelity, etc.
I’m sharing these for transparency and for my own learning. Writing about this in the moment helps me review my decisions later on to see where I messed up (more on that next section!).
Please Please Please do not just copy these investments. We have to have an understanding of the companies we own and our own reasons for owning them.
Investing in the right companies is only 25% of the battle. The other 75% is battling our emotions and impulses that try to get us to buy/sell too often and for the wrong reasons.
That dynamic is one thing I love about investing, but it is also very challenging.
In ABC order. Yes I said ABC order like a 5 year old:
Alteryx (AYX): $46,300
Elastic Search (ESTC): $10,800
Mongo Database (MDB): $52,700
Okta (OKTA): $35,800
Pager Duty (PD): $13,000
Shopify (SHOP): $9,960
Square (SQ): $10,700
The Trade Desk (TTD): $93,200
Twilio (TWLO): $74,000
ZScaler (ZS): $22,700
OMG you have more than an entire years’ salary invested in The Trade Desk, ARE YOU INSANE?!
Probably. But for other reasons. Our Cost Basis in The Trade Desk is $56,600. It has performed well and grown to its current size.
I am a HUGE fan of the company and believe it to be a great long term investment but I won’t be adding more because of how large the position has become. However, I also won’t sell any just because it has performed well and grown in size.
That would be the exact opposite of what we want to do which is invest in winners and keep adding to them along the way (till they get too big). This is something I learned from David Gardner at The Motley Fool. He talks about it here on his fantastic Rule Breaker Investing Podcast
Why $48,900 in cash?
Well, I often talk about not trying to time the market, and just staying invested. History has proven that STATISTICALLY speaking if you have 5+ years until you need the money, staying fully invested is the best thing to do.
However, in reality that’s really hard to do. At least for me. So I’m staying mostly invested and because of how concentrated our portfolio is with only 10 positions, if our companies perform well, our overall portfolio performance will be great.
As regular readers know, I’ve been in and out of a lot of “starter” type positions over the last couple months. After some reflection, what I realized is I was stretching my investment criteria and investing in companies that I truly wasn’t comfortable with because I was afraid of missing out on the returns.
These companies include SMAR, DOMO, HUYA, IQ, BZUN, ROKU, MELI, STNE, and a few others. I could be 100% wrong on selling these companies and they could go on to perform extremely well.
But that doesn’t mean it was a bad decision for me to sell. Our portfolios are a reflection of our personalities and investment styles. I know I just personally can’t get comfortable having large positions in international companies where I don’t feel like I can get to know management as well.
Thoughts on Atlassian (TEAM) and Zoom (ZM)
These are two companies I absolutely LOVE.
I really want to invest in Atlassian because of how dominant their products are with such little sales and marketing spend. I’m a big fan of management and how they run the company as well.
However, at its current Market Cap of around $26 Billion, revenue growth of 38% and Price to Sales ratio of 23, I couldn’t get comfortable holding it. I normally don’t pay too much attention to Price to Sales ratio, but when comparing Atlassian to our other faster growing companies, it just doesn’t make sense to own it at these levels.
Here’s a chart that shows some of the data points I look at for my investments and how Atlassian stacks up against the others. Ignore AYX 170% revenue growth. That was just because of an accounting change in the way they report. ZM and PD don’t have numbers because they are so newly public.
I think Zoom is one of the best companies we have seen in a very, very long time which is why I opened a starter position on its Initial Public Offering (IPO) day. However, I decided to sell it this week at a 5% loss because the company is selling at a Price to Sales ratio of around 50.
I simply can’t justify owning ZM at that P/S ratio when my other companies that are also awesome and growing slightly less fast are at P/S ratios of less than half that.
Even Eric Yuan, Zoom’s founder and CEO was apparently surprised by how much the stock price has appreciated.
“The price is too high,’’ Eric Yuan said in an interview with Bloomberg TV on Thursday. “Today, wow, there’s a big pop. It is out of our control. We can just go back to work.’’
Now you know how I feel about the click-baity headlines from a lot of these financial sites so take that with a grain of salt. Needless to say, there was a lot of excitement around the ZM IPO. A company with the ticker ZOOM increased by 47,000% during the month of March after ZM announced its IPO. An example of the excitement.
So anyways, I want to own shares of Zoom (ZM) but I can’t justify it at these current levels considering the other great options that are out there. I could be completely wrong and if that’s the case, I’m okay with that.
One final note on this. If Zoom sustains this extremely high P/S ratio what it could mean is that investors are willing to pay a higher P/S for Cloud and SaaS stocks which could lead to the stocks I own increasing to higher P/S ratios.
Psychology is a funny thing so we will see how that plays out. There is of course the risk that this phenomenon gets out of hand and SaaS stock P/S ratios rise to unsustainable levels similar to what happened with .com and technology stocks that had absolutely no revenue in 1999 and 2000 but sold at ridiculous prices.
We’re not at that point in my opinion but it’s something I’m watching.
So that’s what the $48,900 in cash is for. Taking advantage of some type of volatility from earnings season or Zoom or Atlassian dropping a bunch to levels where I’m comfortable starting a long term position.
I’ll keep you updated!
Transactions this week
Monday April 22
Sold 160 shares of ZM at $59.04 (about a 5% loss)
Sold 181 shares of TEAM at $101.31 (about a 6% loss)
Wrap it up already Austin
That’s all for this week. As always, thank you for your time and attention. I would love your feedback on these updates. Are they too long and what else would you like me to talk about? Email or comment and let me know.
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