I try to post my portfolio update by percentage at least quarterly and realize it has quickly been another 3 months. As I re-read my last portfolio post, it is reassuring to see that most of the thesis still applies, even while I have made a few significant changes to the portfolio percentage allocations based on their quarterly release and calls.
If you recall, after spectacular 202.6% returns in 2020 (see post on January 12th at this link 2020 Portfolio Summary), the portfolio had a spectacularly volatile year-to-date performance in 2021, punctuated with wild and dramatic swings in both directions. After being up +20% in the first 42 days of the year, the portfolio plunged off a cliff after Feb 12 with an overall sector and market rotation out of technology…ultimately dropping to a low point for the year of negative -22% returns YTD on May 12. That is more than a 40% drop and can be harrowing to live through if you’ve not been through such a correction and don’t have conviction in your company investments.
By investing in great, fast growing companies with very solid fundamentals, screaming growth, and very strong balance sheets, conversely, it was relatively easy to disengage psychologically from the thrilling ride without feeling the need to liquidate the investments or jump off the roller coaster on the way down. Having experienced five such 30%+ corrections in just the past 3 1/2 years (and also having lived and invested through both the dot.com crash in 2000 and the financial crisis in 2008), I was sufficiently confident the portfolio (all fundamentally strong, fast growing companies) would bounce back…though I never would have predicted how much or the 100%+ growth it has experienced since May 12th!!
After dipping to the portfolio YTD low point (-22%) on May 12th (exactly 3 months after its YTD highpoint (+20%) set on February 12th), the portfolio has now roared back from YTD lows to hit successive new ATHs for the year and is back up over +60% YTD. In the month of August alone it had 11 (eleven!) new all time highs and September has already had 3 more, driven by incredibly strong earnings releases. If I had sold my investments and not had the conviction to sit tight and ride out the dip, I would never have been able to catch the incredible snapback recovery in this portfolio that has occurred over the last 16 weeks to the tune of more than +101% from its lows on May 12. It is for this reason that I strive to invest in absolutely great fast growth companies with solid fundamentals and proven management teams; and to simply allow the stock price to fluctuate in the short term without panic…Because eventually, over the long term and every single time in my 30 years of experience, the stock price has (eventually) come around to reflect the fundamental growth and strength of the underlying company it represents. Many will argue right now after all the recent highs that the portfolio is rife to go back down. We have certainly seen a huge surge (101% swing in one year?!) and they may be right…or it could continue to surge higher. I don’t “trade” these stocks, I invest in the companies long term…usually for more than a year.
As of the end of trading yesterday September 10th, my portfolio allocations of the 10 growth companies currently owned stands as follows:
| UPST | 20.98% |
| CRWD | 10.58% |
| DDOG | 10.13% |
| LSPD | 9.28% |
| NET | 9.23% |
| DOCU | 6.14% |
| ROKU | 5.66% |
| SNOW | 5.49% |
| ASAN | 4.04% |
| AFRM | 1.22% |
As previously discussed, the percentage of the portfolio is a strong indicator of my conviction in the company. My highest conviction companies usually have the highest percentage allocation. Many of these companies I have held for more than 1 or 2 years. CRWD in particular had grown into a monster position (over 20%) that I had to pair back several times, having initiated positions almost two years ago just under $50/share. When a company’s stock price becomes 5x that quickly, its not hard to see how the percentage balloons up so quickly to such a large position. After CRWD’s most recent earnings and the incredible stock price run up to $289 , I chose to reduce the position to around 12% in non-taxable accounts, and also to reduce some remaining long-term call option leaps purchased the last time the stock price dipped significantly down below $170. The CRWD percentage of the portfolio has continued to decline compared to other holdings like UPST that have exploded higher the past 6 weeks. I still believe CRWD will outperform and it will remain one of my top 3 positions, but as the law of large numbers catches up with them and the overall market remains heated, I thought it prudent to reduce my leverage, while retaining my core position.
Other positions are less than a year old, and companies that I feel have the ability to 3-5x themselves still, include UPST, LSPD, DDOG and ASAN. You recall that I initiated a position in ASAN just about 4 short months ago based on their accelerating growth and at a stock price around $45/share. I recently also posted about ASAN’s latest earnings call here at this link (ASAN Post) They absolutely did not disappoint and the market has rewarded their stock price as they now traded over $100/share today, up more than 100%; an incredibly fast doubling. While it remains a small position around 4%, I feel it still has room as a company to double and will continue to review the company, its competitors and the sector.
UPST and LSPD positions have been building for the past six months. I first looked at UPST on February 8th and when I last posted about UPSTs growth here at this link (UPST Post July 30) just 5 weeks ago, I stated that I expected the company to at least “double”. I fully admit I did NOT expect them to do so in less than 5 weeks and could not have anticipated their explosive growth announcement. Over the past 3 quarters their revenue had grown each quarter y/y from 30% to 60% to 90%…and then they went off and announced a whopping 1018% revenue growth for the most recent quarter? Who does that? No, Zoom was not even able to do that last year during Covid-19!? And I don’t think UPST is close to being done just yet! Between their explosion from around $80/share up to $290/share yesterday (yes, that is a 363% increase in their stock price) and additional share purchases, UPST now has very quickly grown into a relatively oversized 21% position in the portfolio and will remain so until at least their next earnings release. LSPD has grown to a 9%+ position and is also sitting at their ATH. They are both growing at a fierce pace and their stock prices seems to be following along nicely.
As discussed in my last portfolio post, NET continues to touch new stock highs and now trades around its all time high at $130/share. This is a company I first bought 18 short months ago at $22/share. NET remains my aircraft carrier, slicing through the ocean at a steady 50% plus revenue growth every quarter with slight percentage increases each quarter; that said, it is certainly not one of my fastest growers anymore. In such, I didn’t feel it deserved the 23% position it had grown into, so I reduced it recently to a healthy 12%…which then continued to shrink relative to other companies in the portfolio whose stock price have recently grown much faster (UPST, LSPD, ASAN, DDOG). I obviously still have great conviction in NET as a phenomenal company and it remains my 5th largest holding; nonetheless, I do not believe its current growth of 53% q/q compared to its relatively high valuation warranted such an oversized position in the portfolio line up and I wanted to take a little off the table after 500%+ returns.
Finally, I established a small position in a fast growing company called Affirm Holdings (AFRM). They are not new and have been around for 10 years, but are certainly finding their groove and accelerating their growth. The post is not intended to be a deep dive on AFRM, but in short, they held their quarterly earnings report and call on Thursday surprised most with 71% revenue growth ($262m in revenue), and also many other very impressive growth metrics (412% active merchant growth, 106% GMV growth, partnerships with Amazon and Shopify, new products, among many). I feel they are a company to analyze and watch and was fortunate to get into a small position at $111 before their massive surge Friday. They will no doubt be the subject of a future post.
The portfolio and the market has been screaming higher and many of the companies in my portfolio have repeatedly hit ATH’s. When the market dropped in March and April this year, I added a great deal of leverage to my portfolio (shares, options, and even a small margin position) and loaded up on my favorite companies in which I had the highest conviction: CRWD, DDOG, NET & DOCU. Correspondingly, at these repeated new heights, I have reduced that leverage now, taken some profits off the table and prepared myself for buying opportunities to come. I have done this by reducing options positions and exposure and leaving a small percentage of the proceeds from reducing NET and CRWD in about a 10% cash position with which to pay the upcoming quarterly taxes I will owe, to maintain an appropriate measure of safety and living expenses, as well as to have the tinder to invest when the market gives me great opportunities again in the future…like they did in March & April and 5 other times the past 4 years. What I have NOT done is sell my fundamentally sound investments in all these amazing companies and leave it all in cash. I can not time the market perfectly and try to remain close to fully invested (minus living expenses and large tax bills) most of the time.
Is the market going to crash? Are we going to have the typical September correction? Will the Fed raise rates? Will inflation soar? Will we invade the South China Sea and go to war with China. Absolutely…eventually! But I do not know when and that is not the subject of this post. We could very well have a 10-15% correction next week…I mean, come on, the portfolio is up 101% since May 12! But there is also a great chance the portfolio could be up 10-15% again next week. I can’t time these things any better than the next pundit and won’t pretend that I can. What I do know is that the companies I invest in are fundamentally sound and wicked-fast growing with great management teams. Over the next 2-3 years, they will do incredibly well and their stock prices will follow… over time. I will continue to do my homework, keep tracking their performance by listening to their earnings calls, following their growth trajectory and staying mostly invested without trying to perfectly time the markets’ or sectors’ crazy fluctuations.
What an INCREDIBLE earnings season…it may be one of the best I’ve ever seen for my portfolio! I hope you have enjoyed the ride as much as I have…and perhaps learned a bit (as I have) along the way.
Fall is here and harvest is quickly upon us at the Apple Farm! Be well, my friends.
Cheers! -Poleeko
PS- Feel free to follow on Twitter for quick updates and links to blog posts Poleeko@Vnunnemaker
Such a great write up Victor! Wow the portfolio is doing so well. Thanks for all of your efforts
Poleeko,
Long time reader, first time writer. When buying a company like Upstart, how much is your initial allocation likely to be? How large are subsequent buys? And at what point do you start trimming (like you did with Crowdstrike).
Thanks. Great job on the blog.
Jeb
Hi Jeb. Great question! Not such an easy answer (and not always the same), but here goes… I usually start off buying in thirds of a position, but with most of my best companies, its very common for me to add to the position on 10 or even 15 different occasions in small amounts as I gain confidence in it. If all the 20 criteria checkout and I find myself absolutely loving the company, I determine what size total position I’d like to own based on my conviction and buy 1/3 immediately. If I want to own a 9% position (based on the info I have available), I will immediately buy 3% and then continue to analyze and watch it. I might buy another 3% in a few days or weeks and complete the purchase of the position in as little as a few weeks if the price action checks out and everything continues to look great fundamentally for the company.
That said, sometimes I won’t have enough info yet to determine I want that large of a position, so I’ll just buy 1% and slowly add a percent to it as I gain confidence in the company, its management, the numbers and the story. Please keep in mind that I almost never intend to “trade the stock”, but instead approach every purchase like a long-term investment I intend to hold for at least a year or more. Point is….I don’t usually feel like I need to rush in to get the absolute best price. I’d refer you to my post about a month ago which was a response to a question about UPST and whether I thought it was too late to get into it at $110/share… if you have a few minutes, I think it makes the point perfectly. With my UPST position, I bought 6 different times and over a span of just a few weeks before the stock was even in the triple digits because the growth story was extremely compelling and the more I read and analyzed, the better the fundamentals of the company appeared to me. I continued to buy the stock in the low 100s and even topped it off at $201 a share when it dipped after surging higher for awhile. While I only “bought” about a 10-11% position over about 10 purchases, the stock price grew so fast and furious that the position quickly ended up being a 22%+ position in a very short time period.
When do I trim? When the company completely drops the ball in a quarterly call, earnings release or otherwise, I know it immediately because I listen to all the calls and read the earnings report quarterly (takes me less than 90 minutes a quarter and I highly encourage everyone to do this with their investments) and I might sell the entire position immediately within hours or a day. If the company just slowed down a bit, had a bump in the road, or otherwise had a minor incident that I feel is surmountable, I may continue to hold it or perhaps just trim it a bit if I have a really large position. I allowed CRWD to grow to a 30% position several times and trimmed it back to 20% just because it had become far too large, but while they are an amazing company and growing incredibly fast, over the past 4 quarters, I have not seen them reaccelerate as I keep expecting (their revenue % growth has dropped every quarter as the law of large numbers catches up to them) and after such a great run higher in the stock price, I felt it was time after almost 2 full years in this company to reduce the position to about 11% and reallocate the funds to a few other companies growing faster…CRWD remains my 2nd highest, but combined with the much faster runup in the stock price by UPST which controls a larger percentage, you get a relatively suppressed % now for CRWD. Hope that helps and thanks for the question, Jeb! Cheers! -Poleeko