December 2021 Portfolio UpdateMonthly Disclaimer: I put together these updates as a sort of record keeping for myself. It helps me to think things through with my investments, and documents the reasoning for most of the moves I make. I have always kept records of my investing because I want to see how each of the decisions I make compares with the overall market. Having these records reminds me that it is an absolute certainty that things can and will go south at some point. This is now the fourth year that I have kept detailed information on a monthly basis. Every year, there have been periods of time where my portfolio has dropped from 15-30% and it will happen again. It happened twice in 2020, and it has now happened three times this year with the final one being the worst of all at -43%. Now on to this month’s update…2021 has come to an end, wrapping up my second year of retirement. I am very thankful for Saul’s willingness to share as well as the countless others that post on his board. It has enabled me to retire at an age far earlier than most people are able to. Although I was not close to achieving my portfolio goals this year, I believe I learned a lot from my mistakes and therefore am in a much better position moving forward because of what I have learned.December ended up being another rough month. From November 1st through my YTD low on December 16th, the value of my portfolio dropped 43%. A portion of this can be attributed to bad luck. I had the epiphany of switching mostly into SaaS stocks right after the market rotated out of all my non-SaaS stocks and my portfolio dropped 22%. As soon as I shifted into SaaS stocks, the market almost immediately shifted away from that, dropping my portfolio another 27% from that point. Although I was extremely lucky to buy in near the bottom in 2020, luck can work both ways.My continued use of options, mostly selling puts and calls, improved my portfolio returns from where it was when I mentioned it a couple months ago. When I previously update, I mentioned that options had impacted my portfolio returns by -8% YTD. Now that 2021 is completed, the total impact ended up being -3% YTD, with Upstart having by the largest impact at -13% YTD, while options in the rest of the companies I’ve owned contributing +10% YTD. I do plan to continue this as I head in to 2022, but I will keep a close eye on it.My biggest mistake in 2021 was my attempt to find the best possible stocks to invest in, but not limiting the net I cast to only include cloud based or tech stocks. By mixing in various health and non tech stocks, I was distracting myself from what had gotten me this far in my investing performance. In fact, it paid positive results at the beginning of the year and gave me a false hope of success throughout. It took me too long to see that I was slowly heading in the wrong direction before I made my final corrections in November. Although I still believe some of them will be very successful and are incredibly cheap (looking at your Digital Turbine), that is not the path that I will be taking moving forward.Now let's get into some numbers so we can get a visualization of how things went in 2021. Here is a snapshot of how my portfolio has performed over the past year, compared to the broader indexes. As usual, I’ll include the CNN Fear and Greed Index. W/E Date YTD % Portfolio S&P 500 % DJIA % Nasdaq % Fear and change % change change change change Greed Index------------------------------------------------------------------------------------------- January +12.72% +12.72% -1.11% -2.04% +1.42% 35 February +18.92% +5.50% +2.61% +3.17% +0.93% 48 March +7.35% -9.74% +4.24% +6.62% +0.41% 51 April +10.51% +2.95% +5.24% +2.71% +5.40% 56 May +5.10% -4.89% +0.55% +1.93% -1.53% 39 June +28.64% +22.40% +2.22% -0.08% +5.49% 41 July +21.29% -5.72% +2.27% +1.25% +1.16% 24 August +29.82% +7.04% +2.90% +1.22% +4.00% 53September +29.71% -0.09% -4.75% -4.29% -5.31% 25 October +41.15% +8.82% +6.91% +5.84% +7.27% 72November +2.85% -27.13% -0.83% -3.73% +0.25% 26December -9.30% -11.82% +4.69% +5.72% +1.05% 61------------------------------------------------------------------------------------------- YTD -9.30% -9.30% +27.29% +19.12% +21.82% 61Not the ending we were hoping for. I finished up the worst month in my investing history with the second worst month of 2021. This compounded matters crushing the returns I had built throughout the year. In fact, this is my first time as an investor where I have: 1. Had a loss at the end of the year and 2. Underperformed the indexes. I know full well that it can happen again, but I will try to stay focused to ensure that it doesn’t. After starting the month in Extreme Fear, we finish the last week mostly in the Greed range.I made one position change in the month of December, and it was shortly after Asana announced earnings. Their losses continue to widen and they updated guidance that indicated they would be going further in that direction. I immediately sold out of my position after they announced and initiated a position in Snowflake the following Monday. I’ve been following Snowflake since before their IPO and felt like now was a good time to get involved. More about that in the Snowflake writeup below.The following chart shows the breakdown of my current positions as well as their individual performance. They are listed by allocation from highest to lowest. Company Allocation Initial Purchase November % Change Purchase Price % Change since Pur----------------------------------------------------------------------------------------------monday.com (MNDY) 21.42% 11/11/21 $369.41 -14.20% -16.43% Datadog (DDOG) 18.70% 9/17/21 $143.93 -0.10% +23.75%Crowdstrike (CRWD) 13.10% 1/1/21 $211.82 -5.71% -3.34%Snowflake (SMOW) 10.68% 12/6/21 $343.97 -1.52% -1.52%Upstart Holdings (UPST) 10.23% 7/9/21 $115.45 -26.16% +31.05%bill.com (BILL) 9.62% 11/19/21 $328.00 -11.46% -24.04%UiPath (PATH) 8.03% 11/19/21 $54.42 -10.69% -20.75%Digital Ocean (DOCN) 6.03% 11/19/21 $131.77 -20.25% -39.04% On the chart above, you get a clear picture of how things are currently allocated. For the “Initial Purchase” column I default to the stock price when the year started for stocks I have owned prior to this year, instead of when I purchased it. I want to see how things go from this point forward. You can see how poorly December worked out for me and the hole I dug with some of these companies. Luckily I don’t have an affinity for price anchoring, so carrying or selling at a loss will not effect my decisions moving forward. As mentioned, I reset my initial purchase column on January 1, so it won’t really matter anyway. Now on to the discussion of the individual holdings in my portfolio, listed in alphabetical order. bill.com (BILL) - bill.com is a cloud software provider of accounts payable, accounts receivable software integrated with payments processing service (ACH, check writing, cross border payments and virtual credit cards) to small and medium sized businesses. Bill.com software automates the payables cycle from purchase order to payment, as well as the accounts receivable process from shipping to payment. On December 2 they announced the hiring of Sarah Acton as the company CMO. “Sarah brings a wealth of marketing experience to Bill.com from building leading global brands across both business and consumer markets. We are thrilled to welcome Sarah to Bill.com where she will accelerate our marketing and brand-building efforts.” said René Lacerte, CEO and Founder. December was another poor month for this holding as they brought me to -24% YTD.CrowdStrike (CRWD) - CrowdStrike Holdings offers cybersecurity services through its Falcon platform, which monitors client operations at their endpoint connections to the internet and works to identify and stop threats. The platform learns from attacks made on it and then warns the entire CrowdStrike cybersecurity network about likely avenues for future security issues. Announced earnings on December 1. Total Revenue for the quarter was $380M, +63% Y/Y, while subscription Revenue was $357M and +67% Y/Y. This represented a beat of $16M which is about 4% more than expectations. ARR growth was 67% Y/Y and is now more than $1.5B, with a slight acceleration Q/Q. Net cash generated from operations was $159M, compared to $89M in Q3 LY. Free cash flow was $124M, compared to $76M in Q3 LY.Subscription customers grew 1607 this quarter bringing the total amount to 14,687. Total subscription customers that have adopted four or more modules, five or more modules and six or more modules increased to 68%, 55%, and 32%. Crowdstrike also announced various recognitions they have received throughout the quarter.By the end of December, Crowdstrike’s stock price ended the year in the red. For the only company that was in my portfolio for the entire year, and one of my largest positions, it provided me no benefit in 2021. I did trim a little earlier this month and plan to keep a close eye on it moving forward.Datadog (DDOG) - Datadog, Inc. engages in the development of monitoring and analytics platform for developers, information technology operations teams and business users. Its platform integrates and automates infrastructure monitoring, application performance monitoring and log management to provide real-time observability of its customers' entire technology stack. Datadog’s stock performance in December was one of the few bright spots in my portfolio. No, they did not go on a big run or anything like that, but they also did not tank. At this point, Datadog and Crowdstrike almost seem like blue chip companies in my portfolio. That doesn’t mean they are without risk. Both companies continue to expand and improve their offerings, enticing their customers to buy even more of their services. I look forward to this continuing in 2022.Digital Ocean (DOCN) - DigitalOcean helps developers, startups and small and medium-sized businesses (SMBs) rapidly build, deploy and scale applications. This is done on a simple platform, with predictable pricing and award winning customer service. Unlike Amazon, Microsoft and Google, Digital Ocean focuses on small and medium businesses as their customer. They provide their customers with cloud infrastructure that is easier to use with pricing that is more transparent. Although their revenue continues to accelerate, my biggest concern is the slow rate that they are adding new customers. This is my biggest red flag with them for now and is the main reason why it is one of my smallest positions. Buying this company at their all-time high wasn’t the best of luck, but it pretty much goes in line with how investing in 2021 has gone for me.Monday.com (MNDY) - monday.com Ltd. engages in the provision of enterprise social communication tools. It offers a platform that connects people and provides internal transparency and collaboration in an organization. Monday continues to be one of the top two companies in my portfolio right now. They are still in the relatively early stages of hyper growth, and continue to have strong margins. December was a quiet month, but that didn’t stop the stock from being punished.I expect the stock in this company to be very volatile for a while, with large swings in both directions. As long as the company keeps performing like they are, I feel comfortable that the good will far outweigh the bad.Snowflake (SNOW) - Snowflake, Inc. provides cloud data warehousing software. It provides SQL data warehouse, zero management, and broad ecosystem products. It offers data warehouse modernization, accelerating analytics, enabling developers and monitoring and security analysis solutions to a various range of industries. On December 6, I initiated a position in Snowflake. Snowflake has been on my radar, as well as millions of other investors I’m sure, since their IPO in 2020. The biggest reason it took me so long to get involved here was because of the astronomical valuation. The stock price dropped to a much more attractive price earlier this year before shooting back up, but I had my head in the clouds and wasn’t paying attention. Snowflake’s product is what it calls the data cloud, a specialized form of data storage that allows for an unlimited amount of structured and unstructured data to be stored together, accessed quickly, analyzed, and securely shared to both internal and external users. With a net revenue retention rate of 173%, it is easy to see why so many find this company attractive. Their most recent quarter was a complete blowout and I expect even bigger things from them in 2022. UiPath (PATH) - UiPath is a robotic process automation (RPA) vendor providing an end to end set of automation capabilities. The platform uses a patented computer vision technology and AI/ML capabilities to enable robots to emulate processes such as extracting information from documents, filling forms, and updating databases. UiPath announced earnings on December 8. Up until this point, I’ve always led off with Total Revenue when discussing earnings. After learning more about UiPath, I understand that this is not their key operating metric as Revenue is total contract based. Revenue recognition is driven by contract duration, deployment model, and the timing of license delivery as required by ASC 606. UiPath does not have their sales team focus on revenue growth because it may result in a deal with unfavorable long-term economics to the company. ARR is their key operating metric, so I will focus on this first and foremost. UiPath’s business model is a Highly-recurring subscription-based model predominantly billed annually in advance. They end Q3 with $818M in ARR which represents a growth of 58% Y/Y. ARR increased by $92M (12.6%) Q/Q and was their largest gain ever. They currently have 1,363 customer with $100k in ARR (+52% Y/Y) and 135 customers with $1M in ARR (+82% Y/Y and +14% Q/Q). DBNRR remains in the 144% range which is extremely strong here.Due to all of the talk about labor shortages, UiPath feels like they will be experiencing some strong industry tailwinds. As labor shortages become more of a problem, businesses will look for solutions to get the same amount of work (or more) done with fewer people. When this happens, companies often turn to automation. This is where UiPath’s platform of tools will help these businesses. They said they do see seasonality in their ARR streams with the second half of the year usually being stronger than the first. Because of this, we could see some lower numbers come Q1.They have a partnership with Crowdstrike to provide customers a new level of security and visibility. They have integrated UiPath insights with Snowflake to provide customers with faster data processing and analytic capabilities to scale their automation programs. They also expanded their strategic relationship with Alteryx to include new integrations, making it easier to invoke UiPath bots in an Alteryx workflow. Finally, they partnered with Qlik. To enable Qlik Cloud Analytics users to leverage UiPath automations to drive action and prioritize tasks in downstream applications. All of these partnerships/integrations help improve their product’s usefulness for their customers.Upstart Holdings (UPST) - Upstart provides a lending platform that uses a unique proprietary model driven by artificial intelligence to determine a borrower's creditworthiness. Upstart's AI models uses more than 1,600 non-traditional variables to assess true default risk in loan originations. The company operates a platform that aggregates consumers and refers them to banks using their AI technology. The month of December saw continued punishment doled out in Upstart’s direction. This led to some people adding to their position stating the shear value that was now available. Being one of the few people that had previously done this with the likes of Digital Turbine, Fulgent Genetics, Pinterest, etc, I for one did not. All of the other non-SaaS companies I listed were all perceived as possible good values based on forward sales growth. Heck, Digital Turbine has been “cheap” for darn near the entirety of 2021. I still believe in Upstart and will hold through the next earnings, but I will not be backing up the truck for them. I expect the stock price to bounce back after earnings. If it does not, I will exit my position and chalk it up to another of the previous mentioned and I will add a position in another SaaS company.To be clear, I expect Upstart to prosper. They are a major disrupter in the lending industry and are just getting started with auto lending. I believe that the stock in this company currently indicates an exceptional value. I look forward to it bouncing back.From an investing standpoint, I don’t think I have ever looked forward to a new year as much as I am right now. I am excited about the knowledge I gained in 2021 and look forward to improving my investing decisions because of it. I will try to make it a point to stay laser focused on what brought me to this point so I do not repeat the mistakes I made this past year.I probably don’t mention this nearly enough, but I am vey thankful for my close knit group of friends that are part of our group chat. Having them to get ideas from and bounce ideas off of is essential to my growth as an investor. I love the honesty displayed as we share with each other our successes and failures and will continue to try to learn from all of them.I hope each and every one of you have a Happy New Year and wish you tremendous successes in 2022.
W/E Date YTD % Portfolio S&P 500 % DJIA % Nasdaq % Fear and change % change change change change Greed Index------------------------------------------------------------------------------------------- January +12.72% +12.72% -1.11% -2.04% +1.42% 35 February +18.92% +5.50% +2.61% +3.17% +0.93% 48 March +7.35% -9.74% +4.24% +6.62% +0.41% 51 April +10.51% +2.95% +5.24% +2.71% +5.40% 56 May +5.10% -4.89% +0.55% +1.93% -1.53% 39 June +28.64% +22.40% +2.22% -0.08% +5.49% 41 July +21.29% -5.72% +2.27% +1.25% +1.16% 24 August +29.82% +7.04% +2.90% +1.22% +4.00% 53September +29.71% -0.09% -4.75% -4.29% -5.31% 25 October +41.15% +8.82% +6.91% +5.84% +7.27% 72November +2.85% -27.13% -0.83% -3.73% +0.25% 26December -9.30% -11.82% +4.69% +5.72% +1.05% 61------------------------------------------------------------------------------------------- YTD -9.30% -9.30% +27.29% +19.12% +21.82% 61
Company Allocation Initial Purchase November % Change Purchase Price % Change since Pur----------------------------------------------------------------------------------------------monday.com (MNDY) 21.42% 11/11/21 $369.41 -14.20% -16.43% Datadog (DDOG) 18.70% 9/17/21 $143.93 -0.10% +23.75%Crowdstrike (CRWD) 13.10% 1/1/21 $211.82 -5.71% -3.34%Snowflake (SMOW) 10.68% 12/6/21 $343.97 -1.52% -1.52%Upstart Holdings (UPST) 10.23% 7/9/21 $115.45 -26.16% +31.05%bill.com (BILL) 9.62% 11/19/21 $328.00 -11.46% -24.04%UiPath (PATH) 8.03% 11/19/21 $54.42 -10.69% -20.75%Digital Ocean (DOCN) 6.03% 11/19/21 $131.77 -20.25% -39.04%
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