Skip to main content
No. of Recommendations: 163
I prefer to write portfolio updates after some of my portfolio companies have reported quarterly results, and this may not coincide with the end of a month. So far this earnings season, LSPD, PTON, DDOG, and NET have reported their results. I plan to write my next portfolio update at the end of March, after my remaining companies have all reported their 31Jan quarter results.

PRIOR PORTFOLIO UPDATES

January 2021:
https://gauchorico.com/2021-01-31-portfolio-update/

December 2020:
https://gauchorico.com/2020-12-31-portfolio-update/

All portfolio updates:
https://gauchorico.com/category/blog/portfolio-updates/


PORTFOLIO PERFORMANCE

It's only been two weeks since my last portfolio update, but there's been quite a bit of movement. In those two weeks, the portfolio increased from +3.1% YTD to +18.3% YTD while the S&P 500 moved from -1.0% YTD to +4.9% YTD. Also, the portfolio's value exceeded the 22Dec 2020 all-time high (ATH) for the first time on 5Feb and then every trading day since then. I started tracking the portfolio's new ATHs in 2018 so I can look back to see how many ATHs the portfolio hit in each month. Each month can have at most 23 trading days (and as few as 19 trading days) so in a month with ten ATHs, there's a new high on about half of the trading days. The results are below.


Jan19: 0
Feb19: 0
Mar19: 1
Apr19: 0
May19: 2
Jun19: 9
Jul19: 10
Aug19: 0
Sep19: 0
Oct19: 0
Nov19: 0
Dec19: 0
Jan20: 0
Feb20: 0
Mar20: 0
Apr20: 0
May20: 6
Jun20: 10
Jul20: 5
Aug20: 3
Sep20: 2
Oct20: 6
Nov20: 0
Dec20: 4
Jan21: 0
Feb21: 6


Several people have recently asked me if I'm taking any money off the table. It's such a common question, and I usually hear it when the market is at a new high. My answer is usually the same.

TIMING THE MARKET?

I almost always stay 100% invested or close to it. There are a few exceptions, but I really don't try to time the market with my stock portfolio. While I know that big drops in my portfolio occur periodically, I have no way of knowing when a big drop will happen. I really don't want to be on the sidelines when the market is rising, and, since the market rises more often than not, I stay in.

However, I must admit that I sort of try to time the market with my short term options trading, which I consider separate and think about differently from my long term stock investing. I utilize my available margin in my taxable account for options trading. I usually keep a minimum baseline level of margin utilized at most times because I believe that it's just good risk-return for a system (i.e. the stock market) that rises on average; I've convinced myself that I can beat the market, so this makes my risk-reward for using leverage even better. I typically get more aggressive with my options and utilize more margin under three circumstances.

First, when I feel that one or more of my portfolio companies is really undervalued, I may increase my utilization of margin.

Second, when volatility is high and/or when we are in the midst of earnings season, I typically use more of my available margin; the uncertainty of the earnings results increases volatility and options premiums, and I believe that it's common for an upcoming catalyst to help support the price of a stock (of course, not always).

Third, after the market and my portfolio companies have experience a big price drop, I tend to get more aggressive. A 25% drop is fairly large, and I might start increasing utilization of leverage at this level. A 37% drop is not so common, and I'd probably get pretty aggressive at this level. Larger drops are infrequent and have really only occurred three times for my portfolio: in 2008/2009, in 2015/2016, and in Feb/Mar 2020. I wrote about using LEAPS as leverage after a huge drop:
https://gauchorico.com/using-leaps-for-growth-stocks/

I've learned not to increase leverage much when my stocks first start falling because they often keep falling more; I prefer to wait and see until they've fallen 20-25% from the last peak before substantially increasing my leverage.

I included my opinions on market timing and leverage only because I'm asked the question so often. I recently wrote a post about using leverage:
https://gauchorico.com/the-house-always-wins-why-and-how-gau...

I'm merely sharing my own views about what I've done in the past. There's no right or wrong here, and using leverage will amplify the ups and downs of any portfolio. It's not for everyone, and I would never encourage anyone to do it. If you do decide to use leverage, it's a good idea to be prudent and very careful. In addition, I think it's a good idea to first become a master at analyzing stocks before delving into the world of options.

Weekly Performance

GR S&P Delta
01/08/21 6.5% 1.9% 4.6%
01/15/21 6.4% 0.4% 6.0%
01/22/21 10.2% 2.4% 7.9%
01/29/21 3.1% -1.0% 4.2%
02/05/21 12.6% 3.6% 9.0%
02/12/21 18.3% 4.9% 13.3%


ALLOCATIONS


02/12/21 01/31/21 12/31/20
CRWD 31.2% 31.2% 31.5%
NET 17.7% 17.9% 17.8%
DOCU 12.6% 16.2% 16.4%
ZM 11.6% 11.5% 11.0%
DDOG 10.3% 10.7% 10.4%
LSPD 6.2% 4.8% 3.3%
PTON 3.7% 4.0% 4.2%
UPST 2.7% --- ---
BAND 1.7% 1.9% 1.5%
BPRMF 1.3% 1.3% 1.0%
GOLD 1.2% 1.4% 3.0%
NEM 0.9% 1.0% 1.0%
SNOW 0.7% 0.5% ---
Cash 1.0% 0.8% 0.7%



PORTFOLIO CHANGES
Changes since 31Jan2021

***Added a small amount of SNOW using cash
***Reduced DOCU by selling all of my DOCU LEAPS
***Opened new position: UPST using funds from DOCU position reduction
***Added a fair amount of LSPD using funds from DOCU position reduction

PORTFOLIO COMPANIES UPDATES

This section is the main reason for writing another portfolio update so soon after my last one. Four of my 13 portfolio companies reported their quarterly results. For the same reason, I'm going to wait until the end of March to write my next portfolio update. In this section, I'm also going to revisit each company and reassess its allocation in the portfolio. In general, my confidence in a position coupled with my view of its risk-reward determines the company's allocation percentage. I'll try to explain my reasoning in the case of each company.

LSPD (reported 4Feb)

I first purchased LSPD shares in early December 2020. This position is an exception to my preference for holding dominant companies that are the leader in their market(s). For this reason, LSPD will not be a large position by purchasing significantly more shares; however, it may grow into a larger position by share price appreciation.

The thesis for owning LSPD is that I expect the company's share price to appreciate significantly based on the following:

***I expect LSPD will continue to pursue their stated acquisition strategy to purchase competitors within their targeted verticals; each acquisition should bring non-overlapping geographies and/or new products/technologies that can be rolled out to LSPD's entire customer base to realize cost savings synergies as well as cross selling of modules. Most of LSPD's acquisition targets have been struggling through COVID-19, and, thus, LSPD has managed to buy them for around 10x revenue while LSPD is valued at a much higher multiple. On Friday, 12Feb, LSPD closed on a stock offering which raised $676M in cash necessary to continue to pursue its acquisition strategy. This development is great news as it makes the success of its strategy that much more likely.

***LSPD has been successful in quickly releasing new modules that enable their customers to better handle the hardships of the global pandemic. For instance, LSPD has helped their restaurant customers, one of their targeted verticals, enable omnichannel with new services such as online takeout ordering. These capabilities have not only helped their existing customers survive but also drive new customer acquisition. LSPD's customers are among the hardest hit verticals: restaurants, retail, hospitality, and golf courses, yet, LSPD's revenue did not drop as much as many expected.

***In addition to cross selling more SaaS modules, both those modules gained through acquisitions as well as those developed in-house, LSPD will be able to cross sell its POS payment solution. Upserve and ShopKeep did not have their own POS payment solution but rather referred out POS business. These two acquisitions brought in $13B in LTM GTV that can potentially be converted to the LightSpeed POS payment system, which charges 2.6% of transaction volume.

***GTV is also currently suppressed due to the global pandemic. In particular, restaurants, retailers, and hotels are struggling and have less business than during normal times. This business will rebound once people once again feel safe to travel and dine out.

The calendar Q4 2020 quarter showed great progress with respect to all four of the elements of the thesis: LSPD's business will not only strongly rebound once COVID-19 is less of a drag on the economy but also show strong organic and inorganic growth as LSPD implements its strategy. Ethan1234 posted an excellent review of their latest quarter's result:
https://boards.fool.com/lightspeed-calendar-q4-2020-34751082...

He also posted a previous summary of their business:
https://boards.fool.com/lspd-a-new-position-34744143.aspx

In conclusion, I think LSPD is well poised to grow significantly, and I suspect the company is probably underappreciated by the market. The day the 31Dec quarter results were released I increased my allocation from less than 5% to about 6.5% with much of this increase being in the form of call options. So far, LSPD is the only company (didn't add to PTON, NET, or DDOG) to which I added based on their most recent quarterly result. While I think the risk-reward is very compelling, the company's lack of dominance will keep me from making LSPD one of my largest positions.

PTON (reported 4Feb)

I first bought PTON shares in September 2020 and first wrote about the company in my 30Sep 2020 portfolio update:
https://gauchorico.com/2020-09-30-portfolio-update/
My original reasons for buying PTON shares still stand. Last Fall, PTON ran into supply chain issues that prevented and still prevent the company from meeting its incredible demand with adequate supply. Since PTON manufactures physical products and must physically move its goods from factory to customer, the company operates under constraints and challenges that don't plague SaaS companies: SaaS businesses have the capability to move almost limitless quantities of products and services at the speed of light. As an example, ZM expanded its customer base at a pace never seen for any company in the history of the world. PTON, on the other hand, will always be subject to the constraints of the physical world.

PTON reported its 31Dec quarter results on 4Feb. Stocknovice recently posted his review of that quarter:
https://boards.fool.com/thoughts-on-pton39s-quarter-34745299...
Rather than provide a detailed analysis of PTON's last quarter, I'll just highlight the important aspects of the earnings report and how those support or change my view of PTON as an investment.

Supply issues
Supply issues have been preventing the company from realizing the full potential of demand for Bike and Bike+. The issue stems from clogged supply chains, not from manufacturing capacity shortfalls. Management said they believe that they'll be back to a four-week order to delivery schedule by mid- to late-Spring. The Precor U.S. manufacturing facility will be online to produce Peloton legacy equipment in the back half of 2021. Thus, the supply issues are a temporary short-term challenge.

Customer demand and engagement
Demand and engagement remain extraordinarily high even after PTON cut marketing spend dramatically due to demand well outstripping supply. The average customer did 21.1 workouts per month, and there are only 30 or 31 days in a month so the customers are highly engaged. Customers are also engaging in an increasing variety of workouts including cycling, yoga, strength, etc. I believe this will increase stickiness of the brand. The company again increased its forecast for Connected Fitness subscriptions. During the call, CEO Foley claimed that PTON is currently the fastest growing (at scale) consumer technology company in the world.

Tread
The treadmill market is much larger than the market for stationary bikes. On the prior conference call (Sep 2020), management said that treadmills are the biggest category in the fitness market. The low cost Tread (as opposed to Tread+ which is already available) launched in the UK on Boxing Day and demand has been very strong. Management expects Tread to be a "rocket ship".

Financial metrics
Total revenue growth last quarter was 138% and subscription revenue growth was 153%. Guidance was beaten by 6.5% and raised again. Imagine how strong growth would have been without supply constraints. Connected fitness subscriptions grew 25% sequentially and 134% y/y.

One worry that some investors may have is the future impact on demand for in-home fitness in the post-pandemic period. Personally, I believe that demand is more of a secular trend that was accelerated by the pandemic. In calendar Q4 2020 after the Pfizer and Moderna vaccines were approved management said that demand was not affected at all. This is still the case three months later. They also said that the trend to home fitness began before the pandemic. Of course, I could be wrong that demand may reduce post-COVID, but it's a bet I'm willing to take.

My largest concern about PTON is that the bulk of their revenue is from hardware the growth of which will eventually slow. This is inevitable. However, I see so many growth vectors for the company that I think hyper growth will be sustainable for at least two more years. In addition to the cultish customer demand and engagement that I see as being similar to brands like Apple and Tesla, I believe that PTON's growth will be supported by the following:

***Tread launch: category several times larger than the stationary bike category

***Hospitality and gym verticals: Precor acquisition opens up new verticals to fuel growth. I believe customers will want to use Peloton equipment when they travel and go to the gym because their subscriptions are tied to the standardized equipment and they want to track their workouts. Gyms and hotels will use the availability of Peloton equipment as an important differentiator.

***International: PTON has plans to expand beyond the U.S., the U.K., Germany, and Canada.

On 11Feb, PTON announced that the company raised a net $896M convertible debt offering at zero interest and a $239 conversion price. The offering includes purchase of call options that offset any share dilution up to an even higher share price (above the conversion price).

I know other investors who have sold their PTON position. I see their issues as temporary, their demand stronger than ever, and several avenues for growth for at least a couple of years. For these reasons, I maintain my PTON position.

DDOG (reported 11Feb)
DDOG reported its Q4 2020 results. The company's revenue growth rate slipped to 56% and has been declining for the third quarter in a row (87% to 68% to 61% to 56%). At times in the past, I have sold companies that show this type of revenue growth deceleration. The deceleration are y/y growth percentages. Looking at sequential increases in revenue dollars for the same quarters shows a better picture and a healthy business: $17.6M to $8M to $14.7M to $22.9M. DDOG has recovered from their customers' belt tightening in Q2 2020 in which the sequential revenue growth in dollars had dipped to $8M.

Turning to the customer growth metrics, the results looked exceptional. DDOG added 1100 total customers in the quarter which is similar to the quantity added in the prior quarter. However, DDOG's highest spending customers grew much faster. Customers with ACV >$100K grew 13% sequentially and 46% y/y. Customer growth in the ACV >$1M category grew at a blistering 94% y/y! Part of this growth is supported by customers increasing the number of modules that they purchased from DDOG.

A year ago, 58% of customers used two or more modules; that percentage jumped to 72% in the most recent quarter. Similarly, a year ago only 10% of customers used four or more modules, and that figure increased to 22% in the most recent quarter. In addition, once again the dollar-based net expansion rate remained above 130%.

DDOG's quarter was better than I was expecting, and I think the future prospects look very bright. While I have not yet added to my position after last Thursday's earnings release, I may well increase my position in the coming days.

NET (reported 11Feb)

NET reported its 31Dec quarter last week. I was expecting a great quarter and was slightly disappointed that the revenue growth was not higher. I was expecting Cloudflare One and Teams to contribute more to growth. Despite this, NET was able to maintain revenue growth above the 50% mark, and the 44% guidance for next quarter bodes well for growth in the 50%s to continue through 2021. In the second half of 2020, we saw so much momentum on the new product release front that I think that some more time may be required for us to see these launches translate into revenue growth. NET is still my second largest position which is reflected in my optimism for the company's future. For now, I'll continue to be patient to see how the next few quarters turn out.

CRWD (earnings 16Mar)

CRWD is by far my largest position. More than three quarters of my CRWD position and almost 25% of my entire portfolio is in the form of $50 and $60 Jan21 call options which I purchased for about $16/share last Spring. At that time, I purchased about an 8% allocation in those LEAPS, and they are up more than 1000% in less than a year; had I bought shares instead, those shares would only be up about 340%. I use LEAPS very opportunistically, and that purchase last Spring was the first and only time I've ever invested so much into LEAPS all at once. I recently wrote a post about using LEAPS:
https://gauchorico.com/using-leaps-for-growth-stocks/
That decision, though, was a significant contributor to the portfolio's +246% 2020 growth. The downside of my large position in these CRWD options is that the options will by expiring in 11 months; while I can exercise some of these options to acquire shares at $50 or $60, I will need to sell many of the options contracts for a very sizable gain creating a big tax bill.

Despite the massive run-up in CRWD shares over the past 11 months, CRWD remains my highest conviction position. Its revenue growth has been holding in the mid-80%s, and there seem to be no signs of slowing any time soon. In fact, additional tailwinds have materialized in the form of recently raised concerns about cybersecurity sparked by the highly publicized SolarWinds hack. CRWD is uniquely positioned to offer an all Cloud-based solution that's super fast and easy to implement. In my 2020-01-31 Portfolio Update, I referenced a Gartner survey that projected IT security to be among the fastest growing segments within IT Enterprise Software which was projected to grow the fastest in both 2021 and 2022:
https://www.gartner.com/en/newsroom/press-releases/2020-01-2...
So we have the best company in the fastest growing segment within the fastest growing category. I realize that a 30%+ position adds some firm-specific risk to my portfolio, but, for now, I'm accepting that risk. My CRWD call options are in my taxable account and these positions won't cross the one-year holding mark for another six to eight weeks; at that time, I may decide to reduce my allocation for portfolio management reasons only. Prior to then CRWD will report their 31Jan quarter which could influence my decision.

CRWD's 31Jan earnings release is scheduled for 16Mar. This past week, we got results from CYBR's 31Dec quarter. CYBR's ARR growth accelerated to 43%, but the majority of growth came from SaaS subscriptions as the company continues its transition from a perpetual SW license model to a SaaS recurring revenue model. Cloud-based SaaS is what customers increasingly want and CRWD is perfectly positioned to catch this trend. We will hear from PANW (22Feb), ZS (25Feb), and OKTA (3Mar) before CRWD reports on 16Mar. I will be paying attention to the results of these other companies in the IT software security space as their results may provide clues for CRWD's upcoming earnings results. However, I expect that CRWD will post the best results.

ZM (earnings 1Mar)

Going into 2021, I had intended to reduce my ZM position because I didn't see new contributors to growth. I did, in fact, trim ZM a couple of times in early January, but before I got around to cutting additional shares loose, ZM announced some serious Zoom Phone traction:
https://investors.zoom.us/news-releases/news-release-details...

@thinking_stocks wrote an excellent analysis about this on Twitter:
https://twitter.com/thinking_stocks/status/13444566598763806...
Well, it appears that we have found the next significant (likely in the making) growth contributor to ZM's top line. Zoom Phone's demonstrated traction is enough for me to keep ZM as a large position, and it's my exception that this growth will be enough to keep me invested until OnZoom can begin to contribute to the top line in 2022.

I've also been using ZM as a source of additional income generation through some options trading. ZM's relatively high volatility (high options premiums), its upcoming earnings release (to help keep ZM's price from falling due to the anticipation of their earnings result), and its undervalued stock price, IMO, have all contributed to my selection as the company for an options trading target. I've posted this ongoing trade:
https://gauchorico.com/example-trade-short-straddle-with-sho...

Here’s a post on how I utilize this trading tactic:
https://gauchorico.com/selling-straddles-short-deep-in-the-m...

DOCU (earnings 11Mar (estimated))

DOCU's financial metrics have been improving recently as the company had a clear tailwind from the pandemic. I had added a significant position in LEAPS (Jan23 $210 calls) when the share price was around $210 just prior to the last earnings report release. The premise that preempted my allocation increase in late November 2020 was that DOCU was undervalued and would continue to do well and show continued strength in their future financial metrics. DOCU's earnings report in early December was excellent. Stocknovice posted an excellent review of DOCU's FY2021 Q3 quarter (embedded in his December 2020 portfolio review):
https://thestocknovice.substack.com/p/december-2020-portfoli...

It's clear that DOCU has benefitted from pandemic tailwinds. I also believe that DOCU will retain almost all of the horde of customers that it gained in 2020. The company has a dominant 70% marketshare position in its main revenue generator: the eSignature market; I love companies that dominate like this. The eSignature market is far from saturated and DOCU has years of growth ahead.

CEO Springer seems humble and doesn't tend to over promise. He's said that the breakneck growth of 2020 may abate in 2021. He and his CFO have also stated that their nascent products (Contract Lifecycle Management and eNotary) won't significantly contribute to top line growth for at least another year. I previously put all these comments in the bucket of sandbagging. While I believe that DOCU's COVID-19 tailwinds will persistent for at least 1-2 more quarters, I've reconsidered my DOCU allocation and recently sold the remainder of my $210 LEAPS. DOCU just didn't deserve a 16% allocation. I may decide to cut DOCU further (perhaps to buy more DDOG). However, I doubt I will cut DOCU below a 10% holding until I see the 31Jan quarter result in mid-March.

UPST (earnings 17Mar)

UPST is a new position which I first purchased this past week. I was very fortunate, or so it seems at the moment, to have bought my shares prior to a stock price surge later last week.

The company has developed an AI, trained by machine learning, to automatically approve consumer loans based on 1600+ metrics. The company, founded and run by three former Google employees, has an eight-year head start in developing, refining, and training their AI algorithms. They claim that their AI gets better the more data it ingests. UPST has 11 bank customers, but currently one of its customers comprises the majority of their business. This is clearly a customer concentration risk which will hopefully get reduced over time. To date, UPST has only signed smaller, regional banks as customers. This is both a risk and an opportunity as signing just one national bank could increase their business by many, many multiples.

The AI solution has improved over time, and the company has steadily increased the percentage of loans funded by 100% automation (from 34% in 2017 to 69% in Q3 2020). UPST claims that their AI increases loan performance compared to loans approved by a manual underwriting process. Clearly, banks can stand to benefit from cost savings as well as decreased delinquencies. However, blindly handing over control to an AI to make underwriting decisions must be viewed as a potentially existential risk. Therefore, UPST's main challenge will be to instill enough confidence in the AI to overcome the fear and the conservative nature of banks, particularly the large national banks. Theoretically, their AI's predictions may hold up well under normal conditions and fall apart during completely unforeseen wacky times (e.g. such as a global pandemic). However, the company claims that their AI's performance outperformed traditional underwriting during COVID-19. This bodes well for the AI and for UPST's prospects to recruit more customers.

The company has been completely focused on the $118B/year unsecured personal loan market for several years, but last quarter UPST first entered the $625B/year auto loan market. The large credit card loan and the home mortgage loan markets are also available for future entry.

The company is already cashflow positive despite only having a market cap of $7.4B (well it was $5.5B just a week ago). UPST has huge potential but also some very large risks. I'd become more confident if UPST manages to increase customer adoption. Until then, I'll keep my position small.

BAND (earnings 25Feb)

BAND is a company that I normally wouldn't include in my portfolio because it's not the dominant player in their market. I own BAND primarily because it's undervalued and has underappreciated growth prospects due to some long-term contracts that it secured from several large, high profile customers. Management also emphasizes importance on profits and cashflow while still delivering on revenue growth in the 40%s. Earnings for the 31Dec quarter will be released next week, and we will get our first look after their acquisition of Voxbone (but Voxbone revenue will only contribute to about 2/3 of the quarter because the acquisition closed on 2Nov).

BPRMF (earnings 17Jun(estimated))

Blue Prism is one of several competitors participating in the rapidly growing robotic processing automation (RPA) market. The highest profile company is UIpath which has filed to go IPO. UIpath will likely go public sometime this year which should increase interest in the category. UIpath is valued several times higher than Blue Prism on a sales multiple basis. Blue Prism's CEO has complained about U.K. technology companies getting no valuation love from the market, and he's contemplating a direct public listing on a major U.S. exchange. UIpath's imminent IPO as well as BPRMF's potential listing in the United States could serve as catalysts for a big share price surge. I plan to continue holding my small position until these possibilities come to pass.

SNOW (earnings 3Mar)

I first added SNOW to the portfolio in early January. Prior to that I had passed on SNOW because of its nose-bleed valuation. I believe that SNOW is one of the most, if not the most, highly valued technology company. For this reason, I own only a small position, and I would likely not take a large position in SNOW unless the shares drop significantly. The final lockup from the IPO expires in early March so there may be an opportunity to add more shares on a price drop.

So why did I decide to enter SNOW? SNOW has a consumption based, as opposed to a fix monthly subscription, business model. The more its customers use SNOW, the more revenue SNOW collects. I've been thinking about how much data quantity is growing and how this growth in accelerating. Data is just information and businesses benefit, not from the data itself, but rather from the knowledge that can be extracted from the data. From SNOW's customers' perspective, knowledge is beneficial because knowledge can lead to either increased revenue or decreased cost. As long as the incremental benefit (more revenue or lower cost) from using SNOW has a positive ROI, customers will consume more SNOW services. Now consider if the ROI calculations can be automated and then the decisions to spend more on SNOW can be shifted from humans to machines. If this is where the world is going then SNOW will benefit greatly due to faster uptake of its services by its customers.

How confident am I in the above? Well, I only have 0.7% of my portfolio in SNOW. The value clearly isn't there based on traditional valuation methods, but if data can be automatically spun into positive ROI knowledge then all bets are off on what the growth rate might become.

GOLD and NEM (earnings 18Feb)

GOLD and NEM are gold mining companies. I use them as a cash proxy and use my positions in them to earn additional income from regular and ongoing options trading. I realize that holding positions in these two companies will likely be a drag on my portfolio's performance.

ADDITIONAL THOUGHTS

Some aspects of the stock market are starting to get a little wacky. GameStop, SPACs, and new small cap momo stocks have been moving by huge amounts in days or weeks. More and more people, many of whom are unsophisticated investors, are discussing and trading stocks. The enthusiasm of the late 1990s seems to be back. The big rally in the late 1990s lasted several years before reaching a crescendo in 1999 and early 2000. My view is that there's still lots of money to be made as the party can carry on for quite a while particularly in an environment of huge fiscal stimulus and ultra low interest rates for the foreseeable future. I maintain that staying focused on quality over the flavor stock of the day is the best approach for me; however, it can also be tempting and fun to play around with small amounts as I did with GameStop last month:
https://gauchorico.com/gamestop-craziness-trade/

Next portfolio update will be at the end of March.

GR
Print the post Back To Top
No. of Recommendations: 3
Re: UPST
The company has developed an AI, trained by machine learning, to automatically approve consumer loans based on 1600+ metrics. The company, founded and run by three former Google employees, has an eight-year head start in developing, refining, and training their AI algorithms.


I studied neural networks in grad school 25 years ago. Compute resources then were not nearly as powerful as now, so there were not nearly as many viable applications yet. My professor said that one of their earliest commercial applications that proved their worth was mortgage approval. I am sure that today UPST has newer better neural nets than the banking industry had in the 90's. But they weren't the first. And if the banking industry kept improving, they are covered. OR ... maybe they are outsourcing now.
Print the post Back To Top
No. of Recommendations: 10
Apologies, GauchoRico. I don't want to look like I was criticizing your post. UPST looks interesting and I have already started my own research for possible investment. I was a little put off when they claimed to be "one of the first" to apply AI to lending.

But they do put a new spin on it. They look like they are trying to be a Lemonade-style consumer face to borrowers and an AI-based evaluator to the banks who would do the lending. "Here I present a borrower whose AI pre-approval score is XXX for a car loan". Probably some money in that.

Your posts are among those I always read right away. And now your website too.
Print the post Back To Top
No. of Recommendations: 5
Thanks GauchoRico for another great summary. As a relatively new reader of the Saul board I find your take on things insightful and a good addition to the other voices here. When combined with Saul’s Knowledge Base and past monthly summaries, and detailed posts by Bear and others, this has helped me to refocus my investment strategies and to perform more due diligence on the stocks in which I am investing.

Further thoughts on UPST ...

I too have watched UPST with interest, but have not yet pulled the trigger. The “one of the first” claim may or may not be accurate, though they were founded around the same time as a couple of Chinese companies that apply AI methods for loans and consumer credit, such as Smart Finance. These companies have shown great success (very low default rates, etc). Thus my interest in UPST.

The main reason I have been watching vs starting an initial position is that Smart Finance has been successful in the micro-finance space in-part because of the amount of data the AI algorithms have access to. They are integrated into the users’ mobile devices and use this access to gather an extreme amount of information on each user with which to base the analysis. By using data from millions of loans (paid off and defaulted) and users, they have identified many weak features that are correlated to credit worthiness, often correlated in ways that us humans can’t see or understand – including things like spending habits, how fast you type in your birth-date, battery level of your phone, etc. All this is available because in the China market, the mobile device is so prevalent in everyday life. They are used for much more than here in the US and all the data the AI algorithms want is literally in the users’ hands.
As Kai-Fu Lee states in his 2018 book “AI Superpowers”: “That data forms a kind of digital fingerprint, one with an astonishing ability to predict whether the borrower will pay back a loan of $300.”

Similarly, Upstart may have best in class algorithms and data collection and have analyzed data from millions of loans, and I believe they will do well. It appears better than prior loan decisions based on credit score, income level, and zip code. But since they look to me to be more web based than mobile device based, I wonder what data elements they have access to in comparison to Smart Finance in China. UPST probably doesn’t have access to the large amount of data on each individual user here in the US that they do. So I am guessing that they are mining available data from general loan information and other aspects and maybe (just maybe) accessing social media and other data on the user.

As most of those on this board probably know, two of the main elements in the AI world are Algorithms and data. Both are needed to make truly revolutionary advances with AI.

So in other words, is UPST as much of a micro-finance revolutionary as Smart Finance has been in China or are they more of an evolutionary step in US finance world?

Or maybe I am overthinking this and should just focus on the growth rates and take a starter position ;).
Print the post Back To Top
No. of Recommendations: 1
Rico,

A couple of things about your CRWD section:

More than three quarters of my CRWD position and almost 25% of my entire portfolio is in the form of $50 and $60 Jan21 call options

I presume these are really Jan22 options?

My CRWD call options are in my taxable account and these positions won't cross the one-year holding mark for another six to eight weeks; at that time, I may decide to reduce my allocation for portfolio management reasons only.

This confused me, because I thought that options trades were always treated as short term for tax purposes, no matter what the buy/sell dates. I may be wrong on this, since I don't think I have ever sold a call option (LEAP) after I have owned it for over a year. But I know that with LEAP puts that I sold and which expire several years later that the gains are taxed as short term.

Bruce
Print the post Back To Top
No. of Recommendations: 0
A couple of things about your CRWD section:

More than three quarters of my CRWD position and almost 25% of my entire portfolio is in the form of $50 and $60 Jan21 call options

I presume these are really Jan22 options?


Yep, you are correct. They're Jan22 options. My mistake. Thanks for catching it. I've corrected it on my website. Unfortunately, I can't edit my post here on Saul's board.

GR
Print the post Back To Top
No. of Recommendations: 1
Rico.. great write up as always..

I saw Ethan's LSPD write up last week and was intrigued.. Took a small position today and saw your update and you are in LSPD as well.. that increases my confidence.

UPST is new for me, will look it up.. thanks for sharing.

nilvest
Print the post Back To Top