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Here’s the summary of my portfolio at the end of September.

As I usually do, for my own convenience I figure my end of the month summary from the last weekend of the month. Although an unusual four days will be carried into next month, I’ll be consistent and stick with the last weekend of the month. If you like, you can think of it as a four week summary. Next month will have five weeks.


My portfolio finished September at up 71.3% YTD (or at roughly 171% of where I started the year). Sept was a good month as at the end of August I was only up 50.9%. My low for the year in mid-May was down 18.5% ytd, so this is a rise of roughly 110% for my entire portfolio in less than five months. (171.3/81.5 = 2.102 which is a rise of 110.2%).

By the way, I think it’s important for you to remember that “sell growth, buy junk!” rotation that scared us so much during the the first 4½ months of the year (ending in mid-May when I was down that 18.5%), in order that the next one won’t be so scary to you. Yes, there will be a next one, usually at least one every year.


Last month when I played with the idea of not posting all those statistics, almost all of you (yes, there was one dissent), said you wanted me to continue posting all my statistics, and that they were very helpful for you, so here are some statistics:

If you take my portfolio’s results from last year (2020) of up 233% (or 3.33 times what it started with), and multiply those results by this year’s 71% gain, you will see that the portfolio has almost sextupled in a year and eight months. 3.33 x 1.71 = 5.69 times what it started with on Jan 1, 2020.

Remember that this was done with no leverage, no options, no margin, no penny stocks, no fancy stuff, just a concentrated portfolio of high growth companies.

That is such a preposterous and ridiculous result that, as I’ve said before, it’s hard for even me to digest it. As I’ve said before, humans aren’t supposed to get results like that, but our companies keep on turning out extraordinary results. But wait, here come the four year and nine month results:




FOUR YEARS AND NINE MONTHS RESULTS

You will hear an incessant chatter from know-nothings telling you that no one can beat the averages and that stock picking doesn’t work, and books have been written to prove it, and that we will all return to the mean, so I thought that I’d give you some facts about that. Here are my last four years of results compounded, which you can compare against the S&P. Remember that I’m not just picking my results off the wall. I posted my positions and their sizes every month of those four years so any one who wanted to check me out could have done so. It’s real, and others on the board have done approximately the same, some a little better and some a little worse, but in the same range. It can be done, although I strongly doubt that we will ever have another year like 2020.
 

2017: + 84.2% $100 becomes $184.20
2018: + 71.4% $100 becomes $171.40
2019 + 28.4% $100 becomes $128.40
2020 + 233.3% $100 becomes $333.30


In four years those numbers compounded to 1, 351% of what I started with, that’s thirteen and a half TIMES what I started with, or up 1,251% in four years.

During that time the S&P was up 67% in four years. That’s up 67% compared to up 1,251%!!! You can add a few percent by adding in dividends, but that doesn’t change the comparison at all.

If you are thinking that that’s impossible and that noone could do that , here is what GauchoRico posted for his four year results: He was up 1,135% in those same four years. https://boards.fool.com/gauchorico-portfolio-update-1312021-... Pretty much the same thing! It’s not a fluke.

And then, if you add in this year’s nine month results we have 13.51 times 1.713 = 23.14. It thus compounded to over 23 TIMES what I started with in January of 2017, or up 2,214% !!! in four years and nine months, which is really, really, crazy numbers. The S&P was up approximately 98% in that time. That's up 98% versus up 2,214%. So much for "You can't beat the averages!"

Tell me again that active intelligent stock picking doesn’t work! The only ones who say that are the people who don’t know how to do it.

Read the Knowledgebase several times. And the other articles on the side panel. And the posts with lots of recs by people you trust, and you may learn how to do it too.



I am no good at timing the market and I haven’t tried, but have just stuck with strong, rapidly growing, high-confidence companies. I can’t tell you what the market will do Monday, or next month, or the next three months, or six months, but I can tell you that these companies are very successful, and that I can sleep well with them in my portfolio.




MY RESULTS YEAR TO DATE

My portfolio closed this month up 71.3% (at 171.3% of where it started the year)! Here’s a table of the monthly year-to-date progress of my portfolio for 2021.


End of Jan + 2.5%
End of Feb + 0.3%
End of Mar - 13.0%
End of Apr - 0.2%
End of May + 4.1%
End of Jun + 16.5%
End of Jul + 21.9%
End of Aug + 50.9%
End of Sep + 71.3%


A thought about this: Since many of us were up more than 200% last year (more than tripling our entire portfolios), it seeemed logical to assume that our stocks (and way of investing) had overshot by a lot, were way overvalued, and would fall back this year. But here we are, nine months into the year, and we are actually up ridiculous amounts again, in spite of wildly overshooting last year, and living through some large pullbacks.




”SELL IN MAY AND GO AWAY ????”

Do you remember that famous Market Timing jingle? Well, in mid-May I was down 18.5% ytd. I’m now up 71.3% ytd, and I’m up 110% since mid-May.

So much for market timing based on averaging what happened in particular months in previous years and acting on the basis of that, instead of acting on the here and now! In fact, so much for market timing!




HOW DID THE INDEXES DO?

Here are the results year to date:

The S&P 500 (Large Cap)
Closed up 18.6% YTD. (It started the year at 3756 and is now at 4455, declining 1.4% for the month).

The Russell 2000 (Small and Mid Cap)
Closed up 13.8% YTD. (It started the year at 1975 and is now at 2248, declining 1.5% for the month).

The IJS ETF (The S&P 600 of Small Cap Value stocks)
Closed up 24.1% YTD. (It started the year at 81.3 and is now at 100.9, declining 3.3% for the month)

The Dow (Very Large Cap)
Closed up 13.7% YTD. (It started the year at 30606 and is now at 34798, declining 2.1% for the month).

The Nasdaq (Tech)
Closed up 16.8% (It started the year at 12888 and is now at 15048, declining 0.6% for the month).


These five indexes averaged up 17.4% YTD. At the end of August they were up 19.2%, so they declined 1.8 precentage points in Sept while my portfolio was tacking on 20.4 points.

In fact, in the last five months the “markets” gained 0.9%, 1.9%, 0.7% and 0.9%, and then declined 1.8 points, for a total gain of 2.6 percentage points in those five months.

During that same time my portfolio went from down 0.2% to up 71.3%, adding on 71.5 percentage points.




LAST THREE MONTHS REVIEW


July There were no earnings reports in July but there was news on several of our stocks that affected some of my decisions.

Upstart was helped by a recommendation by Goldman Sachs which also gave an excellent description of Upstart’s business, and how it works. Upstart also announced a new credit union had signed up for their program. Excellent discussion on our board looking at monthly statistics gave further reason to expect rapid growth. The stock price stayed between $115 and $125 most of the month, which was very calm for Upstart, and I added multiple times to my position, bringing it up to 14.5%.


Lightspeed didn’t have much company specific news, but the world changed in the last five weeks with a scary resurgence of Type D Covid, and since a lot of its customers were in restaurants and hospitality, I reduced my position to 7%, but then, after taking a sober look at how fast they were likely to be growing, I built my position size back up to 8%.


Crowdstrike announced that Falcon for GovCloud was now FedRAMP authorized for endpoint protection.

Then they announced that Falcon Complete, their total all-in-one solution, provides cloud-native managed detection and response, protecting endpoints through AI, comprehensive threat intelligence, and 24/7/365 support from defenders who manage, monitor, and remedy threats that plague government agencies.

Saul here: I feel that with all the security breaches we’ve been having, this will surely add significant government business for them.

Then they announced Falcon X Recon+, a new managed solution where Falcon X Recon+ threat experts manage digital risk protection efforts by monitoring, triaging, assessing and responding to threats, enabling the customer to focus solely on their business.
“Earlier this year, we delivered Falcon X Recon to expose activity on the cybercriminal underground. The new Falcon X Recon+ combines the effectiveness of the Falcon X Recon technology with the skills and experience of our Intelligence team. By offloading the effort of dealing with external threats to us, Falcon X Recon+ increases the effectiveness of the security team, while reducing the time, skills and effort required to battle sophisticated adversaries.”

Saul here: Both of these announcements show a new movement into providing managed security, and not just the software, in response to more, and more sophisticated, criminal activity, so that the customer doesn’t have to have a world class security team to deal with the threat.

In addition, their partnership with Zscaler seems to be flourishing. The two companies seem to be working together in order to provide a full security ensemble solution.


Cloudflare announced that it is now “listed” in the FedRAMP marketplace, and that reaching this “final step before full FedRAMP authorization” will allow more federal agencies to adopt Cloudflare’s performance, security and Zero Trust solutions.

I (Saul) don’t fully understand what being FedRAMP “listed” means, but it’s clearly better than not being listed, and Cloudflare implies that federal agencies will be allowed to adopt their solutions.


Datadog joined the party achieving AWS Government Competancy Partner status. What the heck does that mean? Here’s how Datadog defines it:

Datadog for Government enables government agencies to successfully migrate to the cloud, troubleshoot performance issues, and improve the speed and reliability of their services at scale, while remaining in compliance.”


Zoom Info had an acquisition, Chorus, that they feel is a game changer. Here’s what the CEO said about it in a blog:

“We’ve had some big moments over the years. In just the last 12 months, we


Launched Engage to automate sales outreach.
Acquired Clickagy and Launched Streaming and Custom Intent.
Acquired Everstring, a leader in Data-as-a-Service for the enterprise.
Launched Workflows to activate market insights, buyer intent, and website activity.
Acquired Insent last month (now called ZoomInfo Chat) .
And just a few weeks ago, we launched ZoomInfo Recruiter, which is rapidly gaining traction.


But there are only a few milestones in our history that have had a game-changing impact on our trajectory and transformed how businesses everywhere go to market. Today is one of those moments. I couldn’t be any more excited to announce that we have acquired Chorus a leading provider of Conversation Intelligence solutions.”

(Saul here) You can read a lot more about it on the website. After selling down to less than a 1% position, I built back up to a 4% position.



August was an excellent month for my companies. ZoomInfo, Datadog, Lightspeed, Cloudflare, and Upstart all reported excellent quarterly results, and Snowflake posted good enough results that I could exit without pain. I’ll tell you about them below individually, but I should mention that Upstart totally blew it away and is now a huge 23% position. Since it is taking up so much space, it has to some extent crowded out and reduced the percentages of my other leaders so don’t be surprised.

I exited Docusign again, and probably will stay out, just because I liked the other companies better. I also exited Snowflake after earnings, because the story was just too complicated for me, with their slowing customer acquisition and slowing RPO (which they had previously told us was the most important metric to watch), and the company’s convoluted explanations and excuses, and our attempts to explain this, like maybe increased usage is using up the RPO, but then they emphasize that customers don’t use much in the first year, and if they actually did have more usage eating up the RPO, why is revenue growth coming down. It’s all just a mess to figure out.

Let me be very clear about this. I think both of these companies will continue going up. These are not Fastly stories. It’s just that I can’t invest in all the good companies in the world. I keep a concentrated portfolio, and there are other companies that I’d rather be invested in.

What did I do with the money? My ZoomInfo is now up to a normal size position, double where it was at the end of July, and I’ve taken a new position in Monday which CloudL wrote up on the board a couple of weeks ago. In addition I added to my Lightspeed and Zscaler positions. I also had added a lot to my Upstart before earnings.



September was less exciting. I still have the same eight positions that I had at the end of August, and in roughly the same order except that I’ve added to Lightspeed and trimmed Cloudflare and Crowdstrike and I’ve also added back a small 1.6% position in Snowflake, just because I think it’s a very important company to keep in sight. And I’ve trimmed Upstart because the position has gotten too big, but it’s grown to over 27% now in spite of all my trimming.



Please remember that I could change my mind about any one or more of my positions tomorrow, depending on new information or other factors, and I won’t do another update until the end of the month. Make your own decisions. Don’t just follow mine. I make mistakes at times! Guaranteed!




HOW THE INDIVIDUAL STOCKS HAVE DONE YTD

Here’s how my current positions have done this year. I’ve arranged them in order of percentage gain. As always, I’ve used the start of the year price for stocks I’ve been in all year, and my initial buy price for stocks I’ve added during the year. I tend to keep buying as the price rises, so my average price is almost always higher than my starting price.

Please remember that these starting prices are from the beginning of 2021, and not from when I originally bought them if I bought them in earlier years.


Upstart from 92.20 to 327.88 up 255.6% buy in Apr
Lightspeed from 58.15 to 121.17 up 108.4% buy in May
Cloudflare from 75.99 to 130.36 up 71.5%
Zscaler from 186.70 to 279.99 up 50.0% buy in May
DataDog from 98.44 to 147.32 up 49.7%
ZoomInfo from 47.34 to 67.85 up 43.3% buy in Apr
Crowdstrike from 211.82 to 261.75 up 23.6%
Snowflake from 305.00 to 316.47 up 3.8% buy in Sep
Monday from 360.51 to 366.99 up 1.8% buy last wk of Aug



Great buys:
Lightspeed is up 108%, just since I bought it in May. (Thanks to Ethan and Chris).
Upstart is up 256% since my first buy in April. (Thanks to Chris, Bert, and Jonwayne)


All my companies except Crowdstrike were up this month, some by a lot, while the stock averages ALL declined small amounts.




NEW: HOW THE INDIVIDUAL STOCKS HAVE DONE SINCE I BOUGHT THEM

Usually, in my end of month summaries, I have shown you how my current positions have done this year, year-to-date. I thought however it might be interesting for you to see how they’ve done since I first bought them, even if I bought them in previous years. I’ll arrange them in order of length of time held instead of in order of percent gain.


Crowdstrike from 73.06 to 261.75 up 258.3% buy in Jul 2019 (26 mo)
DataDog from 31.50 to 147.32 up 367.7% buy in Oct 2019 (23 mo)
Cloudflare from 34.97 to 130.36 up 272.8% buy in Jul 2020 (14 mo)
Upstart from 92.20 to 327.88 up 255.6% buy in Apr 2021 (5 mo)
ZoomInfo from 47.34 to 67.85 up 43.3% buy in Apr 2021 (5 mo) Lightspeed from 58.15 to 121.17 up 108.4% buy in May 2021 (4 mo)
Zscaler from 186.70 to 279.99 up 50.0% buy in May 2021 (4 mo)
Monday from 360.51 to 366.99 up 1.8% buy in Aug 2021 (1 mo)
Snowflake from 305.00 to 316.47 up 3.8% buy in Sep 2021 (0 mo)



There’s an important lesson in this! Crowdstrike has tripled and a half in two years and two months, Datadog HAS quadrupled and a half in one year and eleven months, Cloudflare has almost quadrupled in a year and two months, Upstart has tripled and a half in five months.

Now how often have you seen people say (even on our board), “ABC has gone up 40% in two months (or 50% or 60%), so it’s valued too high now and I’m selling out to wait for a 20% or 30% pullback.”

Notice that they didn’t say that the picture for ABC had changed, or that there was anything wrong with ABC’s business, or that there was any bad news, etc, it was just that it had moved up 40% or 50% so they were selling out. Let me point out that if you make a practice out of selling out after a 40% move, you will never get the nine times 40% (360%) gains that you see above in Datadog, and close to that in others.

Just think, if you had bought Upstart when I did at $92, and a week or two later it was up $46 at $138, and you had said to yourself, “Wow! Up 50% in a few weeks! You never go broke taking profits!” or some such platitude, and you sold out and took your profits. Well, you took a profit of $46, and left another $190 (so far) per share on the table.

I was adding to Upstart, not “taking profits,” all the way up to $167.50, more than 80% up from my first buys, and only started trimming afterwards when the position got too large for comfort. (By the way, I almost have a double on that last buy at $167 already).




Now let’s look at another recent long hold. Do you remember Fastly? Eleven months ago, last October, it had hit a new high of about $136. There were already questions about its very small number of new customers, about customer concentration, and about other issues (which we had been aware of but making excuses for), but then really bad news came out, and it plummeted. I sold in the aftermarket and the next morning premarket, and got out of my entire position at about $90, and transferred all that cash into Cloudflare, a competitor, at a price of $56.50. (I had already had a position in Cloudflare since that July). Many others on the board did the same thing, but there were some who stayed in. They felt we acted too precipitously, that Fastly was already down a lot, that it had really great tech, and it would bounce back in time, etc etc etc. Some were actually angry at us for being disloyal to the company they loved! I kid you not! Called us a “bunch of sheep!”

Well here we are eleven months later and Fastly is at $42.04 at Friday’s close, down an amazing 69% from its high and down 53% from where I sold it, and unbelievably down another $6 from July’s close (when I first wrote this), and almost $2 from August’s close. For someone who had a $100 invested in Fastly on Oct 15 when I got out, and held it until now, after 11 months, it is only worth $47.

On the other hand, if they had moved the money into a stock going up, it would be an entirely different picture. That same money into Cloudflare is now worth $231, which is 4.91 times as much!

NO! That’s NOT 49% more! It’s almost five times as much! FIVE TIMES!!! That’s the definition of the “Opportunity Cost” of sitting on losers and hoping they will get their act together. Look, you may be thinking, “Well I held it so long, I might as well keep holding it. However, even from July’s close two months ago, Fastly is down another 13% ($42.02/$48.07). During those same two months my portfolio has risen from up 22% to up 71%! Again, that’s Opportunity Cost!!!


Sure, sometimes you will be wrong! And some companies you sold out of will keep going up. A lot. But you will avoid having a large part of your portfolio sitting fallow, just waiting, and avoid accumulating positions in which you are waiting for a return to the good old days. It’s easy to look at the one or two that did turn around, but most turnarounds don’t turn around, unfortunately.


Two lessons here.

First, don’t sell out because the stock has gone up, unless your position has gotten too big, and then just trim it. You will make your big money on the stocks that keep going up.

Second, you should sell at bad news if the picture has changed.

I have occasionally been accused of buying and selling too easily, but that is usually me trying to find the right company to hold for the longer term. As you can see above, I make most of my big money on the rapidly growing companies that I buy, add to, and hold on to.. (Zoom and Upstart did it much faster, but I did the same thing, I added as they were going up, and with Zoom, I got out when the music stopped playing.)

I hope that this has been clear and useful.




POSITION SIZES

I now have eight positions plus a baby position in Snowflake, and nine positions is near the top of my comfort range. I have a huge (27.4%) position that Upstart has grown into. Am I comfortable with a 27% position? Not really, but I’m not currently considering reducing it.

Here are my positions in order of position size, and bunched by size groups. You will see that Lightspeed has moved up and Cloudflare and Crowdstrike have continued to be trimmed.


Upstart 27.4%

Datadog 15.1%
Crowdstrike 12.0%
Lightspeed 10.2%

Zscaler 8.8%
ZoomInfo 8.7%
Cloudflare 8.2%
Monday 8.1%

Snowflake 1.6%





COMPANY REVIEWS Please note that when I discuss company results, I almost always use the adjusted values that the companies give.


I’m going to discuss them in alphabetical order this month but I just have to tell you about Upstart first: I could tell you that their last earnings report was a complete blow-out and that they knocked it out of the park, but that would be a complete understatement!

What does Upstart actually do? Right off the bat, I have to tell you that this is a very different company from my usual. Upstart has developed a cloud-based platform that evaluates applicants for unsecured personal loans based on a multitude of factors that are not taken into account by traditional FICO scores. It is based on AI and deep learning so that the more loans it writes, and the more payments that are made on those loans, the smarter it gets. It’s a bit like the way Crowdstrike benefits and learns from every attempt at a breach that it analyzes, and its subsequent skill and enhanced knowledge gives it a moat, as a potential competitor would have to start from scratch. It’s the first mover advantage, and Upstart figures it has an eight year headstart on any competitors, as far as collecting the data.

What are the advantages of using it? It benefits everyone. The bank gets to approve more loans, with a considerably lower loss ratio, the customer has his or her loan more likely to be approved, and at a lower interest rate, and Upstart collects a fee. It’s a combination of lower interest rates, higher approval rates, and higher net yields.

How about management? The three who co-founded it (two men and a woman) in 2012, are very impressive, and two came from senior management positions at Google, the third is a young genius, and are all still at Upstart. Sounds good to me.

How’s business? Revenue from 2017 to 2020 went (in millions) $57, $99, $164, $233 (quadrupling in three years, inspite of revenue getting killed in the “Covid quarter,” Q2 of 2020). For 2020 they were adjusted profitable (23 cents per share, up from 5 cents the year before), and adjusted EBITDA profitable (13.5% of revenue, up from 3.4% the year before.

Quarterly revenue really took off in 2019, and the last ten quarters look like this. (You can spot that Covid quarter a mile away):


20 33 49 63 = 165
64 17 65 87 = 233
121 194


As you can see, quarterly revenue for the last two quarters was about six times what it was just two years ago! And two years ago was 2019, and not artificially deflated by Covid. Revenue was up 60% SEQUENTIALLY this quarter!!!

Annual guidance for 2021 was $500 million two quarters ago. In May they raised it by $100 million to $600 million!!! In August they raised it by $150 million from $600 million to $750 million. That puts annual revenue guidance to up 222% (from 2020’s $233 million), more than tripling, and they certainly expect to beat and raise again after the third quarter.

What’s new? They’ve acquired Prodigy Software, a facilitator of auto loans, which will multiply their TAM about six times, as auto loans are a market about six times as big as unsecured personal loans. They are already helping to originate auto loans with one or two banks.

How could I not invest in a company that is a first mover, making its own market with a highly automated cloud-based new technology which uses AI and deep learning? A company that is already profitable, and is growing so fast that it is guiding to 222% revenue growth for the 2021 year, which it is obvious that it will handily beat! At a minimum I would expect them to move that 222% guidance to 260% growth by the end of the year. And it is moving into a new market (auto loans) that is six times as large, and just got recommended by the credit unions’ national association! Holy mackerel!!! (to coin a phrase).

However, keep in mind that this is a complicated company, which has to deal with all kinds of financial/banking rules, and which doesn’t have guaranteed recurring revenue like, for example, Crowdstrike or Cloudflare. Upstart also may be cyclical and affected by the economy (look how it dropped revenue about 74% sequentially in the Covid panic quarter, which obviously could happen again in a sharp recession or equivalent).

In mid-June they had the expiration of their lock-up period. The price sank to $115 after a block sale of 1.7 million shares. It’s now at $223. If you ever needed proof that the “professionals” are not always right, in fact not USUALLY right, just think of those “professionals” who sold 1.7 million shares at about $115 just two and a half months ago, and left $213 sitting on the table.

The National Assn of Federally Insured Credit Unions also had a press release strongly extolling them on the day of the block sale. I added to my position at $117.60, and a little more after it partnered with NXTsoft a week later, which will facilitate the adoption of its system by banks and credit unions.

In September there were announcements about two new credit unions and a fairly large bank. Also, there were a number of impressive interviews at various presentations.

Upstart has grown to a 27% position for me. Am I comfortable with such a large position in such an atypical company for me? No, not really… I have made numerous little trims once it got over 23% but it got to its present ridiculous levels in spite of me. I have no plans to make major cuts in my position although I could see myself continuing to make tiny trims, for example to raise cash for a new position. It looks like this company is just starting out on what could be a long journey.

There have been many threads about Upstart and if you are interested I recommend reading and getting up to date. In fact if you just start reading all of jonwayne’s posts you can’t go wrong. He knows the company better than anyone, as far as I can tell. There’s a lot of good reading before you.



Cloudflare (NET)has been a star of my portfolio, almost quadrupling in the 14 months since I bought it, but I keep feeling vaguely dissatisfied with the company. How can I be dissatisfied with a company whose stock has closed at new all time high weekly closes almost every Friday for weeks and weeks. Well… I don’t understand why it’s going up like that, it’s growing steadily, but slower than all my other positions, and not accelerating, and it seems more focussed on altruism than on being profitable.

The good news is that they are growing at over 50%, growing at 54%, 50%, 51% and 53% the last four quarters, their gross margins are a strong 78%, their operating loss was $7.3 million, improved from $9.5 million a year ago, their free cash flow was minus $10 million, improved from minus $20 million, their net retention rate was 124%, a record for them, and they are pivoting from free and small/medium customers to large customers and gathering them rapidly. They are putting out new products like mad, and their CEO says they have so much opportunity that they are not worried about profitability right now, just growth as fast as they can. Sounds great, doesn’t it?

The bad news is that they are growing at over 50%. With all this opportunity, acquisition of large new customers, and new products, why aren’t they growing faster like so many of my companies? Why do they still have an operating loss, negative EPS, and negative free cash flow when most of my other companies are positive now in spite of growing faster? The other bad news is that the CEO says that they are not worried about profitability right now, just growth as fast as they can. I have other companies that are growing revenue considerably faster, but yet manage to be profitable and free cash flow positive.

Look at Datadog’s results for the same quarter: Datadog’s revenue was up 67%, up from 51% in the March quarter. Adjusted net income was positive 11% of revenue, up from negative 5% last year. Operating Cash Flow was $52 million, up from $25 million last year. Free Cash Flow was $42 million, up from $19 million last year. Why can’t Cloudflare do any of that???

So why the heck is this company growing its stock price so fast? What is the market seeing that I’m not? I wonder if there is a perception that this company is on its way to take over the cloud world 😀. Well, maybe it is, but I’ve made small trims to my position multiple times, and it’s now down to an 8.2% position. (Part of that percent reduction, of course, wasn’t trims, but getting crowded out by Upstart’s price growth). I’d love to hear commentary on this subject if you think you have answers. On board would be fine!

And in September they joined Microsoft’s Intelligent Security Association (whatever that is 😀).



Crowdstrike is a security company built entirely on the cloud which started out securing endpoints, but now is expanding into many other aspects of security, and seems to be heading towards being one of the world’s dominant security companies. A key advantage it has is its AI. When it detects an attempt at an intrusion in one of its customer clients it instantly flags and stops that intrusion in that customer, but at the same time stops that intrusion from occuring in each and every one of its customers, pretty much instantly. It has a record of everything that has ever been tried on any of its customers so it keeps increasing its knowledge base. That’s a Wow Feature! No on-premises firewall company can come even close to what it does.

They announced their report for the quarter ending in July since my last write-up. This was a very solid “boring” quarter but a lot of us were disappointed. We expected more with break-ins and breaches all over the place, but they just hit 70% revenue growth, flat with the quarter before, down from 84% yoy, and showing no reacceleration.
“Wait!” you say, “You were disappointed with 70% revenue growth! You’ve got to be kidding!” You have a point, but we were. Like I said, it was a good solid quarter.
You want an example: Free Cash Flow Margin was positive 22%, up from 16% a year ago, from minus 27% two years ago, and from minus 64% three years ago. Clearly they are going in the right direction, but we were still left wondering why revenue wasn’t growing faster. Still my third largest position at 12%, after Upstart and Datadog, but no longer my top position.



DataDog is in second place currently in my portfolio, at a 15% position. They posted great June quarter results in August, as we predicted, having finally lapped that Covid quarter in 2020. Revenue was up 67%, accelerating from 51% in the March quarter. Adjusted net income was 11% of revenue, up from a LOSS of 5% last year. Operating Cash Flow was $52 million, up from $25 million last year. Free Cash Flow was $42 million, up from $19 million last year. (Why can’t Cloudflare do any of that???)



Lightspeed. This company also had blow-out earnings announced in August. Revenue was up 220%, and 41% sequentially, but that was counting acquisitions. Organic revenue was up 81%, which is nothing to sneeze at either, and accelerating from 48% in March. ARPU, or Annualized Revenue Per User, was 230 up from 160, which is pretty great too. Gross Merchandise Volume was roughly triple a year ago. Their Transaction Based Revenue (Payments) was up 453%. They sounded pretty euphoric, all in all. I have a 10.2% position, in 4th place, and I have been adding enthusiastically.



Monday. CloudL brought this little gem to the board several months ago. They are a recent IPO and just reported revenue up 94% in their first quarter as a public company. They help people work together and cooperate, and yes, I know that there are lots of other companies in that field, but none that I know of growing revenue at 94%. The number of enterprise customers over $50,000 was 470, up 226% from 144 a year ago. That’s not a misprint! … 470 up from 144 are the real numbers. They seem to be rapidly moving towards profitabilty, and there’s lots more good stuff, but I’ll let you research the rest. I acquired them mostly in the last week of August and now have built it to a 8.1% position. Pay attention if you decide to buy any as it is a high price/low volume stock, with a wide spread between bid and asked.



ZoomInfo. I doubled my position size in August to 8% after the Conference Call. Why? Well here a comment from the Morgan Stanley analyst in the Conference Call:

…all the growth metrics are accelerating up and to the right. Is it fair to say that there's a fundamental shift that's happening right now, and that shift is actually accelerating in its pace, and you guys are really seeing the benefit flow through your growth?

What was the analyst referring to? Well their yoy revenue growth, which had been going along at a pedestrian 42%, 40%, 41%, all of a sudden, in the December quarter, accelerated to 45%, followed by 48% in the March quarter, and 57% in the June quarter. These are rates it had never seen before. International revenue is growing at 75%. Operating cash flow was $89 million, which is more than 50% of revenue, and Free Cash Flow was $92 million, even more.

From the Conference Call:

Our Intent products, which find consumption patterns to help go to market teams identify and gauge prospects, experienced significant growth with active users growing more than 5x yoy.
Streaming Intent and custom Intent bookings, which became available after we acquired Clickagy, have nearly doubled sequentially in EACH of the last two QUARTERS.

And ZoomInfo Recruiter, while still small, saw the number of seats grow over 10x sequentially in the quarter.

In order to ingest and process the 250 million plus changes that we make to contacts in our platform every month, we need a talented team of people driving the high levels of accuracy. We've continued to build out this team, and we now have 400 global engineers, analysts, data scientists, and researchers focussed on maintaining our high standards of data accuracy.

They raised annual revenue growth guidance seven points, from 41% to 48%.

Saul: Well, as I said, I doubled my position size in August, and it’s now an 8.7% position.



Zscaler was a position that I took back in May. They announced results in September. Here are some fiscal year results

Revenue: $673 million, up 56%, and growth up from 42% last year. .
Gross Margin was 81%.
Adj op income was $78 million, up from $38 million last year
Adj net income was $76 million, up from $41 million
Adj EPS was 52 cents, up from 24 cents
Op Cash flow was $202 million, up from $79 million last year
Free cash flow was $144 million, up from $27 million!!!!.

RPO was $1553 million, up 98% !!!!

Current RPO is 49% of that, or $761 million, which is 13% and $88 million more than their ENTIRE revenue for this fiscal year just finished (which was $673 million)!!!

NRR was 128% up from 120% a year ago.
Cash was over $1.5 billion

As you can see, they are really moving.




FINISHING UP
Let me remind you first, that I have NO IDEA what our stocks will do next month. I’m terrible on predictions. But I know that the businesses of our companies will do just fine for the most part.

I feel that my portfolio is made up of a bunch of great companies. But that’s just my opinion, and I can’t say often enough that I’m not a techie and I don’t really understand what most of them actually do at all ! I just know what great results look like. I figure that if their customers clearly like them and keep buying their products in hugely increasing amounts, they must have something going for them and, as I’ve often said, I follow the money, the results. And I listen to smart people about the prospects of these companies.

When I take a regular position in a stock, it’s always with the idea of holding it indefinitely, or as long as circumstances
seem appropriate, and never with a price goal or with the idea of trying to make a few points and selling. I do, of course, eventually exit. Sometimes it’s after months, and sometimes after years, but I’m talking about what my intention is when I buy.

I do sometimes take a tiny position in a company to put it on my radar and get me to learn more about it. I’m not trying to trade it and make money on it, I’m just trying to decide if I want to keep it long term. If I do try out a stock in a small position and later decide that it’s not what I want, I sell it without hesitation, and I really don’t care whether I gain a dollar or lose one. I just sell out to put the money somewhere better. If I decide to keep it, I add to my position and build it into a regular position.

You should never try to just follow what I’m doing without making up your own mind about a stock. First of all, you may have a completely different financial picture than I have. Different income, different assets, different debts, different expenses, different financial responsibilities, etc. Besides, in these monthly summaries I’m giving you a static picture of where I am currently, but I may change my mind about a position during the month. In fact, I not infrequently do, and I make changes in the position. I usually don’t announce these changes until the end of the month, and if I’m busy or have some personal emergency I might not announce them even then. And besides, I sometimes make mistakes, even big ones! Don’t just follow me blindly! I’m an old guy and won’t be around forever. The key is to learn how to do this for yourself.




THE KNOWLEDGEBASE
Since I began in 1989, my entire portfolio has grown enormously. If you are new to the board and want to find out how I did it, and how you can try to do it yourself, I’d suggest you read the Knowledgebase, which is a compilation of words of wisdom, and definitely worth reading (a couple of times) if you haven't yet.

A link to the Knowledgebase is at the top of the Announcements panel that is on the right side of every page on this board.

For some additions to the Knowledgebase, bringing it up to date, I’d advise reading several other posts linked to on the panel, especially:

How I Pick a Company to Invest In,
Why My Investing Criteria Have Changed,
Why It Really is Different.
Illogical Investing Fallacies

I hope this has been helpful.

Saul
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No. of Recommendations: 70
By the way, I'd love comments or questions, either on board or off. I may not be able to answer them all, but I'll try.

Here's a comment of my own. I loved this little example, talking about Upstart:

In mid-June they had the expiration of their lock-up period. The price sank to $115 with a block sale of 1.7 million shares. It’s now at $328!!! If you ever needed proof that the “professionals” are not always right, in fact not USUALLY right, just think of those “professionals” who sold 1.7 million shares at about $115 just two and a half months ago, and left $213 sitting on the table.

Just an extreme example that you should pay attention to what the company's business is doing, not when professionals, or Venture Capitalists, or insiders, decide to take profits. In two and a half months the price has almost tripled from when they decided to sell all those shares.

Saul
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No. of Recommendations: 6
Just a quick takeaway…I was surprised to see you jump back in to SNOW after recently exiting after their most recent earnings report. The introductory positions I thought you may be more interested in would be some board favorites like Asana or Global-e.

What changed in SNOW that made you want to re-start your position with them?
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No. of Recommendations: 18
Saul,

I have a question that I've been pondering for some time.

Clearly there is lots to love about Upstart, and 99% of folks on this board are euphoric about the company. In fact, outside of Zoom between early 2020 and late 2020, I don't think I've ever seen such bewildered excitement. Rightfully so of course. You shared the following thoughts on Upstart in your monthly review:

- They are a first mover, with an eight year headstart
- Co-Founders are all at the company
- Revenue quadrupled in three years, and was up 60% sequentially last quarter
- They tripled their guidance
- They are growing from personal loans (short payment cycle) to auto loans (multi year cycle) with a 6x greater TAM to..me here...perhaps mortgage loans (with a 15 to 30 year cycle!)

Their margins are up, their loans are up, their bank partnerships are up.

You de-bunked the valuation concern fears in an earlier post last week.

You de-bunked the rapid stock price gain fears in your monthly review recap.

So...what are the biggest risk you see with them? What Zoom-like growth slowdown do we need to keep watch for on the horizon? In our "best ideas" concentrated portfolios, with the obvious portfolio management off-topics aside, why shouldn't we be putting 40% or 50% of our portfolio into what is clearly the best company that has come to this board in awhile?

Thanks again for all that you do.

Brandon
(not lower case "f" foolish by the way and only a 20% allotment in Upstart himself)
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No. of Recommendations: 1
Scoopshot - For the threads reference.

The Snow exit from Saul at the end of August:

Saul’s post:
“I also exited Snowflake after earnings, because the story was just too complicated for me, with their slowing customer acquisition and slowing RPO (which they had previously told us was the most important metric to watch), and the company’s convoluted explanations and excuses, and our attempts to explain this, like maybe increased usage is using up the RPO, but then they emphasize that customers don’t use much in the first year, and if they actually did have more usage eating up the RPO, why is revenue growth coming down. It’s all just a mess to figure out. Let me be very clear about this. I think both of these companies will continue going up. These are not Fastly stories. It’s just that I can’t invest in all the good companies in the world. I keep a concentrated portfolio, and there are other companies that I’d rather be invested in.”
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No. of Recommendations: 24
What changed in SNOW that made you want to re-start your position with them?

Hi Hold, Nothing changed. I just decided that a complete exit was too extreme a step to take with a company that has a huge potential, and I wanted to keep a small position so that I'd watch it every day and add back if appropriate.


I thought you would be more interested in some board favorites like Asana...

I think that having an 8% position in Monday is preferable to Asana, and enough in that sector.

Saul
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No. of Recommendations: 53
So...what are the biggest risk you see with Upstart? What Zoom-like growth slowdown do we need to keep watch for on the horizon? In our "best ideas" concentrated portfolios, with the obvious portfolio management off-topics aside, why shouldn't we be putting 40% or 50% of our portfolio into what is clearly the best company that has come to this board in awhile?


During Covid having a Zoom account and access became so obviously urgent that just about everyone and his uncle signed up in a matter of 6 to 9 months. Zoom dominated the field. Zoom became a verb. There was nowhere left to grow that would move the needle. Once you have 60% or 70% of the whole market, where can you grow that will push the needle enough to make a difference? How can you double your revenue with that kind of dominance already.

Upstart is a different thing entirely. They are doing all this wild growth, but only have a tiny percent of their market. Probably only 30 or 40 banks and credit unions signed up, with thousands of them out there, and expanding into auto loans, which is five or six times as large as their current market.

However, putting 40% or 50% of your portfolio in any one company sounds way too risky to me although I know that some people do it, and the choice is yours. This is a company that could temporarily lose a large part of their revenue in a marked economic downturn. Do you really want to risk 40% or 50% of your entire portfolio? I think my 27.5% is way overweighted, but I'm in it because the company looks so good.

Saul
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No. of Recommendations: 23
I somewhere read on the board that you took a position on Affirm. I dont see it. Did something change?

Hi jhalanik.
It was a tiny, half-percent position and I sold it after a couple of days. Too complicated a story and I liked my other positions better.
Saul
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No. of Recommendations: 4
Saul,

I listened to the Lightspeed podcast you highlighted and while I found it impressive, I remember wondering how exactly Lightspeed was distinct from so many other companies involved in payments and inventory management.

And then Neverstoplearn raised this very question much more articulately than I could. https://boards.fool.com/profile/Neverstoplearn/activity.aspx...

What do you say to the concerns laid out in this post?

I am also wondering why you haven't taken a position in Confluent. It seems to have many of the attributes you look for in a stock, (Saas, revenues growing more than 50% per year, sequential growth) and its Kafka software appears to be something really special if you listen to people who really know this space such as Muji.

I am of course hugely appreciative of all I have learned from you and others on this board inspired by you.
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No. of Recommendations: 190
I thought you deserved an update on my end of the month summary as an unusual four days were not included, and since they turned out to be a tumultuous four days. I finished my accounting a week ago up 71.3%, and finsihed the actual last day of the month up 57.7%. That was a drop of 7.9% of the value of the portfolio in those four days. (1.577 divided by 1.713 equals 0.921).

When the short attack on Lightspeed came out, my kneejerk reaction was to sell a small part of my position to reduce my exposure. After thinking and reviewing the situation a bit, I bought back the shares I had sold (at a cheaper price than what I had sold them at), and then bought a tiny bit more. I made no substantial changes in any positions during those four days.

I hope that this was of some small help,

Saul
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