The last portfolio update included my thoughts on the latest earnings results. I gave my opinion then and since then there have been no new earnings releases for any of the portfolio companies. We now await the next cycle of earnings which will be interesting and informative because they will include a full quarter of pandemic effect.
PORTFOLIO PERFORMANCE
| DATE | GR Portfolio (YTD) | S&P500 Total Return (YTD) |
|---|---|---|
| Jan | +25.7% | 0.0% |
| Feb | +27.7% | -8.3% |
| Mar | -2.9% | -19.6% |
| Apr | +16.7% | -9.3% |
| May | +64.7% | -5.0% |
| Jun | +110.3% | -3.1% |
The rest of June 2020 (since the last update includes June 8 – June 30) showed continued strength for many/most of the companies in the portfolio. However, the performance in the portfolio also contains some incrementally positive profits (mostly realized and a little unrealized) from my options trading activities. The volatility in the market continues to provide some juicy premiums for the sellers of options (I’ve been a seller of options and continue to be). In addition, good results from ZM and CRWD provided additional boosts in returns from my earnings bets on those 2 companies.
Below are I’ve appended new portfolio highs onto the table that I posted in my last update. The entries from 02/18/20 through 06/03/20 are reposted and the entries after that (bolded) are new.
| DATE | YTD RETURN | NOTES |
|---|---|---|
| 2/18/20 | +40.7% | YTD high prior to lockdowns |
| 3/6/20 | +21.9% | portfolio down 10% on the day |
| 3/9/20 | +3.6% | portfolio down 15% on the day; Fear index=3 |
| 3/11/20 | +0.6% | portfolio down 8.8% on the day; Fear index=4 |
| 3/12/20 | -11.0% | portfolio down 11.4% on the day; Fear index=2 (1 intraday) |
| 3/16/20 | -22.8% | portfolio down 18.9% on the day; Fear index=3 |
| 5/22/20 | +61.0% | new all-time high (ATH) |
| 5/27/20 | +47.5% | portfolio dropped 15% (intraday 5/27) in 3 trading days |
| 5/29/20 | +64.7% | new ATH (end of May 2020) |
| 6/3/20 | +78.8% | another ATH; day after CRWD and ZM earnings |
| 6/10/20 | +79.4% | another ATH |
| 6/15/20 | +84.6% | another ATH |
| 6/16/20 | +89.4% | another ATH |
| 6/17/20 | +92.1% | another ATH |
| 6/18/20 | +101.7% | another ATH |
| 6/19/20 | +103.3% | another ATH |
| 6/22/20 | +111.4% | another ATH |
| 6/25/20 | +114.6% | another ATH (current ATH) |
As you see, in June the portfolio continued to rise. The month of June 2020 had 10 new ATHs. The first half of 2020 had 16 new ATHs. By comparison, the prior year (2019) had 28 new ATH with the last one being on July 26, 2019.
Weekly Portfolio Performance
| DATE | GauchoRico YTD | S&P500 TOTAL RETURN YTD | DELTA |
|---|---|---|---|
| 1/3/20 | 4.5% | 0.1% | 4.4% |
| 1/10/20 | 14.8% | 1.1% | 13.7% |
| 1/17/20 | 19.6% | 3.1% | 16.5% |
| 1/24/20 | 22.1% | 2.1% | 20.0% |
| 1/31/20 | 25.7% | 0.0% | 25.8% |
| 2/7/20 | 28.1% | 3.2% | 25.0% |
| 2/14/20 | 39.8% | 4.9% | 34.9% |
| 2/21/20 | 29.1% | 3.6% | 25.5% |
| 2/28/20 | 27.7% | -8.3% | 35.9% |
| 3/6/20 | 21.9% | -7.7% | 29.5% |
| 3/13/20 | -4.8% | -15.7% | 10.9% |
| 3/20/20 | -6.8% | -28.3% | 21.6% |
| 3/27/20 | -2.4% | -21.0% | 18.5% |
| 4/3/20 | -12.5% | -22.6% | 10.0% |
| 4/10/20 | 3.1% | -13.2% | 16.2% |
| 4/17/20 | 18.7% | -10.5% | 29.2% |
| 4/24/20 | 20.5% | -11.7% | 32.1% |
| 5/1/20 | 13.8% | -11.8% | 25.6% |
| 5/8/20 | 37.7% | -8.7% | 46.4% |
| 5/15/20 | 47.8% | -10.7% | 58.5% |
| 5/22/20 | 61.0% | 7.8% | 68.8% |
| 5/29/20 | 64.7% | -5.0% | 69.7% |
| 6/5/12 | 67.4% | -0.3% | 67.7% |
| 6/12/20 | 74.8% | -5.0% | 79.8% |
| 6/19/20 | 103.3% | -3.2% | 106.5% |
| 6/26/20 | 107.8% | -6.0% | 113.7% |
The delta between the market (S&P500) and my portfolio expanded dramatically in June.
ALLOCATIONS
| Ticker | 6/30/20 | 6/5/20 |
|---|---|---|
| AYX | 26.0% | 25.2% |
| CRWD | 21.4% | 23.9% |
| DDOG | 17.8% | 17.7% |
| ZM | 11.5% | 8.5% |
| OKTA | 7.5% | 10.7% |
| FSLY | 6.6% | 3.9% |
| LVGO | 5.0% | 4.6% |
| NET | 3.5% | 3.5% |
| GOLD | 2.6% | — |
| Cash | -0.9% | 3.8% |
The above allocations include my options positions. I still hold 2022 calls on AYX and CRWD.
For AYX, 71% of the value (in dollar terms) of the position is held in shares and 29% of the value is in options. For AYX, 55% of the controlled shares is shares and 45% of the “shares” are controlled by $90 and $100 January 2022 calls.
For CRWD, I was more aggressive after the Q4 2019 earnings report. Shares comprise 27% of the controlled shares and the LEAPs comprise the remaining 73%. The strike prices on these options are $50 and $60 with January 2022 expirations. The value of shares comprise 41% of the position’s value and the remaining 59% of the value is in the form of the LEAPs. Here is an example that explains how owning LEAPs (compared with shares) alters the payoff/return at difference stock prices.
I also bought some Sept 2022 LEAPs in FSLY ($45 calls) and LVGO ($55 calls) when the share prices were near the strike prices on the options.
PORTFOLIO CHANGES
- I continued to sell more OKTA. It is the slowest grower and I needed some cash for a home purchase (I took the money from OKTA and went on some margin).
- I bought more ZM by allowing $170 calls get assigned into shares after a great earnings result.
- Converted my cash to GOLD which is Barrick Gold Corp (a gold mining company and a proxy for gold commodity).
WHY THE SWITCH FROM CASH TO GOLD
This is the first time that I have ever purchased gold or any commodity. I have recently come to the decision that gold can be a substitute for cash; it’s an alternative storage of wealth. I previously thought gold was costly to hold, but I recently discovered that I can use options to create a 4-6% weekly income stream from my GOLD holding. Yes, I understand that the price of gold can fluctuate and go down, but the relative value of the US dollar can also change. The Fed is adding a lot of liquidity, the federal government is running a huge deficit, and the debt level has burst up in 2020. While these actions are needed to maintain the status quo economic system and engine, some of the effects of the stimulus may lead to some unforeseen outcomes. I now believe that the risks of holding a gold substitute (GOLD is a proxy for gold) outweighs the risks of gold dropping relative to the US dollar. The weekly 4-6% return will quickly (in a few weeks) mitigate the risk of a possible drop in gold prices. This is a new change for me and I’m only a couple of weeks in. I intend to increase my gold position as our stocks continue to rise.
OPTIONS TRADING
I have continued to use options to harvest additional profits. I began tracking my options trades on 4/20/20 and through the first half of 2020, I am up to 147 opened trades of which 15 are still open. So far it is going well and these trades have contributed about 10% of my portfolio gains since 4/20/20. I make the distinction between options trading and options used as a substitute for holding shares (i.e. LEAPs); I count my LEAPs as investing and my options positions (that I intend to hold for less than 90 days) as options trading.
LOOKING FORWARD TO NEXT EARNINGS
Going into earnings season, I always like to evaluate which companies might do well. I do this because I do make some bets on the earnings results. Not always but sometimes. My first step is to predict when each company in my portfolio is expected to report the results. I don’t think that any of my 9 companies have actually announced their dates yet. I look at the previous dates when each company reported in the past (mainly the same quarter last year) and use that as a guide to predict when the company will likely report results in the upcoming quarter. I do not use the Yahoo!Finance estimate. I have found that it is typical for the companies to report on the same day of the week. AYX is on Wednesdays and CRWD and ZM are on Tuesdays for example. So here are my estimates for the coming quarter:
| Ticker | My Earnings Release Date Estimate | High end of Company Guidance |
|---|---|---|
| AYX | 7/29 | 15.8% |
| CRWD | 9/3 | 76.0% |
| DDOG | 8/3 | 63.4% |
| OKTA | 8/26 | 33.1% |
| ZM | 9/3 | 242.9% |
| LVGO | 7/29 | 83.3% |
| FSLY | 7/29 | 55.9% |
| NET | 7/30 | 40.2% |
Of these 9 companies, all but CRWD and ZM have their quarters ending on 6/30. I’ve also indicated the high end of the company’s y/y guidance for the quarter.
I really like the companies that are guiding very high growth: CRWD, DDOG, ZM, LVGO, and FSLY. If I also like the long term prospects, I see tailwinds from the pandemic, and I see a heads (economy reopening) I win / tails (pandemic/lockdowns extended) I also win situation for a company, then I become more confident in making a bet on this next earnings. The 5 companies that I mentioned fit all these criteria. I’m not inclined to bet on AYX, NET, and OKTA in this cycle. In fact, I have already placed bets on LVGO and DDOG. I think I missed the opportunity to bet on FSLY because I’m now nervous about a bet considering the huge stock price increase. For CRWD and ZM, I am already trading options on a weekly basis; I have an extra month before ZM and CRWD report results so I still have time to make additional bets on them. We’ll see how it turns out.
ADDITIONAL THOUGHTS
Some people have questioned me about whether I am selling due to the fast and large price appreciation of the portfolio stocks. I know that some people have increased their cash positions recently. That might be prudent. I haven’t done that yet, and in fact I am currently on margin for which I must pay 4% interest per year. Much of this margin is used to hold GOLD on which I think I will probably be able to make at least 4% per week. So 4% per year interest is a small price to pay for 4% per week. I think it’s natural to feel nervous after such a big and fast runup. For some reason, I don’t feel that way. It’s probably because I have seen a ton of data/evidence that our companies are getting 2-3 years or more growth in one year. I will be looking for growth acceleration for if the 2-3 years growth in one year is true then we should see that reflected in a change in the revenue growth rate. If this is the case (and it probably is) then we should expect a big increase in the stock prices of these companies. I think a 100% or 200% increase in valuation is completely justify alone based on this. Then you add fiscal stimulus and add liquidity injections from the Fed and add the lowest interest rates that we have ever seen (I just got a 2.75% mortgage!!!); these all provide a boost to stocks overall but also to our stocks specifically. Then you add that we have not yet seen the stock market euphoria that we saw in the late 1990s. I have been saying for about 5 years that we will see the return this kind of euphoria eventually….maybe soon? So you add all of this together, and we have a situation where I would rather have some margin than a bunch of cash. I think there’s a greater chance that we will continue to be amazed than disappointed. That’s just how I see it.