I wanted to wait to post a portfolio update until the portfolio companies reported results this week. FSLY, AYX, LVGO, DDOG, and NET have now reported their results. This update is through August 7, 2020.
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% |
| Jul | +144.7% | +2.4% |
| Aug7 | +108.3% | +4.9% |
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 06/25/20 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 |
| 7/1/20 | +119.7% | another ATH |
| 7/2/20 | +121.4% | another ATH |
| 7/7/20 | +125.7% | another ATH |
| 7/8/20 | +139.9% | another ATH |
| 7/9/20 | +147.0% | another ATH |
| 7/13/20 | +118.6% | portfolio down 10.5% on the day (biggest $ drop ever) |
| 7/16/20 | +113.1% | July trough |
| 8/3/20 | +156.9% | another ATH |
| 8/4/20 | +158.7% | another ATH |
| 8/5/20 | +158.8% | another ATH |
| 8/7/20 | +108.3% | OUCH! Biggest dollar drop ever (and -19.5% in 2 days!) |
In early July, the stocks continued to rise and the portfolio hit several new all-time highs before pulling back. The month of July 2020 had 5 new ATHs, half as many as in June. The first week of August had 3 all-time highs before a very steep decline on August 6th and 7th. The year through August 7th 2020 had 24 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% |
| 7/2/20 | 121.4% | 2.1% | 123.5% |
| 7/10/20 | 144.2% | -0.4% | 144.6% |
| 7/17/20 | 115.4% | 0.9% | 114.5% |
| 7/24/20 | 113.2% | 0.6% | 113.6% |
| 7/31/20 | 144.7% | 2.4% | 142.3% |
| 8/7/20 | 108.3% | 4.9% | 103.3% |
ALLOCATIONS
| Ticker | 8/7/20 | 7/31/20 | 6/30/20 |
|---|---|---|---|
| CRWD | 20.0% | 19.8% | 21.4% |
| DDOG | 16.2% | 17.2% | 17.8% |
| ZM | 15.0% | 12.5% | 11.5% |
| FSLY | 11.9% | 9.8% | 6.6% |
| NET | 9.4% | 3.6% | 3.5% |
| AYX | 7.2% | 25.2% | 26.0% |
| GOLD | 4.8% | 3.1% | 2.6% |
| OKTA | 2.7% | 2.4% | 7.5% |
| BPRMF | 1.6% | 1.1% | — |
| LVGO | — | 7.8% | 5.0% |
| Cash | 13.4% | -1.7% | -0.9% |
The above allocations include my options positions. I still hold 2022 calls on AYX, CRWD, FSLY, and NET (added today).
For AYX, 65% of the value (in dollar terms) of the position is held in shares and 35% of the value is in options. For AYX, 43% of the controlled shares is shares and 57% of the “shares” are controlled by $90 January 2022 calls.
For CRWD, I was more aggressive after the Q4 2019 earnings report. Shares comprise 20% of the controlled shares and the LEAPs comprise the remaining 80%. The strike prices on these options are $50 and $60 with January 2022 expirations. The value of shares comprise 33% of the position’s value and the remaining 67% 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.
PORTFOLIO CHANGES
I made a number of portfolio changes since my last portfolio update on 6/30/20. The bulk of the changes were made during the first week of August as a result of the LVGO merger and the AYX results.
- Sold more OKTA. It’s a slower grower and management claims that the business is experiencing pandemic headwinds. Thus, I wanted to move those funds into faster growers. I had already been reducing OKTA in May and June (at the end of April OKTA was almost a 15% position). OKTA is now a 2.7% position.
- I bought about a 3% position in Blue Prism (BPRMF). For me, this is a speculative position, and I’m not sure that I will hold it going forward. I already sold 2/3 of my position when FSLY gave me an opportunity to buy more below $80 (this was in July).
- I added to FSLY when it dropped below $80 before earnings, and I added more to FSLY after the Aug 5th earnings result. I thought that the result was excellent, and I believe that the Q3 guidance is conservative with TikTok risk built in. I think that the 12% TikTok revenue will not be lost and that the stock price is currently building in that risk. Perhaps, we will see a nice stock price reversal when it becomes clear that TikTok will continue to be allowed to operate in the US.
- I added to my position in GOLD.
- I completely sold out of LVGO immediately after the merger with TDOC was announced this past Wednesday. The reason is that I decided that I did not want to own TDOC.
- I added significantly to my NET position. I bought a nice chunk on Wednesday (the day before the NET earnings date) and then I bought more today (August 7th) after they reported a great quarter. While their guidance is only for 40% for the September 2020 quarter, I believe that this figure is sandbagged. In addition, NET has a bunch of “phantom” revenue (i.e. users are using some products and features for free; they will be charged going forward so I expect revenue growth to accelerate sharply in the next 6-12 months).
- I had an oversized position in AYX. I was completely surprised by the results that were reported yesterday. Not only was the growth rate in Q2 MUCH lower than I had expected, but also the business appears that it will be in slow growth mode for at least 2 more quarters. Management said as much. In addition, while other companies like DDOG, NET, and others are leaning in by increasing spending to take advantage of tailwinds, AYX is experiencing headwinds and is cutting back. I really didn’t like hearing this. Today, I sold 56% of my shares and 47% of my options. The tax bill will be enormous, but, on the bright side, gains are all long term and I recently moved to a zero income tax state! AYX is now a 7.1% position, down from about 25% two days ago. Unfortunately, a large oprtion of the reduced allocation is from the stock price decline. I am still optimistic about AYX in the long run, and I’m confident that the business and the stock will recover at some point. But at this point, I don’t think the recovery will come soon. While it hurts to pay the taxman, I have realized that my position was too large given the new reality that was revealed yesterday. I am betting that the proceeds (that aren’t eaten up by tax payments) will fare better in FSLY and NET for the coming months.
- My cash position is quite high now at 13.4%. About 75% of this cash will go to Uncle Sam on September 15th so my true cash position is about 3%. I may be inclined to further increase my cash and/or gold position in the coming weeks.
THREE MORE EARNINGS COMING
OKTA (8/27), ZM (8/31), and CRWD (9/2) will be reporting their results in a few weeks. I’m somewhat concerned about OKTA, and I may be tempted to sell more shares ahead of earnings should I see some compelling prices in my other stocks. Conversely, I am quite optimistic about ZM and CRWD going into earnings; both ZM and CRWD are clearly benefiting from COVID while OKTA is saying they are seeing headwinds.
ADDITIONAL THOUGHTS
Since March, I have, in my portfolio updates, expressed strong optimism for our stocks. In the past months, I have been very aggressive with my allocations, my portfolio concentration, use of some margin, and use of options to juice returns. My portfolio has benefited greatly from my previous aggressive stance and actions. However, as you see from my recent actions, I have now tempered my optimism somewhat. I really don’t know what the next months will bring, but I see some increased risk compared to what I saw in March, April, May, and June. Our stocks have also roared ahead quite a lot. Despite taking a 20% hit to my portfolio in the last 2 days, I am a bit more cautious. I am no longer on margin, I’ve reduced my exposure to downside from my options trading, I’ve increased my cash position, and I’ve increased my gold position. It is possible that our stocks will continue to roar ahead, and I believe that in the long run they have a VERY high probability to beat the market. However, I’m being a bit more cautious for the following reasons:
- Our stocks have gained a lot in short about of time.
- There is the possibility of another sector rotation. I would expect our stocks to get hit pretty hard when it becomes clear that the economy is recovering and things are returning to relative normalcy.
- While the FED will continue to stimulate as needed with almost no limit (my opinion), the fiscal spending is more uncertain in my opinion. I think that the upcoming election is making the actions of the legislative and executive branches of the US government more uncertain and unstable. Will they play politics with the economy?
- I can say the same with geopolitics. Tensions are heating up and I do not know to what lengths some people or a person will go to stay in power. In my mind, this adds to risk and adds to the possibility that something could go very wrong. I think the risk is much higher today that it was during the trade war with China. Hopefully not.