Recently, we’ve had some years for the record books. In 2020, stocks surged with many investors posting returns far above what they ever could have dreamed. In contrast, 2022 was a year in which some investors had the worst year they’ve ever had. In particular, growth investors felt the euphoria of 2020 and the despair of 2022. As humans, we tend to place more emphasis on recent results rather than on overall results over a longer time frame. The pain of 2022 may lead some investors to permanently change their investing style; in fact, some investors may never again invest in stocks. If your portfolio is down in 2022, you are not alone. There are many people who have suffered big losses. More conservative, diversified investors may be down only 10-15% while investors with concentrated growth portfolios may be down 70-80% or more. For each of these classes of investors, the drawdowns feel terrible. The table below shows the current price, all-time high, and percentage below the ATH of some stocks and other investments.
| Current Price | ATH | % Below ATH | |
| UPST | $13.22 | $401.49 | 96.71% |
| API | $3.91 | $114.97 | 96.60% |
| AFRM | $9.67 | $176.65 | 94.53% |
| FSLY | $8.19 | $122.75 | 93.33% |
| ROKU | $40.70 | $490.76 | 91.71% |
| TWLO | $48.96 | $457.30 | 89.29% |
| ZM | $67.74 | $588.84 | 88.50% |
| APPS | $15.24 | $102.56 | 85.14% |
| DOCU | $55.42 | $314.76 | 82.39% |
| S | $14.59 | $78.53 | 81.42% |
| SHOP | $34.71 | $176.29 | 80.31% |
| NET | $45.21 | $221.64 | 79.60% |
| SQ | $62.84 | $289.23 | 78.27% |
| OKTA | $68.33 | $294.00 | 76.76% |
| Bitcoin | $16,537.40 | $68,789.63 | 75.96% |
| TEAM | $128.68 | $483.13 | 73.37% |
| MNDY | $122.00 | $450.00 | 72.89% |
| ESTC | $51.50 | $189.84 | 72.87% |
| AYX | $50.67 | $185.75 | 72.72% |
| TSLA | $123.18 | $414.50 | 70.28% |
| ZS | $111.90 | $376.11 | 70.25% |
| BILL | $108.96 | $348.50 | 68.73% |
| META | $120.34 | $384.33 | 68.69% |
| CRWD | $105.29 | $298.48 | 64.72% |
| SNOW | $143.54 | $405.00 | 64.56% |
| DDOG | $73.50 | $199.68 | 63.19% |
| ZI | $30.11 | $79.17 | 61.97% |
| TTD | $44.83 | $114.09 | 60.71% |
| AMD | $64.77 | $164.46 | 60.62% |
| MELI | $846.24 | $2,020.00 | 58.11% |
| NVDA | $146.14 | $346.47 | 57.82% |
| CRM | $132.59 | $311.75 | 57.47% |
| DIS | $203.02 | $86.88 | 57.21% |
| AMZN | $84.00 | $188.11 | 55.35% |
| SMAR | $39.36 | $85.65 | 54.05% |
| ADBE | $336.53 | $699.54 | 51.89% |
| WDAY | $167.33 | $307.81 | 45.64% |
| NOW | $388.27 | $707.60 | 45.13% |
| PAYC | $310.31 | $558.97 | 44.49% |
| GOOG | $88.23 | $151.55 | 41.78% |
| Nasdaq | $10,466.48 | $16,212.23 | 35.44% |
| PANW | $139.54 | $213.63 | 34.68% |
| MSFT | $239.82 | $349.67 | 31.42% |
| CLFD | $94.14 | $134.90 | 30.21% |
| AAPL | $129.93 | $182.94 | 28.98% |
| S&P500(TR) | 23.47% | ||
| ENPH | $264.96 | $339.92 | 22.05% |
| LNG | $149.96 | $182.35 | 17.76% |
From an investing perspective, I’m really glad that 2022 is finally over. It really was a terrible year for the portfolio; in fact, 2022 not only handed the portfolio the worst percentage drop but also by far the highest dollar drawdown. I say good riddance to 2022, and I can hope that 2023 will provide some positive returns.
PRIOR PORTFOLIO UPDATES
PORTFOLIO PERFORMANCE
I’ve tracked my portfolio for a full six years now. Had I gone to sleep six years ago and woken up to my current balance, I would have been ecstatic. The compounded average growth rate of the portfolio was +28.5% over those six years. For 2022, the portfolio finished down 71.4% compared to down 18.1% for the S&P 500 (total return including dividends). From the all-time high on 18Oct2021, the portfolio is down 82.6%.
| DATE | GauchoRico Portfolio (YTD) | S&P500 Total Return (YTD) |
|---|---|---|
| Jan22 | -31.7% | -5.2% |
| Feb22 | -32.6% | -8.0% |
| Mar22 | -35.1% | -4.6% |
| Apr22 | -49.6% | -12.9% |
| May22 | -66.5% | -12.8% |
| Jun22 | -65.8% | -20.0% |
| Jul22 | -63.6% | -12.6% |
| Aug22 | -62.3% | -16.1% |
| Sep22 | -65.3% | -23.9% |
| Oct22 | -67.4% | -17.7% |
| Nov22 | -70.2% | -13.1% |
| Dec22 | -71.4% | -18.1% |
Weekly Performance
| DATE | GauchoRico YTD | S&P500 TOTAL RETURN YTD | DELTA |
|---|---|---|---|
| 01/07/22 | -24.1% | -1.8% | -22.2% |
| 01/14/22 | -30.5% | -2.1% | -28.4% |
| 01/21/22 | -39.5% | -7.7% | -31.8% |
| 01/28/22 | -39.3% | -6.9% | -32.3% |
| 02/04/22 | -33.6% | -5.5% | -28.2% |
| 02/11/22 | -25.2% | -7.2% | -18.0% |
| 02/18/22 | -33.0% | -8.6% | -24.4% |
| 02/25/22 | -35.8% | -7.8% | -28.0% |
| 03/04/22 | -42.4% | -8.9% | -33.5% |
| 03/11/22 | -48.4% | -11.5% | -36.9% |
| 03/18/22 | -37.9% | -6.1% | -31.8% |
| 03/25/22 | -37.6% | -4.3% | -33.3% |
| 04/01/22 | -33.7% | -4.3% | -29.4% |
| 04/08/22 | -41.6% | -5.5% | -36.1% |
| 04/15/22 | -40.8% | -7.5% | -33.3% |
| 04/22/22 | -49.0% | -10.0% | -39.0% |
| 04/29/22 | -49.6% | -12.9% | -36.7% |
| 05/06/22 | -58.6% | -13.1% | -45.5% |
| 05/13/22 | -62.4% | -15.1% | -47.3% |
| 05/20/22 | -67.0% | -17.7% | -49.3% |
| 05/27/22 | -64.9% | -12.2% | -52.6% |
| 06/03/22 | -64.7% | -13.2% | -51.4% |
| 06/10/22 | -66.4% | -17.6% | -48.8% |
| 06/17/22 | -68.8% | -22.3% | -46.5% |
| 06/24/22 | -61.8% | -17.3% | -44.5% |
| 07/01/22 | -63.9% | -19.1% | -44.8% |
| 07/08/22 | -61.0% | -17.5% | -43.5% |
| 07/15/22 | -64.9% | -18.3% | -46.6% |
| 07/22/22 | -64.7% | -16.2% | -48.6% |
| 07/29/22 | -63.6% | -12.6% | -51.0% |
| 08/05/22 | -61.0% | -12.2% | -48.8% |
| 08/12/22 | -60.0% | -9.3% | -50.7% |
| 08/19/22 | -62.5% | -10.4% | -52.1% |
| 08/26/22 | -60.8% | -14.0% | -46.8% |
| 09/02/22 | -64.3% | -16.8% | -47.5% |
| 09/09/22 | -62.2% | -13.7% | -48.4% |
| 09/16/22 | -64.1% | -17.8% | -46.3% |
| 09/23/22 | -65.7% | -21.6% | -44.1% |
| 09/30/22 | -65.3% | -23.9% | -41.3% |
| 10/07/22 | -64.7% | -22.7% | -42.0% |
| 10/14/22 | -69.2% | -23.9% | -45.3% |
| 10/21/22 | -66.8% | -20.3% | -46.5% |
| 10/28/22 | -67.3% | -17.1% | -50.2% |
| 11/04/22 | -71.2% | -19.8% | -51.3% |
| 11/11/22 | -68.0% | -15.1% | -52.9% |
| 11/18/22 | -69.2% | -15.6% | -53.7% |
| 11/25/22 | -69.3% | -14.3% | -55.0% |
| 12/02/22 | -69.6% | -13.3% | -56.3% |
| 12/09/22 | -70.7% | -16.2% | -54.6% |
| 12/16/22 | -70.9% | -17.9% | -53.1% |
| 12/23/22 | -71.7% | -18.0% | -53.7% |
| 12/30/22 | -71.4% | -18.1% | -53.3% |
ALLOCATIONS
| 12/31 | 11/30 | 10/31 | 9/30 | 8/31 | 7/31 | 6/30 | 5/31 | 4/30 | 3/31 | 2/28 | 1/31 | 12/31/21 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SNOW | 21.0%** | 20.1%** | 18.6%** | 16.1%** | 14.0%** | 16.9%** | 23.3%** | 21.8%** | 12.8%** | 9.8%** | 10.0%** | 18.1%** | 18.4%** |
| DDOG | 14.2% | 14.0% | 16.8% | 17.6% | 19.1% | 28.8%** | 40.4%** | 41.4%** | 39.4% | 33.4% | 35.7% | 36.8% | 31.7%* |
| TTD | 7.8% | 8.7% | 5.3% | 5.3% | 2.8% | — | — | — | — | — | — | — | — |
| BILL | 6.9% | 3.8% | — | — | — | — | — | — | — | — | — | — | — |
| MELI | 6.4% | 6.7% | 6.0% | 5.2% | 3.3% | — | — | — | — | — | — | — | — |
| CLFD | 5.9% | — | — | — | — | — | — | — | — | — | — | — | — |
| LNG | 3.0% | 3.4% | 3.1% | 2.8% | 1.7% | 0.5% | — | — | — | — | — | — | — |
| ENPH | 0.7% | — | — | — | — | — | — | — | — | — | — | — | — |
| CRWD | 0.2% | 14.7%** | 19.1%** | 18.7%** | 19.4%** | 17.0%** | 23.9%** | 23.8%** | 21.9%** | 15.4% | 14.1%* | 8.3%* | 6.4%* |
| NET | — | 3.4% | 3.5% | 3.3% | 3.4% | 2.8% | 3.7% | 4.9% | 4.4% | 4.2% | 3.9% | 3.2% | — |
| MDB | — | — | — | — | 3.7% | — | — | — | — | — | — | — | — |
| UPST | — | — | — | — | — | — | 0.1%* | 0.2%* | 2.7%* | 3.0%* | 4.6%* | 3.5%* | 14.7%* |
| ZS | — | — | — | — | — | — | 4.5% | 4.7% | 22.5%* | 16.9%* | 16.2%* | 12.6%* | 4.3%* |
| S | — | — | — | — | — | — | — | 6.8% | 6.3% | 4.9% | 5.1% | — | — |
| MNDY | — | — | — | — | — | — | — | — | 3.5%^ | 9.4%^ | 9.1%^ | 26.0%^ | 27.5%^ |
| AFRM | — | — | — | — | — | — | — | — | — | — | — | 3.8% | 7.4% |
| Cash | 34.1% | 25.2% | 27.7% | 31.6% | 33.2% | 34.1% | 4.0% | -3.7% | -7.3% | 6.2% | 2.3% | -5.6% | -4.0% |
The allocation details described below are as of the end of 2022. Two of the nine positions in the portfolio are leveraged with long-term call options. CRWD: of the 0.2% allocation, 0% are shares and 0.2% are Jan2024 $200 calls. SNOW: of the 21.0% allocation, 20.7% are shares and 0.3% are Jan2024 $300 calls. Note: there are some rounding errors in the preceding shares/call options splits. The portfolio is comprised of 0.5% in long call options, 65.6% in shares, and 34.1% cash.
PORTFOLIO CHANGES
Changes since 30Nov 2022
- NET: sold entire remaining position.
- CRWD: essentially sold entire remaining position.
- BILL: added to position.
- CLFD: added as a new position.
- ENPH: added as a new trial position.
PORTFOLIO COMPANIES
There haven’t been any earnings results since the 30Nov portfolio update. I’ve added two new companies and sold out of two other companies. Below I’ll provide an update on my rationale for holding, adding, or selling during the past month.
SNOW
I didn’t add to or sell any SNOW shares, and SNOW remains my largest holding. It also remains as my highest conviction company over the very long-term. While businesses are taking a cautious stance on spending, SNOW management has seen very little change in the adoption of Snowflake and continues to invest in the business. In fact, the Company sees that customers continue to onboard with some saying that they don’t want to miss out. Companies that make the best possible use of data will not only be able to save on expenses and add incremental revenue but will also have an advantage vis-a-vis the competition. The decision to adopt Snowflake can take an enterprise a couple of years, and in its mind, it’s a 15-year decision that will yield a tremendous amount of ROI. I’ve owned SNOW in the portfolio for about two years, and I’ve written my thoughts about the Company and my take on its prospects over that timeframe. My view remains that in the long-run SNOW will become a megacap juggernaut even if there are bumpy times along the way, and my intention continues to be that I’ll hold SNOW through the bumpy times. The only knock against SNOW that I see is its high valuation. As far as I know, SNOW is by far the most expensive publicly traded IT software company. Of course, it’s valuation multiple will come down over time, but I expect that I’ll earn a great return because I’m expecting SNOW to beat even the market’s lofty expectations.
CRWD
Until recently, CRWD was my second largest holding, and it’s been a very high conviction position throughout most of 2022. Now, it’s essentially gone from the portfolio. Some might ask why and why the sudden change. It’s a fair question. I was under the assumption that cyber security was going to be the most resilient in this tough macroeconomic environment that’s causing many companies to tighten their purse strings. The CIO and other surveys were consistently pointing to a great year for cyber security companies. CRWD’s latest quarter (Q3 FY2023) shot a big hole in that assumption even after PANW delivered an excellent quarter so on a relative basis CRWD had a poor quarter. Furthermore, CRWD stated that their annual recurring revenue (ARR) would be down sequentially in Q4 and flat for at least the first half of calendar 2023. This doesn’t sound very resilient, and it appears that CRWD could very well decelerate from a 50%+ revenue grower to a low- to mid-30% grower. CRWD’s revenue was already on a decelerating path for the past two years, giving me even less confidence that if CRWD’s revenue growth slows to the 30%s, that it will be able to reaccelerate. Was CRWD’s revenue deceleration masked by a big pandemic surge? So, if CRWD revenue growth has permanently slowed then its valuation multiple could very well be further compressed. CRWD sells seats for its software so its growth is based on an increasing number of users. If we get a recession in 2023 then I think CRWD will be more vulnerable to the effects of mass layoffs/higher unemployment. Generally, seat-based SaaS companies will have a harder time growing when unemployment is rising. For these reasons, I decided to sell my CRWD position.
DDOG
DDOG is the portfolio’s second largest holding. I still think DDOG’s business model is one of the most successful in several respects. DDOG is very efficient at acquiring new customers as it spends only about 25% of revenue on sales and marketing (on a non-GAAP basis), and each acquired customer will provide many years of recurring revenue. DDOG spends heavily on R&D and for that investment the Company is adding an increasing number of new products each year (4 in 2019, 7 in 2020, 8 in 2021, and 11 in 2022 so far). The recurring revenue, the new product cadence, and the continued digital transformation should give DDOG’s business many years of strong growth. However, there may be some challenging quarters ahead because 1) strong growth this past year set up some tough comparisons and 2) the challenging business environment could cause some temporary slowing.
TTD
TTD continues to be well positioned in the advertising industry with connected TV (CTV) taking more and more share. TTD has the combination of very good top line growth, solid earnings and free cash flow growth.
MELI
MELI’s business has held up well in comparison to other eCommerce companies such as Shopify. The Company dominates eCommerce in Latin America. Its fintech business is newer and continues to grow very rapidly, but needs careful watching to ensure that bad debt doesn’t get out of control.
CLFD
CLFD is a new position in the portfolio. It manufactures, markets, and sells connectivity products, with a focus on bringing high-speed internet services to rural areas. The business has been slowly growing for many years and only recently showed explosive growth. Last quarter, organic growth was 94% and for the full year (Q4 ends on 30Sep) growth was 87%. Guidance for FY23 is for 45% growth, but the company has been significantly raising its guidance for the past several quarters. In addition, CLFD has a backlog of $165M of which 2/3s is expected to be delivered by the end of March 2023 (first two quarter of FY23). At $94/share, CLFD has a P/E of about 26.5 which I believe is more than reasonable for its high growth rate. Last quarter’s $95M in revenue multiplied by four is equal to the low end of the Company’s full year guidance. Growth in FY24 and beyond should be supported by funding from the Infrastructure and Jobs Act which was signed into law earlier in 2022; this act will specifically provide funding to connect the 30 million Americans who don’t currently have access to high speed internet. Building out the connectivity to rural areas will take years to complete and should provide CLFD with plenty of business to fuel growth for years. As we head into 2024, the outlook remains highly uncertain. Owning a reasonably priced high growth business that has almost guaranteed growth ahead seems like a good investment to me. CLFD is still a small cap stock with a market capitalization of about $2B when the shares of the recent stock offering are added. I don’t see CLFD becoming an enormous company, but I do see it as a good investment for a couple of years as it grows from the clear opportunity in front of it.
NET
I finally sold out of NET. While I have little doubt that NET will continue to have success addressing its markets, I decided that I have better places for my money. I have no idea whether NET will ever be able to become an ever-increasing money printing machine.
LNG
LNG’s stock price has fallen back to about where I made my purchases. The price of natural gas has fallen recently, but liquified natural gas should serve as a transition fuel to clean energy for many years to come. With 20+ year long-term contracts in place, LNG will never have a shortage of business even as it continues to expand its capacity.
ENPH
ENPH is a recent addition to the portfolio and it’s only a trial position. I like ENPH’s growth and position in the solar space, but the stock is expensive. I bought shares at around the $265/share level and would like to get a lower cost basis, so I plan to use options to add lower and/or sell higher. If the stock falls significantly, I intend to add to the position. However, if shares rise somewhat, I may sell the few shares that I own.
FINAL THOUGHTS
Hindsight is 20/20. Growth assets and many other asset classes were overvalued in the Fall of 2021. Post pandemic inflation, as far as we know now, was not transitory as the Federal Reserve had been insisting. Interest rates have been pushed up to multi decade highs to combat inflation. relatively safe fixed income investments are now a real alternative for investors who were previously forced to push up their risk tolerances to earn reasonable yields. Much of the drop in high growth stocks can be explained by 1) their stock prices and multiples had been pushed up to extraordinary heights, and 2) high interest rates and a reversal of quantitative easing. These factors have crushed high growth stock prices including SaaS companies which were the high fliers of 2017-2021. Business growth has also shown some signs of weakness, but it’s yet to be determined how the business results of the portfolio companies will be affected in 2023.
Yes, hindsight is 20/20, and no one has a crystal ball to peer into the future. Therefore, we don’t know what will happen in 2023. Some things that we don’t know:
- Where will interest rates go in the short-term and the long-term? Is the era of ultra cheap money over? The answer may not even be known until some time after 2023, but interest rates will certainly affect valuation multiples.
- Will we see a recession in 2023 and if so how severe might it be? A recession affects some business more than others, and lower earnings and revenue growth would likely negatively affect valuation multiples.
We can’t control interest rates, the business cycle, or investor sentiment, but we can control in which businesses we invest and the allocations that we apply to each investment. In addition, we can continuously monitor the businesses that we own or might own and change our minds at any point. For businesses that continue to grow rapidly, time is our friend for those things which we can’t control often move in cycles. Therefore, I’m keeping the bulk of my investment dollars allocated to businesses that I believe will grow rapidly far into the future.
The opinions, thoughts, analyses, stock selections, portfolio allocations, and other content is freely shared by GauchoRico. This information should not be taken as recommendations or advice. GauchoRico does not make recommendations and does not offer financial advice. Each person/investor is responsible for making and owning their own decisions, financial and otherwise.