Well, I’ve had better starts to the year! In general it’s been a relatively quiet month and not just because I’ve avoided looking at the portfolio too much due to the gut-wrenching daily drops (volatility comes with the territory unfortunately). Given any market unpleasantness forces concentration on the highest-conviction ideas, I’m fairly happy with my current holdings.

As if a reminder was needed after the closing months of last year, January has continued to emphasise the extent to which 2020 was an exceptional investing year and one that I may never repeat. It’s also a healthy prompt that I am not the investing genius that I may have believed I was a couple of years ago and that there may be slightly more to this investing malarkey… who would have thought it!

YTD return vs benchmarks

(Index source: Koyfin)

Portfolio Nasdaq S&P 500 FTSE 100
-18.91% -8.98% -5.66% 1.08%

Portfolio

Holding Ticker(s) Weighting (%)
🐶 Datadog DDOG 23.4
❄️ Snowflake SNOW 17.5
🗂 Monday.com MNDY 13.2
🦅 Crowdstrike CRWD 11.9
🪙 Coinbase COIN 9.0
💸 Upstart UPST 6.9
🏡 Airbnb ABNB 5.9
🕸 Cloudflare NET 5.0
🔐 SentinelOne S 4.8
🦇 Crypto AVAX, SOL 2.2
💰 Cash - 0.3

Adjustments

Twilio

The more I read about Twilio, the more it seemed their recent management moves and acquisitions had started to cloud the overall picture and made the future direction somewhat less certain than I had previously anticipated. Then the announcement of Peter Reinhardt moving on at the start of the month, having only joined as part of the Segment acquisition last year, was the last straw. I think there’s a sporting chance Jeff Lawson’s vision for the company will play out but worry that the 30% organic growth over the next couple of years is going to fail to materialise given the not inconsiderable execution risks and the trickle of top management out of the company. As a result, I decided to put the money to work elsewhere. Which leads me to…

Snowflake

While in the past I may have baulked at the idea of making such a large position of a company that has a market cap close to 80 billion dollars, Snowflake’s business results continue to defy gravity. I place a fairly heavy emphasis on company management when considering investments - paraphrasing the legendary Terry Smith, an investor is at the mercy of their decision-making when it comes to allocating capital - so in addition to the points I made last month, I found the stream of interviews that CEO, Frank Slootman gave - this one was particularly good - in anticipation of his book-launch, fascinating. As the stock price continued to weaken and offer what I believe was an attractive valuation given my expectations for their forward growth, I decided to heavily add to the position.

SentinelOne

As a result of my position in Crowdstrike, I’d been watching SentinelOne from the side-lines for a while now as the two continue to trade fairly public insults, but had been put off, both by the valuation and the level of operating loss (adjusted operating margin reached -127% at one stage!) As the latter has been steadily improving as the quarters pass (now at -69%, still not great…), the continued decline in valuation throughout the month brought shares to a level at which I was happy to buy in. While I’m not a huge fan of CEOs being quite so vocal about their competitors, revenue has been consistently accelerating in recent quarters to its most recent reading of 128% in Q3 with gross margins also heading in the right direction and pretty much every other metric besides. The level of loss is a concern though and something that I’ll be watching closely in the coming quarters (as no doubt, the market will too, given the current sensitivity to loss-making businesses).

Upstart

This was the only other significant adjustment in allocation for the month. Though the fall was largely due to a corresponding fall in stock price, I did sell a small amount in order to create the new position in SentinelOne, which benefits from much greater predictability given the recurring nature of its revenue. In hindsight, I’d let my position in Upstart grow beyond my level of conviction however after reaching one extreme in valuation it now looks to be close to another, taking the fundamentals into account.

Concluding Remarks

Well, next month can’t be any worse, can it…?

Nothing to see here

In all seriousness though, there’s an excerpt from the excellent interview of David Kim by LibertyRPF that summarises my thoughts on the market’s chaotic reaction to recent macro events:

“Wisdom from experienced veterans can often appear trite and simplistic. But I’ve come to believe that that’s often because they’re done trying to impress.  They recognize that investing is not about complex theories, superficially applied but rather basic insights, deeply absorbed.  It’s that classic Charlie Munger line: ‘take a simple idea and take it seriously’”.

One of those basic insights that I’ve seen repeated several times by those considered investing veterans is the idea that trying to a) predict macro events and b) make investments based upon those predictions, is foolhardy. The best businesses will find a way to survive (and hopefully grow) regardless of the macro environment they find themselves in. Let’s see what February brings!