Consolidating the Active Learning Portfolio

Vacation reading and spreadsheeting has gave me an opportunity to reflect on my positions. I cleaned up all the bets I placed as part of A Ticker A Day, cleared out those that were low conviction, and started a few new positions.

The trend in my portfolio going into the new year continues to be consolidation toward companies who I deeply understand and want to spend time reading about daily, as potential targets for diversification. I’m primarily in B2B SaaS and developer productivity tools, and I am working through writing up a detailed investment memo and position strategies for each.

Bookmark the spreadsheet overview of my active learning positions

My 80/20 Has Shifted

With the IPO of GitLab in October, the balance of my net worth has shifted even more dramatically into two big names:

* GTLB (I’m still under the post-IPO employee lockup)

* TWLO

After riding the Twilio IPO rollercoaster back in 2016, the volatility around GitLab’s stock has been easier to bear. But it also reminds me how important it is to continue to diversify, and that will be a big focus in 2022.

I won’t be including these two positions in my active investment tracking spreadsheet, but I do look forward to writing about them from time to time and sharing my perspective. These are buy and hold for 10+ years positions for me, and my decision-making process and frequency of re-evaluation is different than for the learning portfolio.

Passive Indexing

As I make a plan to diversify my GTLB position, I’ll take a closer look at fees and income-generation as we move toward less and less W2 income in our household, now that I’ve left my role at GitLab and am not drawing a salary at my new startup (BTW I started cofounded new company!) Firstparty.

Passive index investing has dropped to < 2% of my NW right now with VTI, VTSAX, and whatever Betterment’s robo-advisor selects. I’m hoping this will be a “set it and forget it” area of the portfolio, but I do need to make an allocation decision here, and then deal with the tax consequences.

What’s Next in My Hustles?

* Diversification of $GTLB

* Increase the enterprise value of Firstparty by getting product-market fit

* Grow my coaching practice with new clients and increased rates

* Write investment memos for all my learning portfolio companies

* Continue investing in early-stage startups and funds

What’s Next in My World?

* Becoming a Hudson Certified coach (my final exam is Friday!)

* Completing my 100 books reading goal for the year

* Applying for my first International Coaching Federation credential

* Traveling home to the PNW to see all our extended families for Xmas

* Traveling to Hawaii with my parents

* Traveling to Jackson w/ Kevin for the Teamshares company trip

* Getting pregnant after Kevin reverses his vasectomy

As always, thank you for your patronage as a subscriber to this newsletter. I look forward to continuing to present in-depth analysis of the investments in my active learning portfolio in 2022.

Getting Into GitLab

When I decided to re-enter the W-2 employment world in early 2019, it was not without trepidation. I had been on sabbatical for 10 months and wasn’t quite ready to cut it short. Fortunately, GitLab’s CEO made the decision easy for me when he made me an offer I could not refuse. I made a spreadsheet to evaluate the compensation package against the company’s financials and market prospects, and immediately knew I wanted those stock options. I wasn’t sure what it would be like to be an employee again after 6 years as a founder and CEO, but I consoled myself that even if I made it through half of the vesting schedule, it would be well worth the time. Besides, I needed something to distract me from the volatility of $TWLO, and I wanted a more diversified skin-in-the-game position within the developer tools space eventually.

I started out leading an internal startup incubation of Meltano, but ultimately hired my replacement from among the most tenured technical GitLab team members. The company has recently spun out with a $4.2M seed round led by GV, and I am proud to be an investor. Next up, a series of stints in Marketing reporting to the CMO.

GitLab’s transparency value made it easy to educate myself on the company. Not only were the financials, board meeting agendas, budgets, and plans all accessible to all employees... I also reported to the CEO directly for my first year, and had the opportunity to observe his process and character first hand. I participated in many enrichment activities such as the CEO Shadow program, Minorities in Tech Mentorship, and used the publicly available org chart to identify and meet with more than 150 high impact individuals who I tracked carefully on a spreadsheet.

Quite frankly, I am uniquely positioned to value the company’s stock after doing these and many other activities that are only possible for employees. Now the question becomes how to maintain my informational advantage now that I am outside of the company, but that’s a topic better left for another time.

For reference, the day I started my job at GitLab (Feb 2019) $TWLO was trading around $116/share, and it is $376/share today. I’m glad I left it alone.

Concentration Risk

My liquid net worth breakdown (excluding my house + private companies) looks like:

* 98.1% US Stocks

* 1.2% International Stocks

* 0.3% Bonds

* 0.2% Cash

* 0.2% Alternatives

Some might say this is a fairly typical asset allocation for a young healthy person with an appetite for risk and lot of compounding ahead of them in the future. Some might say I am crazy and really should be more diversified.

Sliced it a different way, I realize why the folks at my bank have to call me and read me a concentration risk acknowledgement on a quarterly basis:

* 88% Twilio

* 10% Other U.S. Stocks

* ~2% Everything else

This excludes my illiquid private company portfolio, which includes angel investments I made in at least 2 companies valued at > $1 billion and my GitLab stock.

Assuming GitLab stock were liquid today at its most recent FMV, my portfolio concentration would look like this:

* 57% Twilio

* 35% GitLab

* 6% Other US Stocks

* ~2% Everything Else

I don’t know what you’ll think when you look at all this. Maybe it means nothing to you, but to me it makes me think damn, maybe I really do have balls of steel?

Is it balls of steel, or luck, or stupidity? I honestly don’t know, but so far the results tell me that what I am doing is right. Twilio IPO was 5 years ago, and I have held most of the original stock (via early exercise options) since 2009, other than diversifying a bit by purchasing a house in Denver in 2019. My cost basis was $3 to exercise + pretty much all the waking hours of my life from age 23 to age 27. I didn’t have any cash to invest when I met Jeff Lawson, so I took the next best option: a job. Just imagine how the angel investors in that company did…

Where Do We Go From Here?

Do you ever feel like you’re searching for something, but when someone asks you to explain your quest you can’t put it into words? “I know it when I see it,” you might utter, before shuffling off to whatever you were doing before.

The concept of A Ticker A Day is a fun exploration across a huge set of companies, and I’m trying to decide if that’s where I want to continue to go with my investment explorations. What am I really looking for in this process? What is the meta-game above the playful alphabetical search? For me, it’s about finding that next great company, and now that I’ve purchased my GitLab options I feel like I’ve reset the chess clock and the search begins anew. I placed the Twilio bet in 2009, and the GitLab bet in 2019, so it makes me think I’m due for some maintenance hands (a poker term for singles and doubles) while I wait.

I wonder, will it take me until 2029 to find the next one?

Apologies for the first 17 seconds of this audio… it gets better.

Hello there loyal subscribers, I know it’s been awhile and in this short episode I’ve got a quick life update about what you can expect. TL;DR I’ve quit my job and I’m looking forward to investing more time in my side projects, or killing them.

Mentioned in this episode:

* Call Her Daddy podcast

* The Hudson Institute of Coaching

* My GoodReads profile

* “The 4 Hour Work Week” by Tim Ferriss

* “The Family Firm” by Emily Oster

Some of you noticed I took a bit of a break after writing “Clarifying Portfolio Strategy & Controls” and spent some more time reflecting on my positions outside of the original premise for A Ticker A Day. During the first few weeks of September, I found myself checking the stock market several times a day, making little trades here and there, and I literally could not keep up on my track record spreadsheet. I had to stop.

That’s not the way I want to live and through writing this newsletter. I was worried I had gotten too swept up, so on September 21st I sold a bunch of positions outside the ATAD alphabetical list. Since then, I haven’t made another transaction.

Paying customers can use these links to view transaction data and track record performance in a Google Docs spreadsheet.

September 2020 Transaction Recap

Paid subscribers can see these transactions, and an overview of my publicly discussed positions, in the tracking spreadsheet

* Sept 2: Sold 5 shares of Tesla ($TSLA) for $462.09/share (post 5-for-1 split)

* Sept 2: Bought 1,000 shares of ADMA Biologics ($ADMA) for $2.35/share

* Sept 3: Bought 8 shares of Cloudflare ($NET) for $37.67/share

* Sept 3: Bought 30 shares of Adaptive Biotechnologies ($ADPT) for $40.66/share

* Sept 3: Bought 3 shares of Nvidia ($NVDA) for $183.07/share

* Sept 3: Bought 20 shares of PagerDuty ($PD) for $25/share

* Sept 3: Bought 58 shares of PagerDuty ($PD) for $25.78/share

* Sept 8: Bought 8 shares of ACM Research ($ACMR) for $59.01/share

* Sept 9: Bought 3 shares of ACI Worldwide ($ACIW) for $24.96/share

* Sept 14: Bought 65 shares of Zuora ($ZUO) for $9.25/share

* Sept 21: Sold 1 share of Amazon ($AMZN) for $2,920.46/share

* Sept 21: Sold 19 shares of Aarons ($AAN) for $56.19/share

* Sept 21: Sold 9 shares of McDonald’s ($MCD) for $215.36/share

* Sept 21: Sold 10 shares of Twilio ($TWLO) for $231.43/share

* Sept 21: Sold 12 shares of Atlassian ($TEAM) for $173.93/share

* Sept 21: Sold 200 shares of United Airlines ($UAL) for $34.01/share

* Sept 21: Sold 10 shares of Elastic NV ($ESTC) for $103.44/share

* Sept 21: Sold 10 shares of Datadog ($DDOG) for $82.79/share

* Sept 21: Sold 1 share of Crowdstrike ($CRWD) for $128.59/share

* Sept 21: Sold 1 share of DocuSign ($DOCU) for $196.74/share

* Sept 21: Sold 1 share of Okta ($OKTA) for $201.09/share

* Sept 21: Sold 1 share of ServiceNow ($NOW) for $454.97/share

* Sept 21: Sold 1 share of Veeva Systems ($VEEV) for $265.45/share

* Sept 21: Sold 1 share of Coupa Software ($COUP) for $254.80/share

* Sept 21: Sold 1 share of Fastly ($FSLY) for $89.42/share

* Sept 21: Sold 1 share of Shopify ($SHOP) for $906.76/share

* Sept 21: Sold 1 share of Nintendo ($NTDOY) for $71.16/share

View current track record spreadsheet

Back to Our Regularly Scheduled Programming

I’m going to take a break from speculative analysis of companies outside the alphabetical list to refocus back on the original premise of A Ticker A Day, to take a walk through the entire stock market and learn about businesses and industries that I would not otherwise encounter in my day-to-day work and business reading.

At least until we are past the election, and its immediate aftermath, I’m going to stay away from the emotional rollercoaster that comes with volatility and readers here can expect to see analysis on 1 - 3 companies per week. Thanks for your patience!

Disclaimer: You understand that by reading “A Ticker A Day” you are not receiving investment advice. No content published here constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. You further understand that the author(s) are not advising you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent that any of the content published may be deemed to be investment advice or recommendations in connection with a particular security, such information is impersonal and not tailored to the investment needs of any specific person. You understand that an investment in any security is subject to a number of risks, and that discussions of any security published on “A Ticker A Day” will not contain a list or description of relevant risk factors. In addition, please note that some of the stocks about which content is published have a low market capitalization and/or insufficient public float. Such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information.

“A Ticker A Day” is not intended to provide tax, legal, insurance or investment advice, and nothing published here should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by its author(s) or any third party. You alone are solely responsible for determining whether any investment, security or strategy, or any other product or service, is appropriate or suitable for you based on your investment objectives and personal and financial situation. You should consult an attorney or tax professional regarding your specific legal or tax situation.

Not only is California burning, but Oregon, Washington, Colorado, Utah, Wyoming, Idaho and Montana as well. If you’d like to help the victims, you can donate to American Red Cross and write in “California Wildfires” or “Oregon Wildfires” (or whatever your state is). For California wildfires, you can also text CAWILDFIRES to 90999 to make a $10 donation.

I recently finished reading “What I Learned Losing A Million Dollars”by Jim Paul and Brendan Moynihan (which Nassim Nicholas Taleb calls “One of the rare non-charlatanic books in finance”). The author shares many insights into how emotions and cognitive biases can lead investors to make decisions that ultimately lose them a lot of money. As far as practical advice goes, and the emphasis is on having controls that you set up when you are in a calm state of mind, and it got me thinking that I should give more thought to the controls and exit strategy for my investment decisions.

The Decision to Sell Zoom ($ZM)

With all this in mind, I started looking at an investment I made into Zoom just a few days after their IPO. I haven’t previously blogged this investment because I made the decision before 2020, but it is now included in the portfolio tracker spreadsheet.

On April 30, 2019 I purchased 68 shares @ $65/share, and sold the entire position on September 1st for $454.04/share, for a return of 598.5%. How did I make this decision?

First, I want to point out that because I didn’t clearly define an exit strategy ahead of time there is a very real risk of trying to attribute more logic and rationality to my decision than it actually had.

After reading Zoom’s Q2 earnings with my morning coffee, I took a long walk to digest the company’s +355% YoY revenue quarter. That kind of unprecedented growth is amazing, and yet I found my mind returning to my journey through buying into Tesla in early February, selling a portion of my Tesla position in mid-July for a +239% return. After that walk, I sold the rest of the position for +353%, and wondered whether this might be a similar situation for Zoom. In poker, especially in limit games, it’s well known that you reach a point in the session where you are up 2-3x and statistically the odds you’ll give it all back if you remain at the table make the only rational decision to cash out (even if it pisses off the other players, and requires you to walk to your car with a security guard). But I digress…

The book was on my mind, and I had started to draft this post about controls. My husband mentioned at coffee that Zoom’s stock was up 20% for the day, and my first thought was “gee I’m glad I didn’t sell it”. As we walked home, I checked my phone and saw it was now +40% in a single day, and my position was up ~600%.

“This is a pretty insane gain for a single day. Yes, I use Zoom for several hours every day both in my work life and personal life, but how long will it take for them to grow into this valuation?” Having a $129B market cap (its down a bit today) on $2.65B of annual revenue seems to be a very forward-looking valuation — it seemed to me like the market was pricing in future expectations spanning several years. What upside did I have, I wondered, in holding on just to find out if I was right ~5 years from now? Did I think I was so disciplined that I could weather the coming ups and downs and wind up ahead, versus taking the win and walking away? No, I don’t think I’m that good.

Two Portfolio Strategies

As I noodled on this post, the market continued to move away from Zoom, Tesla and many other tech names. I felt like I needed to put more wood behind the arrow on this topic than my initial post, so I spent a bunch of time cleaning up and curating my ATAD portfolio tracker spreadsheet (links for paying subscribers). On the “All Positions - Summary” tab I added a few new columns to help me filter the list more effectively: Days Since Purchase, Average Daily Return, and Value as % of Portfolio.

ATAD Portfolio Picks

* Universe of Companies: everything underlying the $VTSAX, alphabetical order

* Bet Size: fixed at $10 per decision

* Holding Period: what I had in mind when I started this project was to have a holding period of “forever” to see how this bucket of selected companies performs as an alternative to the index, and minimize the number of decisions I would need to make.

* Exit Strategy: When we get to the end of the year, I will take a look at rebalancing but would ideally leave this portfolio untouched for as long as possible to see if I am able to beat the index consistently over time.

Other Blogged Stock Picks

* Universe of Companies: any other picks I’ve shared outside the alphabetical list, and positions I’ve taken the ATAD portfolio companies beyond the $10 bet size

* Bet Size: Variable (no set strategy right now)

* Holding Period: Variable (no set strategy right now), but trying to get to 1 year + 1 day whenever possible so that I will be paying long term capital gains.

* Exit Strategy: I am not going to create rules for selling yet. For now, I am going to create a manual review process based on criteria that I can check anytime. I’d like to do this at least weekly, and maybe build some alerting for myself whenever a position meets the following criteria:

* Upside Case: 1) average daily return is greater than the portfolio average 2) current value of the position is greater than 1% of the total portfolio value

* Downside Case: 1) average daily return is in the bottom quartile of all portfolio holdings 2) current value of the position is greater than 1% of the total portfolio value

* Exit Decision: Re-evaluate the company as if you were buying into it for the first time today. Would your decision still be a buy? I will write this up as posts.

Do Any Positions Meet This Criteria Today?

Within the portfolio spreadsheet (paying subscribers only) you can see that there are 4 companies who each make up 1% or more of my holdings. Within that set, there is one company who triggers the upside case, and another who triggers the downside. I look forward to sharing those analysis in future episodes.

What I’m Reading

* $ZM Stock Overview (MarketWatch)

* Zoom Investor Relations

* August 31, 2020 — “Zoom Reports Second Quarter Results for Fiscal Year 2021”

Disclaimer: You understand that by reading “A Ticker A Day” you are not receiving investment advice. No content published here constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. You further understand that the author(s) are not advising you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent that any of the content published may be deemed to be investment advice or recommendations in connection with a particular security, such information is impersonal and not tailored to the investment needs of any specific person. You understand that an investment in any security is subject to a number of risks, and that discussions of any security published on “A Ticker A Day” will not contain a list or description of relevant risk factors. In addition, please note that some of the stocks about which content is published have a low market capitalization and/or insufficient public float. Such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information.

“A Ticker A Day” is not intended to provide tax, legal, insurance or investment advice, and nothing published here should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by its author(s) or any third party. You alone are solely responsible for determining whether any investment, security or strategy, or any other product or service, is appropriate or suitable for you based on your investment objectives and personal and financial situation. You should consult an attorney or tax professional regarding your specific legal or tax situation.

I was originally turned onto this idea by Tim Ferriss, who talks about using MEDs in his books The 4-Hour Body and The 4-Hour Workweek to describe finding the optimal path to achieving a goal such as body change, lifestyle change, and other self improvements through rigorous prioritization of results over activities. I’ve found myself applying this to a wide range of things in my life over the years, including consumption of news, information and investment advice.

I’ve been listening to the latest episode of Sam Harris’ podcast” “Making Sense” this morning, which got me thinking about my own approach to the daily project of cultivating a life worth living. This is on my mind more than ever while stuck at home during Covid, and noticing how repetitive my days can be by default.

Paying subscribers can access the archives, track record spreadsheet, and private RSS feed link by visiting the ATAD Resources for Paying Subscribers.

Disclaimer: You understand that by reading “A Ticker A Day” you are not receiving investment advice. No content published here constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. You further understand that the author(s) are not advising you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent that any of the content published may be deemed to be investment advice or recommendations in connection with a particular security, such information is impersonal and not tailored to the investment needs of any specific person. You understand that an investment in any security is subject to a number of risks, and that discussions of any security published on “A Ticker A Day” will not contain a list or description of relevant risk factors. In addition, please note that some of the stocks about which content is published have a low market capitalization and/or insufficient public float. Such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information.

“A Ticker A Day” is not intended to provide tax, legal, insurance or investment advice, and nothing published here should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by its author(s) or any third party. You alone are solely responsible for determining whether any investment, security or strategy, or any other product or service, is appropriate or suitable for you based on your investment objectives and personal and financial situation. You should consult an attorney or tax professional regarding your specific legal or tax situation.

On Saturday, I went to Target for some dog toys, fresh pillows and a throw blanket for our couch, and some cute and inexpensive summer clothes. After parking, I waited for ~10 minutes in the 90-degree midday heat along with 20-30 other shoppers. Everyone wore masks, stayed six feet apart, and were patient and polite. It was a bit dystopian to line up, but I’m getting used to it after many trips to Home Depot for my vegetable garden and occasional trips to Whole Foods for missing ingredients.

Since early March, we’ve primarily been getting our food delivered thanks to:

* Instacart (much love to my YCombinator batchmates!)

* ButcherBox (the modern “cow share” sourced meat - get on the waitlist)

* Drizly (alcohol delivery from inventory in local stores)

* ThriveMarkets (members only organic shopping, a virtual Whole Foods)

* Goldbelly (food gifts from iconic restaurants - drop me a note for my referral link)

* Longmont Dairy Farms

When I found myself in line for Target in the midst of a global pandemic (though we are open in Colorado and reporting very few deaths) I realized, “Wow I’m willing to risk getting sick, and grapple with the awkwardness of wearing a mask in the heat for a few hours straight. Maybe I’m an idiot, but maybe I should purchase Target stock…”

I’ve also made a handful of trips to Home Depot to get my raised bed vegetable garden going, and find some pretty pre-potted planters for the patio, and have popped into the Whole Foods down the street quite a bit for fresh ingredients that I want to hand select, mostly for a change of pace after 3 months of shelter-in-place.

Target Stores ($TGT)

Target is a department store chain that is like an all-in-one shopping mall, with departments for every major category of consumer goods from electronics to groceries, household good to athletic apparel. The company is branded as accessible across social classes, and I think of it as a more modern JCPenny/Sears. Stores are brightly lit and merchandised to feel more like Nordstrom, but with prices closer to Walmart.

Observations:

* $58.45B market cap, profitable, with a PE ratio of 21.67

* 3.52% of shares held short

* 26.74% gross margins, 4.19% net margin

* $8,883 net income per employee (e.g. an employee who works 40 hours a week, 52 weeks per year is generating $4.27 of profit per hour for the company on average)

* $2.58B of cash and short term investments (+66% YoY) and $42.78B in total assets vs. $10.04B of long term debt (excluding capitalized lease obligations)

What I’m Doing: Buy. ($10 for ATAD picks, 1 share @ $116.12 for the portfolio)

What I’m Reading:

* Target Stock Overview (MarketWatch)

Home Depot ($HD)

I was at Home Depot again this morning, just killing time while I waited for the winter tires to be switched out, and it got me thinking that if I’m going to talk about places I still visited during the pandemic I have a few more to add to the list.

While I didn’t buy anything today, I have been to Home Depot at least a half dozen times in the past 2 weeks to get supplies for my raised bed garden. Mask on, usually arriving shortly after opening in the morning, and it’s been busy!

Observations:

* Anecdotally: As people spend more time in their homes, those incomplete home improvement projects become more obviously needed and many people who still have their jobs but no longer have as much discretionary spending going on are adapting to remote work by putting their budgets into these projects.

* Market cap of $270.6B, profitable with a P/E ratio of 23.99

* 1% of shares held short

* 32.28% gross margin, 10.2% net margin

* $27,044 net income per employee (3X what Target makes per employee)

* $2.13B in cash (+19.97%) and $51.24B in total assets vs. $27.59B in debt (excluding capitalized lease obligations)

What I’m Doing: Buy. ($10 for ATAD picks, 1 share @ $235.99 for the portfolio)

What I’m Reading:

* $HD Stock Overview (MarketWatch)

Whole Foods Market (owned by Amazon: $AMZN)

After I evaluated Target and Home Depot, I had to take a look at my transactions for the last few months in greater detail. Where did I actually *go* immediately after Shelter in Place was lifted? The next up on the list was Whole Foods, which still got some visits for fresh fruit and vegetables despite mostly using delivery services. I also went there today, to get ingredients for the beef stew I’m making for a friend who is in town from New York. Socially distanced suppers on the patio are pretty great.

Whole Foods is no longer independent, as they were acquired by Amazon.com, but since I am also spending a fortune on Amazon let’s just take a look at them.

Observations:

* Anecdotally on Whole Foods: There is almost always a line to get in when I go, they hand out masks to customers who don’t have them at the front door, and there are still very few packages of toilet paper on the shelves and a limit on how many you can buy. Otherwise, things feel normal inside.

* Anecdotally on Amazon.com: My husband and I have had the conversation about impulse purchases, batching up our orders, conveniently forgetting our password, and needing an entire categorization system within our Personal Capital account to deal with the massive amount of money going to Amazon. I expect the company will own both Target and Home Depot someday, when the price is right.

* $1.27T (trillion!) market cap, profitable with a PE ratio of 122.89

* We also both personally and professional spend a LOT on Amazon Web Services, for our personal projects, volunteer projects, and formerly as founders both at Mattermark and Referly. I work for a developer tools company… I am massively bullish on this portion of the overall business

* $14,521 of net income per employee (better than Target, only half as good at Home Depot)

* Gross margin 40.99%, net margin 4%

* $55.43B in cash and short term investments (+32.8% YoY) and $225.25B in total assets vs. $23.41B in long term debt

What I’m Doing: Buying $AMZN ($10 for ATAD, 1 share @ $2,620 for the portfolio)

What I’m Reading:

* Amazon ($AMZN) Stock Overview (MarketWatch)

I hope you enjoyed this issue of A Ticker A Day, and it’s got me thinking about which things I used to spend the most money on before Covid-19, which are likely to rebound. Specifically in business travel, I’m thinking about airports, airlines, hotels, etc. I’m going to continue to noodle on this, and I encourage you to comment or reply with your own thoughts on where it might be worth me digging around next.

Disclaimer: You understand that by reading “A Ticker A Day” you are not receiving investment advice. No content published here constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. You further understand that the author(s) are not advising you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent that any of the content published may be deemed to be investment advice or recommendations in connection with a particular security, such information is impersonal and not tailored to the investment needs of any specific person. You understand that an investment in any security is subject to a number of risks, and that discussions of any security published on “A Ticker A Day” will not contain a list or description of relevant risk factors. In addition, please note that some of the stocks about which content is published have a low market capitalization and/or insufficient public float. Such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information.

“A Ticker A Day” is not intended to provide tax, legal, insurance or investment advice, and nothing published here should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by its author(s) or any third party. You alone are solely responsible for determining whether any investment, security or strategy, or any other product or service, is appropriate or suitable for you based on your investment objectives and personal and financial situation. You should consult an attorney or tax professional regarding your specific legal or tax situation.

Overall, the ATAD anti-portfolio has returned 5.2% versus:

* 10% for my benchmark ($10 invested in the VTSAX every trading day)

* 15% for all ATAD picks ($10 invested in each stock at the day’s opening price)

* 37% for the overall portfolio I’ve blogged (including opportunistic trades)

Learning From the Anti-Portfolio

A few observations on the companies I’ve passed on:

* 4 companies (14% of passes) outpaced the overall portfolio

* An additional 5 companies (18% of passes) didn’t beat the overall portfolio, but did outpace the ATAD picks portfolio

* An additional 2 companies (7%) didn’t beat either ATAD or the overall portfolio, but did outpace the VTSAX benchmark

To see details on which stocks did what, including my biggest mist, visit the spreadsheet. I’ve highlighted the new tab labeled “Anti-Portfolio” with bright pink:

Legal Disclaimer: You understand that by reading “A Ticker A Day” you are not receiving investment advice. No content published here constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. You further understand that the author(s) are not advising you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent that any of the content published may be deemed to be investment advice or recommendations in connection with a particular security, such information is impersonal and not tailored to the investment needs of any specific person. You understand that an investment in any security is subject to a number of risks, and that discussions of any security published on “A Ticker A Day” will not contain a list or description of relevant risk factors. In addition, please note that some of the stocks about which content is published have a low market capitalization and/or insufficient public float. Such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information.

“A Ticker A Day” is not intended to provide tax, legal, insurance or investment advice, and nothing published here should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by its author(s) or any third party. You alone are solely responsible for determining whether any investment, security or strategy, or any other product or service, is appropriate or suitable for you based on your investment objectives and personal and financial situation. You should consult an attorney or tax professional regarding your specific legal or tax situation.

Casper (www.casper.com) is a direct-to-consumer (DTC) product company that sells mattresses, comforters, pillows, sheets, and even dog beds. In full disclosure I love their products, and have been a loyal customer for some time.

The company is not profitable, with a net income loss of $67.3 million in the 9 months ending Sept. 30, 2019 on $312.3 million of revenue. Compared to revenue of $259.7 million for the same period of the prior year, the business is growing the topline 20% year-over-year. While net loss per dollar of revenue (something you have to calculate, it isn’t in the filing) declined 15% between the two periods from -$0.25 to -$0.22.

Most venture-backed consumer startups enter the public markets with losses, the common wisdom being that they could cut expenses and become profitable at anytime but that it is better to invest in growth and market capture in the early days.

The company’s balance sheet shows $54.9 million of cash as of September 30, 2019 and net cash used in operating activities of $29.7 million for the 9 month period leading up to that date. Dividing that net operating cash across 3 quarters evenly, the company’s burn rate is ~$10 million per quarter (and on an improving trend), giving the business an implied 5.5 quarters of runway on existing cash. Of course, this is a product business carrying inventory and this is only showing the net cash figure. The amount of cash on hand needed for operations is a little less clear. Notably, the company has $15.9 million in short-term debt, which may be a revolving line typically used to finance operations in company’s like this.

The bulk of the company’s spending is going towards sales and marketing, and some may wonder whether they should be getting better ROI on their spend for a higher growth rate. However, when I assume there is some lag in S&M spend generating sales (maybe not a whole year, but we don’t have more granular data to work with) it appears efficiency has improved slightly, which could accelerate year-over-year growth.

What I’m Doing

For now, I’m going to watch and wait.

I like seeing 50% gross margins and a fairly stable revenue per dollar invested in S&M. It suggested a health capital allocation machine has been built to drive sales. I would need to see continued improvement to the efficiency of sales & marketing spend, which would translate to accelerated growth rate. I would also like to see a continued decline in the quarterly net cash requirement.

The decision to buy into this stock today (hypothetically, since it has not priced yet) versus the decision to buy in 5 years from now should be roughly the same. It looks like the company has at least a year of its own runway at the current burn, and raising $100M would give it at least a year more. So the question really is: can this company raise enough and reduce burn enough to give it the runway it needs to get to profitability? Assuming they float 5-10% of shares, a second offering to raise more in 9-12 months wouldn’t surprise me.

What I’m Watching

Price discovery on IPOs is really difficult. I feel like there are really only two great times to buy an IPO: before it goes out (be part of the book) and right before the first earnings call (assuming you think it will go well). This is because there is still so much unknown information for the outsider retail investor who has not seen the road show. Small float, potentially several tranches of lockup periods that will need to expire, unclear whether larger VC investors will hold or sell upon liquidity.

I didn’t invest in the company, so whether it prices above or below the current private market valuation doesn’t matter to me, but I also don’t have the same amount of information as an existing investor, employee or roadshow buyer. So I’ll wait until I am at less of an information disadvantage.

If anything, it will be interesting to watch the short selling of this stock (which won’t really pick up until the 30 day limit on lending shares for shorting expires) and the potential for a short squeeze to drive up the price on such a small float. See the Square IPO for a fascinating recent example of this playing out.

Reading List

* Casper files to go public, shows you can lose money selling mattresses (Alex Wilhelm, TechCrunch)

* Casper S-1 SEC Filing to IPO

* These are the unusual, colorful slides that mattress startup Casper is using to convince IPO investors that it can capitalize on the $432 billion 'sleep economy' (Business Insider)

Thank you for a great first week! We will start again on Monday with Aarons Inc ($AAN). If you have opinions, resources, thoughts, etc. on this stock please feel free to reply to this email.

Disclaimer: You understand that by reading “A Ticker A Day” you are not receiving investment advice. No content published here constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. You further understand that the author(s) are not advising you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent that any of the content published may be deemed to be investment advice or recommendations in connection with a particular security, such information is impersonal and not tailored to the investment needs of any specific person. You understand that an investment in any security is subject to a number of risks, and that discussions of any security published on “A Ticker A Day” will not contain a list or description of relevant risk factors. In addition, please note that some of the stocks about which content is published have a low market capitalization and/or insufficient public float. Such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information.

“A Ticker A Day” is not intended to provide tax, legal, insurance or investment advice, and nothing published here should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by its author(s) or any third party. You alone are solely responsible for determining whether any investment, security or strategy, or any other product or service, is appropriate or suitable for you based on your investment objectives and personal and financial situation. You should consult an attorney or tax professional regarding your specific legal or tax situation.

Go Seahawks!