Sold 50% of TTD Shares. Added to DDOG

I’m writing this part after I wrote everything below. TTD is currently trading at $200 which is almost 10% higher than where I sold shares. your welcome TTD investors.

But that doesn’t necessarily mean it was a bad decision for my portfolio and my investment style. That’s what makes investing so interesting. Anyways…onto the rest of the email…..

I sold 50% of my TTD shares at $184 after the earnings announcement for a few reasons which I’ll detail below. It’s now roughly a 10% position instead of a 20% position in my portfolio.

1. TTD’s numbers were solid but not awesome. I still want to own shares, but I reserve 10%+ positions for companies that I believe will continue to be extra awesome. Right now, those companies are AYX at 22%, MDB at 17%, and DDOG at 12% after adding to it with some of the proceeds from the TTD sale. So the comparison going forward will be TTD @ $184 vs DDOG at $33.5.

2. I believe the shift from linear TV viewing to connected or OTT viewing is just getting started and it’s here to stay. More importantly, something like 29% of viewing has moved to OTT, but only 3% of ad budgets have. More ad-spend is sure to make its way over to OTT. BUT, I now have an 8% position in ROKU and a 10% position in TTD which gives plenty of exposure to two leaders in the OTT space.

3. I wanted to add to DDOG. This S-1 breakdown by Alex Clayton highlights many of my reasons for investing in DDOG. It’s one of the fastest-growing and most capital efficient companies trading publicly.

A quick recap of TTD’s 3Q2019 report

The Trade Desk reported a solid quarter posting 38% year-over-year (YoY) revenue growth, GAAP Net Income of $19.4 million, and earnings per share (EPS) of $0.40.

On an adjusted basis, the company reported Net Income of $36.1 million and EPS of $0.75

The revenue growth is a clear slowdown from 41% in 1Q2019 and 42% in 2Q2019. On the call, Jeff Fisher (TTD CEO & Founder) commented that TTD’s growth is not linear but the trend is up and to the right. Basically he’s telling us to focus on the big picture and not get caught up in minor differences from quarter to quarter because certain things that are outside of their control can impact growth.

A primary example is election cycles. 2016 was a fantastic year posting 78% revenue growth (last election) but that growth was still significantly down from the 156% revenue growth the year prior.

So I’m not 100% sold on the idea that revenue growth will re-accelerate during the next election cycle. I think we’re getting to the point where the law of large numbers is making it a huge hurdle.

The Adjusted EBITDA and GAAP Net Income numbers were also nice, but the trend appears to be fewer surprises to the upside. This is another example of the law of large numbers taking hold.

Summary

As I stated early, the immediate feedback was that this was a bad decision. But we won’t know for sure for several years and it’s not as simple as comparing TTD vs DDOG either. Our individual positions are pieces of our broader portfolios and as investors, we need our portfolios to be at a place where we are comfortable with each individual position so we can extend the time we hold positions to let the thesis play out.

I’ve been trading far too much which has definitely hurt my returns. Part of the reason is obviously because of the rotation out of high-growth companies and into whatever else. But I’ve done my own fair share of damage by trying to overcompensate with using options hoping for a quick, big win.

I’m human so some of this can be forgiven but If I don’t learn from my mistakes, I’ll never improve.

One thing I’ve realized is that I’m not as comfortable with 20% positions as I initially thought I was. I certainly still believe in a concentrated portfolio of 10-15 companies, but I may try to keep positions under 20%.

Again this is a continual learning process and I’m no expert. My goal moving forward is to minimize selling and capital gains taxes. That’s probably the best thing I can do as an investor with 20-30 years of contributions to my portfolio ahead.