More thoughts on concentration

Here's an excerpt from something I wrote on Saul's yesterday, regarding learning from mistakes I made in 2022:

"instead of concentrating for the sake of concentrating, we should have found other things that were on the verge of breaking out due to great business results and non-crazy valuations. AXON is an example that I jumped on too late (but better late than never!) Not only did it not get slaughtered – it was actually up 6% in 2022. ...I ended 2022 with a 25% Datadog position and a 1% Axon position. I hadn’t learned…now (in 2026) I rarely let positions get to even 15%, because my #1 best idea has proven not to always be better than my #5 or #10 idea."

That 25% in Datadog really stands out. This was after their revenue growth in the last 4 quarters had been:

84%

83%

74%

61%

and they had just guided for 38% (they eventually beat but still only hit 44%)

That is not a trend you want 25% of your portfolio in!

I was in DDOG and other SaaS companies because I understood them. They were "safe" in one way -- the businesses were (still are) steadily growing. But their stocks were not priced for "steady." There's no safety from 5 miles in the sky. They were priced to grow like crazy and when that stopped, there was no "ok it's fallen enough" time to buy. Many of these stocks are still below, or barely up, from their 2021 levels.

I should have been more brave! I should have been more willing to find value wherever the market was giving me an opportunity. I was far too slow to be willing to own CELH, HIMS, ALAB, APP, etc. I simply stayed anchored to the (albeit powerful) business model I knew best...but I did so to a fault.

I truly mean what I said above, and I think it's worth saying again: my #1 best idea has proven not to always be better than my #5 or #10 idea." That doesn't mean picking stocks doesn't work. It doesn't mean we have to be indexers. It just means we have to allow for good and bad things to happen.

Concentrating too much (like 5 or 6 stocks) made me complacent. Especially when they were crushing it, I forgot to look for other stuff. Un-concentrating is not about risk management. It's about keeping your portfolio from getting stale.