The $100K Lock Box Portfolio

20 stocks, five years… where will it lead us?

Halftime Report
Travis Johnson
Stock Gumshoe
December 2021

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Longtime Stock Gumshoe readers will know that Travis Johnson, our founder and
lead writer, shares his personal portfolio, called the Real Money Portfolio, with all
of our paid members — the folks who he calls the Stock Gumshoe Irregulars. That
portfolio is the majority of his investable assets, it often includes 50-60 stocks, and
he considers it a long-term construction project.

Sometimes new readers join us, see that half of Travis’ portfolio at any given time
might be in stocks that he has held for 5-10 years or more and are currently well
out of his buy range, and get frustrated… and Travis also wanted a way to commit
to some longer-term holds in small growth ideas, and focus on some smaller ideas
that might get lost in the Real Money Portfolio, so he thought it would be helpful
to build a new portfolio of small growth stocks. That portfolio is now half built,
and it’s time to explain it in more detail.

Table of Contents
Letter from Travis 3
Lock Box Rules 5
The Portfolio (so far) 7
Schrodinger (SDGR) 9
Dream Finders Homes (DFH) 12
Goosehead Insurance (GSHD) 17
Galaxy Digital (GLXY.TO, BRPHF) 20
PAR Technology (PAR) 24
PubMatic (PUBM) 27
Tiptree (TIPT) 32
NewLake Capital (NLCP) 36
Digital Ocean (DOCN) 41
Mitek Systems (MITK) 46
The Long-term Investor 50
Glossary 53

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 Letter from Travis
As an individual investor, I’m torn — I know that I’m likely to get a little more conservative
with my investing strategy as I get older, but I also want to find and invest in the best small
growth stocks, even if they don’t easily fit into a sober retirement portfolio, both because that’s
what makes investing fun… and because over time I know that’s where the most extraordinary
returns are possible.

So I’m building a portfolio that will focus on the long term, in the strictest fashion: I am
identifying small growth stocks that I think have potential over the next decade or more, and I
am committing to hold those positions for at least five years.

The long term is not new for me, I still own Alphabet (GOOG) after 15 years and have never
sold, but I’ve also made many mistakes in overreacting to short-term price movements in other
investments when I should have just held on. This is a way to refocus on the fundamentals of the
company, not worry overly much about the current share price, and put away the lawn mower
and the hedge trimmers and let those seeds of growth have their way with the back yard. When
we look back on this portfolio in 2026 and 2027, I hope to see a couple nice big maple trees out
there, shading my view of the many weeds that will no doubt also sprout.

If you skip to the end, I’ve got a few comments on Chris Mayer’s 100 Baggers, a book which
provides a nice backdrop to this kind of mindset (though he’d probably say I should lock those
shares up for 20 years, not just five).

So this $100K Lock Box portfolio is just what it sounds like — I’m taking $100,000 of my
money, and allocating it evenly across 20 different investments, all of which will be relatively
small companies. Those investments will be locked for five years. That is certainly a
meaningful amount of money for me, and I’m trying to grow that portfolio, but I also know that,
unlike with my core Real Money Portfolio that I write about regularly, I can lose all of this
money and still be able to retire someday (though Stock Gumshoe is a labor of love, I may keep
doing this forever).

So this $100K Lock Box portfolio serves two purposes for me:

1. It provides a place where I can invest in and share long-term small-cap investing ideas with
you, with a very clear expectation that these particular ideas require a lot of patience.
2. It frees me up to reset my thinking for these kinds of investments and be prepared to accept
mistakes. I’m not going to sell these ideas next week or next year even if it seems like I was
very wrong. That means both understanding a company well enough to make a five-year
commitment and accepting that being wrong on some is the price of being right on others.
Every great growth investment looks like a terrible mistake at several points in its life.

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And I also hope that the discipline of this strategy will leak over into my thinking more broadly,
and perhaps help me to be more patient with other investments that aren’t in this portfolio. We
should all focus less on the day-to-day price movements that we know don’t really mean
anything. During times of gyrating markets, keeping an eye on the five-years-away horizon is a
good way to avoid fixating too much on what might happen on the market open tomorrow.

Long-term investing success depends more than anything else on your ability to manage your
emotions. The best investors, in the long term, are not usually smarter or better informed than
you are — they get better results because they’re more able to make rational decisions and avoid
overreacting to the day-to-day actions of the Wall Street crowd. Acting on each piece of news is
generally bad for your portfolio, so the more I can shift my thinking over to the “buy right and
hold” position with emerging growth companies, and have that zen-like trust that losing is an
integral part of winning, the better off I’m likely to be.

I don’t know what your financial picture is like, of course, I’m sure some of you are investing
$100 at a time and others are investing hundreds of thousands of dollars at a clip, which is why I
usually talk in percentages, not dollar amounts. But I also think putting a specific number on this
portfolio makes it feel a little different. A little more real, with $100K of my money on the line.
Hopefully you’ll find it helpful.

Human beings have a hard time looking five years down the road, the far future is hard to buy,
and I will be wrong about a bunch of these — but if a few of them work out very well, that’s
enough to generate strong returns over time. If I end up becoming a lot more confident in any of
these stories, some of them may also appear in the Real Money Portfolio (and a few were already
there, before this Lock Box was created), but this lockbox portfolio will be just these stocks, for
the duration. This has the effect of limiting my universe to some degree, too — for the Real
Money Portfolio I can buy or sell anything at any time, but for this small cap growth Lock Box I
have only 20 slots to fill. That incentivizes selectivity and care.

So have I chosen wisely? Now that we’re halfway through building this portfolio, let’s move on
and introduce you to what’s in the $100K Lock Box so far. As of my writing in these early days,
the portfolio overall is up slightly — not that it really matters at this point — and I’ll summarize
my current thinking on each stock and provide the basic details that matter to me in the pages to
come. If you have questions, comments, or suggestions for other companies to add, I can’t give
personal advice but my door is always open at Travis@StockGumshoe.com.

Thanks for reading,

Travis Johnson
Founder and President, Stock Gumshoe

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 Lock Box Rules
Each investment in the $100K Lock Box Portfolio will be a $5,000 commitment (5% of the
portfolio), and it will be held for at least five years from the initial purchase, with any dividends
reinvested and any spin-offs or mergers held. If a company is bought for cash in the next five
years, that cash will be reinvested in something new. These are the broad criteria I’m using in
making these selections:

1. These have to be relatively small companies, to provide for a lot of growth

optionality. That means a market cap between $250 million and $10 billion. A few
years ago I would have lowered that “small cap” number from $10 billion to probably
$2-4 billion, but companies with strong growth potential rarely go public with a sub-
billion-dollar market cap anymore, there’s just so much more private money chasing
companies now. For companies on the larger side, it will be important that they be
working within very large industries.

2. Growth of at least 25%. I do not want pre-revenue ideas or R&D projects, if I’m going
to tie my money up for five years I want to be sure that there’s actually a business now…
not just a plan. Ideally this will be revenue growth, but if there's a really scalable business
or one with higher current profitability I'd consider growth in earnings or cash flow as
alternative criteria. Long-term outperformance can come either from high growth or
from compounding profits, but there needs to be meaningful growth somewhere.

3. Large and growing sector in which they can expand. In order for this to work, and to
identify hopefully a couple superstar companies among these 20 holdings, there has to be
potential for the business to become exponentially larger than anyone envisions today,
even if it seems unlikely — Amazon when it was just selling books, Roku when it was
just selling a little box that let you watch Netflix on your TV, you get the idea (so,
probably not many capital-intensive projects like mining, or companies who have
obvious physical and leverage constraints on their future, though unusually strong growth
companies in any sector who do something different might convince me). We can’t
necessarily tell which companies will become titans, but there needs to be room for them
to surprise us.

4. Growth strategy that is at least somewhat compelling and believable. These

companies need to be either profitable today, or have a margin structure and business
model that provides a clear pathway to profitability at scale. If they're not yet profitable,
they need to have enough capital to feasibly reach profitability without raising a lot more
equity. These companies can’t rely on magical thinking about the future, or on a product
that doesn’t exist yet.

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5. Management that is committed, trustworthy and good at communicating their
message to investors. This is a squishy criteria, and a qualitative judgement —
important indicators are the way management talks to investors and explains their
strategy, but insider ownership is also a strong indication of management commitment.
I’ll get some of these wrong, but after a couple of decades of reading shareholder
materials I find that some management teams stand out as compelling, and others make
you nervous.

6. A valuation that makes sense, but does not have to be perfect. Some of these will
probably trade at very high valuations in the current market, if they’re at all appealing. If
I can see potential for them to surprise me in a really positive way over the next five
years, that’s OK, often popular stocks are popular for a good reason.

7. And finally, Some Diversification across sectors… if I’m going to lock this money up
for five years, I want it to be exposed to lots of different possible growth themes, not just
one. These can't all be cloud software companies that trade at 25X sales, because all of
those stocks tend to move together.

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 The Portfolio (so far)
In order of purchase date

Schrodinger (SDGR) — Bought 3/5/2021 at $69.82

Drug discovery technology, sold as a subscription service but with the simmering potential of
self-developed compounds and royalties on far-future projects.

Dream Finders Homes (DFH) — Bought 3/19/21 at $22.25

Recently public homebuilder that is growing fast, partly through acquisition, and is closely
following the asset-light playbook that led pioneering homebuilder NVR to exceptional long-
term returns.

Goosehead Insurance (GSHD) — Bought 3/25/21 at $108.70

Insurance agency that has both corporate agents and franchisees, growing fast out of its Texas
base by supporting agents with strong back-office service and incentives that push those agents
to focus on sales while Goosehead handles service and renewals, generating a multi-year semi-
predictable flywheel of accelerating revenue growth.

Galaxy Digital (GLXY.TO, BRPHF) — Bought 5/7/21 at $27.02

Financial services firm that’s run by Michael Novogratz and is involved in almost all aspects of
cryptocurrencies, from ETF management and institutional services to venture capital investing.

PAR Technology (PAR) — Bought 5/14/21 at $59.64

Coming out of a restructuring with strong new management and a new culture, focused on using
its historic position as a seller of POS terminals for fast food restaurants to build up an operating
system for restaurant owners, particularly large chains.

PubMatic (PUBB) — Bought 6/11/21 at $33.05

Sell-side platform giving publishers and content owners programmatic advertising power, with
their own network of ad servers around the world and good relationships with major buy-side
platforms like The Trade Desk and Google.

Tiptree (TIPT) — Bought 7/16/21 at $9.37

An odd tiny conglomerate with interests in shipping and senior housing, but with a focus now on
building up their specialty insurance/warranty business.

NewLake Capital (NLCP) — Bought 9/2/21 at $29.98

The newest marijuana REIT, and the one that is most closely mimicking the approach of industry

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leader Innovative Industrial Properties (IIPR)… though they still trade OTC, and at about half
the valuation of that industry leader.

Digital Ocean (DOCN) — Bought 9/9/21 at $68.96

“Cloud for the little guy” company brings cloud services capabilities to companies who don’t
have dedicated teams who can manage a more complex Amazon Web Services project, or who
want a more user-friendly solution with more predictable costs.

Mitek Solutions (MITK) — Bought 10/16/21 at $18.43

Building on early online banking leadership in check scanning to provide “know your customer”
identity management and verification services for financial companies.

And now, let’s get into much more detail on these companies…

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 Schrodinger (SDGR)
Bought 3/5/2021 at $69.82
Drug discovery platform, sold as a subscription service but with the simmering potential of
self-developed compounds and royalties on far-future projects.
➕ Steady software/service revenue provides some stability and likely future profitability
➕ Collaborations and self-developed drugs have long-term potential for strong royalties or
windfall returns if they work out.
➖ Not profitable, software profitability has been pushed further out by heavier spending,
and most of the drugs in their self-developed and collaborative pipelines are at very early
stages right now.

Market Cap: $3 billion (at $38.73 as of 12/7/2021)

Not currently profitable, analysts now see break-even coming in 2023
2018-2021 revenue growth: 25% (compound annual growth rate, including 2021 Q4 guidance)
Revenue growth forecast for 2022: 50%
December 2021 valuation: 22X current year revenue

Schrodinger is a technology company that harnessing this platform for our

specializes in crunching data to assess internal drug discovery programs.”
millions of permutations in the way
molecules react with other molecules. The platform is effectively sold on
They’ve essentially got every major subscription, like any other cloud platform,
pharmaceutical company using their platform and the basic appeal of the platform is that it
for drug discovery, to at least some degree. can both cut discovery time for new
Here’s how they describe themselves: molecules in half, and find better molecules
that are more likely to be successful.
“Our physics-based computational
platform leverages a deep They had total software revenue of $92.5
understanding of physics, chemistry, million last year, with annual contract value
and predictive modeling to accelerate growing at a 16% CAGR over the past seven
innovation. years — which is not nosebleed growth for a
Software as a Service (SaaS) company, but it
“Our platform enables our has accelerated in recent years (up 22% last
collaborators to discover high-quality, year). They have 16 customers who each
novel molecules more rapidly, at generate more than $1 million in annual
lower cost, and we believe with a contract value, up from 10 in 2019, and they
higher likelihood of success compared had 99% customer retention.
to traditional methods. We’re also

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That makes them a pretty interesting cloud they already work with most of the large
software company — a sticky business, pharmaceutical companies, but that doesn’t
growing pretty steadily, and with a trajectory particularly worry me — the platform can be
that is likely to lead to profitability if it just used lightly or heavily, with variable costs,
stays on the current trend. There is more and their customers mostly use it lightly so
potential growth on the software side, and far… so there’s potential growth as they
Schrodinger management makes clear that become familiar with it and begin to use it
they believe the growth potential remains more, assuming that it continues to work well
high because their large users are still not for them (retention is very strong). There’s
really “power users” and can dramatically also the just-barely-tapped market outside of
increase usage as they begin to realize the pharmaceuticals as they sell their software
benefits it provides. The basic business is platform to materials companies who are
appealing. looking for the best molecular interactions for
things like new battery materials.
But the big potential beyond that base level of
subscriptions might be from the other ways in I found management quite compelling in
which they get a piece of drugs that are describing the potential on their conference
discovered on their platform. The software calls, but it’s also true that the less predictable
sales create pretty steady cash flow, but parts of their business, including milestone
beyond that the company has a bunch of payments from pharmaceutical partners, will
collaborations with pharma companies that play a huge role in their revenue “beat” or
would lead to royalties on any future drugs “miss” in any given quarter, so it will
that come out of those collaborations, as well probably continue to be a rocky road.
as a pipeline of its own (very early stage)
molecules that they’ve discovered and are Drug royalties on any meaningful scale would
preparing for possible clinical trials. have a huge impact if a blockbuster drug is
developed, but are far off in the future, and
Analysts overestimated the immediate impact completely unpredictable, since most of their
of Schrodinger’s major collaborative deal collaborations are in the very early stages.
with Bristol-Myers Squib when it was first Some of their publicly traded partners who
announced in late 2020, and that’s what issued them equity as part of those
spurred the prediction of a surge in revenue collaborations may end up having blockbuster
and immediate profitability, but as the success, which could also help. And a
company has clarified details it’s become somewhat under-the-radar possibility is that
understood that the impact of that they will continue to expand the use of their
collaboration will be felt through the next platform in other materials science areas
several years, not all at once — so analyst outside of drug discovery, whether that’s
estimates have now pushed forecasts of a turn batteries or semiconductors or something I
to profit out another year, to 2023. don’t understand even a little bit.

The primary big-picture risk is whether or not As the world grows more complex, the
they’ve “used up” their target market, since advantage of modeling and screening for the

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best materials and chemicals with the highest means weighing the odds… if they can
probability of behaving as you hope becomes continue to grow the subscription revenue and
more valuable. Five years might be a little inch closer to drug approvals for their
bit tight for this one, since drug development collaborative programs or for their own
takes a long time, but if they begin to have earlier-stage drug discovery projects, it can
success in later-stage clinical trials, and if the work out well. The quarter-to-quarter
customer base continues to grow and use the excitement or disappointment doesn’t mean
platform more aggressively, investors will much.
probably begin to anticipate that much
stronger future. These stories won’t all follow one steady
trajectory for five years. Since March, SDGR
***** has reported a couple quarters of rapidly
increasing operating expenses as they invest
After it was picked? Schrodinger was the more in growth and in their drug development
first company added to the Lock Box program, so the margins have turned around
Portfolio, back in March of 2021, because the and started getting worse after a period of
stock finally had a meaningful dip and got to several quarters of improvement. That’s a
a price that I could justify. It has continued to good part of the reason for the shares falling.
fall since then, so nine months into our five- They have enough cash on hand, roughly
year lockup this investment is the worst $600 million, to easily get through to at least
performer in the portfolio. But that’s OK, 2025 or 2026 without raising more capital.
betting on what will happen in 3-5 years

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 Dream Finders Homes (DFH)
Bought 3/19/21 at $22.25
Recently public homebuilder that is growing fast, partly through acquisition, and is closely
following the asset-light playbook that led industry leader NVR to exceptional long-term
returns.
➕ Very high growth through acquisitions and “land and expand” potential in new metro
areas, with a huge backlog of homes to build right now.
➕ Huge founder ownership, and he focuses on growth and equity returns — many
competitors preach “asset light” strategies, but DFH is copying NVR’s successful playbook
more closely than other homebuilders.
➖ Not as cheap as many homebuilders, and the industry has a history of boom and bust
cycles.

Market Cap: $1.7 billion (at $18.64 as of 12/7/2021)

2018-2021 revenue growth: 55% (compound annual growth rate, including 2021 Q4 estimate)
Revenue growth forecast for 2022: 37%
December 2021 valuation: 15X current year earnings

Dream Finders Homes came public on January 22, 2021, though we’ve had some exposure to it
for a long time because Real Money Portfolio company Boston Omaha (BOMN) was a large
investor in the company several years before the IPO. Here’s the brief chart of stock price
performance and revenue:

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There are a couple of themes that appeal to On the next page is a chart of the reported
me about Dream Finders — it’s following a ROE for a bunch of the big homebuilders
very successful model in NVR, it’s going over the past 20 years — that’s NVR in
from a local to a regional to perhaps a orange, and DFH just showing up after their
national player through both organic growth IPO this year, in brown.
and acquisition, which tends to be a powerful
thing for efficiency and building a brand, and And the second chart illustrates why that is
it has strong insider ownership with a leader appealing to investors — that is the
who maintains both equity control and voting performance for those same stocks over the
control and clearly has a vision that he has past 20 years (excluding DFH, since it wasn’t
been executing on very well. public until this year).

NVR (NVR) is not the largest homebuilder in The current valuation of DFH looks attractive
the United States, but it’s one of the biggest relative to NVR by most metrics, the PE ratio
— and it has always been a little different is a little lower (17 vs. 15), the growth rate is
from the others (Toll Brothers, PulteGroup, much higher, and the return on equity is very
etc.). What makes them stand out is their similar as DFH begins to scale. They’re a bit
“asset-light” model, in which they buy more expensive in some ways, particularly
options on housing lots but don’t actually because their debt levels are higher, in part to
own or control large swathes of property to pay for their acquisitions… but they’re likely
develop their own subdivisions from scratch. to continue to grow far more quickly, and
That has clearly led to outperformance over from a much smaller base.
the years, and that has inspired other
homebuilders to try to follow the model… but The challenge is that Dream Finders Homes is
most of them don’t go “all in," they still like not cheap relative to other homebuilders, just
the security and the empire-building power of relative to NVR. Most of the homebuilders
owning large tracts of land. Owning land are growing fast right now, as demand
requires a lot of debt, and owning assets that outpaces supply pretty considerably, and most
sit on the books, unproductive, for a very long of them trade at a PE ratio on the 9-12 range,
time. This shows up most clearly in Return because investors don’t trust this cyclical
on Equity, with NVR consistently having the industry. And though they are growing, and
strongest ROE of any of the big now have strong local bases in half a dozen
homebuilders. And the only major player good markets, the company does not yet have
who comes close is, you guessed it, Dream the scale or market presence of NVR or of the
Finders Homes. larger national homebuilders.

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That’s changing pretty fast, however, partly hot and maybe overheated sector (I think
because CEO Patrick Zalupski has been very housing will likely continue to grow in
aggressive — something that’s nice to see demand for years, thanks to massive under-
from a founder who has a huge personal stake building from 2008-2018 after the last
in the company. Homebuilding is a local housing crisis, but that’s not necessarily the
business, with still a huge number of local consensus view), and if it were in most other
and family-owned companies, and DFH is sectors we’d consider this kind of valuation
acquiring local builders and expanding at a dirt cheap, given the growth rate. It’s not
pretty solid pace — in the past year or so they cheap compared to other homebuilders, who
have made two large deals, buying H&H in are also doing very well right now and also
North Carolina in the Fall of 2020 and, after it trade at low valuations relative to their current
was added to the Lock Box, buying McGuyer growth, but I think it’s a better and more
a couple months ago to expand their presence ambitious company than those, with a proven
in Texas markets, particularly the hot Austin ability to enter into appealing new markets
market. and, once established, grow rapidly in those
markets that have the most promise.
For the full year 2020, Dream Finders had
95% order growth and 54% growth in After it was picked? The shares have been
closings over 2019, with steady growth weak in recent months, largely because of the
through the year and a surprisingly low larger McGuyer acquisition in Texas and,
amount of seasonality in their sales numbers. more recently, because their last quarter was
They seem pretty well suited to keep it going, fairly weak. That weakness was largely
with the capital infusion from the IPO helping because of challenges in building homes on
to fund expansion and construction of their time with shortages of labor and materials in
backlog. That backlog is growing insanely some areas, here’s the quote from CEO
fast — the backlog stood at 2,447 homes as of Patrick Zalupski in the press release:
December 31, 2020, and is now up to 6,364
— that’s future revenue, $2.3 billion worth of “We’ve continued to see elevated
homes that have been ordered by a customer, consumer housing demand and price
but not yet built or delivered. There is ample appreciation; however, industry-wide
room to grow as they monetize their lots, they labor, material and supply chain
“own or control” over 40,000 lots now (up challenges have impacted sequential
from 21,000 lots a year ago), but since they’re gross margins and temporarily drawn
“asset light” like NVR they control those lots out cycle times by a month longer
almost entirely through options — that costs a than our historical averages…. Our
little more , but it also keeps the balance sheet high-performing culture has been
lighter and allows them to move faster, tested daily over the past year and
because they only buy the lot once they are remains committed to delivering long-
ready to begin construction. term value to our customers and
shareholders, alike. As we look ahead,
Just going by those numbers, this is a I am confident in our team’s ability to
ludicrous growth company, in an extremely deliver record fourth quarter revenues

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 and substantial revenue growth in
fiscal 2022, when we convert the
largest backlog in the Company’s
history.”

They also reduced the number of homes they

expect to close on this year, mostly because
the production timeline has been extended for
most homes, so they’re now expecting
4,900-5,300 closings this year, down from the
5,000-6,000 they were expecting earlier.
That’s a meaningful “miss,” so it seems to
have scared away some less patient investors,
and I think that presents another buying
opportunity.

DFH over the next five years is a bet that they

can build a meaningful company and stay true
to the NVR example. Over the shorter term,
it’s effectively a bit of a levered bet that
housing will remain strong, as they’re still in
very high growth mode. If new home
demand drops meaningfully, DFH will suffer
more than most, as we’ve seen with their
volatility this year. This is still my favorite
homebuilder, in part because of their growth
ambition and their founder CEO’s huge
personal stake in the company.

I do not expect DFH to grow like NVR did,

with a 20,000% return over the next 23 years
like NVR had from 1997 through today, but,
well… we can dream, can’t we?

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 Goosehead Insurance (GSHD)

Bought 3/25/21 at $108.70

Personal lines insurance agency that has both corporate agents and franchisees, growing
fast out of its Texas base by supporting agents with strong back-office service and
incentives that push those agents to focus on sales while Goosehead handles service and
renewals, generating a multi-year semi-predictable flywheel of accelerating earnings
growth.
➕ Very strong grower with a few core markets showing the potential for this agency
model, with extremely high customer satisfaction numbers so far.
➕ Almost mechanical revenue acceleration if they can continue recruiting and training
agents well.
➖ Expensive for a fairly traditional “middleman” insurance agency, there’s large insider
ownership but also steady insider selling, and they can’t spend nearly as much as big
insurance firms to build their brand.

Market Cap: $5 billion (at $134.05 as of 12/7/2021)

2018-2021 revenue growth: 36% (compound annual growth rate, including 2021 Q4 estimate)
Revenue growth forecast for 2022: 40%
Earnings per share growth forecast for 2022: 80%
December 2021 valuation: 30X current year revenues, PE near 300

Goosehead Insurance aspires to become a In some ways, this is a middle step in the
large national insurance agency, operated disruption of insurance — Goosehead offers a
through both corporate and franchise agents. high-touch and easy platform for customers to
They started out in Texas, proving up the use, whether they want to browse rates from
model and establishing a meaningful presence competing underwriters online or go into a
in homeowners insurance sales in that state, local office, but they are still an insurance
but have aggressively moved nationally by agency. They make money as a middleman,
building large corporate sales centers and by collecting their commission on policies
recruiting large numbers of new agents. they sell to people, and the sales still go
Goosehead helps agents build up a strong through those (sometimes) stodgy old
sales book, and incentivizes them to focus on insurance companies. This is more of a
sales (franchise agents get 80% of the first- competitor for independent and captive agents
year commissions on policy sales, but only (like your State Farm or Allstate agent) on a
50% of renewal commissions). local basis and, if they continue to grow,
perhaps a disruptor of the traditional
brokerage/agency platforms that have been

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built by much larger companies like Brown & they’ve also brought on about 1,500 new
Brown (BRO), A J Gallagher (AJG) or Marsh franchisees over just the past two years, so as
& McLennan (MMC), though the larger long as that cohort is at least moderately
companies do more corporate work and successful the growth will be strong). At the
Goosehead focuses on homeowners and auto same time, they incentivize growth by giving
insurance. I also own BRO, and don’t think franchise agents a higher share of the
the agency model is going to disappear for commission for first-time sales and a smaller
insurance, but Goosehead is the far stronger share of renewals, and therefore Goosehead’s
growth story. commission revenue in year two jumps by
150% (assuming 100% renewals, they
What really makes this work is the almost actually get closer to 90% typically).
mathematical follow-through from the work Combine those two levers that are being
they’ve been doing over the past couple pulled right now, and if they do well on agent
years. They aggressively recruit new agents recruiting, training and retention and continue
to build up that selling platform, both to score high marks on customer satisfaction
bringing on existing captive insurance agents that keeps renewals high, it’s very possible
as franchisees and recruiting new corporate for them to have not just really strong growth,
agents out of college, and it takes a few years but accelerating growth for at least the next
for a new agent to really begin to be several years. This illustration shows that
profitable (half of their revenue today comes progression nicely (it’s borrowed from
from the 200 franchise agents they’ve have on Goosehead’s November 2021 investor
the platform for more than four years… but presentation):

18
What could gum up those plans? A revolt by ready to fuel dramatic growth in a few years
their franchise agents or other problems like — and recruitment of new agents, both
that would be a challenge (there’s no sigh of corporate and franchised, remains a huge
that), but the big-picture challenge would be a focus of the company (they have 95 people
drop in home sales — buying a new home is who work on their recruiting team, and that
typically when people consider changing group is currently pursuing 133,000 leads).
insurance policies, since most people just
stick with what they have most of the time, so Insider ownership and founder leadership is
it’s those big decisions, new cars and new also strong at Goosehead, though it also
homes, that open the door for Goosehead to presents a risk — the founders, led by CEO
step in and try to take new customers. They Mark Jones, own almost half of the company.
do that the same way other insurance agents That’s good, and they are extremely involved
do, by building relationships with realtors and in pushing for growth, but it also means there
car dealerships and mortgage brokers and is a steady drumbeat of insider selling.
trying to establish a local brand in their Sometimes that turns investors off.
community… but if the flow of business
slows down for everyone, it will slow down They’re also not a cash-rich company, and
for Goosehead, too. they emphasize that lack of a need for cash,
by sending out a special dividend each year,
This is a still very small company, with so there’s some risk in that they don’t have a
meaningful market share in only one state ton of capital at hand relative to their size, so
(they have about 10% market share in Texas if big challenges come up, the stock will
homeowners insurance), and they write a tiny probably be volatile.
number of policies compared to the big
agencies and direct sellers that advertise Putting this in the lock box is a way to bet on
heavily (State Farm alone writes about $60 the mechanical leverage of a rising agent
billion a year, and GSHD is down around $1 count and the increasing value of agents as
billion), so there is a wide open pathway for they mature in Goosehead’s system, and to
growth. avoid worrying about whether that
compounded growth looks good or bad in any
I am continually impressed with their ability given quarter.
to recruit both new franchise agents
(convincing high-performing local insurance After it was picked? Steady as she goes,
agents to join their platform) and new they introduced a new price-comparison app
corporate agents (recruiting entrepreneurial that they’ll use for customer acquisition, and
students out of college, largely) — if those it’s a big improvement over most, but they do
new agents continue to perform, the growth not spend heavily on advertising so this won’t
over time could compound into something create an immediate spurt of growth. My
extraordinary. Those 1,000 or more relatively recent “buy under” price for this one in the
new agents who are not yet financially Real Money Portfolio, where I also own a
productive are a possible sleeping dynamo,
stake, is about $127, so we’re near that now.

19
 Galaxy Digital (GLXY.TO, BRPHF)
Bought 5/7/21 at $27.02
Financial services firm that’s run by Michael Novogratz and is involved in almost all
aspects of cryptocurrencies, from ETF management and institutional services to venture
capital investing.
➕ Huge insider ownership that mostly aligns shareholders with founding partners.
➕ Good initial presence in building an on-ramp to cryptocurrency investments for
institutional investors, with lots of ways to make money… including interesting venture
investments and a large base of assets under management.
➖ Founder Novogratz has overwhelming control and has lost fortunes before, and the
biggest future driver will be extremely volatile cryptocurrency prices.

Market Cap: $2.3 billion reported on most financial platforms, actually more like $9 billion
(at $20.64 as of 12/7/2021)
2018-2021 revenue growth: Almost infinite, started from very little and with extreme
volatility as Bitcoin crashed and recovered
Revenue growth forecast for 2021: 2,500%
Revenue growth forecast for 2022: -30%
December 2021 valuation: 6X current year revenues, PE near 15 (dramatically impacted by
shifting Bitcoin/Ethereum prices).

Galaxy Digital is a financial services and that may change as they grow). And he’s
company and asset manager, focused on the been a wild-and-crazy dice roller kind of
cryptocurrency space. The company started investor for decades, losing two fortunes
as a partnership, not unlike Goldman Sachs, along the way, so it probably goes without
so it’s a little bit tricky to value, because what saying for any investment in the crypto
we’re actually buying as investors is a space… but it’s risky.
holding company that owns a minority stake
in GDH LP, the operating partnership which What makes Galaxy palatable as a “lock it
is controlled, and majority owned by, Michael up” investment for me in an extremely
Novogratz. volatile sector, is the flexibility — they have
five major business lines, a huge number of
That structure also means, importantly, that venture investments, a strong early-building
Novogratz is essentially an emperor — the brand in crypto in general and an early “in”
non-public partnership owners control 70% or on building a crypto platform for institutional
so of the company, he owns most of those trading, and that gives them a lot of ways to
units personally, and he can do almost surprise us over the next five years with new
whatever he likes with his company, without ways of making money… beyond just
a lot of limitations (though there are some,

20
profiting from rising investor enthusiasm for billion in assets under management (AUM) as
cryptocurrencies in 2021. of the end of October (mostly in Bitcoin and
Ethereum private funds, sort of like ETFs for
This is now a pretty broad-based investment institutional investors, though they also sub-
banking, venture capital, trading and asset advise some Canadian ETFs that buy
management business with good early tendrils cryptos), various relatively small streams of
into reaching its goal of bringing fee income, and huge reported income
cryptocurrencies into the institutional because of the rising value of their owned
mainstream…. and as a further potential cryptocurrencies and venture investments (if
catalyst, they’re moving closer to the goal of your portfolio doubles in a quarter, GAAP
a US listing, and this year they also improved rules now say you have to report that
their “all in one” services goal for portfolio gain as revenue for the quarter, even
institutional clients with the acquisition of if you don’t sell).
crypto infrastructure company BitGo, which
should close early next year. BitGo adds The challenge is that the business won’t be
portfolio and tax management services, more big enough for quite a while for us to value it
capabilities in prime brokerage (being a based on AUM, at least compared to a big
broker for hedge funds and active institutional asset manager in the “regular” financial
traders, including margin lending), and world. BlackRock (BLK), for example, is the
custodial services to the Galaxy offerings. world’s largest asset manager with almost $9
That deal is a big one, costing Galaxy roughly trillion under management, but a lot of that
a billion dollars, and it will also mean that the brings in only tiny ETF fees and the company
company moves to a Delaware corporate is valued at $132 billion, roughly 1.5% of
headquarters instead of the Cayman Islands, AUM… BlackRock is valued at roughly 4X
so it’s also potentially a good step toward that book value and 25X earnings. Brookfield
“grown up” NY listing. Asset Management (BAM), which is a huge
specialized asset manager in real estate,
I’m curious to see whether Galaxy also distressed debt and other areas, has about
streamlines its ownership structure at all $600 billion in AUM, so is valued at about
before trying for that NY listing, since I 9% of AUM, and trades at 2.25X book value
imagine the SEC will have lots of questions and probably about 15X FFO.
about the convoluted partnerships, but I’m
willing to invest before that gets easier to On valuation, my attention remains drawn
understand. mostly to book value, and I accept that all of
these values could shift wildly as Bitcoin
The growth is clearly there, even if most of it prices change. Right now, I think they should
comes from the rise in cryptocurrency prices have a book value (or partners equity) of
this year. Galaxy has a complex income about $2.5 billion. At $9 billion, or 3-4X
statement and balance sheet considering its book value, we’re arguably paying too much
relatively small size, but if you consider the for that at this point if we assume that Bitcoin
whole company it’s essentially got a $9 has peaked and will go down, and we’re
billion valuation. The business has $3.2 getting it at a discount if we assume that

21
Novogratz is right in his forecast that Bitcoin trade at ~3X book value. Managing other
will hit $100,000 by the end of the year peoples’ money can be a great business.
(we’re in December now, and Bitcoin is well
shy of that level, but one never knows). I like Galaxy because it’s an unusually
diversified way to get exposure to the
If cryptocurrencies are on a long march to cryptocurrency world, in a way that is very
financial relevance, however, that valuation is tied in to institutional adoption of
not necessarily wildly out of line for a cryptocurrencies and includes substantial fee-
company that’s becoming a mainstream earning potential as those businesses are built
financial services firm in a fast-growing up in asset management, prime brokerage
business. Goldman Sachs right now trades at (including lending and custodial services),
1.3x book value, for some context… but and investment banking (including M&A
when they were smaller, and before they consulting, IPO sponsorship, and investment
became a bank to save themselves in the in VC for their own account). It’s not cheap…
financial crisis, they were a $50 billion but, well, neither is Bitcoin. And this is very
investment banking partnership and traded at likely to end up being a bet that’s levered to
4X book value 20 years ago… and it’s not cryptocurrency prices over time… the chart
unheard of for traditional asset managers who below shows how Galaxy has looked over the
run mutual funds (like AMG, for example) to past year (that’s the book value in orange,
share price in purple, and Bitcoin prices in

22
blue), and that connection to Bitcoin prices
will probably persist.

If we get a 90% drop in Bitcoin or Ethereum,

all of the crypto-focused equities like Galaxy
will collapse. If Bitcoin doubles next month,
they will surge higher. I don’t know which
way it will go, but my personal sense is that
interest is still growing, both among
institutions and among investors, and that the
rapid rise in prices for Ethereum and many of
the smaller tokens this year is a solid
indication of that rising interest. There’s a lot
of competition in this space, but going with
an institutional provider like Galaxy makes
me confident enough to lock my shares up.

What makes it worrisome is twofold:

Novogratz has overwhelming control and
could screw it up; and, of course, if
cryptocurrencies collapse in value, Galaxy
shares will also collapse.

I think that’s worth the risk, given the huge

number of institutions and large traditional
investors who are getting interested in Bitcoin
exposure, and the likelihood that investment
in this sector will continue to be meaningful
and will spread out to the other major
cryptocurrencies… but it might be a really,
really bumpy ride. It wouldn’t shock me if
Galaxy fell back well below $10 at some
point in a future crypto crash, and my position
in this stock in the Real Money Portfolio
holdings was stopped out earlier this year, but
this Lock Box position will be frozen for five
years, come hell or high water (or liquidation
or acquisition), and I’m looking forward to
seeing what it’s worth in May of 2026.

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 PAR Technology (PAR)
Bought 5/14/21 at $59.64
Coming out of a restructuring with strong new management and a new culture, focused on
using its historic position as a seller of POS terminals for fast food restaurants to build up
an operating system for restaurant owners, particularly large chains.
➕ Very focused management team and a strong user base of 50,000 restaurant locations to
up-sell
➕ History, though limited, of good software acquisitions and sticky customer
relationships in trying to build the “commerce cloud” for restaurants.
➖ They’re competing against some much larger and faster-moving companies and might
fail to make more good acquisitions… and this is largely a bet on CEO Savneet Singh, who
is still very new.

Market Cap: $1.6 billion (at $57.37 as of 12/7/2021)

2018-2021 revenue growth: 11% (compound annual growth rate, including 2021 Q4 estimate)
Revenue growth forecast for 2022: 20%
Growth in Annualized Recurring Revenue (ARR) for cloud business: 46% annually (2017-2020)
Not currently profitable
December 2021 valuation: 5X current year revenues

PAR Technology (PAR) comes with a and expose them to the more attractive
fascinating story — it’s an emerging software side of the business, but they were
enterprise cloud software provider in the very slow in moving the business to focus
restaurant space, but it’s going to be a while less on hardware and more on software.
before that is really reflected in the revenues
or income statement. The company began as Then they brought in young software investor
a defense contractor, doing complex pattern Savneet Singh as a board member, and
recognition work in the early days of quickly elevated him to CEO when it was
computers, but also, as a side project, clear he had the vision to build on Brink and
developed a new point of sale (POS) terminal create something larger as a new software
for McDonald’s franchisees (at the time we platform, a real integrated “operating system
would have just called it a better cash for restaurants” that they now call a “unified
register)… and that terminal took off as a new commerce cloud.” Singh focused first on
standard for restaurant POS hardware in the changing the culture at PAR, creating a real
1980s… and then sort of stagnated for a long growth-focused software company that could
time under the founding family’s ownership. develop appealing products as well as sell
They saw the light about modernization and and, importantly, attract software talent.
wisely bought a software platform (Brink) in They’ve been starting to build on that with
2014 that could run on those POS terminals

24
more acquisitions, including the large won its largest ever contract ($500 million
purchase of loyalty program/marketing over six years) — once that contracting
software Punchh earlier this year (which more business stabilizes, perhaps we’ll see it spun
than doubled the number of locations where off to help focus the company, but it’s
PAR has a foot in the door). This is nowhere profitable and not very capital intensive, it
near as sexy or clean or fast-growing a story doesn’t consume much of management’s
as Toast (TOST) or Lightspeed (LSPD), both attention, and there doesn’t seem to be any
of which are appealing cloud POS payment rush.
companies with some specialization in the
restaurant sector… but it is dramatically The reason we want to own PAR as a growth
cheaper and smaller, and has the potential to investment that can compound on itself,
build into something much larger and more though, is the cloud software business —
profitable over time as their platform their POS platform Brink, their new payments
becomes embedded in more large chain platform, their back-office restaurant
restaurants. management platform (Data Central), and
their newly acquired Punchh loyalty platform,
Ideally, this works out like Roku (ROKU) did all of which work together and will almost
starting a few years ago, where a hardware certainly be joined by other software
business is discounted by investors as low- packages that PAR purchases in the years to
margin and keeps growing, but gradually gets come.
enough scale in the better “cloud” part of the
business that it starts to be understood as a If we ignore all the non-software businesses
much more appealing cloud software business at PAR, we have clear visibility for the
with high operating margins and good company to grow from the current ~$85
recurring revenues… and eventually, as more million in annualized recurring revenue
products are bolted on to the Brink platform (ARR) to at least $97 million, probably this
or they get some traction with their PAR year but at least within the foreseeable future
Payments offering, an even more scalable ($97 million is the “contracted ARR” as of
business that can grow without additional last quarter). Punchh alone doubled that
investment. number this year, so this could change
quickly as other acquisitions are made. The
How to think about the valuation? That market cap is $1.4 billion at a recent $53/
requires a little work, because the most share, so that’s a valuation of about 15X
potentially profitable and fast-growing part of ARR. Not obviously cheap for a software
PAR is also, when it comes to the top line, the company, but nor is it out of line — and
smallest part. PAR still has that hardware remember, that means we’re ignoring the
business, with continuing innovation in POS roughly 2/3 of their revenue that comes from
terminals that are used by many chain hardware sales and government contracts,
restaurants, still including McDonald’s, and both of which can remain profitable and
with other ancillary products, like headsets relatively low-growth businesses for a long
for drive-thru operators. It also still has the time.
government contracting business, which just

25
To some extent PAR competes with higher- us something pretty impressive if Singh and
growth companies like Toast, who offer a lot PAR just stay the course and keep banging
of the same kinds of software to accompany away at the current plan. The potential
their POS platform and hardware, but since market remains huge and largely under-
PAR focuses only on enterprise restaurants, served, PAR has a foot in the door at about
those with typically at least dozens or 50,000 restaurant locations and has the goal
hundreds of locations, they are really of not just increasing that number but also
competing mostly with antiquated enterprise substantially up-selling those locations on
platforms — growing chains want customized new and improved software services… and
solutions that can be installed by expert that’s still a pretty small chunk of the huge
partners, not a machine that arrives via FedEx restaurant sector (there are more than a
and requires them to use a higher-cost million restaurants just in the US, and,
payment processor. depending on who you ask, more than
300,000 chain restaurants).
How does PAR surprise? By continuing to
acquire other bolt-on software platforms that What could go wrong? Competition and
they can sell into their growing customer leadership in their niche is the big factor I
base, keeping retention high, and gradually worry about. If Singh leaves the company, or
increasing the value of each customer they face some major losses of customers to
relationship… and they may be making ever other software platforms, that would be a big
more connections with chain restaurants as sign that I was too confident.
they get the benefit of Ron Shaich’s expertise
(he’s the founder of Panera, and came on After it was picked? PAR did stock and debt
board by making an investment, through his offerings in September to raise more growth
Act III Holdings firm, in conjunction with the capital and refinance some of the Punchh
Punchh deal in April). acquisition cost, which helped bring the
shares down a bit, and the IPO of Toast
Over time, the high margins on software (TOST) probably gave some PAR investors a
subscriptions add up, and those software little worry — or a sexier idea to chase.
platforms in many cases remain “sticky” as Operationally, they’ve improved substantially
they are critical management and operating by finally ramping up their installations and
tools for these restaurants, so as long as they turning their huge backlog of Brink orders
can defend their niche and keep their into sales. They’re now cashed up to make
customers happy we can find ourselves more small bolt-on acquisitions, and that’s the
surprised by the compounding earnings most likely focus of the next couple quarters,
growth if we just give it time. It might be but it’s also quite possible that they’ll make
better than that, if they make more great larger deals that require more capital and
acquisitions like Brink or Punchh or get good could hurt the shares in the short term. I’m
traction for their PAR Payments platform still confident in the growing software
(which they’ll probably offer as a money- business and very confident in Singh’s
loser to get in the door), but time could give transformational leadership.

26
 PubMatic (PUBM)
Bought 6/11/21 at $33.05
Sell-side platform for programmatic advertising, with servers around the world and good
relationships with major buy-side platforms like The Trade Desk and Google.
➕ Newly public ad-tech company that offers publishers more power, profitable from day
one, which helps encourage comparisons to The Trade Desk (TTD).
➕ Holds a tiny share of huge addressable market, with its own network infrastructure that
can adapt quickly, and carries a very low valuation given its very high growth rate.
➖ Shares are illiquid and volatile, with insider selling likely, and usage-based businesses
can bring big swings in revenue.

Market Cap: $2 billion (at $38.69 as of 12/7/2021)

2018-2021 revenue growth: 32% (compound annual growth rate, including 2021 Q4 estimate)
Revenue growth forecast for 2022: 25%
December 2021 valuation: 8X current year revenues, PE of 43 (with earnings growth of ~80%
this year)

What is PubMatic? Essentially, it’s similar to So Pubmatic is a service provider in a pretty

the Trade Desk’s (TTD) business… but hot “trend” area of the internet, enabling
instead of consolidating ad buyers into one programmatic advertising (that’s ad
system by partnering with advertisers and ad placement driven by data, rather than by
agencies and executing ad campaigns across people choosing a place to advertise). They
multiple formats, like TTD does as a buy don’t have the fixed and predictable
side platform, PubMatic is a sell side platform subscription revenue that a lot of SaaS firms
— they help publishers and app developers have, so the business tends to be a bit more
streamline their ad selling business by volatile — their revenue is based directly on
building a data rich platform of ad inventory usage of the network… so it goes up in high-
for advertisers to access and buy. None of demand times, and falls when demand drops,
this is 100% clean or simple, PubMatic also like when advertising collapsed for a little
gives direct access to their platform to some while last year in the early months of the
buyers now, too, but both sell-side and COVID-19 pandemic.
demand-side platforms help to streamline
advertising by bringing the needs and data PubMatic is often pitched as a “next TTD”
and inventory together in one place to match stock, and that’s probably not fair… but there
buyers to sellers at the best price and value. are some reasonable comparisons. Both are
As of their IPO late in 2020, they were “ad tech” companies with a lot of exposure to
serving 1,100 publishers and app developers growth markets in streaming video and
worldwide, with inventory from 55,000 mobile ads, both are still pretty small in
domains and 8,000 apps. relation to the size of their market, and there

27
is some overlap. Importantly, it’s also true future sentiment can be exciting, and
that TTD is one of PubMatic’s biggest sometimes they’re great investments… but in
customers (that’s a major risk, as well, the the end, we’re here to make money, and a
vast majority of the order flow for their company that’s already profitable and has
business comes from the two largest buy-side proven that their business can generate excess
ad networks, The Trade Desk and Google)… cash flow and fund itself is, by default, a safer
but one comparison that stands out is that investment than one that thinks it can become
PubMatic, like The Trade Desk in its very profitable but is throwing money at the
early days (TTD had its IPO about five years business to build market share before they
ago), is both growing fast in a huge and fast- prove their profitability.
growing market and, more importantly,
already consistently profitable. The basic appeal of their product is that it can
give publishers more power, simplifying and
That hasn’t been widely seen as a big deal, consolidating their ad offerings so that
speculators are more excited about growth advertisers don’t have to choose among 25
than profit, but being profitable makes your platforms when placing ads… and while
life so much easier as a public company — you’re at it, be more transparent than Google
it’s easier to raise money, it’s easier to and Facebook.
withstand the loss of a customer or the
shifting sands of sentiment, it’s easier to There are many competitors, aside from just
thrive in a bear market. Companies that are the giants like The Trade Desk and Google
valued based solely on revenue growth and who touch on PubMatic’s business to some

28
degree, but their profitability and Analysts think PUBM will have revenue
independence stand out — it’s appealing that growth of about 30-35% in 2021, which is
they built their own high-speed global ad- similar to what the company has forecast and
serving network infrastructure and technology is about the same as their revenue growth was
instead of taking the easy route and building in 2020 — as an ad platform, that’s fairly
their platform on someone else’s cloud. ambitious because we’re comparing to the
biggest-spending election year in history,
The stock has been volatile this year as though ~80% of that $8-10 billion in political
quarters have come in hot or cold, and as the advertising in 2020 did go to traditional
stock faced both a short squeeze earlier in the “linear TV”.
year and a raft of insider selling once the
lockup period expired. Both of those were They’re also retaining and up-selling
exacerbated by the fact that not many of the customers, not just buying new customers,
shares trade — the float is tiny (the “float” is and they’re not just “buying growth” through
the number of shares that are actually acquisitions like many consolidators are in
available for trading in the public market — this business, which makes the growth seem
not including large insider positions that steadier and more predictable — the dollar-
aren’t changing). That will probably change, based net retention for the past year is now a
gradually, as insiders sell down their stakes fantastic 157%, up from a “pretty good”
— as of the time of my purchase a few 110% a year ago.
months ago, 85% or so of the share base was
still the super-voting shares held by venture So we have the opportunity to buy something
backers, founders and insiders. As insiders large, and fast-growing, but still a small
convert their super-voting shares to A shares player in the vast global advertising business.
to sell them over time, that float will rise. It’s They serve up over two billion ad impressions
a $1.9 billion company, but only about 10% a day, connecting large publishers and large
of the shares are A shares and publicly traded. advertisers, and even at that massive scale
Low float brings big movements when people they estimate that they have roughly 3% of
panic in or out of the stock. the market that they’re trying to address
(which, they point out, is about what The
We could be at risk of seeing revenue slow Trade Desk had when they went public).
down if 2020 was a one-time wonder of They re-optimized their business in 2018 and
digital advertising growth. That’s probably 2019 to better incorporate mobile ads and
the biggest risk, along with their reliance on a video, and now those high-growth segments
few large partnerships or customers — I don’t of the market account for about 70% of their
see digital advertising slowing at all in the ad impressions.
next five years, but certainly somebody could
come along with a better idea or a better The growth message is very similar to that of
network and bite off some of the business their near-peers and competitors —
PubMatic is hoping to have in the future. advertising is becoming better because it’s
becoming more data-dependent and targeted,
and that will lead to more and better spending

29
by advertisers who get better results. They progress to date to lock my investment in for
have strong momentum with their OpenWrap five years and let them try to build something
platform for header bidding, particularly in fantastic. Forecasts for future growth have
mobile and video/OTT streaming markets, room to improve considerably, and the fact
and those are still the strongest growth parts that PubMatic was already willing to offer
of the ad world, particularly as the massive 2022 revenue guidance back in August (they
TV advertising budgets gradually make their forecasted “at least 25%” revenue growth,
way into the better and more responsive and reiterated that this past quarter), provides
world of connected TV. some confidence in the predictability of their
growth.
The big differentiator that PubMatic likes to
talk about is that they have their own network Growth comes from a few factors; expansion
— they didn’t take the easier path and build within publishers, which means they’re doing
on top of Amazon Web Services (AWS) or a good job so they get more of the business;
outsource to other networks, they built out diversification across publishers, developers
their own hardware network in data centers and media formats, including aggressive
around the world, and thus have more control, expansion into OTT streaming and other
including the ability to innovate quickly and connected TV; and the increasing value of
ship new software to their network every day. publisher data in a world without third party
That means they can become more efficient cookies and with a lot more focus on user
with size, as they more fully optimize and use privacy, since they are prepared to help
their network capacity, but it also means publishers use their valuable data and better
they’ll face some of those “expenses are compete with the data-rich “walled gardens”
going up” risks as they invest in the network, of Google and Facebook. Publishers typically
upgrading and extending the hardware and don’t have the technology to really take
software platform and continuing to push advantage of their owned data, but with
R&D (and therefore increase headcount). strong partners like PubMatic they can better
monetize that data, and PubMatic has a lot of
With about $226 million in revenue expected opportunity to innovate and become “stickier”
this year, PubMatic remains a minnow. with their customers.
They’re growing at about the same pace as
TTD, they have a somewhat less appealing The stock continues to be valued at just about
business because their margins are a little 10X trailing revenues, they expect EBITDA
lower, but it’s clear to me that the business is margins of about 30% (and they’ve been
scalable, and there’s opportunity in the fact much higher recently), and they are profitable
that analysts don’t trust PUBM’s ability to and growing earnings. I thought the analysts
keep their margins up at these higher levels. If were lowballing the growth numbers this year
they just stay roughly as profitable as they because they don’t trust the company yet,
are, they could earn more than a dollar a share which is understandable, and that seems to
in 2022 — that may or may not be how the have been the case — a few months ago the
next few quarters go, they’re also investing in forecast was that they would earn 46 cents per
growth, but I’m confident enough in their share this year, the same as in 2020, with 20%

30
earnings growth next year… and that pattern
may be repeating, estimates have crept up to
85 cents for 2021 but 2022 remains below
that, at 81 cents. At $37, they’re valued at
about 40X earnings… not cheap, not perfect,
but easily justifiable given their small size,
high margins and solid growth rate.

I know there’s risk, particularly if they lose a

big customer in a given quarter (à la Fastly
and TikTok last year), and that’s a real risk
because it is a competitive market, with other
service providers offering up sell-side
technology platforms. But so far the trend is
for more use and good client retention in
addition to pretty strong on-boarding of new
customers… and I think there’s a lot of room
for them to surprise us with strong growth.
And to have big 30-50% moves in the share
price as the numbers surprise (good or bad).

They didn’t cobble together a bunch of

acquisitions to create a good story, they built
a good network. It’s paying off, but watching
the growing revenue and earnings is probably
better for our emotional wellbeing than
watching the wild swings in the share price
that are likely to continue into the future.

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 Tiptree (TIPT)
Bought 7/16/21 at $9.37
An odd tiny conglomerate with interests in shipping and senior housing, but growing
underneath that is an appealing specialty insurance/warranty business.
➕ Owns Fortegra, an unusually value-priced specialty insurance company that is growing
fast and very profitable, and a new outside investment highlights that Fortegra is worth
much more than Tiptree’s current market cap.
➕ Pays a dividend and invests both insurance float and their own capital in opportunistic
ventures, including shipping (successful lately) and senior housing (not so much)
➖ Has made some investments that lost substantial value, and the company is
overwhelmingly controlled by a former hedge fund manager so the strategy can change
quickly.

Market Cap: $450 million (at $13.02 as of 12/7/2021)

2018-2021 revenue growth: 21% (compound annual growth rate)
Revenue growth forecast for 2022: no forecasts
Price/Book value: 1.15X
December 2021 valuation: 0.4X current year revenues, PE of 9, dividend yield of 1.25%

Tiptree entered my Real Money Portfolio Invesque senior living REIT (IVQ.TO,
years ago, when it traded at less than half of MHIVF), some cargo ships, and a booming
book value, as a “buy it because it’s really mortgage business this year), and is a very
cheap and pays a growing dividend” business. small company run by a former hedge fund
It has finally moved up to trade near book guy (who retains control of a huge number of
value, and their Fortegra specialty insurance the shares), so I’m going to stop obsessing
business has begun to get some traction, so about the quarterly results and let it ride while
it’s better described as, “buy a potential we see whether they can turn Fortegra into a
emerging specialty insurance leader at a real growth engine.
discount.”
Fortegra is following in the footsteps of the
That shifted my thinking, so I sold this from much larger specialty insurance/warranty
my regular portfolio and bought in the Lock businesses like RLI (RLI) and Assurant
Box instead, mostly because it’s going to be a (AIZ), selling extended warranties to
bumpy ride — it’s a much better business consumers and offering other specialized
now, but there’s no longer the cushion of insurance-like products that are distributed
being wildly undervalued. This is really a primarily by retail stores and banks (in the
conglomerate that’s still dependent on a small case of extended warranties, the car or
number of investments (their share of the appliance dealer makes the sale of an

32
extended warranty or a service contract, and adjusted net income of 46%. All of those
participates in the risk, in the case of small numbers showed similar growth a year ago,
bank the bank will offer borrowers “payment and the longer-term compound annual growth
insurance” to cover a certain number of rate (CAGR) for adjusted net income at
missed payments if the borrower loses their Fortegra is 25% from 2017 to the present, so
job or has a similar crisis). we are establishing somewhat of a trend in
very solid growth for Fortegra, and steadily
The profit margin is huge on this kind of increasing margins as that business has grown
insurance, because actual losses are rare and and become more efficient. That’s good
very predictable in scope, and that profit is enough for me. It’s not a hyper-growth story
shared by the distributor and the underwriter in the context of this current market, but it’s
— so real loss ratios are very low, but if you good growth, made a little more interesting
include the fat commissions/revenue share as by the fact that it’s trading at a discount, and
an expense it usually averages out to hiding inside a strange little conglomerate.
something like a 90% loss ratio (meaning
10% of each policy they sell ends up being Insurance is obviously a huge global business,
pre-tax profit). It’s really more of a “fee for but even if you just focus on the areas of
service” business than a “risk” business, with niche specialty insurance, extended
very little exposure to typical insurance warranties, service plans and the like, it’s
company risks like hurricanes or wildfires. clear that the market is very large and Tiptree/
Fortegra is a minnow. That is a challenge,
The key for this kind of insurance is getting too, in that getting distribution is a key part of
distribution — you need to have the bankers this business, and it’s hard to break into new
and the appliance vendors and the car dealers customers (each new deal with a new retail
bought into your platform. This is not a chain is big enough that it generally causes
product that individual consumers typically them to issue a press release), so to some
choose, it’s one that is sold to them at the extent it’s a liability that they’re a small
point of sale, without competition. player — but it doesn’t take much new
business to move the needle.
Revenue growth for 2019 was 22%, and for
2020 it was down to 6.5%, but in this case the Growth message is important, but it’s not as
revenue is so thrown off by increases or important if you’re trading at a low valuation
decreases in the value of their investments — they do have that “message” to
that I’m looking more at the real operational shareholders, with language like, “Cutting-
growth — and particularly the part that has edge scalable technology & deep industry
some hope of being steady, the operating expertise lay the path ahead to be a global
income from the Fortegra business. market leader in specialty insurance,” but
they’re not trading at 20X revenues like the
wild insurtech companies, so the ambition is a
That business had growth in premiums of
smaller part of the story for investors (though
28.7% in the last quarter before I added it to
if those growth expectations really emerge,
the Lock Box, growth in unearned premiums
that could be a huge driver for an improving
and deferred revenue of 27.4%, and growth in

33
valuation). The “compelling growth story” good or bad, with pretty big moves by
slide of recent investor presentations talks shifting the portfolio (as they did when they
about their 32% CAGR in unearned bought into cargo shipping starting a year or
premiums, which is building that “float” so ago, which has been successful despite it
platform for the business (giving them access being an area where they had no previous
to investment capital even though they don’t experience or expertise).
“own” that capital yet), but it also highlights
their acquisitions (they’ve bought a few After it was picked? Tiptree is no longer so
warranty providers over the years), the huge cheap that you can buy it without even
size of the market (“warranty solutions” is looking at the company, as was arguably the
what attracted me, and that’s a huge case a couple years ago when I first started
addressable market, they say, at $53 billion, buying and when we added it to the Real
but Excess & Surplus insurance, a business Money Portfolio below book value a few
they just entered in late 2020, is as large, and months ago… but it’s still among the
they’re also entering more standard admitted cheapest insurance companies you can find,
insurance markets), and their expansion into despite strong growth and profitability. And
Europe (which is still small, but is the fastest- they did have one huge catalyst to drive some
growing part of Fortegra). of the recent revaluation of the shares:
Warburg Pincus bought 24% of the Fortegra
This could certainly disappoint, growth is a business for a $200 million strategic
new thing for Tiptree and they have a very investment. That investment hasn’t closed
spotty record over the past decade, but after yet, but it will give Fortegra a lot of growth
watching closely for a couple years now I can capital, and it also provides an endorsement
see a really strong Fortegra emerging from of the company — Warburg is essentially
this as that business scales up, and investors telling us that Fortegra is worth $800 million,
aren’t really giving them much credit for that and if that’s true then Tiptree, which will
yet. remain the 76% owner and get that $200
million to invest in Fortegra’s growth, is
The possibility for transformational growth is trading at an extremely stiff discount.
inherently a judgement call, and it’s based on Tiptree’s market cap of $450 million is not
some assessment of management. There has much more than half of what Warburg has
to be some kind of “feel” for that, and said their insurance subsidiary is worth on its
sometimes those feelings are wrong, but I do own.
see Tiptree as aspiring to build a much larger
presence in the specialty insurance sector, as There is no analyst coverage of Tiptree, no
evidenced by their recent decisions to go into big surprise for a tiny company that is 33%
more traditional insurance policies in addition insider controlled, but I expect to see steady
to their core business in warranty and service and perhaps accelerating growth in the
contracts. And more than anything else, their Fortegra business as they invest in that going
large amount of available capital for forward, juiced by the new capital from
investment and their flexible investment Warburg that will come in when the deal
mandates mean that they can surprise us, closes in early 2022.

34
There’s still plenty of risk, for sure, as with
many of these small companies there is no
real potential for outside investor pressure on
Tiptree management, so they can do pretty
much whatever they want… and if they have
another large investment disappointment like
Invesque a couple years ago, it could easily
hurt their earnings and cause investors to flee
the stock again — there are reasons why it
has traded at a big discount to book value for
a long time. And competition is meaningful
in the specialty insurance business, where
there is clearly room for an upstart to take
some market share… but where there’s also
risk of being squeezed out by much larger
competitors. I’m confident enough to lock it
away here, betting that the couple years of
steady improvement from Fortegra could turn
into something much larger over time if I let
it percolate, but in the short term I don’t
really know what will happen.

35
 NewLake Capital (NLCP)
Bought 9/2/21 at $29.98
The newest marijuana REIT, and the one that is most closely mimicking the approach of
industry leader Innovative Industrial Properties (IIPR)… though they still trade OTC, and at
about half of IIPR’s valuation.
➕ The marijuana REIT that is most clearly following IIPR’s proven business model (no
debt, 15-year leases at high cap rates), which generated 1,000%+ returns for early
shareholders for that company.
➕ Newly public and not well-known, but already has a large portfolio of properties and the
capacity for rapid dividend growth.
➖ Beyond the risks every marijuana financier has (illegal business, and legalization could
erase the moat around their business), NLCP has to compete with IIPR with a much lower
profile (trades over the counter), and has a short operating history and high tenant
concentration.

Market Cap: $600 million (at $28.25 as of 12/7/2021)

2020–2021 revenue growth: 150%
December 2021 valuation: 22X current year adjusted funds from operations (AFFO),
expected dividend yield of at least 3.5%, dividend likely to grow quickly.

The small world of publicly traded marijuana definitely adding a little diversification here,
real estate investment trusts (REITs) gained a and probably a little more ballast for the
new entrant this summer. NewLake Capital portfolio, though, as we’ve seen from IIPR’s
Partners (NLCP) joins pioneer and market extraordinary performance over the past five
leader Innovative Industrial Properties (IIPR) years, this can also be a mega-growth niche.
and newer competitors AFC Gamma (AFCG)
and Power REIT (PW), all of them stepping And though NewLake is new, they’re already
into the gap to provide financing for growth- pretty established — they have a decent-size
hungry marijuana companies who don’t have portfolio of 28 properties, many of them
great access to the traditional banking system. operated by the top-tier multi-state operators
everyone would prefer to deal with (Acreage,
I tend to like specialty finance companies and Cresco Labs, Curaleaf, Trulieve, etc.). The
usually own a bunch of them, whether they business has a very short operating history, so
take the form of sale/leaseback or that’s certainly a risk (the company as it now
infrastructure REITs or royalty companies, exists is the result of a merger of two smaller
mostly just because they can be a somewhat real estate portfolios back in March), and
diversified and less risky way to get long- 50% of their revenue comes from Curaleaf
term exposure to the cash flow from a and Cresco Labs, so there is some
growing industry or sector. So we’re concentration risk as well.

36
NLCP is valued at about 20X what their spent or committed $312 million (a third of
Adjusted Funds From Operations (AFFO) that in just the last six months, so it hasn’t
will be (that’s a cash flow measure that started to generate rental revenue yet), and
reflects the ability of the REIT to pay they have additional capital available from
dividends, essentially earnings minus the offering and a pipeline that’s at least
depreciation and building acquisitions or partly driven by “right of first offer” deals
sales), and that’s less than half the multiple with Acreage and Columbia Care that last
where IIPR has recently traded. They have another year or so.
paid only a partial dividend to public
investors so far (they came public in August, They should be able to get that annualized
before that they had been paying dividends to revenue number up to about $50 million just
their private shareholders), so they haven’t by investing their current capital, without
attracted much attention yet, but they should using any leverage, so the potential for
easily be able to pay a quarterly dividend in dramatic growth is still quite clear… as long
the 25-30 cent range based on their existing as they can keep finding good tenants. And if
portfolio, and I would expect them to have they find those tenants, it’s a pretty simple
meaningful dividend growth capacity as they business — they are not operating or
scale up. My expectation is that they will managing those properties, it’s really more of
continue to mimic the IIPR model to grow a financing arrangement.
quickly — raise the dividend to attract
investors, use that investor interest to raise And the asset valuation means that there is at
more capital to make more deals, raise the least some “ballast” to this position, relative
dividend again, rinse and repeat. to most of these “Lock Box” growth
companies. Those asset prices may be
The returns on the property portfolio are inflated, but the buildings and property are
pretty much in line with what we’ve seen real and should retain value if marijuana
from competitors over the past year — growing remains a viable business in their
NewLake says they’re getting a cap rate of markets. The asset value/replacement value
about 12.4% on these deals, which is worse for the company, post IPO, is at least in the
than IIPR’s cash returns were in their early ballpark of $350-400 million, so if we take
deals (often 16-18% back then), but is pretty away the cash, we’re paying about 2X the
similar to the deals they’re getting with price that the REIT paid to acquire its
higher-quality tenants these days. That properties, and that likely means, at ~$30/
remains roughly twice as high as the returns share, that we’re pretty close to 2X book
you can get on almost any other kind of value once that number begins to normalize.
commercial real estate, which is why the That’s about half of IIPR’s 4X book
growth, compounding ability and profitability valuation, on very similar properties with
of marijuana REITs is so compelling. similar lease terms.

Their “committed annualized revenue” is now By almost any measure NLCP is not
at $38.6 million, with 14.8 years remaining necessarily cheap for a REIT in general, but
on the average lease, they now say they’ve

37
it’s dramatically cheaper than IIPR, which rapid dividend growth and dealmaking was
has roughly a $6 billion market cap. the key to getting IIPR established as an
investor favorite and earning them that high
They deserve to trade at a discount to market multiple, and that fact will not have been lost
leader IIPR, but the 50% discount I see here on NewLake management.
may be too much, and it gives us an easier
avenue to possibly dramatic growth: They can Their growth should be a little more muted
grow more quickly because they’re smaller than IIPR’s early growth, because they’re
and have more cash on hand, relative to their getting 12-13% cap rates instead of the
size; they will get more efficient as they scale 15-20% IIPR got with its first deals early on,
up; and if investor interest begins to flow to but there’s potential for very solid growth if
the company they could get a much higher investors are willing to keep subscribing to
valuation multiple. equity raises as they raise the dividend.

If NLCP can scale up to be as efficient as The chart on this page shows what that looks
IIPR, they could push as much as 80% of like for IIPR since inception, and that same
their revenue straight down to AFFO — pattern tends to hold true with most strong
which means we could be looking at over $40 dividend growth stocks — the shares are
million in AFFO a year from now even if they volatile in any given year, but over time the
don’t raise more capital and make more deals. share price tends to rise at least as much as
If we value that at 20X AFFO, then NLCP the dividend is increased.
gets a 30% return… but if we value it like
IIPR has sometimes been valued, at 50X If you want some non-marijuana
AFFO, that’s a 230% return. Probably comparisons, two I have some experience
reality will be somewhere in the middle, but with are American Tower (AMT) and

38
CoreSite Realty (COR), and our second chart large and institutional shareholders, though
shows what those stocks have done and how management has indicated that they’re
they’ve reacted to unusually high dividend unlikely to get a major market listing in the
growth (for what it’s worth, I sold out of COR near future.
as the dividend flattened out from 2018-2020,
their dividend growth had been fantastic and The dream? I first bought IIPR when it had a
partly fueled by debt, but I do currently own market cap of about $100 million and had
AMT). already been paying a dividend for three
quarters and announced their first dividend

Of course, we’ve also been in a period of increase, less than four years ago, and it’s
falling and historically low interest rates, and now approaching $6 billion and the dividend
rates have been falling for more than 30 has gone from 15 cents/share to $1.40 per
years, so that colors a lot of our assumptions share, per quarter. That’s the path that’s been
about the power of dividend yield and the paved for NLCP, now we just have to see if
impact on share prices — that could change. they can follow it.

Performance is likely to be more impressive if I don’t expect any of the newer competitors
NLCP is eventually able to get up-listed to the will do as well as IIPR has done over the past
NYSE or the NASDAQ and appeal to more four years. Competition, loosening banking

39
laws, and more awareness from investors will many of these other small cap companies —
probably erode the return potential a bit, but not a lot of shares change hands each day,
I’m willing to be surprised… and doing half which means it’s more important than usual to
as well would be fantastic. use limit orders and set a reasonable buy
price for you, using market orders with stocks
There’s also some risk to locking up your that don’t have a lot of volume can lead to
money for five years, so it’s reassuring to very surprising order fills at prices way above
have some “anti-fragile” positions in this what you expected.
bunch — NLCP, unusually for a real estate
company, does not yet have any debt on the The growth of the market is very clear, the
books, and the fact that they’re holding ~15 marijuana sector is growing fast in the US,
year leases provides some stability. and is well funded at this point. There’s no
Competition might come in, but these guarantee that the sale/leaseback financing
contracts do not quickly reset. sector for marijuana growers will continue to
grow, but that financing model is not unique
And should you be tempted to follow my lead to marijuana and the risk is primarily that it
into NLCP, please do note that it is very new will become more competitive and the returns
and still quite illiquid, even compared to will be compressed, not that the total market
won’t grow.

40
 Digital Ocean (DOCN)
Bought 9/9/21 at $68.96
“Cloud for the little guy” company brings cloud services capabilities to companies who
want a more user-friendly solution with more predictable costs than the large cloud
providers.
➕ Big market potential in providing cloud services to developers and smaller customers
who need more hand-holding or more predictable billing than Amazon Web Services and
the other market leaders.
➕ In the very early stages of earnings growth, so growth may be fantastic… and they’re
already profitable.
➖ Business is very competitive, their share could be eaten away by Amazon, Google and
Microsoft if they fail to delight customers, and the valuation assumes very strong growth
well into the future.

Market Cap: $10 billion (at $94.80 as of 12/7/2021)

2018-2021 revenue growth: 28% (compound annual growth rate, including 2021 Q4 estimate)
Revenue growth forecast for 2022: 32%
December 2021 valuation: 22X 2021 revenues, PE of ~250 with EPS growth expected to be
~70-80%

DigitalOcean (DOCN) was first brought to world. With its mission-critical

my attention by Citron’s hugely bullish report infrastructure and fully managed
several months ago (Andrew Left called it the offerings, DigitalOcean helps
“Shopify of Cloud Computing” in August), developers, startups and small and
though it has also gone on to catch a lot of medium-sized businesses (SMBs)
attention from the Motley Fool and others. In rapidly build, deploy and scale
the few months since I bought shares for this applications to accelerate innovation
portfolio, the stock has had a big run and then and increase productivity and agility.
a big collapse as it got some additional DigitalOcean combines the power of
investor attention during this wild period in simplicity, community, open source,
the markets, but the underlying growth of the and customer support so customers
business looks very appealing. can spend less time managing their
infrastructure and more time building
Here’s how DigitalOcean describes itself: innovative applications that drive
business growth.”
“DigitalOcean simplifies cloud
The pitch for DOCN is pretty simple: It’s not
computing so developers and
a completely unique company, they offer a
businesses can spend more time
cloud computing platform, helping companies
building software that changes the
bring their software and websites and apps to

41
their customers and users more efficiently and manage their AWS usage. That’s the sweet
effectively, and there are hundreds of such spot for DigitalOcean.
companies… but everything I read indicates
that DigitalOcean does a better job of offering And the model works, with the company
a simple, easy-to-use platform for developers, jumping right in with a profitable income
and they offer both a cleaner platform for statement in its first quarters as a public
small developers and customers and much company. DigitalOcean is just hitting that
simpler billing at typically a lower cost, so “sweet” spot of its life as a young company
smaller companies have an easier time when each new bit of business doesn’t just
starting up and managing their use of the help them spread out the costs… it also brings
cloud with DOCN than they do with Amazon in some profit, and profit growth can be truly
Web Services (AWS) or Microsoft Azure or dramatic in the first few years and catch a lot
the other mega-providers, whether it’s just to of attention, partly just because of the math of
build a new website or to create a new app or small numbers (growing your net income
service… and they get a more powerful from a million dollars to ten million dollars is
product offering than would be typical of a 900% growth… going from $10 million to
smaller traditional “website hosting” $20 million is just 100% growth).
company that’s not really a full cloud
provider. Which means that if we’re heading into that
growth to $700+ million in revenue in the
If I were starting fresh and building Stock next couple years as predicted (or better, one
Gumshoe today, I’d certainly find dreams — analysts are currently estimating
DigitalOcean a lot easier to deal with than $733 million for 2023), the net income
Amazon Web Services, which even my tech number could explode higher.
consultants warn me is a bit more
unpredictable and complex than I probably I love to see clear evidence that the business
want, and I’d find the flexibility very can charge enough to make a profit even
appealing compared to a traditional server while it’s fairly small, partly because that
hosting company. means they don’t have to raise more capital to
grow. They might do so, particularly if they
AWS and Azure and the other services, want to grow more quickly, but they don’t
including Google Cloud, are amazing and have to — and that means they’re not as
nearly ubiquitous now… but they’re also fragile as a company that has to come back to
really focused on big customers who can the markets for cash during a weak market
move the needle for them or on the scalability environment. That’s also what first attracted
of offering a do-it-yourself service with little me to Shopify (SHOP) back when the Fool
support, leaving some room for more was pitching the stock in early 2016, the clear
customer-friendly or developer-friendly trajectory of improving margins as they grew
systems to be built underneath the giants, for which meant that even five years ago, when
the businesses that might have a few or a few they were tiny with a market cap of only
hundred employees, who might be too small about $2 billion, it was clear that if they
to have special teams of technicians to slowed investment in accelerating the top-line

42
revenue growth, they could pull a couple up by a good growth trend in their key
levers and be profitable almost immediately. numbers, too. DigitalOcean has an annualized
They didn’t, which turned out to be the right run rate (ARR) of $455 million in revenue
call, the opportunity was far larger than I right now, and net dollar retention of 116%.
could have foreseen (the market cap is closing That means they’re valued, at the moment, at
in on $200 billion now), but at the time it was about 20X current revenues, with that number
comforting that they could. If you’re taking a increasing 36% over the ARR a year ago.
risk on high-growth stocks with short They increased the number of customers by
histories, that comfort level is sometimes only 7%, to about 600,000, but their average
what keeps you in the game. revenue per customer was up 28%, faster
growth than they had recently enjoyed. All of
Analysts now estimate that DigitalOcean will those numbers are generally in an upswing, if
be profitable for the full year in 2021, earning not always a dramatic one (the net dollar
34 cents per share, and will almost double retention was 104% a year ago, for example).
earnings per share in both 2022 (59 cents) and
2023 ($1.03). That doesn’t mean the stock is That’s a rational valuation for a high growth
necessarily cheap at $80+, or that analysts and profitable cloud provider, at least in the
will be right about the exact trajectory, but it context of the current market (ten years ago
does mean that we can really envision a there was no such thing as a rational valuation
strong earnings growth story as that revenue of 20X sales, so if we go back to that in the
scales faster than their cost of revenue and future most small growth companies are in
their operating expenses. At those analyst trouble… but everything is relative).
forecasts, DOCN has a forward PE of over
100 and trades at about 12X what we expect It’s also positive that they continue to add
revenues to be next year, so it’s not meaningfully to their product offerings
objectively cheap, but if that top-line growth through partnerships and collaboration, as
can be continued — and there’s no particular with the new managed “database as a service”
reason to believe it cannot, given their strong integration with MongoDB, and they also
customer relationships and retention, and made an acquisition to further strengthen their
their tiny size in a gigantic market — then product suite, though it’s probably not a huge
growing into that valuation is just a matter of one (it wasn’t big enough for the terms to be
time and a little patience, and profitability disclosed) — a few weeks ago they
also gives them flexibility in going after new announced their first acquisition since going
markets or new growth that we can’t foresee public, they’re buying Nimbella for its server-
today. less platform, expanding their “platform as a
service” offering as they rebrand Nimbella
And while the assessment of the quality of a and turn it into a Digital Ocean product early
company partly relies on judging the next year. Every service they stack on the
management team and the strategy and the platform has the potential to make it stronger
customers’ love for the product, all of that can and stickier.
be misleading if you’re not an expert in the
industry — so we do want that to be backed

43
What could go wrong? Well, aside from the company or a lot of “skin in the game” just
fact that the valuation is pretty rich and they yet — the founders, including the Uretsky
have a lot of competition, some of the risk brothers, are still meaningful shareholders,
here is similar to the risk we face with but they’re not working for the company or
PubMatic, which is similar in size and also on the board, and the management transition
positions itself as developer-centric and offers as they built up to their IPO might end up
usage-based pricing: customers are not locked being brilliant, but it’s still not a clean and
in for the long term, and the revenue is not easy “dedicated founder chases a vision”
quite as predictable as it would be with a story like we see so often in tech firms.
genuine “subscription” service. If they lose
some big customers, or a competitor swoops And it’s a recent IPO, so we’re likely to see a
in with a better offer that tempts away a lot of lot more insider selling than buying for the
their business, then the usage can drop foreseeable future. Some insiders, including
quickly and revenue falls right behind it. Andreesen Horowitz and some of the
That’s the flip side of being “developer executives and board members, have done a
friendly,” which is a huge benefit for the best bit of selling now that lockup periods are
companies if they can really be seen as being expiring, as is typical of an IPO in its first
on the side of the developers, since it’s those year.
developers who are often choosing the
platform and making it work — that kind of What could go shockingly right? That’s
“the developer is the customer” focus is what always hard to guess when we’re looking into
helped make Twilio (TWLO) such a huge the future, but mostly it’s that the market
winner, in a business that, like DigitalOcean, could be a lot bigger than we think it is today.
has, at least on paper, plenty of competition, Small businesses are becoming ever more
but it does come with some downside risk or reliant on a robust internet presence that goes
some potential volatility to the business. beyond a basic website, and small businesses
That’s a lower risk for DigitalOcean than it is that are digital first, built on cloud-based apps
for many, since they don’t rely on a few and services, are growing insanely fast right
massive customers at the top of their list, but now — we see the explosion of new
it is a real risk. businesses most obviously in e-commerce,
with all the one-person businesses building
And while I find the management team and something on Wix or on Shopify, but the
the strategy pretty compelling, and I like what more complex and technology-first small
I see of CEO Yancey Spruill so far (he helped companies who are building their own
build SendGrid’s customer base, and ushered software and apps are a little more hidden
them from their IPO to their sale to Twilio a from public view. I expect that will probably
couple years later), we don’t have a clean change over the next decade, and that
“founders committed to building a great DigitalOcean has a real chance to remain the
company” story. Spruill is the third CEO in provider of choice as the best of these future
three years, following Ben Uretsky (one of companies scale up, and as the developer
the founders) and the first “outside” CEO community that currently prefers
who held the place for just a year, so he DigitalOcean continues to grow with new
doesn’t have a long track record at the

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coders and entrepreneurs popping up every have $425 million or so in revenue this year,
day. so that’s something like 1% market share…
despite having strong growth and profit and a
In terms of the broader market they operate solid brand in this space, it’s a minnow in a
in, Gartner forecasts that spending on public large ocean. Amazon Web Services had
cloud products and services will be over $330 revenue of about $46 billion last year, just as
billion this year, growth of better than 20% a point of reference. The market they’re in is
from last year. DigitalOcean will probably so vast that they have plenty of room to grow.

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 Mitek Systems (MITK)
Bought 10/16/21 at $18.43
Building on early online banking leadership in check scanning to provide “know your
customer” identity management and verification services for financial companies.
➕ Pioneer in mobile check deposit for banks, shifting focus to higher-growth online ID
verification business… and that could be a “winner take most” business.
➕ Strong revenue growth may be under-appreciated because of past disappointment or an
investor focus on the likely phase-out of paper checks.
➖ Earnings growth estimates are low, given the strong past revenue growth, so I may be
overestimating the potential or underestimating the competition (though the valuation is
also quite low).

Market Cap: $750 million (at $17.48 as of 12/7/2021)

2018-2021 revenue growth: 24% (compound annual growth rate)
Revenue growth forecast for 2022: 16%
December 2021 valuation: 6X 2022 revenues, forward PE of 19 with EPS growth forecasts of
about 10%

Mitek Systems is quietly going through a letting an AirBNB host know that you’ve
transformation from being an early company actually checked the driver’s license of their
in providing online banking services, potential visitor and know they’re who they
primarily mobile check deposits, and that old say), and that’s likely to become ever more
business is why I’ve passed on the stock a important.
few times in the past. That business is slowly
dying — it works great and is a good service, And mobile deposit revenue is still growing,
but I use it a lot less than I did five years too, actually — it looks like my biggest error
ago… there just aren’t many paper checks in dismissing Mitek in the past is that the
flowing through our lives anymore. mobile deposit business will be meaningful
for longer than I would have guessed. That
The pivot is on, though, and Mitek now sells segment had revenue of growth of 19% in the
itself as a “digital identity verification” last fiscal year, still almost as high as the 22%
company, and that should be a large area of growth of their ID verification business. The
opportunity… with their solid client list revenue last year was about 2/3 from the
(including AirBNB (ABNB) and DocuSign online check deposit business, which should
(DOCU)) offering some endorsement of the be a “winner take most” business (if you have
value of their particular platform. It’s not the best fraud detection because you have the
ubiquitous at this point, but it has a chance to most transactions running through your AI
become the leader in connecting virtual system, then you get the most new business),
business to real verified human beings (as in, and only 1/3 is in the ID verification business,

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which I think is the segment that has more Mitek is still a small company, even after
dramatic long-term growth potential. doubling in the past few years — the market
Their last quarterly investor presentation is cap is under $800 million, they are profitable
worth a quick look if the business is new to even on a GAAP basis, and analysts expect
you. them to grow those GAAP earnings by
something between 10-15% a year, and with
They also recently acquired a company called those parameters the valuation is quite
ID R&D, and that brings some interesting rational here. The company has been through
possibilities to mind. It was not a huge deal, a huge number of boom and bust cycles in the
Mitek acquired the company for “up to $49 past 30 years, this is one of the companies
million” in stock and cash, but the technology that survived a 99% drop from the dot-com
they’re acquiring is specifically focused on peak, but the stock chart before this year
fighting the power of “Deep fake” tech to fool looks kind of like my EKG whenever I
biometric security. mistakenly wander into a horror movie…
that’s the share price in purple, though what
we should probably draw our eyes to is the
revenue line, in orange…

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And things look a little steadier and more improve their actual profit margins gradually
interesting if you just look at the past five over time, and that’s worth buying. What can
years… still with the share price in purple, the provide that big upside surprise that
revenue in orange… transforms the portfolio is if ID verification
becomes more mainstream, and every website

Mitek has begun to prove itself with or service provider needs to add that
surprisingly (to me) stable revenue growth, it capability — if that happens, Mitek is well-
has both a very profitable mobile check positioned to either get acquired by a large
deposit business that is still (surprisingly) player (like DocuSign, for example), or, if the
growing, with their anti-fraud check cards fall just right, to become a large player
consortium perhaps building on that, and a itself.
good client base for their still very young ID
Verification business that could easily grow The risk is probably mostly competition — if
rapidly for a long time from this low level of others have a better ID verification platform,
penetration. or one that’s easier to integrate with their
Salesforce or their shopping cart or whatever
The steadiness of the revenue growth else, Mitek might end up an also-ran. That’s
impresses me… and the fact that they’ve kept the same risk DocuSign faced for years before
gross margins in the 85-90% range for a it went public, and it worked out fine for them
decade now tells me that they’re not facing a because they were the early brand leader and
lot of competitive pricing pressure. The had the best integrations with existing
business should scale pretty nicely and platforms, but it certainly doesn’t work for

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everybody. The high gross margins at Mitek So the “what if it’s awesome?” daydream is
tell me they’re doing fine in that regard, and I this: I think this mobile identity verification
really like their AirBNB connection, but it’s business has some potential to be a winner-
still pretty early days. take-most platform, not so different from
DocuSign in e-signatures, and I can imagine
I’d like to see more insider ownership, with that growing into a much larger business over
the executives at least keeping their granted time. That potential, combined with the
shares if not buying more, but that’s often current profitability and the established long
wishful thinking when it comes to little tech trend of revenue growth, which recently
companies — even older ones like Mitek. ticked over at 25% year over year, makes me
Mitek is in San Diego, not Silicon Valley, but interested in buying in. This company is both
I assume they share that same cultural older than most of the tech stocks in the Lock
inclination of other tech firms to pay their Box, and growing a little slower, it barely
employees with stock and options. And when squeaks in over that 25% growth barrier, and
compensation is in the form of shares, we really just for one quarter… but they did grow
have to accept that those employees will at a better clip than that for many years
sometimes need actual money to buy their previously, and we don’t have to pay an
solid gold toilets and bribe their children into outrageous valuation.
colleges (kidding! I didn’t mean you, Mitek!)

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 The Long-term Investor
And I promised a little more perspective, so let’s close with that… this is a commentary I shared
after someone asked about how to start getting comfortable with the idea of choosing individual
stocks, and buying them even though you know there’s always risk.

When it comes to making your investment decisions, a long-term investor has to have enough
confidence to hold through bad news… and in my experience, you have to build that confidence
brick by brick. For me, it starts with the company’s actual SEC filings, presentations and
conference calls. You want to get really familiar with what the business has been like over an
extended period of time, watching that growth rate and the shift in margins as they have grown
(all else being equal, I usually want gross margins to at least stay steady and operating margins to
improve over time as they become more efficient), and you want to have a good qualitative
understanding, too, a sense of how management is directing the organization and what the
strategy is, and whether the company excites its customers and its employees. You can get a lot
of that from listening to the quarterly conference calls or, when they post them, reading the
letters from management.

That qualitative assessment is what can make it possible for you to have enough confidence in a
company to hold through the periods of time when the stock is unpopular, or even hold through a
bear market. Reading a bunch of online articles about the company will give you some context,
but a lot of that commentary is just trying to explain the most recent 10% move up or down — a
pretty pointless exercise. Really, there’s no substitute for reading the 10-K (annual report,
usually found on a company’s website and always at the SEC) and listening to a couple of the
most recent conference calls… anything else is someone else’s assessment of the people you are
trusting with your money, and you generally want to use your assessment instead. It takes time to
understand the business well enough to judge with some confidence, but it’s time worth
spending.

A lot of investors call this a “game,” and I use that term sometimes, too, talking about the
importance of managing our emotions so we can “stay in the game.” But really, trading is a
game. Investing is a hobby. You don’t win or lose in a given year, you get out of it what you put
in… and over a lifetime, you might find extraordinary returns. But if you don’t like doing the
work, it’s a lousy hobby.

If you don’t like fishing or golf, why dedicate your weekends to getting better at it? It’s the same
with investing — if you don’t like it, there’s a great alternative in low-cost broad-based index
funds and dollar cost averaging, you can guarantee yourself average returns without doing any
extra research or work, and over the past hundred years average returns have compounded into
excellent performance for investors. That will probably continue to be the case.

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And the kicker is, even if you get pretty good at the hobby, most years you won’t do a lot better
than the much easier alternative, and a lot of the time you’ll do worse. That can be hard to take.
The advantages of being a patient investor in individual stocks accrue over very long periods of
time, and are difficult to see in the moment, so even if you turn out to be pretty good at it (which
is mostly a matter of discipline and managing your mindset, and only secondarily a matter of
prescience and good research skills and the luck of landing on a good idea at the right time), you
have to enjoy the process enough that in the years when all your work and research caused you to
earn a return a little lower than your brother-in-law, (who just bought the S&P 500 and ignored
it), you can still sit across from him at the Thanksgiving table without gnashing your teeth.

If you want to think more about this, I really recommend Chris Mayer’s 100 Baggers: Stocks
that Return 100-to-1 and How to Find Them, which was first published about five years ago.
That book is nominally about finding the patterns that lead to a stock providing 10,000% returns,
but really it’s about finding the ways in which companies are special and have staying power and
make massive long-term returns feasible. During the wild days when the market panics, this is
the kind of reading that serves as a restorative tonic for weary investors. Especially those who
daydream about life-changing returns from a few great stock picks (and not to beat a dead horse,
but if you’re not doing that, why bother trying to invest in individual stocks at all? There are
much easier ways to get market-matching growth).

You may or may not love the idea of searching for huge long-term returns, but I think that’s the
most appealing part of investing — trying to identify the themes and investments that can
compound massive returns over long periods of time. Whether or not you get a “100 bagger” is
almost beside the point, the point is really that setting your mindset on those kinds of possible
returns helps you to think in a long-term way, and to think about the qualitative ways in which
the company you’re considering really might have that potential. Even if all that book does is
help you reset your default thinking to “patience” instead of “do something!” it will probably be
valuable to a lot of people, and it’s an easy and pleasant read.

If that lingo is new to you, a 100-bagger is an investment that rises 100X in value over time —
it’s an evolution of the term “ten-bagger” that Peter Lynch popularized in his One up on Wall
Street (originally published in 1989, though it has been updated and is still a good read), a term
for 1,000% gains that was borrowed somewhat strangely from baseball (I’d think of a four-
bagger, a home run, as a 100% gain, but I’m not really a baseball fan). A 100-bagger is a
daunting 10,000% return, but if you spread it out it’s easier to visualize — that’s equivalent to
25% compounded returns for 20 years… or 58% a year for 10 years… or only 12% a year for 40
years. There are a surprisingly large number of companies who have generated that much for
investors, given enough time.

I love the idea of looking for that potential — it really sets the mind on the right path, and this is
the one area where individual investors, looking at relatively small companies and digging in to
the real operations of the company and trying to understand the long-term potential, have a big

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advantage over massive institutional investors who are rewarded for their ability to beat the
benchmark each quarter, not for having patience, or some imagination about the future, or some
insight into a business plan.

I love all kinds of compounding investments, because the best feeling in the world is when your
money is making you more money, and you don’t have to do any work. Steady compounders like
REITs or utilities or dividend-paying blue chip stocks can be a great foundation for a portfolio,
as dividends are reinvested into more shares and your holdings grow, but they won’t often lead to
even 10X returns unless you let it ride for 30 or 40 years — to get that kind of growth, you also
need some businesses that compound internally… they invest their free cash flow in growth,
which generates more free cash flow and lets them invest further to build on that growth even
more (or, in some cases like strong brands and royalty companies, they can grow without
investing much of their free cash flow), and they don’t have to sell many more shares to get there
so all of that growth compounds the value of your piece of the company. And to get exceptional
returns, you need one or two of them to turn into something dramatically larger than anyone
could have envisioned in the early days.

It’s simple, but even for the high growth companies that often look so sexy for investors it can
take a long time to really kick in, and as sentiment waxes and wanes during those time periods
any stock can fall by 30%, 50%, even 80% if there’s an ugly resetting of that investor sentiment
— a panic about a sector, or a high profile piece of bad news about a company, or even just a
crash in the broad market that brings everyone down. There are some times when it makes sense
to cut your losses in those situations, like Cisco in 2001, but also some times when it makes
sense to just be patient, like Amazon in 2001.

But we don’t get to know beforehand whether we’re holding an Amazon or a Cisco at the
moment when the market is crashing. The trick is to know your companies very well, have a high
degree of comfort with management, and let that knowledge give you a sense of comfort and
patience that the continuing progress of the company will eventually make up for whatever stock
drop is happening — and you’ll be wrong sometimes. Being wrong sometimes is the price of
being right sometimes, and if you’re patient enough, and choose companies with strong
fundamental growth in their real business, not just their stock price, it’s a price worth paying.

This five-year Lock Box portfolio is an exercise in teaching myself to hold some stocks through
thick and thin… and to see if I can successful identify enough of them to build something
remarkable. I expect that to be good for me as an investor, partly because it will help me to
remain focused on the long term in my other, larger investments… but hopefully also because
I’ve chosen some great companies, and will choose more great companies, and this $100,000
will multiply. I’m halfway through choosing them, and have added some at both market peaks
and troughs, so the overall value of that portfolio has not yet moved much… but I’m looking
forward to following it over time and talking about these stocks with you, and hopefully we’ll
like what we see in five years.

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 Glossary
The first thing a few friends said when I showed them an early draft of this report was, “What’s a
CAGR?” And I regularly get questions about terms that I toss around without thinking… so I
thought it might be helpful, for folks not yet fully immersed in investment lingo, to add a little bit
of a glossary here.

Starting with some common abbreviations…

CAGR is an abbreviation for Compound Annual Growth Rate — it’s a way to calculate the
average growth rate over a period of time, but accounting for the fact that each year’s growth is
on top of the new total from the previous year. If you get 10% annually from a CD, your total
return after three years is actually 33% because of that compounding, which averages to 11% a
year in the end… but the real average growth per year was 10%, so that’s the CAGR. Check out
the CAGR Calculator and the Reverse CAGR Calculator to run your own examples without
doing the math.

EBITDA is a term companies and analysts invented to compare the earnings of companies with
different amounts of debt and asset depreciation and different tax rates. It stands for Earnings
Before Interest, Taxes, Depreciation and Amortization. It’s not a real number, you can’t count
on it like earnings or hold it in your hand — depreciation and taxes are real costs, companies
can’t ignore them — but it sometimes helps to compare the cash-generating power of one
business to another. It’s calculated differently by different people, and lots of scammers over the
years have talked up the EBITDA of their unprofitable companies, so be careful.

FFO is Funds From Operations is a term that real estate investors often use in place of earnings
— largely because of the the heavy amortization and depreciation costs in a lot of real estate
businesses. This is a cash flow measure meant to show the run rate of real cash flow from a
portfolio of properties, it essentially takes away the big one-time impacts of buying or selling
buildings at a loss or profit, and removes the depreciation and amortization charges, and tells you
how much cash a real estate business is generating. Because many real estate businesses are
Real Estate Investment Trusts, designed to generate dividend income for investors, the FFO is
typically seen as the cash flow from which dividends can be paid. Companies also regularly
report Adjusted Funds From Operations (AFFO), which is not as standardized but, similar to
adjusted earnings, makes various adjustments to give investors what they generally believe is a
clearer (or more generous, if you’re a little skeptical) view of their cash flow.

PE is the Price/Earnings ratio. You just take the current price of the stock and divided it by the
earnings per share. Usually the numbers that companies and analysts highlight are adjusted
earnings, which take out one-time costs to smooth the number and, more importantly, often
remove the impact of stock-based compensation, but real accounting earnings have to be

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reported to include those expenses. The PE ratio is based typically on the most recent four
quarters of adjusted earnings, but we also refer to the “forward” PE, which is based on the
analyst estimates for the next full fiscal year.

PEG Ratio is derived from the PE ratio. It is typically the forward PE divided by the expected
earnings growth rate for the next five years. Both are estimates by analysts, so it’s not a hard
science and they’ll never be particularly accurate (especially the five-year growth rate), but the
intent is to incorporate the growth rate in valuation instead of just assessing a moment in time. A
company trading at 15X earnings and growing earnings at 5% a year has the same PEG ratio (3)
as a company trading at 30X earnings and growing at 10% a year. Typically, I consider a strong
and steady high quality growth company to be worth buying at a PEG ratio of 2 or below (or, in
simpler terms, with a PE at twice the growth rate or below), Peter Lynch popularized the idea of
using this growth-adjusted valuation metric a few decades ago and called out stocks with a PEG
below 1 as bargains. Many different websites include the PEG ratio in their statistics about
individual stock tickers, though they don’t necessarily use the same inputs.

PS ratio is similar to Price/Earnings, only using the top line number from the income statement
(sales) instead of the bottom line (profits). Often companies are valued using the PS ratio when
they are growing fast but unprofitable, as a way of comparing valuations among different high-
growth companies.

And some non-acronyms…

Free Cash Flow is the cash a company has left over after covering its operational costs and
maintaining its capital base. It’s often similar to net income, but there can be quite a bit of
variability, particularly in asset-intensive industries like real estate or manufacturing. The Cash
Flow Statement filed with the SEC often tells the truth of what’s happening in a company more
clearly than the reported earnings on the Income Statement.

Margins are the percentages that indicate how efficient a business is, and whether they are
getting more efficient over time.

• The Gross Margin is the amount by which the revenues exceed the direct cost of generating
those revenues, so for a toymaker it’s the price they sell their toys at minus the cost of building
and shipping those toys, called the “Cost of Goods Sold," that total is called the Gross Profit
(divide gross profit by revenue to get the gross margin).

• Operating Margin is how much the company makes on its operating business, subtracting
their operating expenses from the gross margin — typically that’s mostly their R&D costs and
their overhead, the cost of stuff like having a sales force and administrative staff and an office

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 building (those are typically reported as Selling, General & Administrative expense, or
SG&A).

• Profit Margin or net profit margin is the real profit that the company earns out of each dollar
of sales, after taking out all costs.

Most companies get at least slightly more efficient as they grow, and if you can see a trend in
that improvement in their margins as revenue grows, it’s sometimes possible to pretty clearly see
the future profitability on the horizon. You can also clearly see patterns, like companies who are
having to spend more and more to bring in each new dollar of revenue (that could show up if
SG&A is consistently growing faster than Gross Profit, for example).

Payout Ratio gives an indication of a company’s ability to pay (or grow) a dividend. For most
companies, the payout ratio is just the dividend per share dividend by the earnings per share, so
if it’s 50% the company is paying out half of its profits as dividends — not uncommon, and
clearly pretty sustainable. If it’s near or above 100%, there’s likely some real question as to
whether the company can afford to continue to pay the dividend. In the case of REITs, who
often use FFO as their “earnings” metric, the payout ratio might refer to how much of the FFO is
being paid out in dividends. Most companies need some money left over after paying out
dividends, because most companies want to grow and need some earnings to reinvest in the
company to spur that growth, but some companies, particularly income-focused companies like
REITs or Master Limited Partnerships (MLPs) are primarily set up to push through as much of
their cash flow as possible through to investors.

“Top Line” and “Bottom Line.” The income statements filed with the SEC follow a standard
format, so “top line” just means the incoming sales or revenues for the company, “bottom line”
means profits, what’s left over after all the expenses are taken off.

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Disclosures and disclaimers: Updated data for this report was pulled in the first week of
December, 2021, and may not be accurate when you are reading this. We get our information
from public sources, company reports and SEC filings, and it is presumed to be reliable, but we
also make mistakes sometimes. Much of what is written here is opinion and speculation about
the future, which is inherently unknowable, and every investment carries meaningful risk of loss.
Any or all of the companies mentioned above might lose 100% of their value.

You should not consider the writing here to consist in any way of investment advice, and you
should speak with your own adviser and do your own research before making any investment
decisions. Choices regarding how to invest your money or otherwise manage your finances are
yours, we share only our opinions, experiences and research.

Stock Gumshoe does not ever solicit or accept payment for editorial coverage or endorsement of
any stock or other investment, and we are never paid to cover, promote, or ignore a specific
investment.

Neither Travis Johnson nor anyone else at Stock Gumshoe is an investment advisor. We cannot
provide individual investment advice, or tell you what is right for your portfolio or financial
situation. Many of these companies are covered regularly at StockGumshoe.com, and we intend
to continue checking in on them through the five-year life of this portfolio, but we cannot
guarantee that we will update the information above or correct any errors.

As of December 8, when this report was published, Travis Johnson held positions in the
following companies that are mentioned above, through either equity or call options: Amazon,
Alphabet, DocuSign, Mitek, Schrodinger, NewLake Capital Partners, AFC Gamma, Power REIT,
Innovative Industrial Properties, Shopify, DigitalOcean, Dream Finders Homes, Boston Omaha,
Goosehead Insurance, Brown & Brown, PAR Technology, PubMatic, Tiptree, and The Trade
Desk. As promised in this Lock Box portfolio, he will hold the stocks selected in this portfolio for
at least five years, though some of the companies may also be bought and sold in other portfolios
he controls during that time. He will not trade in any of these stocks before December 16, per
Stock Gumshoe’s trading rules.

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