Feedback on analyzing and conviction?

Investment Analysis Clubs Saul’s Investing Discussions
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I am hoping feedback will help me tune my approach closer to others here.

One of my highest conviction stocks posted earnings and things are, well not perfect. When is not perfect turn into broken investment thesis? My example is Etsy, so not a Saul stock, but one I have actually been using to learn/study/document.

COVID situation was a big boost to business, so the comps recently were going to be really tough.
Q1 results showed a slowdown in growth in many areas, but there was still YOY growth.
Q2 results are now showing that Gross Merch Sales dropped two quarters I a row, and the YOY growth was growing Q1 but has slowed in Q2.

GMS per buyer showed a bit of growth, so overall the numbers for Q2 are mixed.

After market killed the stock. I am looking at about a -12% before open.

My personal approach here is to step back and big picture it. What I see on the board is more of a focus on just the numbers. In a situation with hard comps, slowing growth was expected, and is now showing. So, would the regulars here stay focused on just the dropping numbers? Would the mixed results lead to just holding?

To me, this is different than Alteryx and Fastly, but I am nervous about how a Saul type person would react to these kinds of changes in numbers.

(This is more to learn how to invest like Saul and others, so hopefully not totally off topic.)

Numbers –


GMS ($Bil)						
		q1	q2	q3	q4	yr
2019		$1 	1.1	1.1	1.7	5
2020		1.4	2.7	2.6	3.6	10.3
2021		3.1	3			
						
GMS Growth						
		q1	q2	q3	q4	yr
2019		18%	23%	22%	32%	27%
2020		33%	147%	117%	118%	106%
2021		128%	13%			
						
GMS per buyer						
		q1	q2	q3	q4	
2019		99	100	101	103	
2020		104	106	110	117	
2021		124	129			
						
GMS Growth per buyer					
		q1	q2	q3	q4	
2019		2.00%	1.30%	1.80%	3.80%	
2020		4.10%	6.00%	8.20%	13.00%	
2021		20.00%	22%			
						
Divisions						
			q1	q2	q3	q4
Marketplace	2019	126	134	141	190
		2020	156	332	342	473
		2021	413	395		

			q1	q2	q3	q4
Services $M	2019	42	46	56	80
		2020	72	97	110	143.8
		2021	137	133		

			q1	q2	q3	q4
Services% total 2019	25.00%	26.00%	28.00%	29.60%
		2020	32.00%	22.00%	24.00%	23.00%
		2021	24.90%	25%
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- My personal approach here is to step back and big picture it. What I see on the board is more of a focus on just the numbers. In a situation with hard comps, slowing growth was expected, and is now showing. So, would the regulars here stay focused on just the dropping numbers? Would the mixed results lead to just holding?
- To me, this is different than Alteryx and Fastly, but I am nervous about how a Saul type person would react to these kinds of changes in numbers.
- (This is more to learn how to invest like Saul and others, so hopefully not totally off topic.)

I hope it’s okay to keep it a little motley rather than just “True North Saul or Bust”. My two cents say the bolded part could reflect a little recency bias because there has been some excellent wisdom lately on being willing to correct course when things change, especially in light of the wheels coming off over at Fiverr. To answer your question directly, I am much more in the camp of the sentence after: Holding is my default position when results are mixed, except in the rare cases when I’m chomping at the bit for a reason to free up cash to allocate to a newer holding with rapidly rising conviction (such as “the next third” in UPST/ZI). I try not to let the [quest for the] perfect be the enemy of the good.

The last factor is that if a company remains on solid footing in general in my view and I trust management not only to execute on its current business model but to grow new revenue streams we might not even know about yet, I stay. Netflix was the first company that made me realize that this is how to make money investing in great companies. They ‘skate to where the puck is going to be’, but more importantly, YOU don’t know, or need to know, where the puck is going to be. Effective founding leaders of industry disruptors do.

I don’t think you’re off topic because this is not a portfolio allocation thing, and I look forward to reading the thoughts of the longer-timers (that is, most readers here).

-n8 (long NFLX, UPST, and ZI of those mentioned)

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3

IMO, a “Saul” stock is one showing high rates of growth. Saul admits that he is not a techie, he doesn’t know much about the products of -for example- CRWD. But he can read the numbers, and the investor letters from the CEO, and the Q&A from investor meetings. That’s what he goes on.

It is difficult for me because I like to know more about a company. CRWD was the first time I went solely on the numbers. I don’t understand their products beyond “cyber-security”. I have no idea how to use those products. I’m not an IT guy. But the numbers are impressive, and CRWD has grown to be one of my larger holdings (doubling in a year).

COST I understand. I know what they do, how they do it, and I visit the stores regularly. I got that from Peter Lynch (i.e. visit the store, see if they’re busy). But it’s not a mega-growth stock. The numbers are solid, but not of a “Saul” caliber.

Another one I’m in is QS. This is what you might refer to as a “conviction” play. They have no product yet. They are still in R&D. I happen to be technical enough (physicist) that I get what they’re trying to do. I’m investing on the promise that I see there, but I do that knowing it will be a few years before it comes to fruition. It may fall flat, or it may deliver “millionaire maker” results. Definitely not a “Saul” stock because their numbers do not indicate growth yet. One day it might be, though.

So it’s difficult to say. I think it’s up to the individual, and whether you can sleep at night. Can you go solely on numbers without a more fundamental understanding of what the company does, or do you have to know all the details about their product to feel comfortable? Most here seem to be OK with just crunching the numbers, and I’m learning that they can tell us a lot even if we don’t understand the product. I don’t lose any sleep over my investments, so that’s a good place to be.

1poorguy (long CRWD, DDOG, ROKU, QS, COST, and a few others)

*ROKU I actually bought into when I “cut the cable” and started streaming all of our video. So a combination of Lynch and Saul in that I know the product, use the product, and the numbers looked good.

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