Shelter From the Storm

Saul,

Those trolls who called our stocks “overvalued” are eating crow for dinner tonight.

TODAY’S final tally:

Dow: Down 3.58%

S&P: Down 3.39%

Nasdaq: Down 3.10%

“Overvalued” AYX: Up 3.40% (Up a total of 355% for me personally!)

“Overvalued” DDOG Up 6.23%

“Overvalued” ZM Up 7.02%

Sounds like a steak, lobster, and caviar with ice cold Dom Perignon for dinner tonight!!!

Jim

14 Likes

It’s not just the financial “shelter”. What this board gives me is peace of mind, even when the Saul Stocks are declining, because I’ve done more research, and am more at peace with my decisions.

These days, mental shelter is sometimes just as important…

Dave

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Hi Jim, It’s even worse than that. the Dow and S&P are now down an enormous 3.5% in a single day, and my representative portfolio is up over 1.0%.

As one of the trolls, I guess, let me congratulate you. It appears that investors/traders think that your stocks will benefit from the crisis.
Which is kind of weird - I was looking at some German medical stocks that were getting massacred, despite the fact that they should profit.
Anyways, they’ll probably still get slaughtered, only later. Though perhaps not as much as they usually would in a bear market.

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Saul,

Those trolls who called our stocks “overvalued” are eating crow for dinner tonight.

TODAY’S final tally:

Dow: Down 3.58%

S&P: Down 3.39%

Nasdaq: Down 3.10%

“Overvalued” AYX: Up 3.40% (Up a total of 355% for me personally!)

“Overvalued” DDOG Up 6.23%

“Overvalued” ZM Up 7.02%

Sounds like a steak, lobster, and caviar with ice cold Dom Perignon for dinner tonight!!!

Jim

I blame you for today. I hope you didn’t overeat.

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Saul,

Those trolls who called our stocks “overvalued” are eating crow for dinner tonight.

Crow sure tastes a lot like Quest protein cookies…huh.
Return on ZM from mid-2019?
Return on AYX from Sept 2019?

Great companies, executing extremely well…doesn’t mean their stock is a buy, imo.

Saul picks great companies, and in general seems to pick great stocks too.
His recent choice of Red Violet was bc I think even he is recognizing the limitation of a port to grow when your stocks are all $10b+ mkt caps with already-high multiples.

Saul underperformed the indexes last year, because he doesn’t always pare down allocations after parabolic runups or quit while he is ahead. I can’t time the tops either, otherwise I would have sold everything on June 20th 2018 and on July 26th 2019, and bought back into the markets on Dec 2018 and Dec 2019. No one has that kind of timing.

I was at an ATH for my port yesterday…although not doing as well as many YTD bc of the mult expansions with DDOG and ZM, which I couldn’t justify buying into. But because I was “trading around my core” and selling from strength during dips and buying opportunistically, I have stayed in the black so far. Running out of ways to be creative at this point, but considering today a buying opp, but not for ZM or DDOG or AYX, bc I already thought they were high at beginning of the year.

I like ESTC at these prices…PINS is worth a entry too. I sold out of LVGO (which has been up) to have more cash to play with towards those dips. ROKU starting to look interesting, but like ZM, it got ahead of itself, but I still believe in the CTV tailwinds. TTD was my baby, but I sold out in beg of Jan and stock is below that today and may go lower still.

In this environment, I expect the non-saul types in the world to sell their bigger gains in a panic, and so those stocks with recent big runs may be most at risk.

Good luck out there all. I think we are in for up/down FUD for weeks/months ahead.
Hard to imagine we get thru the election and don’t have a solid handle on the containment/control of the coronavirus plus the uncertainty of the election removed. My hope is we end the year strong once uncertainties are started to be removed.

Dreamer

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https://finance.yahoo.com/chart/ESTC?guccounter=1&guce_r…

Here is a one year chart with all those “Saul” type overvalued stocks with Elastic put in there. Shockingly, ESTC is at the bottom of the barrel (just above Nutanix were I to have included that). This is even after crashes such as PLAN recently had.

$100 in ESTC over the last year = $77.98, in AYX = $200.41. Fun to gloat over one day. I get sick and tired to people who say told you, told you, told you. Really…well I told you. Perhaps you can trade your way into greater returns by this time next year. For ESTC to make up lost ground it either needs to more than double (way more) or AYX has to collapse like it is Nutanix (and even that would not be enough).

Question on ESTC, since I have been paying attention. It is cheap. Got it. Management is adamant that the observational space is its #1 market by far, with enterprise search, and security. How does Elastic become a dominant player when it is competing against far more focused companies. E.g. Datadog in observability, which focuses its whole company on the field. Or security, such as Endgame vs. Crowd. Endgame was already losing that battle big, but now that Elastic will focus a small portion of the company on it…

ESTC strategy, were cheaper…not necessarily true, but their pricing strategy does create some good things. But to take advantage of this pricing strategy you also need to keep in-house expertise to run and manage it all. Sure, you can then run the whole stack with the same billing and pricing process. Great.

Do you go with best in breed, low maintenance vs. Higher maintenance, may or may not be best in class.

Let me know. Perhaps that is why Datadog, built on the exact same software of Elastic, but focused on only one thing (the biggest thing in their field - Elastic confirms this) has a market cap more than 2x larger, with much better financial leverage, on about the same revenue, but growing 1/3 faster. Whatever…

Elastic will outperform when they get one of their product categories to start doing what Datadog’s product does, and that is eat up the market with growing financial leverage. If that happens it will be because Elastic got its stuff together. Not because its stock is cheap.

Tinker

30 Likes

all or nothing conversations are pointless.
I made money on AYX last year too. So did a lot of people. I just didn’t hang onto it after enough profit (for my needs/goals) had been made.

I always hear about best-in-breed and “market crushers!” and how has that worked out for ANET or NTNX or ZS. The tune can change just as quick on DDOG and ZM as it did with the unbeatable ZS.

All I am saying is there is nothing wrong with declaring a “win” and moving on.
You can think ESTC has to pass some sort of test in your mind to be investment-worthy.

Pretty sure NVDA bounced back. Plenty do.
Difference is that ESTC has yet to actually fail to execute - they have operatd and performed exactly as mgmt has said they would.

TTD was a worthless stock in early 2018 when ANET/SQ and others were all the rage. They were “cheap” at something like a 7-8 P/S around a $2b mkt cap. After recent beating they are down to 17 or so, but were sitting around 20 multiple a handful of days ago.

Multiple expansion is just simply easier from a lower mkt cap and P/S. That isn’t a rocket science comment on my part.

So ZM can drop to $25b mkt cap, and I would rather own ESTC for next 12-18 months for what I perceive are higher stock price appreciation odds.

I can/could be completely wrong. I will take my 60% gains from 2019 (thanks to trading around my core) and hope to build on that this year. The near-term doesn’t look so great, but things didn’t look good on 12/24/18 or in Sept/Oct 2019. TTD had huge dips along the way from $40s to peak of $300, and since mgmt was executing as they said they would, I stuck with it. If ESTC comes out next Q with a big miss and their normally decent guidance is way low, I will likely pivot to something else.

NVDA, NTNX, ZS…we all make bad calls. Good luck out there.

Dreamer

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Tinker,

Your reply is really helpful and appreciated. Thanks.

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I agree with you. I sold both Nvidia and Arista at their all time highs. Did so in real time. What I did with Nvidia was many months later played Nvidia earnings for a day thinking things could not be that bad (this was part of my forgetting my rules in late 2018). It was just another lesson in don’t play earnings, and cheap is cheap for a reason.

But with Nvidia we all knew there would be new S curves to climb. With Arista, again in real time, 100 gb/sec had petered out and it had no new game. When Arista boomed on S&P 500 I sold, was out, gone.

Nutanix was always controversial, but it seemed too good to be true (one I should not have been in, but in the end was convinced when Nutanix finally took #1 marketshare for a quarter (undisputed). This was in mid 2018 I think). Had a double, ended up with a disappointing 50% return in less than a year.

As for current Nutanix, we just did a crowdsource on it. Our conclusions were most definitive.

Zscaler, turns out to be disappointing. So disappointing I again, like Nutanix, only got an 11 months 50% return when I had more than a double. Believe it or not, we actually began discussing our concerns about Zscaler last summer with the top down sales model. It occurred to me that given their only 118 ARR they needed to grow new customer numbers year after year to keep growth up, and that would get more and more difficult. I stuck with it however until that first disappointing quarter and got out. Gave Zscaler the benefit of the doubt. Works sometimes. Sometimes it does not. But don’t hold it hoping it will happen when obviously it won’t.

Consistent with all of these, I made tons of money, I NEVER bought when they were textbook cheap (except when I played earnings that one time and you see what I got), I did buy when they were dirt cheap (in our way of thinking), and I moved on when it became clear narrative no longer equalled real world facts. I remember one time when Nvidia fell under $100 and there was doom and gloom that this psychological point had been breached and with Morgan calling for it to fall to $30. I scooped it up in droves in the $90s for more than a triple.

Elastic has been one I have “agonized” over trying to figure out the markets dislike for it. Had some very good discussions in regard. Lots of good about Elastic, but then again, it is letting Datadog run all over them. Elastic is a tough one. I owned it several times for a few days, but always sold it out. Just did not feel right.

But I agree, one needs to move on. One needs not to collect stocks. I’ve made mistakes not in choosing what I hold, but in turning over what I hold before its time (SHOP) is the biggest culprit and studying why. Zoom may be of a similar nature (heck is of the same nature presently). But no, I don’t own it. Many do and have done what I did not with it. Just keep holding it. That is probably the most difficult decision of all with rare such companies.

Tinker

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I use “best in breed” for a few reasons. One is I need some criteria to reduce the stocks out there to a manageable number to follow/own. Second is I think you’ll find the big winners in the market tended to have focus. A company only has so much resources to devote to its products. ISRG did not get into telemedicine as some other revenue stream. Only mature companies who have saturated their main market tend to do this successfully. Third it also makes the company easier to follow. I am only now seeing that ESTC is focusing on observability. It’s what I suspected, search is the niche, and now they are one of many players in the observability space. Fourth is the leader in the space tends to stay the leader. So I stick with the leader regardless if it has a higher market cap or higher price ratios. History has shown despite having those characteristics the leader tends to outperform the followers. So now ESTC says their biggest market is in a crowded space where they are, at this time, a bit player. These are the reasons I don’t own ESTC and I have said this sane thing over the last year. Doesn’t mean ESTC can’t one day so well, it just means I look at the odds and stick with a strategy.

Everyone seems convinced in their mind their way is the right way. I’ve formed my strategy based on what I see working and not working. You bring up NTNX and Zs, but just because a company is a leader in its space does not mean it will grow to the sky. True. But it does put odds in your favor.

I bought TSLA at $75 billion not cap and made a point of it TSLA at $75 billion has just as much profit potential as a SaaS at $7.5 billion let alone $750 million. The stock doubled in a month.

It is not “common sense” a small market cap company offers the most profit potential. It is what appears to make sense in the surface but under investigation found out not to be true. Especially if you’re just going for quick hit 50-100% returns.

These strategies did not just come out of thin air or reading some book. They were formed by trial and error and observation. Your trial and error/observation are clearly different than mine but it is what it is. We are only going to convince ourselves by what we see and see the sane mistakes over and over, not some random words bybdome random person on a message board.

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Those trolls who called our stocks “overvalued” are eating crow for dinner tonight.

TODAY’S final tally:

Dow: Down 3.58%

S&P: Down 3.39%

Nasdaq: Down 3.10%

“Overvalued” AYX: Up 3.40% (Up a total of 355% for me personally!)

“Overvalued” DDOG Up 6.23%

“Overvalued” ZM Up 7.02%

Why gloat? Daily, weekly, even monthly moves in the market can be very random.

Today, there is an indiscriminate sell off in all high growth names. AYX down 10.9%, DDOG down 8.4%, ZM down 11.9%. Everything, even those with great recent earnings, are being sold.

I’m trying to think longer term and anticipate buyers will come in after this ridiculous sell off.

Dave

16 Likes

The five indexes I invest in are down year-to-date by:


**18.6%**
**13.1%**
 **9.4%**
 **8.0%**
 **4.4%** 

They average down 10.7% … If you started the year with $100 invested equally between the five of them, you would have $89.30 cents left today.

If you invested the same $100 in our stocks (as represented by my portfolio), you’d be up 18.0% today, even after today’s sell-off, and you’d have $118.00 today versus the $89.30 that the guy who invested “safely” has.

118.00 is 132.1% of 89.3 … so our stocks have attained a 32.1% lead over the indexes in just two months plus. Where would you rather have had your money?

Saul

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I mis-wrote. “The five indexes I invest in…” should have read “The five indexes I track…” (I don’t invest in any indexes).

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ESTC has been bypassed just by Microsoft Azure Cognitive Search, IBM Watson, and a few others. MS ACS is an addon platform to enterprise Azure - for a manageable additional cost, enterprises get all modern unstructured text analytics capabilities, .Net code frameworks as application development accelerators.

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Why all the negativity around ESTC? This company has done 6 continuous quarters of 60% rev growth. Has any other of our companies done it? I would understand if growth has been slowing like in the case of ZS, MDB or even TTD, OKTA where growth has moderated.

ESTC has been one of the best in logging. This is from Shay in the CC

“First of all, we’ve been one of the most popular logging solution out there for many years now”

Shay refers to logging, infrastructure monitoring, and APM as the observability space. He says this space is growing fast. Oliver Pomel in DDOG CC said logging is growing faster and has less sales friction than APM.

ESTC’s consistent sales growth and above observations seems to suggest that there maybe enough market space for both companies.

If ESTC’s expertise was logging DDOG’s expertise was infrastructure monitoring. Since then DDOG has branched into logging, APM and security. Don’t know if DDOG does enterprise search which ESTC does as well. They both appear to be executing well at 60% and 80% growth rates. Doubt this is a winner take all market. From what I have heard ESTC is more DIY and needs more work but some of that is reduced by the hosted solution. So, that may reduce its TAM. But unless growth for one of them starts falling off and management starts saying elongated sales cycles etc I find it hard to conclude ESTC as a loser with the data we have now.

Long ESTC and DDOG (smaller position)

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Texmex,

This is the issue with Elastic, and perhaps you consider it irrelevant and the market will get around to it. I do not however.

Despite multiple quarters of 60% growth, Elastic’s share price has gone nowhere but down (except for one spike). In the meantime Datadog, that is built on Elastic, is growing faster, is more profitable, has more than 2x the market cap, and is near its 52 week high (if memory serves).

Despite all these earnings calls the share price has languished and had very high opportunity costs.

Is this the market just getting it wrong? Or is there some reason the market simply does not really like Elastic, 60% growth or no 60% growth. The opportunity cost here cannot be denied. This share price lag has been going on for about 2 years now.

That is the issue with Elastic. I think it is worth a discussion as to why this is.

Tinker

3 Likes

Tinker,
That is a good question. I really don’t know why ESTC’s share price has not moved. But remember most of us are still below ATH on July 26, 2019 so there is a lot of dead money (not as dead ESTC I agree).

I recall NTNX’ stock price did not move for a year from mind 2018 even as the company was beating expectations before they announced their sharp revenue slow down in March 2019 and most of us bailed. So, in that case the market knew earlier. Is ESTC in the same boat? You definitely cannot tell from their rev growth numbers from the last 6 Qs.

It is a good question to analyze why ESTC the stock is underappreciated. The market seems to believe that there will be a sharp rev growth slowdown for ESTC. Maybe it is right or it has totally misunderstood it. SHOP (2018), SQ (2019), TTD (2017) have all stayed flat for a long time. So, sometimes the market does not understand the competitive position of a growth stock it seems.

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It is a good question to analyze why ESTC the stock is underappreciated.

Just one person’s opinion, but I exited due to the lack of any type of movement toward profitability. I fully understand the concept of sustained losses to fund growth, particularly in the SaaS model. However, most of these companies start to narrow losses while passing through the hypergrowth phase. If ESTC can’t do that while holding 60% growth, when exactly is it supposed to happen? That’s the question that never seems to get answered by the company. It’s telling (to me anyway) that operating, net and FCF margins have remained just as flat as the stock price since coming public. I’ve chosen to remain on the sidelines until that situation shows at least some signs of improvement.

Many with more savvy backgrounds than I have touted the technical advantages of ESTC. While tech advantages are nice, the ability to turn them into business success is more important to me as an investor. I believe Elastic has yet to prove it’s mettle in that regard.

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I get that the market has been rewarding more profitable companies since last Fall. But MDB, SMAR have similar losses to ESTC and growing slower. Yet they have at least 50% higher valuation. So, I tend to think that the reason for ESTC’s poor stock performance lies elsewhere.

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Re: “$100 in ESTC over the last year = $77.98, in AYX = $200.41

That was posted roughly a month ago and AYX is still up, but the equivalent is now roughly $112 instead of $200…
(I didn’t take a look at ESTC’s updated numbers)

IMHO, too tempting to pass up so I just did a little circling of the wagons (trading lower conviction stocks for higher ones) and purchased a bit more AYX