We had a huge run up in price and valuation in August. The last couple of days we are seeing many of our stocks return to somewhat more sane valuations (still expensive though). I had been raising cash during the run up and now have used some of it to buy more ZS and AYX. Below I’ve calculated a few of our companies current EV/S as well as the range they have traded in since I started following them. Notice none of our companies are “cheap” but they are certainly better values than they have been for the last 2 months.
ayx has traded in a range of 12-21 ev/s since we started following it. It is now sitting at 16.
Appreciate the info, Chris, and I’m definitely not directing this post at you, as I know you realize this, but for newer investors, this is a form of price anchoring. Thinking that the stocks that have fallen the most will retrace back to their previous highs (admittedly, as most have done over the past couple years), is not any sort of analysis, maybe they have just been valued too high recently, and are getting back to where they “should” be at this point in time.
That said, I’m obviously not averse to using this info, as I’ve added a bunch to ZS and TWLO over the past few days, without even realizing they had been some of the largest “fallers”.
Price anchoring is an interesting concept. Anytime you see someone post “buy on the dips” it reflects a form of price anchoring. That being said, it doesn’t mean you shouldn’t actually buy on the dips if it’s a high confidence investment. It just means you shouldn’t use it as a strategy. If a stock runs up 50%, buying on a 10% dip represents a lot of lost opportunity.
a little update. Some people may be thinking this is a back up the truck moment. From a valuation perspective I don’t think it is. Many of our companies are just now getting back to their average valuations. They had shot up in august to incredibly high valuations. We are now on the lower side for most of our stocks, excluding NTNX which is WAY low and SQ which is WAY high. I think this is a fine time to invest, but don’t do anything crazy.