alt. explanation for Saas stocks success

First, Saul’s write up was great. He did not just list his stocks, but explained in great detail, why he liked them. That helped me a lot.

Here is an alternate explanation for the Saas stocks success. It has to do with the cost of borrowing, and what the market values now. The market is valuing intellectual property, and brand now.
I took this from Josh Brown’s the Reformed investor.

We live in unusual times in investing history, due to the cost of borrowing being so low for so long.
Tangible assets like property, plant and equipment don’t matter much to investors anymore.
It is intangible assets like intellectual property, and brand that matter now.
With the cost of borrowing so low, intangible assets can challenge the moats of companies with real assets.

Here are some examples.

“This is why a AirBnB is currently more highly valued than all of the publicly traded hotel chains on the NYSE.

This is why Uber is worth more than all of the auto makers and taxi companies that own their own fleets of cars.

It’s why WeWork, which leases floors from building owners, is worth more than those building owners’ corporations.”

value managers have done terrible because of this.

“There are no asset managers who represent their strategy to clients as “We buy the most expensive assets, and add to them as they rise in price and valuation.” That’s unfortunate, because this is the only strategy that could have possibly enabled an asset manager to outperform in the modern era. It’s one of those things you could never advertise, but had you done it, you’d have beaten everyone over the ten-year period since the market’s generational low.”…


Yes, but high interest rates or not why would you ever prefer a legacy capital intensive business vs a business with high margins and near ZERO capital costs no matter the economic environment?

The cost of capital simply adjusts the required rate of return, with the rate of return required lower with lower interest rates and this larger multiples.

What I think is not understood is just how dominant and transformative the best of these new businesses are all w out any capital costs, thus breaking the investment molds taught and implicitly understood historically.

Look at your history. Bill Gates was frustrated trying to educate Wall Street that his business model was DIFFERENT (for those who keep harping sarcastically “it’s different this time”). Of course “it’s” not different but like Microsoft the best of these businesses are regardless of interest rates.

Thus Wall Street loves low interest rates, but they are still under appreciating CAP, disrupting, and cash printing abilities of the best of companies using the new technology platform - cloud.

Microsoft and Intel PC. Apple smart phone. AOL dial up. Each new dominant disruptive technology platform creates those rare increasing return companies in a world of Wall Street that largely believed in short term, quarterly investing, and return to the mean as no business is truly different.

That is our advantage. When Wall Street starts bidding up a company so that it removes these advantages from us then our returns will end. Zoom? I’m just posing the question.