Huh, whoa, I have one of Saul’s books and had no idea it was this Saul!
George
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Champico,
If Saul wrote a book I would buy it.
Amazon carries three of Saul’s books, I think he’s written six. None of them have anything to do with investing.
Start here.
https://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Ds…
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‘… stagnant money really hurts results’ in long bull markets: true. But money is not stagnant but instead an option denied to those who do not have it when they most need it, when it really, really improves results. Long-term outcome critically depends on what you have paid. (This is not the rule of the Fool, which I have always found suitably lunatic, but it is certainly the rule for me.)
That, and compounding through scrupulous tax-avoidance, are the reasons for the success of BRK/A/B (current cash ~ $116B; with Buffett, words and figures sometimes do not agree).
I am here looking for GARP, albeit with much additional risk, because it is absent elsewhere even if it will certainly one day return). My screens offer me almost nothing, or only the companies in which I already have my maximum book cost of 2.5%.
I cannot say I love the insurance premium I am paying, especially with the prospect of inflation, but like my house insurance and medical insurance (only more so, because its time will certainly come) I can put up with it. Did you predict a 9-year artificial bull market powered by the state?
Even in the miniscule ‘correction’ recently (as it turned out nothing corrected at all!) it was helpful. I do not want to be scratching around for cash when opportunity comes, or I will be mentally far too conservative in taking advantage of it.
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“my maximum book cost of 2.5%”
Do you mean 2.5X? As in paying a maximum of 2.5 times book value?
‘… stagnant money really hurts results’ in long bull markets: true. But money is not stagnant but instead an option denied to those who do not have it when they most need it, when it really, really improves results.
When I speak of “stagnant money” I’m not referring to cash but to money stuck in losers and flat-liners. Cash, as you point out, is very useful.
Denny Schlesinger
I think we are making it too complicated.
I do tend to ramble on at times, sorry.
Let’s try isolating this snippet:
I wrote: the real question for me is whether the kind of mostly small (for publicly traded), high growth companies on which Saul concentrates will continue to exist as the market changes moving forward.
And what I mean by “exist” is not whether they survive, but whether they’ll still be high growth.
Tinker writes: We invest in market leading, market pioneering, high growth companies, with proven business moats, and long-term and rapid growth potential at valuations that are not in the bubble.
I gave an example:
For instance, there’s an argument to be made that investing in ANET is a multiplier proxy for investing in Microsoft’s Azure business. Through Azure, Microsoft is Arista’s biggest customer by far (more than 10% the last time I looked). If Azure doesn’t do well, MS won’t buy more Arista products. Yet, I haven’t seen anyone’s analysis of Arista factor in how well Microsoft will do in 2018/2019. Sure, we look at how overall demand is increasing, but I’m not sure we go deep enough to analyze how the companies that buy Arista’s products will do in the coming year or two. It’s SOP (Standard Operating Procedure) to look at consumer demand when analyzing retail companies, for instance.
I’m not saying investing in ANET in unwise. Quite the contrary, actually, it’s one of my stronger conviction stocks. However, I’m trying not to fool myself that if Microsoft doesn’t do well (or if AWS kicks Azure’s butt) or in a general economic downturn (as opposed to just a market downturn), that Arista won’t be impacted to the extent that it won’t achieve the high growth that’s already factored into its stock price.
My point is that we can’t simply focus on our stocks as islands of growth. We have to look at what’s feeding that growth and understand that without food, our companies won’t grow as they have been.
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<<<However, I’m trying not to fool myself that if Microsoft doesn’t do well (or if AWS kicks Azure’s butt) or in a general economic downturn (as opposed to just a market downturn), that Arista won’t be impacted to the extent that it won’t achieve the high growth that’s already factored into its stock price.>>>
If we concerned ourselves when these inevitable foibles occur, we would never invest in anything but dividend paying giants.
We all know the economy will at some point hit recession again. We all know that Azure will slow down its rate of growth at some point in time. We all agree that SHOP will slow down growth at some point and that it may be more sensitive to a recession than possibly any of the stocks we follow here.
The point is, as we have discussed on multiple times, that when that does happen, when stocks do decline again, that we will either sell, or hold and keep adding, understanding that we believe the valuation will return again when the economy returns.
clearly there is a time to sell. Clearly we will not always be in good times. But also clearly, if we considered these things with every single stock we want to invest in, to this depth, we would never invest in such stocks.
For me, risk protection is the quality of the business for the long term, not that the economy won’t fall, not that one customer will not grow as fast, etc.
Okta, to me, looks like a business that will be resistant to an economic slow down. You cannot give up on your access security just because business slows. But it is also selling for more than 10x revenues, and there is always panic whenever Microsoft or Amazon makes announcement regarding their own products that do similar things.
For me, the only thing that concerns me is the valuation. Is Okta valued too high so that if there is an economic downturn, will it return when the market returns? The other issues regarding Okta do not concern me despite all the issues like Amazon, Microsoft, future recessions, etc.
If I am wrong here, give me an example of a high growth Saul type stock that does not have issues with a slowing economy, or customer concentration, or competitive fear issues, etc. EVERY single such stock has issues with risk. Remember, Enron was once a safe stock. Case studies regarding Enron were taught to me at Duke MBA.
Tinker
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No, my own preference is rarely to spend more than a total of about 2.5% of the value of my overall equity portfolio + cash (obviously a variable figure) on buying shares in any individual company (ETFs get much more if I like the line-up).
If we concerned ourselves when these inevitable foibles occur, we would never invest in anything but dividend paying giants.
Well, maybe that’s your logic, but it isn’t mine.
Of course, what I described aren’t “foibles.” I’m talking about acquiring an understanding of what drives the growth in a company’s business, and using that to help predict growth increases or decreases.
If I am wrong here, give me an example of a high growth Saul type stock that does not have issues with a slowing economy…
You are wrong here, but not in the way you’re thinking I’m thinking. You completely misunderstood me since you think I’m talking about heading towards “safe” stocks. I honestly don’t know from where you’re getting all that. You’re inferring things that weren’t implied.
If you want to disagree that it’s prudent that we understand the growth drivers of the companies in which we invest, then fine. But don’t go saying that such a view equates to investing in Enron or “big dividend payers,” because that’s not at all what I’m saying.
Right now, it appears to me that you don’t want to gain insight into Arista’s future by looking at things like Microsoft’s Azure business; that you’re content to wait until Arista actually announces a quarter with slower than expected growth and then sell.
I prefer to look down the road to see congestion rather than waiting for the car immediately in front of me to brake hard.
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The cure is not concentration…necessarily.
It just happens that the stocks discussed here are ascendant. After a time another group of stocks will be rising and they might just be the ones that are in the dumps right now.
Different times different ‘winners’.
tj
1 Like
“I argue its been too easy for the 35 and under generation to build wealth, thereby creating a false sense of security…”
Just the other day I heard Millennials have had lower income than the previous generations (maybe the baby boomer and genX) at the same age and they mostly prefer cash and are generally speaking very careful and conservative in their finances.
It is very difficult to have a completely consistent story when we are in the thick of it. We would only know several years later in retrospect what has happened. Every one think they are special but they are not, and then yes everyone is special in their own way.
as for Arista future, I would not lock it with Microsoft necessarily. They have opportunities that they can capture.
tj
1 Like
tj,
I agree with you that the stocks discussed here are ascendant. In fact, that is precisely why most here are in them. I also agree that after a time another group will be rising. If/when that group surpasses these, I feel confident many will be able to identify them and adapt. That is the strength of this board, great minds, willingness to share, being open to criticism, so many ideas/opportunities.
That is my take on it anyway.
Kevin
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