Arista and long holds

Investment Analysis Clubs Saul’s Investing Discussions
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For those who think I trade in and out too easily, I was just getting ready to toss my paper Arista graph and found that I had been in it quietly for over two years (Mar 2016 to June 2017), entering it at about $60 and exiting at about an average of $260, approximately 430% of my entry price.

I’ve had Shopify for about the same length of time, entering at about $27. Shopify just closed at $162.50, approximately 600% of my entry price.

Sure I’ve trimmed a little along the way when the position got to big, and added on Citron dips, but over two years is why I call my method modified buy and hold, and definitely not trading. Every position I have is one I hope I can hold for years (but most I won’t).

Best,

Saul

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Thanks!

Your out of arista? I think I missed something…

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Personally, I think people who take the time to understand a company and create a thesis on why it is worth buying and when it is worth selling should be able to decide what that timeline is, without someone else carping from the back seat. Saul, you as an extremely successful investor, surely don’t need to answer to people who throw around random opinions on how long you should hold.

I personally aim at a much longer holding period than you do - it doesn’t always work out as my opinions on my companies change from time to time. But, for instance, I held Amazon and Netflix each through their ups and downs for about a decade, and made a lot from both of them. Unfortunately I didn’t keep meticulous records like you do, so I don’t have a clear record of my profits and what I sold on the way - but I did good :slight_smile:

For those who are interested, here is how I think about investment: I have 3 classes of companies that I buy:

  1. Companies that are changing their little corner of the world and have a huge moat, that I want to own for a very long time period, like MDB and PVTL today. These I plan to hold for 5-20 yrs, and don’t consider selling unless there is a material change in the business - so I don’t even look at the daily price action of these companies. Sometimes, if I think they are getting a bit rich, I might sell covered calls on a portion of my position to get some income and take advantage of the overbought condition. Likewise I sell puts if they get oversold without a material change in their business. But I keep my core position through ups and downs.

  2. Companies that I believe are being mispriced by the market. These can be value investments because people have gotten carried away on the company, or the sector. For instance right now I have a big position in AMD, and positions in REITS and midstream oil pipeline companies. I look for multiple different catalysts for the market to realize they made a mistake, and also like dividends to be paid to wait.

  3. Companies that are executing well, but where I’m concerned about their long term moat. Here my timeline is like yours Saul - closer to 6 months than 5 years. I usually sell in the money puts in the 1-2 month timeframe, and repeat until they get past my price or I get assigned. These are quality companies like Alteryx, Talend, Square, where I don’t mind owning the stock, but just am concerned about the moat or competition over the longer term.

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A few weeks ago there was discussion on the NPI boardregarding ANET reaching an inflection point where competition in the enterprise space may retard growth potential until the next growth phase, 400 GB. I posted the following:

"I think the most salient point of this discussion was Tinker’s point about the 100 gig inflection point. For those of you to young to remember the heady Cisco days as the “Internet” was being built out, Cisco the stock was a money printing machine.

Once the inflection point was passed Cisco the company continued to dominate the switch/router/security/VOIP market. Cisco the stock was a serial destroyer of wealth over the next decade.

Although the technology is very solid and the demand is still good, the moat is being drained. Over the course of discussions on ANET several have commented on Cisco’s entrenchment in the minds of enterprise decision makers. It is not a trivial thing.

IMHO neither ANET or CSCO will do particularly well, they will just beat each others brains out. "

The question in my mind at the time was: “is ANET going to remain a high growth money machine and is this the best place for my money with so many good other stocks?”

The answer for me and several others was “no”. Kept a very small position just to track.

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