Investing theses should not be based on the following:
- Attractive PS ratio (LSPD, GLBE, DOCU, TDOC)
- Huge TAM / long term opportunity (PTON, UPST, AFRM, ROKU, TDOC)
- Small Mkt Cap (BAND, MGNI, LSPD)
- High-profile partnerships (AFRM, GLBE, MGNI)
- Supposedly game-changing disruptive product (AFRM, NTNX, TDOC)
These can be distractions. None of these characteristics are bad – some (if not all) are good! The problem is when they are held up as the key to the investing thesis for a company. Even if a company has all 5, that’s not enough.
I also need them to have other, more important characteristics like hyper-revenue-growth, recurring revenue, solid gross margin, and a growing roster of impressive customers who are spending more and more. Or as Saul puts it, https://discussion.fool.com/how-i-pick-a-company-to-invest-in-33…
Multiple people have asked what Upstart would have to do for me to consider getting back in. You might as well ask me what Affirm would have to do to get me interested! I have to admit, Upstart was likely never a long term position for me, because they don’t have significant recurring revenue. When I bought Upstart originally, the market hadn’t figured it out yet. You can say I made a trade – I won’t be offended. I saw a $5 billion dollar company that I thought was going to do close to a billion in revenue this year. I saw opportunity. This is very similar to Peloton last year. They were being undervalued, in my opinion. But with both, the plan was never to stick around through the ups and downs, for years to come.
You may disagree with this approach. You are free to call this wrong or dirty or whatever you like. I’m just trying contribute what I think is going to a) help us make money and b) keep us from losing money.
I’m sorry if with my list above, I gored your favorite ox. Maybe I am wrong. But if so, I suggest you make your case based on characteristics like hyper-revenue-growth, recurring revenue, solid gross margin, and a growing roster of impressive customers who are spending more and more.
PS Since people have asked what magical companies I’ve found to invest in rather than Upstart, here are all my positions (other than those with allocations below 2%) as of today: