In a recent Motley Fool podcast David Gardner highlighted 6 key traits he looks for in stocks, and it struck me how Saul’s stock picking approach seems to embody all of the same traits. The Podcast and transcript are here if you want to check it out:
Briefly, these are the six traits DG discussed:
- No. 1, Top dog and first mover in an important emerging industry.
- No. 2, Sustainable competitive advantage.
- No. 3, Stocks that have excellent past price appreciation.
- No. 4, Good management, smart backing. It’s about the people.
- No. 5, I love good brands, especially consumer brands.
- No. 6, Companies that everybody thinks are overvalued.
Important. Emerging. As long as I can recall, Saul has been on the SaaS bandwagon, consistently advocating that SaaS companies who are growing fast, even if not profitable, are powering a major shift in business, and trouncing the market. And it consistently shows in Saul’s and many of the member’s portfolio updates here on this board.
SaaS and Cloud are certainly important, and emerging, the trend has overhauled the way companies do business, be it the transition from expensive private data centers to public cloud solutions, or bringing modern, state of the art sales channels to the masses, or reducing the cost of computing in general to commodity levels. These companies are riding the wave of change that is revolutionizing business.
Virtually all of Saul’s stock picks, and those we track on this board, are in important and/or emerging industries, and they are all either top dogs, and/or first movers, no surprise there. Competitive advantage is almost a given too, which is why these companies soar, especially when they are still nascent, and basically unchallenged. Past price appreciation, i.e. momentum… so many of us, and especially Saul, add to winners repeatedly, even after they have run up, doubling, tripling or more. Saul also frequently reminds us not to wait for the lowest entry price, just buy it, the few extra pennies won’t make a bit of difference in the end. Good management; we see a lot of activity here based on this trait, either praising good leaders, or selling out of companies that are being mismanaged. Brands may not be so revered here, but David thinks it is important, think AMZN and AAPL, and the expectations we have based on their reputation in the industry.
And lastly, I love this one… companies that everybody thinks are overvalued… ha, ha! We hear this all the time, it seems bears come to this board every week with news of impending doom based on exorbitant valuations.
Revolutionizing trends, growth, momentum and a bit of courage are a powerful combination. So many of the companies this board has successfully invested in embody these traits. I guess it’s not surprising to those who visit this board frequently. I’ve learned a lot since I started lurking here, and I am thankful to Motley Fool for facilitating this forum, and especially thankful for the wisdom and the knowledge that is freely shared here. Thank you Saul and thank you to the rest of the contributors here. Fool on!