David Gardner and Saul have a lot in Common

Investment Analysis Clubs Saul’s Investing Discussions
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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:
https://www.fool.com/investing/2021/02/17/motley-fool-co-fou…

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!

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Yes, they definitely have some similarities in their stock selection process. All but #5 (good brands, especially consumer), overlap to some extent.

But in my opinion, what’s more important, and why Saul’s last few years’ results have been so good are the differences they have. To me, the biggest 2 of those are:

1 - Keeping a concentrated portfolio.

2 - A willingness to sell when growth slows or the company performance stumbles and there are better opportunities elsewhere (rather than waiting for the recovery, which often does happen, but takes time).

The Motley Fool method of holding more companies for diversification and then holding for the long term is an effective and much easier method for successful investing (buy/hold/forget works surprisingly well). But I feel these 2 key differences allow for much better returns, but also require much more awareness and tracking of the companies you’re invested in.

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Foodies wrote:

1 - Keeping a concentrated portfolio.

2 - A willingness to sell when growth slows or the company performance stumbles and there are better opportunities elsewhere (rather than waiting for the recovery, which often does happen, but takes time).

I think of #1 as portfolio management, and #2 as part of the Top Dogs trait, and moving money into winners. No doubt these have helped Saul’s returns too.

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The main difference is that David is selling subscriptions and Saul is not. David’s net worth is mostly tied up in Motley Fool stock, so that is where he has most of his skin in the game. Therefore, David must keep his advice general. Many subscribers want a set it and forget it type of service or they simply aren’t experienced enough to know when to sell or how to manage a concentrated portfolio. In that case, holding a large amount of stocks and rarely selling makes sense -especially as general advice to thousands of Motley Fool subscribers. If you are Saul or someone on this board, you are a very active and (hopefully) experienced investor. In this case owning a concentrated portfolio is the best path just as Buffett,Munger,and Phil Fisher have always advocated.

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How have Tom’s picks been lately? He had a few flops I remember with Charlottes Web, not sure if he picked Luckin or not. Then it was said he wasn’t picking it was his staff or team, so he was going to start personally picking them again to restore his name. I think he hit on Tesla about a year ago and that’s when I stopped following along. I did enjoy Stock Advisor, Rule Breakers, and the Blast Off portfolio. It was reassuring when you knew they put in $ on the portfolio as well in Blast Off, and explained their % of portfolio similar to what Saul does. The difference like others mentioned is that Saul’s is more concentrated versus spread across a portfolio of 20-30 stocks. When I was tracking it, Saul’s return was higher than the MF subscriptions.

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Even with some of the misses, I think Tom is actually performing slightly better than Dave in very recent years. I also think a few of the Discovery portfolios are very close to matching this board’s general performance. I think there are pros to running concentrated portfolios but its not always appropriate for many investors. I track quite a few investors on twitter who post their portfolios and there are all kinds of strategies that work. I have definitely seen a handful with 10-30 positions that have slightly outperformed this board. Also have seen extreme examples like Tesla’naires. Not going to say which method is better, just would rather point out that portfolio concentration vs diversification is always going to be different for many investors. I will say probably the strongest part of this board is the methodology. With the way these portfolios are run and the stricter criteria for investment this board does have much higher accuracy on hitting great stocks from what I can see.

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