I know that I started this thread, but I never dreamt it would grow to 20 posts. It’s time to close it and further posts on this subject will be deleted.
Saul
8 Likes
No… nothing like the Internet bubble. In fact, quite the opposite. The Cloud and SaaS have revolutionized business, based on real solutions, with real customers, and real revenue!
Additionally, now that COVID vaccines are getting out, there is a lot of pent up demand and a lot of cash in people’s bank accounts waiting to be spent. The estimates of GDP and the economic outlook are very strong;
The US economy is set for “stellar” economic growth in 2021, Bank of America said in a note on Monday. The bank increased its 2021 US GDP growth estimate to 6.5% from 6.0% as it has become “more convinced” that the economy is set for a rebound after the COVID-19 pandemic.
Banks and energy have been roaring on this because the economic expansion is alive and well, and now that covid is receding and more stimulus is on the way, it means demand for products and services, particularly travel, hospitality and entertainment will be booming after a year of hibernation.
10 Likes
For what it’s worth I wanted to build on a number of excellent discussion threads here including:
MAS4R’s Discounts off ATH
GauchoRico’s History of 30% drops
Saul’s Does this feel like the Internet Bubble
Saul’s For attempt at reassurance
Saul’s Update of my portfolio
No… nothing like the Internet bubble. In fact, quite the opposite. The Cloud and SaaS have revolutionized business, based on real solutions, with real customers, and real revenue!
First off, I completely agree with this. Having been an investor during the dotcom period I can say that this bears no comparison whatsoever, either in terms of valuations or in terms of mania. I also agree that SaaS/Cloud based businesses are almost the complete opposite of the original wave of dotcom companies that had zero revenues, questionable business models and short lived lifespans, (with the obvious survivor exceptions like Google and Amazon).
Secondly, some reassurance. We have had a 10% market correction (Nasdaq) and it happened pretty fast. We may yet see a 20% correction or technically a bear market. With the exception of Japan’s lost 30 years, we have never seen corrections or bear markets not be fully recovered ever in the Nasdaq or a major market.
These fast corrections typically see a fast bounce back. Here’s some data that unfortunately I couldn’t locate at source but the link below takes you to a posting from an Australian bulletin board with all of the 10% corrections by speed and by post correction returns at the 1, 3, 6 and 12 month stage.
https://hotcopper.com.au/threads/us-10-year-treasury-rate.59…
Thirdly, in terms of what I have done with my portfolio. Given that I don’t have fresh funds to add, (and if I had I would start to be drip feeding in at the 10% market correction level now and add more at a 20% correction) and facing a ~30% drop in my portfolio from peak to the intra day correction low a few days back, what have I done?
I have tried to hold my nerve and not go to cash.
I have sold out of or cut back a few lower conviction, lower performing and lower go forward potential holdings (during the pull back - Zoom, Micron and Ncino and most recently after the 10% correction point Farfetch),
and…
re-invested in higher conviction, higher performing and higher potential targets: (along the way - Zscaler, Fiverr, Lightspeed, Palantir and Snowflake and after the 10% correction point - Palantir, Peloton and Snowflake).
Of course, you have benefited from others sharing some extraordinarily valuable experience and exceptional quality of analysis and input from others but hopefully this adds some value.
Ant
44 Likes
From a valuation standpoint, the most popular stocks on this board, while down from earlier highs, are still valued quite high historically speaking. Just because some have dropped 30% from their highs, doesn’t mean they couldn’t drop much further. If the market decided to value them based on EV/S figures used just 2-3 years ago for SaaS type growers, the valuations would have another 50% of deflation ahead (in rough numbers).
You can look at a number of stocks, and see that in terms of P/S or EV/S metrics, they are trading at a much higher multiple than 2018 or 2019, or early 2020. Companies who’s growth rates have stayed about the same, their gross margins relatively the same, have seen their valuations go quite a bit higher. This is mostly because investors are willing to assign higher valuations now than just 2-3 years ago.
Why?
I believe the market has discovered the beauty of SaaS models, as have I during this pandemic. There’s better appreciation to visibility (ARR and RPO levels) for one. I believe that SaaS models will forever value these companies higher than they did a few years back, but perhaps never again as high as a few months ago. Nonetheless, a company like CRWD will soon grow into the new valuation model if things stay on track for a few quarters.
17 Likes
Hi Luciuse,
it looks you may have inadvertently included a non investment link within your post as an example. Normally, links with an “x” in the front are not G rated. 
I have not clicked on the link because I am also fearful of uploading a virus. epm
2 Likes