For those of you new to this kind of situation

I’m relatively new to investing in stocks and therefore new to SaaS and think we’re still in the early stages of growth. It’s seems impossible that the first iphone was released only 12 years ago. Software, cloud, data storage, security, etc. will only become more integral in our daily lives, not less. So, the companies providing those services have plenty of runway.

Today I started positions in ZM, CRWD, ZS.

Added to: TTD, TWLO, MDB, OKTA.

Brian

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Can you imagine in any scenario where Buffett could be owning these names? Advocating what he is talking for his ironclad value stocks are not relevant for these high-growers.

Buffett (BRK, at least) has quite a large investment in StoneCo (STNE), which is very similar to “Saul” stocks only in Brazil.

DoesMIWork,
No one can answer your question with certainty.

Ask yourself what you’re expectations are.

Here are mine.

In 2000 I might have had 12 stocks in my portfolio. I cannot tell you what I exactly was holding back then except for one stock, AMZN. I probably lost quite a lot of money, probably sold out of most, maybe some went under. I truly don’t remember.

What I do know is that I’ve made a fortune holding AMZN.

So I look at it this way. I hold 8 of the top SAAS names talked about on this board. I wait for sell offs like today to slowly add. In fact I thrive on sell offs like today and like last fall I welcome them. I’ll keep adding.

I’m willing to hold and I’ll accept the possibility that longer term 6 or 7 might end up being stinkers. Knowing that it only takes one to become a monster stock, a great company that continues to dominate and grow well into the future.

Hopefully I have one of those. Hopefully I own one or more companies that will be a 10 bagger going forward. Hopefully I’ll look back and once again all this noise on days like today will once again prove to be meaningless.

As any New Yorkers heard for years and years, “you gotta be in it to win it”:wink:

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which is very similar to “Saul” stocks only in Brazil.

Not really, STNE is profitable and actually trading current at 10~12 forward PE. Most of the stocks’ discussed in this board are 25, 30, 35 times sales. There is a huge difference.

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Those of us who were around for Internet 1.0 bubble heard the exact same thing. Internet was going to change our life, become more integrated into our routine, etc. then suddenly stocks started dropping like lead for no apparent reason.

Is the same thing happening here? Are these SaaS companies going to suddenly stop growing and sone of them go out of business?

I don’t think so. I found this article that talks about how certain SaaS stocks disappointed and now they’re down. It was written last week.
https://news.crunchbase.com/news/well-known-saas-stocks-stut…

If you recall a lot of people wanted to be in Cisco, JDSU, Akamai, and other infrastructure companies because they were the pick and shovel companies to the miners like Amazon, DrKoop, webmd, and other websites. No matter what, the pick and shovel companies were bound to succeed.

Well what happened is the bubble crashed, all the funding dried up, and a bunch of websites like Pets.com and the globe.com just shut down because they could not support themselves. Therefore there was no need for more picks and shovels. Sone of those serving the telecom related to bandwidth grew for another year, but after that, that was it, it was all over.

But I don’t look at SaaS as a monolithic industry. What does CRM have to do with COUP? Why should they rise and fall with one another? They don’t really compete. They should not share the same destiny. Any more than Smartsheets or Docusign do. All these SaaS companies are doing different things. So it doesn’t make sense they would all rise and fall with one another like, say, the rail industry got overbuilt so now the weak rail car makers go out of business because we now have enough trains and rail cars.

I see these SaaS companies really only have a few things in common. They are enterprise software and they have a recurring payment method rather than fixed license.

So it doesn’t make sense COUP would struggle just because BOX would or Open Text.

Unless all enterprises (ie the economy) are going down the drain. But I don’t see how SaaS industry is overbuilt and they’re all in s sinking ship. Or something like that. Anyone disagree let me know.

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OK, I know we’re supposed to avoid short posts that don’t add much value to the conversation. But today was kind of depressing and I’m sure there’s some folks who are really upset.

Don’t get me wrong. I’m not happy about today’s blood bath, but just for perspective I looked back over the last year to find out when was the last time my portfolio saw the same level it’s at today. Turns out that was June 4 of this year. My gains have dwindled from a lofty near 80% in July to just under 48% today after market close.

I like to remind myself that once I started treating investing as a serious endeavor (I think about 3 years ago when I started following this board) I set a stretch goal of 20%/year. So yes, today marked the single largest percentage drop in a single day I’ve experienced (about 8.5%).

And reading through a number of posts I see a few folks who have never previously posted come out of the woodwork to gloat. I wonder if any of them are up about 48% for the year. Have you noticed how those who crow about how smart they are for avoiding these high flying high growth companies never ever report their own performance.

Tomorrow morning will probably be a good time to go shopping. The only problem is no cash. What to sell? What to buy? Hmmm . . .

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IMO there are multiple factors that go into an industry sector falling apart.

I was around for that internet 1.0 crash. It was “true religion” that all those companies were going to continue growing. People could buy anything even mentioned in George Gilder’s report and see an immediate increase in price. Startups could get funded and bought out in the same year. Some of this was blind hype and some was what some really did believe.
The boom times went on for several years, while people with sense were cautious and proven wrong, year after year. The market can teach the wrong lesson for years, because as Buffet said, “in the short term, the market is a voting machine”. He also said, “in the long run, it is a weighing machine”. At some point, the people who had made enough profits took them off the table, when they started thinking about how many planets Cisco would have to own in the next 5 years to keep up the current growth rate.

Are we there again? Don’t know.

The safest thing is to put small amounts into the rocket-stocks, not all your pile. Or forego the angst of “look what I missed” and be happy with an SP500 level of return. Especially late in the game.

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@DoesMIWork,
Late to the game? Do you see any of these SaaS B2B companies anywhere near market saturation? Most of them have only put a tiny dent in their potential TAM. We can argue about how large the TAM really is, but no matter what it might be, all the premier companies that we follow on this board are a long way from having sold all the product they can to every customer out there. In my estimation there’s at least a 5 year runway for most, for some (i.e., MDB, TWLO, ZS, OKTA, ESTC, others) I estimate that it will take even longer for them to approach the top of S-curve. If you don’t know what that is, read Denny’s (captaincc, I think) posts.

How about competition or disruption? All of these companies have first mover advantage and generally they have a pretty solid moat with respect to protected IP and some of them (AYX, MDB, TWLO, others) have user mindshare network effect. That’s very hard to beat. Of course, competition can be a threat, and their success invites competition, but it’s not that easy to actually be competitive.

Disruption? I guess it’s a threat, yes a disruptor can be disrupted, but it’s pretty rare. I don’t lay awake worrying about that. And even if one of them is disrupted there’s still about a dozen others. I’m really not worried about disruption derailing my portfolio.

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I’m asking on behalf of all the late-comers here: are we late to the game???..
DoesMIWork

Hi DoesMIWork.

To cut to the chase, no. You are not late to the game. I believe we are still in early innings. But I get how you’re feeling. Days, weeks, and sometimes months like these are hard. I’ve been learning from Saul and others on this board for a little over 2 years. In that time, our commonly held companies have gotten severely slammed a few times, heading back down below my buy-in price. But months later, they climbed their way up to a new high. Only to be be hit again 6 months later. But this time, the low was now above my buy-in price. Rinse and repeat, and today’s hit has my total portfolio still up 38% for the year. Yes, it was up 68% a few months ago, but yes, I wish it still was. But I’ve been through this enough times now to know my performance will once again head higher. No one like to see severe red. But that’s the way it goes. I have dumped a few names along the way and don’t miss them. But the 8 companies I still hold, I will continue to hold. In fact, I added to CRWD and AYX today, even though AYX is my largest position.

My point is, if you wish to invest in our kind of high growth companies, you have to buy in at some date and firmly buckle into your fate. Accept that the ride from there will be up and down, and then up and down again. Until you find your collective entry point is nicely lower as you move ahead quarter by quarter and year over year. Your job is to pay attention to company performance. Sell when the story or numbers change such that you lose confidence or find a better place for your money. These are not value investments. They are high growth companies in the next big thing. And we are just at the beginning of this next great thing.

Buckle up, know it’s going to be a volatile ride, and hopefully like me, you will be happy for the opportunity.

Best,

Vivienne

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I’m not in the habit of replying to my own posts, but I left this one with the questions:

What to sell? What to buy?

I just received notification from my broker that DataDog is going public on 9/18. This company was introduced to the board last month by @Jimb05. I tried to download the prospectus, but I guess it’s not quite available right now. At least for some reason, I was unable to access it so I couldn’t download it. I don’t really know any more about the company than Jimb05’s post, but he certainly piqued my interest. Doesn’t answer my first question, but it might be a partial answer to the second one.

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I was around for Internet 1.0 and the crash as well. I got wiped out like you would not believe.

There’s a difference here. A lot of the dotcoms then were concept companies. “Growth” was in eyeballs. Monetization? We’ll figure that out later.

ZS, OKTA, AYX & co. don’t simply have eyeballs, they have paying customers, subscription customers who are Fortune 500 companies or large government organizations. Scary, for sure, but I took a position in CRWD today.

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Clearly one is better off in the long run with growth than with value but it’s not risk free.

Actually the long term stock performance data is quite the opposite. Over long periods large cap value has performed better than large cap growth and small cap value has performed the best.

https://paulmerriman.com/wp-content/uploads/2018/02/2-4-Fund…

While the above maybe the case about broad market indexes, investing in a carefully chosen small set of high growth stocks (rule breakers) appeals to me and that is why I have to chosen to invest in this manner.

I see a lot of posts implying that during the dotcom crash companies with no revenues failed. I was around then as well and did lose a bunch of money. Actually the facts are a little more nuanced. During the dotcom burst even companies with real revenues, and profits crashed. Here is a small list of companies with their losses from the peak

Price line -99%
Amazon -93%
Adobe -80%
Oracle -83%
Ebay -77%

While I do not think we are in a bubble (though a P/S>40 seems stretched…), high growth stocks with rich valuations can lose 50%+. If your port of high growth stocks was up 50% for the year and you lost 50%, now you are down 25% for the year. One should be open to such a possibility. If not it maybe better to diversify or hold more cash for that matter.

I did buy some ZS yesterday. Hope they crush earnings and do well!

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the “long run” may not have much value as a prognosticator of the future.
Though I don’t think the human dynamics of markets ,bazaars auctions (whatever you want to call it ) have changed much since grain speculation in ancient Rome, the world has. There is ample evidence that innovation , change, tends to take place a lot faster today than it did in 1928. Thus favoring those growth companies that are deeply involved in change. Saul tends to be interested in a small corner of the growth stock world. One downside, as I have posted before, is that approach really gives little sector diversification, 5 stocks or 20 stocks , almost all went down yesterday.

Re prices of our socks- the move from early 2017 through the Fall of 2018 was unusual. What has happened since then is more typical. So newcomers to the stock market should expect more volatility as this Bull ages. And expect a Bear eventually at some unknown date. When almost all prices will fall as investors panic.
What makes prices go up and down so fast? The presence of Urgency. When sellers want to get out now, but buyers are willing to wait, prices fall.

So what to do now? I bought a new small position in CRWD but mostly just holding. If I was to bet on one nearly sure thing it would be that more data is going to be accumulated in the future and that security of that data will become ever more important. And that new tools to do that will work better than tools that are decades old. So that is where I am concentrated.

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“Late to the game? Do you see any of these SaaS B2B companies anywhere near market saturation? Most of them have only put a tiny dent in their potential TAM. We can argue about how large the TAM really is, but no matter what it might be, all the premier companies that we follow on this board are a long way from having sold all the product they can to every customer out there.”

Seems reasonable. Then there is Intel. Their sales and profits are much higher now than in 2000, yet their stock has never touched those highs again. Same for Cisco. Other companies, great companies like Lucent, they don’t exist any more. Their stock value tanked first, then the problems became known. Growth companies in a bull market give you lots of reasons to own them, until they don’t. Some remain great. Some not so much.

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Growth companies in a bull market give you lots of reasons to own them, until they don’t. Some remain great. Some not so much.

I’ll give it to you, ibuildthings. It takes a lot of nerve to show up on a board you never posted on until 3 days ago, and tell us you know better than we do:

  1. How growth stocks work (you’re talking to a growth investing board)
  2. How bull markets work
  3. How our companies will do “Some remain great. Some not so much.” Fantastic deep analysis! Sounds like you really know a lot about our companies!

Listen. The whole purpose of this board is investing in growth companies, so we know they can be volatile and that multiples can contract. We will continue to invest our way, as you are welcome to yours. But we follow individual companies, not trends. If you can tell us anything specific about these growth companies, I assure you we are all ears.

But that’s not really why you’re here, is it?

Bear

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Seems reasonable. Then there is Intel. Their sales and profits are much higher now than in 2000, yet their stock has never touched those highs again. Same for Cisco. Other companies, great companies like Lucent, they don’t exist any more. Their stock value tanked first, then the problems became known. Growth companies in a bull market give you lots of reasons to own them, until they don’t. Some remain great. Some not so much.

I was around during the 1.0 crash too. I believe Saul was around too. I would like to hear Saul’s perspective as well. I remember, his 2008 experience was horrendous. However, I am truly impressed by his and everyone else’s performance here. I am not jealous, I am trying to make sense and learn and eventually profit from it. I have benefitted from OKTA, TTD among others, and hope to benefit from TWLO, ZEN, WDAY, ZS, SHOP, OKTA+TTD again, etc.

I am glad you brought up INTC. For last 20 years, INTC’s total return has been around 2.7% annualized (including dividends)
I was curious so I found out that they had a market cap of around $280 billion at the end of 1999 with $29 billion in revenue (i.e 10X P/S) and sub 30% gross margin. INTC wasnt capital light like many of the Saul’s companies loved on this board. And clearly the revenue wasn’t growing that fast. It is at $70 billion revenue today and $20 annual net income with only $230 billion market cap.

What’s the point? It is that inspite of the ridiculous valuation in 1999, the annualized return (including divs) was positive. Some of Saul’s companies are growing revenue above 70% per year. These are not fully formed businesses. David Gardener recently did a podcast titled “Where are you here?”. This was to illustrate, that paying high P/S on some companies in the past turned out to have a happen ending today. Those companies were ILMN, ISRG, CRM, etc (He probably picked a different list to illustrate)

I think Saul and his team here is onto something. And I want to participate inspite being value/growth at reasonable price investor. The board here is about “Growth at any price”. However, you folks are smart. You guys must be obviously doing something right. And I know what it is, but of course, I find it risky, hence I tread carefully and invest a small portion into many of these moonshot stocks. Because I know that in the long run, many can lose to the market, but some that beat it can do it by going up several hundred percentage points. Eg. AMZN, NFLX, GOOG, FB, ISRG, BIDU, ELLI, etc

Having said that, while what you guys have done is incredible, there is no need to make statements like “Why are you here?”. People are here because it is a popular board and has an excellent track record of catching the right trends. I dont think this is a dot com bubble 2.0. However, some hype stocks that are buying their way to growth might crash and burn. What we have learned from the winners is, you dont need too many to have a successful portfolio. Personally I prefer less risk, hence I cant be like Saul and put all my eggs in the growth basket. I do salute his and others courage. I participate in my own way and am OK with not quintupling my portfolio (400% is not quadruple). I hope you guys don’t mind having folks like me here, even if I can’t put 100% of my investing dollars in companies like ZS and OKTA.

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It takes a lot of nerve to show up on a board you never posted on until 3 days ago, and tell us you know better than we do

When you cannot attack the argument presented, why not attack the person who makes it.

Am I happy to see 25%~35% haircut on my SaaS names, no. But I am not sad, angry or nervous. They are part of a diversified portfolio and most of them are still over 100%, 200% 250% of my original cost.

The whole purpose of this board is investing in growth companies,…But we follow individual companies, not trends

Investing in hi-growth companies the bigger theme or “trend” that this board is focused on. So take it easy my friend.

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I created a “Saul” port. Small enough that I can weather the down turns. I tried to run it like Saul but couldn’t.

I raise cash when I am scared and then try to control my emotions. Maybe one day I will be a steely eyed machine, but not today.

The way I see it, if I can hit 20 percent compounded, in 10 years my little “Saul” port will be most of net assets.

If it isn’t, I didn’t risk more than I could lose.

Cheers
Qazulight

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@Ibuildthings,
I can’t really argue with your thesis and the examples you provided are all valid. I’m just not too sure how applicable they are.

And there’s always the opportunity for management to cook it’s own goose. Let’s look at ZS as an example. They just hired a new sales manager who is supposed to be almost magical. OK, so what if they suddenly secure at lot of new very large customers and find that the capacity of their data centers doesn’t have the MIPS necessary to process the load? That would be very bad. That would be hard to recover from. Every one of the companies we invest in (and the ones we don’t invest in for that matter) provides management with situations and opportunities to screw up the business. Having confidence in a company translates to having confidence in the management team IMO.

The only thing I have to offer in defense of the companies that followers of this board are prone to invest in is that we don’t just invest in high growth companies. Yes, that’s certainly an important criteria, kind of the first requirement to get a foot in the door. But as Saul likes to put it, most of these companies are “category crushers.” Yeah, the same thing could be said about Intel and Cisco back in the day. I owned both - too long. And yeah, I thought Andy Grove and John Chambers were nearly incapable of making big mistakes. But Intel management failed to recognize the move to mobile computing. Cisco management failed to recognize the role of software in network architecture. For each of these companies (and many more) their fall from grace can almost always be traced back to management failures.

So where does that leave us? What’s the alternative. Invest in big blue chip companies like maybe Boeing for example? Muilenberg (current CEO) is largely responsible for the 737MAX fiasco. He rushed that plane to market. He cut short the test flight schedule which likely would have revealed the MCAS problems. He made sure that prior 737 pilot certification along with eight hours iPad training was adequate to fly the new plane. But it didn’t start with him. IMO Boeing has been in a downward spiral ever since the merger with MacDac. Everything about that merger was positive except bringing Stonecipher and his corrupt management team on board. And after firing him for having an affair with a subordinate the board, in an incredible act of stupidity went out and hired McNerney away from 3M instead of promoting Mulally. There’s no way of knowing, but I think it doubtful that Mulally would have ever given the go ahead for that plane in the first place.

My point is the size and market position of a company doesn’t protect it from bad management. Business history is littered with “great” companies which no longer exist. Companies that at one time were high growth, dynamic enterprises are now dead or just part of the investing landscape.

So yeah, I get your point. I just don’t know that it’s actionable. What we do here is scour the opportunities for what appear to be the creme de la creme based on a spectrum of criteria. And then watch them closely. Will we be observant enough to see cracks in the business should they appear before they become fatal? Maybe . . .

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" I’ll give it to you, ibuildthings. It takes a lot of nerve to show up on a board you never posted on until 3 days ago, and tell us you know better than we do: "

Please accept my apology. It was not disrespect. I am here to learn how growth can be invested in the right way. But I also have observed the rapid surprises that hit everyone around me in 2000, when my career, my investment friends, our brokers, and everyone else around us were fully invested in the industries that led the 90’s growth period. It was only after the prices crashed that the reasons were exposed.

What I learned from that experience and from retaining my interest in growth companies is to limit my exposure to a percentage of my portfolio. And to pay close attention to those people like I see here who are into deep analysis.

Again, no disrespect.

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