I received the following question (slightly edited) which I will respond to on the board as I thought it is a good one and that my response may be useful to many new board members.
I’ve been following you for almost 2 years now, and I was thankful for all your knowledge several times. I would like to ask you to give me give me some mental help (not investment advice what I should buy). Although I was talking to myself that I do invest Saul-like - if I am really honest to myself, then I still didn’t really get it I think. Please let me explain quickly:
I went through all the pros and cons and decisions from all of the portfolio summaries like yours, stocknovices, GauchoChris etc, and I see why it makes sense to trim some older positions…Yes, I still hold some of these older names - I can’t be as ruthless as you, but this is not my main issue at the moment, I am ready to trim them. In fact I did already. But I don’t want to be sitting with cash. I want to shift the money into the best positions.
The positions which I would like to add to are with their current sizes in my portfolio:
So now I have about 3% Cash and I thought about adding to ZM and/or FSLY because they are still not big positions like the other top 3 and they do have strong outlooks in terms of fundamentals like growth.
But I’ve got this barrier in my mind: ZM and FSLY ran up so much lately.
Is it really the right move to just shift the cash from into these two right now?
I know, you are teaching this all the time, but somehow I just can’t do it. What is holding me back? I need a push into the right direction.
Here’s how I would answer:
Hi M, I’ll be glad to give you some mental help, but you are correct, I can’t tell you what to buy. That is your decision.
Secondly, I don’t know what the market will do and what any of these stocks will do, or even what any of these companies will do, over the next few years. I’m just making judgements and evaluations, just like you are. For instance, on March 16, when my portfolio was down 16% (it had fallen from up 34% to get there, which was pretty scary!) and everyone was shouting “Sell, SELL! Go into Cash!”… I never would have dreamt that my portfolio would be up over 168% from there in three and a half months !!! Never!!!
Next, I once looked back at Amazon and saw that it was at something like $5 per share at sometime in 2001, and when it went to $10 many people may have said to themselves “It’s doubled already. It’s too high to get in.” And at $20, “My God! It’s quadrupled!” Now it’s at $2890….
Or look at Shopify. I bought it initially at about $27 (as I remember). In about six weeks it was at about $47, which was up 74% in six weeks. I bought a lot more. It’s now at $1030. (I sold out for about a quadruple, which turns out to have been a mistake, but I have no regrets as the companies I’ve invested in instead have done just great). And what I did is irrelevant for this post. What I’m trying to show you is just that if a company has gone up, it probably gives you more positive information than negative about buying. And just because a company has gone up doesn’t rule it out for purchase. It’s very likely up for a good reason (or two or three good reasons)!
As far as the companies on your list, all except Alteryx seem to have gotten a boost from the shift to the cloud which has been caused by the pandemic. And customer companies which have invested in making that shift are very unlikely to go back to their old way of doing business.
Next, I wouldn’t recommend taking a 12% position all at once in one of these companies, but you are talking about splitting 3% of your portfolio in cash between two or three companies. To ease your mind a little, if you invested a third of it (1% of your portfolio) in Fastly, for instance, and it dropped 30% suddenly (unlikely, but certainly possible), that would hurt your portfolio by all of 0.3% !!! I doubt that you would notice the difference.
Finally, I added tiny amounts to Zoom, Cloudstrike, and Fastly myself this very week, at current prices. I think that they all should have rather extraordinary earnings reports next quarter. But that’s just what I did, and I make lots of mistakes.
I hope that that helps.