Informative Back Test

I wanted to see how Saul’s stocks held up in the 2018 market correction from about 10-1-2018 to recovery on about 4-15-2019. Of course you can all read Saul’s end of 2018 post and get a fuller idea of how his stocks did for the entire year of 2018.

But I wanted to check for that specific period to get some idea of how a correction affected his holdings. I have made a graph of the top 60% of his holders but am too new to know how to post it here. If anyone wants it, please email me (and feel free to explain how I can post a graph).

In any event the exercise was a good one. Starting with 10-1-2018 as 0 day, the S&P fell 20% by December 24. Of Saul’s top 60% stocks (AYX OKTA TWLO ZS) only OKTA fell more and then only 22% from 10-1-18.

When the S&P made a full recovery by 4-15-19 to its 10-1-18 high, (in other words back to zero), the “worst” of these 4 stocks, which again was OKTA, was 35% above its 10-1-18 level. The best (ZS) was up 61% from 10-1-2018.

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In any event the exercise was a good one. Starting with Oct-1-2018 as 0 day, the S&P fell 20% by December 24. Of Saul’s top stocks making up 60% of his portfolio (AYX OKTA TWLO ZS) only OKTA fell more and it fell only 22%, just 2% more than the S&P.

When the S&P made a full recovery (in other words back to zero) by Apr-15-19 to its Oct-1-18 high, the “worst” of these 4 stocks, which again was OKTA, was 35% above its Oct-1-18 level. The best (ZS) was up 61%.

Thanks Magellan, for calculating that! Boy, doesn’t that say it all!

Saul

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Magellan,

That’s excellent work… I have felt this is true but never did check the calculation…

Thank you!
Nilvest

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Thanks for the kind words, Nilvest. I should have added that of the 4 stocks I graphed (ZS, TWLO, AYX OKTA) all were affected by that downturn of course. But the first 3 fell only 10% at worst whilst the S&P was down 20%. By the way, I used only 4 of Saul’s holdings in order to create a more legible graph. They did represent 60% of his portfolio.

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Sure does, Saul.  Who would have thunk? Next time anyone asks what kind of stocks you buy, you can just tell them "conservative ones" !  

Really I shouldn't say that.  A one time test isn't conclusive by any means, but it's hard to back test these stocks easily because there have so few serious drops in the S&P for quite some time.

I should have added that of the 4 stocks I graphed (ZS, TWLO, AYX OKTA) all were affected by that downturn of course. But the first 3 fell only 10% at worst whilst the S&P was down 20%. By the way, I used only 4 of Saul’s holdings in order to create a more legible graph. They did represent 60% of his portfolio.

If I recall correctly the SaaS stocks reached a peak in the first week of September 2018 and bottomed on December 24. To see how far they actually fell from the peak, look back to the beginning of September 2018.

Chris

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You’re right Chris, that SaaS started to drop before the S&P. I chose October 1st because that’s when the S&P made ITS high and I wanted to see how Saul’s stocks held up in a general market downturn.

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Thank you for this idea, MagellansQuest, and for posting your findings. I was curious about this, so I ran the numbers.

Going off of (fellow Gaucho) Chris’ suggestion, I went back to September when the SaaS’s peaked, and used 9/12/18, as that’s when many of them hit their highs that month.

Specifically, I was curious as to how these SaaS companies compared against not only the 3 major indices (Dow Jones, S&P 500, NASDAQ), but also against the FAANG stocks, and several other solid growth stocks, such as Mastercard, Microsoft, Adobe, and Starbucks.

Here’s what I came up with. The “Dip” refers to the performance from 9/12 to 12/24. The “Bounce” refers to the performance from 12/24 to 4/15. The “Net” refers to the performance from 9/12 to 4/15.


        9/12/18	 12/24/18  4/15/19	DIP	BOUNCE 	NET
FB:	163.25	 123.1	   178.5	-24.59	45	9.34
AMZN	1994	 1343.96   1844.87	-32.59	37.27	-7.47
AAPL:	224.94	 148.15	   198.58	-34.13	34.03	-11.71
NFLX:	359.08	 242	   350.71	-32.6	44.92	-2.33
GOOG:	1172.72	 973.9	   1218	        -16.95	25.06	3.86
MA:	213.05 	 173.15	   239.52	-18.72	38.33	12.42
MSFT:	111.43	 97.68	   120.94	-12.33	23.81	8.53
ADBE:	267.83	 206.9	   271.86	-22.74	31.39	1.5
SBUX:	55.2	 61.48	   76.67	11.37	24.7	38.89

DJIA:	25989	 22317	   26407	-14.12	18.32	1.6
S&P500:	2888.29	 2400.56   2908.32	-16.88	21.15	0.69
NASDAQ:	7958.87  6278.49   7987.16	-21.11	27.21	0.35
						
AYX:	62	 48.75	   83.1	        -21.37	70.46	34.03
MDB:	84	 70.48	   142.88	-16.09	102.72	70.09
OKTA:	73.87	 52.29	   95.07	-29.21	81.81	28.69
TTD:	149	 103.68	   199.28	-30.41	92.2	33.74
TWLO:	85.9	 74	   125.3	-13.85	69.32	45.86
ZS:	41.37	 34.41	   66.59	-16.82	93.51	60.96

Misc. Comments:

–As MagellansQuest noticed, the “Saul SaaS stocks” performed much better throughout.

–Since this all occurred during the several year window when these SaaS stocks were on a massive meteoric rise (which many people on here have said that those days are likely over), I can’t help but wonder how much of the lack of drop is simply just due to this counteracting things.

–Because of this, I’m especially curious to run these same numbers during our next market dip, and I’ll make sure to post them on this board.

–One of the motivations for this original post (I think) has to do with all of the discussion on here about a possible SaaS bubble. I really don’t want to restart this, but I’d like to add one quick comment that I don’t think I’ve heard (sorry if I missed it). Such bubbles often happen after a wave of Fear-of-Missing-Out (FOMO) hits the general public. We’ve all heard the saying about when your taxi driver tells you about an investment, then it’s time to get out. Everyone knew about internet stocks in the late 1990s. Everyone knew about bitcoin by the end of 2017. But I’d venture to say that most of the general public doesn’t even know what SaaS even stands for, and there’s a good chance it’ll stay that way. In the coming years, this is something to be aware of. If it gets all over the news, and prices shoot even higher, beware.

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Matt, your work was thorough and definitive. SaaS stock pickers now will face the risk of being accused of being conservative stock pickers.:grin: But we have to keep in mind that only one 10 month snapshot might not give the big picture. As you suggest, it will be interesting to see how SaaS fares in another more prolonged downturn

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Matt,

I wish I could recommend your post (re: Informative Back Test) 100 times.

Jim

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Magellan:

SaaS stock pickers now will face the risk of being accused of being conservative stock pickers.

I have been thinking about this for a while… I think this is real… SAAS is the star business model of 2015 to 2025… this is SAAS decade and we are not even half way through it… being under invested in SAAS today is being under invested in FAANG earlier this decade… one would miss stellar stellar ride…

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Hi Matt, for another example of how our overpriced SaaS stocks get killed when the market is retracting, I noticed just now that the market was having a bad day. The Dow, S&P, Russell, Nasdaq, and IJS, which are the five indexes that I follow, were down an average of 0.75% a little while ago. That’s a bunch. And my portfolio was only down 0.60%… Oh, excuse me, my portfolio was UP 0.60% ! Shows once again how vulnerable we are! Yep!

Thanks for tracking all that.

Best,

Saul

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I don’t find much value in ad nauseum posts about how great these stocks are - especially “oh look at my portfolio slightly more than halfway through a trading day - especially compared to some various indices”

Maybe we could add these things to the MMROTB?

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You are right Carver. I have been talking about this excessively, partly because there has been so much talk on the board about how dangerous our stocks are in a downturn. I will work on holding myself back. Thanks for pointing that out.
Saul

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I don’t find much value in ad nauseum posts about how great these stocks are - especially “oh look at my portfolio slightly more than halfway through a trading day - especially compared to some various indices”

Since it’s from Saul, I find it very valuable. It’s an opportunity that Saul teach us that our seemly overpriced stocks not necessarily will drop more than ‘average’ stocks during down market.

Saul already taught us selflessly so many things. I’m a little shocked that instead of appreciation, you still complain a little thing that you are not completely satisfied.

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Carver,

Saul is not gloating…he is pointing out that his basket of stocks is continuing to display a high level of relative strength compared to the averages…a key trait that investors should pay attention to…

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…he is pointing out that his basket of stocks is continuing to display a high level of relative strength compared to the averages…

I agree with Carver (and Saul did, too, btw)…and with the above.

It is great to see the relative strength of the stocks we own, but over a meaningful time period, like the one shown from the peak in Sept '18 to the bottom in Dec '18, that was great and says something! The fact that our enterprise/cloud/SaaS stocks are doing better in the first few hours of any particular trading day means absolutely nothing. The next day could be the exact opposite, and that would also mean nothing.

Need to be thinking longer term than that.

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Historically the high growth/volatile stocks that you would see move up 4% on any given day would get equally hammered during a downtrend. This has not been happening with SaaS stocks. And I believe part of it is their cost savings in nature. They are actually possibly immune to recessions–at least compared to, say, your typical high growth company making semiconductors, Monster Energy, Yahoo! Amazon, etc, the high flyers of yesteryear, which were all just additional expenses. Yahoo! depended on advertising dollars-which goes down during recessions. Monster Energy is an expensive drink, it’s an expense, and so on. Whereas GE is saving money with ZScaler compared to legacy security systems. Coupa Software better equips companies to save on their business spend, etc. I understand some customers will cut back, go out of business, etc, during a recession, but this is the first time I have ever dealt with high growth companies that actually have some recession proof built in.

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I beg to differ with you 12x here. There is no company like recession proof. We should not fool ourselves into believing that we have found companies that will perform better than the rest during a recession. Yes there is a possibility of that happening. May be we could use recession resilient as the chances of these companies to weather the storm are better due to the subscription model used by these businesses. Using the term recession proof can change the way we look at the high growth SaaS companies and may lead to bad investing decisions in the long term.

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Were there any stocks in 2008 which are comparable to todays SaaS companies?
e.g. CRM vs S&P500 in the great recession
https://drive.google.com/file/d/1wmY5grj1xExkJ3f0v6T3IAp2RKK…

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