InnerPeace’s end of October Portfolio and a Deeper Look into Our Investing Style

[innerpeace123]

Hello fellow investors,

I wanted to share my monthly portfolio update and some thoughts on investment philosophy that I’ve been grappling with lately.

I began following the Saul-style investment philosophy in 2017. Since then, I’ve navigated the turmoil at the end of 2018, the steep drop in early 2020, and the incredible bull run from mid-2020 to the end of 2021. However, the subsequent downturn was brutal; my portfolio suffered a 90% drop, a painful lesson driven by the improper use of margin and overconfidence in SaaS stocks.

My portfolio:

October: Sold: NBIS, HIVE, OGI, ELVA, OGI

Added: APP, EOSE, ASST

My year-to-date return is over 150%, largely thanks to an early, and admittedly lucky, entry into AI Infrastructure stocks, amplified by some small margin. While the YTD performance is encouraging, the primary goal here is to discuss our individual holdings and strategy.

Reflections on Our Investment Style

The massive drop from the 2021 peaks has prompted me to seriously reconsider our “Saul-style” approach. I now believe we have to admit that there is an element of “hype investing” in our strategy. We often say we’ll “hold a stock indefinitely as long as the company performs well,” but we must examine cases like Zoom (ZM) and DocuSign (DOCU). Those who have been on this board long enough will remember the conviction we had in these names in 2020 and 2021.

I used to think that if a company’s growth slowed, the stock price would simply grow more slowly or flatten out. The reality has been much harsher. Years after their peaks, ZM and DOCU are trading at a fraction of their all-time highs. This experience leads me to a critical conclusion: our advantage is the ability to identify high-potential, stable, high-growth companies earlier than the broader market. However, we must also recognize that we will be severely punished if we don’t exit when that hyper-growth phase ends.

Perhaps the distinction between a “long-term investor” and a “hype investor” lies in this acknowledgment: the latter accepts the possibility of a bubble and plans an exit strategy for when the narrative shifts or growth decelerates. If we are indeed “a little bit of“ hype investors, it’s better to be honest about it and exit when needed.

Individual Stock Commentary

Here are some thoughts on specific holdings:

AI Infrastructure Stocks: IREN, NBIS, HIVE

I’ve been comparing the key players in my AI infrastructure basket, which has been a huge driver of returns. Both Iris Energy (IREN) and HIVE Digital (HIVE) are leveraging their crypto mining infrastructure for AI applications. IREN, in particular, has seen a significant revenue increase and has ambitious expansion plans in AI cloud services.

While HIVE is less proven than IREN and NBIS, its valuation appears very low given its potential. In Oct, with the price turmoil of AI infrastructure stocks, I felt that the correlation among the three stocks is too large for me to consider them separately as “below 20% weight each”. Thus, I trimmed NBIS and HIVE a little bit.

Electrovaya Inc. (ELVA)

I initially opened a ~5% position in ELVA along with others on this board but have decided to exit the position completely. My main concern is the CEO’s personality; his statements often seem boastful. For example, the claim that their technology is “too advanced to be used in EVs” is a red flag for me. The EV market is arguably the largest and most important market for battery innovation right now. If ELVA’s technology truly far exceeds EV requirements, it could suggest that capital was spent on innovations the market doesn’t value. Conversely, it could also imply that technical weaknesses or high costs are preventing them from competing in this critical arena. While the company could do very well if the CEO’s claims materialize, I am no longer willing to bet on it.

OrganiGram (OGI) vs. BioHarvest Sciences (BHST)

First, a big thank you to WPR for bringing these two companies to the board’s attention. I appreciate the effort to find growth stories in different sectors to help diversify our tech-heavy portfolios.

Between these two, I have a strong preference for OGI. While BHST makes claims about the medical and health benefits of its products, I am skeptical about three things: 1) the scientific validity of the claims, 2) the significance of the health benefits (for example, we know reducing salt intake is healthy, but the benefit isn’t significant enough for most people to change their habits), and 3) whether customers will ultimately believe in and pay for these benefits. The cosmetics and beverage industries are driven more by commercial strategy, branding, and cost than by hard science. I’m not confident that customers will be convinced that BHST’s products are meaningfully better for their health than a host of other products making similar claims.

In contrast, OGI’s growth story is much more straightforward and easier for me to underwrite. The company is expanding internationally and its results over the last several quarters have demonstrated strong, understandable growth.

I added some OGI in Sep, but decided to sell in Oct, partially because I could not manage 11 positions.

I look forward to hearing your thoughts.

[coldmountain]

Hi Inner:

Thanks for having the courage to say out loud something that has been nagging me for years (the ‘hype’ aspect of this approach). The most successful ones on this board, it seems to me, are pretty ruthless in reading the room, so to speak, and get out of stocks long before I do. It isn’t very fashionable to talk about this – after all, we’re all trying to define and refine a method – but rogue waves in investing seem to me to be a feature, not a bug.

[wpr101]

Great portfolio and results there! Nice to see some familiar names and newer ones as well.

With regards to the strategy question, I typically think of the word hype being used to describe pre-revenue companies or companies with unproven business models. I think I see the bigger point you are getting at though.

One insight I have had on this issue is that it is hard for a business to accelerate quarter over quarter indefinitely. A lot of companies will have 2-3 quarters of growth and then hit a wall. I see this as a sort of natural process in that a company will introduce a new product and it starts picking up in the marketplace. However, depending on the size of the market the company is selling into, they may have acquired all the low hanging fruit customers already, and the remaining customers in that TAM are more skeptical and harder to land.

Pharma is a good example where this happens. Maybe 20% of doctors are early adopters in their speciality. They are willing to prescribe their patients newer approved medications. The remaining 80% are a much tougher sell and risk adverse with the mentality of why change a working formula. Because of this, some pharma companies have a huge ramp but then it levels off fast. At the same time, there are some rare companies which can make that transition from the lower hanging fruit clients to seamlessly obtaining the tougher customers from a sales standpoint.

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Thanks for all that feedback on the individual stocks as well!

On Electrovaya the CEO said recently that the batteries for EV’s are commoditized meaning they won’t pay up for performance of the battery. He has also detailed a number of times why it does not make sense to put a battery that can do a couple million miles, into a car where the rest of the components may see a max lifespan of roughly 200k miles. I also don’t really see the EV market as where they are going as they’ve said self admittedly. Their earnings pre-release said they sold to multiple robotics manufacturers and that sound like a growing market for them.

As for the CEO’s attitude he does have a bit of a chip on his shoulder but I do like his attitude. He’s mentioned the company almost went bankrupt about 7 years ago. I do think the management team has gotten valuable lessons the hard way, and this is also a capitally intensive business that does not see a lot of startup competitors coming in.

His father was the former CEO, owns 25% of shares, and the is the chairman of the board. I do like that the Current CEO Raj started in R&D and worked his way up through the company, in addition to having a Phd in Materials Sciences. I mention this because I don’t think it’s the case where the job was just gifted to him for being related. Ultimately we will see what types of results he can deliver and if the management team is able to scale up this business in short order.

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With the companies of Organigram and BioHarvest I see them as a bit outside of a typical Saul stock, but stocks I find have attractive risk/reward. Something to keep in mind is these smaller names are more likely to fail but also more likely to get outsized gains - it can seem a bit contradictory at first that both of these are true.

I’ll usually keep my positions in the smaller microcap stocks on the smaller side of allocations because of this higher variance in the names. Also if the stock does well it can pick up allocation percentage in the portfolio quite quickly.

Last point that I will add is that I’ll also be more wrong more often with those smaller stocks. Companies like IREN, APP, and ALAB I’m quite sure about having them as the top positions. Nice to see you are seeing the same promise in those names as well!

[stocknovice]

I view it slightly differently. Using Saul’s own words, It’s not hype investing - it’s hypergrowth investing.

I’ve always viewed it as an S-curve exercise (Buying Low, Selling High and Understanding the S-Curve). Over the years, this board has shown an ability to find companies - usually smaller - at the hypergrowth stages of their S-curve. Many are on the verge of positive cash flows and/or profitability, which has tended to be a historically excellent time to own a stock.

As @innerpeace123 suggests, the exit strategy matters when we get signals that S-curve is either drastically slowing or rolling over. While some companies see growth drift down slowly enough to remain worthwhile investments (eg CRWD, NET), others see that growth fall off a cliff (eg ZM, PTON, UPST). Obviously, those groups have taken drastically different paths since giving us their first signals.

Is there “hype” behind these stocks? Sure, though I’d call it narrative rather than hype. The more important thing is the hype for most of these companies is backed by outstanding business performance. And the numbers behind that performance have traditionally been our first measure of evaluating those companies. This board is pretty good at parsing the numbers and trying to poke holes in them as we go. It’s when we see those numbers wobble that we have a decision to make.

The honesty is knowing what game you are playing as an investor. This is not a long term buy-and-hold board. This has traditionally been a board that tries to own the best growth companies it can while closely monitoring the numbers to justify the thesis.

[innerpeace123]

Hi StockNovice,

Thanks so much for the thoughtful reply. It’s great to see you posting. Frankly, one of the main reasons I started posting my portfolio and monthly thoughts is because I’ve missed hearing from veteran members like yourself, and I wanted to help stimulate the kind of deep discussion the board provided.

I appreciate the S-curve analogy, and I agree with the core idea of “hypergrowth investing” over “hype investing.” However, I find the visual representation of the S-curve can be a bit misleading when it comes to stock prices. Many people look at the flattening top of the curve and assume it means the stock price will just continue to rise slowly or stabilize. In reality, that’s often the point where the stock price collapses, as we saw with many of our former holdings.

(figure from StockNovice: Buying Low, Selling High and Understanding the S-Curve)

I’d like to think about it with a different framework, breaking the stock price down into two core components: the multiplier (EV/S) and the fundamentals (Sales).

Stock Price (P) ≈ (EV/S Ratio) * (Sales)

The “Sales” part is what this board has always excelled at analyzing. The great investors here can masterfully read financial statements, predict market size, and forecast revenue. However, the EV/S ratio is a powerful multiplier influenced by many other factors: revenue growth, the second derivative of that growth (i.e., acceleration or deceleration), margins, company execution, market trends, price momentum, and broader macroeconomic factors like interest rates.

Let’s take a company that was once a board favorite, Snowflake (SNOW), as an example. While I haven’t double-checked the exact figures, the trend for its EV/S ratio looks something like this:

• Peak Valuation: In early 2021, its EV/S ratio was at a breathtaking peak of roughly 150x, reflecting immense market enthusiasm.

• Declining Trend: Since then, that multiplier has compressed dramatically, falling to around 17x by early 2025.

That’s a nearly 90% drop in the multiplier alone. For the stock price to even get back to its previous high, sales would need to grow tenfold from that point. With SNOW’s growth rate moderating from over 100% annually to around 30% today, it could take nearly a decade for sales to increase 10x.

This brings me back to the idea of hype. While we are great at forecasting the “Sales” part of the equation, we must acknowledge that the “EV/S” component contains a significant element of market sentiment. For a stock like Snowflake, the change in the EV/S multiplier over a 3-5 year period can be even more significant than the change in its actual sales. This realization forces me to re-examine just how much of our strategy is riding on that hype factor.

My other concern is a subtle shift I’ve noticed in our collective strategy over the years. I remember when Saul was still teaching us, he would often advise patience: “Don’t buy newly IPO’d stocks,” or “Wait for several quarters of data to build before investing.” Today, it seems we’re not only buying after just one strong quarter but sometimes even jumping in based on management guidance alone, before the hypergrowth is even proven in the numbers.

This shift makes me more worried about the hype component in our process. I’ve always liked the analogy of predators in the animal kingdom. The best investors, even if they believe they have the skills of a lion, tiger, and Bear, will stick to their familiar hunting grounds. They don’t jump into the river to fight a crocodile for its prey. Any change in a successful strategy should be approached with extreme caution, and I believe we should be very mindful of these evolving habits.

Thanks again for the great discussion.

[SailingDev]

I think you raise excellent points, especially about the S-curve. For many hypergrowth companies, it ends up looking more like an inverted V. The drop can be triggered by so many factors, and once sentiment shifts, investors rush for the exits at the first hint of slowdown. What makes it even trickier is that the early signs often don’t look bad at all. The numbers and the narrative can still seem solid when the deceleration starts.

Coming from a long-term investing background, I’ve been caught by this before. I tend to back companies where I like the story, the management, and the fundamentals. Then a slightly weaker quarter comes along, with management or macro providing a convincing explanation, and that’s often when a fast decline begins. I don’t have a perfect solution to this. I’ve learned to take some profits when an investment is doing very well and sentiment is sky-high, and to trim when I find myself thinking, “It wasn’t that bad!” or when I see other experienced growth investors exiting.

Still, it’s never easy. These companies are volatile, and each drop forces a judgment call: is it just noise or the start of a larger trend? I’ve found it helps to be more decisive right after earnings reports and more patient during the quieter periods in between.