The thread on high or low p/s stocks has gone on as long as a political rant on NPI. I appreciate the opinion. We all need to know that investing is not easy. We also need to know, as we have learned, is if you listen to the conventional wisdom of the investing industry you won’t make money. You will revert to the mean.
We invest here in companies, not systems. If you want to invest in systems have at it. It may turn out that Saul or my holdings may end up in certain sorts of stocks, but until the beginning of last year I only owned one SaaS stock and that was SHOP. The others I owned were Nvidia and Arista. Saul’s portfolio was similarly mixed.
One thing learned is that the low price to sale growth stocks faltered, all of them, to a person and have never come back. PURE is one that is an enigma as its business never actually faltered but improved but yet as if it were Talend its multiple has contracted and contracted and remains that way.
On the other hand, the stocks that the market has chosen as the highest quality have returned that way.
The way we will invest will change over time but some principals (at least for me) will not. This study ignores, as an example, systematically find and holding and investing in Netflix, Amazon (don’t give me if you bought during the bubble. It was a bubble! Experienced investors wold identify it. Even if you did not, systematically holding it and investing each month would have still given you extraordinary returns), or a SHOP, TEAM, etc. Perhaps Mongo and OKTA and Zscaler (as examples) may turn into the next great line of companies.
ALL OF THESE COMPANIES DESTROYED THE MARKET AND MADE THE RULES OF THE VALUE INVESTORS THAT ALL THINGS RETURN TO THE MEAN IRRELEVANT. Yes, IRRELEVANT.
This is not “things are different now,” this is how it has always been. Superior disruptive companies have always been expensive and they have always killed the market. That is what we attempt to identify and hold.
If instead you want to buy the market, or a general segment of the market, say SaaS then you also have to hold Talend and Cloudera as examples. If chips then you also have to hold all the chips, etc. THAT IS NOW WHAT WE DO HERE. Well most of us, I am sure there are some who do. And nothing wrong with it. But that is not what most of us do here. And that is not what our conversations here are about.
What we do here is try to identify and invest in the leading hyper-growth disruptive businesses in the world. Through crowd-sourcing we do this systematically. And this is contrary investing because 90%+ of the world calls us crazy for doing so. These market “darlings” that are extremely “overvalued” that will simply crash some day. Enjoy the “party”.
Those invested in Netflix, SHOP, Amazon, TEAM…they are.
If, however, you never want to find and invest in these, or the next generation of such companies, and hopefully there will be future generations like Twilios of the world that are only two years public, then you need to understand that for all rules there are exceptions.
Something like a very small number of all stocks create most of all the market increases. This study is misleading as many companies are acquired, or the ones that become laggards are the ones that we do not want to invest in and usually sell anyways, indicates just what I am talking about. If you want to buy the market you will have mediocre returns. If you want to buy the premium businesses of the day…well use your own judgment.
My mother told me that I was an idiot to go into law. Too many lawyers. Only the rich make it. My father told me to join the corp of engineers (I was not fit to compete in the open market apparently). There are not too many lawyers, there are too few exception lawyers. I saw this, and love you but screw you {lovingly } for not having faith in me. Yeah, call it a chip on the shoulder, but with a point.
The same is true with investing. Everyone, EVERYONE will take their lumps and have to lose sometimes. However, if you go into anything only responding to fear, conventional wisdom, and that everyone reverts to the mean then why even try. Settle for mediocre. We have proven that we are not mediocre here. We are the top 1% of all investors. We do not revert to the mean, never have, and we are not stuck buying the market (thus ensuring mediocrity), and we are not stuck investing in systems.
We invest in the best growth businesses in the world. A select few. And contrary to the pompous certainty of studies that show we are all idiots, the unequivocal evidence is that, wait, wait, wait, there is Netflix, Amazon, Shop, Team, TTD…but it is all luck, right? Tell that to David Gardner who found and invested in all of them early and continues to hold them.
So no, things are not “different this time,” things are actually the same. If you want mediocre returns simply scare yourself into acting as if you are mediocre by investing in the mediocre or the market or a system.
As I said, the way David Gardner invests scares the living bejeesuz out of 90% plus of the population. It stands in the face of all the investing experts who say it cannot be. You cannot invest in outrageous overvalued! Well he did, he does, and he will, and his returns are superior to almost anyone. Is that just luck and a fluke? Are we just lucky and a fluke? Does that not sound like the 90% of everyone who tries to pull you back in the pack because you are doing better than them?
Make your own call. I do not invest that way and I will not live my life that way. Of course we understand risks. We are not daredevils! But statistics…put them into context, and then explain if those statistics are so valuable, then what is with all these systematic outliers?
Silence. You will never hear an answer from the naysayers to explain them other than “luck”.
Tinker