Yeah, I’ve been around the sun a few times ;-). I was lucky to get into mechanical investing after 97 when the Fool was actually supporting and advocating for the approach. But it took the 00-02 bubble burst Internet crash to learn that the big boys own the market and they move in FOMO herds; the money flows - buy demand - is what matters most. We who got burned by holding on too long in any of, ATHM, CRA, LU, JNPR, CSCO, DELL, 3COM, you name it LEARNED (if one cared to listen) that the party is awesome when it’s going on - but we plebes. don’t. matter. When that herd says its over, it’s OVER. - evidenced by PRICE, crashing through moving averages and not coming back. “Love the company, not the stock”, “the stock doesn’t know you own it,” whatever. (Many companies in that wave were pure crap that evaporated, unlike now).
I got into relative strength trend following because negative surprise after negative surprise after pre-earnings selloff in some “high-quality” stock I’d picked out of VL based on its fundamentals just soured me on stockpicking. We don’t have enough knowledge in any business or real insider information to know what’s coming - all we have is hope for growth and profits. i.e. Saul’s critical investment factor of Trust.
Using market breadth and trend indicators for the first time got me out of 2008 a little early, and I learned again the importance of protecting capital. Still, I lost 10 years of 401K contributions in that year. Should have done better.
To the point with SaaS. Saul uniquely had insight and communicated it and shared the thesis widely. I happen to be in enterprise IT project management, so that wider thesis perspective made a compelling case for an opportunity - back in '19, and I felt a little late then. So it was all fun as the stocks started rocketing up. It still screamed “wow, he’s hit the vein!” or a gusher to me. Now, revenue growth rates were unheard of at that scale, and the software was REAL, unlike 98-2001 internet. So, with responsible risk management (20-25% of the port at one point) got in and out of ZS, NET, CRWD, DDOG, TSLA and a few others for big profits. And then Covid. '20 was my best year since 03.
Lastly. “Don’t fight the Fed” has no exceptions. No “except for hot growth sectors”. The macro was changing. Originally the herd mania around SaaS was partly driven by zero interest rates - “there is no alternative to stocks”. AND the Fed was still buying MBS! And then Covid drove the biggest financial government intervention in the economy in history. All that money had to go somewhere. So it went into SaaS / big cap tech - as long as the cheap money party lasted. When the Fed started raising interest rates the fastest ever AND kicked over the punch bowl of easy money, the institutions quickly ran from the big room party, cashed in all those profits they’d made - the crowded trade - raising cash, and started buying Treasuries because, wow - a 4 to 5% guaranteed yield is a great foundation in an uncertain environment.
The last round of trades I made in the SaaS stocks in late '21 into early '22 all lost money due to price drops. Tops in charts were universal across the sector. That behavior across all stocks was a huge “get out” marker to me.
Do all those great SaaS companies still have great growth, great products that businesses want, incredible metrics? Yup.
The Fed distorted the hell out of investments and real estate and construction for years by making money free, and then last year distorted it as badly - unwound it too fast and too far.
Fundamentally now, businesses that had a payback period of “immediate” at ZIRP, now have to worry about expenses again - and that’s the new “macro” that NET, CRWD, ZS and DDOG are now dealing with. Once a great layer of security and monitoring is up and running, it’s very hard to justify expensive addons when your iRR has to be >10%, and raising license costs is verboten if you want to keep the customer in this environment. I’d expect there to be very high customer retention due to astronomical switching costs between solutions, but diminished new revenue rates.
In my belief, what you have seen recently is a dead cat bounce. That industry’s stocks are not going back to their 20-21 highs for a long time. Even MSFT lost 80% of its value in the aughts and took something like 13 years to get back to its Inet bubble highs.
If you made it this far, I apologize for being long-winded. Enough said.