It is never too late to learn new things

Investment Analysis Clubs Where Angels Fear to Tread
21

Hi MisterFungi,

Thanks a lot for that.

Totally get that now!!! What a fool I have been, not just for getting into the mess in the first place, but then trying to make up by digging the hole even deeper…

Many of my previously high allocation stocks have already dwindled to the point where they are now very small or I sold them, so I will ignore them (Trust me, it kills me to even say that statement - the losses I have already accepted by selling in 2022, and 2023 will never let me sleep without feeling nauseously guilty for a very long time - UPST alone still gives me nightmares)

The ones that are still sizable but I have no idea how they will perform are

DDOG, ZS, CRWD, NET, SNOW, S …

In my defense, I did check on Morningstar and CFRA for the past year and a half…and those folks also had high rating for most of these (well may be for all except S, NET)…and looks like everyone is wrong so far!!

But I still dont get it…How can all the smart folks have been fooled…I have no problem if all these companies are fine and are currently facing temporary headwinds and so I just have to wait (however long it may be) for the macro to recover…I don’t want to jump from one stock to another just based on 1 or 4 bad earnings…but if something has fundamentally changed the outlook forever, then I have to just accept the loss and move on.

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22

I have been an enthusiastic investor since 1997, and have read probably 500 books on investing. I have done a tiny bit better than if I just bought and held a total market index fund, and a few bond funds and forgot about them. As Flying Circus can attest to, there are so many techniques that have worked for many decades, and when you start to try them they stop working. For me investing is a hobby, so although the money I earned was not worth the time I put into learning how to invest, I enjoyed myself. I only met one person in my life who really trounced the market, and that was Saul. Now even he is struggling. I am very sorry what happened to you. My advice is to buy an international stock etf, and American stock etf, a short term bond fund, and an intermediate bond fund, and just forget about them. The time you spend on learning to invest, spend on developing your career. Take classes, etc. You will make more money that way.

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23

To add one more thing, if you invest that way, you will beat 80% of investors. Most investors buy at the top, and sell at the bottom. You are just holding, and buy getting index etfs, you are saving on fees, and taxes.

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24

I take M* (esp.) and CFRA (somewhat less) into account, also. In fact, I’ve owned DDOG, CRWD, and SNOW, and I may buy them again–but not until after we get through the current Q earning reports.

I’m old and probably have a different time horizon than you; so I didn’t try to chase these stocks when they were expensive. I bought them when their prices were not unreasonable (per M*)–even below what, e.g., Berkshire (or Saul) paid; and I sold them when they moved too high, too quickly. (I posted as such on the old TMF boards.)

Also, and importantly, my portfolio is highly diversified, not heavily concentrated in one industry. So even if those stocks had dropped like rocks, it would not have made much difference to me. If most of your money is tied up in just those 6 stocks, you may want to think that over carefully.

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25

The Motley Fool really did a disservice to itself and the community and future investors by removing all the old boards content.

I know a lot was non-investing (atheist board, political forums, gimme my stars) but I am referring more to things like the Gorilla Game board.

GG was basically momentum investing in leading growth companies. They had fun nicknames for various stages and types of companies (tornado, or king, or gorilla, etc etc) but the net is that it had a lot of similarities to Saul board.

Everything about GG worked…until it didn’t, after March 2000 or so. A few years later and board was a ghost town as the 2000-2002 drawdowns sucked all their faith and hope away.

I was new to that board, probably mid/late 1999, and the “this time is different” vibe was all over the place, and even as a newer investor who finally was contributing real money to investing accounts for the first time in my life, my spidey sense was tingling with a “hey - is this too good to be true?” feeling.

Spoiler alert: It was too good to be true.

Networking/tech stocks were the SaaS equivalent of the time, with big daddy Cisco (CSCO) leading the way. Make no mistake, Cisco was, and is, a wildly successful company. So we are talking about stock price…not the company here. CSCO was blowing up to one of the largest mkt caps in the world, and dragging up any baby networking company stocks along with it. Redback Networks (RBAK), Sycamore Networks (SCMR), Juniper Networks (JNPR), etc etc…

Juniper was like the slick young up and coming stallion, set to take on Cisco (Zoom might be a good comparison here) and the valuation went absolutely bonkers. Juniper still a steady decent company today, so go look at their chart. Hard to miss the $60-70b mkt cap spike in 2000 that shrank to under $4b and stayed there for 20 years or so.

There were very smart investors on that board. Bruce Brown was the Saul equivalent…Mike something was like Bear…and a bunch of others. I think Tinker was on that board then, and some guy was even named GorillaGorilla. Side story is that GorillaGorilla got me interested in a non-GG story stock, which was basically a precursor to Teladoc. That is a whole separate discussion: Don’t fall in love with story stocks!

So history repeats. Often.
SaaS/Momentum stocks echoed Gorilla Game.
SPACs and MEME stocks echoed typical story stocks that have always existed…just they had a bit more fanfare and awareness about them, likely due to greater spread of internet forums like Reddit.

If it is too good to be true, it probably is. Hindsight always makes everything obvious. So come up with a plan, check and re-check it often…tweak as necessary, but just know that if you constantly change your plan radically, you will never really get anywhere. For me, this translates into rough entry/exit prices, whether macro for indexes or for individual stocks. Doing that caused me to take profits early during the crazy 2016-2019 era, but my CAGR was solid and I have no regrets taking good gains. In 2020, my history served me (and hurt me) in that I knew how far things could fall, so I moved to sidelines. I missed out on bulk of Spring/Summer 2020 runup because I didn’t have the experience to understand the free money / 0 interest rates impact on macro…I was just thinking about the likely still-overvalued SaaS stocks as not making sense to rocket up. I was able to do really well in 2020 and 2021 because I shifted to a value stock approach (largely SPG) and came up with a plan and stuck to it. I learned about macro throughout 2020-2021 more than I had previously, and that helped me exit in late 2021.

It is hard to not be affected by FOMO, no matter how much experience, and while I was down “only” 10% in 2022, the bulk of it came from thinking the March dip and recovery was the full down move. My brain told me it wasn’t, but my gut and heart were looking at the nonsensical 2020 runup and said “hey - maybe they won’t ever get as cheap as they should” and I lost bulk of money in 2022 in April. Spent rest of year chipping slowly away at that deficit.

In hindsight, was the June 2022 or Oct/Dec 2022 lows great buying opps? Through today, absolutely. Should I have just put the whole port into SPG (again) at $85 in 2022? OMG yes. Oh well.

I believe, in SPG case, that it will eventually suffer when/if a recession officially hits. I really am not much of a trader. I want to buy at a certain price and then sell at an ideal price, presumably over a 12-month period or longer, for long-term gains tax purposes. But my plan says we haven’t been at a final bottom yet, so my clock hasn’t started ticking on holding for a longer period yet.

That was a lot of rambling, but trying to share some thoughts on my process and lessons learned from the past.

We could be in something new right now…a sideways market for another 3-5 years…and most won’t be ready for that if it happens. So I will stay flexible and look for best opportunity that balances gains with risk management I can sleep at night with. All you can do.

Dreamer

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26

Thanks Mark, Citibeach and Dreamer. Wise words…and makes a ton of sense…On hindsight, risk management is critical…I probably need not worry much if I had bought the SPY, or BRK or even GOOG, as I was never investing for the short term when I bought stocks …But I should absolutely have had a plan for entry and exit for these other clearly “speculative” stocks…Hindsight is wonderful, but at least I can teach my kids what not to do.

Thanks again folks…I hope things get better soon :grinning:

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27

I would not feel bad about what happened. It really seemed like a sure thing. As a value investor he had returned 25% per year for something like 28 years. While I only put a little bit of money in his stocks, I too thought it was a sure thing.

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28

Here’s the rub. All those smart folks WEREN’T fooled. Like you, me, Disciples of Saul, weren’t fooled. It’s because A.) they were looking in the rearview mirror at massive, huge, ridiculous revenue growth, stupidly high margins - and then projecting (assuming) huge actual profits soon.

Most investment rating services these days are generating quantitative ratings based on metrics. Investors Business Daily has had a schtick for a very long time of two rankings: Relative Strength (price momentum) and EPS. In a price momentum buying mania, EPS isn’t considered other than “how likely will they get profitable soon?”. RS on all those stocks was in the 90s. Those metrics attracted a lot of attention.

What everyone (including me) missed is how fast Covid accelerated cloud software growth, and everyone assumed the Fed wouldn’t throw The ZIRP Plan in the dumpster. When they did, the business growth plan changed and it was time to reduce risk. The only thing that saved me was inspecting my old scar tissue and asking the question, “what if this mania is over?” With my dwindling investment savings time horizon, the answer was an unacceptable loss.

Mongo example: numbers only perspective, the rev growth was outstanding for a while there. What gave me pause was the decreasing margin because of increasing sales & general expense. They were spending $1.10 or $1.15 for ever $1 of sales. Hmmm. Never gonna get profitable that way. (Plus, other product technical facets too boring to go here.)

The Trend is your friend until it isn’t.

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29

And, buried in Saul’s updates, he has always said he was 100% invested in this concentrated portfolio (wow, that’s risky…) … with money he could afford to lose. Seems like a lot of people missed the hidden point that that’s one way to manage risk. (similar to a “barbell”).

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30

What saved me was not my own wisdom, but someone else’s. Someone said to me, when my money had quintupled, to sell my original investment, so I am playing with house money. When things started to go south, I did that quickly. Since, I am a fundamentals person, I look a lot at p/e, p/s, peg, etc., I could never invest a lot of money in his stocks, so I did not make much. But I have to say, I honestly believed I found a true investing genius. I still think he is a very good investor and am still invested in his stocks.

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32

I believe Saul had good intentions with the board, but unintended consequences crept in. He brought many people to buy cloud stocks and was skilled at riding the momentum. The groupthink would run up any stock Saul bought, and I remember seeing any changes he made really move the stock price, at least in the short term. I’m not saying this was a pump and dump, but it just became a consequence of moving with the pack.

Early last year, I found posts by Saul describing how he fared during the dotcom bust of the early 2000s. He lost big and it took 5-6 years to get back to even. So I think his total portfolio return posted every month cherry-picked the start of the Cloud bubble around 2016. The results were quite impressive and he would often say he didn’t even know or understand the technology behind the stock price. I guess that’s a red flag if you’re looking for one.

Ultimately, the fundamental premise that cloud computing would never experience demand destruction proved flawed.

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33

I could be wrong…might still be in knowledgebase, but think he exited Yahoo early (ironically due to valuation) and did ok in dotcom bust, but it was the GFC crash that hurt him for years.

Dreamer

34

yeah…it is here. He was down in 2008 bigly, then flat in 2010, and down again in 2011. Despite a big 2009, he wasn’t back to even until 2012 or later.

I lived through the Internet bubble of 1999–2000. I sold out of Amazon, Yahoo, and AOL one day in January or February of 2000, after Yahoo, as I remember, had gone up something like $30 to $50 per day for three days in a row. I said to my wife, “They may keep going up, but this is insane. I’ll let someone else have the rest of the ride.” The bubble broke about 3 weeks later. Sometimes selling can be the most important thing you can do. I didn’t get out of the market. I just bought non-internet stocks and was up 19% for the year. Sure I could have held through the decline, and 10 years later Amazon came back, even if Yahoo and AOL never did, but why???

I got killed in 2008 like everyone else. Probably worse than someone who was in defensive stocks. It was my first negative year after 19 positive years in a row. I stayed 100% in stocks, selling anything which hadn’t gone down much to buy more of the ones that were down the most.

Finally, I was down so much that even I got scared and started to think of selling out and going into cash. All the talking heads were saying, “Sell! Sell! Sell! Get out! Get 100% in cash!”

I said to my wife, “If everyone is shouting ‘Sell!’ and even I am scared enough to be thinking about selling, there’s no one else left to sell… This must be the bottom.” And it was (Nov 2008).

In 2008, in the big meltdown, I dropped 62.5%, which was pretty terrifying. In 2009 I was up 110.7%. The way percentages work though, after dropping 62.5%, gaining even 110.7% doesn’t get you back to where you started, but I sure felt better.

My Annual Results since 1993:

You’ll note that 32% a year compounded doesn’t mean you make roughly 32% every year. Below you’ll find a list of the gains of my entire portfolio starting in 1993. Numbers are percent gain. In other words 21.4% means every $100 turned into $121.40, and 115.5% means every $100 turned into $215.50.

Two enormous years in 1999 (Internet Bubble) and 2003, when my portfolio was still fairly small, sure helped out.

**1993:   21.4%**
**1994:   15.4%**
**1995:   43.4%**
**1996:   29.4%**
**1997:   17.4%**
**1998:    4.9%**
**1999:  115.5%**
**2000:   19.4%**
**2001:   46.9%**
**2002:   19.7%**
**2003:  124.5%**
**2004:   16.7%**
**2005:   15.6%**
**2006:    8.6%**
**2007:   22.5%**
**2008:  –62.5%**
**2009:  110.7%**
**2010:    0.3%**
35

You are right it was 2008. I stand corrected

Thanks

So I took Saul’s returns for the last 6 years and through April of this year.

I asked chatGPT to calculate the return of 2 mil starting point Jan 2016 as well as how much was lost in 2021.

If you had an initial investment of $2,000,000 and the following annual returns:

  • 2017 – up 84.2%
  • 2018 – up 71.4%
  • 2019 – up 28.4%
  • 2020 – up 233.3%
  • 2021 – up 39.6%
  • 2022 – down 68.4%
  • So far in 2023 – down 8.1%

Then the value of your investment at the end of each year would be:

  • End of 2017: $2,000,000 * (1 + 0.842) = $3,684,000
  • End of 2018: $3,684,000 * (1 + 0.714) = $6,315,816
  • End of 2019: $6,315,816 * (1 + 0.284) = $8,109,419.42
  • End of 2020: $8,109,419.42 * (1 + 2.333) = $26,982,073.12
  • End of 2021: $26,982,073.12 * (1 + 0.396) = $37,666,973.94
  • End of 2022: $37,666,973.94 * (1 - 0.684) = $11,893,130.08
  • So far in 2023: $11,893,130.08 * (1 - 0.081) = $10,929,814.86

So so far in 2023 your investment would be worth $10,929,814.86.

From the end of 2021 to the end of 2022 your investment decreased in value from $37,666,973.94 to $11,893,130.08, which means you lost $25,773,843.86 during that period.

Still very pretty impressive but when you have $37 mil at the end of 2021 in your brokerage account do you start to make some lifestyle choices, then a loss of 25 mil in a year!

The years not over yet and if your still 100% invested in a concentrated portfolio who knows what could happen!

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36

Not that my opinions should count or matter…After all, I am the guy who just lost his entire fortune…

Yet, I absolutely don’t think Saul is a pump and dump person, and still respect him enormously for all he has done so far…He has been open about his methods, and more importantly he has spent quite a bit of time writing the way he invests…and oh boy, he has been super successful…

His mistakes, if any, may simply be that he was not willing to be flexible or adaptable…and he could have been, well, a bit more open and inclusive to people who had differing ideas…

So, yeah, I still respect him quite a lot…may not be willing to follow his methods blindly anymore after my experience, but still respect him enormously…Having said that, I have developed a strong respect for a lot of people on these Motley fool boards since I got to e-know them!

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37

Dreamer,

You need a lot of credit…I have seen very few people who have had steadfast views and are more often right rather than wrong…You are certainly not dogmatic, but rather prudent…and have been again open about how you adjust in spite of the fact, that you were always convinced about where the overall direction of the market will be…Kudos to you…and I see how your way of thinking and functioning lets you sleep well…This may well be your market…ups and downs, but largely sideways (Oh gosh, I can not believe that I will be okay with a sideways market but when you only see red in portfolio, not seeing red is a blessing!)

Charlie

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38

Hey Charlie - keep in mind I am still just a guy on the internet. Everyone has a different process, but I have found that the general idea of Order to Complexity to Chaos is accurate in many facets of life.

For example, in our informational sources. Think about it, we all mock the general cluelessness of the overall public on most things. Doesn’t it stand to reason that the more “gurus” and more stock books you read and the more newsletters you subscribe to, and the more new investing styles you study…that eventually you just start mirroring the full picture and lose any edge that any one service or method may have provided?

Order = things are good, concepts are clear, plans are made, and execution is happening as planned.

Complexity = “well…let me check out all these other things over here and over there, and try to layer it all on top of my system. And I can take away time for leisure or from family friends or relationships, and just become a sponge and constantly learn more” Basically becoming the uber-busy multi-tasker.

Chaos = you decided to put all you think you learned, or are in process of learning, into motion. You have numerous TA charting strategies and a couple charting website subscriptions, you pay for multiple stock-picking sources, you check 20+ people’s comments on stock sites or boards or twitter constantly trying to glean an “edge”. And you wind up spinning just to stand still.

I run into this Order-Complexity-Chaos paradigm all the time in my life…when I was younger it was dating…every time I tried to build relationships with multiple girls at same time, I wound up alone. For streaming services sprawl, when you have netflix disney+, hbomax, and paramount at same time, along with free Prime and Peacock…well…aren’t you just wasting money vs actually seeing if you watched all the stuff you are interested in on a particular streamer? In news feeds and social media…soooooo many choices online…so cathartic to slim that down. Life is better off-line, but we forget that sometimes. Trying to figure out a sustainable diet/lifestyle vs a fad…mixing and matching paleo or keto or low-fat…you just wind up eating some of each and getting nowhere.

More pertinent to this site and board: I have looked at many posters over the years, used multiple TMF stock services, other stock services others liked when the bull market was riding high. I started researching way too many stocks…my watchlist ballooned. Part of it is regret/envy when you see a stock is up and you weren’t involved with it, and so you start tracking it in the hopes it has a massive undeserved dip that you can join in on (which pretty much never happens).

My point of all this rambling is that, at least for me (and we are all different and learn differently) I find that less is more.

Sample a bunch of stuff…but if it isn’t top-tier and useful, just set it aside. Get a limited number of sources of info. You should become your top resource. Research a stock online, find odd news sources…think about the competitive landscape…pretend you worked for them…pretend you compete against them…what thoughts come to mind in each case? Read the CC transcripts, and listen to them too. No stock or investment is perfect, but focus on the ones that seem to have the best combination of fewest holes and highest upside. Come up with your criteria. Try to hold yourself to it, but make changes when you no longer believe a metric is necessary or material to stock price gains. Have a timeline and try to stick to it (vs giving up early). Think about macro and does it impact your timing. Maybe you still buy your favored stocks but have more cash to buy in stages in case you believe market goes lower.

If your surroundings are unorganized and your sources are vast and numerous, how likely is it that you will have a clear vision of what you want to do, how you want to do it, and when you want to do it?

Guessing you have a day job…allowing yourself to have a lean/mean investing machine in turn allows you to make sure you have enough time to excel at the day job (and keep bills paid and future port contributions coming in) and for life/work balance with your friends and family.

The spreadsheet done by Coopershawk is a great exercise. Maybe you have already done something? I have one that goes out to my age in the 90s. I have my previous results, my current projected finish for the year, and my ideal projections for all the years to come. I have my sons’ ages listed below each. Why? What do I do all this for in the first place? :slight_smile:

So if I have a bad year, I plug in the bad number, and I see that if I stick with it, the upside is still enormous over the coming years. I can have a very aggressive goal and maybe on another tab a more conservative one. When do you want to retire? How much do you estimate you need in your port at that time? Can’t have a path to your goals without the goal clearly defined.

I have a saying I follow “what you think about is going to come true”. Obviously this needs to be rooted somewhat in reality…I can’t just think “I am going to become a blue alien that eats the moon” and it just happens. What it means is that if you aspire to the life you want, and you work in a disciplined fashion towards it, you stand a much better chance of succeeding than if you do nothing.

Put more eloquently, here is Thoreau:

If one advances confidently in the direction of his dreams, and endeavors to live the life which he has imagined, he will meet with a success unexpected in common hours.

good luck,
Dreamer

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39

That post was brilliant. Thanks.

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40

Brilliant indeed! And right on target!!

I have to get my investment related thoughts organized first…Nothing good comes without getting that sorted first!

Thanks again!

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41

Man, Dreamer - that model: Order, Complexity, Chaos applies to almost everything! I am running into that at my new job right now - there’s all kind of white glove customizations & business process workarounds in the legacy system we’re starting to replace, and the (inexperienced) business analysts are like chattering house finches: what about this? OMG, what about that? What about when they want to do this special thing instead of doing that, we have to keep them happy?!

Order = follow the capabilities of the new system. Identify and communicate gaps for the leaders to prioritize (or bury) for later.

Complexity = OMG what options do we have to deal with that specialty? We need “resources” to figure that out now. We should give the business options to figure it out now.

Chaos = OMG it won’t work they way they’re used to! What are they going to do? This new system is hard and it sucks.

FC