Let's look at actual results

[SaulR80683]

Hey guys and gals. Whenever bad things happen we tend to get admonished for investing in “overpriced”, “over-valued”, odd-ball, and aggressive stocks by people who tend to invest much more conservatively than we do. So lets look at actual results. That is, let’s look at how we are actually doing.

In September we survived a short attack on Ubiquiti, which was a relatively moderate position for me. As I wrote in my month-end summary, I finished September (last Friday), up 64.8% year-to-date, up from up 48.7% at the end of the month before (August), in spite of the short attack on Ubiquiti. And I’m not the only one. Plenty of other investors on the board had huge gains so far this year too.

So what about this last week? I surely had one of the largest Shopify positions going into this week. As I described in that same month-end report, Shopify was 21.6% of my portfolio. And following the short attack this week Shopify was down 15.9% this week. I ought to be panicked, right?

Let’s see: by the end of this week, after the big attack on Shopify, my portfolio year-to-date dropped from … up 64.8% year-to-date, all the way down to …. (drum rolls here) … up 63.1% year-to-date. Wow! Am I panicked! Only up 63.1% after that short attack. I should sell all my shares and lock in my profits! (But I should have done that 5 months ago when I was up 26% in 4 months… or 4 months ago when I was up 36% in 5 months. Obviously that couldn’t last. Stocks must be overvalued.)

I wonder how much those conservative investors, who aren’t investing in “over-valued” stocks, are up this year.

Saul

PS – I haven’t reduced my Shopify position.

PSS – Surely a market sell-off will come. They always do. But I certainly wouldn’t sell out of a company that is doing about as great as a company can do because of a total nonsense attack it, by someone who accuses a SaaS subscription model company of being like Herbal Life and thus showing either no knowledge at all about the company, or a clear attempt to deceive naive investors.

[dumaflotchie]

In September we survived a short attack on Ubiquiti,

Hey Saul:

What makes you think this is over with UBNT??

http://www.stockta.com/cgi-bin/analysis.pl?symb=UBNT&cob…

It is down 15% from its highs and that brief relief buying from $50 to %57 is not unusual after a major drop down to $50. I wouldn’t be surprised to see it move back down from here.

So let’s look at reasons why you think that won’t happen:

http://quotes.wsj.com/UBNT

They don’t have that great of revenue growth and rarely substantially surprise (or beat consensus) based on past 5 earnings calls. The consensus, which has been pretty spot on, doesn’t have much growth into the 1st quarter of 2018.

1/3 of float is still short right now.

The above significantly differs from SHOP, not the least of which are the vibes one gets from their respective CEO’s.

The argument that this “attack” on UBNT isn’t yet over seems more persuasive at this moment IMO.

[XMFBreakerTinker]

I think we have some bias. When a short speaks (and yes, this guy is a shyster, but that aside) we call it an attack. But when Wall Street analysts praise the stocks we own we think nothing about it, even though most analysts, at least the ones whose companies are vying for its business, will do the reverse opposite of a short. Neither is right.

The third reason that I sold SHOP, that I discussed when I did a few weeks ago, but did not discuss in the last few days, is because NO ONE had anything negative to say about SHOP. Nothing, nada. Then I came upon some information that I was unaware of, regarding some of the shadier businesses that use SHOP. I do not know how pervasive this is or not. But it was negative news that no one was speaking about and clearly was not generally known, and in fact hardly known at all.

When all the news is positive, and the shares rise to 20x revenues, and everyone expects continuing 75%+ revenue growth etc., and none of the above “bad” news is known, and therefore not baked into the share price, there is only one way a stock can go, and that is down.

Valuation does matter in regard, as a stock at one value looks different than the same stock at another valuation. Different things mean different things depending on valuation. And when valuation is that high, undispersed negative news is going to hit the share price.

The good news, however, is as long as this now dispersed FUD is not as material as the more panicked or apocalyptic think, and does not really change fundamentals, then you have a WoW (Wall of Worry) to climb. What this means is that there is money on the sidelines, scared to come in because they buy the FUD, and as time moves forward, this Wall of Worry starts to get climbed as the FUD is put into better perspective.

The inevitable result: The stock rises. That is where SHOP is now. Finally there is some FUD surrounding SHOP.

To me the only material aspect of this particular FUD is whether or not the eventual serviceable market is less than we thought due to a share of the merchants being of lower quality (what portion we do not know), and whether or not growing going forward, when SHOP needs to get to millions of merchants, the preponderance of them will be of high quality, or the ratio gets worse of quality vs. scammer types.

I have often seen Wall Street readjust the share price of a stock once there was a new perception that either the TAM was exaggerated, or if the CAP was exaggerated. With SHOP there are no CAP issues. It all comes down to the TAM or SAM perceptions.

Is the news fully priced in? TBD, but quite often that will be the case within a few days to a few weeks of the FUD event and then you can climb the WoW, assuming the FUD is indeed immaterial.

Tinker

[mauser96]

bravo Tinker you did indeed say that the lack of counter-opinion on SHOP was worrying.
Maybe that is one big reason Citron picked SHOP. Because to get his scams to work he needs media exposure. Good news on SHOP was nothing new so it was not “news” Bad news was “news”
Also some news outlets may not be beyond a little simple bribery.

I do suspect that there is a pattern to Citron, his candidates, timing, and maybe more importantly price reaction following the public short all. I thinkI will bestir myself and try to dredge up enough energy and time to look into it.

[tamhas]

Also some news outlets may not be beyond a little simple bribery.

These days, no bribery required. If it produces clicks, the purpose is fulfilled.