My brief investing story

Investment Analysis Clubs Saul’s Investing Discussions
1

Hi all,

I’m a new poster to this discussion group, but I’ve followed this board avidly for the last few weeks and have read the knowledge base numerous times as well as much of the other excellent material on this board. Thank you to all.

I am a UK investor and I’ve been investing for the last 17 years. I am a member of 2 services of the Motley Fool UK and have followed their stock picks over the last 15 years. My average returns have been around 8% a year, so not great compared to Saul’s returns and that of many others on this board.

At the start of June 2020 I was down 30% year to date, so I joined Stock Advisor USA and purchased some selected companies by selling some of my UK stocks. Then I joined RB and purchased a few more. By mid June I had 33 Holdings which was way too many to follow! Then I stumbled across Saul’s board and read everything on it as much as I could. I’ve even read the knowledge base to my wife each evening, which has helped me understand it still further.

So in mid July I sold all of my Holdings apart from SHOP and AMZN and purchased AYX, ZM, DDOG, CRWD, LVGO, FSLY and TTD.
Then last week after the EC I sold out of AYX at a loss of about 30% as well as out of LVGO after the merger with TDOC (with a small profit). I also sold out of TTD.
Yesterday I trimmed fastly to buy NET for the first time.

Now my Holdings are as follows:
DDOG 21.5%
ZM 21.4%
CRWD 20.1%
OKTA 8.9%
NET 7.3%
FSLY 7.2
AMZN 7.1%
SHOP 6.1%

However, like many on this board I had been expecting share price increases after the recent earnings releases. That hasn’t happened. Indeed I am down another 20% in the past few days.

So I need to rise 20% in the next year to simply be back to where I was a week or so ago. Is that possible do you think?

I wish I had joined this board 8 months ago in Jan 2020 and bought these stocks at much much lower prices.

I am very grateful to Saul and all of the posters on this board. I read everything. I may not post here too often as I don’t want to clog up the board unless I feel there is anything I can add.

Do you think that even though I bought these companies at or near ATH’s that over the long term I should do well? That is of course what I’m hoping for. I guess I’m looking for any reassurance after the recent drops.

Best wishes all. Thanks again.

Jonathan

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Jonathan,

I will not provide an answer to you, only some reassurance that our stories are mirror images of each other. I’ve been an index investor for 20 years, but have been researching unsocial stocks for a while with plans to make the leap. I had a friend recommend SA and he also told me Saul’s community was more than worth the price of admission. So I joined SA primarily for the benefits of this community. I spent weeks pouring over Saul’s posts and soaking it up like a sponge. I opened several positions in the past 2 weeks on some stocks I became passionate about from my readings here. All of which I opened at ATH but I get very convicted in the methodology. I too over the past week have had to come to grips that I possibly investing in a sector right before a rotation but I plan to stay the course as I feel I have invested in great companies long term.

So, I’m clearly offering you no advice other than I’m here with you and look forward to the great responses that are sure to come.

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3

So I need to rise 20% in the next year to simply be back to where I was a week or so ago. Is that possible do you think?

Hi Jonathan,

You may have noticed that nobody on the board is sounding particularly panicked or upset by this. That is because we’ve lived through these episodes at least once a year. Let me give you an example: On Feb 19 of this year I was up 33.7%, and when Covid hit, at the bottom of the panic on March 16, I was down to minus 16% on the year. So starting with $100, I had gone to $133.70, but then dropped to $84.00 in a month, which was a loss of 36% from the high. Terrible, wasn’t it?

But a month and a week later, on April 24, I was back up 33.3% on the year, and two and a half months after that, on July 9, I was up 143.1%!!! (My $100 had grown from that $84 at the bottom to $243! It had almost tripled!). So you asking whether you can regain 20% in the next year is understandable, as this is new to you, and I certainly can not guarantee it, but I can let you know what has happened this year to me.

Now I do not know what is going to happen with stock prices next week, or next month, or next three months, but I can sure let you know that the companies we are invested in are extraordinary, and are still growing at rates that would be amazing even in a booming economy, and they are doing it in a severe downturn. Think of it as investing in great companies instead of stocks and you will sleep better at night.

I hope this helps,

Saul

By the way, your holdings look like great companies to me, and I have no argument with your portfolio weightings, but those are things that you have to decide for yourself.

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4

More likely, you two are observing seasonal patterns in the overall markets, imo.

August is a very slow month, and slow months have fewer participants leading to lower liquidity which causes lower prices. Your youngest companies, like Fastly and DataDog are going to grow for years and the price on August 12 will be meaningless to you both in two years, three years, whatever.

The only risk you have both encountered at the same time is if mid-July was an All-Time-Market-High and that you both invested all your money (present and future). Do you have any idea as to how unlikely that is? That July 2020 was the best it will ever be?

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Jonathan, the feelings you’ve shared are understandable. Few people are excited to see their stocks drop. There is great advice and wise words above from Saul and others. Simply look at the history, the chart of any of your stocks, and you’ll see that they’ve been through plenty of ups and downs - but over time they continue to go up.

We are investing in companies that are leading the future of business and work.

They can be more volatile on a daily and even weekly basis than larger more ‘well known’ names. But with that increased volatility comes the greater levels of growth that we’re all after.

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6

So I joined SA primarily for the benefits of this community. I spent weeks pouring over Saul’s posts and soaking it up like a sponge.

Just to be clear, this board is part of TMF’s free boards, to which anyone can read and post without any special TMF memberships. Many of us are members of SA, RB, both, or something else because we find other discussions or aspects of the service valuable, but access to Saul’s board is not controlled by any of those memberships. Now, isn’t that an incredible value!!!

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7

Hi Jonathan,

For what it’s worth I also found this board a few months ago and am a UK investor, and had a similarly diversified portfolio which I slowly narrowed down to a select few (end result very similar to your own holdings). I also made various purchases at ATH’s.

I was up about +30% over these past couple of months, but over the last week or so that has now dissipated so I am now back in the red. Would it have been better to sell right before the drop? Of course, with hindsight, but how can you time the market. People have been talking about high valuations since April, but then I would’ve missed out on any gains whatsoever if I had listened to them then.

And there have been a couple of mini drops or ‘false flags’ in June-July that preceded sharper rallies. Perhaps now this is a sector rotation and there is more drop to follow, perhaps another rally will follow. There was also a significant drop last August/September 2019, but we all know the rally that followed this year.

It is very difficult to try and time the market, and so I keep my highest conviction holdings and add to them at regular intervals whether at ATH’s or after a 35% pullback. This way you are averaging down/up and reduce your risk to timing the market imperfectly. I am not as an experienced investor like many on this board, but I listen to their advice and apply this to my own strategy. If you only ever buy high and sell low that seems a losing strategy in the long run, but it also seems the most enticing thing to do from a human psychology perspective.

In my opinion it’s important to take a step back - these are among the companies that are the best performing in the world even through a pandemic and a recession to follow, but their long term prospects are only greater now than they were a year ago and for me this outweighs any short term price movement. And when the companies execute and grow, their stock price will follow.

So while the stock price might have dropped yesterday, and maybe also tomorrow and next month, my bet is that in 2-3 years they will be significantly higher. Of course I could be wrong, but that’s the long term bet I’m making. And for me that’s perhaps the difference between investing & trading. Just average your way through it.

Hope that offers some reassurance :slight_smile:

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Jonathan,

I’m in agreement with what others have written in response to your post, but I’ll add a couple of observations.

First: When you develop an investment strategy, you have to give it time to work. The Motley Fool newsletters you subscribe to both talk about a buy and hold strategy in which you hold the stocks for at least three to five years. The performance of their recommended companies in the aggregate and over time is beating the market handily. But that strategy requires patience. And discipline. Selling positions because the share price has dropped only guarantees that you lose money. Buy the business, not the stock. If something changes materially with the business, then consider selling. But even then, if you have faith in the management and the investment thesis remains intact, it is often better to hold your shares or add on the dips. A steady hand is absolutely critical to successful investing!

Second: With regard to your move into hypergrowth stocks discussed here: Buy the company, not the stock. The nature of these companies and the nature of the hot money that seems to be moving in and out of them is such that you have to expect them to be volatile. Short-term movements of 20% or more in either direction will be far more common than with the companies you were investing in before. If the prospect of buying shares in a company and watching the price drop by 20 or even 30% a week later is one that causes you too much stress, then these may not be the right companies for you. There is money to be made here without a doubt, but it is not without some drama. Investing should not cause you undue stress.

Third: The very nature of these companies is that there is risk. Their valuations are assuming amazing growth. We work hard to mitigate risk by investing in the best in class companies, but you cannot eliminate risk entirely. If the money you are investing is money you will need in the future, I encourage you to also be investing in high quality stocks that are not considered hypergrowth. If your hypergrowth stocks do well, those other companies may drag your performance down. But so long as they are beating the market, you can feel good knowing that you are making money and doing it with less risk. If the hypergrowth investments tank, those companies provide you a buffer against catastrophe. Knowing you have that buffer will help reduce your stress levels.

Fourth: Time. Give. It. Time. The whole premise of investing is that you identify companies that are growing in value. The underlying business has to be growing, and that takes time. At the moment, you own good companies that have suffered a drop in share price. That happens. It is the nature of investing. Unless something has fundamentally changed with the company, most or all of them will have a higher share price a year or two or five from now than they do at present. Some will have a much higher share price, but you have to give the story time to play out. Patience and discipline, patience and discipline.

Regards,

Dorset

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9

I am grateful that the market has given me the opportunity this past week to buy all of these great companies more cheaply. Granted, I am blessed with an income that allows me to invest every month. My current financial worth largely reflects buying rather than selling in 2000, 2009, early 2020.

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Jon,

I got back into investing after a 10 year or so hiatus on January 1st of this year. Everything was going along great until March came around. At the lowest point this year I was down ~35%. I stuck with it, made a few changes to what I was doing and managed to get my portfolio to +2% as of this morning. As others have said, it is possible for your portfolio to recover. Keep adding money and investing in great companies and you will be back on track in no time.

As far as investing at all time highs. I’m pretty sure many of these companies on this board were invested into at ATH. ATH are meant to be broken.

Good luck!

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11

I’m a new poster to this discussion group, but I’ve followed this board avidly for the last few weeks and have read the knowledge base numerous times as well as much of the other excellent material on this board. Thank you to all.

Hi Jonathan,

I would just like to endorse some of the other responses to your post , and for what it is worth provide some information about my own experience. In short I replicated much of your reported experience but one year earlier in 2019. Too many holdings, losses and an effort to set things to rights with the help of Saul’s helpful insights as well as those of others who regularly post here. This information on this board is by far the best investment advice I have encountered in over 60 years of reading about the subject.

Briefly while 2019 was not so great I began to change things beginning last December. Despite all we have gone thru 2020 has been sterling. I now have a 12 company portfolio half of which overlaps your own. I’ve developed strong convictions for all of them and intend to hold forever. Or until the fundamentals change.

My suggestion is stick with it and keep alert.

Best wishes.

DrAJ

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12

With the reports out (Twilio, FSLY, NET, DDOG and AYX)and the recent drops in share price across the board, for non specific company news, I’ve done what many here have taught me to do. And I’ve found it extremely useful.
I’ve learned to consolidate around those names in which I have the highest confidence. I don’t add regularly so I must sell something to buy more of something else. When choosing what to sell, my belief in the those I have sold a bit of are not held for any less reason.
The following describe some of my thinking: the further 7% drop yesterday in Zm in my view necessitated selling some MDB and a little Slack for the purchase of more Zm. And when CRWD dropped some, I sold some ESTC to buy more CRWD.
When looking at my portfolio now, it looks like I have 5X the confidence that CRWD and Zm will grow as fast or faster, maintain or increase their margins and move as much or more toward profitability than I do ESTC and MDB and I have 4X the confidence of this compared to TWLO or Slack.
Similarly I have 3X the confidence that Cloudflare and DDOG will grow as fast or faster, maintain or increase their margins and move as much or more toward profitability than I do ESTC or MDB and I have 2X as much confidence in NET and DDOG than I do in TWLO or Slack.

Notice that I’m concerned about the companies performance not the share price or my portfolio gains this year. Given this it is easier emotionally with my portfolio still up 87% for the year (no leverage). But over the last 2 and 1/2 years I’ve learned here in what to be confident.

If anyone here is able to point out any flaw in my thinking, as always, please let me know,

Jason

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13

I know everyone is directing their comments at the OP but I will just say I feel much better after reading all of your replies. I have knowledge but what I lack is time in the individual stock market to galvanize my convictions in what I truly believe and have invested in. In my previous investing experience it was very easy for me to double down on index funds during a market dip because I always had full confidence that whatever index I was tracking would always recover given the time horizon I have.

The mental hurdle I have to adapt to is having those same convictions that an individual company will also rebound from short terms dips. The noise of the media says that the tech/cloud run is over and of course I’m getting fed that through a water hose only days after I went both feet first into that sector. I will stay the course and all of your words and encouragement to Jonathan have given me a much better feeling so thank you all.

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14

Thank you to all of you who have replied on this thread. I am greatly encouraged by your thoughtful responses. This board is amazing and I am feeling much better about the choices I’ve made after reading your well constructed posts.

I intend to follow my companies very closely, and make adjustments to weightings if needed as time goes on, and I also intend to keep learning from Saul and all of you here.

Thanks again.

Jonathan

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Jonathan (and others) -

I think most here have a similar story early in their journey. Here’s mine: https://discussion.fool.com/stocknovice39s-end-of-year-portfolio….

If you read the intro, I think you will find it eerily familiar. Being my portfolio has increased roughly 180% since (which trails many others!), all I can say is stick with it. There is too much evidence here that it’s worth it in the long run.

Good luck.

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As you’ve quickly realized the stock market does not print money for you. Individual stocks go up and go down sometimes for no apparent reason. Your job is to pick those with the highest chance of increasing in value. Implied in that statement is the fact that no matter how good the underlying companies may be, you may lose all or part of your money. I’ve been investing for a living for 17 years (my family’s only income) and investing in general for over 30. My guess is that, since there is no underlying reason for a sell off, it’s simply a reaction to the tremendous run up we have witnessed. Institutional investors taking their wins. This makes growth stocks move in spurts. They move up for a period, pause for a period then resume. Until they burn out (yes, most companies do burn out, not everyone is NFLX,TSLA or AMZN), are bought or make you extremely rich.

Long term, right now we are living through a bull market which has never been seen before both in terms of depth and length. However, at some point the Bear will return. Think of this as your mini-bear market. If you can’t see past this, consider how you’ll react when the Big Bear comes and everything is down 40-50% or more with no where to hide. The key to growth investing is your ability to stay with it through the adversity. Otherwise you’ll sell into the low, look for shelter and buy a bond fund.

So this is one of the times. You need to think “is this really what I want? Am I ok with losing 40-50% knowing it should come back?” If not, there are other far less volatile investments out there more suited to your style.

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Your holdings look fine for the long term. The big money is made by being correct and patient. I suggest to avoid frequently trade in and out of positions.

Keep in mind this quarter(April to June) would be the worst quarter for earning/revenue which many companies reported on recently. U.S. only started to lock down at the end of March. That’s the main reason for this month’s pull back. Starting next quarter, the growth should climb back up. The improvement in unemployment rate is an leading indicator. It’s being going downward steadily for the past few months.

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18

Cloud,
The big money is made by being correct and patient.
Brilliant and correct!
patience… there is a reason it is a virtue…
Deb

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Adding some teachings from the founder of Investors Business Daily, William O’Neil:
2. The importance of sound rules to avoid emotional decision making.

Having a sound set of rules that are proven to work is essential to success in the stock market. Why is this so important? Two words. Human nature.

Without a sound set of rules to follow, especially during times of extreme volatility, the emotions of fear and greed will take over and greatly affect your decision making.

3. Risk control (position sizing)

What most traders don’t realize is that a thorough understanding of how to manage risk is even more important than picking the right stock.

The best stock pickers on the planet have win rate of about 60-65% and anyone who tells you differently is lying.

The fact is, when risk control and proper position sizing is employed, you can be right on your stock selection just 1/3 of the time and still make a fortune in the stock market.

4. Cash is a position.

Jesse Livermore said, “There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying or selling stocks daily- or sufficient knowledge to make his play an intelligent play.”

From https://www.traderlion.com/quick-reads/top-10-lessons-i-lear…

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20

Do you think that even though I bought these companies at or near ATH’s that over the long term I should do well? That is of course what I’m hoping for. I guess I’m looking for any reassurance after the recent drops.

Jonathan,
Here is what Saul’s stocks have performed over the last 6 months. Using Seeking Alpha free account I added the stocks and then clicked on the ticker for each one and then clicked on the performance heading for last 6 months gain.
Pretty sure other apps allow you to do the same thing.

Saul’s end of July percentage gains
CRWD 51%
DDOG 58%
ZM 161%
FSLY 242%
OKTA 43%
AYX -26%
NET 106%

Hope this helps you have faith and conviction in this group.

MoneySlob
Man Who Buys Before Every Dip

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