The case for randomness in a bull market with special circumstances ie…the rapid rise of the
baby SaaS companies, Cloud, and AI is proven by Ears data. Even so, If I’m interpreting it correctly, the data shows a pretty big spread from highest to lowest results. Meaning for me, that Saul’s specificity in picking stocks is among the 17% best grouping. Is that correct? Moreover, Saul’s outstanding performance results over a large number of years would seem to indicate that more is in play here than simple randomness. Is that not true?
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proving luck (randomness) vs skill is impossible . Especially in the relative short time span of an individual investor.
The quote about relative importance of general market , sector,individual stocks is true. There is lots of hard data back this up.
But I suspect that if it was railroads or motels that were expanding fast that’s where Saul would be. His adherence to staying invested will cost him dearly in bear markets , but almost every valley has a hill somewhere beyond it, he will probably find the best stocks to go back up that hill.
IMO his best skill is knowing when to get out of a stock. He dates but does not go steady or marry. So when he exits, I pay a lot of attention.
Having had our big secular bank failure related super crash in 2009 I suspect one of a similar magnitude is unlikely until we get a fresh generation of bankers and regulators.
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Hi Saul,
I really appreciate your post. But to clarify:
Square just bought another small company called Weebly that will allow Square to go into fancy catering for enterprises and meetings. This gives more restaurants more motivation to sign up with them.
That was Square’s acquisition of Zesty:
https://squareup.com/about/investors/press/67a0a5dd-a81b-49e…
The addition of Zesty will enable Caviar, Square’s food ordering platform, to strengthen and scale its growing corporate ordering business.
Square’s acquisition of Weebly looks even more significant to me:
https://squareup.com/about/investors/press/6ee0a591-ff57-41e…
Addition of website-building company will enable sellers to easily start or grow an omnichannel business with one cohesive solution…
Weebly will expand Square’s customer base globally and add a new recurring revenue stream. Weebly has millions of customers and more than 625,000 paid subscribers. Square will provide Weebly customers with access to the company’s ecosystem of managed payments, hardware, and software, which complement Weebly’s services, which include free website hosting, premium (paid) website design and hosting, online store, and marketing tools. Nearly 40% of Weebly’s paid subscribers are outside the U.S., which will help accelerate Square’s global expansion.
John
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Hi Saul,
Thanks for your monthly updates. Always interesting to me to see how you are thinking and what you have done since last month. This month it is interesting to note that AYX and NTNX are now a bigger position than SHOP. I know (or at least it seems) that you are not too big on valuations in that you don’t even really follow the Price/sales ratios of your positions. I am curious as to your thinking. Do you see AYX and NTNX as having a brighter future than SHOP? Did they pass shop in value because it has slumped or did the slumping cause you to move the investment capital around a little bit.
I find it fascinating that you are in love with a company and then a couple months later you have found something better without any significant news (except rogue short sellers comments). And I realize you still have a big investment in SHOP, just not nearly as big as it was a few months back. No criticism at all, just difficult for me to get my head around trying to do that myself. (I.e. emulate you without just copying).
My gut tells me that you are able to sense the market’s feeling for a stock because you track things so closely, but i don’t know that there is any truth in that at all.
Again, just trying to learn how you operate. I understand that you find great, fast growing companies, but there seems to be nuance that goes on top of that first (great) principle… Any light you can share on how you decide on which of the few stocks you really like to add to or subtract from over time would be appreciated.
Again, the fact that you do these monthly summaries is awesome and very much apreciated.
Respectfully,
Randy
Long NTNX, SHOP and AXY…
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I really appreciate your post. But to clarify:
Square just bought another small company called Weebly that will allow Square to go into fancy catering for enterprises and meetings. This gives more restaurants more motivation to sign up with them.
That was Square’s acquisition of Zesty… Square’s acquisition of Weebly looks even more significant to me.
Hi John,
Yeah, I realized that a little earlier today, but was busy with other stuff and never got to fix it. Thanks for helping out,
Saul
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Thanks for your monthly updates. Always interesting to me to see how you are thinking and what you have done since last month. This month it is interesting to note that AYX and NTNX are now a bigger position than SHOP… Do you see AYX and NTNX as having a brighter future than SHOP? Did they pass Shop in value because it has slumped or did the slumping cause you to move the investment capital around a little bit.
Hi Randy, thanks for the question. If you check back, you’ll see that Alteryx and Nutanix both actually passed Shopify a month ago, not this month. It was because Nutanix shot way up in March, Alteryx rose quite a bit too, and Shopify fell quite a bit in price while this was going on. Here were the portfolio percentages at the end of March:
Alteryx 14.1%
Nutanix 13.9%
Shopify 12.8%
Now in April I did trim some more Shopify but it’s still at 12.1%, so not very much change. I added some trivial amounts to Nutanix and Alteryx, who changed places due to market action, not due to purchases.
Alteryx and Nutanix were both companies that were beaten down and got no love about the time I bought them. Lot’s of skepticism about them. Then, all of a sudden, in the first three months of the year they started to be recognized and suddenly both rocketed higher. Shopify did its rocketing last year, and this year has been just hanging on and fighting off another short attack.
Did they pass Shop in value because it has slumped? Some, but mostly because they rose.
or did the slumping cause you to move the investment capital around a little bit? Probably a little of this too, as when wanted some cash to buy more Twilio I took a little from Shopify (along with the other sources I described).
Hope that helps,
Saul
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“40% of your returns in an individual stock come from the performance of the overall market, 30% come from the performance of the sector your company is in, and 30% come from the performance of the company itself.”
A perfect example of a set of irrelevant statistics. These numbers are averages that apply equally whether or not the performance is positive or negative. They perfectly demonstrate the same thing as talking about a market index. When the strategy is to pick a small set of specific stocks based a their individual performance, management, and business model these sweeping statements about generic, average performance are at best useless and more often misleading.
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you are in love with a company and then a couple months later you have found something better without any significant news
I don’t think Saul is ever in love with a company. Dating it perhaps.
If you find something better you have to raise the cash from somewhere,so sell something.
Unless you are an insider trading illegally you get the same news as everybody else. What separates winners from losers is how fast and how well they process this data.
Saul is really not a long term buy and hold type guy. Though he says that is his intent, it seems not to work out that way.
His results speak for themselves
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Shopify will report before the market on Tues, May 1st. They are the only one of my companies reporting before the market and my guess is that this predicts a very strong earnings report, but we will just have to wait and see.
Saul,
I think they always report before the open so there shouldn’t be a prediction one way or another.
Chris
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How do you factor in the following news:
-
Nutanix delaying its Xi Cloud product?
-
VP of product at OKTA leaving?
-
not sure what was BERT take on Tableau competition with Alteryx.
-
TWLO this commoditization issue has not magically disapeared. Has it? are you playing this as an acquisition target a la Mulesoft?
tj
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Saul:
I would be interested to hear your thoughts on Bert’s article on Nutanix this weekend?
Thanks
John
Saul, I always note with wry amusement your line about intelligent stock picking can beat any index, followed by ‘How could it not?’.
This cannot possibly be a disingenuous remark so a quick riposte is required.
The plain, awful fact is that not only could it not, it manifestly does not!
After any reasonable investment horizon, say 20 years, the number of fund managers left standing against the index is roughly the same as pure, random chance (the coin-flippers) would predict. Hell, there aren’t that many after 15 or even 10.
I take it we can assume all those thousands of active fund managers (those who are not merely closet indexers) are trying their very hardest to beat the index. Indeed it is a super-competitive business to be in. They are scrambling over one another in the cause of intelligent stock picking to make their name and receive acclaim.
That is the reply to your ‘How could it not?’.
Investors have reacted to these findings accordingly. The vast and growing size of the ETF market (at the expense of intelligent stock picking) is now becoming not only an embarrassment to active fund managers but a danger to the overall market.
Being human, I feel you might just be ‘the exception that proves the rule’! Keep up the good work.
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How do you factor in the following news:
1. Nutanix delaying its Xi Cloud product?
2. VP of product at OKTA leaving?
3. not sure what was BERT take on Tableau competition with Alteryx.
4. TWLO this commoditization issue has not magically disapeared. Has it? are you playing this as an acquisition target a la Mulesoft?
Hi tj,
I guess I just miss out on all those little nuggets of negativity. 
-
Nutanix - delaying its Xi Cloud product? - (up 41%) See my new post #40714.
-
Okta - VP of product at OKTA leaving? - (up 39%) Who is he?
-
Alteryx - not sure what was Bert’s take on Tableau competition with Alteryx. - (up 21%) Bert thinks it’s a non-issue.
-
Twilio - this commoditization issue has not magically disapeared. Has it? - Yep! (up 62%) Do you have to ask with the stock price up 62%, non-uber revenue up 62%, non-uber dollar-based expansion rate of 136%, etc. Does that sound as if they are being commoditized?
-
Twilio (again) - are you playing this as an acquisition target a la Mulesoft? - Nope. Not a chance that it’ll be acquired the way I see it. I’m playing it for a business success and a stock price rise.
Saul
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Saw this on StockTwits this morning
https://www.rbcinsight.com/WM/share/ResearchViewer/?YYY340_a…
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might that report not qualify as insider information ?
Bill Mann (I echo those who extol his great value for their future investing from his articles written in the early days of TMF, which explained so many terms and rigor in investment so well) is right about every impediment put in the way of fund managers, not to mention their mal-incentives and for that matter the failures of their investors too. But if it was different, I do not think it would help. A study of an earlier time of low regulation and costs would be interesting.
One important proviso: we are only interested in documented results. Anecdotal stuff is all irrelevant. That necessarily restricts to fund managers. But there’s the problem right there: the revered star fund manager. He’s hopeless to invest in (unless you are a coin-flipper or good with a crystal ball) because he part-retires to an enormous ranch and the ranch, to no-one’s surprise, turns out to be much more interesting than the fund; he goes sailing and running the fund from a boat doesn’t quite work out; he vanishes to run a hedge fund (that old 2 and 20 is quite a draw) or drops dead of a surfeit of caviar and champagne. Then you have to move, which can be costly.
All this time the index just plugs along, costing so little it’s negligible, nicely dynamic in allowing good companies to come in and rise and bad ones to fall out, and needing no work at all. After twenty years, the manager is still there, and still there after 40. By the time the next two generations in turn get the investment (still intact, and increased heavily at the worst market drops)the fund still has the same manager! You never had to liquidate and take a tax hit or anything. No wonder Bogle’s insights and Buffett’s advice have caught on!
Saul, your performance is outstanding. But you are a very rare kind of investor. Your speedboat surfs around the small atolls of the Saas Subsector Sea at high speed yet the draft is deep enough to cruise easily to another place if you need to, like its former port of origin, Old Pegland Harbour. Which is why comparing your current portfolio with an ordinary index is also irrelevant - and much too easy. That, and your ‘How could it not?’ are real anomalies in your widely read and much valued monthly report.
For staid old investors like me, for whom the thought of a book cost of any equity holding exceeding 2.5% is anathema (and 1.5% plenty for the kind discussed here) the board you generously host is a tonic, and a profitable one. Unlike you, I take my profits early and often - a different kind of investor whose main remit is elsewhere. But thank you!
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Saul, your performance is outstanding. But you are a very rare kind of investor. Your speedboat surfs around the small atolls of the Saas Subsector Sea at high speed yet the draft is deep enough to cruise easily to another place if you need to, like its former port of origin, Old Pegland Harbour. Which is why comparing your current portfolio with an ordinary index is also irrelevant - and much too easy. That, and your ‘How could it not?’ are real anomalies in your widely read and much valued monthly report.
For staid old investors like me, for whom the thought of a book cost of any equity holding exceeding 2.5% is anathema (and 1.5% plenty for the kind discussed here) the board you generously host is a tonic, and a profitable one. Unlike you, I take my profits early and often - a different kind of investor whose main remit is elsewhere. But thank you!
Thanks streina, for all those kind words. That’s really kind of you, and I appreciate it. I know that most investors don’t get the kind of results that I get, but I do, I really do, try to teach others how to get good results too. And apparently it works for some, as there were quite a number of people on the board who posted End of 2017 results in the up 60% to up 90% range, and, although we don’t have the same stocks in our portfolios I see that Bear just posted up 28.0% year-to-date, as of yesterday’s close, and I was up 27.8%.
For staid old investors like me… I’m probably an older investor than you, age-wise, but maybe not quite as staid.
Best, and thanks again,
Saul
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My wife’s accounts are in index funds and I stock pick with mine.
With the drop in shop today and the pullback in ayx I’m up a little over 12% this year.
I got in later on ntnx and ayx than Saul.
My one year performance is around 60%
Thanks Saul
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Saul,
I am at 26.5% for the year to date and 49.3% since jumping on the Saul gravy train in September 2017.
Used today’s beat down on SHOP to finally open a position in this fan favorite.
Thanks for sharing your secrets and opening my eyes to a whole new methodology.
Zak
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Used today’s beat down on SHOP to finally open a position in this fan favorite.
We’d have to go all the way back to mid morning last Thursday (April 26 or 3 Trading Days) for this bargain:)
I also added some more today too though. Couldn’t believe it was down after what they reported.
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