“The “too expensive” label comes from underestimating how a company can disrupt its industry, displace competitors, and grow over a relatively short time. Investors’ fears leave many on the sidelines, only to come in later and drive the stock up further as the writing on the wall becomes more apparent.” Motley Fool Rule Breakers
I think you need to change your investing mindset if you want to replicate Saul’s returns over the past few years.
Thanks, Darrel. That’s a great summary. So in order really do what Saul do, we need to change our mindset. I started following Saul’s board near the end of 2017. I don’t remember a single time people not worried about the valuation, just like today. In the meantime, Saul and many members of this board more than doubled their money and built a big ‘cushion’. From Saul’s just published monthly portfolio summary, we can see these ‘overvalued’ stocks maybe not overvalued after all.
Saul, once again congratulations on your continued run of success!
One minor [or major] quibble:
can make a profit whenever they decide to! All they need to do is slow down their enormous S&M spending, whose purpose is to grab every new customer they can grab while the grabbing is good.
They can make a short-term profit for this quarter, next Q, this year maybe, but if they do slow down their aggressive sales and Marketing spend, they won’t likely be profitable longer-term as their competitors will steal their clients. And these are very competitive markets.
And you hint at a secondary problem with ‘while the getting is good.’ Because as we all know, at some point the CAC becomes too high relative to the Lifetime Value of the customer.
One ratio I’ve heard is LTV/CAC of 3 to 1 over 4 years, that is if your SAAS client is worth $1500 over 4 years, you should be spending about $360 to acquire them [the $1500 has been discounted back to today]. Of course exact #s can be debated, but I think this is a useful tool. If you’re spending $1200 today to get this client, you’re doing a poor job, and if you’re spending under $100 you’re doing a fantastic job!
3. You need to EXCEPT and ACCEPT high volatility both on the upside and downside…If you only want the huge upside potential, with limited downside risks of a 30-40% stock decline
Yes, you do need to EXPECT, not ‘except,’ high volatility on the downside which will be significantly more than 30-40% in a serious decline.
If ZS drops 45-50% that would only retrace to the beginning of this year, after all.
In any sort of ‘growth recession’ where the expected future results are cut by any meaningful amount, the P/S could easily drop from 40x to 8x, or worse. It’s happened before and will happen again.
Look at the massive drops in PVTL, NEWR, CLDR, TLND, NVDA, ANET, et al, in past months. Sometimes they rally back and often they don’t get back to those prior all-time highs.
TMB,
Since following this board, I try to write down the closing price of each stock everyday. For the last month or so - I’ve added the Fear & Greed Index number. Not sure what I’ll learn from this additional data point, but I find it interesting to track it along with my portfolio’s performance.
Since following this board, I try to write down the closing price of each stock everyday. For the last month or so - I’ve added the Fear & Greed Index number. Not sure what I’ll learn from this additional data point, but I find it interesting to track it along with my portfolio’s performance.
Historical stock prices are available so no need to write them down every day. Here is an example:
I am not attempting to undermine anyone here so please don’t do the same. First of all these stocks have low liquidity compare to the stocks warren buffet buys. Even if he did buy these stocks, he would properly only invest 0.1% of his portfolio in these stocks. Anything more will not be absorbed by the liquidity.
In a statement, Warren Buffet did say he can easily make 50% annual return with much smaller capital so it’s possible.
The analysis l did which l have backtested with 200 stocks and it all worked out. I have a self-designed spreadsheet which calculates a forecasted average return with the combination of the company’s average EPS growth, Equity growth, revenue growth and free cash flow for the past 5 years and discount that average growth rate by 60% to discount any potential error. I then compare the 60% with the growth rate forecasted on yahoo finance for the company. I will again discount the higher rate of these two rates by 70% and use the lowest possible growth rate for the prediction along with the assumption that the company’s price-earnings ratio doesn’t change at all even if the EPS or stock price increases over the coming 5 years which is very conservative.
For NMI Holding INC,
I discounted the average rate to be 51% growth for the next 5 years with Price earnings ratio of 15.6.
Yahoo finance states that the average growth rate of NMI holding will be 43.24% for the next 5 years.
I then discount the lowest rate of here which is 43.24%b by 70% to include any potential error which concludes the growth rate I will use for prediction will be 30.6% which is very conservative. Using special discount rate method with 30.6% it will result in $103.59 within 5 years time easily. Remember I have backtested this method with 200 stocks and it all worked well. These companies also have very little debt. I wanted to attach a screenshot of my analysis on here but it won’t let me paste. Please comment on my analysis. This kind of stocks exist rarely. I found these stocks using strict filters on Finviz stock screener before l did the analysis. So please comment.
Please ignore the first part of the other messages I posted earlier in regards to NMI holding INC valuation. It was copy and pasted directly from my other thread.
But anyways Saul/Guys
I have found two stocks which have a potential huge growth rate for the next 5 years:
NMI Holding - currently 28 dollars and I expect it to go up to 130 dollars within the next 5 years or less.
Exelixis- Currently 20 dollars and i expect the stock price to go up to 120 dollars within the next 5 years or less.
Can you guys analyze these two companies using saul’s method and let me know if you guys think the same? Thank you.
Yeah, JasonRen spammed the Retirement Investing board with same question. I mentioned he should come over here and study Saul’s Knowleagebase and give us all a deep-dive into his ideas of great stocks. Kid doesn’t really read any replies and is now over here shopping for the correct answer to his “great stocks”. They might be great. But I’m sorry I mentioned this board to him.
Here’s why I don’t try to time the market! At the end of May I posted my results a week early because I would be traveling the last week, but a week later, at the calendar end of the month, I was up 140.9%, up just 0.2% from the end of April, and up just 4.0% from the end of March, which was a good round 2 points per month. Even back to the the end of February when I wasup 28%, I was up just 12.9% in 3 months, or 4 points a month, and slowing down. It sure looked like our overpriced high growth stocks were topping out and a number of our members were going 25% or more into cash, to have cash available for the inevitable pull-back.
Well here we are, after the 19th of June, and I’m up 68.1%, which means I tacked on 27.2 points more just two and a half weeks later (after rising all of 0.2% in all of May). Who would have guessed it? Not me!!! That was me back there thinking that maybe the market was topping out at the end of May. At the beginning of the year, I would have settled happily for up 25% for 2019, after my huge 2017 and 2018 results. I am no good at timing the market, which is why I try to buy great companies and let the market take care of itself.