Why is the market hitting the stock if this isn’t dilutive?
The market is not hitting the stock. Talend closed at its second highest weekly close ever yesterday. It has to digest two million shares though. Imagine if you had two million shares and you wanted to build a big hotel for $84 million and you decided to sell your shares. There’s no dilution but your 2 million shares up for sale would temporarily slow the stock rise.
Saul
as these shares are dumped on the market?
That’s the whole point of doing a secondary. The shares aren’t dumped on the market. The underwriters place them with their customers at a slightly favorable price, and then they are out there.
So we have three board members reporting their year to date results,
Me up 97%
Brittleroch up 97%
Othalan up 83%
All with different portfolios and different allocations, but all using variations of the same method. So where the heck were the averages? I think Tinker nailed it:
Why? The market is an average of all, the mediocre, simply awful, to incredible. Within this realm… the finest of the crop will bring the averages up, and if you dump the laggards, by the very definition of average, your results will outperform over time. PERIOD.
And how do you find the superior companies? Look at growth rates, market share, market dominance, profit margins, quality of management, past price appreciation, competitive advantage, addressable market, etc…in the end, if you limit yourself to such companies you will outperform. It is not difficult. It is just that very few people understand this, and most focus on simply not losing money, and therefore settling to be average or less.
Saul
I said so at the NPI board but no one paid any attention to me
we did (or I did),just did not comment on it.
Good posts sometimes seem to draw little attention even when they are worthwhile.
But what they clearly do is dilute the float
Exactly! Inflate the float. 
Why would you think that wouldn’t negatively impact the price as these shares are dumped on the market?
The additional float drops the price but the value is intact. Isn’t that a buying opportunity if you like the company?
Denny Schlesinger
So, I just look at the number of shares. Is that right or wrong? Any insight is appreciated.
It’s not quite that simple.
1.- If the share buybacks are just to hide the SBC check to see of there is stock option abuse.
2.- If the share buybacks lower the number of shares outstanding you are getting a tax free dividend.
3.- If the share price is growing well, who cares?
Denny Schlesinger
Before I was finished, my cat (who likes to sleep on my keyboard) decided to publish my post while I was out of the room, sorry about that.
I wanted to take some more time to provide a voice of encouragement to those who are new here. As I was saying, I still consider myself a beginner. I’ve read Saul’s knowledge base several times, I’ll probably re-read it several more times. But, absorbing the content does not substitute for experience.
Bear with me while I provide a some background. Maybe you will benefit from it.
I first learned of Saul before this board existed. I don’t recall exactly when or which board (maybe Rule Breaker); Saul posted to that board and I stumbled upon Saul’s post. I say “stumbled” because at the time I was a very casual reader of any MF boards, or any investment site. I subscribed to a couple of MF services and read the newsletters, that was pretty much it. Anyway, I read Saul’s post and was immediately impressed with his intelligence and insightfulness. But, it was a one off experience. I didn’t “follow” Saul. In fact I was pretty naive about how the boards worked and didn’t even know that I could follow an individual. It didn’t change my approach to investing. I didn’t know how to implement what Saul had written.
Sometime later, in Jan, 2014, Saul took it upon himself to start this board. Again, I’m not sure how it was that I came across the board, but I did when it was still very young, less than 1,000 posts. I read every post. It was my intention to continue to read every post, but with better than 34,000 posts, I’ve not kept up. Yet, I’ve become a very faithful reader of this board. I lurked, read and learned for about a year. My first post was in Jan, 2015 shortly after the board’s 1st birthday. I didn’t post earlier than that because I didn’t feel like I had anything intelligent to add to the conversation. I found the vast majority of regular posters were far more knowledgable than I.
Even after I started reading faithfully, I did not immediately embrace Saul’s methods. I continued pretty much doing what I was doing. I was invested in a smorgasbord of previous positions I picked up from other newsletters, investment sites and TV investment shows (I’ll refrain from naming them). I also held a number MF RB and SA recommendations.
That wasn’t all a bad thing - but I held a number of duds. I rarely sold anything, but I especially clung to my losing positions. I felt it was only a “paper” loss until I sold and made it real. Mostly I had invested in “story stocks.” I liked stories, I thought 3D printing was going to take over the world, it was such a great story. My performance was erratic. I dabbled with options and had mixed results. I tended to sell winning positions too soon. My thinking was once I was up 25% or more it was time to exit before it fell back down. Take the money and run. I almost never added to a winning position, why would I dilute my gains?
Does any of this sound familiar? I can’t be the only one who followed this irrational approach to investing. There’s a certain amount of irony to this when I look back on it. I made a living as an analyst, not an investment analyst, I was an information technology analyst. I was good at my job. I just never applied analytical techniques to investing. And, I wasn’t completely ignorant of these techniques. I had an MBA. I even took an investment class while working on my MBA. Everyone in the class had to pick a company and do an analysis of it. I don’t recall how I picked Carnation, maybe because they had a dairy farm close to my home in Carnation, WA. My analysis showed this company to be an outstanding investment. Carnation was acquired by Nestle in 1984. I never invested in it.
I took over management of my elderly mother’s investments about 2003 after my father died. Of course, I applied the same approach to her portfolio as I did with my own. My mother, following the advice of a Merrill Lynch broker years previously had some bad experiences (losses) in the stock market. Having been raised during the depression in Vienna preservation of capital was her primary objective. When I took over, all her money was in a variety of CDs from different banks and US Treasuries. The Treasuries constituted the bulk of her holdings and paid 3%. The CDs were paying diddly. I left the treasuries alone but consolidated the CDs, and moved the money to a brokerage account as the CDs matured. My mother died in 2010. I came into an inheritance. It wasn’t a huge pile of money, but it was pretty substantial, even after the 2008/09 meltdown.
I retired in 2010. A month or so prior to retiring, I decided to get honest with myself. I realized I didn’t know what I was doing with my money. I walked into a local Edward Jones office (no matter where you live, there’s a local Edward Jones office) and asked for advice. I chose Jones because I had a friend in my office who spoke highly of them. I moved my IRAs to Jones and about half my stock portfolio. I retained some stock investments at a discount broker.
Need I tell you what a blunder that was? Edward Jones, IMO, is a total scam. They moved all my money to mutual funds from which they derived handsome commissions. If you want to trade individual stocks, look out, their transaction fees were (maybe still are) in the hundreds of dollars for a trade. Oh yeah, I also ended up with an annuity product. By spring of 2013, after my Jones representative tried to recruit me as a Jones representative I liquidated everything and moved back to managing my own investments. My logic was that even if I wasn’t very good at managing my investments, there was no way I could do worse than Edward Jones. As I said earlier, I started getting familiar with this board in 2014.
In 2015 I gradually started to try to apply Saul’s methods. But I remained pretty stubborn in my ways. I don’t actually know what my investment performance was in 2014. I hadn’t kept records. I think I’ve retained my statements, so I could reconstruct at least year beginning and ending positions, but why bother? In 2015 I gradually started trying to apply some of the things I had learned from reading this board - kinda, sorta.
Last year, I was committed to make a much more concerted effort to embrace Saul’s methods. I lost 7% for the year. Understand, that was the year I finally decided to realize my paper losses which had accumulated over several years of bad decisions. I also sold a number of profitable investments in “good” companies that were passed their peak and not going much of anywhere: Costco, Starbucks, Chipotle and similar. I redeployed the funds into companies I picked up from this board: Skyworks, Skechers and others. I also put some money into some other companies: Apple, Amazon, Ambarella, etc. Overall I trimmed my positions from about 40 or 50 to about 20 by year end.
If I had to consolidate everything I’ve learned from this board, I could put it in two maxims:
I’ll discuss those two things briefly.
Failing to realize a paper loss is anchoring. Failing to invest in a growing position is anchoring. Setting a price target is anchoring. Following positions you sold is anchoring (especially if you have regrets for having “sold too soon”). In fact, making any investment decision solely based on stock price is anchoring. I’m not saying you should completely ignore stock price, of course it needs to be factored into your decisions. But using stock price, or more accurately, the difference in today’s stock price as compared to some prior (or estimated future) date as your primary buy/sell criteria is a manifestation of anchoring. By itself, stock price just doesn’t provide useful information. This alone is a really important lesson.
It is a lot harder to address the second point regarding growth. Saul does not advocate simply finding the fastest growing companies over the last six to twelve months and investing in them. I don’t either. The quality of the company and how that manifests itself in growth is what one needs to pay attention to. There is no simple formula for this. Obviously, revenue and earnings growth are a starting point. But after that there are a number of financial factors that require attention. Is the company buying revenue with debt or stock dilution? Is there positive cash flow? Etc. And then there are myriad intangibles. What’s the business model. What’s the experience and background of the management team? What is the company’s moat? How big is the market, particularly the unaddressed market. Are there any important legal issues. A lot of what this comes down to is that one should study companies as opposed to what the Wall Street analysts say about companies.
And it’s this second point that makes me assert that even with my success this year, I still consider myself a neophyte. There is no substitute for experience and I’ve not got a lot. Saul can look at a series of quarterly revenue and earnings statements and immediately know if they reflect great performance. I can’t. I don’t have the experience to know what’s average and what’s great, OK, I can pretty much identify what sux, but that just barely keeps me out of trouble. Saul can read the transcript of the conference call and extract the telling nuggets. I can’t. Management will always put lipstick on a pig. I see the lipstick. It’s hard for me to know if I’m looking at a pig. I look at gross valuation ratios like P/E or P/S. I can’t easily determine what’s good. I don’t have the experience to interpret how that measure should be taken into consideration with respect to growth. Saul immediately saw the folly of Synchrosis management’s acquisition. I did not (though I never bought the stock in first place, but that’s beside the point).
This is the part of Saul’s method which is so difficult to master. This is the essence of what Saul means by “modified” when he says he has a modified buy and hold strategy. Buy good, fast growing companies until the thesis heads south and then sell. It’s not market timing. It’s knowing what to look for, paying attention and acting when appropriate. It’s years of experience.
And that brings me to my last point. This board is invaluable. Despite the few hecklers that occasionally take a shot at Saul or some of the other folks that post here, the quality of observation and analysis available here is extraordinary. I am deeply indebted not just to Saul, but to many of the folks who regularly post here and give of themselves so freely. The back and forth threads about the different companies discussed on this board is, IMO, unparalleled. Once in awhile, the discussions might get a bit heated and sometimes even a little personal, but overall the people who post here are deliberate, intelligent and focused on investments.
I wish to thank all of you for your contributions. You have collectively made me a better investor and I have materially gained from your commentary. And most of all, I wish to thank Saul for having created this board which most likely will outlive him. What a wonderful legacy.
Because the average daily trading volume is only 170,000 shares and they dumped this first traunch with 2 million shares with 8 million more to go.
OK, I think the dilation issue has become a distraction from the core issue of whether issuing 10 million shares valued at the equivalent of nearly 50% the market cap of the company for the benefit of the initial major shareholders (listed in the NPI thread), is a negative for the stock.
I believe it is and for the reasons stated, it will essentially put selling pressure on the stock (unless the selling is very carefully timed and spread out).
Remember what happened to TWLO when they issued the secondary for the benefit of the initial venture capital shareholders? It was down some 30%.
Here is a FOOL article noting the same issue:
https://www.fool.com/investing/general/2013/02/25/secondary-…
Duma, from the MF article you referenced:
In other cases, though, secondary offerings happen because major shareholders want a chance to sell out. Recently, there’s been a spate of this type of secondary offering. Michael Kors fell nearly 10% in two days last week after saying it would do a 25-million-share offering worth roughly $1.5 billion, with founder Michael Kors selling 3 million shares he owns personally.
Often, private-equity investors and other early-stage financiers are involved in the decision to do a secondary offering. Generac, which has gained prominence recently because of its production of generators in the wake of Hurricane Sandy, will offer 10 million shares owned by CCMP Capital. When private equity investors are involved, secondary offerings aren’t as big a cause for concern. Although the big blocks of shares cause temporary selling pressure, the offerings don’t dilute existing shareholders and have no impact whatsoever on the fundamentals of the business.
Saul
Here’s the case for Talend from the MF article posted:
When private equity investors are involved, secondary offerings aren’t as big a cause for concern. Although the big blocks of shares cause temporary selling pressure, the offerings don’t dilute existing shareholders and have no impact whatsoever on the fundamentals of the business.
So no big deal unless you are concerned about this from the article:
What can be problematic, though, is when corporate insiders sell out. For instance, when a founder sells shares, it can raise fears of a loss of confidence in the company going forward.
Nothing from the article appears terribly concerning with regard to Talend’s secondary.
A.J.
Sorry. Looks like Saul posted before I did as I was writing my thoughts. Though it does appear we have the same opinion. Bottom line is, I’ll have to take a closer look at Talend again.
Thanks all,
A.J.
Because the average daily trading volume is only 170,000 shares and they dumped this first traunch with 2 million shares with 8 million more to go.
OK, I think the dilution issue has become a distraction from the core issue of whether issuing 10 million shares valued at the equivalent of nearly 50% the market cap of the company for the benefit of the initial major shareholders (listed in the NPI thread), is a negative for the stock.
I believe it is and for the reasons stated, it will essentially put selling pressure on the stock (unless the selling is very carefully timed and spread out).
Remember what happened to TWLO when they issued the secondary for the benefit of the initial venture capital shareholders? It was down some 35%.
Here is a FOOL article noting the same issue:
https://www.fool.com/investing/general/2013/02/25/secondary-…
In other cases, though, secondary offerings happen because major shareholders want a chance to sell out. Recently, there’s been a spate of this type of secondary offering. Michael Kors (NYSE:KORS) fell nearly 10% in two days last week after saying it would do a 25-million-share offering worth roughly $1.5 billion, with founder Michael Kors selling 3 million shares he owns personally.
Often, private-equity investors and other early-stage financiers are involved in the decision to do a secondary offering. Generac (NYSE:GNRC), which has gained prominence recently because of its production of generators in the wake of Hurricane Sandy, will offer 10 million shares owned by CCMP Capital.
When private equity investors are involved, secondary offerings aren’t as big a cause for concern. Although the big blocks of shares cause temporary selling pressure, the offerings don’t dilute existing shareholders and have no impact whatsoever on the fundamentals of the business.
Here are some other examples:
http://ivanhoff.com/2013/09/17/are-all-secondary-offerings-n…
TWLO sold 7 million shares as a secondary for the benefit of initial investors and the stock plummeted 34% in no time. ACIA did a secondary last year and has since lost more than 50% of its value.
I just haven’t seen an example of a company issuing a secondary at 50% of its market cap. I suppose this largely leaves shareholders dependent on the restraint of the sellers…that they don’t dump all 10 million shares at once…especially with such a thinly traded stock at 170K shares daily.
But perhaps this is just a hit with every traunch that then recovers assuming the business is rapidly growing…we shall all try to decide if this is a TWLO situation or if its one of the temporary events as in the thread above.
But enough said on this topic especially since it is OT to the original thread.
<i> So we have three board members reporting their year to date results,
Me up 97%
Brittleroch up 97%
Othalan up 83%
Saul</i>
I am up 91% this year, and I simply can't believe it. Had I listened to you, Saul,
and bought back the shares of LGIH I sold during the hurricane, I might be up even more.
Hard to tell since what I bought with the proceeds went up, too.
I am planning to write and share my year's game plan and performance at the end of December,
but I did want to jump in and add my name to the incredible results this board has helped
us to achieve.
Thanks so much to everyone here, And especially, always, a mountain of gratitude to you, Saul. You have taught me so much.
Best,
Vivienne
Current holdings after converting 10% to cash for future buys:
SHOP 12.5%
SQ 8.6%
ANET 7.4%
NVDA 6.9%
AAPL 6.4%
NFLX 6.2%
FB 6.1%
AMZN 6.1%
NTNX 5.7%
ATVI 5.5%
TLND 5.4%
HUBS 5.4%
SBUX 5.1%
UBNT 3.3%
I am up 91% this year, and I simply can’t believe it…I am planning to write and share my year’s game plan and performance at the end of December, but I did want to jump in and add my name to the incredible results this board has helped us to achieve… Thanks so much to everyone here.
Thanks so much for you too Vivienne, for your kind words.
Now we have:
Me up 97%
Brittleroch up 97%
Vivienne (oceanbluela) 91%
Othalan up 83%
That makes four of us, all with different stocks in different allocations, but all approximating the same method. In a year where the three representative averages I’m following are averaging 12 or 13% There must be something to it.
Thanks again to all of you for your help.
Saul
Saul,
I honestly don’t know exactly when I bought what.
I have been following this board for a couple of years.
At this time I have two IRA portfolios. One is my “Blue Chip” port. I do not even have the password to it. I do not know the value, nor the cash balance. My wife does 100 percent of the buying and selling in it. I know it has Facebook, Google, and Amazon in it and each of these are between 8 and 12 percent of the portfolio. All purchases in all accounts are done by consenses, as such buying and selling can be somewhat slower than your buys and sells.
My “Saul” port has 10 stocks. They are about equally wieghted. Shopify might be heavy as I added to it during the short attack.
The tickers are:
ANET
EXAS
HUBS
NTNX
NVDA
SHOP
SQ
TLND
UBNT
VFFIF
I believe that EXAS and VFFIF are the only two that you do not hold. EXAS came from this board. I do not recall who wrote it up, but whoever it was, I thank you.
I believe it was Bear that got me to watch the NVDA videos, the CEO sold me on the stock. (After reviewing the 10ks, 10qs and 8ks on the EDGAR database.)
A simular thing happened with Hubspot (HUBS).
I have written about Village Farms. It is a left over, that just hit a lucky strike. Even a blind squirrel will find a nut.
I followed with a CAPs port for a year or more before I
put the first real dollar into a “Saul” type stock. And then only a little at a time. The first purchases were in April of this year. I do not recall which stocks they were, but KITE did not get purchased in the first month, and when it did get purchased it was less than a full position. I consider 1/8 of the port at the time of purchase as a full position. 8 to 12 stocks is all I ever want in a portfolio.
I bought ANET in October or maybe September. I was my last purchase and left me fully invested in this portfolio for the first time since 2009.
From April until today, my “Saul” port is up 50 percent. This is about an annual return of 100 percent.
I am pretty satisfied. I bought early during the SHOP short attack so did not get the best pricing there. It has hurt my profits some.
I am very satisfied with the portfolio performance, but somewhat dissatisfied with my performance. I hold EXAS, I bought it on the information I gleaned here and other investement sites. However, I have not gone to EDGAR, nor listened to the conference calls nor read the transcripts.
This, to me is undisciplined.
Many thanks to you, and others. Bear comes to
mind, but this board brings out the best in people, and there are at least 3 others that have produced “Saul”
quality analysis, and many posters that have provided outstanding guidance. Captiancc comes to mind.
There has been more than once that I thought about selling out of Ubiquity networks. But, each time someone has pointed out that the business is bigger this quarter than last and the share count is less this quarter than last. That kind of thing is real easy to think about.
Thanks to all.
Cheers
Qazulight
OK, I think the dilution issue has become a distraction from the core issue of whether issuing 10 million shares valued at the equivalent of nearly 50% the market cap of the company for the benefit of the initial major shareholders (listed in the NPI thread), is a negative for the stock.
Duma, excuse me for henpecking but those shares were issued a long time ago. Now they are being registered for sale to the public.
I believe it is and for the reasons stated, it will essentially put selling pressure on the stock (unless the selling is very carefully timed and spread out).
Yes, this is a very valid observation! How should the investor (not the trader) react? The sale of the shares will put pressure on the share price but the underlying company value is unaffected. I’d wait for the price to bottom to load up, if I were interested in the company. This is where TA is the perfect adjunct to “intelligent stock picking.”
Denny Schlesinger
That makes four of us, all with different stocks in different allocations, but all approximating
the same method. In a year where the three representative averages I’m following are averaging 12 or
13% There must be something to it.
Taking a walk this morning I met four couples. In each case the wife was taller than the husband.
My conclusion: Women are taller than men.
The explanatory power of one year’s investing result is close to zero. While it may be true that
stock picking beats indexing, this is not the way to prove it. You need a larger data set. Otherwise
it’s quite easy to mislead people.
The explanatory power of one year’s investing result is close to zero. While it may be true that
stock picking beats indexing, this is not the way to prove it. You need a larger data set. Otherwise
it’s quite easy to mislead people
Why not take $10,000 in 1989 and multiply that by the return Saul got each year? I did this about 4-5 months ago. The number was about $5.4million or a 540 bagger in 28 years. That number is now quite a bit higher since the 2017 YTD return was below 70% if I recall correctly. It’s now 97% so that $10,000 in 1989 is now well over $6 million! So is 28 years a long enough timeframe to draw a conclusion? Is greater than 30% annualized enough?
So is 28 years a long enough timeframe to draw a conclusion?
Chris,
I know you and others think my intent is to knock Saul. It’s not. Saul has been quite successful
at investing and more important is a caring person. I really admire him for going out of his way
to make other people successful as well. I may question him on some things – and not always be
diplomatic about it – but he seems more than capable of holding his own! 
In answer to your question:
As I understand it, the number of observations needed for a confidence level depends on the how much
the data varies – how high the highs and how low the lows. The more variable the data the more years
of observation you need. Last time I checked, 30 years of data with results varying between -50% and
+50% had an explanatory power of about 7%.
Thanks,
Ears
As I understand it, the number of observations needed for a confidence level depends on the how much
the data varies – how high the highs and how low the lows. The more variable the data the more years
of observation you need. Last time I checked, 30 years of data with results varying between -50% and
+50% had an explanatory power of about 7%.
Yes, Saul’s approach has a higher variance. We know that. But if your analysis which includes 28 years of data is not enough time then your analysis is not going to be very practical. You will be watching and watching and by the time you have enough data you will be old and decrepit or dead!
Chris