My Portfolio at the End of October

My portfolio at the end of Oct 2020

Here’s the summary of my portfolio at the end of October. This was a five-week month for me. Please note that when I discuss company results, I almost always use the adjusted values that the companies give.

My shoulder is better and I can type with all ten fingers, so there is hope for a more complete report this month.

October was another wild month. As you remember my portfolio finished September up 184%. Then over the next two weeks it moved up to a high of up 236%. That’s a pretty big number and to help you understand it, it means 336% of what the portfolio started with. It was considerably more than a triple, a three-bagger, in less than a year. And then is started down and sold off going into the election, presumably because of all the inherent uncertainty. It finished up 174% which sounds like a lot of drop but which was actually only 18.5% off its high (274/336 = .815), and still at 274% of where it started the year.

A DISRUPTIVE AND DESTRUCTIVE ATTACK ON THE BOARD AND ITS VALUES

Unfortunately, in the last week of the month, our board suffered a really really RUDE and very disruptive and distructive attack on the board itself and its values. It was by a member who had pretty much left to run his own commercial stock recommendation service (in competition with the Motley Fool), and who had not posted a single time on the board in two months from late August until late October, and then reappeared and had the gall to accuse the board of exhibiting “herd mentality” because most of the prominent members of the board had exited Fastly completely or in part (which did not meet this member’s approval). This not only insulted many of the members but had the other possible consequence of undermining the confidence of the many many people who come to this board near the beginning of learning about investing and who are most fragile.

This attack threw the board into a turmoil for a number of days. It was based on no evidence besides this attacking member’s intuition about why people sold Fastly. In fact, many, if not most, who exited Fastly, exited because of the facts which were extremely obvious, and obvious to the market as well, as Fastly has continued to fall every day, now down by 53.5% and $73 (!) from its all-time high of $136.50. (That means there’s only 46.5% left of where it was. It means it will need a rise of 115% to return to its high, and it would need a rise of 50% to return to where many of us started selling in the aftermarket.) It fell another 7% just today from where it was yesterday. On the other hand, Fastly’s competitor Cloudflare, where many of us put our Fastly money, is down only 16% and $8 from its all-time high, and has been one of our strongest stocks in this sell-off. It would need just a 19% rise to return to its all-time high, instead of the 115% that Fastly would need.

Our board is based on principles! Principles like: admit your mistakes, it’s okay to change your mind, don’t fall in love with the company, sell when the story has changed for the worst and has become incredibly complicated… instead of hoping that, at some vague time in the future, the company will get its act together. Our board is based on using facts and numbers for our decisions, not excuses and hope. Our board is based on remembering that it doesn’t matter what stocks do when we are out of them. It only matters what the stocks in our portfolios do. These priciples have worked marvels for us and a large number of us are still at two and a half times to three times (or more), of what we started the year with, in spite of the sell off, while the market averages are flat to down year to date. Hang in there. Read the Knowledgebase. This too will pass.

MY RESULTS YEAR TO DATE

My portfolio closed this month up 173.8% (at 273.8% of where it started the year)! Here’s a table of the monthly year-to-date progress of my portfolio for 2020.


**End of Jan 		+  21.3%**
**End of Feb		+  22.9%**
**End of Mar 		+  13.4%** 
**End of Apr  		+  33.3%**
**End of May		+  73.6%**
**End of Jun 		+ 115.9%**
**End of Jul		+ 135.1%**
**End of Aug  	        + 132.9%**
**End of Sep		+ 184.3%**
**End of Oct  		+ 173.8%** 

HOW DID THE INDEXES DO?

Here are the results year to date:

The three indexes that I’ve been tracking for years closed this month as follows.

The S&P 500 (Large Cap)
Closed up 1.2% YTD. (It started the year at 3231 and is now at 3270.

The Russell 2000 (Small and Mid Cap)
Closed down 7.8% YTD. (It started the year at 1668 and is now at 1538).

The IJS ETF (The S&P 600 of Small Cap Value stocks)
Closed down 21.1% YTD. (It started the year at 80.4 and is now at 63.5

These three indexes
Averaged down 9.2% YTD.

If you throw in the Dow, which started the year at 28538, is now at 26562, and is down 6.9%, … and the Nasdaq, which started the year at 8973, is now at 10912, and is up 21.6% YTD … you get down 2.6% for the average of the five of them YTD. And if you remove the two outliers (the Nasdaq and the IJS), it’s practically the same result, down 2.7% YTD.

How often have we heard that no one can beat the indexes? That stock picking is a waste of time and effort? That we will all “return to the mean”? That “books have been written that prove it!” Well, guess what, Folks, the books are wrong!

And if you look at the past years you will see that picking our “overvalued” stocks has done ENORMOUSLY better than investing in cheap, or “undervalued” stocks.

Again, my results are without using any leverage, no margin, no options, no penny stocks, no fancy stuff, just investing long in great individual companies. And I’ve told you each month what my positions are, and what proportion of the portfolio they are, so anyone who doubts it can check for themselves. And I’m no genius. Plenty of other people on the board have done about the same, and some even a lot better .

To simply state my goals, I’m merely trying to measure my performance against that of the average return for an investor in the stock market, and combining those five indexes should give a pretty good approximation.

AN INTERESTING MEMORY

I posted this last month, but I think it’s important enough to post it again this month, as the market is going through another downturn. .

At the October bottom, 12 months ago, all those trolls showed up on our board and were telling us that our “overpriced” stocks would “NEVER see the ridiculous highs of 2019 again,” and asking why didn’t we get smart and invest in S&P ETF’s. It was pretty scary back then, and even some of our regulars were thinking we might have to wait two years before our stocks would regain their highs. It all seems pretty funny now, doesn’t it, when our portfolios are up by 100% or 200% this year? It’s worth keeping that in mind the next time that there is a correction and the trolls show up trying to get you to sell out.

They then showed up again in March during the synchronized attack on Zoom (Zoom was at about $120 to $130 then). They sounded sooo… sooo… earnest that they took some people in, telling us that they were so sorry, but the CEO just wasn’t trustworthy and we should sell out. (Ha! It closed this week a shade off $461, a little short of a quadruple in seven months since that attack).

The key for these guys is to appear very sensible, sincere, and earnest, and say they’ve been in these stocks for a long time but now it’s time to get out. One, as I remember, even said he had been investing in these stocks since long before our board even began.

What an obvious mistake! This board started Jan 1, 2014, so he was talking about 2013. Actually he was claiming “long before the board began,” thus long before 2013, so let’s be kind and say 2012. Well, NONE of our stocks was even public until five to eight years after 2012, and he couldn’t have been investing in them back then. And let me assure you that in 2012 you couldn’t make up a portfolio of companies with 70% to 90% revenue growth rates, with 70% to 90% gross margins, low capital intensive, with 95% recurring revenue coming from software subscriptions, and with dollar-based net retention rates over 120%. These companies just weren’t there in my experience!

Sometimes these guys also claim huge rates of gains for many years to establish credentials, but make their claimed “results” way unrealistically high.

So what is the message for you? Well, if someone totally new to the board shows up, and after a few earnest, sincere-sounding messages to establish trust, starts within a week or two to tell you to sell your positions, please have a little skepticism. That’s a totally different scenario than having one of our trusted long term members, whose opinions you have valued for years, telling you the same thing!

THOUGHTS ON TRADITIONAL EV/S, AND WHY IT HAS NOTHING TO DO WITH OUR COMPANIES

I posted this last month too, but I think it’s also important enough to post it again this month.

Some who are new to the board seem almost personally offended that I don’t calculate EV/S on any of my stocks, and that I don’t pay attention to it, or to the fact that all our stocks usually have EV/S ratios which are very high by traditional EV/S standards.

I don’t have the answer to what is “overvalued,” but I know that traditional EV/S ratios have NOTHING TO DO with our companies! Our companies are profoundly different than the companies that traditional EV/S is used for. Why? Here are some reasons:

First of all, a company with 70% to 90% gross margins is worth a much higher EV/S ratio than a company with 30% or 40% gross margins because each million dollar of sales is worth so much more to the company in take home dollars.

Just think about this for a minute. If you have 85% gross margins, a million dollars in sales is worth $850,000 to you. If you have 42% gross margins (still quite acceptable), the same million dollars in sales only brings you $420,000. Now really think about that. On that basis alone our company with an 85% gross margin is naturally worth twice the EV/S of a normal company with a 42% gross margin, other things being equal.

And a company with a 28% gross margin (believe me, there are plenty of those too, in the real world) only keeps $280,000 out of that million in revenue. How can you put the same million dollars in revenue in the denominator of EV/S? Our company with 85% gross margin is naturally worth three times the EV/S sported by the 28% gross margin company, other things being equal… But… other things aren’t equal!!!

Secondly For a company that is leasing software that becomes integrated into the core of the customer’s business, and with a subscription model that brings in recurring revenue, each million dollars of sales today is not just for this year. It’s for next year too, and the year after, and the year after that, and…. pretty much forever. No one, simply no one, is going to tear out a system that is core and essential to the smooth running of their business, and that would disrupt their entire business to pull out, to save a few dollars. It ain’t gonna happen folks.

Okay now, you have a million dollars of sales this year that will, for all practical purposes, be there next year, and the year after too and new sales next year will be an extra bonus added on. When you put that million dollars into the denominator of the EV/S equation, what do you have to multiply that million dollars by to take into account all those future years of recurring revenue? By three? By four? By five? That sure brings down the real EV/S for our SaaS companies, doesn’t it?

Compare it to a clothing manufacturer (just for instance). It sells 100,000 coats this year, but has no idea if it will sell 100,000 coats next year, or even 50,000 (maybe another brand will be in fashion). Recurring revenue on a subscription sure beats the heck out of that, doesn’t it? At first glance that clothing company example may seem irrelevant. But no, the EV/S of maybe 3 or 4 that it carries, has helped to shape the idea in your head of what a EV/S normally is. But if the clothing company’s EV/S is 3, if one of our companies has the same revenue (the same S in the denominator), what should its EV/S be? Four times that? Six times that? Ten times that?

But wait! Our companies also have a dollar-based net retention rate maybe averaging 125% or so. That means that this year’s sale revenue isn’t just going to recur next year, but it will be 25% bigger next year, and bigger the year after that. Well of course a company with a 125% dollar-based net retention rate of recurring and growing revenue will have a higher EV/S ratio, than a normal company with the same revenue, the same S value, down there in the denominator, which may not even be there at all next year … (duh!)

And then there is growth rate! Well, of course a company that is consistently growing revenue at 50% to 70% is going to have very high EV/S ratios, because in just two years a consistent 60% growth rate means they will have more than two and a half times as much revenue as they have now. That’s in just two years!

And in three years, more than four times the revenue they have now!

And in four years, more than six and a half times the revenue they have now! That will sure bring that EV/S ratio down, won’t it? I won’t go beyond four years but that’s enough. (You won’t believe it but a fifth year will bring the revenue to more than ten times what you started with. Obviously they don’t need to keep a 60% growth rate to really push up their revenue! That S in the denominator is going to grow rapidly.)

And finally, of course a company that is leasing a software solution that every enterprise on the planet needs, and that the vast majority don’t have yet, and that all those companies will keep indefinitely once they install it, will have a higher EV/S ratio than a company selling a product that anyone can put off getting a new model of, or stop buying for the duration of a recession, etc.

Here’s the key to this: You can live another year with your old cell phone, or computer, or car, or raincoat, or refrigerator, or kindle, or ski jacket, or your old factory, or whatever, without buying a new one next year, but once you lease this software, you keep leasing it indefinitely, no stopping for a year.) If you think about that and understand it, you’ve gotten the message!

And of course, of course, of course, companies that have ALL these features…

70-90% gross margins AND
a subscription model with recurring revenue AND
125% net retention rates AND
growing revenue at 50% to 70%, AND
selling products that all enterprises need …

are going to have very high EV/S rates (…duh), and I don’t know what is high, but I will NEVER sell out just because the price has gone up, and because some people think the EV/S is too high. I just don’t know where these guys will ultimately end up. Sure I didn’t buy into SNOW when it opened at three times the planned IPO price and during day one got up to $319 (four times the planned IPO price), but that was just a crazy feeding frenzy, and I wasn’t going to pull money from my high confidence positions to buy into it.

My decision about my confidence in a company is based on gross margin, recurring revenue, growth rates, dollar-based net retention rates, necessity to their customers, dominance in their field, and how all that looks to me for the future. Traditional EV/S simply doesn’t enter the equation.

LAST FOUR MONTHS REVIEW

July I sold out of my remaining Coupa to add to Fastly.

Then, after reading the initial write-up on the British tech company Blue Prism early in the month by Ethan, I got excited and took a 3% small position. But then I became concerned that I was investing in:

a second tier, troubled, company
with rapidly slowing growth, rapidly shrinking market share, losing gobs of money, very negative cash flow, clunky interface, using programs based on very old technology, with poor marketing, getting left behind by the category leader, with a falling price for the last year and 9 months, and a lower price even than the price two years ago.

It seemed very much as if we were hoping for a turnaround or an acquisition instead of investing in a category leader. I asked myself “What am I doing investing in a company like this?” I sold it all less than a week after I bought it. I’m perfectly aware that my decision may turn out to be a mistake, but that’s what I did and I have no regrets. Oh, I put most of the money into a new little position in Cloudflare, and a some into Zoom and Fastly. I also kept trimming Alteryx and a little of Okta and added to Crowdstrike and more to Fastly.

August. I sold out of Alteryx for what I think are obvious reasons, keeping just a half percent position to keep it on my radar. I reduced Fastly and increased Cloudflare to equalize the positions. I added small amounts of Alteryx money to Datadog, Crowdstrike, and Zoom, as well as to Cloudflare.

Okta issued quarterly results, which seemed strong and steady to me. Notably, operating income, net income, EPS, and free cash flow, were all positive numbers, up from losses the year before. Adj gross margin and adj subsciption gross margin at 78.9% and 82.8%, were the highest they have ever been, RPO was up 56% yoy, net expansion rate was 121%, up from 118% a year ago, etc.

September I made very few buys or sells as I was out of action with a fractured shoulder, and busy with doctors’ appointments and physical therapy. I did sell out of my remaining ½% position in Alteryx, and trimmed Zoom twice when it got over 30% of my portfolio (it’s grown to be back over 30% again), and added some to Fastly and a little to Cloudflare. On Wednesday morning I also pulled some cash out of the market permanently and put it into my emergency family fund.

October. I was more active this month. In the first two weeks I took what is now a 10% position in Docusign, probably using money I was trimming from Zoom (see below). In the second week when I was up 236%, I pulled a little bit more cash out of the market permanently and put it into my family emergency fund. This money will not be reinvested in the market. I got it by selling 4% of the number of shares in each of my positions to keep the relative sizes of the positions unchanged. In the third week of the month Fastly delivered an awful bombshell at the same time Cloudflare was announcing two weeks worth of announcements of what seemed like dozens of stupendous new products. I exited Fastly and put most of the money into Cloudflare at about $56.50. (Cloudflare is now in 4th place in my portfolio with a 15% position.) This has been adequately discussed on the board already. Luckily, and with no foreknowledge, I had sold about 15% of my Fastly at $129 to try to even out my Fastly and Cloudflare positions. This was before Fastly preannounced. I started selling the rest in the aftermarket at $95, but sold most of it at about $89.50. It finished the month at $63.50. I was very happy to have gotten out. I also added a little Crowdstrike during the month. I sold my Okta down from a 7.5% position at the end of last month, to a 5% position now, due to the chorus of “It’s slowing down!” but I will not sell any more at all. I bought a tiny 0.7% Snowflake position, with tiny buys starting at $245 and ending at $268. Since then it’s been up to $297 and right back down to $250 where it is now. Finally, last month I trimmed Zoom twice when it got over 30%, but it ended September at 31% anyway. I said I’d trim it again and I trimmed it down this month to about a 23% position to bring it in line with my other highest confidence positions, Crowdstrike and Datadog. Zoom is still now in first place at about 24.7%.

HOW THE INDIVIDUAL STOCKS HAVE DONE YTD

Here’s how my current positions have done this year. I’ve arranged them in order of percentage gain. As always I’ve used the start of the year price for stocks I’ve been in all year, and my initial buy price for stocks I’ve added during the year. Please remember that these starting prices are from the beginning of 2020, and not from when I originally bought them if I bought them in earlier years.

For example, I bought Alteryx and Okta originally at $27.72 and $29.95 over two and a half years ago, but I listed them at entry prices of $100.07 and $115.37 because those are the prices at which they started 2020.


**Zoom from 68.04 to 460.91	     	up	577.4%** 
**Crowd from 49.87 to 123.84        	up   	148.3%**
**DataDog from 37.78 to 90.75	        up	139.6%**
**Okta from 115.37 to 209.83		up     	 81.9%**
**Cloudflare from 34.97 to 51.97	        up	 48.6%	(Bought in July)**
**Snow from 245.3 to 250.0		up        1.9%	(Bought in Oct)**

**Docu from 210.5 to 202.3		down	  3.9%  (Bought in Oct)**

Granted, a lot of my gain was from Zoom, but you will note that my next two positions are up an average of 144% YTD.

POSITION SIZES

As often happens at times of great stress and uncertainty, I sold off lower conviction positions and have concentrated my funds in my highest conviction companies. I now have six positions plus a tiny one in Snowflake.

My portfolio now has three positions in the mid-20% range, which make up just under 70% of my portfolio. Keeping the number of my stocks down really makes me focus my mind and decide which are really the best and highest confidence positions.

Here are my positions in order of position size, and bunched by size groups…

**.**

**Zoom		 		24.7%**
**Crowdstrike 		        23.3%**
**Datadog			        21.5%**

**Cloudflare			15.0%**
**Docusign			10.1%**
**Okta				 5.0%**

**Snowflake			 0.7%**

STOCK REVIEWS

Let’s start with Zoom, my largest position. They went from an obscure little company to a household word known by almost everyone in a couple of months. They just posted two of the most amazing quarters ever seen by man, with revenue up 169% yoy, and then up 355% yoy. Those revenues were up 74% and then 102% SEQUENTIALLY! Their Adjusted Net Income in their most recent quarter went from $24 million to $275 million, and it was all like that. For example Free Cash Flow went from $17 million to $373 million, and Customers with over 10 employees grew by 458%. There is no question that they will beat estimates for the next quarter as well, and probably by a large margin. The question that none of us can be sure about is what happens when the Pandemic is finally over. We’ll have to see. And Zoom is coming out with a multitude of new products to establish them as a platform and not something that is easily copied. They are one of my top three positions, but I have trimmed them three times already when they got over 30% of my portfolio, and I won’t let them get that large again.

Second is Crowdstrike whose amazing results could only be overshadowed by something like Zoom’s. Their most recent quarter was their Q2. Here is what Annual Recurring Revenue (ARR) has looked like for the past four Q2s: $90 million, $208 million, $424 million, and $791 million! Just look at those numbers. Last quarter their total revenue was up by 84% and subscription revenue was up by 89%, operating cash flow was up from a LOSS of $6 million, to positive $55 million(!!!), free cash flow went from a LOSS of $29 million to a gain of $32 million, subscription customers grew 91% from 3789 to 7230, and added 1000 sequentially. They are a high confidence position.

Next is DataDog, the third of my big three, high confidence companies. Their most recent quarter was their June quarter results. In June they announced integration with and single-click correlation between Datadog and the AWS Amazon Elastic File System. In June they also announced low impact SaaS authorization by FedRamp. They also have Active SOC 2 Type II compliance, HIPAA log management compliance, International Organization for Standardization’s information security standard 27001, 27017, and 27018, Cloud Security Alliance’s Security, Trust & Assurance Registry and security controls. But the crowning piece was when they recentlyannounced a Strategic Partnership with Microsoft Azure. Datadog will now be available in the Azure console as a first class service. The improved onboarding experience makes Datadog setup automatic, so new users can start monitoring the health and performance of their applications with Datadog quickly, whether they are based entirely in Azure or spread across hybrid or multi-cloud environments. This is a big deal and no other monitoring company has it or is likely to get it.
Recently they acquired a company called Undefined, which puts them in a new space and lets them help developers check their codes BEFORE they get deployed in production. This can be a big deal for Datadog as it helps them engage with developers earlier in the process.
The conference call last quarter was very positive as I read it. Here were some results:
• Revenue was $140 million, up 68%.
• Adj Gross margins were 80% of revenue, UP FROM 75%
• Adj operating income was $15 million, up from a LOSS of $5 million
• Adj operating margin was 11%, up from a LOSS of 7%
• Adj net income was $17.5 million
• Operating cash flow was $25 million
• Free cash flow was $19 million.
• Dollar-based net retention rate was over 130%
• Cash was $1.5 billion.

Cloudflare (NET) is a newly very substantial 15% position in 4th place, as I put most of my Fastly money here, for reasons I’ve discussed on the board many times, and won’t repeat. Here are some results from the last quarter:
• Revenue of $100 million, up 48% yoy.
• RPO or Remaining Performance Obligations is $274 million, up 18% sequentially and up 58% yoy. (This is subscription revenue backlog).
• Adj gross profit was $77 million up from $53 million yoy
• Adj gross margin was 76.8% down slightly from 78.1% a year ago.
• Adj operating loss was $9.5 million, or 10% of total revenue, improved from a loss of $18.7 million, or 28% of revenue, a year ago.
• Adj net loss was $9.6 million, improved from a loss of $18.6 million in the second quarter of 2019.
• Adj EPS was -3 cents.
• Operating cash flow was $4 million, up from a LOSS of $3 million a year ago.
• Free cash flow was negative $20 million, compared to negative $17 million a year ago.
• Cash was $1.07 billion.
In two weeks this month, Cloudflare announced a staggering number of exciting new products. For more on this, see Stocknovice’s post: https://discussion.fool.com/cloudflare39s-crushing-it-34646557.a…

Docusign is a new position this month, in 5th place at 10% of my portfolio. The way I think about it is that, like Zoom, it benefited greatly from work-from-home, but while there is some worry expressed about Zoom falling back a little when the pandemic peters out, no business customer is going back to manual signing of ducuments, with Fedexing them back and forth over a period of days, when they can do it online. Just isn’t going to happen!

Before Covid, they averaged a stable 27,000 new customers per quarter plus or minus a couple of thousand or so. In the last two quarters they signed up 68,000, and then 88,000! How’s that for acceleration. They added 10,000 enterpise customers, up from 6000 the year before. (That’a up about 67% roughly. Revenue growth accelerated to 45%, up from 41% the year before and up from 39% sequentially. Billings growth went to 61%, up from 47%.

It’s to be noted that their eSigning business is what is carrying the business right now because it is so easy to sign up someone without any need for Docusign service personnel. However their platform is slower to take off during Covid because it requires a set-up and because it costs more,

Finally, Okta is a 5% position in 6th place. A lot of people I respect have sold out because they feel it’s slowing down, but I feel that it still dominates its category with no effective competition, management is very confident, and its numbers were very respectable. Revenue was $200 million, up 43%, subscription revenue was $191 million, up 44%.

But the biggest number was RPO or Remaining Performance Obligations, which was $1.43 billion!!! And up 56% yoy. (This is subscription revenue backlog, and that’s an enormous number, more than seven times this quarter’s alltime-high subscription revenue!)
Another thing I like about Okta is that, while it may not have gained as much as some of the others ytd (“just” 82% so far), it just keeps a slow grind upwards and never seems to have big drops like the other companies. That seems to say that the market has confidence in it.

And I have taken a tiny 0.7% position in Snowflake, just to put it on my radar.

FINISHING UP
Let me remind you first, that I have NO IDEA what our stocks will do next month. I’m terrible on predictions. But I know that the businesses of our companies will do just fine for the most part.

I feel that my portfolio is made up of a bunch of great companies. But that’s just my opinion, and I can’t say often enough that I’m not a techie and I don’t really understand what most of them actually do at all ! I just know what great results look like. I figure that if their customers clearly like them and keep buying their products in hugely increasing amounts, they must have something going for them and, as I’ve often said, I follow the money, the results. And I listen to smart people about the prospects of these companies.

When I take a regular position in a stock, it’s always with the idea of holding it indefinitely, or as long as circumstances
seem appropriate, and never with a price goal or with the idea of trying to make a few points and selling. I do, of course, eventually exit. Sometimes it’s after months, and sometimes after years, but I’m talking about what my intention is when I buy.

I do sometimes take a tiny position in a company to put it on my radar and get me to learn more about it. I’m not trying to trade it and make money on it, I’m just trying to decide if I want to keep it long term. If I do try out a stock in a small position and later decide that it’s not what I want, I sell it without hesitation, and I really don’t care whether I gain a dollar or lose one. I just sell out to put the money somewhere better. If I decide to keep it, I add to my position and build it into a regular position.

You should never try to just follow what I’m doing without making up your own mind about a stock. In these monthly summaries I’m giving you a static picture of where I am currently, but I may change my mind about a position during the month. In fact, I not infrequently do, and I make changes in the position. I usually don’t announce these changes until the end of the month, and if I’m busy or have some personal emergency I might not announce them even then. And besides, I sometimes make mistakes, even big ones! Don’t just follow me blindly! I’m an old guy and won’t be around forever. The key is to learn how to do this for yourself.

THE KNOWLEDGEBASE
Since I began in 1989, my entire portfolio has grown enormously. If you are new to the board and want to find out how I did it, and how you can try to do it yourself, I’d suggest you read the Knowledgebase, which is a compilation of words of wisdom, and definitely worth reading (a couple of times) if you haven’t yet.
A link to the Knowledgebase is at the top of the Announcements panel that is on the right side of every page on this board.

For some additions to the Knowledgebase, bringing it up to date, I’d advise reading several other posts linked to on the panel, especially:

How I Pick a Company to Invest In,
Why My Investing Criteria Have Changed,
Why It Really is Different.
Illogical Investing Fallacies

I hope this has been helpful.

Saul

283 Likes

I was just sending a link to The KnowledgeBase to my physical therapist who expressed an interest in learning about investing, and I started rereading the KB myself. I came across this valuable quote which seemed very apropos to the discussion we were having over Fastly.
Best,
Saul

Not accepting that an investment could be a mistake as it continues to go down is a dangerous error, and could be very expensive. A big problem investors have is getting attached to their previous decisions and not being willing to consider that they may have made a mistake. Some of the most angry I’ve seen people get on these boards is if you criticize a stock that they’ve fallen in love with.

I try to always pay attention to criticism of a stock, to reevaluate my investments, and to get out if it turns out that I’ve made a mistake, or if the situation has changed. Which is why I rarely end up holding stocks for 5 or 10 years.

Sometimes changing your mind in the face of new evidence, and selling when necessary, is the most important thing you can do! If you are wrong, you can always buy back in. I think that being willing to change my mind in the face of new evidence is one of the most important skills I have. And learning that it’s okay to change your mind when appropriate is one of the most important things I try to teach on this board.

Let me remind you that I sometimes make mistakes getting into a company (big mistakes, on occasion), but that I am willing to consider the possibility that I was wrong, and change my mind when I see that I actually was wrong. And that that is very important. Although I realize that I make mistakes, I don’t regret my decisions. I figure I did the best I could at the time. And sometimes I make mistakes getting out too. So what! I can’t be right all the time.

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Saul, out of everything I have learned on this board I think that this is absolutely the most valuable lesson I have learned here “Sometimes changing your mind in the face of new evidence, and selling when necessary, is the most important thing you can do! If you are wrong, you can always buy back in. I think that being willing to change my mind in the face of new evidence is one of the most important skills I have. And learning that it’s okay to change your mind when appropriate is one of the most important things I try to teach on this board”.
Actually, I have been so influenced by this lesson that I now apply it to almost everything I do in my life- not just stocks - it makes decision making easier for me as it removes a degree of anxiety associated with making decisions (big or small). Giving myself “permission” to change my mind has not only improved my investing, it has helped me far beyond that. It’s strange really, because the lesson is so simple, yet I needed to read it here on this board before it registered in my head and I could apply it in my own life.
With regards to investing, just recently I put this lesson into practice - after the FSLY announcement I was unsure - I didn’t need to think twice, I immediately sold my position, knowing that if my decision was the wrong I could always buy it back later. Incidentally I did not buy back FSLY, and redeployed the funds to DOCU and TDOC this week.
I always adopt a strategy that if I’m unsure about a stock I simply get out - then evaluate the situation while I’m out - and decide to stay out or go back in; simple but very effective. I find that the huge advantage of this strategy is that it allows one to act far more quickly because its the “uncertainty” which is the trigger to act - you don’t need to wait until the “story becomes clear” (the story only ever becomes clear long after the “uncertainty” in the story starts - I think FSLY is a good example of this where the “uncertainty” occurred at the date of the pre-announcement, but the story only became “more” clear some days later at the earnings date - and in that period the stock price had dropped considerably.
(Glad to hear that your shoulder has recovered!)

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Thanks MoneySpin for bringing up the fact that Saul’s wisdom has enriched us all in more ways than simply with investing. The layers deep Saul goes with how best to overcome the outdated hardwiring of our brains, Overweighting Loss-Aversion for example, is why I’ve read the knowledge base five times. Each time, I’m profoundly surprised by finding more of my own limitations in thinking. Limitations that if removed would have helped in my personal story, when looking back at prior losses, going back years.

I added your post to my ‘When to sell’ permanent file where the only other post is one from Stocknovice,
https://discussion.fool.com/just-to-mull-a-bit-more-i-find-that-….

Thanks,

Jason

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Headline version: Strong Beliefs, Lightly Held.

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Someone asked a question in an email about some of the figures I use in my End of the Month posts, as follows. I thought the answer would be helpful to anyone else who was puzzled:

I’m unclear how you could be up 173.8% YTD, but at 273.8% from where it started the year

If you start the year at $40, that is 100% of what you started with.

If you are now at $45, you are up 12.5% on the year, and are AT 112.5% of where you started.

If you are now at $35, you are down 12.5% on the year, and are AT 87.5% of where you started.

If you are now at $85, you are up 112.5% on the year, and are AT 212.5% of where you started.

Simple as that.

Saul

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