Nothing is constant except change itself.

So I apologize if this is off-topic, but I don’t think so. It goes directly to how we evaluate companies.

Over the last few months I have noticed a consistent lack of satisfaction with company results overall. Bear is (and has been) in higher levels of cash for a while, Saul seems to put the words “mixed results” in more and more of his company summaries, there have been complaints about companies being sold because one parameter or ratio doesn’t meet preconceived notions of greatness.

All of this has led me to try think about what is changing, because it seems to me it is. I have come up with a few potential causes.

1- we have gotten too picky/greedy:
This is self explanatory and one I would guess Saul favors. There are many quarterly ratios that get compared and if only one is down slightly if feels like some people are almost fighting to be the first one out so that they can say, “I’m out!” 20 minutes after an earnings report comes out. I understand that you don’t want to overstay your welcome but sometimes this seems way overdone.

2- the business environment is changing (ie recession and/or the “Covid environment” is receding):
This one is a little more subtle, but is somewhat related to the first. It seems that there is very little discussion on these boards about the macro environment in context with results. Even the greatest companies are affected by the macro environment. In other words, if a recession is coming and growth rates are dropping because businesses are pulling back spending, but the growth is still strong and likely to pick up again once economic growth picks up, do you really want to sell? Maybe, if you really want to try to be nimble, but I am not sure that I would. If the larger business trends stay in tact I am not sure you get in and out to your advantage by trying to predict when a recession will start or end. My favorite holding period is forever ( ha ha, stolen quote)

3- The business world is coming out of a broad sea change. I think this is the most interesting one and probably the most controversial one. Here, I am thinking very broadly. I have been on this board since the early days. Back then, Saul owned stocks like Skecthers, and single family home builders (forget the name) who were carving out market share. These companies were growing 20-30%, made products and had normal margins, it almost seems naive to think about now, but that is the truth. The growth of the cloud and the advent of SAAS software companies to support it has created an opportunity in the investment world. Saul was very early in recognizing this and his amazing results over the last 4-5 years are a testament to this. He found companies growing at huge rates, with growing gross margins, that were selling at cheap prices because they were not yet making money. Salesforce and Amazon were the initiators of all this but then the need for different aspects of this shift has created first movers in multiple spaces. I am sure there are more spaces out there but I am wondering if many of the first movers have been created. The Snowflakes, Cloudflares, and Datadogs have first mover advantages and I would expect them to keep growing and broaden their offerings to to take advantage of this size/first mover advantage. But if the theory is correct, I would expect growth rates to moderate, certainly at much better growth rates than a few years back but maybe the 60-80% growth rates we have seen are unreasonable to expect to continue. As an example, buying Amazon when it was growing at 30-40% for a couple decades turned out to be a pretty good investment and once they got to certain size, other on-line retailers had a tough time competing. They just won by moving into broader and broader categories.

Anyway. There is a lot more here I could say but I’d be curious to hear other opinions. Maybe the world has changed forever, maybe not. To be very clear, I am in no way saying that any of this is dying or in some way related to the dot com type comparisons. I think the world has changed and this area is the future. The question is whether we are moving out of a “startup” phase of this business cycle to the “high growth” phase and that we need to be cognizant of this when looking for the best companies to own.

Randy
Sorry for the long post…

127 Likes

Thanks Randy, excellent questions with a lot of great context. If other seniors of the board (Saul, Bear etc) can chip in and give their thoughts, that will be great. I also think that the business environment is not the same and we might be over-expecting if we continue to expect 60%-70% growth. I guess the only companies getting that sort of growth TODAY are BILL and SNOW.
Looking back at Salesforce, their growth rate dived in 2008-09 before bouncing back up. So, shouldn’t we expect the same from CRWD, DDOG, MDB’s etc? or is it prudent to sell them in the face of slowing growth and get back in when they show signs of acceleration?
Thanks. Just tying to learn from the experiences of those who have seen inflationary/recessionary periods like this before. I sure, havent!

All the best to All of us!

2 Likes

We are in a different market cycle now. The bond market is entering a bear market; market cycles in bonds typically last 25 years or longer, and therefore, high-growth stocks will never see the past high prices. The bull market in bonds is over, and interest rates affect the value of future cash flows. These companies with little to no cash flow and top-line solid growth have been re-rated and will not see the past valuations. I own many of them, so this is not said to create a stream of negative posts. If you follow Grant’s Interest Rate Observer, he makes a case for the new bear market in bonds, which affects the value of equities.

3 Likes

At my first business in the late 1960s my partner would say, “The only constant around here is change.”

Bear is (and has been) in higher levels of cash for a while,

This is entirely backward. Take a page from bears in the wild, they put on fat in the Summer to use in Winter when pickings are slim.

One constant is that overtrading is a bad idea. One needs to decide if one is an investor or a trader. I’m both with different parts of my portfolio, I don’t overtrade my long term positions. ‘Doing nothing’ is very difficult and the only way to do it is to have confidence in one’s companies otherwise we react to all the noise the market generates. If you want to meet Fools who pay attention to noise, visit the METaR board, 99% of the “Macro” is noise for personal portfolios!

About Saul’s method, to generate 200% gains in good times you have to accept 50% losses in bad times, that’s what volatility is all about. During good times, when making 200%, don’t be a hog, take some cash off the table for the Winter that is sure to come sooner or later. Then you’ll have more peace of mind in the lean times.

Saul does not tire of repeating, “Don’t do what I do. Do your own research.” This is a golden rule because if you don’t do the research before buying you won’t have the confidence to hold in bad times. Not trading on ‘tips’ is age old advice, the tipster wants you to buy but he won’t be around to tell you when to sell. You are on YOUR OWN!

Use Saul’s board as a source of leads to investigate, not as source of tips to buy.

Denny Schlesinger

75 Likes

We are in a different market cycle now. The bond market is entering a bear market; market cycles in bonds typically last 25 years or longer, and therefore, high-growth stocks will never see the past high prices.

No offense but this is noise for individual investors. While true that these cycles exist the best growth stock is still the best growth stock even if its growth slows because all others (excluding a few exceptions) also slow. MongoDB is still the best in class no mater what bonds do!

My favorite chart to back growth stocks, “Tech heavy NASDAQ vs. S&P 500.” Growth beats value in the long run despite the volatility. The one caveat, be careful, buy only good companies, don’t use margin, and put away some cash while the bull is roaring. Then the bear won’t be so fearsome.

https://bigcharts.marketwatch.com/advchart/frames/frames.asp…

Denny Schlesinger

27 Likes

No disrespect to any posters but before this gets off track and definitely becomes off topic.

My question isn’t whether we are going into a recession or whether we should sell out of risky, high growth stocks, it is whether the stocks we should be looking for (and expect to find) has changed or at least what we should expect from their results is changing with the business world.

A very different question than the recession question.

Respectfully
Randy

11 Likes

I disagree somewhat with the premise that we have become too picky. While my portfolio has been slaughtered over the past year alongside most the rest of you, and I do admit, for months I’ve been brooding about it, I do try to not let emotions sway my decisions and I stick with my approach.

I try to invest in companies that grow fast AND are on a path to sustained, large cashflow.

For example, I am not in MNDY and S, as many members of this board are, because they lack a credible path to large cashflow as I see it. I do think they MAY achieve strong cash flow and once I am convinced they are on this path, they become candidates for me.

Lets go through earnings in order of my largest positions coming in to earnings.

DDOG - DDOG continued to post high growth in revenues and it reported 72M in operating cash flow for the quarter. You have to be careful with quarterly cash flows as there is a lot of variability in cash expenses and collections. Over the trailing 12 months though DDOG has had strong positive operating cash flow. I was a little disappointed in the revenue guidance for next quarter, and so I trimmed my position about 15% for other investments. In general I am happy with DDOG and plan to keep holding them (and may increase them if the stock price creates a larger bargain).

SNOW - SNOW smashed their earnings. Gross profit was up 95% year over year, even though revenue was up 83%. It had 64M of quarterly operating cash flow (down sequentially but up big from last years -6M in operating cash flow). I increased my holdings in SNOW before earnings and it briefly became my largest holding post earnings.

BILL - BILL is one of more risky bets in my portfolio. I am not sure whether BILL will generate large operating cash flows. But its growing like a weed, and unlike some, it has done a good job in synergistic acquisitions (this is not an easy thing). It burned 18M in cash flow over the last year and I was disappointed that the most recent quarter it burned 10M alone. I am willing to give BILL the benefit of the doubt on cash flow right now. But I want to see more progress in this direction in coming quarters, or I’ll exit. We are a customer and we love it.

CRWD - CRWD reported later in the cycle and the sentiment had turned bearish by the time they reported. I really liked their report and their cash flow is enormous (a bit under 1B in the last 12 months). I thought the market was overreacting and I didn’t change my holdings and I don’t plan to sell. Its my second favorite holding after SNOW and I’ll likely add to it.

NET - NET executed well and like clockwork logged another 50%+ growth quarter. I love the company. Matthew Prince recently paid lip service to prioritizing cash generation. But I was disappointed they only generated 38M in operating cash flow this quarter. I sold my entire position in the runup after they reported earnings. I worry that NET is just more cash intensive than the other companies I hold. I will probably buy back in at some point if Prince delivers on his word AND they can continue growing at faster than 45% rate (btw, I am skeptical, I suspect their growth will dip).

MDB - This quarter was the final straw with me in MDB. I was really disappointed. On revenue growth they guided down for next quarter and they burned 44M in operating cash flow. While I like the technology (we use it and love it), I am not liking the business as well as the others. I sold my entire position. I will continue to watch them, but I’m a skeptic for now.

ZS - hasn’t reported yet. I feel like I should be into this company in a larger way. I am worried about competitive threats but the numbers haven’t revealed that as of yet. Revenue growth has been over 60% last 3 quarters. Quarterly cash flow has been like clockwork for this company. I will probably add after earnings. I feel like the street is never going to be satisfied with anything in this current environment, so adding before earnings is risky.

TTD - I’m with Bear, this is a machine, and I jumped back in as soon as I could when the “stuff” hit the fan over this down cycle. Its a prodigious revenue grower AND cash flow machine. It should probably be in my top 5, but I continue to believe more opportunity is there for faster growing companies. My only gripe is I wish they could grow a bit faster. They may get bounced from my portfolio if their growth rate decelerates into the 30s% consistently.

So in total, I thought NET and MDB deserved decisive action that was “not too picky”. DDOG earned its trim. SNOW, CRWD, and TTD merited buying more. BILL I’m being patient with, which may be wrong. ZS is on deck.

Watch list:

  • I need to be in ZI, and will likely re-initate a position, also good report and cash flow, but it gets no love in my opinion. Growing around 60% and massive, continuous, cash generation.
  • I want in STNE and especially MELI; the market hates STNE; MELI is just wild to watch their amazing business performance. These are different companies than most here invest in. I’ll be adding.
  • I liked S’s progress on losses and I’m watching MNDY to see if they can meet my criteria. For now, on the sidelines with them.

Good luck to all!

Rob

74 Likes

A very different question than the recession question.

This will get pulled I assume, but why don’t we ever factor in the initial valuation of company when starting investment?

2017-2018 we seemed to find a lot of sub-$5b companies with high growth rates that were favorites around here: MDB, AYX, TTD, OKTA, TWLO, ZS, and others. The P/S at the time (from recall only) seemed to largely be 20 and under.

As the focus and spotlight on SaaS/cloud grew, the next group of companies with great metrics were debuting on the market in much higher valuation multiples. This would be companies like CRWD, ZM, DDOG, SNOW. Market caps typically above $10b and with P/S closer to 30/40+.

Since hyper-growth is just plain hard to keep up indefinitely, it of course makes sense that some of the best stock price appreciation will be from a lower mkt cap and lower multiple.

Notice I have said nothing about how the companies themselves are actually doing. Just talking about the relationship of stock price to valuation. You want to buy at X and sell at a much higher Y. Pretty simple.

Seems like there are 3 things that can slow a companies growth rate:

  1. Macro backdrop (aka not the company’s fault - just a bad environment at moment)
  2. Size - hard to keep growing at a random number like 60% forever. Not only is the earlier low-hanging fruit gone, but growing that much from a $2b+ runrate is obviously a larger feat than at $200m runrate.
  3. Company stumbles in execution.

I think a company like DDOG runs into #1 and #2, as they are executing.
So if macro environment keeps their high-multiple stock price under pressure for another 6 months or a year, what happens if #2 starts to just naturally kick in as well or as the macro environment improves. Point is, if the game is simply buy a stock regardless of valuation as long as it is maintaining or accelerating growth, it seems by definition that most of those are going to be fairly short-term windows of opportunity.

Thus we see OKTA, TWLO, ZM, DOCU, SQ, and many others all still executing and growing, although slower, yet stock prices have reverted back to 2018/2019 levels. Why should DDOG not eventually do the same path as ZM? It will still take another 2 years of 60% growth for DDOG to match ZM current revenue runrate. Yet ZM is about 2/3rds the mkt cap.

It all comes down to timing the growth momentum perfectly, but becomes harder when #1 shows up and ruins the party.

Dreamer

26 Likes

Hi Randy,

You’re clarification post cemented my belief that I did understand your first post well. I don’t believe I’m able to answer other than to say, I am looking further out with regard to my time horizon. This is due to my belief that The best of the best companies are growing into behemoths and along with this their revenue growth will moderate.

Regarding MongoDB’s decline in revenue growth, I believe this is more due to their becoming consumption based and before anyone points to Snowflake, SNOW has had more of dip. I’m not going to say it’s solely due to their providing greater efficiencies to their customers, as much as I trust Snowflake Management. IMO, it’s likely simply explained by the fact that, with usage based models, there is going to be some dreadful (if I’m not going to say I can predict macroEconomic factors) lumpiness in revenue growth patterns.

~8% MOngDB position, and holding.

Best

Jason

4 Likes

Hi Dreamer,

Thanks for the clarification in your investing style, Notice I have said nothing about how the companies themselves are actually doing. Just talking about the relationship of stock price to valuation. You want to buy at X and sell at a much higher Y. Pretty simple.

I personally am only interested in actual company performance; which when a company has a usage based or more so a consumption based business model, the decisions that make most sense to me will be very differnt when compared to yours.

Best,

Jason

2 Likes

The board is certainly extremely picky and within one area only. So am I.

But there are dangers. Short term, my software-only 401k, even though it includes ETHE, has lost a lot less than my direct holdings or the ports posted here. So a total port of like 50 software companies has significantly outperformed concentrated ports in the same market corner. I wish I could transition the 401k to individual holdings now, but I am not allowed to.

Long-term–and StockNovice and I went over this a year ago at the Mongoose–all this focus on individual companies and nothing else is fine…until it is not. Monetary backdrop is primary, sector is secondary, and company performance only comes third. Sure, we cannot control 1 and we here believe that SaaS is IT, but just because all we can reasonably gauge is #3 and it has been chosen to ignore #1 on this forum (for a good reason because it leads to market timing and endless speculations), does not make #3 all that matters.

Since I think that inflation is a black swan because unprecedented tech advancements are deflationary and because population aging is deflationary, I have done nothing and suffered the same kind of losses in my direct accounts as anyone else here in 2022.

But if I thought that interest rates can be sustainably high for a decade or more, then I would not be 100% SaaS.

Whether we like it or not, big institutions make decisions based on discounted cash flow analysis that is explained in MBA textbooks. And if one believes that high inflation and high interest rates can last a long time, then one should not be in what the industry considers “long duration” assets. It would not matter, for example, how great SNOW is if the acceptable valuation in macro environment X happens to be far lower than the one at which it IPOed.

In short, whether we like it or not, concentrating into one sector is also a long-term bet on a particular macro and the associated monetary policy.

15 Likes

I’ve been thinking about these things too, Randy.

My best guess is that the type of stocks will remain the same. I think a key feature to this type of investing (that I frankly am still trying to learn from and am not actively participating in because I know I’m not competent enough to do it) is the concentrated portfolio. With a concentrated portfolio you ask some different questions than you do with a larger or “balanced” one. You are always asking, “is there a better place for my money?”

I’ve spent a lot of time the past week and a half reviewing the past couple years of this board’s posts and what sticks out to me about Saul’s sells (where he gets out of large positions, not where he’s trimming or getting out of try out positions)is that he usually sells in relatively slow increments and it’s not unusual for him to sheepishly say something to the effect of, “This is a good company and it will probably still do great but I just think I have better places for my money.”

In other words, Saul is rarely selling out of stocks that he thinks stink. These sells are often difficult decisions because he still likes the company. I think he is more decisive and makes these decisions easier on himself because while he can’t convince himself the company stinks or the share price is going to tank, he can convince himself that he has found a better stock to put the money in.

The advantage of this is you don’t get caught up in a lot of unanswerable, theoretical arguments like, “Can Zoom be a trillion dollar company in 7-10 years?” (At just about Zoom’s peak, Tom Gardner wrote on the Zoom board he thought there was a better than 50% chance that Zoom would be a $1 Trillion market cap in 7-10 years). The mind can really get caught up in all sorts of arguments that can convince you of all sorts of things. But when you put things in stark terms that recognize, I only have so much money, to get more money I need to sell stocks, are the stocks I have the best or is there anything better? - then worrying about what a company might be able to do in 5 years time if x,y, and z happens falls to the wayside.

Another reason I am a Saul board fan and student but not yet a practitioner is that these “S-Curve” companies have stocks that often perform more like “&”.

The history of Zoom’s stock is instructive to my point. In June-ish 2020 there were posts on this board with articles claiming Zoom was a wildly over valued bubble. The share price was $250. Saul highlighted these warnings as evidence it was NOT a bubble and would go higher. He even reminded readers in several of his monthly portfolio updates. Saul was right as it went to $550. The others were right also though as today Zoom would need to more that 3x just to get back to $250 - and this swoon is not because Zoom’s business is struggling or the CEO went to jail. It has no debt, $5.5 billion cash, new products coming out and is pouring money into R&D. Could you really have asked for more at this point three years ago?

The board has made a lot of money not just on Zoom but stocks like Okta, Twilio, Upstart, Peloton, Fastly - all different companies with different stories and different futures but looking at that list now it’s hard to believe anyone ever made money on those stocks.

Over the past few years at least, “Saul Stocks” do no reach a zenith and then flatten until another growth spurt or settling into “value / dividend payers”. These stocks fall hard. Their trajectory seems to include a gray area where they become “way overvalued” but it would be foolish to sell because they are still performing - growing rapidly - but something or a few things happen and then the market begins to see, oh wait, we overshot this by a lot. You could say, “well, yeah, that’s what a bubble is” and there’s truth to the fact we’ve all been investing during a bubble the past few years but I can’t help but think that if COVID had never happened Zoom would have a lot fewer customers, a lot less money, and a higher market cap just because its growth and apparent future growth had not yet crested.

I think David Gardner really popularized this idea that if you pick a strong company that’s growing fast, don’t worry about the valuation metrics. And I think that works very well so long as most people still are worried about those valuation metrics. Once no one cares about them anymore then as long as a stock is growing 70% year over year and the quarterly sequential growth is on track, then rock n’ roll. But you better be on top of things, know what you’re doing, and be clear on what you are judging the company’s performance on and do it ruthlessly, because when the music stops the problem isn’t just that it could take a huge hit - the problem is that it could take a long time to recover - or never recover at all.

**Saul and the hall of famers here are not trying to avoid losses or market time or anything like that - that’s not my point. They are comfortable with stocks going down. The point though is that they are getting out of stocks after they’ve made gains and before those stocks are down for the count because they are very smart and discriminating about choosing those companies that they think are performing the best in the market. They have patience for market volatility and their stocks going down. They do not have patience for companies not performing the best.

So again, I think if you’re an investor who is really on top of things and really has a strong set of his / her investment values then there will continue to be money to be made in the high performing stocks Saul and the board find the best. After all, if you started “Saul investing” at the end of June, you’d have a heck of a lot gains right now, even with the past few days of brutality.

27 Likes

For some, this investing style includes selling almost immediately when a company’s metrics show signs of weakness and moving that money into a company whose metrics are maintaining or accelerating. As Randy said, many are out before the conference call even starts.

These days we’re exclusively sticking to “mission critical” companies. Almost by definition, these companies aren’t hiding under the radar. The market knows them well and their valuations reflect this. This means we’re always invested in companies with the highest valuations relative to the rest of the hyper growth SaaS basket. In this macro environment especially, higher valuation means more scrutiny and likelihood to get pummeled on any sign of weakness. It also means less immediate upside because the valuations are already rich.

Tough going out there.

1 Like

Jason wrote:

"Hi Dreamer,

Thanks for the clarification in your investing style, Notice I have said nothing about how the companies themselves are actually doing. Just talking about the relationship of stock price to valuation. You want to buy at X and sell at a much higher Y. Pretty simple.

I personally am only interested in actual company performance; which when a company has a usage based or more so a consumption based business model, the decisions that make most sense to me will be very differnt when compared to yours."

You of course took this out of context. I was stating that to invest in a company because it is doing well, without any care or concern as to its valuation/mkt cap or general macro backdrop, is not how I go about it. I still focus on company’s performance. Just not in a vacuum.

A couple posts after mine, this was written, which I think does a nicer job of describing one of my points about ZM then/now vs DDOG now/future:

“The history of Zoom’s stock is instructive to my point. In June-ish 2020 there were posts on this board with articles claiming Zoom was a wildly over valued bubble. The share price was $250. Saul highlighted these warnings as evidence it was NOT a bubble and would go higher. He even reminded readers in several of his monthly portfolio updates. Saul was right as it went to $550. The others were right also though as today Zoom would need to more that 3x just to get back to $250 - and this swoon is not because Zoom’s business is struggling or the CEO went to jail. It has no debt, $5.5 billion cash, new products coming out and is pouring money into R&D. Could you really have asked for more at this point three years ago?”

Dreamer

8 Likes

Dreamer,

You asked why should DDOG not eventually go on the same path as ZM?

In ZM’s recent report they showed 8% YoY revenue growth. They guided for lower sequential growth for next Q. Their FY23 guide implies about 7% growth vs FY22. Put aside the basically non-existent growth the business is showing, it has 2 giant trillion+ $ companies bundling their main source of revenue for free.

Datadog does not have any of these issues. The hyperscalers are partnering with them and helping sell their product. Is Datadog’s growth going to slow down to 8% range? If it does there will be something seriously wrong in the economy/world.

The people on this board were able to spot issues with that group of companies (ZM/TWLO/OKTA/etc.) pretty earlier before the market caught on. Could something happen that breaks the DDOG thesis? Its possible, but not likely. Have to be able to spot when the story changes.

Bnh91

11 Likes

Even though PDev12 is a self-proclaimed “fan” rather than practitioner of the method here at Saul’s, he/she seems to get it.

So again, I think if you’re an investor who is really on top of things and really has a strong set of his / her investment values then there will continue to be money to be made in the high performing stocks Saul and the board find the best. After all, if you started “Saul investing” at the end of June, you’d have a heck of a lot gains right now, even with the past few days of brutality.

In other words:

  1. There are good times and bad times. Ups and downs. No one ever said differently. Some just thought so because of the crazy from from like April 2020 to October 2021.

  2. Things are always changing. And we need to change with them. Because companies are moving targets. We never know what the future will hold. Look, if you can tell me now what the next Amazon is, please do. I’ll buy it and go on vacation for the next 10 years. It’s not that easy to make 25% returns folks. So we adjust. Constantly. No one here has claimed to be prescient or always right. In fact, we make a LOT of mistakes and still do really well. Why? Because the market is a great way to make money. Because a lot of businesses do well. But if you want to know what the next “trillion dollar company” is, good luck. No disrespect to Tom Gardner, but that’s just marketing. We follow companies. Sometimes we ride one for years as it grows from tiny to huge. Sometimes we realize it’s not what we thought. We change our minds when the facts change, or when someone shows us we were wrong.

To Randy’s original post, the “environment” is always changing, too. To what? What will it be? Well, I don’t think it’s a monolith…I think it’s a million things: interest rates, how companies (and their customers) are dealing with a strong or weak economy, international trade, political pressures, etc etc etc. All this is off topic because it’s all heated, emotional, unknowable, subjective, and basically a dumpster fire of FUD. We simply never know – even the people who think they know most. Which is why we stick to following companies – pursuing the best ones. So in a way it doesn’t matter what the environment is, we simply have to find the companies that are succeeding in it.

Maybe the best days with most SaaS companies are in the past. If so, we better find something else. Again, the strategy is the same: Try to find the best companies, and be willing to change your mind and admit when you get it wrong.

This is not a rigid unflinching strategy; it is pragmatic grown-up common sense.

Bear

PS – The problem with OT threads like this is that someone always takes it more OT than the original post. I’ve weighed in as a board long-timer. Please can we end it here? (Unless Saul wants to add this thoughts)

69 Likes

Hi Bear, I disagree that the original topic was Off-topic, but unfortunately it doesn’t look I got one answer to the actual topic. Which was that the business environment has changed (Not Stock Prices) and expecting to find new “AYX” type companies growing at high rates and cheap prices is maybe unrealistic. The cloud is here but the land grab is starting to pass with true growth companies taking over. Now comes the growth phase.

Not sure if that is true but feels like it to me.

Sorry if my post brought out the valuation/recession hawks and totally bypassed my intent.

The discussion would be worth it if we could actually have it. Not sure I saw one real reply to it. Unfortunately, even yours. Too busy chastising the off topic people.

Randy

6 Likes

Hi Randy - Now that you have rephrased it, I think there is an interesting on topic question in there but I also think it was easily confounded and distracted by expectations and recession.

If what you are asking is what or where are the next clutch of early stage hyper growth companies that are at the beginning of the S curve in the SaaS world as there seem to be very few IPOs or early stage triple digit growers available and instead a predominance of mid S curve maturing growth companies that are on the verge of exiting hyper growth and becoming steady 30%+ growers then that might have been much more relevant.

To a degree that is what the portfolio reshuffling towards SentinelOne and Bill and to a degree Snowflake has been trying to accommodate and maybe why folks like Bear are prepared to consider The Trade Desk which is certainly no longer a triple digit or guaranteed hyper growth company but a super strength gorilla in the maturing part of its S curve but looking at an unasailable position in one of the largest TAMs out there ($750bn+) with a decade of high growth potential and already monstrously profitable.

What or where are the next opportunities behind SentinelOne and Bill? Good question.

Ant

15 Likes

Hi Ant, I think you almost have it, except that I am even asking if it is reasonable to expect that there are many next generation triple digit growers. (Except very small companies).

The truth is that I think Saul would admit that just a few years ago he would have been very happy with a 30% grower that meets the criteria you want in a company (IE, large TAM, large gross margins, etc.) Is it reasonable to think that we will continuously find triple digit growers going forward? Certainly that has not been the norm in the past.

In any event that is the question and maybe the more productive path is to fill at least part of your portfolio with longer term 30% growers, like TTD and PANW and MELI, etc.

Randy

6 Likes

Randy,
You make good points, but Saul has his way and history shows it’s not holding longer term as growth begins to slow. This board isn’t about buying and holding the next Amazon through the ups and downs, it’s about owning the first few years of a fast growing company, regardless of it being the next Amazon or not, and moving on.

I bet Saul and most that follow won’t own any of the stocks they own now in 5 years. Do they own any of the same names they owned 5 years ago?

If your argument is that the best case going forward is to own the TTD, PANW, and MELI’s, then I think that’s all you needed to start with, and at the same time it’s not what this board does, but you know that. Not Sauls method.

And this is coming from someone that still owns AAPL after 19 plus years, who agrees with what you are saying. It’s just not what Saul’s method does.

I think owning the next possible 8000lb gorillas like a MELI or a TTD, or an ENPH, or a NVDA should be part of a more balanced portfolio, but then that wouldn’t be Sauls world any longer. It would be your world or my world. I prefer this board staying Sauls world.

TMB

12 Likes