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.
