On relevancy and irrelevancy.

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On relevancy and irrelevancy

Can you find ANY historic precedent where, during a recession, highly valued growth stocks HAVEN’T declined substantially more than the broad market?

How is that relevant to anything if the investor in high growth stocks ends up making lots more money? To give a good example, from Jan 1, 2000 to Dec 31, 2008, factoring in both the Internet Bubble Bursting and the 2008 Crash, the worst in 80 years… my portfolio was still up 217%. That is more than triple, of what it was before the two crashes. Now read that again!

During those eight years the S&P dropped from 1469 to 903, a drop of 38.5%!!! Same time frame! A loss of 38.5% compared to a gain of 217%!!! So how is that quote above relevant in any way???

This is just a longer term example of my portfolio having gains of 45% last fall, while the market was bottoming at a loss of 13% for the year. And it wasn’t just me. I know of no one who had been on the board all year who wasn’t positive year-to-date when the “market” was bottoming at down 13% for the year. And plenty of the people on the board were up as much as me (45%) or more.

That is how one makes money in the stock market, investing intelligently in high quality growth companies. And don’t try to time the market. And don’t live in constant fear of the next big recession. If you invest well, you’ll be so far ahead in the long run, either before or after the recession, or both, depending on when you start, that the next recession simply won’t matter.

There are some people who haven’t invested since 2008 because they’ve been so afraid of the next big recession. My portfolio investing growth has been a gain of 15.6 TIMES since the end of 2008, while they have warned constantly about the next big recession, which they could see coming each and every year. Sure it will come, and if I lose 30% of my portfolio value, I’ll still be at 11 times what I started with. If the S&P loses just 20% they will be at 2 and a half times what they started with. Which would you prefer?

Saul

PS - I should clarify again, that my investing being up 15 times doesn’t mean I have 15 times more money. I’ve been living almost 23 years (since I retired early) on my stock market gains, sending my daughter to college and grad school, buying food, clothing, theatre and movie tickets, furniture, houses, an apartment, automobiles, maintenance, medical expenses that aren’t covered, insurances, paying taxes, donating money, eating out, everything. I have no other source of revenue except Social Security. No pension, no other revenue. Haven’t needed it.:grinning:

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I’m with you Saul. But sometimes jealousy breeds contempt or a simple lack of understanding almost to the extent of disbelief.

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Well yes, just so long as we all admit that the world and his wife are here to find growth, and invest, and find a real return on cash. Where else can they go? Everyone’s here! So the bull market roars on, juiced up whenever it tires a little and multiple expansion is the order of the day. The companies are very different; true, but they have fortuitously combined with the biggest credit-fuelled asset value expansion in history. I’m not complaining; I’m there with you (in a total 10% sort of way) but it is disingenuous to deny the entirety of this growth machine. It’'s very well known. We have a tiger by the tail.

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So the bull market roars on, juiced up whenever it tires a little and multiple expansion is the order of the day

Hi streina, yes some people would like to attribute our huge gains to the bull market roars on.

But wait! Since Jan 1, 2018 (15 months ago), as of last Friday the “roaring bull market” was up all of 3.6% in 15 months. That’s one Hell of a roaring bull market to blame our gains on (my 134.6% gain in the same time, for instance). I really think you need a better explanation.

Saul

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Saul, surely you are not still using the widows 'n orphans slow and steady S&P etc. for this wild ride!

Using IGV as a (much simpler and safer) proxy (90 holdings, weighted to the highly profitable including the usual blue chips and with a turnover of 12%) our own particular bull market is up about 37%. Not too shabby unless compared with your stellar returns Saul!

And you misunderstand me: I completely agree that we have never seen companies like this before, which deserve a significant premium price for their extraordinary sales growth rate. I am only adding that the market is juiced by an equally extraordinary momentum. The entire world is here looking for growth, and finding it. The extent that has played a part in our ongoing success should be acknowledged.

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Saul, surely you are not still using the widows 'n orphans slow and steady S&P etc. for this wild ride!

What one compares to depends on the purpose of the comparison. If the question is “how am I doing compared to the market (as a whole)?”, then something like the S&P is perfectly appropriate. If the question is, “how am I doing compared to this sector as a whole?”, then an ETF corresponding to the sector is perfectly appropriate. If the question is “could I do better with an ETF than with my current portfolio?”, then any other ETF is appropriate … with the caution that one has to be aware that the same ETF might not be the right ETF for all time.

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How is that relevant to anything if the investor in high growth stocks ends up making lots more money? To give a good example, from Jan 1, 2000 to Dec 31, 2008, factoring in both the Internet Bubble Bursting and the 2008 Crash, the worst in 80 years… my portfolio was still up 217%. That is more than triple, of what it was before the two crashes. Now read that again!

Saul, my impression from reading your KB was you used to pay a lot of attention to stock valuations (p/e) in that period. That would make that a value or at best GARP approach unlike the pure growth (valuations doesnt matter approach you have now). Correct me if I am wrong. I do like your flexible investing style. SAAS is in vogue now, might as well ride it till it lasts.

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Saul, my impression from reading your KB was you used to pay a lot of attention to stock valuations (p/e) in that period. That would make that a value or at best GARP approach unlike the pure growth (valuations doesnt matter approach you have now). Correct me if I am wrong. I do like your flexible investing style. SAAS is in vogue now, might as well ride it till it lasts.

Hi Texmex, I’d suggest you take a look at the article in the side panel called Why My Investing Criteria have Changed, and also Why It Really Is Different. I’ve done my best to try to explain it. For instance, you’ll learn that SaaS isn’t “in vogue right now”. It’s fundamentally different in a lot of ways.

Best,

Saul

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I have read it Saul. I understand the value proposition of SAAS. The SAAS business model has resulted in many companies with pretty impressive (50%+/y) revenue gains. At some point growth of the current crop of companies will slow. Do you think the SAAS business model will continue to throw up new companies with 50%+/y growths for the long term i.e. even after the cloud migration has saturated?

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To be clear just like the internet threw up many wonderful high growth investment opportunities I see SAAS doing the same now. But at some point when the cloud migration slows it has to slow isn’t it? It could be 10 years from now. That is what I meant by SAAS “in vogue”.

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Salesforce, Amazon, Netflix, they are all SaaS, they are all hug, and how fast are they still growing?

You tell me.

On the other hand Veeva is not growing so fast and yet it still has a very large multiple, particularly for its growth rate. I have not done the calculation but I would wager Veeva remains at the top of or close anyways for multiple to growth rate.

Tinker

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At some point growth of the current crop of companies will slow. Do you think the SAAS business model will continue to throw up new companies with 50%+/y growths for the long term i.e. even after the cloud migration has saturated?

All growth must eventually stop as illustrated by the “S” curve. The current crop of SaaS outfits have a limited lifespan, five, ten, twenty years, before they saturate their markets and growth slows to the “vegetative” rate, the rate at which net new customers enter the market. This is true for any growth stock.

If new product or service offerings make an appearance there will be new fast growing SaaS outfits to invest in. It’s hard to imagine things that have not yet been invented. :wink:

Denny Schlesinger

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To be clear just like the internet threw up many wonderful high growth investment opportunities I see SAAS doing the same now. But at some point when the cloud migration slows, it has to slow doesn’t it? It could be 10 years from now.

Hi again Texmex,
Now that I could see! And that way of describing it makes much more sense than to say “SaaS is in vogue right now”. Good explanation of what you were thinking. In 10 years, a lot of our companies may have become mammoth category crushers, but there may not be much growth left except new bells and whistles, as nearly every enterprise in the world will have their basic solutions by then.
Saul

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