On the value of selling

[SaulR80683]

In June I wrote about Celsius “The unexpected large fall in revenue growth slapped us in the face with how much their growth is dependent on Pepsi, and under Pepsi’s control as well.”

I sold out in early July at about $60 “because of the uncertainty”. (It had hit $95 or $96 a month earlier, in late May, beginning of June).

I know that there are some people who would “double down” at a “bargain price” of $60, and for sure wouldn’t sell, and would wait for the stock to return to its previous highs, but that has never been the way I invest. I add when companies are going up and verifying my decision to be in them, not when they have dropped a huge amount for good reason. (Please read the section on when I sell in the Knowledgebase).

Sometimes selling is the most important thing that you can do in investing. I just happened to notice that CELH closed on Friday at $28 plus, down over 50% from where I sold it, and hitting a new low. That means even a 100% rise from here wouldn’t even quite get back to where I sold, and tripling wouldn’t get it back to its recent highs. Consider also the opportunity cost for those who stayed in or added more.

Saul

[othalan]

Hi Saul,
A question about your investment in Celsius. I completely agree with the above statement on selling, but I am curious about why you bought the stock initially and how that decision relates to this drop in price for CELH.

My limited experience (at least compared to you ) has led me to a high degree of skepticism for any stock that touches on fashion or food trends. There is unquestionably a window of opportunity to where money can be made, but these stocks seem to come with an inevitable large drop and/or years of stagnation.

Has your more extensive experience seen this risk to fashion and food trend investments? Or am I being blinded by a small sample of my limited perspective? Or do you even bother to consider risk, on the theory of looking at current performance rather than prognosticating about the future of the stock? I would appreciate any insights!

[dlbuffy]

Hey othalan, not Saul, but I think I see both sides. I agree with you that fashion and food are two things I do not invest in. I never understood them and I only ever see them as “trends”. A million years ago the MF tried to have members invest in so many fashion brands (not sure what the do now, as I am no longer paid member) but I watched every one of them bomb. They also touted things like starbucks, yum brands, krispy kreme, etc…none of them have shown any kind of investing strength to me over last 15-20 yrs.

But, on the other hand, Saul has never posted about specific categories of investments. He focuses on a set number of parameters, and I appreciate that he does seem to apply them across industries. If the numbers look good for a time, then he invests for a time.

My compromise is that I follow both rules in my investing. No food, fashion, airlines, or banks in my portfolio. I have tried them all, but they never work out for me…hello stitchfix, jetblue, BAC… But then I apply Saul numbers and research to the ones that remain.

I never followed the group into Celsius, but the story was pretty strong when it was presented here. HUGE growth rate, taking share, adding new shelf space, cooler better advertising, etc. Then they had expansion internationally and they landed a bunch of distribution systems.

Then the concern about Pepsi reducing its inventory started to show up. That was the change in thesis for Sauldom stocks.

(My personal warning was that I tried a Celsius at a Costco sample stand…it was HORRIFICLY bad. Gross, I had no problem skipping this one at that time…lol.)

Anyway, I am writing this out to work through my own thoughts, that seem to apply to where you sit as well. I agree with both of you.

[SaulR80683]

@othalan

…but I am curious about why you bought the stock initially and how that decision relates to this drop in price for CELH.

Hi Othalan, that’s a very good question. I’d have to say that it was a mistake and I should have known better, but I was seduced by the factors that dlbuffy pointed out:

@dlbuffy

but the story was pretty strong when it was presented here. HUGE growth rate, taking share, adding new shelf space, cooler better advertising, etc. Then they had expansion internationally and they landed a bunch of distribution systems.

But then when we were presented with how dependent on Pepsi, and how unreliable Pepsi was being, and how unreliable the alternate soda business was as a whole, I quickly exited.

I think that I roughly broke even on Celsius, but it’s irrelevant to the discussion as I would have sold my position when I did, no matter if I was up or down…

Saul

[wpr101]

@SaulR80683

I’d have to say that it was a mistake and I should have known better, but I was seduced by the factors that dlbuffy pointed out

I am surprised to hear that you view the investment in Celsius as a mistake in retrospect. The stock got popular on the board in the summer of 2023 when the stock price was around $50. In May of 2024 when they first reported the inventory issues with Pepsi the stock was at $80, and selling on that news netted a 60% gain in less than a year.

Just following the methodology in your Knowledge Base of buying on the growth numbers and selling on bad news yielded a strong result. As you mention though, those that ignored the inventory news or assumed Celsius would recover next quarter, saw much poorer results, magnified by the opportunity cost of not being in other companies which were still growing.

[othalan]

Thank you Saul and dlbuffy, between the two of you I have found a lot more clarity in my own thinking on this issue. My own rambling thoughts below …

@SaulR80683

that’s a very good question. I’d have to say that it was a mistake and I should have known better, but I was seduced by the factors that dlbuffy pointed out:

It seems to me this is one of the dangers of high growth investing. Does the high growth come from a solid base with real promise for the future or something less certain? Growth based on trends, current events, or wishful thinking (for example) can sometimes look the same as a company with more certain prospects until public opinion or underlying assumptions suddenly change.

@dlbuffy

My compromise is that I follow both rules in my investing. No food, fashion, airlines, or banks in my portfolio. I have tried them all, but they never work out for me…hello stitchfix, jetblue, BAC… But then I apply Saul numbers and research to the ones that remain.

This highlights a few interrelated questions I need to ponder in greater depth for my own investing strategy. In no particular order:

• Which types of companies should I avoid completely, even if they appear to have high growth and meet Saul style criteria?
• If a company falls in the “avoid completely” category, in what situations are they still worth looking at as an investment based on Saul style criteria?
• When a company is not in the “avoid completely” category, what should I look for to highlight potential instabilities which could lead to a rapid drop in price?
• When a company has a a problem highlighted by any of the above, how likely is it that an exit point will be obvious?

I am not seeking answers to these questions, simply musing on questions to ask myself. I tend to focus quite a bit on risk management in my investing style.

The last point above is perhaps the most important in my current thinking, at least regarding CELH. The numbers looked great for investing but at the time I initially invested I did not have the faintest clue how to evaluate when I should get out of the stock. @wpr101 noted that CELH rose 60% in less than a year, but more important to me is getting that gain only if I had sold on the news about inventory issues. I did not have the experience or knowledge to understand the impact of that news.

Thank you all for your thoughts on this!

[wpr101]

@othalan

The numbers looked great for investing but at the time I initially invested I did not have the faintest clue how to evaluate when I should get out of the stock. @wpr101 noted that CELH rose 60% in less than a year, but more important to me is getting that gain only if I had sold on the news about inventory issues. I did not have the experience or knowledge to understand the impact of that news.

For the two to three quarters I owned Celsius the earnings reports had been focused on the growth story and how well sales were going. It was when they reported in May 2024 where the inventory issues completely dominated the earnings call. Out of curiosity I looked up to find the word “inventory” occurs 29 times in that transcript. This tone of the call was completely different as almost the whole Q&A were about this days of inventory issues, when previously the Q&A’s had a wide variety of discussions.

As a simple rule if I wouldn’t buy the company based on their last earnings, then I should be selling. There was simply no way to read that Celsius earnings and be enthusiastic about this business, and there was no way I would be buying on that report if I was a new investor to the company. This report in particular was a combination of decelerating financials, combined with a overwhelming amount of discussion on inventory. Previously the company hardly mentioned inventory unless it was a passing point. The worsening narrative and financials made it a clear sell from my perspective.