OT:So they are not all thinking alike over there

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Our philosophy here of head-in-the-sand with respect to valuation may be a dogma we should reconsider.

https://discussion.fool.com/my-2021-carnage-end-of-year-summary-…

I am surprised this post was not removed. So there is a tiny bit of room for criticism.

As said before I find Saul’s board a highly interesting social psychology case study. The last weeks they were slaughtered, naturally more and more worried voices appeared, the group leaders coming out with reassuring messages that this happened before and will happen again and with numbers showing that their 2 year results are still 1600%.

Jealous? You bet. Their (especially 2020) results are so outlandish I would lie to say otherwise. And who knows, that they are currently slaughtered might be temporary only. It’s tempting to join in with some money (as long as one has nearly the whole portfolio in Berkshire) — especially if I manage to understand ZEELOTE’S “Christmas Present” (The MI board readers know what I mean: Reducing risk with highly volatile stocks), unfortunately a poisoned gift as it requires an awful lot of work.

It’s really interesting to see all that group dynamics from the outside. Here there is so much talk about our “leader” (no more holidays, please!). Over there is not only a leader, he is surrounded by half a dozen “officers” (Bear, Gaucho etc.). It’s fascinating and a nice read in addition to our board.

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I agree it is interesting.

From my observations over 30+ years the easiest way to lose a lot of money is to get too caught up in a stock and think every drop is a buying opportunity. I saw guys turn large profits into losses doing that with internet stocks such as CMGI in the 90s. Some people think it is good to have strong convictions in a stock but no one is always right and you have to make sure that when you are wrong the damages are limited and not huge.

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“ From my observations over 30+ years the easiest way to lose a lot of money is to get too caught up in a stock and think every drop is a buying opportunity. I saw guys turn large profits into losses doing that with internet stocks such as CMGI in the 90s.”

To their credit, the Saul acolytes preach the necessity of cutting your ties with any company that misses growth metrics. His success is rooted in not just finding fast growers but in being willing to dump them at the slightest sign of slowing. This works well if you can squeeze a 100-200% gain before cutting and running after a 30% post-disappointment haircut.

I’m not sure these guys can ever go on vacation though.

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What I am wondering about with this board being so huge, his disciples so many: Does Saul actually MAKE the market?

Example: Upstart.

After Upstart announced 2nd quarter numbers they were all the rage over it, see this thread of 67 messages starting 10.Aug:

https://discussion.fool.com/upst-earnings-34899500.aspx?sort=who…

That was the exact day when Upstart’s extreme price appreciation started:

https://stockcharts.com/c-sc/sc?s=UPST&p=D&b=5&g…

Nearly 50% in just the next 3 or 4 days, from $140 to $200, followed by a continuous steep rise up to $380 in the next 2 months.

Great call! On the day! Or was it BECAUSE of them?

From the top of $380 in mid October Upstart then went then down a little to $340. They were still extremely positive then, with Saul himself at $380 saying he doesn’t understand people selling only because it did rise so extremely. A full month later, on 8.Nov, directly before the 3rd quarter results, the jubilant post of Saul’s “Officer” jonwayne’s still received over 200 rec’s:

https://discussion.fool.com/upst-potential-upside-for-q3-report-…

The next day, after those 3rd quarter numbers were published, there was huge disappointment, with said jonwayne’s post expressing that receiving 250 rec’s:

https://discussion.fool.com/thoughts-on-upst-q3-34975788.aspx

The day of this post was the exact start date of a long continuous slide downhill from $340 to now $123.

Are those perfect calls “on the day” just non-causal correlation as they are simply doing what everybody is doing who is interested in SaaS companies — which in case of Upstart was “buying and selling based on the 2nd and 3rd quarter results”?

Or are they making the market? Is their buy/sell behavior and are their messages (read by who knows how many investors) the cause for those extreme movements?

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R.e. the 2021 EOY carnage post at Sauls - https://discussion.fool.com/my-2021-carnage-end-of-year-summary-…

Certainly interesting reading, and predictable enough that there are late-comers to the Saul growth bandwagon who are getting burnt as valuations of some of these high-flyers gets adjusted down. People who can’t blithely ignore a 32% drop in their portfolio since they’re not looking back at 1000% prior gain.

He posted:
This year I … deployed most of my savings and retirement in self directed fashion … I’ve been a member of MF since the 90s, so I’m not exactly a newbie.

I scaled into a growth portfolio over 2021… My peak at 2021 just prior to the drawdown in November was up about 30%. Meager, kind of, compared to others here…I am now down about 11% since I took over my account. In real dollars, I have lost $1.3million from my ATH

Chasing growth darlings at the peak of a bull market is hazardous to ones wealth, especially when you plunk most of your nest egg into a concentrated portfolio of growth/hyper-growth like this guy did: hard for me to fathom dropping ~$4m savings and retirement into a concentrated Saul style portfolio. In response to feedback he’s posted that he’s dropped some of the lower growth names in his 15 stock portfolio and concentrated even further in the fast growers. I wish him luck, but I worry for him and others pursuing this strategy. He worries about a potential 65-70% decline, but from what I saw during the 2000 tech crash it could be much, much worse than that.

The poster seems pretty rattled by a 30% drop from the peak, but says “I’ve very little choice but to continue the strategy I’ve embraced and hope that this is but small sample size growing pains.” Down ~11% from when he took over his account, I’d hope he doesn’t feel trapped into continuing a strategy he clearly has doubts about. That’s still a hell of a nest egg to be working with!

He and others pursuing Saul’s returns are adults, though, and will find their own way. Saul and his followers have certainly obliterated my returns for years before the last few months, so I don’t hold myself up as anyone to be emulated, lol. Goodness, who wouldn’t want to achieve the kind of returns that Saul has documented? I’ll be interesting to see how it plays out in coming years. As someone who was singed by the growth bubble popping in 2000, I would never adopt the Saul approach with a concentrated portfolio of hyper-growth. I feel comfortable investing in companies that make money, not just sales, even if it means I won’t ever likely double my portfolio in a year or less the way Saul has.

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Saul’s followers include some people who are wired very differently from those I meet here.

One poster on Saul’s board wrote this:

Before this board I lost my (and my wife’s) entire accounts in 2008 with a FA, lost my entire accounts again in 2012 following a paid service that traded AAPL options and then lost 90% again trying to pick my own stocks. I know it’s a talent.

Starting, yet again, from a very small amount of $ probably helped acclimate me to this board and type of investing, so when my account tripled over a couple of years I was able to keep faith and hang on when it lost 2/3rds of its value in late 2018 before going on from the bottom there to over 20x (at our most recent top) in about 3 years.
All in all, since 2015 from following Saul, I’m up about 13x. An outsized return that also has come with outsized volatility. In my account it says an average portfolio has a volatility index of 10 and my portfolio is around 90!

Who loses “all” their money this often?? This level of volatility would keep me up nights and afraid to ever take a day off. I guess it works for some people, but it sure seems like this poster is someone who will always give it back to the house in the end.

I hope this poster doesn’t lose everything. I hope they do well. But my heart couldn’t handle it. That is for sure.

SD

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People go together in large groups towards some belief, model, or cause. Initially they’ll cut and run individually - just as leaders chant to the troops “stay and fight.” Then if enough run there will be a stampede.

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He and others pursuing Saul’s returns are adults

Saul himself is, and surely Bear, Gaucho etc. are adults too. But the newest post over there, “Defending SaaS valuation” seriously let me doubt they all are adults.

I do not mean this in an offensive or “speaking from an above” way as I do not claim to have much knowledge regarding valuation, but what this poster says about valuation, about interest rates and about multiples is so naive that this post should selfdestruct as I think it is rather embarrasing for said board and it’s more knowledgeable posters.

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But the newest post over there, “Defending SaaS valuation” seriously let me doubt they all are adults.
… what this poster says about valuation, about interest rates and about multiples is so naive that this post should selfdestruct

Yeah, definitely naive hand-waving rather than any realistic analysis. Though naive hand-waving defense of one’s closely held belief’s is certainly common enough among adults, lol.

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I am an occasional poster over there and have a significant portion of our wealth in those types of companies. If you are not an extreme type A personality and do not have a plan for volatility that investing game is not for you.

When viewing things like this, our perspective is extremely important. I am down considerably from my ATH (obviously), but, consider this: Had I been invested in the S&P500 I would be:

Down 68% from from my current account balances.
Free to run around the country side not looking at the stock market.
Fretting about interest rate concerns on my VTI holdings, yet having no micro actions that make sense except sell or hold.

I find that looking (analyzing) individual companies is MUCH simpler and reassuring compared to ‘holding the index’.

It’s not unlike portfolio assessment of the 5 groves, or, perhaps, tying future prospect to the non equities and cash portion of the BRK holdings with some very obvious differences.

Keep in mind (as stated above) envy on the way up, and self gratification at not holding bleeding issues on the way down are natural reactions for the outside viewer. If you can find a way to step past these emotions and develop conviction about the opportunity for some of the best of the best:

DDOG <— a market leader with growth and entrenched revenue generation that is more consistent than P&G
SNOW <— an obvious choice. After all, BRK itself owns a portion of this company
NET <— a high speed “safe internet” company with a motto: …make everything you connect to the Internet secure, private, fast, and reliable.

You might have a bargain waiting for you in your future holdings account.

Consider buying a couple lottery tickets. May I suggest long dated DITM calls at 60% of current per share strikes? You’ll pay a small premium over today’s bid in exchange for part of the ride. This way, you can get some skin in the game (and excitement) while resting comfortably on the 98% of your portfolio that doesn’t act like the three above.

I’ve been nibbling on these recently. Perhaps I should go post on the FKA boards.

Many thanks to the thoughtful analysis, methods, mindset, perspectives and numerical results posted by all of those who came before. It is truly appreciated

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The style of investing “over there” is very different from what’s popular here.
But we should be careful not to edge into the easy accusation that it’s not a smart style of investing.

The thing to remember is that it’s a style of investing that makes sense (AMAZING sense) during certain market conditions.
Those conditions are not all that common, but when they happen it is an outstanding way to make a very large amount of money.
And, for so long as that market regime lasts, it’s not even very difficult to make all that money either.

Honestly, now: if you had a good handle on what was happening and what would be the signs of when it was ending,
wouldn’t you have been much richer now if you’d invested in the momentum TMT plays of the late 1990s?
It’s not required, but it would certainly have been a very viable and remunerative choice…and a sane one.
But when the snow flurries start, switch from football to hockey. To every thing there is a season.

I would not try to convince anyone on the hyper-growth bandwagon that they’re taking undue risks or not being prudent or (heaven forbid) not understanding investing.
The main thing to point out would be that it’s a thing you likely want to stop doing around the time that the music stops.
It can be done at other times, but it becomes very very much harder, usually beyond the ken of the average punter.

Jim

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it’s a thing you likely want to stop doing around the time that the music stops.

But that’s exactly the point where opinions differ. You seem to carefully indicate that this (music stopped) is the case now.

If you look at that board you’ll see that the leading figures, Saul hinself, Bear, Gaucho, jonwayne, that they are all convinced that the music did not stop, that it just as several times before has a pause and that every single one of those times it would have been a huge mistake to think otherwise and to have sold.

They are telling you “it happened before” … “not just once but several times” … “it will happen again” etc. They are telling you that the SaaS story is perfectly intact, that nothing really changed.

Saul pointed out how often it happened to him the last years and that he nevertheless is up 1600% or so during that time. I do not find his 1600% post at the moment but this one also is representative for what Saul has to say re “music stopped”:

https://discussion.fool.com/a-bit-of-reassurance-35004322.aspx

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Jim, as this is the 1st time you are not silent with respect to “them” (might be wrong; age and memory, ya know) I’d like to use this opportunity to ask you a question:

The thing to remember is that it’s a style of investing that makes sense (AMAZING sense) during certain market conditions.

Is it really only about the style of investing for you? The style of investing in hyper-growth companies during times when everyone buys and nobody cares about valuations?

You don’t care about the story? About the business model, the specific case for SaaS companies? About a new type of company perfectly adapted to a changing world (read: Internet), with super-low capital requirements (machinery, factories), about reliable recurring revenue by providing services which are becoming more and more essential in this Internet world (retention rate), even with the ability to constantly invent new such products/services etc. etc.?

I am asking because as a computer guy I am fascinated and as an investment amateur it seems to make a lot of sense.

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It seems to me that people dance around all the appropriate language to debate the issue of investing “style” or whatever word we choose to describe it. There’s a guy who commands that board who seems to be, but maybe isn’t, both legitimate as to his record and efforts to join with others to discuss investment in fast growing companies.

I’ll just mention that things change and they change with force at times, force and longevity such that can jolt your “performance” for many years if you’ve chosen a particularly narrow investment model. The end result is that just like mutual fund investors, stock investors overall likely perform very far below the actual stocks they invest with.

If and when you think of the word probability - there’s some need, at least in my view, to understand yourself, your reaction to change, as well as your choices. I once had a long conversation with a young man living with me about his popularity, his good looks and athletic/academic success caused quite the uproar in my community. I told him that one day he’d be just as unpopular as today’s popular, to get ready to face that punch.

He reminds me of that regularly and he does so because he got mentioned in Business North Carolina several years in a row for being one of the top 10 “earners” of the year, but then some years later he was chased by double digit numbers of lawsuits when an investment developement went all to pieces for non-management partners. He lost about 3/4 of his net worth during that time and was lucky not to lose more. What was special was this man kept his calm the entire time, he was honest and let it turn out the way it was going to procede anyway.

The Saul’s board people will live through an era where people are chasing something other than their “picks” and there will be an awakening to many who won’t be prepared for that. It is not at all uncommon for the best businesses in the world to sell for PE’s of 15 or less…all while still having tremendously wonderful features and a great future.

How will those on that board handle such? Well, while the board is group think, the “handling” of unpopularity will surely be an individual thing.

Life is great…if you can stand it!

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it’s a thing you likely want to stop doing around the time that the music stops.
…
But that’s exactly the point where opinions differ. You seem to carefully indicate that this (music stopped) is the case now.

I said, and implied, no such thing.
To the extent that I have an opinion–a dodgy clock on the wall–it’s definitely not midnight yet.

I just believe that there will be a point that making decent money in this style of firm will be extremely difficult. Again.
Some will manage it, no doubt. Maybe Saul will. People say he has a very good long term record.
Similarly, some folks made money in low-profit high-growth tech firms in the stretch after 2000.
But only the best, not the mass of followers.

Sometimes there is a tailwind, and sometimes there is a headwind.
If you want to invest in a way that best suits the times, that way has to change occasionally.
Never mistake the cycle for the trend. One can’t extrapolate from summer to decide what to do in winter.

As for SAAS being special, no. It’s just another industry.
And (let’s not forget), a very old one. It used to be called “timeshare” : )

Jim

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Off topic side note—

Speaking of growth styles, in 2017 I created a quant investing screen. Everybody needs a hobby.
It starts with the 1700 companies covered by Value Line, my usual haunt.

For each firm, sum their projected earnings growth rate and the 3-5 year projected annual rate of return.
Sort on that sum and keep the “best” 80% of firms.
These are the firms that people think will do well.

Of those, take the 30 with the highest rates of growth of sales per share in the last 5 years.
So, there is a prima facie reason to think this might continue…they are in fact growing rapidly so far.

Of those 30, buy equal amounts of the 10 stocks with the best stock price momentum.
(I used ratio of price to midpoint of 52-week high and 52-week low, but other methods work)

Hold those 10 for a couple of months, then repeat the whole process.

In backtest (20:20 hindsight), this would have beat the market by 9.5%/year 2000-2017.
[By much more in 1997-1999, but nobody expects that to happen again. The backtest reported 116%/year compounded in 1998-1999]
In the four “clean” years out of sample since the screen was created, it beat the S&P by 8.1%/year, returning 25.7%/year after trading costs.
The market has done so well that beating it has been hard lately, in general.

So, possible lessons

  • Early results suggest this screen seems to have some useful predictive power which may continue
    …combined with, or alternatively…
  • It has been a great few years for high growth stocks.

Jim

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Humans does not like extremes. They like smooth predictable performance. They don’t like lumpy volatile performance.

StockBRK goes from $200 → $250 → $270 → $290 → $310
StockUPST goes from $50 → $100 → $200 ->$300 → $100 * this board seems to be rejoicing

Which one will you pick today ? There is no right answer. It depends on your view of which one you think will do well long term.

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StockBRK goes from $200 → $250 → $270 → $290 → $310
StockUPST goes from $50 → $100 → $200 ->$300 → $100 * this board seems to be rejoicing

I haven’t seen any “rejoicing” on this board about UPST falling, but I’ve seen plenty of hand-wringing about the price action in other places. The obvious problem with a stock like that is that people pile in at higher and higher prices, so there are relatively few people who are enjoying a double despite the drawdown.

If you have access to the premium boards, try running a poll on the UPST board to gauge the gain/loss situation for the average shareholder. I expect there’s a high percentage of people who are running a loss.

The benefit of predictability of value growth of something like BRK is that one can steadily add without worrying as much about loss of capital (permanent or otherwise).

Rob

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If you have access to the premium boards…

Does anyone know if there is a premium board for Berkshire? If so, any thoughts on how it compares to this board? Thanks in advance.

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"As for SAAS being special, no. It’s just another industry.
And (let’s not forget), a very old one. It used to be called “timeshare” : )

Ahhhh, that triggers memories of the late 60’s & early 70’s, sitting in front of the Tymshare teletype terminal , programing & inserting & printing the paper tape. Not sure if Cloud Computing was even considered by Sci-Fi writers at that time.
I can still hear the musical clackity-clack of the teletype machine and waiting for the batch processed results the next day…most times a very long wait : )

https://www.computerhistory.org/brochures/t-z/tymshare-inc/

ciao

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