Thanks so much to Brittlerock for this kind homage. Some of the points he made that I’d like to emphasize are (in no particular order):
Be willing to recognize your mistakes and don’t sit with them in the hope that they will get back to breakeven and you can feel vindicated “See! I was right all along!” while the stock where you could have put the money has advanced 200% (opportunity loss!).
Remember that you WILL make mistakes. Just go ahead and correct them if you need to get out of the stock, or repurchase at current price or go on with another company if a sale seems to have been in error.
Look at what Gaap says, but use the adjusted numbers that the company uses, that the analysts use, and that are usually more based in the reality of the company’s performance. A big income tax rebate inflating revenue, or a legal settlement profit or loss, don’t usually tell you anything about the performance of the company. Neither does the vindictive attempt to punish rapidly growing tech companies for offering stock-based compensation to new hires, by double counting the SBC as both a dilution and as an expense. They are not an expense. They cost the company nothing. Not a penny. They do dilute the stockholders, but the number of shares are listed. And if the company made $30 million dollars net profit in the quarter, but they paid $5 million in SBC, they still have the $30 million in profit, and the stockholders have a tiny bit less of the pie, but they are probably happy because that $5 million in SBC allowed their company to hire umpteen very skilled employees who would have gone to a different high growth tech company if they hadn’t received the SBC. Enough on this.
Make your own decisions. Don’t follow me. My style of investing may not work for your temperament, or for your financial position, or for a million other things.
Read the conference call transcripts, so you can get a real feel for management and what they are thinking. There’s always more there than in the press release.
If you are using figures to make decisions about placing your hard earned money, get the information from the company’s website or press release, not from what some Yahoo bot picked up who knows where.
Don’t lose yourself in numerical analysis. As Brittlerock said… You can drive yourself nuts with ratios and derivatives and extrapolations and all kinds of numerical gymnastics. Most of it is a waste of time and effort. I’m pretty good with math and numbers. Differential equations are not needed. Sophisticated statistical analysis is not required.
Think about the whole company, don’t try to figure out the intricacies of the technology, or try to compare with other companies’ statistics. (EV/S doesn’t mean anything unless you consider how fast the company is growing, how high its gross margins are and where they will end up, what it’s place is as far as competition, how far it can continue to grow, how much of its revenue is recurring, what its dollar-based net retention rate is, etc etc.)
Keep it simple… I love that point.
Look forward, not back. That stock is worth just what it’s selling for at this moment, not what you paid for it. It’s simply a piece of your portfolio. If you have a better place for that money, don’t price-anchor on that old stock price.
Hope this helps,
Best,
Saul