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Investment Analysis Clubs Saul’s Investing Discussions
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I have heard many expressions of fear and confusion today, and I understand. I just want to write a short, reassuring note. Nothing has changed about our companies, a day and change into 2022. This has happened before. The market rotates into and out of all kinds of things, including hypergrowth. Right now, the flow is out. That’s ok. I still believe I hold the 6 best companies I know about. I still believe those who are selling today will eventually want back in. Of course I’m not sure if it will be tomorrow, or after earnings, or six months from now, or what. But the companies that continue to grow and become more valuable in the real world will eventually become more valuable in the stock market. The stocks just don’t mirror the companies linearly. Think of Chang’s illustration about the dogs and the man.

We’ve had a couple days like this within the last month or so. It was scary then too: https://discussion.fool.com/some-comfort-34992773.aspx

We’ve had several times like this over the past several years as well. But the best companies keep becoming more valuable, and their stocks bumpily follow.

That doesn’t mean this is the bottom, or a bottom. Still, I’ve been buying today.

Bear

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Just in case it helps, I have used today’s draw down to continue to consolidate my portfolio. I am one of the newbs that still has over a dozen stocks. (That’s down from over thirty at one point.)

Today I was able to reduce my Nvidia by taking those profits and turning them into Monday, Snow, Net at prices lower than when I initiated those just a few months back.

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Hi Bear,

Thanks for the encouraging note. For new investors like me (started 2-3 years ago), growth stocks have been the flavor of the market. What would you say to the value investors who are out in full flow today with their ’ I told you so’ attitude and multiple compression theories.

Thanks.

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I have heard many expressions of fear and confusion today, and I understand. I just want to write a short, reassuring note. Nothing has changed about our companies, a day and change into 2022. This has happened before. The market rotates into and out of all kinds of things, including hypergrowth. Right now, the flow is out. That’s ok. I still believe I hold the 6 best companies I know about.

I just want to echo and second what Bear wrote. This is annoying, and the dogs have set off way behind our men, (they must be chasing a rabbit :grinning:), but we have companies that are secure, strong, and successful, and they haven’t changed at all in the last two days, and they will continue to be successful.

I didn’t have spare cash to invest, but I sold more of the companies that I was trimming anyway, Crowdstrike and Upstart, and added to Sentinel, Monday, ZoomInfo, Amplitude, Snow, Cloudflare and Zscaler, in no particular order. The only one I didn’t add to was Datadog, and that was because it was sitting at just under 20% of my portfolio.

Now all of that is just my humble opinion, and you have to make up your own minds, but that’s the way I see it.

Best,

Saul

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This is OT for this board, but at times like these a bit of reassurance is not inappropriate, especially for the folks who have come to this board quite recently. Saul has written posts of this nature, Bear is an assistant board manager, yet he just posted a reassuring note.

I have followed this board for many years. It is not an exaggeration to say that following Saul’s investment strategy has transformed my life. Even so, I am not immune to fear. I know what it’s like to watch the value of your portfolio erode; I have first hand experience with that gut wrenching feeling of seeing your gains evaporate.

With the onset of the pandemic in early 2020, I made the worst investment decision of my life. I pretty much liquidated all my holdings and went to cash. I rationalized this decision by telling myself that this time things truly were different. The world’s economic outlook was grim. Businesses of all types would collapse due to mass population death. It would take years to recover. Fortunately, I came to my senses after a few months and re-entered the market by re-investing in many of the same names I had sold. Even though I finished the year with a gain of 90+%, the fact is that I cheated myself out of even greater returns. And, BTW, I created a huge capital gains tax liability for my irrational decision.

Think about it. Ignore stock price for a moment and ask yourself what has changed. Will digital transformation and cloud migration come to a screeching halt? Will the customers of our companies cancel their subscriptions and revert to on campus data centers with perpetual licenses and/or home grown s/w? Will the cyber-threat landscape suddenly abate? You get the idea, I needn’t enumerate every possible scenario. At worst, omicron will just be another bump in the investment road. Higher interest rates might moderate business investments, but even that is not likely to significantly impact our companies as the products they offer provide positive ROI with near term payback for their customers.

There will come a day when digital transformation will reach a saturation point. The hyper-growth of our companies will taper. But that’s still many years in the future. Look back to the early days of this board, about six years ago. We were investing in companies that made sneakers, analog chips for mobile phones, optical switches for high speed networks - - - mostly physical products and a few service providers. PE was an important factor when considering an investment. We didn’t invest in hypergrowth, SaaS type companies because they didn’t exist. I don’t know what the next paradigm shift will be that opens new investment opportunities, but I do know that it is still several years off.

I get it. Watching my portfolio fall back to where it was last June is aggravating. But I’m not losing any sleep over it. And if you have cash, I would recommend you follow Bear’s lead and go shopping. We may not have touched bottom yet, but I don’t think it is too far off. Just a hunch, not a prediction.

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Thanks, Saul.

I just want to add another piece of thought to what we’re seeing right now: just like December was the tax loss sellers, the first couple of days this year are probably the “tax gain sellers”… not that that makes a lot of sense, but when have taxpayers really been sensible?

“If I sell after the first of the year, I don’t have to pay taxes on that until 2023, officially!” Of course, they have still created a tax liability… which they can only offset by either doing really well in new different stuff, or negate by doing really badly.

All of which sounds like near nonsense to me, but I practically guarantee there are people out there using this mindset, right now.

Me? I read Bear’s posts yesterday and today, looked at publiccomps.com, read some Bert Hochfeld… and then I invested some more in some of those best-in-class SaaS companies, both yesterday and today. Doesn’t make the emotional hurt of looking at the daily portfolio change much easier. Sometimes reading and talking about it on the MF boards helps a little, though.

-Another Rob

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Some real world examples of what Bear is speaking of.

Some of the greatest investments in resent history–i.e. the very best companies we all know gave back tons of gains from time to time:

Amazon, (arguably one of the greatest investments of our lifetimes) dropped by over 90% during 1999 dot come bust. However, even after that it dropped again by over 50% in 2009 and had numerous ~25/30% drops along the way.

Netflix, dropped by over 75% in 2011 and again by nearly 50% as recently as 2018 and had multiple 45% drops along the way.

Starbucks lost over 75% of it’s value ~2009

Intuitive Surgical lost more than half its value numerous times on its way to becoming a 50 bagger…

Even Salesforce, the mother of all SAAS companies lost nearly 75% of its value during the financial crisis.

All of these companies had the power to make even a middle class person wealthy with a modest investment. The caveat? You have to hold through thick and thin.

Nik

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Saul,

I have been here for some years now. Still, I sold out at the beginning of the pandemic an left 400 percent on the table. The market was already recovering and climbing when I bought back in in March. I was (Still am) overweight with Upstart. Even with all that, I am still up almost 10 percent in less than a year. Any other investment professional would call it a good year.

Cheers
Qazulight

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I think that the key is that:

If one of your stocks is declining a bunch after news, whether announcement of results, or other significant news, you have to consider if it’s declining for a reason. If it is then you have to consider if you should reduce your position or get out.

If all of your companies are declining at the same time, but all the company specific news about your companies is good, the likelihood is that those mechanical bots, that don’t know, or care, anything about your company are selling because that is how they make money, pushing sectors up and down, but that it’s very, VERY unlikely that there is anything wrong. At the bottoms the value investors always chime in to gloat, and to predict huge horrors for our stocks, and that they will “never” come back, but we usually leave them far behind in the dust in the next six months. We’ve been through this so many times I can’t even count 'em.

Best,

Saul

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“This is annoying, and the dogs have set off way behind our men, (they must be chasing a rabbit :grinning:)”

The problem with the dog (price) and man (company) analogy and this board’s investment methodology is that you have no way of knowing whether the dogs are “way behind our men” or simply getting closer to our men after lunging far far ahead of our men. This is off topic of course, but I thought it only fair to make this point since the above assertion was made by Saul himself that the dogs were behind, which is beyond what can be stated using his methodology.

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Thank you to Bear and Saul for allowing an OT post for commiseration!

I’ll stand in for the pain of those, like me, who came into this with little to no cushion from prior years. The only stock I held in 2020 was Zoom, which I finally sold out of in September for twice the money.

2021 was my first year managing a portfolio, and I made many mistakes as I tried to find my way. In May I had 51 stocks. I found this board last summer and culled to 30 and now am down to 11.

The oldest shares in my portfolio today are shares of Cloudflare from early February, 2021 and Crowdstrike from March. Today, my total gains for 10 of the 11 stocks I hold were underwater, with only faithful DataDog still holding–and that by only single digits. Oops…I take that back. ZScaler scrambled to a total gain of 1.92% by the close. My portfolio was up over 30% at the end of October. I finished the year down 13%. As of today’s close I’m down 23%.

So I had no cushion from 2020 to pick that up and now have none from 2021. There is no “selling into strength” right now. Been there, done that. The good news is that I do have new money coming in on Friday. The hard decision is where to put it. Everything is deeply discounted–both the things I own and the things I do not.

I have been thinking about getting into SentinelOne, but what’s with all the shares sold short? My TDAmeritrade account is showing almost 26% sold short and over 200% institutional ownership? I’m not sure how to interpret that.

I did buy back into a couple things I sold in the $SNAP debacle. I’m now back in Sprout Social ($SPT) and Global-e ($GLBE). They both held up really well until the last few trading days and they were so beaten down that my entry point for $SPT was well-below my previous cost basis and $GLBE was only slightly higher. I’m toying with whether to get back into $SHOP for a bit of stability.

My portfolio allocation as of today looks like this:
UPST (Upstart) 22.05%
DDOG (Datadog) 18.54%
NET (Cloudflare) 10.49%
ZS (ZScaler) 7.13%
GLBE (Global-e) 7.08%
AFRM (Affirm) 6.98%
SPT (Sprout Social) 6.29%
TTD (The Trade Desk) 5.91%
CRWD (Crowdstrike) 5.68%
DOCN (DigitalOcean) 4.74%
ASAN (Asana) 4.66%
(The tiny remainder is in $AI (C3.ai), which I hold for my brother.

And, yes, I can hear most of you shouting that I should be in Monday.com rather than Asana, but I’ve had a hard time with that. I’ve bought and sold both several times across this year. What I’ve noticed is that I’ve sold Asana each time for a profit and Monday each time for a loss. I’m now out of Monday until the 15th of this month. My portfolio would be a tiny bit healthier right now if I had never sold Asana and never bought Monday, since I usually sold the first to buy the second. I think both will do well, so I’m going to hold my winner for awhile this time, even if it doesn’t win quite as much as Monday.

My $TTD position is also new–another one that I sold at a profit last year to get into something with higher growth. But, with all the volatility the last couple of months, I decided to put at least a bit into a strong company with good growth at a beaten down price to provide a bit of stability and bought it back. It is, of course, now underwater. I need a diving helmet to enter my portfolio at this point. MongoDB ($MDB) is another that I sold that may come back into my portfolio. It’s growth is now accelerating with 50% YoY growth in Q3, the third quarter of acceleration.

Thank you to Saul and everyone here who shares, debates, and helps everyone else find our way. I’m learning a lot and hope one day to be able to help others.

JabbokRiver

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“There will come a day when digital transformation will reach a saturation point.”

Yeah, that is the day to fear: when the big downside drafts subside,so will the upside ones.

I also agree with using moments of “crisis” for cleansing and consolidation and setting up for future success. It normally works in all areas.

Tactically, we will always disagree here and there. I never had much UPST and I have been adding at 170, 140, 150, no idea what the price is today or exactly how bad today was for such a thread to appear:)

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For those wondering whether they found this board at the wrong time, I can relate. I first discovered Saul’s at all-time highs in 2018 before a plummet just like this. Here’s my take at the time: https://discussion.fool.com/stocknovice39s-end-of-year-portfolio….

Let’s just say things have worked out since even with those “too many to count” drawdowns Saul mentioned upthread. I find I’m not that worried where any of my dogs are at present given I’m fairly confident the men and women leading them are walking in the right direction.

In the midst of the February and March 2021 carnage, our own GauchoRico wrote a post detailing several 30%+ drops: https://gauchorico.com/big-drops/. I’m pretty sure most if not all of us are up considerably since the depths of that pullback. Either way, that article provides excellent perspective if you haven’t yet seen it.

Hang in there, everyone. This too shall pass.

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“At the bottoms the value investors always chime in to gloat, and to predict huge horrors for our stocks, and that they will “never” come back, but we usually leave them far behind in the dust in the next six months.”

I think this is a bit unfair. It’s not like growth and value are distinct and unrelated concepts. Indeed you can’t value a company without making assumptions about its growth in sales and related earnings. I think the criticism you get from value investors is that your focus on growth metrics alone, abstracted entirely from any attempt at valuation, leads to an investment approach untethered from any earnings reality.

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Let’s just say things have worked out since even with those “too many to count” drawdowns Saul mentioned upthread. I find I’m not that worried where any of my dogs are at present given I’m fairly confident the men and women leading them are walking in the right direction.

I’m at the point where I’m bemoaning my life choices…because I used some earlier proceeds to renovate/insulate my basement, and replace my 21 year old Corolla with a 12 year old Rav4…

…and now I have no ready cash (other than an emergency pool) to take advantage of this crazy situation! :smiley:

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