Our sector

Again today we had someone post that the only reason that we have such good results is because all of our stocks are in the same small sector of a small sector of a small sector of the market that happens to be going up. I don’t get it.

Do you mean to tell me that Shopify, who helps small merchants set up websites so they can do ecommerce is in the same sector of anything as MongoDB, that is doing something obscure that I don’t understand which is disrupting a data storage paradigm? Really? In what way? Because they are both using the tools of the modern world we live in?

Or do you mean to tell me that Square, who helps mini-merchants accept credit cards at outdoor markets, and lends them money, is doing the same thing as Alteryx, who helps people at large enterprises in all different fields analyze vast quantities of data easily and elegantly.

Or maybe that Twilio, who handles company’s communication with their customers, and sets up very efficient call-centers, is doing the same thing as Pure Storage, that sells some magical things called flash arrays, which are replacing some kind of spinning disks.

Or that …etc

These companies are in all different parts of the economy. The only thing they have in common is that they use the tools of the modern world, like the internet, the Cloud, and software, to do what they do… and that most of them sell their product as a service on a continuing basis.

Sorry, these companies are NOT in a small part of a small part of a small sector of the economy, so that they will all go down together. They are scattered throughout the economy. We’ve simply selected very good companies.

Best,

Saul

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Do you mean to tell me that Shopify, who helps small merchants set up websites so they can do ecommerce is in the same sector of anything as MongoDB, that is doing something obscure that I don’t understand which is disrupting a data storage paradigm? Really? In what way? Because they are both using the tools of the modern world we live in?

Or do you mean to tell me that Square, who helps mini-merchants accept credit cards at outdoor markets, and lends them money, is doing the same thing as Alteryx, who helps people at large enterprises in all different fields analyze vast quantities of data easily and elegantly.

Or maybe that Twilio, who handles company’s communication with their customers, and sets up very efficient call-centers, is doing the same thing as Pure Storage, that sells some magical things called flash arrays, which are replacing some kind of spinning disks.


Saul,
This could use such a long and more eloquent reply than I have the time or patience to muster now, but a couple of thoughts off the top of my head:

  1. not all retired/senior investors like yourself are so adaptable. :slight_smile:
  2. society always seems to want to find patterns and find validity in them by matching them up with what we have seen in the past. (I am not a fan of absolutes)

A few thousand years ago an architect probably got laughed off the pharoah’s court by suggesting they build a mega structure in the shape of a pyramid.

Galileo was imprisoned until his death, for pointing out the fact that the Earth revolved around the sun.

The US has been around 241 years since the declaration of independence, but women have only been approved to vote for 98 years.

Tech was a bubble and then a joke and now they are the titans of industry: Apple, Google, Microsoft, Amazon.

Probably most relevant to your point is this article that shows only 60 of the Fortune 500 companies from 1955 remain.
http://www.aei.org/publication/fortune-500-firms-1955-v-2017…

This is a great paragraph from that link, imo:

“Economic Lessons: The fact that nearly 9 of every 10 Fortune 500 companies in 1955 are gone, merged, or contracted demonstrates that there’s been a lot of market disruption, churning, and Schumpeterian creative destruction over the last six decades. It’s reasonable to assume that when the Fortune 500 list is released 60 years from now in 2077, almost all of today’s Fortune 500 companies will no longer exist as currently configured, having been replaced by new companies in new, emerging industries, and for that we should be extremely thankful. The constant turnover in the Fortune 500 is a positive sign of the dynamism and innovation that characterizes a vibrant consumer-oriented market economy, and that dynamic turnover is speeding up in today’s hyper-competitive global economy.”

Our lists may be comprised of SHOP, TTD, AYX, TWLO, and others today…but those tickers may be obsolete or even be reused in a decade or two for another company. Someone on your board brought up INSP as a stock idea…well I thought they looked familiar because I remembered Infospace (which used to have the same ticker).

I think the commonality of all those stocks is “technology” or maybe even “software” in many cases.
Or as you put it “Because they are both using the tools of the modern world we live in?”

When we could use an ATM card instead of carrying cash all the time, I thought it was the greatest thing on the planet. To this day, I bet baby boomers carry more cash on hand then their 40-yr old kids do, out of habit.

We see this with TTD and so many having trouble understanding how big the advertising shift is. If you wanted to advertise you just “sprayed and prayed” by buying spots in newspapers, radio, and tv. Now we can leverage data and personalize advertising experiences…better for the end user and for more efficient and productive for the advertiser.

Who buys more newpaper subscriptions these days? I don’t have hard data, but guessing it is skewed more to baby boomers than to millenials.

Unless I am missing something, we will still want our food to be edible and not digital, and same with our toilet paper. So not everything can move to digital or benefit from improvements in tech/software. However - the companies selling food and toilet paper absolutely do benefit from being digital and leveraging tech/software.

So it is not that all legacy companies will disappear. Rather it is that new modern tools are becoming standards (and someday they will be replaced/disrupted with newer better tools) in running a successful business.

Aside from the tech/software similarities, your current port of companies tends to be more highly-priced when viewed from traditional metrics. If the large outfits leveraging high-frequency trading or algorithmic trading are basing their software’s decisions on traditional valuation models, then I can see a scenario where your group of stocks is targeted (fairly or unfairly) in a market downturn for being “too expensive” by both computerized trading desks and by more traditional investors.

Maybe I am wrong and more and more fund heads will be able to peel back the surface P/S and P/E numbers and understand the higher gross margin nature of SaaS companies along with the relatively easier path towards growth due to retention and opex vs capex sales models. As you point out, NVDIA (and PSTG, btw) both have to sell the same amount of hardware and then sell 50% more to grow 50% in a year, whereas the SaaS company that retains most of it’s customers from year to year will simply need to sell 50% more the following year on top of the recurring revenue it already receives from last years customers.

Another comment was made (and I am paraphrasing) that a company could buy land and it is listed as an asset while another company could invest in critical R&D leading to a key software upgrade that creates higher client retention and/or widens the moat and/or increases SOW among existing clientele. But it just looks like an expense compared to the company that bought land which may not be nearly as impactful to that company’s future growth.

That is enough babbling.
Yes, your companies are not all the same.
Yes, they are all the same if your worldview refuses to be updated.

So it depends.

hth,
Dreamer

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Don’t get it. I have a ‘Sector sheet’ which I find useful to have my holdings on for various reasons, including those all-important ‘read-across’ moments etc. There are 51 different sectors on it. Nearly all the companies discussed here are in just one: ‘Business software services, data processing, storage and the cloud.’

I suppose I could put each company into different categories like containers and packaging, building materials and components, retail luxury, Oil & gas E&P, agriculture and forestry, currency, private equity, advertising, precious metals, Asian closed-end funds and BDCs (to take a random sample of the 51) but that would make little sense to me.

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Don’t get it. I have a ‘Sector sheet’ which I find useful to have my holdings on for various reasons, including those all-important ‘read-across’ moments etc. There are 51 different sectors on it. Nearly all the companies discussed here are in just one: ‘Business software services, data processing, storage and the cloud.’


This guy inadvertently invented the password standards widely used in our world today, and he didn’t really even know what he was doing:
https://gizmodo.com/the-guy-who-invented-those-annoying-pass…
It’s not entirely his fault either. Fifteen years ago, there was very little research into passwords and information security, while researchers can now draw on millions upon millions of examples.

So who made and defined the “sectors”? Probably not a millenial.

Dreamer

ps…If I needed a sector sheet to understand the company I am investing in, I probably shouldn’t be investing in them.

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