Perspective

I think we get spoiled by having so many rapidly growing companies. I used to look for companies that were growing revenue by 20%, or at most 30%. In the “real world” companies don’t grow revenue by 100%, or even by 70%, for four years running, or even one year, unless they are just beginning and starting from zero. Especially revenue that will stick, that’s recurring revenue. Companies growing as fast as Shopify and Alteryx are an incredible new phenomenon, a result of the explosion of data, the internet, and artificial intelligence. - Saul (http://discussion.fool.com/i-was-hoping-the-deferred-rev-will-be…)

Thanks for the perspective, Saul. 2017 was a year so amazing that I certainly didn’t expect another soon…and you know what? I don’t think we’re getting one. In 2018 the market is up less than last year, and we are up way more. So how are we beating the S&P so flagrantly – even more flagrantly than last year? The companies we own have out-performed. It’s like you say in your summaries, Saul: The stocks I own went up! That’s the big secret. Stock picking.

When I step back and ask why our stocks are going up, it’s really as simple as what you said above. The market, I believe, is still struggling to catch up to the long term value of SaaS companies. And it’s hard to blame them. When I started looking at these companies in late 2016, their PS ratios did startle me. Now, many of those are much higher, and it’s tough to argue with that. It’s getting difficult to imagine a company like Shopify being dethroned. Square too. And Alteryx and Okta may be just getting started. I can sympathize with those who have trouble putting a number on their value!

Put differently, as I quote in my monthly summaries, from mauser96: “exponential compounded growth does not fit the analytical backward looking skill sets of most Wall street analysts”

It’s a great time to be alive, and to be and investor, and to pick stocks.

Bear

PS Square is now at a 20 billion dollar market cap and Shopify is marching toward one. These were respectively at 4B and 3B in late 2016. That’s right where Pure, Okta, Wix, Hubs, and others are now. And Alteryx, Talend, Hortonworks, Instructure, and others are actually much smaller! Opportunities are everywhere!

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In the “real world” companies don’t grow revenue by 100%, or even by 70%, for four years running, or even one year, unless they are just beginning and starting from zero. Especially revenue that will stick, that’s recurring revenue. Companies growing as fast as Shopify and Alteryx are an incredible new phenomenon, a result of the explosion of data, the internet, and artificial intelligence.

The Gorilla Game identifies periods of 100% revenue growth as “The Tornado” the time when one should buy the basket of stocks experiencing it.

https://celikalper.files.wordpress.com/2008/01/talc.jpg

*Inside the Tornado: Strategies for Developing, Leveraging, and Surviving Hypergrowth Markets (Collins Business Essentials)*by Geoffrey A. Moore

https://www.amazon.com/Inside-Tornado-Strategies-Developing-…

My 2003 article about ARM Holdings explains why people missed the ARM tornado, it was growing at “only” 50% instead of the expected 100% to be recognized as an official Tornado :wink:

January 30, 2003
Some people missed the ARM tornado

The last remaining question is the one about the tornado. Some people are waiting for the tornado. In my opinion a two year long tornado ended a year ago with the happy result that ARM garnered 80% of the RISC core market:


 **Quarter  Revenue   Growth q/q**
 6/30/98   16,568	
 9/30/98   19,022	
12/31/98   20,753	
 3/31/99   21,110	
 6/30/99   22,787     37.54
 9/30/99   25,850     35.90
12/31/99   30,482     46.88
 3/31/00   30,115     42.66
 6/30/00   34,995     53.57
 9/30/00   39,028     50.98
12/31/00   44,560     46.18
 3/31/01   46,211     53.45
 6/30/01   50,619     44.65
 9/30/01   59,074     51.36
12/31/01   56,925     27.75
 3/31/02   60,006     29.85
 6/30/02   65,794     29.98

ARM’s tornado is not a run-of-the-mill tornado that you measure by end user uptake of product. You could measure the Intel and Microsoft tornados by the sale of PCs. Not so with ARM because there is an additional manufacturing step involved. ARM customers don’t stick ARM cores in their products the way DELL sticks a Pentium and Windoze in a PC. ARM customers use ARM IP to build a processor that goes into their product creating a long delay between the time ARM receives license fees and the time the ARMed product hits the street. You might argue that the royalty tornado is more meaningful than the license tornado. It is certainly safer to invest after the royalty tornado but I don’t think you need to wait that long. With the PC the end user decides if he wants an x86 or a 680x0 machine. With mobile thin clients the choice is mostly between flavor A and flavor B ARM cores. You have your choice of StrongARM, xScale, DragonBall and the OMAP Texas processor.

https://softwaretimes.com/files/some%20people%20missed%20the…

Denny Schlesinger

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