Question for the board

Investment Analysis Clubs Saul’s Investing Discussions
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Has anyone held stocks that have fallen 30-50% over several quarters and then reaped the gains? I ask because in the past, even great multi-baggers like Starbucks and Netflix have underperformed the S&P indexes over extended periods.

Between 8/11 and 1/13 NFLX went from 42 to 8.
Between 10/06 and 11/08 SBUX went from to 20 to 4.

Both stocks have rewarded those who have held through the downturn, SBUX less so in recent times due to slowing growth. If one searches I am sure even great stocks have had long periods of poor performance due to missteps. I think even Amazon underperformed for long periods even after the 2000 bubble.

Coming to Nutanix we have identified several reasons - complexity, poor sales execution etc. They are all valid and the stock may take a while to recover. The general consensus seems to be to sell Nutanix and buy other better executing/growing companies like ZS, TWLO, MDB, TTD etc. But those stocks may also hit a speed bump? Most of us felt Nutanix had the best chance for multiple expansion till last week. Along the same lines could there be some other iceberg in those other companies that we don’t know yet? And if the new stocks hit a speed bump next year would we sell and move to some other one?

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I remember where I was on March 6, 2009 (in a bar at a computer trade show in New Orleans) when I joked that I felt like buying the “Andrew Jackson” portfolio. The guy I was drinking with asked me what I meant and I said that for 20 grand, I could buy a thousand shares each of a bunch of blue chip stocks (by now I’ve forgotten the list, but they probably included GE, C, F and some others). I said they couldn’t ALL go out of business. Some did better than others, but the point is the grouping did fine over time.

Now, admittedly that was at the bottom and they couldn’t drop much more - but they were scary times and the fear of oblivion lay upon the hearts of investors.

Anyhow, the point is that while most stocks recovered, they didn’t at the same rate. Furthermore, during the dot.com thing earlier in the decade, many didn’t make it out the other end of the tunnel.

Most of us who have been at this a while have occasionally gotten a bloody nose (my latest was last week with Nutanix). What helps me deal with these hiccups is to consider each day what the stock is worth from that day onward - the past may matter to the taxman, but it’s the future I’m looking towards.

As has been pointed out on other threads, if you have a buck tied up in a stock which is likely going to be static, why not move it to one with a better chance of going up. You can always flip back if things reverse in time.

Each of us will make mistakes (or just misjudge), and some will hurt - that’s life. The trick is to win more often than you lose and, at the end of the day have your blended strategy come out ahead.

Jeff

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Has anyone held stocks that have fallen 30-50% over several quarters and then reaped the gains?

Yes I have - some, the true hi growth outfits come back.

Palo Alto is the closest to Nutanix, they had a sales force issue as well as a sales model transition.

Shopify also worked out.

UBNT worked out too.

Square is a recovery in process.

Others that didn’t but paid a juicy dividend was KMI during the wait.

Others that didn’t where the thesis was broken or the growth not there were:
Sierra Wireless or Skechers.

A

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It’s an easier decision if you can sell at a profit or at least break even. Otherwise the choice is to sell at a loss and hope your next investment does so well it’s worth it, or to hang on and hope the stock comes back.

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There will always be the potential for unknown risk. The difference is that with Nutanix the risk is now a known risk. I never let the position become too large, about 4% as I thought the company had (and maybe still has) great potential, but my confidence in when they might really click in was uncertain.

So what did I do. After they got killed, I bought a few calls. I’ve not sold a share. Normal volume for Nutanix averages around 1.5M shares/day. On Friday they traded over 40M shares. They are seriously oversold, and I am confident they will soon bounce back, not all the way back but probably somewhere between $35 - $40. I’ll cash the calls and sell the stock. I’ll use the cash mostly to build TTD and maybe a little more of DOCU and IIPR (which I won’t elaborate, suffice it to say this stock is up over 300% since I first bought it about 2 years ago).

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Hi Texmex,

I bought NFLX in 2004, went through the Quickster disaster of, what, 2010? But held on and still hold the shares today.

I am the fortunate holder of a 150 bagger.

I’m amazing, right? Not really. The only reason I have come out on top on this position is because at the time I was (and still am) a follower and great admirer of Tom Engle, TMF1000. Tom has a philosophy of keeping two portfolios: a “never touch” portfolio of companies to be held through thick and thin, and a trading portfolio where he satisfies his (tremendously patient) trigger finger to trade, and with which to jump on market swings that he recognizes through constant study of his stocks’ PE ranges and various other indicators.

As most of you know, TMF1000 is a wildly successful investor and incredibly generous contributor to the boards–and now that I think about it, how lucky are we? To have someone like him and also someone like the great Saul (and all the other greats here) to also be amazingly generous with us?

Before I go any farther, thank you Saul, Tinker, Duma, Bear, GauchoChris, Dreamer, Niki, and all the rest for your amazingly helpful contributions!

But back to our story:

Back when the Quickster thing happened, I watched NFLX tank and tank and tank some more. Sadly for me, the darn thing was in my “never touch” portfolio. If it wasn’t for that, I would’ve sold absolutely–I mean: broken thesis, incompetent management, how much clearer could the sell signs be? BUT AGAIN: the never touch portfolio. I HAD to hold. That was my rule. The shares I had bought for 2.38 had run up to 42 and then had fallen all the way back down to 7. (Rolling eyes: THANKS TMF1000, great call! Sheesh!)

Well: the never touch portfolio stayed untouched. Two long years later NFLX was back to 42. And then: the rocket took off! Today, although the great bulk of my portfolio is in SaaS, I still hold all of those shares of NFLX. It is not a stock that will double any time soon, but I will freely admit that I have an emotional connection to these shares, as – can you believe it? – they are the first shares of any company I ever bought! I plan to hold forever, and then give them to my heirs, showing them: look! Look how smart grandpa was wayyyy back in 2004! Now go enjoy your free college education! :slight_smile:

So how does this relate to NTNX, which, by the way, I bought, still hold, and like Tinker, plan to hold until the dust settles at least for a little while so that all the disgust can get digested? Well, I was disgusted with NFLX back then, just as I am with NTNX today. Management seems to have totally screwed this one up, making dumb moves that I just don’t understand (I’m talking about both). But back then with NFLX, I did see this new streaming idea and this new “House of Cards” idea and felt, mayyybe there’s a little something there.

Maybe.

And with NTNX, I do see that it’s not the obsolescence of the product, it’s (apparently) the marketing.

I think: mayyyybe there’s something that can be fixed.

Maybe.

I will end with this: I understand Saul’s strategy of holding until it’s time to not hold and then moving on unemotionally. It’s smart, it’s sound, and it’s difficult to pull off as he has so successfully. It just. Makes. Sense.

However, I also hold an emotional bond to NFLX and plan never to sell my shares. I root for NFLX like I root for my favorite sports teams, remembering the days when they made amazing runs, acquired the best players, seemed the smartest guys around.

It’s just fun.

And investing should be–first, it should be about making money. But I think we are all kidding ourselves if we don’t think in some part of our mind that it’s fun.

It’s fun to find a story in the numbers.

It’s fun to latch on in the early innings.

It’s fun to WIN.

And sometimes you win by picking the winning team out of the gate (TWLO and SHOP are my faves) and sometimes you win by sticking to your guns.

So which will NTNX be? I still have some TMF1000 in me (although I’m much more Saul-esqe these days). I can be patient. If I sold NTNX, I wouldn’t have anywhere to place the money at this time. And also:

Maybe.

I think: mayyyybe this can be rectified. I have learned to be patient.

Deepest thanks, appreciation, and best of luck to us all!

-Mr. Sideshow

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I bought NVDA back in 2010 or so, and just held it due to its gaming thesis. I’m up, so I’m still holding.

:face_with_raised_eyebrow:
ralph

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Texmex,

Despite the very very very rules I articulated and pretty much proved I have not decided to sell Nutanix {yet}.

I get no tax benefit as it is in a tax deferred account, no margin loans if I need cash say to fix a leak in the house, and 44 million shares changed hands. I am just having a hard time doing what Saul wisely did (as I did before w Nvidia). Unlike Nvidia I can see Nutanix turn it around and at this point I am more risk adverse w this money. How much lower can expectations go? Well lower I suppose.

I just think Pandey will turn this around and Kingran’s post on sales force makes sense.

The product ain’t broken, the market is still in hyper-growth, and I am not ready to sell as of this moment.

Let you know Monday morning ;). My gut is just not there yet. Perhaps I just cannot get into being part of a stampeding herd in a panic. Selling Nvidia w my first after hour transaction was rational and called for. I am just not bringing myself to the same conclusion here {yet} anyways.

Saul has wisdom in what he did. But I have also been thinking along some of the lines you have been.

Tinker

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It is good to be lucky.

It is even better to be skilled.

To have consistent year in and year out success, you must learn to not emotionally attach to a stock.

Cheers
Qazulight

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I think: mayyyybe this can be rectified. I have learned to be patient.

This reminds me of a Morgan Housel Fool article, The Agony of High Returns https://www.fool.com/investing/general/2016/02/09/the-agony-…

Even with a time machine, a lot of people wouldn’t want to own the best-performing stocks.

What was the best performing stock over the 20 years from 1995 to 2015? Bet you can’t guess.

It was Monster Beverage. A astounding 105,000% increase. $10K became more than $10 million in 20 years.

The truth is that Monster has been a gut-wrenching nightmare to own over the last 20 years.

It traded below its previous all-time high on 94% of days during that period. On average, its stock was 26% below its high of the previous two years. It suffered four separate drops of 50% or more. It lost more than two-thirds of its value twice, and more than three-quarters once.

The article goes on to quote Charlie Munger: … if you’re not willing to react with equanimity to a market price decline of 50% two or three times a century you’re not fit to be a common shareholder, and you deserve the mediocre result you’re going to get compared to the people who can be more philosophical about these market fluctuations.

My point in bringing this up isn’t to say who is right and who is wrong, that’s not the way to look at it, I think. What I see is that there are different investing philosophies, and to be successful you have to choose a philosophy that resonates with you and which you can almost instinctively master and support. Saul bails at signs of serious business troubles, moving into other companies that are just starting their big growth times. Other people do the LTBH thing on companies that go through problems and emerge better & stronger. Neither strategy is “better” than the other, but successful as Saul and Housel and Munger, etc. are with their strategies, I think they would fail if they tried to adopt the other’s approach. Munger would probably fail chasing growth just as Saul would probably fail just buying and holding for very long periods of time.

And, that’s something I keep in mind as I read this board. I know I’m not as agile as Saul, nor as patient as some others. For every LTBH like NetFlix, there’s probably a dozen companies Motley Fool has recommended to hold, or even worse, buy more, during business problems, whose stock price never recovered. Multiple re-recommendations for DDD, FEYE, and SWIR, for instance - all down a lot compared to the S&P 500.

If I try to chase growth, I won’t be as good as Saul - probably a lot worse. Similarly, if I try to invest in beat up companies, I won’t be as good as Tom E. And if I try to find the 10+ year LTBH companies, I’m sure I’d chose the equivalent of Pets.com instead of Amazon.com (yes, back in the day that was actually a hotly debated choice). So, what I do is read and learn and see what resonates with me. Those are the ones I latch on to, because I can execute those at least somewhat instinctively.

I remember reading an interview with Gregory Peck a long time ago. He was starring in a movie (Arabesque) in a part that was originally written for Cary Grant. Both were great actors, but Peck was struggled in this movie. He kept complaining to the director that the part wasn’t written for him and his style, and he wouldn’t be able to pull it off. It’s not a great movie as a result. The point here is that I believe you have to find what suits you and do that. Don’t try to be something you’re not. Learn from others, absolutely, but also understand what fits you.

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Learn from others, absolutely, but also understand what fits you.

I couldn’t agree more.

Many novice investors start out with an idea to find the ‘magic formula’.

Realising that is all about your own personality and style is one of the most important steps on the way to success.

I would also encourage beginners to learn from Saul - absolutely yes - but also to cast their net more widely to get a feel for the different methods used by other hugely successful investors (Buffett, Lynch, Soros etc.) in order to find what resonates with them.

Ian

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Excellent Smorgasborg1! This is one of those posts that should be in everyone’s investing notebook. And speaking of notebooks, reading this board and taking notes on what resonates with you is what I would highly recommend investors do to develop their own thinking and skills.

Peace,
Dana

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You don’t have to be an investor very long before you hear the Buffet maxim to “buy when the blood is in the streets”, but how many of us ever have the fortitude to follow that advice?

We’re also familiar with “buy low, sell high”

I see this turn of fortune for NTNX as a time to apply both. This board and NPI have spent as much time analyzing this stock as any other, and so far their prospects have been held in very high regard. Then came the latest CC.

Now I’m not saying it happens, but there are people who believe that a lot of the media we see is somehow skewed so that we the public are not so much informed, but manipulated. And I don’t know who the analysts are that were there, but the concern wasn’t “You have too much debt”, or “Competitors are eating your lunch”, or “your product line is crap”, etc… the concern was “You don’t have enough salespeeps”. This is not what I consider very damning criticism.

The street needs people who will ‘sell low’, and if you look at the chart, it’s about as low as anyone could expect to get.
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?s…

I think if there was ever a time to wade through the blood and buy something it is now. And if it takes a year to get back to $50 or $55 it will fit the investment style for most of us, and you will still be well rewarded as a percentage return.

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So much great wisdom in this thread, love it. Thanks all for sharing your knowledge with guys like me, who started investing about 5 years ago and who is still in the process of recovering from the rookie mistakes he made back then.

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It traded below its previous all-time high on 94% of days during that period.

Hi Smorg, if you think about it that is a nonsense statistic. Every stock you own trades below its previous all-time high on 94% (or more) of days. Even stocks like Twilio and Trade Desk don’t hit new all time highs on more than 6% of days.

Saul

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NTNX has a moat or niche, like SBUX and NFLX?

🆁🅶🅱
wordlessly watching, he waits by the window and wonders…

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Hi Smorg, if you think about it that is a nonsense statistic. Every stock you own trades below its previous all-time high on 94% (or more) of days. Even stocks like Twilio and Trade Desk don’t hit new all time highs on more than 6% of days.

True dat.

I am still recovering from 2018’s all time highs.

John

Man who bought before 2018 dips.

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Every stock you own trades below its previous all-time high on 94% (or more) of days. Even stocks like Twilio and Trade Desk don’t hit new all time highs on more than 6% of days.

True enough, but removing that clause completely does not seriously dent Housel’s thesis that many of the best LTBH stocks of the last two decades (as of 2016) were hard to hold. Specifically, the statements following that one on Monster Beverage were:

It suffered four separate drops of 50% or more. It lost more than two-thirds of its value twice, and more than three-quarters once.

Now, while I’m not saying that the recent big drop in NTNX’s stock price is a holdable event, but it’s “only” a 33% drop - not the 50% or 66% or 75% drop that MNST experienced and through which holding turned out to be an excellent investing strategy.

Not that NTNX is that kind of stock. But, I think MDB is that kind of stock.

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I held Amazon and Netflix stocks through their downturn and that turned out to be a wise move.

Speaking as a marketing guy then Nutanix’s problems are very different than the marketing mistake that caused Netflix to drop precipitously.
Netflix’s mistake was an extremely bad decision that could be rectified very easily, whereas Nutanix’s problem (and NVidia’s problem too) is that they are run by pure product guys who are also on the BoD so are unlikely to step into the position of Chief Product Officer which I believe is where they would fit best.

Sometimes product guys focus too much on the technology to the detriment of the business side of the company.

You could make the same accusation about Jeff Green, but he has run or worked for many companies and TTD is mainly all about how business transacts with other businesses so I have faith in him.

I’ve listened to two Nutanix earnings calls now, and their CEO is a visionary in terms of their products, but seems to have very little understanding of business. Recruiting and training a salesforce takes time and money and I wouldn’t expect a turnaround any time soon because the new employees will be fairly unproductive for the first 6-9 months. So I sold.

May buy back but I have the distinct impression that there’s another shoe to drop in their case and I’d rather be invested in Docusign in the meantime.

(On a side note then glad to see that Brittlerock is enjoying the gains from the company that can’t be mentioned here, as am I.)

I’m in catch up mode at the moment but someone posted that the CEO of Everbridge was leaving his job but would retain a board position. I can’t find anything that confirms that, but the current CFO is retiring so maybe the poster got confused. But if the CEO (Jaime Ellertson) is leaving his post then that would cause me to reduce my holdings so can anyone cast and further light on this?

Cheers, PB.

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