Questions that I can’t answer.

Questions that I can’t answer.

I’ve been getting a lot of emails asking me, “What is going to happen to the economy in light of the war between Russia and the Ukraine? Will we have larger inflation? Will we go into a recession? If we do, how will our stocks be affected?”

Guys (and gals), I can’t answer those questions. How the heck should I know what’s going to happen? I’m not a fortune teller. I don’t have a crystal ball. I can’t see into the future. I have no skill or training in analyzing the economy, and have never claimed to have had any. I just try to pick stocks in good companies and then try to stick with them.

I currently have seven companies in my portfolio: Datadog, Bill, Snowflake, Zscaler, SentinelOne, Cloudflare, and Monday, ranging roughly from 19.7% to 12.7% of my portfolio. I see these as very strong companies and I am reasonably sure that each of them will do well as a company over the next six to twenty-four months. But how can I guess what their stocks will do?

I can guess that cyber security companies like Zscaler, Sentinel, (and probably Crowdstrike), and Cloudflare, which has moved into cyber security, and Datadog, which is starting to do the same, will all have a large tailwind, and will all do very well as companies, as American and Western European companies and governments will try to defend themselves from potential or real cyber attacks, but that’s just my guess. I would think that Bill, Snowflake, and Monday, which all make life easier for companies and save them money and time, will also do very well, but that’s just me thinking.

My practice is to stay fully invested, but YOU have to do what you feel comfortable with. I went through recessions, and down markets with varying degrees of pain, but came out at the other end. I didn’t have any companies like these SaaS companies in my portfolios back then because they didn’t exist yet. We weren’t living in a Cloud world yet.

I think these companies have become truly and ridiculously oversold, but they may go down another five or seven percent on Monday of next week just to spite me. I could be very wrong.

I see for instance that several analysts cut their price goals for Snowflake after earnings, but that the lowered prices that they set their goals at looked to be about $100 or so, and 50% roughly, higher than its current price, when I casually glanced at them.

To paraphrase Bert Hochfeld, “It seems as though rapidly growing companies in the IT space in general are perceived as high risk, and have been sold without much further thought than that. The conflation of risk and growth is not one that I find reasonable, but it is still happening, and until that theme wears out it can be difficult to suggest that even the best companies will be able to see their share value reflect their business as opposed to notional risk.”

I see that the Fear and Greed Index is expressing “Extreme Fear,” which is a positive indicator, but it’s just a short term one of course (sort of indicating that we are temporarily near or at a bottom, but who knows? It could get worse!)

I would recommend reading the KnowledgeBase (in the right hand panel) if you haven’t already done so. I’d read it at least twice (all three parts)

Best,

Saul

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Hi Saul,

Thank u for the thoughtful post. Small add-on - Snowflake is also moving into security (like DDOG). Here is info from the earnings call:

"Derrick Wood

Great. Helpful color. And for Frank or Christian, wondering how you’re thinking about the opportunity around security. I guess as you look into the New Year, I mean, how much demand are you seeing around customers wanted to build security data lakes or security analytics on your platform. And is there anything you guys may look to do to lean in more aggressively?

Frank Slootman

Yes, we’re going to make announcements on this topic later on this year. But that has been raised the priority and focus quite a lot for Snowflake. It’s one of the best add-ons selling motions that we have in large account. We in Snowflake are just an ideal platform for hosting that type of capability. So, you will see us lean into that opportunity a lot more going forward."

In addition to the accent on cyber security these days - pretty much all our companies are mission critical (including Snowflake) and are here to stay for many years to come.

Best,
V

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Thank you Saul,

i have been writing about the Pushmi-Pullyu attitude of Mr Market lately and hoped it an appropriate addendum to your supportive note from this past weekend.
Mostly for newcomers and sincere market aficionados.

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”
-Warren Buffett

The Fear and Greed Index
Some investors use this index to raise their cash position when the market is going down and raise stock holdings when the market is trending up.

We can see this occur ‘naturally’ as we downsize, rebalance or sell our trading positions as values reach higher, and buy as values are lower in different companies.
This Saul’s board in particular, is inclined to transfer monies from one position to another as their values naturally fluctuate, presenting us with timely investments.

What emotion is driving the market today?

We see today, March 7, that the Fear and Greed Index continues to express “Extreme Fear” as it is 16 on a 0-100 scale indicating extreme fear.

The CBOE Volatility Index (VIX) is a companion indicator and today is at ‘31.98 and indicates that investors remain concerned about declines in the stock market.’
In general, a VIX reading below 20 suggests a perceived low-risk environment, while a reading above 20 is indicative of a period of higher volatility.

Some say, “If the vix is high it is time to buy.”
Mr Market likes to play games with peoples Fear and have them sell at this time.
i like this expression, “If the vix is high it is time to buy.”
Though as you warn Saul, we can’t count on catching an exact bottom.

“Fear tends to manifest itself much more quickly than greed, so volatile markets tend to be on the downside. In up markets, volatility tends to gradually decline.”
-Philip Roth

Uncertain what to do?
Yep, the market’s don’t like uncertainty either, eh.

IMHO, Acceptance and patience become the key.
We had a wee spring thaw here in Vermont yesterday and , yes, i walked out to the garden to peek and see if any crocus or tulip bulbs were beginning to sprout some green.
Nope, not yet, still huddled in their cold dark cocoons.
Will i dig them up to see if they are sprouting… that would be silly , eh.

i need to be patient.

Just a bit more patience that Spring will come and the Flowers planted last year will bloom.
Almost time to plant some more!

Thank you Saul, for your individual viewpoints on your/our ;^) holdings and frankly , i couldn’t agree more at the opportunities being presented to us for future success.

Best, kevin c

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