Most of the stocks discussed in here are software tools for the entreprise or SMB using a subscription and XaaS model in the Cloud. This area of the market is innovating and growing, and customers recognize their value. Their stock growth in these past several years has reflected this reality.
By picking one or a few in this sector, one would have done quite well, and will continue to do so since this trend is not near exhausted. By looking at the growth numbers over the past several quarters, one would continue to fuel this growth.
Getting into the right trend is important and that is a kind of timing over a different time scale. Biotechs and pharma enjoyed several years of growth and enthusiasm but this sector has been flat and/or declining for the past 3 years. Enthusiasm and growth for different sectors happen over different time periods. Getting into them and then selecting the ‘best’ in those is the path for outsized returns.
The difficulty is that actively choosing a sector by weighting in can be very risky. In 2015-2016 the reason you did not get the returns you’ve seen in 2017 and this year is because you were in the wrong sector. I recall you were in SKX and BOFI (now AX) and LGI… Those were not potent enough to give you triples in 2 years.
It is hard to determine the beginning and the end of bail sector growth. We think we just cannot do such ‘market timing, and we just don’t try it’. But the reality is that some attempt this all the time and they succeed from time to time. In their view that may be enough to get in early for the ride and to build that cushion.
You may not have intentionally done that but it is clear that in 2016 you started to re-make your portfolio with very different stocks by going after the ones with the best quarterly growth. Can you get in the next growth trend? Can you do it again? Certainly we are not there yet and we are still riding the existing one. But when do you think this is going to get tired and when will it be time to switch horse?
This last sentence does sound like asking you about timing but it is not. It is a question about the longer term. Why and how did you come to the conclusions you had to re-make your portfolio and focus on SaaS and subscription businesses back in 2016? It is not only a matter of identifying a trend but most importantly you need to get in at the right time. You did. Although you are certainly not the first to see that. The first to see this trend would have started investing in the Cloud and SaaS businesses maybe more than a decade ago. But like anything new, it does not become significant until it can reach a threshold. That is when you can really see something in the numbers (if it ever reaches that threshold).
Why and how did you come to the conclusions you had to re-make your portfolio and focus on SaaS and subscription businesses back in 2016? It is not only a matter of identifying a trend but most importantly you need to get in at the right time. You did.
Hi tj,
I don’t think it was any sector at the time I was doing it. It was stock-by-stock, individual choices. When the Fool recommended Shopify, I think it was, two months in a row, that got my attention. And Bert pounded the table on Alteryx and Twilio, Matt introduced Square, Bulwinkl got me into Kite (small position, but very profitable, Steppenwulf got me into Mongo, Dave Gardner helped me decide on Okta, and other board members recommended other individual stocks, and I read about them, and decided one-by-one, yes, I can deal with the lack of earnings because of the huge revenue growth, recurring revenue, high dollar net retention rate, and all the rest. That’s why, if you look at the stocks in my portfolio over the last year, they are all over the map (Alteryx, Shopify, Mongo, Twilio, Okta, etc), they are all in totally different businesses. The only thing that unites them is that they are all fast growing, recurring income, high retention rate, high software component, and they facilitate other companies in their use of the cloud and the web, etc. It just happened that way.
Hope that helps,
Saul
I’m obviously not Saul (and neither are my returns unfortunately), but this link to the right of the board lays out his SaaS thoughts. It’s worth a read.
What is so great is Saul is open and humble about his sources. All sources we all have access to with an MF subscription. And even some where you don’t need a subscription(this board).
I’m obviously not Saul (and neither are my returns unfortunately), but this link to the right of the board lays out his SaaS thoughts. It’s worth a read.
Thanks stock novice, for recommending that wonderful post that explained it even better than I ever could have:
Don’t forget that it took a while for the market to recognize that SaaS companies are very valuable. I remember Saul getting very discouraged back in 2016 sometime (I looked it up and it was post 22412, almost exactly 2 years ago, link: https://discussion.fool.com/my-portfolio-at-the-end-of-october-3…). And back then Shopify and Amazon (AWS) were two of his top 4!
But the important thing is that the posters here are willing to take a lumpy 20-30% rather than a steady 5-10%. Average out his tough years in 2015 and 2016 with how he’s done in 2017 and 2018, and you can see that rosy results don’t come without some initial pain somewhere along the road. What I most admire about Saul isn’t luck or even skill, it’s perseverance and the openness to continually change his mind when the facts change
Maybe it’s from having watched the movie “Primer” about 30 times? When the protagonists first realize that they can use their device to go back into the past, they use it to play the stock market.
That portfolio reflects what I am talking about. That was at the time of the transition. You can see the SaaS as smaller positions or ‘try out positions in that portfolio.
SHOP is a subscription business. The reason I gather he chucked it is that growth was ‘slowing down’ despite reporting a 57% top of line growth just a few days ago. Both SHOP and AMZN grew by a lot over past couple of years and were part of the transition from ‘value’ to growth.
One thing I think we can say about his way is that he is nimble and get in and out fairly quickly and had the knack to stay in the ones that continue rising. But for a perspective we are only talking about a couple of years. Nothing is really in the bag in the stock market. Investing in stocks is about hitting on a good process. It can throttle you to higher grounds in short amount of time or it can also take much longer and meander up and down before you really get to that more ‘stable’ higher ground.
