I have enjoyed looking through the Knowledge Base as well as reading the discussions on this board. My main question that comes up is that I see Saul says that he sells if the stock goes up wildly or the price gets off base but he also says he doesn’t look at things like P/S. What is the metric to judge whether a stock has gone up wildly? Is P/S not used because of its shortfalls (talked about gross margin differences between companies) or is that a catch-all for all valuation metrics?
6 Likes
My main question that comes up is that I see Saul says that he sells if the stock goes up wildly or the price gets off base but he also says he doesn’t look at things like P/S.
I’m not so sure Saul mentions selling if the stock prices rises wildly in the KB. Really the only time he sells is if the trajectory/story of the company changes or if one position becomes too large as a percentage of his portfolio.
I don’t recall ever seeing a position worth 30% or maybe even 25% in his portfolio. I’m sure some would have made it to that mark without a bit of trimming.
You may want to look back through the KB. The price of the stock is rarely a consideration for selling, if ever.
If you think I’m off base, email me the info from the KB that you are reading and we can discuss.
A.J.
1 Like
Most I found are in KB #2: 1) “I tend to sell a little piece if I feel the price has shot up wildly.”, 2) “(2) sell a little of high flying stocks with growth that doesn’t warrant their high valuation, and which therefore seem vulnerable.”, 3) “Selling out at the bottom, when everyone is panicking, is not a good outcome. The time to have sold the wildly over-extended stocks, was when everything was booming.”, 4) “If a stock seems overly extended, I won’t sell out completely, but I’ll trim my position a little.”
These are the ones I could find right now. My main question is how is “over extended” defined? Or how is “shot up wildly” defined? Help me if I am misinterpreting.
2 Likes
I’ll try to take those one at a time, but won’t have a great answer for all…
-
Selling if price shot up wildly - I really can’t recall a time I’ve actually heard Saul use this as a reason to sell. I do believe he got out of many stocks during the bubble in 2000 for that reason. But haven’t seen it happen recently…could be wrong of course.
-
Sell a bit if the valuation isn’t warranted - I’d repeat the same as above.
-
Not worth discussing as it is when not to sell.
-
Selling a bit if extended - I haven’t seen this happen recently either. When I say recently, I’m talking about years.
There are no hard and fast rules. Valuation used to be of pretty high importance for many including Saul, but that doesn’t seem to be the case these days.
I’m sorry if this doesn’t help much. These seem like extreme circumstances. Maybe for instance, let’s say Saul got in SNOW at the IPO price. Maybe SNOW at $260+ would be an example of such an extreme valuation, extended, wild growth as to warrant selling…but that is all hypothetical.
Don’t want to put words into Saul’s mouth here, but just thought I’d chime in.
A.J.
1 Like
My main question that comes up is that I see Saul says that he sells if the stock goes up wildly or the price gets off base but he also says he doesn’t look at things like P/S.
I can NEVER, EVER, remember selling out of a stock because the price has gone up. I might trim a small part of a position because it has become too large due to a price rise, but that’s it. Prices usually go up because the company is doing well.
As far as P/S, I can’t remember ever calculating P/S on any of my stocks. It just isn’t the way I invest.
Saul
36 Likes
My main question that comes up is that I see Saul says that he sells if the stock goes up wildly or the price gets off base but he also says he doesn’t look at things like P/S.
I can NEVER, EVER, remember selling out of a stock because the price has gone up. I might trim a small part of a position because it has become too large due to a price rise, but that’s it. Prices usually go up because the company is doing well.
As far as P/S, I can’t remember ever calculating P/S on any of my stocks. It just isn’t the way I invest.
Saul
I suppose the main situation where it’s documented is in the first Knowledge Base:
I lived through the Internet bubble of 1999–2000. I sold out of Amazon, Yahoo, and AOL one day in January or February of 2000, after Yahoo, as I remember, had gone up something like $30 to $50 per day for three days in a row. I said to my wife, “They may keep going up, but this is insane. I’ll let someone else have the rest of the ride.” The bubble broke about 3 weeks later. Sometimes selling can be the most important thing you can do.
Obviously, the ability to identify a bubble and act on it within 3 weeks of the peak is something we all wish we had.
I don’t think there is any definition of when a stock has gone up too much too fast. For me, if the price goes up somewhat symmetrically with actual business performance, or if it goes up because of some real news, I don’t think about selling. A stock rising 20% after a quarter of 80% growth isn’t such a crazy move. After all, we kind of expect the price to rise along with sales (or earnings or whatever metric you want to use).
So when Zoom goes up 50% in a month during the pandemic, there’s a reason for that, or when it goes up 40% after blowout earnings, there’s a reason for that too. Is there a number where it would be unreasonable? Probably, like if Zoom went from $400 to $430 to $480 to $550 over the course of 3 days for no apparent reason.
13 Likes
Saul
you mentioned snowflake has a silly valuation so I think you do consider valuation
The valuation for our stocks makes perfect sense from a growth perspective
Zm is higher because it’s growth rate is higher…
the rest are standard for their growth, margins, fcf, future potential, business model- saas
Etc
1 Like
I can NEVER, EVER, remember selling out of a stock because the price has gone up. I might trim a small part of a position because it has become too large due to a price rise, but that’s it. Prices usually go up because the company is doing well.
As far as P/S, I can’t remember ever calculating P/S on any of my stocks. It just isn’t the way I invest.
Saul
IRdoc reminded me that (as described in the Knowledgebase) in early 2000 I exited my dot-com stocks because they were all rising crazily day after day, in a frenzy, some weeks before the bubble burst. Some observations:
-
- I guess that proves that, at my advanced age, I’ve gotten old enough that I didn’t remember what I had done 20 years and 8 months ago.
- I guess that proves that, at my advanced age, I’ve gotten old enough that I didn’t remember what I had done 20 years and 8 months ago.
-
- I have to say that what was happening then, had nothing to do with calculating P/S ratios, which I didn’t do even then, or any other calculations of valuation, but came under the “just plain silly” category, like the SNOW IPO. (I can’t describe parameters “but I know it when I see it”). As I wrote in the KB, I said to my wife, “They may keep going up, but this is insane. I’ll let someone else have the rest of the ride.” I wasn’t mentioning valuation, I was talking about what was going on, which was “just plain silly” in my eyes.
-
- My current positions are ZM, CRWD, DDOG, FSLY, NET, OKTA, and I promise you I don’t know the EV/S on any of them and I’ve never calculated it. What I do know is that Zoom has grown to be 31.4% of my portfolio with Friday’s rise, and I may trim it back to 30% on Monday.
Best,
Saul
58 Likes
“I promise you I don’t know the EV/S on any of them and I’ve never calculated it.”
Very similar investing philosophy to David Gardner. Buy the best companies with the best management and don’t worry so much about valuation metrics. The main difference is that David G. advocates owning more companies and holding them for much longer - even through silly valuation swings. I like Saul’s method better, but I think it requires watching/tracking the companies much more closely. If you are going to be highly concentrated you need to know what’s happening daily/weekly at least and be ready to react (IMO).
On SNOW. For me, I look at what is typical for a new IPO. There are some (small %) that go straight up and never give a good buying opportunity. I don’t know what % exactly do that, and I don’t know how to figure out which ones will do that. The majority of IPOs have an initial spike and then come down to form a base after 3 - 6 months (look at CRWD, LVGO, BYND). I think new IPOs are much more prone to irrational exuberance and it is usually better to wait and see where things settle after several months and then invest. Also, there is a very real concern about the lockup period ending - which is usually 3 or 6 months after IPO. Insiders can not sell shares until that point, and it is often a point in time where the share price falls in anticipation of a bunch of shares that will be entering the tradable float (supply vs. demand). I don’t know when the lockup period ends for SNOW, but I’m willing to bet that if the stock is still $250 at that point, you are going to see an unusually high amount of insiders selling shares. It is possible this will not apply to SNOW - they seem to be a different kind of beast. But for me, I just don’t know, and the potential reward is not worth the risk of the price falling back to a more typical valuation (which I think could be 50% lower). It will be educational to see what happens in the next year. I am mentally ok with possibly missing out with SNOW because I love the other companies I’m already invested in.
5 Likes
Thanks Analogkid70.
Few dates & numbers to look more closely. Dates and Dollar figures are approximate only and taken from yahoo charts. Not much of a charting person here.
CRWD
launch date - 06/09/2019
launch day avg price - $64.16
avg price on 09/22/2019 - $53.46
avg price on 08/11/2019 - $96.05
wait duration - 3 Months
I had to wait 3 months to buy CRWD lower from launch day
LVGO
launch date - 07/21/2019
launch day avg price - $38.12
avg price on 09/22/2019 - $17.05
I could have bought LVGO at more than 50% discount 3 months from launch.
BYND
launch date : 04/28/2019
launch day avg price - $66.79
avg price on 07/22/2019 - $234.9
Next best day to buy BYND at near launch day price - 12/08/2019 @$75.02
Hope that helps
Pravin
9 Likes
Thanks Pravin. Others that followed a similar pattern are - DOCU, PD, TWLO, NET, ZM, MDB. I’m not saying those spiked the first day - but some did, and others were within the first few weeks after IPO.
My assumption is that the extreme hype around SNOW (and other current IPOs) is that the post IPO spike is happening on opening day - as opposed to the first few weeks after IPO with others. Really, the SNOW price spike is happened even prior to opening day with all the raises in the initial offering price.
There are of course IPOs that do not follow this pattern. The question is - which do we think SNOW will be like? I could certainly be wrong, but I’m willing to wait and see if a better price emerges over time for SNOW. If I’m wrong, then I missed out and I’m ok with that.
Final thought - SNOW told us what they thought they should be worth (kind of) with the initial offering price they floated that was around $80 per share. The thought was it would pop from there to the low 100’s after opening. That would have been a premium valuation for a premium company. The first trade was 3x that preliminary amount. Where else does that happen? Are they really that good that they deserve 3x? Maybe. But not likely.
8 Likes
IRdoc reminded me that (as described in the Knowledgebase) in early 2000 I exited my dot-com stocks because they were all rising crazily day after day, in a frenzy, some weeks before the bubble burst. Some observations:
1. - I guess that proves that, at my advanced age, I’ve gotten old enough that I didn’t remember what I had done 20 years and 8 months ago.
2. - I have to say that what was happening then, had nothing to do with calculating P/S ratios, which I didn’t do even then, or any other calculations of valuation, but came under the “just plain silly” category, like the SNOW IPO. (I can’t describe parameters “but I know it when I see it”). As I wrote in the KB, I said to my wife, “They may keep going up, but this is insane. I’ll let someone else have the rest of the ride.” I wasn’t mentioning valuation, I was talking about what was going on, which was “just plain silly” in my eyes.
My Portfolio spreadsheet goes back to 1997. During the month of February 2000 my portfolio was up 57.4% in 29 days, it was a leap year. “Just plain silly!”
Denny Schlesinger
PS: I wasn’t smart enough to get out.
13 Likes