SHOP and PAYC two companies have blown the market away this year. They are also both stocks that used to be held by frequent contributors here, but no longer. The general conclusion from discussion has been that they were no longer attractive due to slowing growth.
And yet the share price continues to appreciate. I’m left wondering why that is, especially in light of the fact that other stocks that are more loved here, Twilio, for instance, have started to languish.
My first thought on this is that this is testimony to the idea that this board is full of expert “value” investors. Surely, not value in the sense of where we fall on the growth/value spectrum, but rather in the sense that we carefully examine business metrics to make investing decisions, rather than just looking at a story.
My second thought is that given such an effective process has been identified, it doesn’t really matter if one doesn’t catch all the winners. Saul’s process identified Alteryx and ZScaler as compelling buys. And if the process is working to identify good investments, there’s no need to stress too much about finding more investments outside of that process. If you have one golden goose, there really is no need to go hunting for more, so to speak.
And yet, I wonder about these two companies. They are in our investment universe. We have found them lacking, but the larger market has not. This is the opposite of what has happened with a lot of other companies that have been discarded here and then seen their stock prices tumble… Pure, Nutanix, Pivotal, New Relic, to name a few. I can’t help but wonder if the market is seeing something that we don’t.
Saul has explained Shopify’s soaring stock price as being related to marijuana hype. I have a sneaking suspicion that there is something to that. But could there be another explanation? Could it be that Shopify’s market opportunity is simply enormous? Is it more likely for ZScaler to become a 45 billion dollar company or for Shopify to become a 215 billion dollar company? Both of these market caps represent a five bagger from the current price and both seem plausible to me.
As for Paycom, is it the fact that the company is already profitable? They have already started buying back shares. And they also seem to have a very large market opportunity. They are disrupting the incumbents in their industry similar to how ZScaler is to theirs. Both stocks seem to just go up continuously. Is the market missing something by continuing to bid up Paycom? Or are we missing something? Does it even matter?
The reason I ask that last question is because I am having the hardest time limiting my portfolio to 5-10 stocks. I feel like this would be a good size for two reasons. First, because my portfolio is quite modest (just about equivalent to a year of my salary at this point.) and having more positions would just result in peanut position sizes. Second, because I think that I will become a better investor if I can focus on tracking just a few companies, reading their conference calls and checking their statements each quarter. If I have more companies it will just be overwhelming.
I look at my spreadsheet and I say to myself. OKAY how about just focusing on Alteryx, Twilio, The Trade Desk, Shopify, and MongoDB.
But then I think…oooh, what about Elastic, and Pinterest, and Roku, and Smartsheets, ZScaler, and Okta.
And then I start thinking about Atlassian, and Paycom.
And then I start thinking about Square, and Crowdstrike.
And then I start thinking about more speculative plays in med tech and emerging markets that could just explode…Omeros, Charlotte’s Web, Tandem, Novocure, Baozun, IqYi, MercadoLibre
And then there’s solar…that S Curve is coming in the next decade and it will be huge…Enphase
And then there’s a couple more intriguing picks in the MF universe…StitchFix, Match.
Before I know it, I’m up to 25 stocks, more of a David Gardner sized portfolio than a Saul sized portfolio.
I feel as though I am at an impasse. My own psychology tends towards being a collector. I want to own them all! But I know that if I do that, I will not reap the rewards of closely following just a few stocks. At the same time, I don’t have faith in my ability to differentiate. I know Saul likes Mongo more than Elastic. But I don’t know if I like Mongo more than Elastic, and I waver so much on making the decision. It’s frustrating and I’ve been turning over my portfolio reconstruction in my head over the past couple of weeks. I own twenty stocks now, but would love to narrow it down to a more reasonable number. And yet whenever I do so, I just end up with a list that’s even bigger than the one I started with. Should I just surrender, and go the Gardner way, or is there hope for me yet?
Anyways, sorry if this is getting to be off topic. I wanted to post just about SHOP and PAYC but then just ended up finding an outlet the work through my current thoughts. Sorry if this post is on the edge of off-topic, but if anyone has sage counsel, I would love to hear it.