Simplicity Check...

Hey Fools,

Are these descriptions accurate and fair? I’m trying to state the mission (or as I call it Narrative) in as few words as possible. The top are stocks I own, bottom ones I’ve sold or passed on. I’m sure many here have done the same. Obviously I’m exploring the relationship between simple narratives and success of our stocks. If I have cheated to make top seem simpler and bottom more complex due to my pro simplicity bias, please correct me. And I’m sure there are tons of simple stories that stunk up the house but curious if there is an example of a complex narrative that killed it. Thx.


Alteryx sells software to analyze big data

CrowdStrike sells software to protect networks

Coupa sells software to manage spending

DataDog sells software to monitor network performance

Netflix sells software to watch movies/TV and develops programs for the service

Mercado Libre sells software to enable e-commerce and payments

Okta sells software to verify identities

Shopify sells software and education to enable e-commerce

Stitch Fix sells clothing*

The Trade Desk sells software to buy ads

Zoom sells a video conferencing app


Roku sells hardware and software to watch tv on and ads into the software

Square sells hardware and software to facilitate payments and fund small businesses

Arista sells hardware and software to run computer data centers

Of note, reading their site seemed much more complicated than Data Dog.

ElasticSearch sells software to search through and analyze data.

The site reads, “Elasticsearch is a distributed, RESTful search and analytics engine capable of addressing a growing number of use cases."

Nutanix (from their site) “helps ensure business continuity for remote workers with End User Computing solutions.” So, it powers the cloud so all software can work smoothly no matter where people are working from?


If these descriptions are fair the evidence speaks for itself.

Broadway Dan

25 Likes

Netflix sells software to watch movies/TV and develops programs for the service

I’m sure you know Netflix actually makes money delivering content and does not sell nor license any software, so I’m wondering why you characterized it this way? Same for many of the other companies.

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Taking Zoom as an example; I don’t see them selling an app (they give the app away for free). They sell services. And, it’s more than video conferencing (e.g. zoom phone). So, using them as an example I’d say Zoom sells telecommunication services.
And I understand trying to simplify but don’t the listed companies actually ‘lease’ vs. ‘sell’ software?

But I like the attempt to provide a simplified list.

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Most of the “sells software” should be rephrased “rents software package(s) as a service to customers, with built-in maintenance and patches”. To users, we exchange a monthly payment for the presence of their software for our use.

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Facebook sells ads to the people who connect socially on its platform.

Roku sells ads to the people who stream TV on its platform.

It’s good to have a simplified list, and each of us might have a different idea of just how simple is useful.

For each, I would add to whom they sell to:
Consumers vs businesses
A word or to to characterize the business (small, medium, large, type of business)

For example:
Shopify sells services mostly to small and medium sized businesses for opening online shopfronts.
Zoom sells robust and easy to use video conferencing services to businesses and also to consumers.

Enjoy,
Brian

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Hi Broadway Dan,

I think your descriptions are pretty good. The tweaks I’d make might be:

Square: hardware and software allowing small businesses Point of Sales payment processing (think food truck)

Nutanix: provides low tech, virtual data center that will fit in the back of a pickup truck. [Yes, that portability was something that I heard one of their clients rave about as their office was below sea level New Orleans…]

Note for ElasticSearch: One of their key advantages was being an AWS service but AWS is pushing open source over ESTC and the papers said ESTC stock was going to fall. That was March 2019. I don’t think the AWS open source movement has harmed ESTC at all. I also know one of their clients that has based an important national government program for finding lost people and identifying unidentified corpses based upon the Elasticsearch tool. Familiar with that program, I have to have some admiration for ESTC.

Thanks for sharing,
Chris

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Thank you for the thoughts.

I’m looking at these from a 50,000 foot view to just put a simple wrapper on the entirety of analysis. Though the concerns raised about my phrasing may be accurate, or more precisely phrased, they don’t change the fact that the better stocks have simpler narratives.

We invest our money and our time - with the latter being even more precious. And I often see great minds investing countless hours studying stocks that one can see are inferior with a glance. It’s like watching a car buyer analyzing a car with a wheel permanently stuck facing out. Yet they spend countless hours analyzing the thermodynamics of the engine, the molecular structure of the oil and physics of the suspension.

BD

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I might suggest that a simplified list is really only useful for cluing in someone who doesn’t know anything about the company. For such a person, a short paragraph about product, delivery, and customers would help get a handle on what is being discussed and might allow an early decision of whether the company deserved more attention, e.g., “I never invest in …”. As such, it seems like a good candidate for a right column item where it could actually be found by someone new to the board.

Short of that, I would argue that the essence of this board is not making investing decisions based on a few limited bits of information or metrics, but rather on understanding the company, product, and market well enough to know why this company stands out among possible competitors.

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Tamhas, I would argue that brilliant minds and killer, advanced-level investors miss this simple point all the time. And that when the market crashes, and Saul whittles down the top stock list to, say Alteryx, Zoom, Okta, Coupa and Crowdstrike, this one data point stands out. Again, I am not remotely suggesting that deep financial analysis and in-depth study of the business, technology, competition, etc. are not critical. And you can have a simple narrative that is still laughably awful if the CEO is a knucklehead or the the product stinks. I’m just saying that, for example, a company that sells hardware and software, is almost certain to underperform one that just sells software - all other things being equal.

Please no one respond further unless you can name a stock with a complex mission/narrative that was or is a top performer on this board. And ones that evolved into more complex stories don’t count. A great stock is like a great martial artist, the best ones start out simple and add complexity as they go because they’re better able to handle it due to having more money, people, experience (relationship equity of working together for years), brand recognition, etc. A white belt learns a few simple moves and adds complexity as they go.

BD

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Please no one respond further unless you can name a stock with a complex mission/narrative that was or is a top performer on this board.

MDB? There are scads of database companies all doing much the same thing. Aren’t their one liners going to sound a whole lot like MDB?

I would argue that the essence of this board is not making investing decisions based on a few limited bits of information or metrics, but rather on understanding the company, product, and market well enough to know why this company stands out among possible competitors.

Broadway Dan,

I would have to agree with tamhas’s comments above. Our board is not for lists of simplified 10-word descriptions of our companies, but for in-depth discussions of our stocks to really learn about the companies.

Please bring this to an end.

Thanks,

Saul

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Done, boss! Sorry for troubles.

Short of that, I would argue that the essence of this board is not making investing decisions based on a few limited bits of information or metrics, but rather on understanding the company, product, and market well enough to know why this company stands out among possible competitors.

I agree, but I’d also say the essence of this board is making decisions using ALL information. In theory, grinding through all those details should lead to a simple elevator pitch summing up what makes the company appealing. I believe that’s something this board does very well.

What’s gotten me thinking is what to do when all that work doesn’t lead to a simple conclusion. Not to slice it too thinly, but I find myself with a slightly different perspective on all the threads we’ve had trying to figure out names like ROKU and ESTC. Those threads never seem to get to the elevator pitch that neatly sums everything up.

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I apologize. I’m just getting to Saul’s request to end this thread. Sorry for continuing and feel free to delete if needed.

I hope it is fair to extend this thread by one more to point out something about Shopify as a correction:

“Shopify sells services mostly to small and medium sized businesses for opening online shopfronts.”

ShopifyPlus caters to some larger companies like Heinz, Staples and Lindt. (https://www.shopify.ca/plus/customers). I bet a lot more that do not allow their logo on 3rd party promotional material. I remember reading about another larger customer last month but I can’t recall it or find it in a quick search so maybe I’m imagining it…?

I agree that oversimplification can be dangerous as well. If you tried to classify Shopify OR Zoom as shown in this thread you would miss a lot of key reasons to invest! While I DO I think “elevator pitches” can be a great exercise to distil understanding. I just think you need at least a few sentences and another board to post them on :wink: