I have been greatly influenced by this board. Recently found myself thinking that I am invested in Stitch Fix (SFIX) for many good reasons - like the service, the CEO, possibility to disrupt huge market. I have relatives who love it! But I had nagging doubts.
Those doubts grew. Why would I invest in a company that must manage a creative (difficult) work force, stay on top of styles, manage massive inventory, source materials, etc. when SaaS is such a superior business model at the most basic, common sense level? So I sold the position. After an initial pop it is tanking on weaker than expected user growth. Last I saw it’s down 14% and likely to see huge pain tomorrow. Last ER it lost 35% the next day!
Bottom line: I have seen this board work again and again and again and again. The focus on accelerating growth, retention rates, expanding margins, possibly the biggest moats in history (good luck stripping out ZS if you’re a competitor) feels like the most flawless logic I have seen in my investing career. It just helped me avoid a big loss. I have not had the chutzpah to put over 8% in any one position but Lord knows if I had my results would have been 1000x better. My “Saul” stocks represent 85% of my winners this year while even some of my ultra safe funds are doing terrible since I got in them.
Since this post is not helping find growth stocks, please do not add clutter! But I felt it was worth mentioning since a key step in finding great growth stocks is avoiding mediocrities and worse.
The SFIX example is, of course, anecdotal. I’m well aware - as is any sentient being - that high-growth stocks can have big drops. What I said is SFIX was considered here, found wanting - using well-defined criteria, and is down from high of 50 to 20. Just another piece of evidence this board’s methodology works. The point is the stocks featured here have superior business models to stocks like SFIX, for the reasons I mentioned. And it helped me avoid a significant loss. If you want to consider that luck, or too short a time frame to be significant, I respect that. Since this is mostly OT, I will not respond further.
It’s not OT in the sense that it’s part of the analysis of what makes for a good investment/company/stock/sector/etc.
SaaS has a lot of pluses, but a lot of the analysis has been: TAM still big, stickiness still high, growth numbers still high, so buy price doesn’t matter too much.
I agree that analyst opinion is mostly part of the noise, and steady growth numbers are much more important. I would just like to see useful ways to put a price tag on some of these stocks, beyond saying, “Its growth rate is the best insurance.” (I’ve tended to sell when good news makes a stock pop more than seems reasonable, figuring I can buy back when it reverts to the mean. Or buy when bad news does the opposite.)
One big risk of the high valuations is that it makes the stock a target for short sellers like Andrew Left. (And for less sensational short sellers, who might actually find something off in the accounting. There was a lot of shaky accounting in the Internet bubble; there’s probably some here, too, with some companies. The accounting rules about stock-based compensation aren’t 100% kosher, for one thing.) The shorts come up with some story, couched in strong language, and the stock might tank for a while. Then it could recover (like UBNT), but it might take a long while.
One benefit with this forum is that there’s also a look at the quality of management and other semi-intangibles.