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Investment Analysis Clubs Saul’s Investing Discussions
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Hi A.J.!

Glad you (and others) found the info helpful. :slight_smile:

Just for fun - and for the sake of keeping things in perspective :stuck_out_tongue: - I made another table looking at the difference between the prices today and the 52 week lows:


	price now	52 low	Gain	Conviction (personal)
PVTL	24.63	        15.11	63.00%	Medium
SHOP	153.21	        83.16	84.24%	High
AYX	35.67	        18.64	91.36%	High
MDB	53.45	        24.62	117.10%	Medium
OKTA	49.02	        21.52	127.79%	High
TWLO	54.47	        23.25	134.28%	Medium
SQ	61.89	        22.66	173.12%	High
NTNX	51.64	        18.6	177.63%	High

And this is after today’s drop! As we know, these stocks had great runs over the last year and before that. These stocks could fall a lot more obviously if the market really turns sour. So our buying opportunity maybe isn’t so great today - who knows…

I like to make these kind of tables; I always have one in my numbers sheet where this data gets conveniently updated (unfortunately they lag a bit, so on a big down day like today I have to make it manually to see the actual prices). But I also always wonder: What do these comparisons with today’s price and 52 week high actually tell us? To be honest I’m not really sure. Should we buy the stocks that went down the most, because the opportunity is the highest? Or should we add to the stocks that went down less, because they proved to be more resilient in the downturn?

At the end of the day I think what is most important to me is the column on the very right of my tables: Conviction. And I would also add: portfolio allocation. And hey, if a high conviction stock of mine, that I would like to be a bigger part of my portfolio drops 20% for no company specific reason, I might take the opportunity to pick up some shares.

I’ve been thinking a lot about investing today and I have to say this: I love investing so much! It’s so awesome and fun. I mean even on a down day like today, I just have to marvel at the thought process you have to go through in investing sometimes: It’s so complex! So much information coming at you, often contradicting, mostly misleading; being right at one time and totally wrong at another. But then again it’s so simple! Just look at the principles from the Fool or Saul’s knowledge base. It’s also so uncertain, you just don’t know where a stock will go next, no one does. But with time and the right method all of a sudden investing can become quite predictable. And finally investing can be very painful - like today for instance. But boy, do we know how rewarding it can be! Makes me smile much more than the other way around. :slight_smile:

Thanks to the Fool and this board! It’s great to share and learn!

Fool on!

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Anchor bias is probably a poor way to invest.

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Anchor bias is probably a poor way to invest.

I’ll add that anchoring solely to backwards-looking P/E ratios is also a poor way to invest. Not implying that is what you do, but far too many novice investors might be tempted to.

-volfan84
still a bit of a newbie/novice investor, but not planning to avoid continuing to improve

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I would suggest compare them against 52 week low’s. That could help you to see the drop’s in a different context.

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I made another table looking at the difference between the prices today and the 52 week lows:

	price now	52 low	Gain	Conviction (personal)
PVTL	24.63	        15.11	63.00%	Medium
SHOP	153.21	        83.16	84.24%	High
AYX	35.67	        18.64	91.36%	High
MDB	53.45	        24.62	117.10%	Medium
OKTA	49.02	        21.52	127.79%	High
TWLO	54.47	        23.25	134.28%	Medium
SQ	61.89	        22.66	173.12%	High
NTNX	51.64	        18.6	177.63%	High

Interesting, but just be careful – for instance, NTNX is up 178% and yet still only has a PS ratio around 8. That means its low was REALLY low. SHOP, on the other hand, has “only” risen 84%, but has a PS over 21. That means its low was relatively high.

I think this is why Saul’s advice is to ignore the past. What a stock has done doesn’t necessarily tell you much about what it will do.

That said, I also encourage you not to over-analyze the current PS ratios (even though I brought them up)! It is not unusual that different types of companies would have wildly different PS ratios, PE ratios, or whatever. There is usually a reason. However, sometimes the reason is simply that the market hasn’t completely caught on to the real value of the company (e.g. SHOP in Dec 2016 when the PS ratio was like 9 or 10).

My conclusion is simply: It’s hard to know what a stock’s valuation should be. The best we can do is find companies that are growing rapidly and sustainably, and then ride out the highs and lows.

Bear

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NTNX is up 178% … SHOP, on the other hand, has “only” risen 84%

The explanation for a 178% share price increase (in any company) is that the market has re-evaluated the company and started to catch on to its value. But that doesn’t mean that even better days aren’t imminent. There may be a time where those who have made huge gains on the stock take their profits, however. That may be why Nutanix has been bound to a price range since the run up in March. If you bought around $20, you might be tempted to call it a day at $50…especially if you’re not Saul, and you don’t really understand what you own.

Consider SHOP which was probably let loose by many unsteady hands when the shares shot up in early 2017. It was range-bound from May 2017 until Feb 2018. There’s probably nothing magic about that time frame. It’s just that $90 - $120 is a lot higher than $40, so a lot of the early buyers took gains before the next run-up.

Lastly, there’s Wix, which jumped from $20 in 2016 to ~$80 in 2017. Not hard to see why it’s been range bound, even though the PS ratio is still under 10. The $20 buyers have probably sold now and the $70 - $80 buyers are in for the run up to $150 or $200.

Bear

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In the last 3 days, I added to SHOP (+1/3), AYX (2x), MU (+1.5x), and NVDA (another small nibble on top of the now-10.5% position). I have an open order still out for OKTA, but since it’s climbing today, it may or may not trigger – that one would essentially double my OKTA position size.

Fool on!

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And nutanix exploded when their biz model changed to SaaS as they dropped hardware recognition from their hci appliance solutions and declared themselves a software only company and laid out their path to $3b by 2021 to investors.

So it partly performance and partly a recalculation of how/why company and stock could grow moving forward.

Agreed on past stock price doesnt matter if you are considering buying now, but the context of where they have been and what mgmt has laid out in their vision the past few ERs is helpful to deciding if the company seems on right pathand is executing.

In next few Qs i need to hear how the newer ntnx cloud initiatives are growing to confirm the investment thesis for them beyond hci solutions.

Dreamer

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I think this is why Saul’s advice is to ignore the past

My comment is not related to the valuation rather looking at 10% drop and getting excited.

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There’s quite the adding opportunity take advantage with SHOP on news of the recent ruling allowing states to tax ecom sales. I’m not sure how that would slow down the growth of ecom business as there is still much more benefits to web retailing than traditional. It’s like when Amazon started collecting taxes years ago on its sales and it was news for a short period.

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I’ll add that anchoring solely to backwards-looking P/E ratios is also a poor way to invest.

Yes, obviously.

I’ll add, however, that PE ratios [by industry] are generally well understood and mean-reverting, but stock prices are not.

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"I think this is why Saul’s advice is to ignore the past. What a stock has done doesn’t necessarily tell you much about what it will do.

That said, I also encourage you not to over-analyze the current PS ratios (even though I brought them up)! It is not unusual that different types of companies would have wildly different PS ratios, PE ratios, or whatever. There is usually a reason. However, sometimes the reason is simply that the market hasn’t completely caught on to the real value of the company (e.g. SHOP in Dec 2016 when the PS ratio was like 9 or 10).

My conclusion is simply: It’s hard to know what a stock’s valuation should be. The best we can do is find companies that are growing rapidly and sustainably, and then ride out the highs and lows."

Totally agree with you Bear!

May I add to your ride out the highs and lows point, that on top of riding it out, you also try to add on the lows and potentially trim a bit when the stock has run ahead of itself or becomes too big of a part of the portfolio? I think that’s the point of you opening the thread originally, wasn’t it? It’s what I’ve seen from you and Saul and many other investors here, who kindly share their thoughts and actions on this board - and what I try to emulate the best I can.

I think this adding to your conviction stocks when they pulled back (for no specific reason) is also a big reason why guys here on this board beat the indexes by so much. It’s the cherry on the top of picking the best companies in a way. And I found it’s only possible in practice if you don’t own too many stocks. That’s one major reason why I followed Saul’s advice and started to narrow down my portfolio. It gives me so much more control and focus. I used to follow the Motley Fool mantra of just buying everything I like and letting it run; which is a great strategy if you don’t have the time to follow your holdings properly. But what happened was - especially when there was a market pullback and I thought now would be a great time to add - that I didn’t know where to begin. So I sometimes added to the right stocks due to luck, or to the wrong stock (e.g. bc I wasn’t aware they dropped for a company specific reason), or I just bought a new position in the next great idea, which could turn out good or not. Now, I feel like I have a lot more control over my portfolio, I know the companies I invest in much better, it’s easier for me to follow them and easier to take advantage of opportunities.

While writing this I can’t help to hear my inner NajdorfSicilian telling me that I’m just full of anchor, confirmation and all the other biases out there. Actually I don’t need my inner Najdorf to tell me that in this instance; he actually replied to my post. :slight_smile: I totally agree that biases are dangerous in investing and have to be kept in mind. At the same time worrying too much about my potential biases gives me the feeling of being stuck in my decision process. I read Kahneman too and was fascinated. But after reading it I was like „What now…?“. Should I stop picking stocks, which I love, and just start indexing? Sounds so boring to me! But still thanks Najdorf for your words of caution. It’s good to have different view points and be reminded that things could be seen much different from another perspective.

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33

Totally agree with you Bear!

May I add to your ride out the highs and lows point, that on top of riding it out, you also try to add on the lows and potentially trim a bit when the stock has run ahead of itself or becomes too big of a part of the portfolio? I think that’s the point of you opening the thread originally, wasn’t it? It’s what I’ve seen from you and Saul and many other investors here, who kindly share their thoughts and actions on this board - and what I try to emulate the best I can.

Maybe it helps to think of it in 2 steps:

Step 1: Conviction. I have a rough target percentage for each holding based on conviction. For my top conviction stocks, Shopify, Wix, and Square, it’s about 10%. For lower conviction stocks (that I still like enough to own) it may be 7% or 4%. Depends on the company.

Step 2: Value. Next, I evaluate what I think about the present value offered. Currently I feel Wix and Shopify are more undervalued than Square, so I push them up to 12% - 15%. I don’t feel that Square is undervalued, so I leave it closer to 10%. I may trim slightly if it goes up even more, but never more than 15-20% in a given month based on valuation alone. Then, I do the same for lower conviction stocks. Nutanix still isn’t as high-conviction as Square, but it’s now pushing 10% because of the extreme value I see. I felt it was currently priced near perfection, Nutanix might only be a 5% or 6% position (maybe even less).

Seems kind of obvious…but maybe that explains it better.

Bear

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Final day of Q-end selling…

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Final day of Q-end selling…

Due to the need for transactions to clear and all that jazz?

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@Bear on conviction…

how do you rank your conviction? could you not be influenced by the latest you hear and by loose impressions?
for a couple of businesses, the numbers look good. The outlook sounds good. The business or market trend is favorable. So why this one gets more allocation and the other less?

how can this kind of evaluations or comparison have any accuracy? and then you have the fudge of the market. You might like it more but the market not so much.

The stocks talked about in here are mostly tech stocks- cloud oriented; SaaS or whatever aaS; subscription model; open source software tools and service… These businesses are part of a long term trend that is playing out and we are all benefiting from investing in it.

But what about other big trends we can catch? what do you think of biotechs?

the sector hasn’t been performing so well. You can be lucky of getting in just before a FDA approval then you would be happy. Otherwise you wait and wait and go through the volatility and have nothing to show for.
What do you think of NKTR now?

tj

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Haha, thanks Jeannie!

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Hi there tj,

I’m not Bear, but I can’t help chiming in since my philosophy is based on conviction.

how do you rank your conviction? could you not be influenced by the latest you hear and by loose impressions?

I think what you’re not looking at is the time factor. At least for me, a new investment rarely starts out with a high conviction rating (and if it does, it often comes back down.) After you own a stock awhile (maybe 6 mos to a year?) you have heard a few conference calls, listened to the reasoning and/or excuses of the management team, and see how the company reacts to various business and market developments. Your conviction is based on more than “gut instinct.”

for a couple of businesses, the numbers look good. The outlook sounds good. The business or market trend is favorable. So why this one gets more allocation and the other less?

See above. Also, my expectations and perceptions are different from yours, which are different from Bear’s. This is exactly as it should be, and what makes a market of buyers and sellers.

how can this kind of evaluations or comparison have any accuracy?

Again, you’re missing the time factor. By the time a holding gets to a 7, 8 or 9-point-9 conviction level, we should be aware of the company’s potential, right? If not, I recommend low-fee ETFs to buy and hold … forever. Seriously, after a year of holding a company, if we don’t know what its likely prospects are, maybe it should move to the “too hard” pile. Now if it’s last week’s new purchase, no, most of us don’t know for sure what its reaction to new developments will be unless it’s a company we have been following for a long time. So time (IMO) is critical. You won’t ever see Paul or Bear (or even me :)) dump all their stocks and start over with new ones. They know their companies as well as an outsider can know a company from the outside from a distance. With only 10-12 companies, it should be evident that this level of conviction is pretty much a mandatory unless money doesn’t matter.

and then you have the fudge of the market. You might like it more but the market not so much.

Maybe this means we made a miscalculation. Sell and Go To Jail. Just kidding. But it sounds like what we might call (gasp!) a mistake, mis-perception, laziness or plain ol’ erroneous thinking. It happens. Learn from it.

But what about other big trends we can catch? what do you think of biotechs?

What, you don’t think we have enough risk already? :slight_smile: Many outcomes in pharma have only 2 possibilities: Win the game or go home and explain to Mrs. Gambler how you lost your butt and her house. What about … what about everything in demand? Guns? Medicine? Loans? Or how about Education! Wait, Credit! Nothing’s off the table for me, but it’s hard to find things growing faster than the companies we have dissected here. But bring 'em on, I’m listening. Got some ideas myself, too.

What do you think of NKTR now?

My (or Bear’s) opinion shouldn’t sway yours vary far, but since you asked, I repeat: Many outcomes in pharma have only 2 possibilities: Win the game or lose your butt. If your decision to invest–or not–in NKTR doesn’t require conviction, what other quality would you require? Maybe a written warranty and a money-back guarantee? :slight_smile:

So what do YOU think NKTR’s chances are? Hmm … Shall we toss a coin, or does someone have that “C” word (Conviction)? I don’t. So I have a 1% NKTR lottery ticket in my port, the only one of its kind. Saul and HeartMD are M.D.'s and they aren’t quite sure. What chance do I have to learn enough to gain strong conviction in NKTR’s testing outcomes? But still we read, we study, we listen (to pros AND cons, always) we dig and we make the best decision we can. 98 times out of 100, if there are too many unanswered questions, or wavering conviction, the answer to invest-or-not (for me) must be “NOT.”

And finally, that brings us to the very point of using conviction as your guide to portfolio building. If you BELIEVE, you should invest. If not, you should not. If you’re not sure, you should not. If you’re never sure, then you’re probably not well enough informed. That’s what conviction is. There are other ways to invest (mechanical comes to mind!) but of all those I’ve tried, conviction makes sense to me as a cornerstone in my philosophy and so far, it works better than Uncle Joe’s Stock Tips and Toiletries Emporium.

And if you always win, I know who you are! (Hi, Saul!) Maybe it’s a coincidence but you gotta admit, the dude exudes conviction. Why? He reads more. He understands more. He has a natural instinct for success and an unnatural instinct for impending decline. And dare I say it? Guy’s got Conviction in spades.

Real, deep, well-backed conviction can not come from another. It comes from our own digging, our own work and eventually our own discovery. And if it comes from a whole group of us working hard together, catching details we might have otherwise missed or discounted incorrectly, the conviction level can rise to … it depends on your method. I use 1-10 ratings. Others use 1-5 or High, Medium, Low. Others think conviction is for witch doctors, criminals on trial and lawyers.

What do you think?

Good luck,

…but sometimes luck isn’t enough.

Dan

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T+2, that is correct. That is what hedge funds get paid on [Q-end perf] and mutual funds get ranked on, need to get rid of those losers for window dressing and take profits on big winners to ‘lock-in’ gains. [Sad]

Note the rebound the past 2 days. Not a surprise.

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