The fact that the 60%+ companies under-performed the 50%+ companies shows that our project is simply more complicated than screening for the highest growth rates.
And maybe I’m reading more into what duma was saying. It is my impression that all one had to do was look at the growth and not put much more thought into it. Obviously a merger, or one time thing, a royalty or whatever, take those out. But not getting into price to sales, market, TAM, etc, doing a full evaluation. Just taking an overview of the companies and picking them, in general, the faster growth companies have outperformed the slower growth companies.
This is not really all that new to most people. Not sure why the argument.
Here’s another one: DOCU, up 35%.
The morale of the story is growth, at least in the short term, not price, is what will drive stock prices in a bull market. I think that’s his takeaway.
I do believe that some people don’t look at it that way though. There are some people who create lists based on P/S and will say they’re going to buy the lowest P/S ratio stocks because those have the most room for share price appreciation over the next 12 months. The real world does not work that way.
Now 5 years from now, if ZM is at $3 billion in revenue growing at 20% a year, may be hard to justify a 20 billion market cap let alone what it trades between now and 12 months. But the next 12 months? May as well roll the dice what it does because anything can happen, and right now, momentum is on your side.
I’m an MIer (Mechanical Investor) here. We plug in criteria, test it and if we like it, we mindlessly buy the screen.
In short, we put a liquidity filter first. This filters out all the non investable stocks. Since the only criteria is to rank them in order of YoY, that’s the end of the screen.
From an MIer’s perspective, it DOES NOT work. I haven’t dug deeper, but you’d be paying through the nose. Using a backtester called Portfolio123, the top ten, ranked by YOY is
ADMS
TOCA
KPTI
RARE
CNCE
VTVT
LJPC
RIOT
RCUS
DRNA
Almost all are biotechs. Even if you filter only for Software, you will still lose your shirt. Here’s the output for “software” only
IDEX
MFGP
XNET
SSNC
ASUR
SMAR
AYX
ZS
SSTI
TTD
It does pick out TTD, AYX, ZS… There will be feast and famine, but the famine will wipe you out. That’s why we still have to roll up our sleeves and do our HOMEWORK!
Guys, I have the benefit of reading all of Dumas posts on the NPI board over the past year or so so I think I have a decent backstory as to what is going on. First of Bear I apologize if I came off abrasive. Not meaning that at all. Second I don’t think Duma is suggesting to go buy a bunch of biotechs with a bunch of one time royalty revenue mindlessly because they are on top of some screen.
Duma created a handful of fake portfolios recently, one was high p/s ratio and one was low o/s ratio. These were all stocks that were vetted and considered reasonable investment holdings, mainly SaaS. It turns out the high p/s ratio portfolio performed better!!! Drilling down, it turns out the highest growth companies performed the best, irrespective of beginning price valuation being high to begin with!!! So what this means, at least in this short term test of say 8 months or so, valuations were not indicative of short term returns.
Saul made a similar post a few weeks ago taking the last week’s returns and showing that they were positive despite sone calling them overvalued and people seemed to like that post.
This is no different and just looking at a longer time frame.
The highest growth companies tended to have the best returns.
I believe this will come to no surprise to many.
No, I don’t believe what is being proposed is to just start buying a bunch of stocks based on some screen.
What we didn’t figure out was what to do with declining growth. Estc performed poorly despite strong growth but someone mentioned its revenue growth was falling. That may have been an explanation. It didn’t seem to hurt Shopify! And as of now I recently sold OKTA due to a combination of valuation but also slowing growth… I thought it could get hammered when it drops even further. TBD.
So, we see growth is a main driver. What about rising/falling revenue growth rates? What to do then? Keeping in mind these companies don’t just grow in an orderly fashion, could be variance quarter to quarter.
I don’t think mechanical investing or screens is really being proposed.
Dreamer, I read you tearing down many posts these days. We’re you by chance buying SHOP or ZEN or the like in 2015? But of course now if we did we were just utter dunces doing what all the world already knew, right? Or is that simply anger and jealousy that you were late and now you feel as if you have to denigrate those who were not and rewrite history?
Whatever it is it is awful ugly to read and frankly insulting to people like Saul and Duma who invested in such long before you can claim how obvious it is to so invest.
Okay, guys, we have 25 posts now on a thread about using a Mechanical Screen for picking stocks, which is very Off-Topic and not what this board is about. Let’s stop the thread now. Thanks for your cooperation.
Saul
Tinker,
The thread is off topic, imo.
Duma stated his purpose was to “provoke”.
Take it off tmf or go to another board. Not sure what 2015 or zen or shop has to do with what i said. Just rambling on your part.
None of this thread even makes mathematical sense…there is nothing to backtest. ROKU popped after 2 declining Qs of sub-50 and sub-40% growth. Doesnt even fit the thesis…just thrown in to help the numbers.
Anyone can cherry-pick a list of stocks to suit an argument. I can probably find that most of thise stocks had gains only on Tuesdays and Thursdays or in 2nd half of each month, in a random 5-month period of time.
You can have the last word, as I am done with this thread and your pointless reply of misdirection.
You may have a point. What if you add a few more names, e.g., SQ VEEV, and PAYC, do you still have the same conclusion?
Also, it also depends when you do your analysis. For example, ROKU was beaten down to the low 60s not long ago. AYX was close to 100 not long ago. If you evaluate your portfolio a few weeks ago (or later), you may see something different. SHOP did really well this year, but not last year.
Hey Tinker, I missed your note on NPI until now, could you add me to your new board? Thanks, hopefully. Pi
Geez PI, don’t you realize how ridiculously off-topic and personal this is. Send this kind of note off board, for God’s Sake. I will have it deleted anyway.
Saul
It turns out that the single criteria that predicted stock returns was…highest YoY revenue growth rate. Margins???..nope, the SaaS argument about margins didn’t change the fact that ROKU with its lower margins still had the highest return YTD at 190%.
Duma
Fine observation. Why not consider adjusting the portfolio to hold the highest YoY revenue growth stocks adjusted quarterly?. i.e. Start each quarter as if it were a new year.