The Death of High Flyers

Investment Analysis Clubs Value Hounds
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Another personal experience that may come into play: I have held GRMN, buying it after a tumble, when it couldn’t possibly go lower (April of 2008). It went way lower and was dead money for a long while, but my CAPS score on it tells me that it was a good buy after all.

I see that as a distinct possibility for names like ZM. The pandemic is over. ZM is done?
hmmmm…I am not really experiencing that myself.
I am interested…very interested.
Maybe there should be an “Abandoned by Saul’s Board” list of names?

Denny- I think you are absolutely right about TSLA. I would like to own it yet.
I always wanted to own AAPL, but could never pull the trigger…until one day, when it hit an irrational low (in 2013 at $14, split adjusted). I have made a ton of money on it, sold half, and it’s still my biggest position.
TSLA could be that, too.
$550?
It could go a lot lower.

Anybody have others?

-Randy

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Look for names which have positive revenue growth, product/ service that will be used irrespective of pandemic, have balance sheet (like cash), decent price to sales multiple.

There are many names coming up in the screen. Now the real challenge is being patient, keep the dry powder and find the ones that will survive or in simple terms avoid pelotons.

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Speaking of Peleton…I’ve seen the rhetorical “who would buy Peleton?”

I think the answer might be “Hydrow.”

Peleton is people on bikes…the world is full of 'em and it’s easier and more fun on the real thing.

Hydrow is rowers. An elite bunch; think prep schools and Ivy League (yeah, and Oklahoma, and Washington and Wisconsin and Michigan, where I learned to row).
Gobs of money…some of the wealthiest people on the planet (ever heard the name “Winklevoss”?).
Chances are near certain that you have ridden a bike.
Few of us have ever rowed and you aren’t gonna go to the Walmart and buy a shell and put it on your local body of water and hop in and make it go…which is why Hydrow might persist.

I’m not saying Hyrdow will take in Peleton, but I wouldn’t be surprised if they do. If you don’t know what Hydrow is but you know what Peleton is, they are apples and oranges. Except that, while both are very definitely fruit, they are actually more like apples and pears. If you close your eyes, it’s hard to tell them apart. If I were Hydrow, I’d be paying attention.

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In case it is not obvious from the below, I am a pedantic cyclist…

leaderoftheback said:

Speaking of Peleton…I’ve seen the rhetorical “who would buy Peleton?”

The company name is pelOton. Not pelEton.

The etymology is a “platoon” (in formation?) of cyclists:

https://en.wikipedia.org/wiki/Peloton

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It’s “Pelotón” which in English means platoon, or squad, or posse. A bunch of people on a mission. In bike races they bunch up into a pelotón. I always had a bad feeling or bias against Pelotón. Why bike indoors when you can see the world biking outdoors which I loved to do.

One interesting investing factoid has been developing in my brain, “invest in ‘must have’ retail.” Apple is the world’s largest retailer. Walmart. Once upon a time The Great Atlantic & Pacific Tea Company (A&P), Sears Roebuck, and Ford had it been public.

One of the great advantages of these companies is pricing power, there are no 10% customers! There are not even 1% customers, only take it or leave it customers!

If you want to be successful in business, sell what people want to buy, the reason why sex, alcohol, and drugs are such big businesses. And the more moralists want to suppress them the more powerful they grow. I’m not advocating any of these, just the economic lesson they teach.

Today that retailer, second only to Apple, is Tesla. BTW, on the earnings call Elon Musk said that ‘Optimist,’ the Tesla AI robot, will become their biggest product. Likely much cheaper than a car, with Optimist every household can have a live-in maid, butler, gardener, and baby sitter!

What is Apple’s not so secret sauce? Smartphones? Computers? NO! It’s the Apple User Interface! It’s MacOS, iOS. I see the same theme repeating at Tesla. Autonomous driving requires AI. Once you have the AI you can apply it to all sorts of other consumer products.

Denny Schlesinger

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I see that as a distinct possibility for names like ZM. The pandemic is over. ZM is done?
hmmmm…I am not really experiencing that myself.

Three thoughts:

  1. The pandemic quite possibly is never going to end. Some variation of the COVID-19 virus is going to be in the human population for the rest of our lives. I expect at least annual vaccinations and there will probably be waves more or less deadly as time goes on, similar to the flu (but I expect the scale of deadliness will remain much higher than the flu).

At least, this is how I am organizing my life. I think believing it will “end” is a false hope that will almost surely lead to disappointment. Rather, I’m assuming it is here to stay, and if by chance it “ends” and disappears it will be a happy surprise. (I have no background in this area, so this is pure speculation on my part.)

Certainly for international travel, as long as the virus is circulating, you have to think before getting on a plane. Would I want to go to Saudi Arabia, knowing that if I test positive while I’m there, I might end up quarantined in a hotel while my visa expires? Would I want a 3-day trip turn into 3 weeks? Would I want to end up in a hospital where I have no idea who will pay or how much or what level care I might get?

No chance, my friend. I am telling all my foreign partners to set up Zoom meetings and they will have to do the legwork on the ground in their home country. I’m not flying there unless the pandemic truly ends.

  1. Companies have learned how much money they can save by doing Zoom (Teams/GoTo/Webex) meetings. I can have more meetings, all around the world, much faster with Zoom than I ever could by traveling. I used to spend ~$40,000 per year on travel (just for myself) and the last 2 years I spent almost nothing. Imagine the big corporations where they used to have thousands of people on the road.

  2. Customers now accept Zoom meetings and in many ways they are preferred because it is also more convenient for the customers.

So, even if the pandemic “ends”, companies and customers have learned to accept online meetings. The meetings save a ton of time and money for both parties.

Yes, there are some limitations. In a sales situation, it’s hard to read facial expressions and body language while giving a pitch. It’s harder to connect with people personally. I’d argue those cons are outweighed by the advantages.

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I think the answer might be “Hydrow.”

Not an investing comment, but I think a rowing machine is a better home fitness device than a bike. It’s a more full body workout, more comfortable seat, and you get more done faster. The downside is they take up a big footprint on the floor and are quite loud.

sf, considering purchasing a rowing machine if he can find a place for it.

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I see that as a distinct possibility for names like ZM. The pandemic is over. ZM is done?
hmmmm…I am not really experiencing that myself.

Maybe that’s the wrong approach at Value Hounds.

Zoom is a good company with good products but little moat (IMO). Quite simply the 2020 run-up was not sustainable. I’m not saying this with the help of hindsight. I started buying on August 2, 2019 ($94.02) and sold my last shares on January 19, 2021 ($388.20). Including options I had an IRR of 231.7%. The chart says it all!

https://bigcharts.marketwatch.com/advchart/frames/frames.asp…

ZM is going back to being a value stock but the bottom is not in.

Denny Schlesinger

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Yes, there are some limitations. In a sales situation, it’s hard to read facial expressions and body language while giving a pitch. It’s harder to connect with people personally. I’d argue those cons are outweighed by the advantages.

I bet $100 it makes the ‘I’ll think about it’ objection much harder to overcome than when you’re standing there face to face.

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Concept2 ergs offer tool-free breakdown for compact storage between workouts
https://www.concept2.com/indoor-rowers/concept2-rowerg

The current models are noticeably quieter than the Model B (early 90’s) that I own.

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Certainly not the death but a bunch of them won’t be worth having. The hard part is figuring out which ones. If they don’t have earnings I wouldn’t keep them or if they seemed largely part of the pandemic (e.g., Peleton) they will have issues, especially from the huge valuations given to them.

I can recall trading in and out of ISRG and then out of it completely many years ago. Not long ago I looked at it and did the old head slap. Some stocks back then were easy to dismiss like Excite and maybe it was @home that paid a billion+ for an online greeting card company.

I doubled my money in Zoom in a short time and sold 50% and kept the other half for a while only to watch it come back to my original purchase price and then sold it.

Apple I originally had near their bankruptcy and then sold it. Fortunately I did buy it back a while ago and am sitting on a nice 10X gain.

Usually I am deliberate with buying stocks and not into fads so I often miss out on opportunities. Once in a while I buy something and then pay a price for it. Most recently I bought Shopify a while ago and I think I’m down a good 50%. A small position but I still hate seeing the big red number.

Tonal is interesting but I think it is privately held. I’m not fond of the subscription thing (from a customer perspective) but as person who isn’t fond of going to gyms, I can see it being something I may get when I retire. That and a recumbent bike to supplement long walks. While buying dumbbells and stuff is cheaper, as I get older I think they are a bit more dangerous and take up more space when you don’t have a basement or garage to use.

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I’m waiting for SHOP to go back to the basement.

https://bigcharts.marketwatch.com/advchart/frames/frames.asp…

Denny Schlesinger

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Hey Captain,

SHOP Basement for you? 350? If I project the trend line from the graph you posted, that’s about what I see.

'38Packard

  • I DO think we will be seeing these numbers this year.
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300-350 is what TA is saying. The Ukraine affair is helping the market down. I think this is a good time to watch and wait.

As of yesterday SHOP is down 63% from its all time high. 350 would be 80% down. Hard to believe but of the stocks I track, these are down by 80% or more…


NNDM	96.1
XL	94.4
EVGN	94.3
QS	88.7
SFIX	88.6
FSLY	85.3
DMTK	85.1
SPWR	84.7
NVTA	84.4
EDIT	83.4
PTON	82.9
SSYS	81.9
PSNL	81.2

TSLA has held up amazingly well, down ‘only’ 33.2%.

Denny Schlesinger

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Hey Denny- I was going to make a point using your list of 80%+ losers, but those are (mostly) all dinky companies. What SHOP has that they don’t is profits. I’d be surprised to see it drop 80%, but I would not be surprised to see it drop another 15-20% from here. If we get a big down-draft from forced selling it could overshoot and become a real bargain, but based on current earnings, it’s not far from bargain territory now. It does seem that earnings deceleration is possible, so there’s that.

-Randy

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Did you see TSLA drop yesterday and more this morning pre market?

Russia invading Ukraine is upsetting the apple cart but if I have my history right the market will bounce back sooner than later. Markets hate uncertainty and the response to the invasion is unclear. Once the market sees the response, good or bad, it should bounce back. Next week should be interesting.

Denny Schlesinger

but those are (mostly) all dinky companies.

Tiny floats are more vulnerable/rewarding/dangerous/…

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yessir, Denny, TSLA is an exception, and I’m sure you follow others that are less risky/rewardy.

The investing world, for the past number of years has decided that sales growth, and to some extent free cash flow (regardless of the source of that flow) is the basis upon which The Market is going to value companies. And sure, why not; no less rational than P/S or P/E or FCF/EV ratios. In the final analysis, we all play a game that tells us we have “a claim on future cash flows,” which is in all reality, poppycock.

So let’s look at TSLA; a fine company with a good story, good products, some competitive advantages, etc. But the ultimate question is "Is the stock worth $1240 (its ATH) or $720 (its current pre-market). The answer is obviously “yes,” to somebody. But what do we mean by “worth?” I think the answer to that varies quite widely; a quant algo is valuing it one way, an individual “investor” differently.

So what’s the way to think of value for me (or you or whoever)? I am currently quite confused by my question because I don’t know if this time is different. The market is made up of all of the players. If the most influential players (by volume) think top line revenue is king, then I am a fool to value a stock otherwise.

But looking at the TSLA chart, the stock price was trending typically until mid-2020; 18 short months ago. Then whoosh-bang…except that the bang isn’t here yet. When it took off it was trading at $200. Given excellent growth and prospects, in the Old World, maybe it would be $300 or $350 18 months later; but still richly valued by those Old World standards.

My sense is that we may be headed for a proper reckoning. TSLA may hang at $500 as NASDQ reverts to the mean (and overshoots). But the likelihood of $350 is pretty high. How dead do you want your money to be and for how long? At $350/share, it’s a lot of money at stake, especially when at $200, by Old World standards, TSLA is still richly valued, even today after all of its undeniable progress?

These are issues lost on the Saul board. I sense that many/most are young and unseasoned themselves. They understand what they think they understand, but they have yet to be called to attend Market School. We all have to attend eventually. If we are truly paying attention to Teacher, then we learn that we can never leave.

-Randy
and not for nothing, but Saul’s own post yesterday re: MNDY was completely free of his usual self confidence. I suspect that even he is in for a rough ride, and depending on how his real life is organized, he may be severely injured financially. 18 months from now Saul’s board may be as sparsely attended as Pencil’s board, which is in both cases a loss.

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“These are issues lost on the Saul board. I sense that many/most are young and unseasoned themselves. They understand what they think they understand, but they have yet to be called to attend Market School. We all have to attend eventually.”

Hey All,

I’m one of the younger (early 30’s) and newer Fools (less than a year) you’re likely referring to. I’m glad to see the Value investing board is active as a counterweight to the hyper growth side. I’ve noticed that Saul’s board is the group that most other boards compare/contrast themselves with. Is the reference to “Market School” referencing the disregard of company valuations or profitability? Thanks for putting up with newbies. Trying to learn from both the growth and value folks to see where my temperament lands.

Phaz

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Hey Phaz- nice to hear from you.
Market School is just a reference to The Market, writ large, that reminds all of us to be humble and especially avoid group think.

There are a million market tropes and every one of them is correct…sometimes. None are correct always, and some are rarely correct, but when they are look out below. “This Time Is Different” is what I am personally interested in, because it may well be true. But the element most ignored in investing is time; and not just whether it is different (this). Time is our friend through compounding, our enemy when waiting for a promising company to blossom, or fail. We know that patience is required, but few of us have it…very few, and sometimes for good reason. On the Saul board, it seems to me that the time frame is five years, tops, and well less than that for specific companies. This is much too short to have any kind of true conviction. But another lesson we learn is that most of our picks will fail. Can we pick a few ten baggers? Which will they be? I dunno, but that is the game we are all playing. That is The Market.

My “warning” to members of Saul’s board should not be read as “I know and you don’t.” I only mean that nobody knows and there is an awful lot of “I know/we know” written on that board. I can’t say that you all are wrong, I can’t say that you are wrong now but will be proven correct in the long run, I can’t say that you are right, but I must submit that you all might be right. That is what we learn from the Market. Unfortunately, we can never have clarity until time has passed, and then what good is it? You’ll learn that Market history is re-written every moment of every day. 99.99% is just noise (or lies, or damned lies).

In retrospect, the best advice I ever got was to buy mutual funds and forget about the market (this is 1975, pre-ETFs, etc). Truth be told, I’d almost certainly be better off. But retrospect and a box of nickels…ya know…

In closing I will say only that I wish the best for all; save, spend less than you earn, invest within your limits, don’t be greedy, and let time do its thing. I can personally attest that it is the only strategy that works every time.

Thanks for reading. I for one (as an old Fool) want and need to know what you think. I ain’t dead yet.

-Randy

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I really appreciate your thoughtful reply as well as the wisdom in it. I started investing in individual stocks last March/April and it’s been… Interesting. Patience and humility seem to be common threads that I am hearing from many older investors. I too sometimes get the feeling that Saul’s board can be a bit of a momentum club that if you don’t daily keep up with you’ll fall off lose your shirt. A lot of casualties limp away from there when they succumb to the volatility or miss the slowing earnings selloff.

Somewhere along the way, I read someone suggesting to comb through the companies that Saul’s board leaves behind because while they aren’t “hyper growing”, there may be a long runway there. I haven’t done it yet, but it was an interesting idea.

I was listening to the MF Money podcast this last Sunday and it had Morgan Housel chatting about mindset during volatility. He made some very good points which has me reconsidering value investing (especially index ETFs). I even wrote these down in my investing journal.

Notably (my paraphrase):

He asks the question: “What are the returns that I can sustain for the longest period of time?”. For most folks, I imagine it would be hard to beat an index fund.

Over very long periods, growth stocks and value stocks have the same returns.

High flying growth stocks (MF Growth recs in particular) must CONSTANTLY innovate and grow to be relevant. Old value companies (he mentions Clorox) just have to keep producing the products they make that everyone relies on making them far less risky.

One out of ten of the largest companies today will be irrelevant in 10 years.

Finally, average returns for an above average amount of time achieves extraordinary returns.

I do believe that moving forward, I want to learn more about value investing as it certainly has a place in my portfolio given the bloodbath it currently is. At this point I’m pretty much 100% growth in my taxable “learning” portfolio. My 401k is entirely index funds. I do appreciate the time and discussions here as I plan to grow this portfolio for quite a long time (this is my plan to pay off my house).

Cheers!

Phaz

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