Going into the earnings I had the following plan:
Revenues < $250m & loans < 400,000 = reduce position
Revenues ˜ $250 & loans ˜ 400,000 = hold
Revenues > $300 & loans > 400,000 = increase position
By having a clear plan, it helps me take the emotion out of it. Bear in mind that I was overweight going into earnings and run a very concentrated portfolio (2-3 core positions) hence I can’t just sit back and let time take care of my portfolio.
So as soon as I saw the $228m revenues and 362,780 loans I hit the sell button. Even though this was my only concern going into earnings — that the expectations were high, and we might not hit that mark — I have to admit I was surprised by the results.
Some people might say that I focused too much on intangibles instead of following the numbers. Well, the only reason I do that is to try to add some color into the numbers we get between earnings. That is only to set my expectations and try to come up with what, I believe, would be solid earnings.
As I already said in a previous post, I won’t hesitate to pull the trigger no matter how much I like Upstart as a company if they came below my expectations. Well, they did. Of course, don’t get me wrong, I still like the company. I reduced my overweight position, but Upstart still carries a decent weight in my portfolio. Around 20% as of now. Yes, it might be accelerating down the line but for now, I just can’t justify my previous allocation.
Dave — for the first time — didn’t sound as confident and excited as other times. I always listen to the calls as it helps me get a feeling of the overall situation.
The revenues went from
86.7 121 194 228 255-265 (guidance)
QoQ increase
39.5% 60.3% 17.5% 23% (top guidance plus 6% beat as this Q)
[There is a clear deceleration here. I prefer the QoQ instead of YoY growth for fast growers as this gives me a better understanding of what is really happening. Even if they beat the top guidance again by 6% as this Q the QoQ would be 23% which annualizes to 128%. Still solid, but maybe not worth the much-added premium? However, with the AI/ML models being somewhat choppy in their performance we might see several more Qs of beat and raise as we did in the past.]
The loans went from
123,396 169,750 286,864 362,780
QoQ increase
37.5% 68.9% 26.4%
The reason I focus on these metrics is simply because the company defines these as key operating metrics:
We review a number of operating metrics, including number of loans transacted and conversion rate, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.
We define the number of loans transacted as the transaction volume, measured by number of loans facilitated on our platform, between a borrower and originating bank during the period presented. We believe this metric to be a good proxy for our overall scale and reach as a platform.
So far, they beat guidance by
2.5% 21.25% 6%
[Obviously, this is not an easy to predict company. Not a SaaS, not recurring revenue. But there is a bigger opportunity when there is uncertainty. The AI/ML models might improve significantly soon and the reaction would be good. However, with such high expectations it’s easy to go either way as we’ve seen.]
As I mentioned in previous posts, the market seems to get excited/frustrated not by earnings per se but by the acceleration/deceleration that happens.
The way I think about it is this: When you ride a motorbike, the exhilarating feeling (market’s reaction) comes in direct proportion to acceleration (QoQ). Not by speed alone (YoY). When you let go of the throttle (QoQ drops) it doesn’t matter if you go with 300 (YoY) or 100km/h you will still feel the deceleration (market’s reaction) instantly. Especially when the initial speed was higher. That is how I try to think about it when trying to predict the market’s reaction.
Another way I see investing is this: You are at the train station (stock market) waiting to go from A (initial value of your portfolio) to B (portfolio times x). There are several trains coming by (stocks). Some cost more some cost less (market cap). Some will get you there in 30 mins (hypergrowth) others in 30 hours (slow growers). You decide to hop on what seems to you the best for your own needs (investing style) and while going to your destination the driver (company) announces some news (earnings) that your journey will be delayed because of some issues (like logistics/supply chain).
Automatically what’s the reaction of the passengers? Well, depending on their personality (investing style) they might not care or focus on such small concerns (investors with large portfolios) or they might get furious (investors with concentrated portfolios). So, what do you do? You have the choice of getting off the next stop (sell/trim) and hop on another train (reallocate funds elsewhere) that is up and running (growing/accelerating) and is expected to reach its destination on time.
The only reason I make these parallels is because I have zero background in investing. Zero background in economics/accounting. Zero background in the stock market. Just a few months ago I had no clue what dividends were. I read the knowledgebase maybe more than 10-15 times before I could start getting a grasp of what it was about.
I would read 1 line and then spend 10 times as much time googling and trying to understand all the metrics used and whatnot. The only reason I post this is to be accountable for my own actions and to see in retrospect if those actions were right at the time being with the info available at that specific time.
I judge myself not by my YTD return (as I might just follow someone and get decent returns) but by the actions I take based on my understanding. I believe that this is the only way to become a better investor no matter if you manage 10K, 10M or 10B.
For this reason, I admire Saul and others who carry concentrated portfolios with a much bigger portfolio. In order to execute without emotion at these levels is not an easy task. I’d love to hear your thoughts. Thanks 
Note: I reallocated the funds into Semrush (SEMR) as it was another solid Q which drove the price up by about 20% which is not even close to where it was 2 months ago. I’ll do another post soon about it when I listen to the earnings call this afternoon (15:30 GMT+2 time).