Thoughts on our investing results.
At first I thought that this is ridiculous. At Friday’s close I was up 59.2% year-to-date, which brought my totals since the beginning of 2017 to just over a quintuple. (1.842 x 1.714 x 1.592 = 5.03) That’s up 403% in a market that has been unremarkable at all, maybe rising a little less than normal when you consider that it was down 8.5% last year.
I also know that there are quite a few others on the board doing even better than I am. (For example, Brittlerock just posted that he was up 70% year-to-date.)
So what the heck is going on? Well the truth is that what we are doing here is almost unique! No mutual fund, no ETF, no market averages, no stock advisory service, can do anything approaching what we have done! Why? The cards are stacked against them. What do I mean?
We have been able to select our 10 or 12 best picks. They may not be the same for each of us. They may change over time. But they are our choices for the BEST picks. We can pick them all SaaS companies if we please, or a wide variety of industries. But we can have a concentrated portfolio of ten or a dozen best picks. I think that that is a huge advantage.
A mutual fund has strict rules. They usually have to have 50 or more stocks in their portfolio. Often the areas they can invest in are severely limited, as is their apportioning of their areas of investment, and their requirements for diversity. Their investors pull money out at the bottoms and add at the tops, so the fund has to sell at the bottom and buy at the top. The fund is usually in a large fund family, so the fund manager also has to report to his bosses and will have to explain and justify any out-of-the-ordinary stock purchases. He could never have an entire portfolio of out-of-the-ordinary stocks, as many of us have. He doesn’t have a chance.
An ETF has to buy a fully representative assortment of the category it’s tracking. It means a lot of companies. It means an assortment of very good companies, medium examples of the category, and also companies in the category who have the poorest results. An ETF doesn’t have a chance, either.
A stock advisory service, such as the excellent one that sponsors our board, doesn’t have a chance to approach our results either, even though it is run by very bright, capable people. It has to come out with several recommendations every month. That accumulates to hundreds of active recommendations after a few years. You just can’t select a hundred best picks that are going to do anywhere near as well as your ten top picks. That’s just reality.
Then you have advisory services with a model portfolio. But they have to deal with unhappy subscribers if the portfolio goes down temporarily. They have to take into account that their subscribers will be a mixed bag, and most won’t like to have changes in the portfolio. They have to deal with “Why did you buy this?” and “Why did you sell that?” They can’t really have an entire portfolio of “over-valued” stocks.
The mutual funds, ETF’s, and advisory services of the world are aiming to equal or the S&P, or beat it by a few percent per year. They aren’t playing in the same ballpark we are playing in.
We, on the other hand, have lucked into, or made a good choice into, a family of companies that are growing incredibly rapidly (40% to 100% per year, for most of them), because they are providing the picks-and-shovels software for all the enterprises that are all finally trying to get into the cloud and into using big data, and all at the same time. Our companies also have most of their revenue recurring, on subscription, and more than recurring because of their land and expand models, and 120% or more dollar based retention rates. And all that gives them very high gross margins. And they are plowing all of their gross margin profit into S&M towards signing up all the customers they can because they will be recurring revenue practically forever.
For more on this please see:
And 500% later we still have people saying they never could buy our companies because they are over-valued, or not making a profit, or whatever, showing that they haven’t read or understood the concepts within the above posts.