I have been a loyal follower of this board since the early days. I used to post frequently. Not so much anymore. As we have been admonished numerous times, if you have nothing worthwhile to say with respect to high growth investing, don’t post on this board. As Bear (assistant board manager)recently posted, this is not Twitter.
With that in mind, I hope that some followers will find my thoughts constructive. Here’s what I’ve done. I sold a bit more than half of Upstart in my Roth and traditional IRA accounts. I sold a relatively small amount of in my taxable account as I’ve already accumulated a large short term cap gains position due to some options sales not long ago (to buy Upstart). Even after these sales, I still have a large position in Upstart. I may still sell more.
So why didn’t I sell my entire position? John Wayne, who, IMO has brought new techniques and insights with regard to financial/business analysis to this board, sold his entire position before the conference call ended. He asserted that Upstart can no longer be considered a hyper growth company.
We have been reminded time and time again to not just follow the actions of others simply because they have been successful. While I adhere to this tenant, it would be simply foolish (and not in a good way) to ignore the actions and thinking of others who have repeatedly demonstrated their ability to determine the future performance of a company. But in the end, no one has a crystal ball. Irrespective of how well considered an investment action might be, it’s often an opinion rather than a dependable fact. Given that, I didn’t need to read about who did what in order to rapidly exit my Lightspeed position. The investment thesis was obviously broken. In addition, to put lipstick on a pig, I was able to “harvest a tax loss” (as if that’s a good thing). But it did make the decision easier.
Upstart is different. IMO the thesis remains intact. FICO has outlived it’s utility. Upstart has an almost unassailable moat. First mover with respect to ML/AI provides an enormous advantage. They have just begun to scratch the surface on loan categories.
Does one quarterly report that fell short of expectations constitute sufficient evidence to assert that the company is simply good, just like a lot of other companies, rather than a great company that deserves a major position in my portfolio? The simple answer is, I really don’t know for certain, but I’m unwilling to abandon it at this time.
As for the near term future, to be honest, I don’t expect the next couple or three quarters to be fantastic. Unsecured personal loans will continue to be lumpy. A lot of this business will depend on how many banks and CUs they can sign up. The new line of “micro” loans is hard to predict, but they just have to make a lot of them in order to generate significant revenue. I don’t have a lot of confidence that this will happen. New car loans will remain depressed as the inventory of new cars remains depressed. You can’t finance a product that isn’t available. Refinancing existing car loans seems like it could generate a lot of revenue, but I don’t have a grasp on how they intend to market that service. Still given those near term negatives, longer term (4Q22 and on), I still have considerable confidence in the company. I also feel that the market has over-reacted and that Upstart will bounce back over the next couple of weeks. Not all the way back, that’s not going to happen soon, but I feel pretty confident that some of stock price will recover (despite continuing erosion today).
And I have yet one other deterrent with respect to selling off more of my position. Generally, when I sell a position I have an accompanying transaction in mind to start or increase a position with the proceeds. I was not prepared with a purchase decision when I sold LSPD and now, hard on the heels of that sell, I’ve turned a lot of Upstart into cash. It is uncommon for me to find myself with an uncomfortably large, unproductive cash position, but that’s exactly where I am at present.
Even after all these years, I’m still learning new lessons. I welcome commentary on this post, but please, only comment if you have an analysis or rationale to offer.