Hey Saul, first off congratulations on an amazing investing career and run for the last few years teaching many, many people your philosophy and “in the moment” thinking. It was a privilege to follow along.
I know it’s not over but this sounds like a little bit of a Semi-retirement post. And it makes total sense. Once you feel like you have everything you need, the goal should be shifting to making sure you don’t lose what you have instead of making more.
As for your shift in investment aim, I have been wanting to make a post about the same topic for quite a while but didn’t want to go off-topic here (although I believe I alluded to the subject perhaps a year or more ago).
Let me start by saying, I have been on this board for a long time, perhaps not the very beginning but through most of it and it has been quite a ride. But to me, the interesting part is that it was a process of change. As you say, you started from a PEG type of growth stock search. You looked for stocks that were growing faster than thier PE would suggest, perhaps because of a new product, perhaps because of a ramp up in growth. You would buy after the growth started ramping and got out at the first real signs of a slowdown. Quite the effective strategy, and I think it had served you for many years. To my understanding that was the way you made the vast majority of your profits over the years. In fact, you basically tried to quantify this method in the knowledge base early on. One good example of this was sketchers, which you rode to a very nice gain and then eventually moved on. A tennis/running/comfort shoe company. Nothing spectacular. Just a company that was on a run for a couple years. Very nice.
And you had a good following. But then the SAAS revolution came along and to your total credit, you understood it before the vast majority of the investing public did. You bet early and big and your following took off AYX comes to mind where you just came out of nowhere and said you put something like 20% of your portfolio in it and screamed from the rooftops to buy it or at least why you did. And you found others. So many that you started to put out generic posts about the beauty of the SAAS model.
I could go on but the point I am making here is that the SAAS revolution was just a small portion, albeit very successful portion of your investing career. For those who have only been here for a couple or three years, there can be a belief that SAAS is the answer. It is not. It was incredibly profitable when it was misunderstood, but that is both no longer the case and I would also say that the runway for these companies is a little more bumpy. The competition has increased, there are more companies and they are all competing for similar IT dollars. I understand the products are different, and some are critical to the operation of a company but almost by definition, these software sales could not continue at the high double and even triple digit growth rates. There has to be a limit to these expenses for companies.
So here you are not quite seeing the returns from the SAAS companies and very smartly (in my opinion) diversifying a bit away from a 100% SAAS portfolio. It is worth paying attention to the change you are making. Not a small one for someone who made 6x in 2 years on his money. Not many people would have the fortitude to make that move.
To me, what that says is that the world may have gone back to some degree of normalcy. You won’t (easily anyway) be able to make 150% / year on your money. In fact, there will be some bad years. Investing isn’t easy, despite what had occurred here for a short period of time (short, in terms of an investing career anyway) and if you are disappointed by a 15% or even 20% year, I believe you will be headed for trouble (talking to others here, not Saul).
Life goes on, I keep learning and now I need to decide how my portfolio should look going forward. I am certainly not saying dump SAAS. But at least for me, I want to make sure that I don’t have too much of my portfolio in any one sector of the market if I want to keep my risk down.
Finally, for a specific stock discussion, Saul, I must admit that I wasn’t entirely surprised by your shift in investing focus. I would have expected it even sooner. But I was surprised that I didn’t see you add PANW to your portfolio when you did shift. I saw and liked the TTD addition and the TSLA add, but PANW seemed to fit you bill exactly. The SAAS portion is growing faster the CRWD, the firewalled portion is growing nicely and spewing a ton of cash, both earnings and free cash flow. Any thoughts or have you just not looked at it?
Anyway. Sorry for the long post but wanted to express both my appreciation and make sure the younger crowd didn’t miss the significance of the shift.
I hope I didn’t misrepresent or over generalize too much for one post.
Respectfully
Randy