Why not to use robots-computers!

Why not to use robots-computers for serious information!

From today’s Wall Street Breakfast from my Seeking Alpha feed"

The record bull market run capped another milestone on Wednesday as the S&P 500 jumped above 3,000 for the first time, nearly five years after the index hit 2,000… … Abiomed (NASDAQ:ABMD) led the herd by far, surging a whopping 909%…

A quick glance shows that Abiomed didn’t move 909% on Wednesday, nor 90.9%, nor 9.09%. Maybe it moved 0.9% (I didn’t check). It would seem to me that no human checked that report, because even the least curious human (like me) would have said to themselves “Up 900%, I better check that!”

Best,

Saul

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Its been up 909% during the 5-year time frame mentioned that the S&P went from 2,000 to 3,000.

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Thanks, bjurasz.

By the way, my first thought on that article was the “50% growth in 5 years is not much”. Quick math (1.5 to the fifth root) shows it’s only 8.5% CAGR. Indeed, not great.

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By the way, my first thought on that article was the “50% growth in 5 years is not much”. Quick math (1.5 to the fifth root) shows it’s only 8.5% CAGR. Indeed, not great.

Yep, and that in a way shows part of why how Saul treats his portfolio has been such a key to his success.

If a company’s best hopes for an upcoming year are to maybe only have their share price appreciate 20% at most, does such a company’s equity belong in your portfolio? Probably not, absent large tax implications and/or any “dark cloud” for the business that you can clearly see through to the point of ending at some definite point in the future.

Perhaps a framework that could be utilized by some folks who truly love modeling such things would be to create a probability distribution for share price appreciation for each of their stocks within a given timeframe and to then utilize that distribution to decide whether to jettison any particular holdings. Rigorously modeling such a distribution could easily become an exercise that would take more time than it is worth, so “back of the napkin math techniques” might be all that would actually be worthwhile for use of such a framework.

Not to pick on Saul too much in this thread, but reading the full context of the particular article would have revealed that the 909% was correct for the time period the article was discussing. Thus, I will add that caution should be exercised for reading the full context of things in addition to being leery of numbers spit out by robots, computers, models, or screens.

volfan84
long CAGR thinking and using good sources for data

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Frankly,

Many people (especially those with lots of money) get scared if their portfolios grow too fast. They thin undue risks are being taken.

Each to their own. For a very wealthy person 8% a year is grand. To a labor union or company with a pension obligation 8% per year is heaven.

This is part of the dynamic of the market that enables us to have opportunities to take advantage of these incongruities.

Tinker

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When I first started following this board and adopted some of Saul’s methods (I didn’t adopt all of them because it’s just not as easy it seems) my goal was 20% a year. At the time, I considered that a stretch goal.

My first year, 2016 included shedding a lot of losers and low performance stock. For the year I lost close to 7%. 2017, however was quite a different story. I ended the year with just under an 82% gain. 2018 was not as good, with a 34% gain. So far this year I’m up 78%.

Note that other than my initial foray I’ve exceeded my “stretch goal” by a considerable amount. Anyone who understands compounding can tell you what an enormous impact results from adding capital early. I’m up about 320% in the 3.5 years I’ve been seriously following this board and have revised my approach to growth investing.

As an aside, take that for what you will, it’s an anecdote, not a testimonial. I never pay attention to testimonials in advertising, they’re just a carefully curated collection of anecdotes with zero statistical validity. But as a personal experience, this has literally been life changing.

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