X-Baggers And Your Ego

This is a very important lesson Saul has taught in the past. But I think it is worth repeating for an infinite amount of times due to its importance.

Yesterday I had a conversation with a known board member. We talked about ZM. I was curious about his performance in ZM. He said “about +64% up, 20% position size”. Mine was up +91%, 8% position size. He bought more of ZM at more expensive prices while I tended to hesitate adding at more expensive prices. That’s why my position is smaller with a higher increase. But that’s not what I want to tell.

Most people are after X-Baggers
Once the price of a position goes up they hesitate to buy more. They don’t add more at higher price because they think above buy-price it’s too expensive. They try to avoid hurting the beautiful performance of that stock. They tend to wait until the stock-price falls below their buy-price.
It might never happen.

Let’s say, you bought 100 shares of ZM for $50, and it goes up to $300. Wow. That’s a 5-bagger!

Now let’s say, you add another 100 shares for $300. Because you are thinking that ZM is going way higher in the years to come.
Suddenly your 5-bagger became only a +71% gainer.
To the outside it might hurt. You can’t shout any more ”Look at me! With Zoom I got a 5-Bagger! See, I was right all along!”.

But by adding more shares at more expensive prices you most likely made the correct long term decision for your portfolio as a whole.
It’s not about being right, not about being the best in predicting the future or to be that guy with the most 10-baggers in his portfolio. It’s not about single stocks.

Let go of your Ego. It’s about the whole portfolio becoming a 100-Bagger.

Thank you Saul, I got it.

https://discussion.fool.com/sorry-boredom-is-dead-wrong-34514188…

94 Likes
Mooo,

I get it too, but I struggle at times as well. I'll use an example from my own account. It is all recent
and actual numbers, in an account just opened on March 27 of this year. I opened a position about three 
months ago. Since then, my overall return on the position is 146.04%. That is after I've made three 
subsequent buys, at ever-increasing prices. Had I just stayed with the original lot, I'd have "bragging
 rights" of 118.75% more. But since the real goal is actually making money, I've bought more and the 
cumulative number is lower. Saul's point, which you are reiterating, is basically "So what? Making money
is more important." I agree. 

Acquired	Term	% Gain          Quantity	Cost Basis Per Share	
07/10/2020	Short	+13.10%         50.000	        $20.60	
05/29/2020	Short	+80.14%		100.000	        $12.93	
05/04/2020	Short	+249.21%	152.000	        $6.67	
04/24/2020	Short	+264.79%	155.000	        $6.39	

This example is small enough to fit in a post, and not a stock we talk about. But in Fastly, I have 9 
buys in the last few months. Livongo and Datadog, 13 each. Crowstrike, 16. Since March. I don't buy all
of what I consider to be a full-sized position right away. I buy, and if things go well and my confidence
in a company grows, I keep buying. Buying as the price rises, to get even more of a good thing.

Where the struggle kicks in is with valuation. At what point does the risk/reward profile become 
unattractive. When in high-growth stocks does it become unsustainable? I know that varies by company
and greatly on overall market sentiment. Part of what I watch in this board is the judgment of Saul
and others. Without saying a company they own has become "bad", they sell and reallocate money into
opportunities they think have more potential to grow, from that point forward. As you note, they give
up the individual bagger count by selling what is likely to continue going up, for something else
which will just go up FASTER. Rinse and repeat over and over, to build total portfolio value, rather 
than perseverating on a portfolio of stocks they have held on to maintain cumulative percent gains in,
even if the annualized gains in the individual stocks are dropping. 

The reallocation of funds is definitely an art. And that is actually one of my biggest gripes about the
paid recommendation services at TMF. They basically ignore that entire part of the investing process. In
their newsletters, and in the portfolios themselves, they tend to fall prey to bagger-count, rather than
maximization of overall return. So, I lurk here, watching and learning. There are lots of great examples
of portfolio-focused investing going on here. 

Thanks to the regular posters who take the time to write, so we can watch and learn.

Justin
19 Likes

I do enjoy the concept of multi baggers in my portfolio. But that doesn’t stop me from buying more of a winner that looks to keep on winning.

It’s all about the best place to put money “right now”. So I track the individual lots and say on MELI I have an “11 bagger” on my first purchase or AAPL where it’s something like 130x hasn’t stopped me from adding to these over the years.

Anchoring on a price is definitely a behavioral flaw that we need to overcome. I think it’s more productive to realize that a stock going up is confirmation that you made a good decision and perhaps you should consider adding more.

It’s like a horse race where you get to bet on the outcome throughout the entire race rather than just before it starts. You get to bet on Secretariat right before he crosses the finish line.

10 Likes

“It’s like a horse race where you get to bet on the outcome throughout the entire race rather than just before it starts. You get to bet on Secretariat right before he crosses the finish line.”

Well said, DolanAltekar.

Jim

2 Likes

Reformatted to make it readable:

Mooo,

I get it too, but I struggle at times as well. I’ll use an example from my own account. It is all recent and actual numbers, in an account just opened on March 27 of this year. I opened a position about three months ago. Since then, my overall return on the position is 146.04%. That is after I’ve made three subsequent buys, at ever-increasing prices. Had I just stayed with the original lot, I’d have “bragging rights” of 118.75% more. But since the real goal is actually making money, I’ve bought more and the cumulative number is lower. Saul’s point, which you are reiterating, is basically “So what? Making money is more important.” I agree.


Acquired	Term	% Gain          Quantity	Cost Basis Per Share	
07/10/2020	Short	+13.10%         50.000	        $20.60	
05/29/2020	Short	+80.14%		100.000	        $12.93	
05/04/2020	Short	+249.21%	152.000	        $6.67	
04/24/2020	Short	+264.79%	155.000	        $6.39	

This example is small enough to fit in a post, and not a stock we talk about. But in Fastly, I have 9 buys in the last few months. Livongo and Datadog, 13 each. Crowstrike, 16. Since March. I don’t buy all of what I consider to be a full-sized position right away. I buy, and if things go well and my confidence in a company grows, I keep buying. Buying as the price rises, to get even more of a good thing.

Where the struggle kicks in is with valuation. At what point does the risk/reward profile become unattractive. When in high-growth stocks does it become unsustainable? I know that varies by company and greatly on overall market sentiment. Part of what I watch in this board is the judgment of Saul and others. Without saying a company they own has become “bad”, they sell and reallocate money into opportunities they think have more potential to grow, from that point forward. As you note, they give up the individual bagger count by selling what is likely to continue going up, for something else which will just go up FASTER. Rinse and repeat over and over, to build total portfolio value, rather than perseverating on a portfolio of stocks they have held on to maintain cumulative percent gains in, even if the annualized gains in the individual stocks are dropping.

The reallocation of funds is definitely an art. And that is actually one of my biggest gripes about the paid recommendation services at TMF. They basically ignore that entire part of the investing process. In their newsletters, and in the portfolios themselves, they tend to fall prey to bagger-count, rather than maximization of overall return. So, I lurk here, watching and learning. There are lots of great examples of portfolio-focused investing going on here.

Thanks to the regular posters who take the time to write, so we can watch and learn.

Justin

5 Likes

“It’s like a horse race where you get to bet on the outcome throughout the entire race rather than just before it starts. You get to bet on Secretariat right before he crosses the finish line.”

I understand where you are coming from, but the analogy falls short, because there is no finish line, just a lap marker. You can bet on a horse at any time, but if horses are companies, they have to keep running. The challenge is figuring out when to stop betting on Secretariat. How many laps around the track can the horse go at that pace? At what point will a fresh horse run the next lap faster, regardless of how many Secretariat has already done well? When will Secretariat’s jockey fall asleep, or lose their touch?

Not that I know anything about horse racing though…

Justin

6 Likes

Justin, this puzzled me as well, especially because there is such a wide range of opinions about valuation. Here are my thoughts after having countless conversations. And please note, this is only my personal opinion.

Out there you will find different kind of investors: Value-, GARP-, Growth-, Dividend-Investors and more. Each of them sees and feels the world a bit differently. They are human. What feels right to a Value- or Dividend-Investor, that feels wrong for a Growth-Investor and vice versa.

But the world is neither black nor white. It’s all shades of grey. The way one is going to invest comes down to its individual personality. Like, how risk-averse one is.

But let’s first talk about what risk really is.
“When we speak of risk, we are not speaking of share price volatility. Share price volatility provides us with opportunity. When we speak of risk we are thinking about exposure to permanent loss of capital.” Chuck Akre

Volatility is the price we have to pay for returns. The higher the return, the higher the price and the pain we have to bear. The real risk is behind volatility: You. Those who cannot bear the pain sell at the wrong moment and turn price losses into permanent losses. Therefore, it is important to invest in companies that are in line with the individual mindset. In theory, the returns of fast-growing companies (with typically high valuations) are higher than those of large, established companies. So is the pain.
But your individual return will be higher in the long run if you invest according to your mindset. To avoid bad decisions. That’s why there is a huge discrepancy between different types of investors. Those who can’t make friends with volatility can’t be real growth-investors. They see volatility as a threat and therefor valuation matters much more to them.

But those who are able to withstand the stormy weathers of volatile hyper-growth names, ride through the usual periods of priced for perfection as well as the recurring draw downs. This is the super-power, that GARP- or Value-Investors lack. It can be your super-power.

Timing drawdowns (the market) is impossible. That’s why you can ignore valuation and invest by scaling into a position over time. Great companies keep executing. They grow faster into their valuation than one might think. Especially SaaS. Why SaaS?

The magic word is compounding. I think compounding is the strongest underappreciated force on the stock market. Compounding is not only the reason why your money will grow faster and faster over time if you let your winners grow. It is also the magic behind SaaS companies.

Saul explained multiple times that a company which is growing 70% with Gross Margins of 90% will have much faster, much higher returns due to compounding. Here is an example:

Hyper Growth SaaS company with a Gross Margin of 90%
Year 1
Revenue: $100 million
Gross Margin: $90 million
Year 2
Revenue growth 70%
Revenue: $170 million
Gross Margin: $153 million
Year 3
Revenue growth 65%
Revenue: $281 million
Gross Margin: $252.9 million
Year 4
Revenue growth 60%
Revenue: $450 million
Gross Margin: $405 million

Conventional company with a Gross Margin of 20%
Year 1
Revenue: $100 million
Gross Margin: $20 million
Year 2
Revenue growth 20%
Revenue: $144 million
Gross Margin: $24 million
Year 3
Revenue growth 20%
Revenue: $173 million
Gross Margin: $29 million
Year 4
Revenue growth 20%
Revenue: $208 million
Gross Margin: $42 million

Comparison of Gross Margin by year 4
SaaS Company: $405 million
Conventional company: $42 million

These $405 million - about 10 times more than a conventional company - is left over for the most part for sales & marketing and further development of the product! That’s due to compounding.
And did you notice that I decreased the revenue growth for the SaaS company, but let it stay stable for the other one?

Things to remember:

  • Risk is not volatility.
  • Voltility is your friend.
  • Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it. ~Albert Einstein.
  • Let your snowball grow.
52 Likes

Where the struggle kicks in is with valuation. At what point does the risk/reward profile become unattractive. When in high-growth stocks does it become unsustainable?

Hi captain, your post certaintly striked a nerve for me, as this is something i’ve been struggling with in my learning process (as a new “convert” to Saul’s investing philosophy).

In my attempt to understand and asses my results, i’ve been tracking ROI of each position during the current month and comparing with pasts months. The question i’ve trying to answer or confirm is something like this: Will a concentrated portfolio (7-12 stocks) of the highest growing stocks will result in the best results?

In attempting to answer this question, i’ve kept some positions in my portfolio that Saul and other have dropped weeks of months ago. I did sell out of obvious laggards (KO, T, MMM, BTI) and even other not so obvious in term of recent momentum (AMZN, NFLX, APPN, FTNT, etc.) But i couldn’t part with AYX, TTD, TWLO, ZS, TSLA and other that not necesarily fit the bill here. And the reason for that is that when tracking month to month performance, some of the “old names” pop-up in the top slots in terms of return.

To give you a full picture, here are my top 5 positions in terms of gain for each of the last months and my take/comments on those results:


March 2020					
RankSymbol	Unit Cost Basis	Unit Mkt. Value	% Allocation	% ROI
2	ZM	$113.11	$146.12	25.89%	29.18%
3	ZS	$52.78	$60.86	9.24%	15.31%
1	CRWD	$51.65	$55.68	27.58%	7.81%
7	JD	$40.30	$40.50	7.18%	0.50%
6	ZNGA	$6.95	$6.85	7.43%	-1.44%

Where the struggle kicks in is with valuation. At what point does the risk/reward profile become unattractive. When in high-growth stocks does it become unsustainable?

Hi captain, your post certaintly striked a nerve for me, as this is something i’ve been struggling with in my learning process (as a new “convert” to Saul’s investing philosophy).

In my attempt to understand and asses my results, i’ve been tracking ROI of each position during the current month and comparing with pasts months. The question i’ve trying to answer or confirm is something like this: Will a concentrated portfolio (7-12 stocks) of the highest growing stocks will (in the long run) return the best results?

In attempting to answer this question, i’ve kept some positions in my portfolio that Saul and other have dropped weeks of months ago. I did sell out of obvious laggards (KO, T, MMM, BTI) and even other not so obvious in term of recent momentum (AMZN, NFLX, APPN, FTNT, etc.) But i couldn’t part with AYX, TTD, TWLO, ZS, TSLA and other that not necesarily fit the bill here. And the reason for that is that when tracking month to month performance, some of the “old names” pop-up in the top slots in terms of return.

To give you a full picture, here are my top 5 positions in terms of gain for each of the last months and my take/comments on those results:

March 2020
I was getting into the whole Saul thing so my positions where a mix of Saul type stocks and some SA recs still. Not a good month as you all would probably agree. What i’m looking here if how many of the top 5 stocks are at the top of the list in terms of ROI. In March, three of my top 5 holding provided the highests returns. Something that encouraged me further into the whole Saul thing

					
Rank    Symbol	Cost	Value	% Alloc.% ROI

2	ZM	$113.11	$146.12	25.89%	29.18%
3	ZS	$52.78	$60.86	9.24%	15.31%
1	CRWD	$51.65	$55.68	27.58%	7.81%
7	JD	$40.30	$40.50	7.18%	0.50%
6	ZNGA	$6.95	$6.85	7.43%	-1.44%

April 2020
My top 5 holding were (in order of magnitude) ZM, CRWD, AYX, LVGO and DDOG. But it curious to see that only one of the top 5 holdings resulted in the best returns for the month.


Rank    Symbol	Cost	Value	% Alloc.% ROI

10	SHOP	$416.93	$632.29	3.54%	51.65%
6	TTD	$193.00	$292.58	5.32%	51.60%
7	TSLA	$524.00	$781.88	4.37%	49.21%
2	CRWD	$56.96	$67.66	14.38%	18.78%
11	COUP	$153.90	$176.09	3.20%	14.42%

May 2020
During the crazy month of May my top holdings provided most of the best returns but i was surprised with ZS, and TWLO. Two stocks that i was preparing to part with, following Saul’s on others lead in this board.


Rank    Symbol	Cost	Value	% Alloc.% ROI

12	ZS	$67.08	$109.98	3.82%	63.95%
5	DDOG	$45.12	$69.49	5.46%	54.01%
1	ZM	$135.00	$204.15	15.87%	51.22%
3	LVGO	$39.69	$59.27	11.91%	49.34%
6	TWLO	$138.07	$199.00	4.77%	44.13%

June 2020
In june, the results from ZS, TWLO and hopes of recovery led me to maintin positions like TTD (and even adding to it). As you can see, most of the best returns this month are not from my top positions.


Rank    Symbol	Cost	Value	% Alloc.% ROI

6	TTD	$310.31	$406.50	4.56%	31.00%
3	LVGO	$59.27	$75.19	11.38%	26.86%
14	SHOP	$758.00	$949.20	2.37%	25.22%
1	ZM	$203.57	$253.54	16.58%	24.55%
13	TSLA	$898.10	$1,079	2.69%	20.23%

July 2020 (as of today)
Again this is a month where most of the best returning stocks are not my top holdings. I gather that many of those top holding had a huge run up and at lest until some more significant news arise (ie: earnings) we won’t see significant increases. I’m guessing that these picture will change significantly after earnings season.


Rank    Symbol	Cost	Value	% Alloc.% ROI

10	TSLA	$1,079	$1,622	3.30%	50.23%
1	LVGO	$78.00	$110.09	15.83%	41.15%
7	TWLO	$219.42	$256.95	3.79%	17.10%
8	COUP	$277.04	$307.16	3.59%	10.87%
6	TTD	$420.44	$444.10	6.09%	5.63%

So as you can see, the jury is still out on the question i’m trying to answer. I understand that this analysis is a bit short-sighted and we (or at least I) are willing to hold the ZMs, CRWDs, LVGOs and DDOGs for many months or years. And I’m assuming that these month to month swings will be “ironed out” in the long term favoring these higher conviction stocks. But as I’m trying to develop the ruthless re-allocation habits that many here seem to have, i cannot set this question aside.

My conclusion (so far): even though we “know” that valuation is pretty much pointless for many of these stocks i guess there is some sort of spider sense the old-timers here have developed to know when the price is too dear (?). Maybe someone can comment on this?

Maybe i’m rambling a little bit but i believe this is very much related to the issue of forgeting about x-baggers and focusing on overall portfolio return.

I cannot finish without thanking everyone on this board. I’ve had an unbelivable year and that would not be possible without the inmense knowdledge and, most important, emotional support that this group provides to us newbies. Especially in the turbulent times we’ve lived during this 2020.

Saludos!

ML

4 Likes

My way of looking at valuation is that there is no way to accurately identify the reasons for, let alone predict, valuation. It depends on institutional ownership, algorithmic trading, float, insider ownership, publicity and public (retail investor) awareness, fund ownership, etc.

We generally agree that most consider valuation to be some variation of P/E or P/S. We ultimately want the P to increase, which requires earnings to rise, valuation to rise, or either one rising faster than the other falls.

Since I can’t predict the rise or fall in valuation, my best bet is to invest based on earnings (not true profit in the accounting sense but some combination of income and expenses), and let valuation settle where it wants to settle.

I invest in stocks because those can actually become intrinsically more valuable, rather than something like gold where you’re just relying on someone to decide that it’s more valuable without it actually changing. If you think a “cheap” stock is likely to become expensive because it’ll be a better company, that’s a reasonable investment thesis. If you think a “cheap” stock is likely to become expensive because people will change their mind and decide it’s too cheap, that’s just a speculative trade.

9 Likes

So as you can see, the jury is still out on the question i’m trying to answer. I understand that this analysis is a bit short-sighted and we (or at least I) are willing to hold the ZMs, CRWDs, LVGOs and DDOGs for many months or years. And I’m assuming that these month to month swings will be “ironed out” in the long term favoring these higher conviction stocks. But as I’m trying to develop the ruthless re-allocation habits that many here seem to have, i cannot set this question aside.

My conclusion (so far): even though we “know” that valuation is pretty much pointless for many of these stocks i guess there is some sort of spider sense the old-timers here have developed to know when the price is too dear (?). Maybe someone can comment on this?

Have you considered you might be asking the wrong question? Your quick study is based solely on price action. In the absence of any company news, month-to-month price is almost entirely random. That is why you are struggling to find a pattern. Random has no pattern. The focus should be on which companies are the best place for your money and not stock price.

I can’t speak for others, but I don’t see many decisions here based on whether the “price is too dear”. Instead, decisions are based on individual conviction in the company and thesis behind it. Those are much more likely to be the reasons behind allocation decisions, not any kind of spider sense.

Don’t focus on the stock. Focus on the company instead.

54 Likes

The focus should be on which companies are the best place for your money and not stock price.

Exactly. The focus is not on analyzing stocks. It is analyzing companies. Stocks eventually follow their companies, so find successful disruptive companies…

I can’t speak for others, but I don’t see many decisions here based on whether the “price is too dear”. Instead, decisions are based on individual conviction in the company and thesis behind it. Those are much more likely to be the reasons behind allocation decisions, not any kind of spider sense.

Thanks for your promt response stocknovice. What you point out is something that i’ve read over and over in these boards as well as the invaluable knowledge base: focus on the company and not the stock. And i totally agree with this status-quo sort of thing of these boards.

Having a long-term view, i totally understood the long-term advantage of high growth/high margin quality companies. That’s what let me to keep AYX for example. Even though the hit a bump with covid, i agree with many here that the thesis is still there so i kept (and even added) to my position. But i was surprised that many ditched the stock following a short(er)-term view. I saw something similar happen with TTD and ZS to name others.

Maybe this is what led me to the confusion between price action and short-term company prospects. That and also that my hesitation to part with TTD, ZS and other like that payed off. But then again, maybe it’s just luck.

Thanks again for bringing this up. I guess this is one of those things like price anchoring, that we have to repeat ourselved over and over since our instincts are not our best counselor in the matter.

5 Likes

I think stocknovice nailed it.

From Saul’s Knowledgebase (emphasis is Saul’s):

I definitely don’t sell winners just because they have risen in price (not as a policy, anyway). I only sell if I have a specific reason.

and

I don’t sell out of a stock because the stock price has gone up. Ever. That’s not a sufficient reason to me, no matter what it does to the EV/S. If my position has become too big I’ll trim my position around the edges…

2 Likes

Hi captain, your post certaintly striked a nerve for me, as this is something i’ve been struggling with in my learning process (as a new “convert” to Saul’s investing philosophy).

It’s not my post, it’s Fool JustinFields’ post

https://discussion.fool.com/mooo-i-get-it-too-but-i-struggle-at-…

I just reposted it with a different format to make it more legible.


I have a hard time keeping so many numbers in my head. I prefer to look at charts

martinlanus’ stocks YTD:

https://softwaretimes.com/pics/martinlanus-07-21-2020.gif

Denny Schlesinger

2 Likes

But i was surprised that many ditched the stock (AYX) following a short(er)-term view. I saw something similar happen with TTD and ZS to name others.

Regarding AYX, I believe most here just lightened their position, didn’t fully sell out, because they think the company performance will come back strongly once we get through this COVID event. Now that it’s looking like that might take longer than initially thought, some may go ahead and sell out completely, and look to get back in later, I don’t know (I’m still holding all my AYX). But again, that is because of company specific analysis, not stock price changes. Most here will get out of a stock if the company reports news (slowing sales cycle, greatly slowing revenue growth rate, worsening profitability, etc) that looks like it will take 2 or more quarters to get through. They feel the money can be placed in other companies that won’t see that couple quarter delay, thus avoiding the opportunity cost of staying in the short-term hindered company.

After all, you can always buy back in if things turn around for a company that you sold out of for some reason.

Maybe this is what led me to the confusion between price action and short-term company prospects. That and also that my hesitation to part with TTD, ZS and other like that payed off. But then again, maybe it’s just luck.

I do not necessarily believe that it is “luck”. This questions come up over and over again i.e. One can choose to sell a company whose rate of growth has slowed, or because of some aberration noted in the quarterly earnings phone call on the grounds that one’s conviction has diminished relative to that for companies exhibiting higher growth. One can also conclude that the quarterly report doesn’t necessarily establish the future of that company for all time. Another way of saying this is that despite the results your conviction in the company continues. Therefore you are correct in holding the stock.

As it happens TTD and ZS are perfect examples having been discussed extensively on this board and having exhibited renewed growth prospects following some less than top notch results. I think SHOP and NVDA are also interesting examples.i.e your convictions were justified, at least for the nonce. I sold ZS but kept TTD because of my personal conviction based on my assessment of what the future was likely to hold.

I think that is the way to play the game.

Cheers

ps I sold SHOP and still hold NVDA

2 Likes

I’m new to this board but I thought I’d chime in. Saul seems to fall in the Momentum investor category. I’m not an expert on this type of Investing but William O’Neil is probably the most famous example. Motley Fool generally falls into the Phil Fisher/Peter Lynch camp, which is classic growth investing and it focuses on the long-term. As far as adding to winners, I think this is something all investors struggle with at times. Wow, so many great stocks - Which ones do I add to? From what I’ve seen MF doesn’t specifically talk a lot about when to add to Winners except to follow their “buy” recommendations or a Best Buy now recommendation. However, many of their analysts like to buy at better “value” points and have discussed it. I believe MF analyst Tom Engle is the originator of much of this philosophy. It has also been widely talked about on Motley Fool Live recently by Brian Feroldi, who learned this strategy from Tom.

In my opinion, when to add to winners is a combination of “value” points as well as inflection points in the business itself. It could be simple, if XYZ winning company has been trading at a p/e ratio of 130 for the past year and today it is trading at 100, assuming your investment thesis hasn’t changed, it could be a great time to add to this winner. A simple example of an inflection point could be the iphone upgrade cycle. If you own apple stock, the next few months could be a great time to pick up some more shares, even if the p/e ratio isn’t historically low. Why? If you believe the next gen iphone coming out this fall will spur sales significantly for apple (as 5G rolls out in more and more cities), then you might believe this inflection point is reason enough to add to this winner, even if the p/e ratio is historically high.

All this might be irrelevant to a Momentum investor, which seems to focus on finding the perfect stock for the “moment.”

-Jeff

1 Like

Jeff
This philosophy sounds good on paper but practically is of little use

What the Philosophy is really aiming to do is buy at a better delta of price based on PE or PS or whatever relative to present value

In a dynamic world these companies are growing and evolving rapidly. If a company has developed a stronger competitive position then it’s true value may have increased and why then are you trying to buy at better PS value points which may never occur
Unfortunately true value can’t be measured. Only the PS or PE which is useless in isolation

2 Likes

Thanks Jeff for showing up and telling us all that we’re momentum investors, which implies we are simply riding the whims and waves of the market of whatever is “hot”. I must have missed all those posts here talking entry and exit points from technical analysis.

I think I can speak for most of us by telling you that you happen to be very, very wrong.

Over the past nearly 70k posts, you must have missed all the market evaluations, the scrutinizing of reported financials, the knowledge base full of investment lessons, the posted portfolios with their well-reasoned thoughts behind their movements, and the technical deep dives of next-generation industry trends. Much less the rules of the board.

This board is about finding the highest quality companies and holding them until they no longer are that, or until something better comes along. This strategy has zero resemblance to Momentum Investing.

The reason it probably looks like momentum to folks just glancing in on us? Quality and high level of execution from our best-of-breed companies attracts attention. More investors buy into the story and the price goes higher. This tends to then repeat over and over, since winners tend to keep on winning. Platforms & architectures they have built get better leveraged, which causes operations and profitability to improve, as product lines and markets expand.

Notice any criteria about stock price motion mentioned? As Stocknovice just stated a few posts up, COMPANY performance is the core of the criteria here, not STOCK performance.

-muji

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