Author Topic: Software Stocks for the Long Run - Heretics Thread  (Read 2084 times)

hodedofome

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Software Stocks for the Long Run - Heretics Thread
« on: June 25, 2020, 08:23:33 PM »
You may not enjoy sass from your spouse, but youíll enjoy some SAAS (Software as a Service) in your portfolio.

In the 70s and 80s, business application software became a real business and anything that won the market in that timeframe, dominated the business market for the next 30-40 years. Weíre talking about Microsoft, Intuit, Oracle, Sage and many others. However, these companies and the systems they created (or acquired) were developed before the internet.

Once the foundation of the internet was put in place, and broadband became the standard, the cloud was possible. However, software created before the internet canít exactly be transferred to the cloud very well. You really have to start from scratch and use entirely new development tools to create a modern application made for the internet (Facebook, Twitter, SalesForce, Zoom, etc).

SalesForce and NetSuite were one of the first, during the late 90s and early 2000s. Others began to follow but it takes a long time to develop enough features to compete head to head with a product that has had 30 years of development. Even though the old product uses outdated technology, that does not mean itís not advanced. So you see a delay of a decade or two before the pure cloud systems begin to take away customers from the Ďoldí world.

The 2010s are where businesses woke up and took notice of these built for the internet, 100% cloud native applications. They had enough features, and the technology was night and day better than what they had been using for decades. Any new business starting out was going straight to the cloud, and old companies were starting to make the switch. We are right in the middle of a once in a generation investing opportunity.

Most of these cloud apps have only just IPOíd in the past 5 years. Most of them in the past 1-2 years. They are taking off in price just as they are taking over the world. Whoever controls the market over the next 5 years, will control the market over the next 20. We will not see suitable replacements until new development technology comes around, with enough features to make people switch again. So we have some time before the apps of today become obsolete. Until that time, they will have pricing power once their market share is the majority, and for now they are enjoying 30-100% sales growth every year. They are growing like bonkers as many other sectors of the economy struggle.

How well are these stocks doing you ask? I made a portfolio for my family of the leaders in each niche and over the past 5 years the average annual return is 60%. I am a slow learner and so it took me a bit before I had the confidence to put all my money where my mouth is, but I can tell you over the past few years I have sold all my index funds and 100% of my money is in software stocks. This Covid crash affected most of my software stocks for a month, but by late April most had regained their highs and my favorites are up over 140% for the year. Itís truly remarkable.
 
I sold software for 14 years and work in finance at an IT company currently. I have been on both sides of the software transaction and have developed an industry insiders knowledge of who the winners are and who are the wannabes. Of course, the winners are the ones to invest in. I have also been actively investing and trading for 15 years, with mixed results until I decided to focus on the industry I know best. Right now, it doesnít matter very much how expensive these stocks are, it matters more how fast they are growing. Of course, this will end badly one day, but I expect we are 5-10 years away from that.

I have started a blog and a portfolio of my favorites to help educate others on whatís happening in the industry and how we can take advantage of it. This is a heretics thread, Iím obviously trailing off the beaten path of this board here. But some will be interested.

MOD EDIT: Spam links removed. PM the OP if you want a link to their blog.
« Last Edit: June 30, 2020, 05:35:36 PM by arebelspy »

des999

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #1 on: June 26, 2020, 03:43:13 PM »
I'm in the same business, and while I don't disagree with you, I'm not sure you can say this will continue for the next 10-15 years. I think the time to start this investment strategy started a handful of years ago.

I wouldn't want to be completely invested in one sector/industry like this, seems too risky to me.


waltworks

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #2 on: June 26, 2020, 04:27:41 PM »
I would never, ever try to invest in my own industry. If things crash, and my job goes away too...

Good luck.

-W

The_Big_H

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #3 on: June 26, 2020, 11:57:29 PM »
I would never, ever try to invest in my own industry. If things crash, and my job goes away too...

Good luck.

-W

I so dislike investing in my own company I ought to put 0.4% of my portfolio into shorting it to make up for the amount of it is in VFIAX

ChpBstrd

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #4 on: June 27, 2020, 08:48:53 PM »
I wouldnít think of SAAS or software in general as a bet on any one industry. Their customers span the economy.

Last decadeís theme? People also used to say that about Microsoft, Apple, and Amazon a decade ago. Truth is, my non-technology company keeps finding new ways to automate and scale with our SAAS vendors.

hodedofome

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #5 on: June 27, 2020, 08:56:19 PM »
I'm in the same business, and while I don't disagree with you, I'm not sure you can say this will continue for the next 10-15 years. I think the time to start this investment strategy started a handful of years ago.

I wouldn't want to be completely invested in one sector/industry like this, seems too risky to me.

Most of the SAAS companies IPOíd in the past 5 years, with the majority being the past 2 years. You really didnít have many options before that. They will continue to grow like bonkers for a while, and Iím betting my savings on that.

MustacheAndaHalf

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #6 on: June 27, 2020, 09:03:47 PM »
I'm in the same business, and while I don't disagree with you, I'm not sure you can say this will continue for the next 10-15 years. I think the time to start this investment strategy started a handful of years ago.

I wouldn't want to be completely invested in one sector/industry like this, seems too risky to me.
Most of the SAAS companies IPOíd in the past 5 years, with the majority being the past 2 years. You really didnít have many options before that. They will continue to grow like bonkers for a while, and Iím betting my savings on that.
I notice you posted a link to a website that costs $99/month to join, and don't talk about any of the stocks you hold in this thread.  Is the point of this thread to motivate people to find these stocks on their own?  Or advertise the $99/month website where your stock picks are revealed?

hodedofome

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #7 on: June 27, 2020, 11:26:05 PM »
I'm in the same business, and while I don't disagree with you, I'm not sure you can say this will continue for the next 10-15 years. I think the time to start this investment strategy started a handful of years ago.

I wouldn't want to be completely invested in one sector/industry like this, seems too risky to me.
Most of the SAAS companies IPOíd in the past 5 years, with the majority being the past 2 years. You really didnít have many options before that. They will continue to grow like bonkers for a while, and Iím betting my savings on that.
I notice you posted a link to a website that costs $99/month to join, and don't talk about any of the stocks you hold in this thread.  Is the point of this thread to motivate people to find these stocks on their own?  Or advertise the $99/month website where your stock picks are revealed?

Iíll eventually list out my picks and why, but you can find a bigger list I track on this reddit thread of mine https://www.reddit.com/r/wallstreetbets/comments/hgcmkv/whos_jumping_on_the_saas_train_with_me_covid_what/

Iím not being secretive, just need to find the time to do a write up on each one.

MustacheAndaHalf

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #8 on: June 28, 2020, 01:37:33 AM »
Okay, thanks for clarifying.  In that case, two things:
(1) Zoom and DocuSign are especially timely with the prior lock down... and likely problems coming in July.  Do you market time your stocks, or is this a buy and hold portfolio?

(2) I'm very surprised I don't see Amazon on the list - did I miss it?  Amazon is the leader in retail sales, and it's cloud business is either #1 or #2.  What's your view on Amazon?

ctuser1

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #9 on: June 28, 2020, 09:18:56 AM »
(2) I'm very surprised I don't see Amazon on the list - did I miss it?  Amazon is the leader in retail sales, and it's cloud business is either #1 or #2.  What's your view on Amazon?

And MSFT.

I have just seen a grand total of ONE case where both MSFT and AMZN vied for cloud contract for a megacorp (=my employer). MSFT was hands down a better presentation and value proposition. I hear this is not an isolated case, that MSFT is indeed beating AMZN handily in the corporate cloud contracts space, despite the first mover advantage of AMZN.

I don't have any data point or research to back this, just anecdotal.

Coming back to topic, ALL these companies have a strong reliance on the big 4 in some ways or the other to survive. So I am not sure that the big-4 will allow them to take most of the profitability over the long term. I bet a bunch of buyouts and mergers would soon start, maybe give it another 5 years.

It is possible you will catch one or two of the small ones when the stock price is zigging and zagging this way or that - but in my opinion a far more predictable approach to capturing most of the market profitability would be to just bet on the existing big names, i.e. index funds because they are such a large part of it. Trying to capture this small name or that is very risky. You don't know who will have a tiff with Jeff Bezos tomorrow and he will just squash them like a cockroach that they are (hello Mr. Wonderful from Shark Tank).

MustacheAndaHalf

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #10 on: June 29, 2020, 06:45:21 AM »
On "Seeking Alpha" I saw someone aiming to quadruple their money in 10 years (+15% per year), where they mostly seemed to be investing in tech stocks.

And there's also Andrew Yang's book, which mentions AI replacing millions of jobs.  The most dramatic example to me was the doctors who examine X-rays, looking for signs of lung cancer.  AI now beats those doctors in both speed and accuracy, and doctors are avoiding that field as a result.  So there could be companies introducing AI to retail and cross-country transportation that are worth investing in now... but I haven't really searched for them.

des999

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #11 on: June 29, 2020, 07:01:42 AM »
I'm in the same business, and while I don't disagree with you, I'm not sure you can say this will continue for the next 10-15 years. I think the time to start this investment strategy started a handful of years ago.

I wouldn't want to be completely invested in one sector/industry like this, seems too risky to me.

Most of the SAAS companies IPOíd in the past 5 years, with the majority being the past 2 years. You really didnít have many options before that. They will continue to grow like bonkers for a while, and Iím betting my savings on that.

I guess I was thinking about all the big boys that have already had ridiculous run ups on their stock price.  Google, Amazon, MicroSoft, ServiceNow, Broadcom, Zoom, Apple, etc...   I could go on

thoughts?

ChpBstrd

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #12 on: June 29, 2020, 08:38:40 AM »
I think "because they went up in the past" is always a horrible rationale.

A better case for tech stocks is the macro picture. Most industrialized countries have flat population growth, low productivity growth, and rising debt levels. There is simply not going to be steady growth in the number of washing machines sold, or cars, or houses, or clothes, or soap, or furniture. The next two decades will not be like we saw in the 20th century when the West consisted of expanding young populations that were steadily accumulating more physical stuff in bigger and bigger houses with plenty of room to add debt at the consumer or national level.

So in this fixed-pie economy, who grows? Certainly there will be firms that produce better value propositions for a while and take market share from others in a zero-net game, but shifts in demographic spending patterns are more important sources of growth. The trend has been for consumers to shift their spending toward cell phones and the information services purchased through them. At the corporate level, the trend has been to invest in productivity software. Spending has been migrating out of every other sector and into tech for a couple of decades.

Tech is also one of the only Western sectors that is still spending a significant amount on R&D (the other being pharmaceuticals). Thus, the big tech companies are continually introducing new products that in some way take market share from their legacy competitors. Google killed the map. Netflix is killing cable. Facebook is killing your local newspaper. Salesforce is killing the company-owned server. Etc.

For this trend to change, there would have to be a generational shift away from cell phones / the internet and back toward more physical-world experiences. Corporations would have to cheap out and migrate toward open-source software or homemade solutions. Neither of these changes seem imminent.

hodedofome

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #13 on: June 30, 2020, 06:58:37 PM »
Okay, thanks for clarifying.  In that case, two things:
(1) Zoom and DocuSign are especially timely with the prior lock down... and likely problems coming in July.  Do you market time your stocks, or is this a buy and hold portfolio?

(2) I'm very surprised I don't see Amazon on the list - did I miss it?  Amazon is the leader in retail sales, and it's cloud business is either #1 or #2.  What's your view on Amazon?

Zoom and Docusign are enjoying the Covid trade but they were going to take over anyways. It was already happening well before Covid. Covid just forced everyone to deal with it at once. They are too easy to use and work too well to jack around with WebEx, Teams, GoToMeeting, Adobe and paper signatures.

Amazon has some software as a service offerings but a lot of their business is e-commerce and cloud hosting. While being growth industries, they arenít pure SAAS plays. Amazon also canít grow like these smaller SAAS companies, as they are already huge.

That being said, around 40% of my IRA is MSFT, AAPL, NFLX, AMZN. The rest is SAAS. My trading account, wifeís IRA, and kids accounts are all SAAS. This is buy and hold for 5-10 years or whenever weíre in the middle of a bubble like the 90s.

hodedofome

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #14 on: June 30, 2020, 07:18:50 PM »
(2) I'm very surprised I don't see Amazon on the list - did I miss it?  Amazon is the leader in retail sales, and it's cloud business is either #1 or #2.  What's your view on Amazon?

And MSFT.

I have just seen a grand total of ONE case where both MSFT and AMZN vied for cloud contract for a megacorp (=my employer). MSFT was hands down a better presentation and value proposition. I hear this is not an isolated case, that MSFT is indeed beating AMZN handily in the corporate cloud contracts space, despite the first mover advantage of AMZN.

I don't have any data point or research to back this, just anecdotal.

Coming back to topic, ALL these companies have a strong reliance on the big 4 in some ways or the other to survive. So I am not sure that the big-4 will allow them to take most of the profitability over the long term. I bet a bunch of buyouts and mergers would soon start, maybe give it another 5 years.

It is possible you will catch one or two of the small ones when the stock price is zigging and zagging this way or that - but in my opinion a far more predictable approach to capturing most of the market profitability would be to just bet on the existing big names, i.e. index funds because they are such a large part of it. Trying to capture this small name or that is very risky. You don't know who will have a tiff with Jeff Bezos tomorrow and he will just squash them like a cockroach that they are (hello Mr. Wonderful from Shark Tank).

Iíd be fine with index funds but good luck finding index funds that have the good SAAS names in any size whatsoever. All the internet and software ETFs are loaded up with the big cap old turds like Cisco, Citrix, VMWare etc because they are market cap weighted so they have to own too much of an old dinosaur. Or, the fund is so diversified that the companies like Shopify, Zoom and Avalara canít move the needle even though they are some of the best.

Amazon can squash anyone in the e-commerce and cloud hosting space but they arenít going to compete with a quality cloud phone system like RingCentral or a billing and payments solution like Bill.com. Even if they decided to go into the space, they will only take a small market share not own the market. They donít put forth the effort to dominate all markets they enter, just want to take a little bit of every area of online commerce. The apps I invest in are all in for whatever space they compete in, and Iíd bet on the guy putting in an all out effort vs the guy who just wants to do a little bit of everything. Best in class is the way the industry is going - find the best app for each specific job and then integrate them all.

hodedofome

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #15 on: July 01, 2020, 10:38:38 AM »
I think "because they went up in the past" is always a horrible rationale.

A better case for tech stocks is the macro picture. Most industrialized countries have flat population growth, low productivity growth, and rising debt levels. There is simply not going to be steady growth in the number of washing machines sold, or cars, or houses, or clothes, or soap, or furniture. The next two decades will not be like we saw in the 20th century when the West consisted of expanding young populations that were steadily accumulating more physical stuff in bigger and bigger houses with plenty of room to add debt at the consumer or national level.

So in this fixed-pie economy, who grows? Certainly there will be firms that produce better value propositions for a while and take market share from others in a zero-net game, but shifts in demographic spending patterns are more important sources of growth. The trend has been for consumers to shift their spending toward cell phones and the information services purchased through them. At the corporate level, the trend has been to invest in productivity software. Spending has been migrating out of every other sector and into tech for a couple of decades.

Tech is also one of the only Western sectors that is still spending a significant amount on R&D (the other being pharmaceuticals). Thus, the big tech companies are continually introducing new products that in some way take market share from their legacy competitors. Google killed the map. Netflix is killing cable. Facebook is killing your local newspaper. Salesforce is killing the company-owned server. Etc.

For this trend to change, there would have to be a generational shift away from cell phones / the internet and back toward more physical-world experiences. Corporations would have to cheap out and migrate toward open-source software or homemade solutions. Neither of these changes seem imminent.

The reason I'm buying these stocks is not just because they have gone up in the past, I have fundamental reasons for why they will continue to go up in the future.

The fact that they've been going up, by a crap ton, every single year is just another reason to look at them. I can have a great thesis but if it's been playing out against me for years, I better know why that trend is going to change. What I'm doing is jumping on a trend that's been going on for years and will continue to do so. I wrote about this on my blog this past weekend https://thesaasinvestor.com/the-golden-age-of-saas-investing/

MustacheAndaHalf

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #16 on: July 02, 2020, 12:37:28 AM »
Okay, thanks for clarifying.  In that case, two things:
(1) Zoom and DocuSign are especially timely with the prior lock down... and likely problems coming in July.  Do you market time your stocks, or is this a buy and hold portfolio?
Zoom and Docusign are enjoying the Covid trade but they were going to take over anyways. It was already happening well before Covid. Covid just forced everyone to deal with it at once. They are too easy to use and work too well to jack around with WebEx, Teams, GoToMeeting, Adobe and paper signatures.
It looks like DocuSign and Zoom are only recently public (last 1-2 years).  How did you time your investments?  (My understanding is an IPO is not the best time to buy, but here these companies are 1-2 years later doing quite well)

(2) I'm very surprised I don't see Amazon on the list - did I miss it?  Amazon is the leader in retail sales, and it's cloud business is either #1 or #2.  What's your view on Amazon?
Amazon has some software as a service offerings but a lot of their business is e-commerce and cloud hosting. While being growth industries, they arenít pure SAAS plays. Amazon also canít grow like these smaller SAAS companies, as they are already huge.

That being said, around 40% of my IRA is MSFT, AAPL, NFLX, AMZN. The rest is SAAS. My trading account, wifeís IRA, and kids accounts are all SAAS. This is buy and hold for 5-10 years or whenever weíre in the middle of a bubble like the 90s.
Two things suggest you might be under estimating Amazon (which I don't own specifically, but I'm contemplating it).   Amazon went up +50% over the past 12 months, despite already being one of the largest companies in the world.  AMZN is either too big, or can grow: it's 20-25% of the Consumer Discretionary sector ETFs.

hodedofome

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #17 on: July 02, 2020, 08:03:06 AM »
Here's a link to a google sheet I use to track returns of some of the SAAS stocks I follow. My favorite ones (SHOP, RNG, BILL, ZM, DOCU, AVLR, TWLO, MDB, OKTA) are doubling every year.

https://docs.google.com/spreadsheets/d/1H5-MemM3h_DLC12zUPtbfKPZT9r2pY_XEmHVS90-gAc/edit?usp=sharing

Yes, Amazon is a great investment and I own it. Heck, my grandpa made over $1 million just on his Amazon stock alone. But over the past 5 years AMZN's return is an average of 35%. Still fantastic, but I don't expect it to grow like these smaller SAAS stocks. Even the larger SAAS stocks (ADBE, CRM, NOW) aren't growing like the newer/smaller SAAS companies, and so their stock prices are growing in that 20-40% range. Which is still amazing, don't get me wrong. Grandpa, being the riverboat gambler he is, sold all his AMZN (not my recommendation) and has been calling me to tell him what SAAS stocks to own. He's 92, you'd think he'd be ok making 30% returns by now.

As far as timing of my investments, I do watch the stocks (the ones I've pre-identified are good and I want to buy) from the moment they IPO. I bought into BILL just a few days after IPO. If the stock begins to go up over the highs of the IPO day, I'll start buying with a small position. If it continues to go up I'll buy on pullbacks. Many IPO's fall after the IPO day, and go through a bottoming process before they take off. I don't want to be caught in that bottoming process (which may never go higher, for reasons we only find out later on down the road) so I let the market tell me if I'm right in my thesis.

Take WORK for example. I like the product, like the company. It dropped consistently after IPO and I didn't touch it. It 'looks' to have found the bottom in that $20 area so I've been buying small amounts waiting for it to take off. It's not taking off for some reason, so I'm growing impatient. If it doesn't hit $40 which was it's previous high for the IPO, I'll get out and move that money into SAAS stocks that actually go up.
« Last Edit: July 02, 2020, 08:05:10 AM by hodedofome »

GoCubsGo

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #18 on: July 02, 2020, 09:15:14 AM »
I've bought SHOP a couple times and make solid money.  I sold because of the crazy valuations; regretting that now....it's hard to compare those stocks against a "normal" valuation process. I'm worried they got a huge COVID bump and there will be some profit taking at some point.  DOCU was great before the virus and I've had 85 year old clients use it with ease.  I definitely like that long term. 

It's a new world out there....

sixwings

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #19 on: July 02, 2020, 09:36:46 AM »
I keep about 10% of my portfolio is tech ETFs. The rest are in index funds. I am happy with that approach. I think the swings of the tech market would affect my sleep too much.

I think tech is here to stay and is likely to grow to dominate most markets over the next 50 years mostly driven by the biggest "tech" companies. I always hold a ETF that holds Google, Amazon, Facebook, Microsoft and Apple. One of these companies is the most likely to create a true AI, and when they do they will very quickly destroy all other forms of competition so I figure it's a good idea to always hold it. But I don't have the lobes to go all in on tech.

I also think tech is going to fundamentally change how markets work and depressions work. As we saw with Covid, they weren't really impacted at all by the recession. There was short term panic selling but they continued to operate as normal and the markets caught back up and now a lot of them are at their all time highs. I'm not sure the cyclical market cycles will apply to tech sector.
« Last Edit: July 02, 2020, 09:47:18 AM by sixwings »

hodedofome

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #20 on: July 02, 2020, 12:42:13 PM »
There will most certainly come a bubble like the 90s (maybe even bigger) and I will begin selling into that type of environment. I personally believe we're 5-10 years away from that happening however. Maybe even longer. Software, biotech, AI, electrification of everything, space, clean tech will be the drivers of the bubble. I'll deleverage, then I'll sell off small chunks here and there, and finally I'll use a technical trend following stop to kick me out of the stock. You never know how high it can go, so doing something like a moving average or an ATR trailing stop will allow you to follow the stock to it's highest point, and get you out before it drops 80% like the last tech bubble.

You might give up 20-30% of the profits at the end doing trend following, but you were still up 1000-2000% from where it started.

JetBlast

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #21 on: July 02, 2020, 01:10:59 PM »
I've bought SHOP a couple times and make solid money.  I sold because of the crazy valuations; regretting that now....it's hard to compare those stocks against a "normal" valuation process.

I don't think you can fault yourself for selling SHOP.  It's trading at 67x trailing twelve months REVENUE. 

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #22 on: July 03, 2020, 08:02:25 AM »
This is an interesting strategy.  Tech is where the US market is just killing it.  So why not invest in that directly and ignore the rest of it? It's not a bad idea. 

 I'm not convinced that "value" stocks are going to do poorly, but if you are looking at value, it's cheaper outside the US. 

MustacheAndaHalf

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #23 on: July 03, 2020, 08:12:29 AM »
I'm torn between Covid-19 recovery stocks, tech stocks, and my original passive index portfolio.  I'll probably wait for a recovery, switch back to passive indexing, and then decide how much to allocate to individual tech stocks or options.

I recall a very long time ago when people (including me) joked that "Amazon loses money off every sale, but they make it up in volume."  Amazon broke the mold on profitable growth, and that company's CEO is now the richest man in the world.  So I'm leery of poking fun at Shopify and others who attempt to delay profits in order to grow market share.

With Slack (WORK), I had the impression they were beating Microsoft Teams by offering a free version.  Now that Microsoft (MSFT) offers a free version, and handles meetings better (video/voice integrated), it might be Slack's turn to catch up - like with their partnership with Amazon.


hodedofome - On Mar 23-25 I bought individual stocks at deep discounts.  In my "An experiment" thread I mentioned my personal performance of one stock (DIN) was +80%, which nobody else can verify.  But let me assume your performance numbers are accurate, and mention my personal experience with unbelievable stock returns.  First I checked my spreadsheet... very surprised and expecting there was an error.  Then I logged into my Vanguard account and was stunned... even though I bought deeply discounted stocks with the goal of waiting for them to recover (and perform extremely well), I was still stunned when I saw it for myself.  I had that experience numerous times - at one point, a single stock was headed towards becoming 1/10th of my net worth, because it was growing so fast.  (Too late now, and too crazy to really mention)

In the past week, I sold off about 1/3rd or so of my individual stock picks.  Essentially the media reports too slowly and governors loyal to Trump react too slowly to Covid-19, which lets me predict the future.  So I've got a new record high of cash, waiting for the market to drop.

During the lock down, Amazon and Zoom did extremely well.... I guess I should be buying?
« Last Edit: July 03, 2020, 08:14:20 AM by MustacheAndaHalf »

Buffaloski Boris

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #24 on: July 03, 2020, 08:33:06 AM »
I'm torn between Covid-19 recovery stocks, tech stocks, and my original passive index portfolio.  I'll probably wait for a recovery, switch back to passive indexing, and then decide how much to allocate to individual tech stocks or options.

I recall a very long time ago when people (including me) joked that "Amazon loses money off every sale, but they make it up in volume."  Amazon broke the mold on profitable growth, and that company's CEO is now the richest man in the world.  So I'm leery of poking fun at Shopify and others who attempt to delay profits in order to grow market share.

With Slack (WORK), I had the impression they were beating Microsoft Teams by offering a free version.  Now that Microsoft (MSFT) offers a free version, and handles meetings better (video/voice integrated), it might be Slack's turn to catch up - like with their partnership with Amazon.


hodedofome - On Mar 23-25 I bought individual stocks at deep discounts.  In my "An experiment" thread I mentioned my personal performance of one stock (DIN) was +80%, which nobody else can verify.  But let me assume your performance numbers are accurate, and mention my personal experience with unbelievable stock returns.  First I checked my spreadsheet... very surprised and expecting there was an error.  Then I logged into my Vanguard account and was stunned... even though I bought deeply discounted stocks with the goal of waiting for them to recover (and perform extremely well), I was still stunned when I saw it for myself.  I had that experience numerous times - at one point, a single stock was headed towards becoming 1/10th of my net worth, because it was growing so fast.  (Too late now, and too crazy to really mention)

In the past week, I sold off about 1/3rd or so of my individual stock picks.  Essentially the media reports too slowly and governors loyal to Trump react too slowly to Covid-19, which lets me predict the future.  So I've got a new record high of cash, waiting for the market to drop.

During the lock down, Amazon and Zoom did extremely well.... I guess I should be buying?

Why keep to the US?  One observation about COVID: other countries have handled it better than the US.  So their economies will likely start to prosper a lot faster.

hodedofome

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #25 on: July 03, 2020, 05:41:23 PM »
YTD my IRA (60% SAAS 40% AMZN, AAPL, NFLX, MSFT) is up 50%, and my trading account (all SAAS stocks a few options and a few futures contracts) is also up 50%. Iíd have more money if I was 100% SAAS however.

helloyou

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #26 on: July 03, 2020, 10:54:44 PM »
Do you guy pick individual SASS or is there a good etf to buy?

A lot of them feel overpriced now, such as Docusign which tripled in price. So I dunno if its good time to keep adding

hodedofome

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #27 on: July 04, 2020, 07:28:55 AM »
Do you guy pick individual SASS or is there a good etf to buy?

A lot of them feel overpriced now, such as Docusign which tripled in price. So I dunno if its good time to keep adding

A lot of the ETFs are watered down with old software companies who are not pure cloud SAAS in the modern sense of the word. Or, they are dominated by the big tech companies if they are market-cap weighted. However, this one seems to have a lot of the names I like as their top holdings https://etfdb.com/etf/WCLD/#holdings or this one https://etfdb.com/etf/CLOU/#holdings

I pick individual SAAS but I bought most of what I own in 2018 or 2019. They had already run up in price pretty good by the time I bought them, and have run up a lot since I bought them. My family and friends who have been following me are just now starting to buy them for the most part, and I've told them it's risky to buy right now but they don't listen.

SAAS stocks drop 15-30% about once or twice a year, we got that drop in March so it's possible we get another one this year, and it's also possible we don't get one until next year. I cannot predict with that kind of certainty so personally I'm not buying these days until we get that drop again. I'm already fully invested, but I'll use the next drop to trim some holdings I'm not as excited about anymore, as well as load up on my favorites more. In my trading account, I'll go on margin a bit on the drop or buy some long dated options for leverage.

Currently my IRA ($300k as of today) is 40% AMZN, AAPL, NFLX, MSFT and 60% is AVLR, BILL, DOCU, RNG, SHOP, ZM. Shopify is my largest holding in that account simply because it's performed so well. I was underinvested in Zoom, but it's performed so well it's now in line with my other holdings. I was feeling very overinvested in AVLR, but the recent run in the stock has made me feel better about it. The next drop I'll probably trim this position.

My trading account ($166k as of today) is SHOP, ZM, RNG, BILL, DOCU, with small amounts in AVLR and WORK. I also have a few call options on BILL, WORK, RP and PTON. Also 1 e-mini S&P 500 futures contract and 2 micro gold futures contracts. 

helloyou

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #28 on: July 04, 2020, 11:22:37 AM »
Do you guy pick individual SASS or is there a good etf to buy?

A lot of them feel overpriced now, such as Docusign which tripled in price. So I dunno if its good time to keep adding

A lot of the ETFs are watered down with old software companies who are not pure cloud SAAS in the modern sense of the word. Or, they are dominated by the big tech companies if they are market-cap weighted. However, this one seems to have a lot of the names I like as their top holdings https://etfdb.com/etf/WCLD/#holdings or this one https://etfdb.com/etf/CLOU/#holdings

I pick individual SAAS but I bought most of what I own in 2018 or 2019. They had already run up in price pretty good by the time I bought them, and have run up a lot since I bought them. My family and friends who have been following me are just now starting to buy them for the most part, and I've told them it's risky to buy right now but they don't listen.

SAAS stocks drop 15-30% about once or twice a year, we got that drop in March so it's possible we get another one this year, and it's also possible we don't get one until next year. I cannot predict with that kind of certainty so personally I'm not buying these days until we get that drop again. I'm already fully invested, but I'll use the next drop to trim some holdings I'm not as excited about anymore, as well as load up on my favorites more. In my trading account, I'll go on margin a bit on the drop or buy some long dated options for leverage.

Currently my IRA ($300k as of today) is 40% AMZN, AAPL, NFLX, MSFT and 60% is AVLR, BILL, DOCU, RNG, SHOP, ZM. Shopify is my largest holding in that account simply because it's performed so well. I was underinvested in Zoom, but it's performed so well it's now in line with my other holdings. I was feeling very overinvested in AVLR, but the recent run in the stock has made me feel better about it. The next drop I'll probably trim this position.

My trading account ($166k as of today) is SHOP, ZM, RNG, BILL, DOCU, with small amounts in AVLR and WORK. I also have a few call options on BILL, WORK, RP and PTON. Also 1 e-mini S&P 500 futures contract and 2 micro gold futures contracts.

Yeah good point. I almost bought QQQ but didn't because it wasn't diversified enough. I also pick individual tech stock as I couldn't find relevant enough fund

Thanks for the list I'm gonna check them and see if I can add more.

For docusign I saw you having that I really wanted it but waited for price to go down from 115 and now its at 185.... damn.

Now its too expensive!

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #29 on: July 04, 2020, 12:55:08 PM »
I've bought SHOP a couple times and make solid money.  I sold because of the crazy valuations; regretting that now....it's hard to compare those stocks against a "normal" valuation process.

I don't think you can fault yourself for selling SHOP.  It's trading at 67x trailing twelve months REVENUE.

For these type of stocks trailing revenue is the wrong metric to look at.  Revenue growth for many of them is 30%+ each year and in many cases its accelerating.  Also, keep in mind that SAAS companies also routinely have gross margins that are 70%+ so that future revenue is even more valuable.

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #30 on: July 04, 2020, 02:31:26 PM »
I've bought SHOP a couple times and make solid money.  I sold because of the crazy valuations; regretting that now....it's hard to compare those stocks against a "normal" valuation process.

I don't think you can fault yourself for selling SHOP.  It's trading at 67x trailing twelve months REVENUE.

For these type of stocks trailing revenue is the wrong metric to look at.  Revenue growth for many of them is 30%+ each year and in many cases its accelerating.  Also, keep in mind that SAAS companies also routinely have gross margins that are 70%+ so that future revenue is even more valuable.

I'm aware of the explosive revenue growth and gross margins in this type of company, but I'm also aware a whole lot has to go right for a valuation like SHOP has now to make sense.  Like the company needs to grow revenues by about 600% and do so while expanding margins.  It's certainly doable, but by no means close to a certainty. 

I like to look at what revenue they're producing now because it gives you an idea of what sort of growth is baked into the valuation. 
 

helloyou

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #31 on: July 04, 2020, 05:31:53 PM »
I've bought SHOP a couple times and make solid money.  I sold because of the crazy valuations; regretting that now....it's hard to compare those stocks against a "normal" valuation process.

I don't think you can fault yourself for selling SHOP.  It's trading at 67x trailing twelve months REVENUE.

For these type of stocks trailing revenue is the wrong metric to look at.  Revenue growth for many of them is 30%+ each year and in many cases its accelerating.  Also, keep in mind that SAAS companies also routinely have gross margins that are 70%+ so that future revenue is even more valuable.

I'm aware of the explosive revenue growth and gross margins in this type of company, but I'm also aware a whole lot has to go right for a valuation like SHOP has now to make sense.  Like the company needs to grow revenues by about 600% and do so while expanding margins.  It's certainly doable, but by no means close to a certainty. 

I like to look at what revenue they're producing now because it gives you an idea of what sort of growth is baked into the valuation.

Ah good point. I read the financial statement but to be honest I often get a bit lost in it.

Are there any video or book on how to read tech financial statement? Understanding what's to be careful about such as convertible notes or potential risk of cooked books!

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #32 on: July 04, 2020, 07:01:26 PM »
Ah good point. I read the financial statement but to be honest I often get a bit lost in it.

Are there any video or book on how to read tech financial statement? Understanding what's to be careful about such as convertible notes or potential risk of cooked books!

If you're in a hole, stop digging.

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helloyou

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #33 on: July 04, 2020, 08:06:45 PM »
Ah good point. I read the financial statement but to be honest I often get a bit lost in it.

Are there any video or book on how to read tech financial statement? Understanding what's to be careful about such as convertible notes or potential risk of cooked books!

If you're in a hole, stop digging.

-W

Ahah I know it's Buffett's quote :)

MustacheAndaHalf

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #34 on: July 05, 2020, 02:53:01 AM »
Buffaloski Boris - Or make sure to buy both U.S. and Chinese internet-related stocks.  Performance was better for China recently (1 year), but better for the Nasdaq 100 in 3 yr and 5 yr.
https://etfdb.com/etf/QQQ/#performance
https://etfdb.com/etf/CQQQ/#performance
https://etfdb.com/etf/KWEB/#performance

It's a bit trickier to own Chinese Cloud stocks... there's an ETF that apparently is only listed in Hong Kong:
https://www.bloomberg.com/quote/9826:HK
(In Chinese speaking countries, numeric tickers are common.  I don't see an equivalent one in the U.S.)


For these type of stocks trailing revenue is the wrong metric to look at.  Revenue growth for many of them is 30%+ each year and in many cases its accelerating.  Also, keep in mind that SAAS companies also routinely have gross margins that are 70%+ so that future revenue is even more valuable.
If I'd like to give this perspective a chance, where could I read more about it?


A lot of the ETFs are watered down with old software companies who are not pure cloud SAAS in the modern sense of the word. Or, they are dominated by the big tech companies if they are market-cap weighted. However, this one seems to have a lot of the names I like as their top holdings https://etfdb.com/etf/WCLD/#holdings or this one https://etfdb.com/etf/CLOU/#holdings
Nice to know about these ETFs.  When Covid-19 is over and I sell my individual stocks (and some go bankrupt), I might prefer the ease of holding ETFs again.

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #35 on: July 11, 2020, 02:12:12 PM »
There will most certainly come a bubble like the 90s (maybe even bigger) and I will begin selling into that type of environment. I personally believe we're 5-10 years away from that happening however. Maybe even longer. Software, biotech, AI, electrification of everything, space, clean tech will be the drivers of the bubble. I'll deleverage, then I'll sell off small chunks here and there, and finally I'll use a technical trend following stop to kick me out of the stock. You never know how high it can go, so doing something like a moving average or an ATR trailing stop will allow you to follow the stock to it's highest point, and get you out before it drops 80% like the last tech bubble.

You might give up 20-30% of the profits at the end doing trend following, but you were still up 1000-2000% from where it started.

I would be very interested in hearing about how you accomplish this kind of risk management as a practical matter... hopefully it can be automated? I think this is the kind of thing I need to get me to actually invest in individual stocks. As it is I'm far too terrified of losses to chase trends in tech, or anywhere else for that matter. I've never been a trader and have no investing experience apart from buying & holding a few index funds.

I need some kind of automatic stop loss mechanism that kicks in when the SHTF, otherwise I don't think I will ever get started (just way too much risk aversion... I hate losing money 100x worse than I like making it).

hodedofome

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #36 on: July 11, 2020, 08:16:57 PM »
There will most certainly come a bubble like the 90s (maybe even bigger) and I will begin selling into that type of environment. I personally believe we're 5-10 years away from that happening however. Maybe even longer. Software, biotech, AI, electrification of everything, space, clean tech will be the drivers of the bubble. I'll deleverage, then I'll sell off small chunks here and there, and finally I'll use a technical trend following stop to kick me out of the stock. You never know how high it can go, so doing something like a moving average or an ATR trailing stop will allow you to follow the stock to it's highest point, and get you out before it drops 80% like the last tech bubble.

You might give up 20-30% of the profits at the end doing trend following, but you were still up 1000-2000% from where it started.

I would be very interested in hearing about how you accomplish this kind of risk management as a practical matter... hopefully it can be automated? I think this is the kind of thing I need to get me to actually invest in individual stocks. As it is I'm far too terrified of losses to chase trends in tech, or anywhere else for that matter. I've never been a trader and have no investing experience apart from buying & holding a few index funds.

I need some kind of automatic stop loss mechanism that kicks in when the SHTF, otherwise I don't think I will ever get started (just way too much risk aversion... I hate losing money 100x worse than I like making it).

There are many methods but hereís a mechanical one that is robust and is run by a real money manager. https://drive.google.com/file/d/0BzyyTlvGE-T2MHlLbS1tbzNVVDA/view?usp=drivesdk

cschx

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #37 on: July 12, 2020, 01:57:41 PM »
Yes thanks, I saw you posted that paper in another thread. However I have no idea how to implement ATR trailing stops... I'm wondering if this is something that can be done in a standard retail brokerage account (which I already have), or if it would require something like IBKR Pro hooked up to a trading bot. The latter is way above my speed, but could be an interesting project.

hodedofome

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #38 on: July 12, 2020, 09:32:06 PM »
Yes thanks, I saw you posted that paper in another thread. However I have no idea how to implement ATR trailing stops... I'm wondering if this is something that can be done in a standard retail brokerage account (which I already have), or if it would require something like IBKR Pro hooked up to a trading bot. The latter is way above my speed, but could be an interesting project.

I can get ATR trailing stops in Thinkorswim from TDAmeritrade. Youíd just have to choose a small enough list of stocks to follow so that you wouldnít have to check hundreds of charts on a regular basis. Iíd try to keep it under 100 and preferably under 50 or even 30. Most of the time the stops would be so far away you wouldnít even have to check it on most days unless the market was down a good bit.

hodedofome

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Re: Software Stocks for the Long Run - Heretics Thread
« Reply #39 on: August 31, 2020, 04:23:40 PM »
Zoom (ZM) just knocked the ball out of the park on their earnings release this evening. Stock is up 35% in after hours trading. At $407/share that brings YTD return to 498%.

I've been long since $100.