2 Companies to Start You Investing Portfolio With
Catch up with the MyWallSt team as they give their opinions on the current IPO market, chat about the advent of 5G and the companies that stand to benefit from it most, and pick the two companies they’d invest in if they were starting their portfolios from scratch.
JAMES: So guys, today before we get into the recent news section, Méabh, you were gonna give us an update on a problem you mentioned a few weeks ago you were having with Apple.
MÉABH: For anyone who’s been waiting patiently, my Airpods debacle has resolved itself. There was something wrong with the manufacturing and they cut my ear open, they were very uncomfortable. I had an excellent customer support experience with Apple; new Airpods, no problem, and store credit for the amounts that I purchased.
EMMET: So what are you buying yourself?
MÉABH: I don’t know, I’m gonna go shopping today.
JAMES: Pretty good customer; I suppose they can afford it though, a one trillion dollar company.
So moving on from that, we’re in the middle of earnings season here at the moment. Yesterday Eventbrite posted their earnings. Rory, it was a bit of a disappointment for investors.
RORY: That’s definitely putting it lightly. It was a very poor report; they missed on earnings and posted a wider loss than expected. They missed on revenue — not by a lot, but they still missed it. In the current quarter, they’re expecting between $74 and $78 million, that’s way below the $82 million analysts were expecting.
Two years ago, they bought Ticketfly, which was their biggest competitor; they bought that off Pandora media, and they’re basically trying to integrate the two platforms. They were hoping that it would be done by the summer, but they said on the earnings call that it’s taken longer than expected to get going. I think one of the things maybe Wall Street was expecting, that the acquisition of Ticketfly would basically just transfer those revenues over to Eventbrite, and that’s not really how they’ve gone about it. They’ve wanted to move Ticketfly users over to the Eventbrite platform, and it’s just another example of sometimes acquisitions work out, but very often they end up destroying shareholder value. We saw with MindBody before they were acquired last year, they bought a company called Booker and they had problems integrating that, so it seems like this was a very poor report.
The stock was hammered in after-hours trading, expected to open below its IPO price. The hope is that this is getting all the bad news out in one report, and this is the start of the next phase — which is starting to grow the business again.
But yeah, it was a tough quarter for them; the CEO didn’t really have the right answers on the earnings call afterwards, so disappointed at this point in the stock. It looks still like a very young company, and new to the public markets; Wall Street just hasn’t really figured out what to expect from them, so I still love the product and still love the company and hope this is the end of the bleeding for the stock.
JAMES: You mentioned that they’re quite still a young company — so they went public last September — and that kind of leads into the larger conversation we’ve been having across the last few podcasts about all the IPOs that are happening at the moment.
At the moment I think everyone knows there’s quite a lot of companies going public at the minute.
Beyond Meat, the vegetarian vegan burger brand is going public today, I think; Zoom, Pinterest, Lyft, Uber Slack, Pager Duty, there’s just a host of companies going public.
So I think in this episode, we’re gonna get IPOs out of our system a little bit talk just generally about all of these IPOs and get some of the biggest questions some of our listeners have had out of the way.
So Emmet, why are there so many companies going public at the moment? Is there any reason why there’s such a glut?
EMMET: I think the market is offering really favourable conditions; if you’re gonna float your business with a purpose of maximising a single shot onto your balance sheet, the market is attractive today for businesses. But you notice that there’s a cyclicality to IPOs; and in a recent Expert Opinion Piece that Rory wrote, we could see that there are years that are busy and there are years that are not, and it comes in ebbs and tides.
I think at the moment we’re just seeing a lot of businesses that are of interest to us, most people will have heard of, be it Levi’s or Beyond Meat or Pinterest, we’re seeing brands we know going public. Months can go by with dozens and dozens of IPOs of businesses you’ve never heard of; it just so happens that we’re looking at IPOs that have in various forms, perhaps, the consciousness of the public.
JAMES: And a lot of tech darlings as well, I suppose.
RORY: When I was researching that IPO piece. I looked back on a piece I wrote four years ago now, back then everyone was talking about the upcoming Airbnb IPO and Uber, so it’s taken them all a long time to get to this point.
One of the reasons it seems to be happening right now — a very concentrated amount of IPOs happening — is because a lot of them were planning on doing it earlier this year, but there was a government shutdown in the US, so the Security Exchange Commission wasn’t operating. That’s just a hint as to the timing of why they all seem to be happening in the same week, but there are some really interesting companies coming out. Slack we talked about before, I think, as one of my favourite businesses; that’s heading to be public soon.
JAMES: Slack are going public in quite a different way from other companies, they’re filing for a direct listing. What does that mean, as opposed to a normal listing?
RORY: Same as Spotify did it last year, instead of doing a big IPO with a bank backing them, they’re just gonna list their shares one day. There won’t be the kind of roadshow that usually comes about with an IPO; their shares just appear on the market, it’ll be people who own shares selling them.
JAMES: Is there any reason why they choose a direct listing?
RORY: It’s a lot cheaper; they don’t have to hire a big underwriter like Goldman Sachs. The lock-in period that the big banks usually demand isn’t there either; so they can sell their shares quicker, which could be a good or bad thing for shareholders.
JAMES: I was wondering: does that signify confidence or lack thereof?
RORY: Well, the money-saving thing is a big thing. Spotify kind of set a trend last year — was seen as a kind of novel and kind of trendy way to go — but Slack the email-killer — it was one of the big themes a few years ago for Y Combinator.
I read the S-1 there last week. There was a line in it which I liked, which said “Like email or the internet or electricity, Slack has very general and broad applicability. It is not down to one specific preference, but nearly anything that people do together at work.”
EMMET: Méabh, you posted a really interesting piece to our internal Slack yesterday.
MÉABH: I know, I posted on Slack about Slack.
It was a Vox.com piece and I’d recommend everyone reading it, and it is, I suppose, leaning towards the parts of Slack that can be perceived as inefficient or problematic.
I mean, look, Slack is the bane of a lot of modern tech people’s lives. I’m a fan of the company like you just mentioned Rory, but I also have some concerns about just how efficient it really does make work.
RORY: I suppose their argument would be that before Slack people were using email, which was incredibly siloed; there were lots of conversations that people missed out on. I think there is a rich flow of communication that happens between teams, that sometimes people just want to comment or even just read it and absorb it without getting involved. I think Slack’s really good for that kind of thing.
MÉABH: Absolutely; I don’t actually blame the tool, I blame with the humans.
RORY: Maybe that Giphy integration?
MÉABH: It’s all about how you use it.
RORY: But as a business, they’re growing like crazy; their revenues were up 88% last year, it’s one of the fastest growing tech companies of that size at the moment. They said in their S-1 that they generate most of their business through word of mouth, but note that they spend over 50% of their revenues on sales and marketing. I’d take that with a pinch of salt, but that’s one of the ones I really like.
Anyone else have favourites at the moment?
EMMET: Well, just before we leave that; there’s an entrepreneur here in Dublin — fabulous guy, built very many successful businesses — and he has a story about in the 80s, one of his first jobs was selling faxes, and he said it was brilliant; because once he sold the fax, the minute the deal was done you asked a person “So who do you speak with the most? Because I gotta go sell them a fax as well.”
That’s a bit like Slack. Once you’re in, you’re going to recruit others, so it’s curious that they spend so much on marketing. When we were in Times Square there in January, Méabh, and we saw one of the big boards above had a Slack ad on it.
JAMES: That’s where that 50% is going.
RORY: The integration element of Slack is very important, I suppose; if you look at modern business today, there’s an awful lot more communicating between businesses. We have brokerage partners that we have to talk to you on a constant basis, and being able to connect with other companies like that, it’s probably quite important.
EMMET: It’s like an internal email, but for a closed community; it’s very good.
JAMES: Moving on to another company, and a staple of the MyWallSt officers that IPO’d recently; Zoom.
Zoom has probably been the biggest success this year in terms of IPO, jumped more than 100% from its $36 guide price; but when you look at other companies like Lyft which haven’t been so successful, what is it about Zoom that’s making investors want to get on this ride early?
RORY: Profits; they’re one of the few companies that are profitable that have gone public recently, and quite profitable. They’re doing quite well and growing very fast. You and I disagree on Zoom, Emmet.
EMMET: We do, yeah. I said to you yesterday when we were chatting, Rory, that they have first mover advantage; which actually on reflection, they don’t. First mover advantage is a documented strategic advantage that is notorious for being very time-limited — being first out of the trap is another way of putting it. It doesn’t mean you’re gonna win the race, but it was only after I said it to you, Rory, that I realized they actually did not and do not have first mover advantage. You could argue Skype had first mover advantage, 10 years plus before Zoom. Slack as we just discussed, have a video feature which for good or bad we just don’t use, we use Zoom; and bringing in the other conversation we had, Zoom also has that network effect; a bit like the fact that if you send somebody an invitation to a meeting and Zoom’s the way you connect, they will connect via Zoom.
So it is a business that I see growing rapidly; and again, to the American example in JFK, we saw they had our departure hall painted with their corporate branding. Zoom, no doubt, is hot at the moment. I think the evolution of telecommunications systems is going to erode something that Zoom is quite good at, which is very low latency or the ability to speak to somebody without any jitter or delay.
In fact, Meabh and I were speaking with one of our customers who was down on the Gold Coast of Australia; actually, Tim is quite a personality down there. Tim Faulkner is, I suppose you’d call him the modern Steve Irwin.
MÉABH: He’s the wildlife King!
EMMET: Yeah, he’s the wildlife King; I supposed the new Steve Irwin, is that fair enough?
MÉABH: I think Tim would like to take that!
EMMET: We connected with Tim via Skype. Méabh, you were in one office, I was five kilometres away in our other office, and Tim was in Australia. It had a huge inconsistency. Zoom is a far more reliable service, and they have a kind of carrier-grade service, if you like. So certainly, for now, I like them; but I can’t see how over the medium term, the likes of Slack and the likes of FaceTime and whoever else is out there doesn’t hurt their business.
JAMES: Let’s get down to the real question, then; would you ever invest in an IPO?
There’s all this excitement about a company going public, but should we be trying to get in on those first days or should we be waiting a while?
RORY: No, definitely not; shouldn’t go in on the first day.
EMMET: Never on the first day; no doubt I have invested in IPOs — and what I mean by that is within the first few weeks of going live .
Coming back to lockup periods as Rory mentioned with Slack’s direct listing, when you think about businesses that are IPO-ing, generally the insiders, the founders and the first set of team members — the first employees and recruits — have a bunch of shares, and they’re waiting for a liquidity event. Nobody got rich on the journey of a start-up through their salary; they’re actually waiting for a day where they can take some money off the table. It’s a very human condition; you only live so many years, and it’s only fair that — after X number of years working hard at a business you’ve worked in pre-floatation goes live — that you should be allowed to cash in, and that’s just life planning. It’s an inevitable force that occurs when your business goes live, so early employees of Slack will see a day very soon where they can take some money off the table, and then people try and read into that — insiders are selling — but there is a huge amount of research done on this, on insider buying and selling. You cannot really read into insider selling so easily, because generally it’s just somebody wants to buy something in their private life.
What was the question? [LAUGHS]
JAMES: Should we invest in a company that goes public?
EMMET: I’d rather leave it for a quarter.
RORY: Another one that’s gone public and done very well, Pinterest; which is weird for us, because it doesn’t seem to be as big over here as it is in the States. They have 88 million users in the States.
JAMES: I’ve never been on Pinterest.
MÉABH: Shout-out to my Canadian friend Jess, who in her own words ‘Pinterests hard.’ Maybe it’s just something that we’re not clicking with or getting.
RORY: It’s doing so well post-IPO it’s worth more than Lyft — which I don’t know if that means Pinterest is overvalued or Lyft is undervalued; I think Lyft probably has a bigger market opportunity but I like the business a lot. The reason that I do is, I just finished reading a book called ‘The Power Of Habit’ by Charles Duhigg — which is an old but well worth it read — and there’s a chapter in it talking about Target and how in the early ‘00s Target became totally obsessed with collecting customer data, and hired an awful lot of very smart analysts to sort that data.
They were using it to send out coupons to their users in the mail — trying to entice them in with promotions and stuff — and the Mount Everest that those analysts were trying to climb was to find out when their customers were pregnant before even… not before they knew they were pregnant, but before they were willing to tell other people they were pregnant. The reason they wanted to know this so badly is that they found that people spend a huge amount of money around big life-changing events; so getting married, moving house, buying a first apartment, and having your first kid. People just spend insane money around those times in their life. So if they knew when people were pregnant, they could get them into the store with promotions for diapers and baby food and all this kind of thing. They got so good at it, one day a father walked into Target and started berating the manager because they were sending his 16-year-old daughter coupons for diapers and things like that. He suggested that they were trying to suggest she’d become pregnant, even though she was still in high school; so the manager at Target was very apologetic, said he’d look into it and he called back a couple of days to apologize again. The dad said, “Actually, I’ve had a conversation with my daughter and I think I owe you an apology.”
They were so good at finding information; to bring that back to Pinterest, like you said Méabh, people who use it for planning big events — for playing their weddings, for interior design, for that kind of stuff — so they’re basically creating mood boards that advertisers can then say — or Pinterest can say to advertisers at least — “These people are doing a major life thing, they’re buying a load of stuff in; this is a great place for you to advertise in front of.” They really have built their product around that whole idea.
MÉABH: The value of the data there; seeing what consumers are posting, the trends.
EMMET: This conversation has actually piqued my interest in Pinterest, to the point where I feel inclined to go in; whenever I’ve seen something that’s blocked with the login to Pinterest screen, I’ve always closed it, can’t be bothered. Now I think I will bother, go in and have a look and see what’s happening.
RORY: The one thing I’m not so sure about with Pinterest is their growth in the U.S. has pretty much flatlined; they’ve kind of hit their peak at 80 million users. They’re still growing really fast internationally, but they haven’t proven yet that they can monetize those users at all; their average revenue per user in the U.S. is like $6 — $6.60, whereas internationally it’s 21 cents at the moment. So the real question of Pinterest is, will they be able to monetize those international users going forward?
EMMET: So if somebody handed you a thousand dollars right now, and said ‘Pinterest for ten years’.
RORY: Why do I keep getting handed money? [LAUGHS]
EMMET: If someone handed you a thousand books right now and said ‘Pinterest or the S&P 500 for five years’, what would you go with?
RORY: I haven’t looked into enough, so I’d probably play it safe and look at the S&P 500, but I’m still looking at Pinterest.
JAMES: That was our big conversation about IPOs; they’re kind of getting like Elon Musk in the way that we’re talking about them every single episode, but hopefully next episode we won’t be talking about them as much. Let’s move on to our ‘Company We Never Talk About’, this is where we take a company that we believe doesn’t get the attention it deserves.
Rory, you’re going this week.
RORY: The one I’m gonna talk about is Paycom, a human capital management software developer.
It was founded by a guy called Chad Richardson back in 1998. It was one of the very first companies to move the payroll process online, long before the term Software-as-a-Service came into our lexicon; started out just by doing payroll, it’s since expanded into human capital management, recruitment, talent management; pretty much anything to do with hiring, managing, keeping your staff happy.
It’s an interesting company because the reason I like SAAS companies, in particular, is that I think the move to the cloud has been one of those massive changes in the history of business. There was a couple of companies that were just in the right place at the right time in terms of the infrastructure and had the product that was prime for that shift to happen.
Paycom definitely was one of those companies. It had a smart strategy as well; they targeted small and medium-sized clients, which is the kind of businesses that weren’t already locked into big legacy providers. They’re doing a kind of a similar product, but they’re trying to steal business off the likes of Oracle and SAP, whereas Paycom is going in for businesses that really never had this service before, or thought it was too small; a really underserved market.
Loads of things I like about the business; it’s profitable, despite being a fast-growing tech company. They’ve got a nice solid balance sheet, very disciplined and how they roll out their products and their sales teams; consistently beat earnings — nearly every quarter in, quarter out they seem to beat earnings — and they’re still growing like crazy, revenue was up 30% last quarter.
Since we added them to the app about a year and a half ago they’re up 200%. Chad Richardson is still the CEO — still owns a big part of the stock — and if people aren’t watching, they should have them on their watch list.
JAMES: Sounds good; ticker symbol is?
JAMES: That was Paycom, the Company We Never Talk About.
Before we go any further, I just want to let you know about some of the great things we have in the MyWallSt app at the minute, along with Paycom.
We have a new Stock Of The Month coming on Monday, the one stock that our analyst team loves most at the moment; Rory, any hints about the company.
RORY: No. [LAUGHS]
JAMES: You can check that out on Monday when it goes live in the app; we also have April’s ‘Expert Opinion Piece’ in the app at the moment — which is about IPOs if we haven’t talked about them enough already — and we also have another article in the MyWallSt app at the moment, that tells you how much you could have made if you’d invested your tax refund into Amazon, Apple and Netflix over the past ten years.
You can check all of that out in the MyWallSt right now. Méabh?
MÉABH: Next up is Jargon Busters.
We have three items; the first one… I think we’ve touched on this before, but I have to say this is something that our community asks over and over, so I’m sensing that this is just a quite a complex personal decision point. It’s basically asking, when should you accumulate cash versus when should you add stocks to your folio?
So those two moments; when do you kind of stockpile cash and make sure you’re ready to invest, and when do you actually go in?
EMMET: There’s a lot of ways we can answer this question. Stockpiling cash, most people don’t feel comfortable with, irrespective of the level. So if you have a pile of cash in a bank account, and you’ve retired/killed all your short-term debt/credit card debts, maybe a car loan — which is a good use of cash, I might say — then no one really likes just cash gathering up in a low or negative interest bank account. That’s just unfortunately the way the world is now and everyone kind of now knows that cash on the sidelines is losing value on its own.
What the question relates to in some respects is, should we time the market? Should we wait because something negative might happen and there are very few people who can call that accurately, repeatedly. There are a lot of people who can say “Yeah, we’re about to how a downturn” and they get lucky because every day for the last five years, somebody has said a correction, recession, depression is gonna start next month, I can guarantee you. Every day of the week of the last five years, somebody has made that call and those people have been wrong; and one of these days one of those people will be right. So cash, it’s utility; it’s there to help you get through the days, weeks and months ahead of you, and if you have more on the sidelines than you need to get through the few months that you can see ahead of you, it really should be invested.
One answer is to have enough cash on the sidelines that you can deal with the next few months, should a rainy day arise in your personal life and you have no earning power, but the way I’ve lived my investing life for 25 years is, I have never had any — I’m not saying this is the right thing — but I have been almost 100% invested. I’ve had enough cash to deal with a few months rolling ahead’ and everything else has gone into stocks and shares; so what I’m saying is I can’t time the market, but what I do know as a matter of measured fact, is time in the market beats all else.
I’m not trying to avoid a very pointed answer, but that’s the best you can do; I’m trying to give a broad answer, and everyone has specific considerations. It’s a personal thing; so retire your debt, get rid of credit card debt, pay off your car loan — have some cash on the sidelines to live your life — and beyond that, should be investing.
RORY: There’s a lot of things to consider as well; think about your own job security. If you feel safe in your job, you probably don’t need as big an emergency fund as someone who and it doesn’t, or is thinking of getting into a new career path. It’s a very personal question.
MÉABH: I don’t know if this is too literal, but something that I do personally and sometimes see our users mention is, being ready to invest when you feel like it’s the moment. So literally having your brokerage account funded. The question is probably about larger pieces of cash, but I always make sure that there is a reasonable amount of cash in my brokerage account sure when I have it, and when I’m kind of ready.
JAMES: That’s an important point to think as well; you don’t like leaving cash sitting there, but it’s also good to have some cash — so in the event of, maybe a stock you’re looking at it pulls back a little bit — that you’re ready to go with that and add your position when the price looks a little bit better.
EMMET: I read an interview by the Motley Fool several years ago — say about eight or nine years ago at this stage — a member of their community had something like 22% annual returns over a long period of time, 20 years, and was always… I think was 20/30% in cash yeah, which was absolutely phenomenal; that individual could have so much cash on the sideline and still generate.
Overall, the entire portfolio’s returns were under 20% — so huge, worthy of an interview — so there are people who very successfully invest, and always have a portion of it on the side in cash. I think, being fair, if I looked across my entire investing life; while I say I’ve always 100% been invested, I suppose there’s probably one or two per cent where I’ve been in cash in my brokerage account for the rainy day. But I certainly haven’t stockpiled cash at any stage of my life; I’m not saying for the next 25 years that would be the right strategy, but what I am saying is it’s going to be my strategy.
MÉABH: Moving on to a question that was asked by a Twitter user, the question is what type of infrastructure companies should benefit from the advent of 5G?
EMMET: I think I’ll start by just explaining what 5G is; so it’s 4G plus one. [LAUGHS]
It’s the next and it is the most advanced commercialised wireless system. In theory, 5G can deliver as much as 20GB down to your phone or device and 10GB on the uplink — so throughput speeds are huge and at the cutting edge — but in reality, it won’t be so high. Really, our phones and our connected devices have as much speed as they need at the moment; I think that the real advantage of 5G is ultra reliable low latency. So in other words, how fast a frame of video can get from one device to another. Low latency is very desirable in online gaming, so if I have a headshot at you, James, and pull the trigger — the same goes for other services, such as the Skype example we discussed earlier, Méabh. High latency was a problem we were experiencing yesterday with our call to Australia, and then many other industries want uber- low latency, for example, high-frequency trading on the capital markets. The services that demand very, very low latency are gonna get it with 5G, so when you think about 5G, your view of mobile equipment comes down to your handset — so whether that’s an iPhone or Samsung or whatever — but that phone is sharing up to antenna systems nearby, and from the antenna that’s sharing down to your phone, there is a whole world of equipment behind it that’s very, very expensive to deploy. And your network carrier has no doubt spent hundreds of million millions of dollars in the last few years building out the 3G and 4G networks, and now they have to go at it all over again for 5G. So 5G is a technology that brings towards real-time delivery of information.
JAMES: And there’s gonna be some massive investment there.
EMMET: Absolutely; so that question paraphrased is, do networks need to roll out new equipment for 5G, or can they reuse the existing equipment? The short answer is they absolutely need to install a whole load of new equipment. In fact, billions of dollars are going to be spent around the world on smart antenna and small cells and radio — or what’s known as core network equipment — basically the guts of the network that brings your video from your games or the handset console to the other end.
So there is going to be a lot of money spent on 5G in the years ahead, and it’s gonna be a massive deployment of the tech and money.
JAMES: So thinking about that then, my mind is immediately brought to American Tower; I assume they would benefit massively from this roll out in that infrastructure.
EMMET: They will; so when you talk about infrastructure, there are lots of different shades of it. American Tower is tantamount to a landlord they basically have a network of antenna and radio equipment all over the world, as we discussed in a recent podcast.
In preparation for this question, I rang some friends of mine who have decision-making capability in mobile carriers. They have massive budget buying decisions, and they have a lot of opinions on how that capital is going to be deployed in the years ahead. I think it’s certainly worthy of an addition to our app or an Expert Opinion Piece, but I think the hot conversation around the world at the moment is Chinese manufacturer Huawei. Huawei, as most people are aware, is a Chinese vendor of telephone network equipment. The US has made it clear that they have suspicions that Huawei’s technology offers the Chinese government the ability to monitor Internet traffic on 5G, thus making a security risk. The hot Huawei story of the millisecond is that just over a week ago, the UK’s newspaper The Daily Telegraph reported that Prime Minister Theresa May had given the go-ahead from Huawei to build a part of the 5G network in the country; and that in turn was ignoring more warnings from senior ministers. Then only yesterday Ms May sacked a minister after a probe into the leak of this confidential information.
So let’s just say Huawei’s equipment could be so advanced technically it’s from the future, but its deployment is a geopolitical battleground. Therefore it would strike me as imprudent of networks to roll our Huawei here, and I think that we have in our sights a very opportunistic investment, which will have a long tail of returns. In fact, there’s a superb investor called Peter Kinney who lives in Chicago — and he’s very, very bullish on the stock that we’re about to tee up for addition.
So there are many ways you can invest in 5G. We’re at a point where I think we can make a call on how to do that — we won’t do it today in the podcast — but certainly I love American Towers, it’s there already. Chips manufacturers, I wouldn’t go there in this conversation just yet, but certainly I see someone who’s positioned to actually capitalise on Huawei’s perceived technological indiscretions and rollout network around us.
So our 5G play’s coming to the MyWallSt app soon.
MÉABH: Lastly, we have a question about all-time highs. It was a customer from our community who wrote in directly to us, basically asking us to talk about the fact their folio is nearly full of stocks that are close to 52-week highs.
What they’re asking us is, how can they go about picking the few that have pulled back from a recent run of gains, to feel better about the fact that they helped some of their all-time highs?
RORY: I’ll take this because I get the question a lot.
First of all, it’s great to be able to say that many of our stocks are 52-week highs, it’s a good problem to have. That’s just what’s gonna happen; we’re in a very strong market at the moment and so good companies are gonna be constantly hitting new highs — that’s just the way things are, the nature of the game — but I wouldn’t let people ever let that put them off investing in a company. They say the most destructive or the most dangerous phrase on Wall Street is “This time it’ll be different”, and I would say the concept of all-time highs and lows is probably another very dangerous thing for investors to get to invested in, pardon the pun there.
Basically, all-time high/all-time low actually tells you very little about a company; it doesn’t tell you about the company’s potential growth, doesn’t tell you about their margins or how their competition’s coming at them, or what their long-term strategic advantages are. It’s really kind of a weak and almost lazy way of looking at a stock; unless you’ve done a valuation and you’ve decided at the level at which are happy to invest in or happy to sell in, 52-week high or all-time high really tells you nothing.
You could look back at Amazon, which ten years ago was at an all- time high of $140, and was considered outrageously expensive. Today it’s close to two thousand dollars; you can use Amazon as an example of anything, really, but look at MasterCard, which seems to hit all-time highs nearly every day. It’s something that people shouldn’t worry too much about — companies that are performing well will hit all-time highs all the time, and continue to hit new all-time highs as they go forward — so you should really look at a company more as a business, not worry about the pricing that’s going on and just think about what they’re doing; what they’re planning to do in the future; where they’re gonna grow, or how they’re gonna grow; whether the customers love their products, whether they have a moat; is much more important than worrying about where the stock price is sitting, because it can go up from an all-time high and down to an all-time low.
EMMET: That reminds me of so many stocks I passed on because they’re not all-time highs. The one I’ll always recall is lying on a beach in Port Douglas in Australia in the year 2002, looking at an online bookstore valued at $8 billion and turning to my girlfriend — who is now my wife — and saying, “Can you believe that a book shop has managed to get a valuation of eight billion dollars?”
At the time David from the Motley Fool was bullish on it; I guess I was early in the springtime of my investing career. He had a wisdom that I didn’t, and I can tell you one thing now, all-time highs don’t put me off. Certainly, market conditions influence my thinking, but if you have an outstanding business, outstanding businesses will prosper and that is just a fact.
It’s also great, the idea of a pullback as well. People say “wait for a pullback”, what pullback are you waiting for? Are you waiting for a 10% pullback or a 50% pullback? If that happens, there’s usually a reason; it’s not just there so you can make an investment, so are you gonna look into that and is that going to dissuade you from investing in the stock or not?
EMMET: Which is a lovely segue — which we’re not looking for — into stop losses, which we might talk about sometime; how stop losses are one way of killing the value in your portfolio.
MÉABH: We are at the Elevator Pitch moment of the podcast; the theme today is, what company would you invest in if you were starting from scratch all over again?
Who would like to go first; Rory?
RORY: The stock I’m gonna pitch is Amazon; an investment in Amazon I think is an investment in innovation. Amazon already has three incredible businesses operating in terms of Amazon Prime, Amazon Marketplace and Amazon Web Services, which together is just an incredible network of businesses and customers; and that’s not even taking into account the smaller and perhaps less developed parts of the company. They’ve got Kindle, they’ve Alexa; they bought Ring last year; they’re making moves into healthcare with the acquisition of Pillpack; and finally last but not least, I think that huge opportunity in advertising, currently the third biggest digital advertiser in the U.S. behind Google and Facebook; we can already see them hurting Google’s top-line in Google’s most recent earnings report. Mostly, I love Amazon; I love that they go out there and try new things. Bezos called it the best place to try and fail, and I love that spirit.
EMMET: I completely agree with every word that Rory said, but my choice has always been Disney for the reasons that I have espoused so many times in the past.
I suppose I’ll keep my pitch very short and simple as that; you can keep an eye on Disney throughout your whole life, and you can see their trials and tribulations and wins and losses on the big screen and the small screen, and the cruise liners and real estate; they will be there forever, and I would hate to call any business un-topple-able — if there is such a word — but I think Disney is unstoppable.
MÉABH: Disney was one of my first stocks, and although I’m slightly still reeling from Dumbo, I go with Disney.
JAMES: I’ll go with Disney too. I think it’s just because you can look at them with the recent success of the new Avengers, and Disney Plus — are they over 100 years old? Surely around that age, anyway — for a company that age, it’s just incredible they’re still putting out so much content.
MÉABH: Sorry, Rory.
RORY: You’ve driven the stock price right down. [LAUGHS]
MÉABH: That’s it from this week’s Stock Club.
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MyWallSt operates a full disclosure policy. MyWallSt staff may hold long positions in some of the companies mentioned in this podcast.