Something weird happened to me on Twitter a few months ago. A “follower” started lashing out at me about a stock we own. When people attack me for my views it doesn’t bother me (I wrote several chapters in Soul in the Game on this topic). I don’t let personal attacks get to me, unless people start attaching bricks to their 280 characters.
This person’s lambasting of me was different. He was upset about the decline of a stock I had never publicly discussed in any of my newsletters or talks. This person was not a client. I didn’t know who he was; I had never met him. I was really confused why a stock my clients and I personally owned was so important to him. It’s like someone being upset about the color my wife chose to paint our kitchen.
Once gently confronted, he apologized, said he was a big fan, and explained that he had read my 13F (a form we have to file with the SEC 45 days after the quarter end, where we have to report our holdings in US stocks). He saw that the stock was one of our top holdings, and he bought it. Because I owned it, he made it a disproportionately large position.
I was truly upset about this incident. One of my principles in life is to have a net positive impact on the people I touch. If every single stock I discussed only went straight up, I wouldn’t have to worry about it. But this is not how life works.
Let me give you an example.
Next week I’m going to share an example of Uber’s hedging strategy. We bought Uber a few months before the pandemic. (I wrote about it here). Uber’s stock went up 30% right after we bought it and then declined around 80% within months (the shutdown economy was not good for the ride-sharing business). As the economy started to reopen, the stock went up a lot (we almost doubled our money on the original purchase). Then it more than halved. Two years later, it has tripled from that point.
As the American philosopher Mike Tyson says, “Everyone has a plan until they get punched in the mouth.” True investing starts at the point of your getting punched in the mouth, which will happen with almost every stock you’ll own.
Bad things can happen to good companies. That’s life.
Our Uber ownership is a great example of that. This one has worked out (so far). This is not always the case. In a few weeks, I’ll discuss Charter Communications and Comcast. These are still developing stories.
This is why doing your own research is so important. We added to our Uber positions several times during the pandemic and again two years ago. We put on a hedge, similar to the one I’ll discuss next week, at the end of the pandemic.
It’s what you do when you get punched in the mouth that matters. But just like in the boxing ring, what you do when the glove lands on your jaw is completely dependent on your preparation, the reps you put in. In investing, it depends on the research you did before you bought the stock and continued to do after you bought it.
In our case, it’s literally spending dozens, sometimes hundreds, of hours between me and my team members researching the company: reading its filings, listening to conference calls, talking to management, consulting our investor network and industry experts, and building financial models.
This is why blindly copying what I or anyone else does in your portfolio is not good for your wealth and your blood pressure. Just like you cannot prepare for a fight in the boxing ring by sending your spouse to train, you cannot prepare for the blows you’ll encounter in stock ownership by relying on my (or someone else’s) research.
Also, as much as I don’t enjoy admitting it – I will be wrong.
You want examples? I have plenty. The most public one is Apple. We bought Apple in 2012, and I wrote a lot about it. It was an extremely hated stock then. We owned it for years and made good money on it.
That is not the mistake part.
I thought we saw peak iPhone in 2019. For the company’s earnings to grow, Apple needed to come out with new categories of products, and it had failed to do that. I was right and wrong. Apple failed miserably in coming out with an Apple car because Tim Cook is not Steve Jobs (he changed the strategy four times!). But Apple has done a great job of growing its services – a highly profitable business.
Most importantly, Apple has done something I had never seen a consumer electronics company do – raise prices. This is why Buffett got the framing of Apple’s business right, and I got it wrong. Buffett saw it as a brand with pricing power. I saw it as both a hardware and software company where the software (ecosystem) component gave Apple recurrence of revenues, which is what gave me confidence to buy the stock in 2012. But my mental model was incomplete. I saw a moat and recurrence of revenues value in Apple eight years before Buffett jumped in. But I was wrong about selling in 2019. This is what investing is- you can be both right and wrong about the same stock.
Also, I did not see Apple trading at the astronomical valuation it is trading at today. I don’t put this into the “I got it wrong” category, because I never make these types of bets.
I remember David Dreman, superstar value investor, being asked for his favorite stock. He said something along the lines that he didn’t like giving individual stock recommendations because he never knew which one of the stocks in his portfolio would work out. I can relate to that so much. This is why we have a portfolio of stocks and, as importantly, this is why our position-sizing decisions are outsourced to a quantitative matrix. This matrix overrides my emotions.
When I share stock write-ups, they should not be looked at as stock recommendations.
First of all, they are not recommendations.
Second, these are my thoughts at just that point in time. You are on your own as to what you do when you get punched in the mouth. My day job is managing money, not answering emails about stocks. I read all the emails I receive. I appreciate you sending them; please don’t stop. But I increasingly have less time to answer every one of them.
Here is what I suggest you do.
Before you go any further in running with my thoughts on stocks, ask yourself, why am I doing this? Are you looking for shortcuts? Do you want to get rich quick?
Stop.
Take the bulk of your money and hire a money manager or buy a fund. Then take a little bit of your money (as much as you can afford to lose), and gamble with it in the stock market. Yes, gamble, because that is what you are doing. It’s more entertaining than going to Vegas – I get it. But if you are buying a stock completely relying on someone else’s research, that’s a bad form of gambling. (At least most people don’t take their 401(k) to the Mirage and put it on black.)
If you have passion for investing, that’s awesome. Take it seriously. Approach it as a process. Then my or someone else’s 13f can be a treasure trove of information. By the way, every quarter my team and I look at 13fs of other investors I respect. I also constantly read letters written by other investors. But – and this is a key point – if an idea tickles our interest, we’ll do our own research to the point that it will become our idea.
There is no shortcut to greatness. Please do your own research, or spend your time doing what you love and let others who love investing and have the time manage your portfolio.
Vitaliy: Can I have your view of Comcast now instead of a few weeks in the future. I am a dividend oriented investor of 50 years and Comcast still fits my investment strategy for now ). Buy, sell or hold? A longtime reader whose mother’s parents fled the Jewish pogroms in Russia in 1903.
Hello Vitaly—-
What is the performance ( returns) of your entire clients’ portfolios for several different time period?
You said it perfectly. Look at smart investors 13Fs for the foundation of one’s own research. managers are right 55% of the time. Great mangers admit mistakes and cut losses quickly. Due to time delay one could be buying stocks a manager has already sold. Do your own research!!!!
Otherwise, give managers money. No shortcuts to success!
This is probably one of the best articles ever written for the general public on investing. Concise, great examples, honest, good flow. All good. Thanks.
Hi Mr. Katsenelson,
Great article and enjoyed reading it. After a lot of research I ended up buying Uber during several of the periodic dumps. Personally I think there is on the order of a 75% probability that Uber has a network maat and is evolving into a multi-sided platform company (mobility, delivery, advertising, etc) and has huge room for expansion internationally. If the moat proves durable, Uber should do very well.
But there is one factor that drives a lot of uncertainty with Uber in the next 3 to 5 years. That factor is robo-taxies, imo. A lot of folks claim robo-taxies are 10 years away. But it is a fact that there is already one commercial robotaxi service in Las Vegas, test deployments in Phoneix, SF, Austin, etc. Waymo is planning to add 14 more cities in the next couple of years. I think there is a decent probability we will start to see serious robotaxi rollouts starting in 3 to 5 years.
Robotaxies are supposedly going to drastically reduce the cost of transportation (the whole TAAS thing). Being electric they could have a 1 million mile duty cycle, no driver, lower insurance costs, custom designed (no driver seat, large side doors, seats facing each other, large displays for advertising, etc), and all that. Some pundits think private vehicle ownership will drop by 50%+ eventually as TAAS will be much cheaper than owning a car. That implies a huge increase in mobility demand which would be a big growth driver for Uber. This of course raises the question as to whether the robotaxi companies will choose to compete heads up with Uber or parter with Uber? I believe Tesla, for instance, will choose to compete rather than partner.
It strikes me that for the car companies the anticipated huge reduction in car ownership is going to make the robotaxi part of their business hugely important, perhaps fundamental to their survival. It may be that scaling the fastest will be key to success. If so, they could probably scale faster by partnering with Uber vs a competitor who chooses to compete heads-up. But if they create their own Uber-like service they would probably have higher margins and more control of their destiny.
So if robotaxies show up at scale they perhaps are the most crucial factor in Uber’s mid to long term success. Great if robotaxi companies choose to partner with Uber, perhaps disasterous for Uber if they choose to compete heads-up and win.
There is also the question as to what effect robotaxies have on Uber’s network moat, even assuming robotaxi manufacturers choose to partner with Uber. Do we end up with more of a pure commodity and no moat?
I have read a lot of articles and analyses on Uber and robotaxies are seldom even mentioned. My sense is this would be a great topic for an article for you. TAAS is going to have profound impacts on taxi drivers, truck drivers, etc. Literally millions of jobs look like they are going to evaporate. Further, as the demand for privately owned cars drops severely there are going to be huge impacts on the entire ecosystem of car companies and supporting infrastructure (parking lots, gas stations, repair shops, dealerships, car insurance, car financing companies, yada yada). It could make for a very interesting article. But mostly I am hoping for an educated analysis of the impact on Uber.
We are seeing disruptive technologies combine to drive double+ exponential growth and it sure seems like us humans are not able to grasp the implications and speed of change that is going to occur over the next 10 years. That is also going to change investing profoundly.
Anyway, really enjoy your writing and have read all your books. Kudos!
Best regards, Tim Sharick
A very good article that outlines – you have to do your homework – as by the time one seems any named stock in an article, the factors related to the stock being mentioned will have changed. Let alone what may be right for one investor may not fit the profile of another. This is where folks have to know themselves – what works and what doesn’t and then research a stock to determine if it not only fits their defined profile but their own defined analysis to make an informed decision
Vitaly;
I have read your postings regularly ever since seeing you at several of the Creighton Value Panel discussions at Berkshire annual meetings many years ago.. I regarded your views and investing approach as near mine. Some time ago, probably a couple/few years ago, you mentioned a stock that you said you were delighted to have added to your fund’s portfolio. it was Svenska Handelsbanken and you referred to it as probably the best run bank in the world. Banks are well within my area of competency and I was fascinated by your exuberance. I studied the bank and its culture for nearly a year at which point, i agreed with you that the bank was one of the best, if not the best, run bank in the world. I paid just under tangible book for my holding and have added to it as the market has allowed. I continue to be very happy and comfortable with the bank and I thank you heartily for mentioning it. I appreciate your advice and views on life as well. Thank you.
Great article!
I love the part you call it ‘gambling’ and not investing. I tell my clients to go to Vegas to gamble, though 🙂
As usual, Excellent Advice…Your Portfolio should be the result of a LOT of work and insight. Other People’s Portfolios such as Vitaliy’s or Mr. Buffett’s should only be a starting Point. The Meat is in the Details, as it were. Charles Dickens wrote about how to get ahead in Life in the 1800s: Live within your means, save the difference for your Future, result: Happiness. Today: Live within your means, invest in Companies that provide Needs (speculate in Companies that provide Wants if You must…) and save for Your Future because no one else will…Have a great Weekend, all!
The guy that claimed that he was a “big fan” yet picked one stock from your 13F to take a large position has only himself to blame. If he was truly a fan that read your letters, he wouldn’t have made that mistake. His decision flew in the face of common investing principles, and practice’s you have endorsed countless times. Don’t take a position too large and cannot afford to loose, and VALUATION is critical when purchasing any stock, including great companies that may be overvalued. Personal responsibility never ends, and a little reading and critical thinking can go a long way.
Thanks for the thoughtful article. My thought is that anyone who manages money (particularly an equity based strategy) should be judged against the S&P 500. A very transparent comparison of performance against various time periods, so maybe 10-year, 5-year, 1 year, and YTD performance comparison. I don’t see any other way to evaluate whether one should place money with a manager until they can see this. To this end, I am wondering how your performance compares in those specified time frames. I think interesting personal stories that managers have are fine and conveying the thought process is great, but at the end of the day, results above and beyond the market is the only way to add any value (imho). Thanks and keep up the great work!!