It was a rough day for a number of tech stocks yesterday. There were double-digit drops and as investors, it’s easy to get spooked by that. We’ll look at the difference between volatility and risk as well as why big drops are sometimes a feature and not a bug on the Friday edition of 7investing Now.

We know it’s scary and the 7investing team is here for you!

Transcript

Sam Bailey

Welcome to 7investing Now, a show that teaches you how to take a long term view on investing by better understanding what’s happening in the market now.

Dan Kline  

Good afternoon 7nvestors and welcome to 7investing Now live from paradise. My name of course is to Daniel Brooks Klein, I’m joining you from Key West. And I’ve got almost the entire 7investing team with me today. I’ve got Dana Abramovitz. I’ve got Matt Cochrane. I’ve got Simon Erickson. I have Steve Symington. And of course, last but not least, I have Maxx Chatsko. I am drinking Cuban coffee from the Cuban Coffee Queen, perhaps my favorite coffee place on earth. And it’s a quarter mile from where I’m staying. But it’s 100 degrees here and humidity like a wet blanket. So I had it delivered. That may be the laziest thing I’ve ever done.

We’re going to go around the room in reverse order and talk about what are we looking forward to doing this summer. Now of course, the main topic of the show is going to be the tech market sell off. We’re going to talk about why we’re not scared. I know you look at your portfolio, you see a ton of red, but I promise you we are in this for the long term. We are here to hold your hand. We are here to tell you why it’s going to be okay. We will take your questions and comments. I already see some questions in the queue. Sandeep David, we appreciate the question. It is not a company we are all that familiar with. So we’re not ignoring you. But we absolutely will. Maybe we’ll look it up but it is not one we can talk about today. With that being said Maxx Chatsko. What do you have on tap this summer? Pittsburgh summer so still pretty gray. But what is it you’re excited about this summer?

Maxx Chatsko  

I’m actually looking forward to spending more time with my family, and most of the time I can live without them, you know, but in the last year I’ve really not seen them too much. My niece and nephew live live close by I mean it’s my responsibilities as an uncle, I got to pump them with sugar, pollute their minds, you know, and I haven’t been able to do that for the last year. So

Dan Kline  

Yeah, I’d say R rated movies strip clubs. I know I’m kidding. Do not do not do that. That is bad advice. A shout out to my Aunt Judy who took me to many an R rated movie when I was 12 or 13. My parents are still angry with that. Happy Mother’s Day to my mom Happy Mother’s Day to my wife Celine. My mom is watching. My wife has absolutely not watching it will never hear that Steve Symington. What are you looking forward to this summer?

Steve Symington  

Oh man. Little warm weather you you folks down in Florida spoiled but now I we’re gonna actually head down to Arizona my mother in law’s moving down there and then we’re gonna dip over to Vegas for a couple days, the Grand Canyon do a little bit of that next month, so that’ll be a good way to kick things off. I’m stoked.

Dan Kline  

Simon sided Steve, if things don’t go well in Vegas, there is a market for children. I’m just saying. My youngest on red like No, do not do that. Simon Erickson. What are you looking forward to this summer?

Simon Erickson  

Well everyone here in Houston does what exactly we do when he starts getting hot outside which is find water. So we’re going down to the beach. We’re going to spend some time in Galveston and play down there for a couple of weeks.

Dan Kline  

Matt Cochrane, I am looking forward to spending a little bit of time in your pool this summer, and having you over to our community pool as well maybe break out a barbecue. But aside from that, what are you looking forward to this summer?

Matt Cochrane  

Yeah, absolutely. Well, my niece is getting married and some are going up to Alabama for the wedding. But then after that we’re getting a like a lakeside cabin. You’re not too far from there in the foothills of the Appalachian Mountains for a week. So I’m looking forward to that getting off the grid for a little bit.

Dan Kline  

Weirdly, I am also going to a wedding in Alabama this year. I haven’t gotten the invitation yet. So I’m not entirely sure when it is. Dana Abramovitz I know you are a to business person, there’s probably not a lot of room for fun. Is it? Like are you going to go get an ice cream cone in between classes or something like What are you planning on doing this summer?

Dana Abramovitz  

Maybe? Yeah, well, you know, a lot of my clients will go away and School’s out. So we’ll change the schedule a little bit. So hopefully there’ll be some free time. Also, my mom and I have birthdays this summer. So maybe there’ll be time for us to get together to celebrate.

Dan Kline  

Yes, and none of us had birthdays last year. It was all super duper depressing. I have to say I am most excited probably to get back on a cruise ship. I’m doing that July 3 out of Bermuda. But I’m also really really excited to close on our resort condo so I can be in a setting like this doing shows quite a bit this summer.

Hopefully with that being said, we’re gonna segue over to talking about what happened in the market yesterday. I’m not gonna belabor it, but we had a lot of high flying tech stocks, Teladoc, Zoom, Fastly stocks that that many of us and our friends are have been very high on stocks that a lot of investors have owned for a long time. And well, Simon, the bottom came out yesterday, we saw Fastly down, I don’t know, 30% 40% over a couple of days really kind of kind of terrifying numbers in the short term. But Simon, can you talk a little bit about what happened? And explain the difference between volatility and risk?

Simon Erickson  

Sure, absolutely, Dan and you know, this is something we don’t take lightly, we take it very seriously, when you see a stock that drops 25 27% in a single day. And we don’t want to make it seem like we’re just kind of making light of it. And oh, and you know, haha, just carry on. But I do think that the important thing to realize is that there is a difference between short term volatility and long term capital impairment, or risk. If you’re investing for multiple years, and you know that you’re going to keep your money into a certain stock or into the stock market for three or five years. It doesn’t really matter if the stock goes like this, or if it goes like this.

And so when we see these blips, like we did yesterday, for several of these high flying tech stocks, we asked ourselves, is this something that we should really be worried about, because there’s a risk of permanent impairment of capital that we will not recover our money back from? Or is this just a spot between point A and point C, which is interim point B that we don’t have to worry about? Because it’s going to recover again? And so that’s how I like to frame things. When I look at these companies. Is there something wrong with the business? Is there something wrong with the financials that we should be worried about? Or is this just the market saying, I don’t want to pay as high of a price to sales ratio for these tech companies anymore? And if that is indeed the case, that this is just valuation related, that as a long term investor, you really do not have anything to worry about because the vast majority of long term returns come from fundamentals, not from valuation corrections.

Dan Kline  

And Steve Symington, I’m going to throw it to you because one of the challenges here is separating people will ask us, oh, my God, why did this happen? And sometimes the Why is meaningful, maybe Ark Investing sold out of a position, and they sold so much it drags the stock down. But sometimes the why and the why for Fastly was growth wasn’t as fast as people expected. And the CFO is leaving. Doesn’t justify the fall. But how do you look at this as an investor?

Steve Symington  

Man, I, a lot of people, just one of the one of the big things they that I think you need to focus on is is my thesis broken? And that’s one of the biggest things that I focus on when stocks are plunging. And this happened last March, where we actually, you know, we saw a lot of the positions, you know, we launched on March 1 2020. And we released our first recommendations, and I watched a couple of those names, plunge 65% in three weeks, it was insane. Felt insane, but I’ve seen it before, you know, we’ve we’ve all of us have been there before. And it doesn’t feel good at all. But I looked at a couple of those stocks and said nothing has changed. And, you know, sure enough, you know, a couple of them are solid triples, since then on our scorecard, just for hanging on and for people who actually bought you know, on some of those, apply the dip, right.

But some sometimes you just have to look at and say, you know, I like the stock for a reason at this price, and sometimes huge drops like that are unjustified and you know, I would argue somebody’s you know, selling out a stake Ark sells a stock and drives the price down or something. I’d argue that’s not that meaningful. I’m looking at company fundamentals. And I’m looking at market capitalizations valuations relative to the stock’s long term potential. And that’s what I focus on. Is my thesis broken If not, I’ll consider just adding in, you know, bits at a time.

Dan Kline  

It’s also important to note that stock prices aren’t related to reality. It’s a when you sell a house, your house is worth what the highest bidder will pay for it. And there’s a little bit of a game there of well, is that better qualified when they get a mortgage? Will it be easy. With a stock you might sometimes see just a wave of momentum we saw it this summer with or this spring with GameStop. GameStop didn’t magically become a company worth 100 times what it had been selling for. A lot of people bought it. I’ve talked about just buying a condo, the condos I bought went up in value by about $20,000 because a lot of people went you know where it’s nice to visit when we’re in a pandemic, Florida in a resort like that seems great. So the values went up two years from now maybe everyone would be like, you know what’s awesome during the zombie apocalypse? Skiing in the mountains and all of a sudden ski villas will be worth a lot and crowded resort plazas won’t be. So it’s all relative.

Matt Cochran, I’m gonna come to you in a minute after talking to Maxx, I’ll let you introduce a graphic or a chart or whatever it is you’d like to do. But Maxx, you generally invest in much more volatile spaces than we do. How do you prepare yourself for the fact that a biotech company depending on news could sometimes legitimately double or triple you know, some major approval, it might be worth a huge multiple or it gets denied. And all of a sudden they’re back to square one. How do you mentally deal with that?

Maxx Chatsko  

Yeah so this is just part of, you know, you had to accept volatility when you do when you invest in early stage drug developers, you know, so again, not to, like, make fun of what happened yesterday, or volatility in the market now. But everyone’s freaking out, like yeah, Welcome. Welcome to the club. Guys. You know, your stocks down a little bit. Wow. Yeah, absolutely. You know, it’s just part of the the long term mindset, right, you’re thinking about, again, your thesis. And yeah, there’s certain de risking events that have to happen for drug developers, right. Sometimes it’s clinical trials or partnerships, or certain commercial milestones. And oftentimes, those are far out in the future.

I think I brought this up in a recent show. But you know, I started here 7Investing, my first pick was September 2020. So I’ve made whatever eight picks or so since then, nine, maybe. And, you know, the nearest term milestone for any of my companies I’ve chosen is still mid 2021. So none of them have had any milestones yet. So it’s kind of just pretty boring, you know, we’re waiting in here. So it’s a lot of patience required in a lot of the companies. I’m looking at 2023 or 2024. So it’s, it’s, in a way, it’s a perfect way to you know, orient yourself to long term mindsets.

Dan Kline

And I just had a lizard crawl over my feet. we are not going to think about the salmonella possibilities there. I guess I will not touch my feet and lick my hands anytime soon. We’re going to go to Matt Cochrane, then we’re going to go to Dana with a little bit of a different swing, and then we’ll go back to Simon Erickson to sort of bring up some points and some data on Fastly. Matt Cochrane, you’ve been doing this a long time, you are not scared by a 10% 20%, even a 40 or 50% drop?

Matt Cochrane  

Yeah, I mean, unfortunately, I mean, that’s the price we pay for for great gains and investing. That happens even with like great investments. Like Sam, I think we have a chart. But like, as far as like, my personal investment in Square, I bought it in early 2017. And for the first couple of first year and a half, it was a phenomenal investment went up right away. But for about two years, from about late 2018, to mid last year, mid 2020, it was down from its all time high. And if you bought like near the peak in late 2018, it was a tough go for almost two whole years. But then again, like, you know, like the stock picked up, like COVID was actually a tailwind for it after like it was feared that it was gonna, like hurt the business. And, you know, it’s all outstanding gains last year.

And that’s the nature of stock investing. So Square was a been a great investment since 2017. Fantastic investment. And yet, for almost two years of that time, there’s only a four year period for almost two years of that it was down from its all time high. And that’s kind of what you almost have to expect. When you do long term buy and hold investing, which I think is still like the best way to invest. The best way for most investors to capture to capture gains, you’re going to see times that are very frustrating, even as the business does well, the stock price will not always reflect that.

Dan Kline  

So Dana Abramovitz, here’s how I approach it. I don’t look at my portfolio every day, I have to look at it more often, because that’s kind of what I do for a living. But when I didn’t do this for a living, even when I was writing about the market, I looked at my portfolio, like when I bought or sold something, because that’s where I had to go to buy and sell. From an emotional point of view, if you happen to peek at your portfolio and see, like, you know, you know, it’s an absolute red bloodbath, how do you deal with that from a mindset basis?

Dana Abramovitz  

Still, a lot of the team have been talking about, you know, going back to your thesis, right. So, you look at the fundamentals, you know, is this a solid business? Do I believe in it? Do I believe in the management, and just, you know, sometimes it’s hard, you know, like, I tell people all the time, you know, just take a deep breath, let things go, right. But you got to do that. And just kind of move on and just be, you know what, I believe in this? Oh, sorry, I’m back again. You know, I believe in that and, you gotta hold your ground, stick with it, and just, you know, realize that, you know, the market, you know, it’s just people, right, it’s people and their emotion, and that’s kind of driving things and you can’t let other people’s emotion affect yours.

Dan Kline  

We would love your questions and comments. We see a few in there. Simon, maybe address the second comment from Sandeep David, while you are making some points on Fastly, we absolutely appreciate you doing that, Simon.

Simon Erickson  

Yeah, sure. And thanks, Sandeep. Also for mentioning JFrog. You know, you put up a CI CD, continuous improvement, continuous deployment. Obviously, data monitoring is very, very important right now and that’s that DevOps field is trying to break down a lot of those silos as you already know.

Question about Fastly, you know, if we can put that up there, I suppose I value Fastly under risk reward. I think it’s extremely favorable due to high likelihood it gets bought out, the longer it stays in such a low market cap, low downside possibility of high upside. This is actually something that I presented the idea that In February, I haven’t seen it. So I was kind of going out on a limb and saying, I think that’s Fastly does get bought up, I think it got its gets most likely bought by Amazon. Maybe Akamai is on the table too. But I think there’s definitely a suitor for the relationships that this company has with very lucrative enterprise customers. So when we’re talking about the customer count for Fastly, right now, it’s only got 336 enterprise customers, right. That’s not going out and going after 8,000, 10,000 customers like so many of these companies we’ve seen. It’s deriving 90% of revenue from those big dogs from the enterprise customers.

But then let’s also look at the average sales that it obtains, the average contract that it’s got from an enterprise customer a year ago was $600,000. Today, that’s closer to $800,000. So these are big fish that are really signing big contracts with Fastly, it’s got really, really good retention rates with it too, it’s just struggling a little bit and getting involved with the mass or with the mass market, smaller businesses. And so I still think that that’s very lucrative for any potential suitor for this. I think there’s a floor on Fastly stock price. We’ve probably hit that floor if it wasn’t even a little bit higher than where we are today. But I’m starting to dig into what’s that relationship between going after the high end of the market versus the potential risk of others competing and putting competing away from it as they’re trying to get more and more involved in edge computing to get closer to those users.

Dan Kline  

I think it’s fair to say nothing changed about the Fastly business yesterday. They didn’t come out with some terrible piece of news, they didn’t lose a giant customer. Steve, you follow the news all the time, and I’m going to throw to you in a second here. Anybody who wants to talk just give me like a finger up, because I know we have some graphics and some charts and, and some things we’d like to get in. So I will try to get to everybody after Steve here. But Steve, in the day following the news yesterday, I know you didn’t look at every company. But is it fair to say it was really just a market sentiment day and not a nothing changed for high flying tech stocks?

Steve Symington  

Right, I think I did peek at my portfolio yesterday, after Simon mentioned something on Twitter, and it was down, I think five and a half percent at one point. You know, a single day that that feels painful. But you know, I went shopping in the processing, like, I see a lot of the really high growth stocks, you know, down hard. And, you know, part of the concern and you know, there’s so many different narratives that are being thrown out there that they’re possibly causing this. And, you know, there’s there was concern over, you know, Feds easy money policy kind of disappearing. And some of that’s abated today, because of the worse than expected jobs report we saw.

I think a lot of people anticipated that jobs report coming in with at least a million new jobs added it came in at 266,000. Most of those were in the hospitality industry. So now we have the Fed, basically has an excuse to keep injecting money into the system. So people are actually encouraged. So you have tech rallying on a bad jobs report, it seems counterintuitive. And then, you know, pivot to reopening stocks, you have all these different things going on. But a lot of those really, really steep declines yesterday, were really on no notable company specific news. And, you know, I think at a certain point, a lot of these growth, these high growth stocks that were kind of steeply valued earlier this year. You know, they’re they’re starting to become pretty attractive again, and I’m gonna have a hard time picking my recommendation on the first by the way,

Dan Kline  

Sam Bailey, I am going to go to some of the Twitter graphics we have in the doc so if you have those prepared, be ready. But before I do that, I’m gonna go to Maxx Chatsko. Because Maxx, you talk about valuation, more than any of us in our private slack channels. Are there stocks that you love, that you don’t buy, simply because they’ve got ahead of themselves in value valuation? I’d argue that, you know, with Fastly, it’s not like we reopen, we’re all gonna like throw our computers in a river and like, you know, get an axe and become, you know, wilderness men or whatever it is, or, you know, Dana is not going to go, you know, move move into the country and get rid of her phone. Like obviously,

Simon Erickson

That only happens in Montana where Steve is Dan. Yeah.

Dan Kline  

Yes. Steve is not wearing his brawny shirt today. But it is very, very similar. It is one of those situations Maxx, where do you sometimes have companies on your watch list where on a day like yesterday, you go, Wow, like, I just got five years back and I can jump in.

Maxx Chatsko  

Yeah, and it’s important to to frame this as you know, parts of the market I covered right. So biotech or clean energy. I think in the last year, those have been two of the more bubbly, maybe not a bubble, but you know, a little more elevated valuations there. So you maybe can’t draw too much comparisons to tech necessarily, right? We know when biotech elevations are our biotech valuations are elevated there’s no recurring revenue to go on, right? People are just kind of pricing in Oh, that clinical trials gonna be perfect. And that’s never how it really goes in drug development. So when I’m worried about valuations, it’s more because there’s so much uncertainty in drug development. But yeah, I mean, I went, I’m all tapped out with some kind of a way to get more money in my account. But I did go shopping on the last week and yesterday as well. So I’m definitely use dips like this again, when there’s no change in the thesis. It’s a solid company. Definitely, you know, went out and added some positions.

Dan Kline  

Matt Cochrane, can Maxx borrow a few thousand dollars he’s got some stocks he’d like to buy.

Matt Cochrane  

No, I don’t like Maxx’s stock. So definitely not. I’m just kidding.

Dan Kline  

We’re gonna get to the comment from MAC Lu in a second, the Twitter comments. Oh, I hope you have that. Ready, Sam. But Dana Abramovitz. We just passed the first of the month, and you made your first ever 7Investing stock recommendation. And I have to say I was absolutely knocked out by it. I can’t say what it is. But you present it on a company I’ve absolutely never heard of didn’t know it was public didn’t know how awesome the work they were doing. So sometimes there’s a stock you buy. And it’s not just that you like it, it’s that you actually find it like kind of life affirming. I know. I personally, and I’ll let you weigh in in a second here, Dana. I personally don’t buy companies I feel bad about owning like, like, I’m not gonna buy like pollute the earth or tobacco stocks. And I get it. It’s hard to figure out who’s good and who’s evil. But usually you can see who’s really evil. In your case, you pick something that is unquestionably good. How exciting was that to share with the team?

Dana Abramovitz  

It was awesome. I mean, I’m not gonna lie. It’s, you know, it’s yeah, I, I like good things. I like people and companies that are doing good things for the betterment of other people. I mean, that’s one of the reasons why it was so easy for me to, to join this team. Just because, you know, our whole purpose is to help, you know, our subscribers. So, you know, just wanted to kind of do that, and just love companies that do that.

Dan Kline  

And that’s what we are. That’s what we’re doing today. Our goal for this show, and we’ve been talking, I don’t know, there’s probably like 900, slack messages between us all in the last like, you know, 15 hours. Our goal is to come on here and say, we are long term investors. I picked a stock last month and Simon I’m gonna let you jump on a second and tell people how to subscribe. I picked a stock last month that people looked at it Simon looked at it went Wait a minute, is that a recovery play? And I went, No, this is a stock that got stronger because of the adversity of the pandemic. Sometimes, if something happens to you, you know, you have a health scare. And that forces you back to the gym in many ways. The company I picked, re evaluated its business went back to the gym, and they’re coming out of the, you know, they’re coming out of the pandemic looking like Popeye instead of the 98 pound weakling.

That’s a weird example. Because Popeye only has the big arms, he doesn’t actually look great otherwise, but I couldn’t think of another strong person, Simon Erickson, if someone wants to join, there’s not a cat sitting on my foot. That is not my cat. If someone wants to join, how would they do that? And what do they get for their $49 a month or $399 a year?

Simon Erickson  

Well, they come to Key West and have Cuban coffee with you and get attacked by the wildlife right there.

Dan Kline

I am so excited once the pandemic is over, to do this show with an audience to have people whether it’s you know, in front of a Starbucks somewhere or at my new condo, or whatever it is. And I should also say one of the things I’m most excited about this summer is at some point I’m gonna have all of you down because for a little while, I’m going to own two properties a couple miles from each other enough bedrooms for everybody. Don’t worry, Matt, there is a lock on the door so Maxx can’t get to you, you know and pull a prank on you late at night. Simon Erickson, how would people join if they wanted to join 7Investing and what do they get?

Simon Erickson  

Sure. So 7investing.com/subscribe is where we would like to welcome anyone who wants to join our service as a new as a new subscriber, like you said, $49 a month $399 a year. As Dan mentioned, we are doing something a little different than than most other newsletters out there, which is we’re being completely transparent about everything. You’ve got advisors on this team appearing not only on this live stream show, like we have right now. But as Dan was mentioning for his recommendation this month, and with everyone’s recommendation, we kind of open up the curtain. So you can see how we as analysts are sizing up these companies.

And we’re not just being cheerleaders who are ooh’rah-ing and saying, Oh, that’s a great idea. It’s definitely going to the moon, it’s going to be a 10 bagger in the next next couple of years. We’re actually being very objective as analysts on this. We’re pointing out the risks as well as the opportunities for every one of these picks. And so it’s not just the seven recommendation reports you get every month with a subscription to 7Investing, but it’s also access to see our thought process, our research process, us challenging each other as advisors \and even a way to interact with the team. We have a monthly subscriber call today, if you have specific questions about any of the reports, you have to ask us directly live on the spot and the third Friday of every month.

Dan Kline  

Our mindset is different from a lot of what you see on fin twit. Companies, we recommend, we believe in those companies and we’ve done our homework. We didn’t we didn’t just dip a toe in. In most cases, we’ve read years and years of earnings call transcripts, we’ve listened to them. We’ve we’ve you know, interviewed some of the executives. All sorts of things like that. So if you’d like to subscribe, that is 7investing.com/subscribe.

I’m going to take the comment from StockInvestor. When he says Dan, if you can bring that up, Sam, that would be great. Dan, see if the cat will chase away that lizard for you. That’s actually what’s happening right now. And I don’t think the end is going to be great for the lizard. Cats have a there’s a lot of fat cats here in the West. And I think that is due to the lizard population. There’s also a lot of random chickens walking around. I’ve never quite understood that. Like, why there would be wild chickens. Give me a little peek inside of the process.

Mike Fee has a great comment as well. We are happy to share that one. Sam Bailey, if you could. The 7Investing team provides a lot of in depth insight and analysis that can’t be found anywhere else. We are proud to do that. We are so excited. We apologize if there’s some audio struggles today I think our software is is maybe hitting its limit with everyone here. And I actually have pretty good internet connection for for Key West, which is rare, but who knows. It has been a tiny bit in and out. So we apologize, there will be a full transcript available probably at some point over the weekend, if not, certainly by Monday.

With that being said, if you could bring up that Twitter comment, I had to tee up Sam Bailey, our Director of Marketing. Mac Lu says have you ever realized you are wrong about a stock and finally cut it? I guess according to your approach, the loss will be big. And also in days like today will you add to your conviction? I’m going to start with Steve Symington, Steve Have you? Have you ever changed your mind and and cut bait on a stock?

Steve Symington  

Um, yeah I’ve had a couple stocks that I’ve I’m not completely given up. But I had some stocks in the early days that I realized when I was a young investor that I bought thinking, Oh, this has to be cheap. And it’s not right. Citi group, I think it’s one of the stocks I own back in like 2007 or something. And, and I was like, man, I realized I think I own GE one point like 15 years ago, 16 years ago, I don’t know, but, and I realized, like I didn’t know as much as I thought about these companies once I start really digging in. And, you know, that was sort of one of those things where you sort of, you’re finding your your, your footing and getting your feet wet as a new investor.

But I’ve had companies where I think Iqiyi was one that I actually kind of cut bait on because I kind of lost some confidence and in the company, it still could be a decent winner. But yeah, I’ve held several stocks over the last, you know, better part of the last two decades that I’ve just decided, you know what, that’s that’s too much. And, and, you know, there’s other obvious cases like fraud, you know, financial issues, bankruptcy, where people have been stunned. You know, by surprising bankruptcies, GTAT comes to mind a stock. I didn’t know him, but I covered back in the day, where GT Advanced Technologies where they had unfavorable contract terms with Apple, and one day, they said, Oh, yeah, by the way, we’re going bankrupt. And you’re like, Whoa, and so stuff happens. And yes, like Maxx said, in that comment, a lot of times it’s it’s a big loss. But sometimes, it’s best just to cut bait when your thesis has been fundamentally changed.

Dan Kline  

I want to throw this to Matt Cochrane as well, Matt, go in whatever direction you want  because I know you have some charts and other things prepared, you’re welcome to grab. Sometimes you look at a stock. And even though you believe your thesis, if it doesn’t, even if the thesis is playing out, sometimes the stock doesn’t move. I’ve talked a lot about Blackberry being a good example of that, where they totally pivoted their business to a really successful business, but that business isn’t a public facing phone, and no one is ever gonna forgive them. They would have been better off changing their name in terms of their stock. That’s a really a company that doesn’t trade based on results. It sort of trades based on like past ideas. Matt Cochrane. Take it wherever you want to go.

Matt Cochrane  

Yeah, well, I think I think the the key takeaway for all that is patience, right? Like you need to have patience, like the the famous of Benjamin Graham quote, that in the short run the market is a popularity contest, and in the long run, it’s a weighing machine, right. I think I might have butchered that a little bit, but I think that’s the gist of it. You have to have patience, like the stock price. The stock doesn’t know you just bought it. Like when you buy a stock, you’re like, wow, this is a great buy, you know, it’s a good value. It’s a great company, it’s going to disrupt an industry, whatever the bull thesis is for how you bought it. And you think it’s just going to go up from there and that I think, has like happened to me like never. Like the day I bought it, it goes nothing but up here.

I think I’m down on every single stock I’ve ever bought, at least in the early days, because it doesn’t know. You know, there’s no nobody, nobody rings a bell that says, you know, to tell the company that you bought the stock. So now it’s okay for the bull thesis to play out. You have to have patience, it takes a long, long time sometimes for that thesis to play out. And if you’re right, you’re going to be rewarded for it eventually, eventually. But you know, when you when you’re first starting off, like I think we got a comment from an investor the other day or a subscriber saying like, Hey, I just started like investing a month or two ago, and I’m down on my stocks, like what to do.

When you first start off investing, it can really suck. Like, there’s no doubt about it. Like, I think, what what, when, when I got started investing, like I clicked on a click baity ad for a service. And it was about the next Industrial Revolution, which was, which was for 3D printing. And so, you know, I bought, I put almost all of my family savings into like a few 3D printing stocks. And that did not go well. But even when you do invest in stocks that go well, I’m like, it can take time for the thesis to play out. You have to have patience. And when you first get going and you’re actually down lower than the the amount of money you put into the market, it can be really, really discouraging. Don’t get discouraged, stick it out. And patience will often win the day.

Simon Erickson  

I’ll chime in too on this one while Dan’s audio catches back up with him out there or maybe a lizard.

Dan Kline  

We are having some audio troubles. I am not sure Simon, are you hearing me now?

Simon Erickson

Yeah, go right ahead, Dan.

Dan Kline  

So I was just saying there. And I think we’re all having some internet connectivity issues. Because it’s happening on all edges, we might be maxing out the ability for this software to, to go. But it’s just one of those scenarios where there are things that everyone thinks is the next big thing. 3D printing, 3d television, Cannabis, that are not necessarily the next big thing doesn’t mean those aren’t going to be big markets. 3D printing with space has the potential to be a massive market. But it isn’t necessarily going to be there. I you know, I know Dana was super excited about 3D television. No, I’m kidding. I have no idea. If Dana knows that. Simon Erickson, you’re the leader of the team here. Why don’t you close out the thought on how we approach red days in the market or even a prolonged down turn?

Simon Erickson  

Well, well, I do want to touch again, on that question that was asked about following How do you know when to hold on to a stock, you know, we would kind of talked about volatility versus risk. Steve said, you know, obviously, there’s some that don’t work out. Sometimes we get led into the market hype. And the hype cycle is a very real phenomenon that we’ve we’ve seen. I think that this kind of all goes back to the one of the key values we’re bringing as a stock analyst is the research that we’re doing and identifying the right metrics to follow. And if you really have conviction in a stock, it’s not just because of something important related to that company.

And so perhaps maybe to close this out by bringing it back full circle to Sandy’s question about DevOps. DevOps is a huge trend that’s developing in the market right now. And we’ve seen several companies try to crack into this developing trend that have done various degrees of success.

I’d like to answer the similar question that Steve had of what’s something that you cut from your portfolio, which mine was New Relic. New Relic was very important for application performance monitoring, which is basically looking at software code that’s running inefficiently, when you have cloud based software. So you want to go out, you want to make sure that everything is loading correctly, that everything’s performing correctly, and see the performance of things like this. And at first, it went out there and the metric that I really liked to see was it’s dollar based net retention, which means how much are your existing customers paying you this year versus how much did they pay you last year. And that started out, I can’t remember exactly the numbers off my head, but maybe it was 135, 140%, very, very high. And operating metrics that showed this business was performing really well. And customers were accepting its solution.

But it fell significantly over the following years, I think it fell down to 105 107%. As it kind of tapped out with those large enterprise customers, it was missing the opportunity to upsell to other products. And it wasn’t getting the bang for its buck. And it left it open for competition from others like Datadog and others that were kind of full stack monitoring that eventually displaced a lot of its solutions and appealed more to mass market customers. So that’s just one example of many that are out there of look for the right things. When you’re doing stock analysis. Don’t just say, Oh, it’s a piece of paper that’s going up and down on a stock chart, what is this business doing? And how is it performing at the things that are most important? And to be quite honest, I think that’s something that all of us as advisors on this team do a fantastic job with. We actually capture Should that in our report specifically, of what are the metrics that we’re looking for, and we’re evaluating these companies upon.

Dan Kline  

This is also one of those scenarios where when something bad happens, step back and relax and figure out, did something bad actually happen? Or did the stock price just go down? I appreciate the whole team for turning out today. Our goal at 7Investing is to help you build a long term mindset. And it is days like yesterday that challenged that mindset. But I will point out that twice during this pandemic, we have had pretty big market sell offs that took roughly from like Wednesday to Monday to recover. So this is absolutely a problem. Sam Bailey, we’re dealing with some internet issues here. Why don’t you put up our finisher? Simon why don’t you lead through the finisher here?

Simon Erickson  

Sure. Great. Okay, so Dan our finisher today is in 2021 which business segment do you feel the most confident about? Looks like overwhelmingly, these four choices we chose the cloud over travel or audience chose the cloud over travel pizza and gambling. Man, that sure seems like the right choice to me. That’s probably how I would have voted. Anyone else have opinions on that pizza is a pretty strong compelling argument, though.

Steve Symington  

Oh, yeah, definitely.

Dan Kline  

I actually think it’s pizza.

Steve Symington

Pizza, maybe during the pandemic, and sure afterward, nobody’s gonna stop eating pizza but I mean, my my recommendation on on May 1 was a cloud computing play like a cloud transformation thing, so yeah, obviously I didn’t even have to hesitate when I voted on that one. So

Matt Cochrane  

Pizza will never be disrupted. I think a wrong pizza will not be disrupted.

Simon Erickson  

$20 for the family right Matt the ultimate dinner?

Matt Cochrane  

That’s right. Domino’s Pizza you can one click of a button and your favorite your saved orders there and in a few minutes magically perfect. $20 feed a family of six can’t be that

Steve Symington  

Dan, it’s the best pizza right?

Dan Kline  

Dear God we’re not gonna have that discussion. I will meet everyone in New Haven and we will talk about what the best pizza is. Or maybe Boston we go to Santarpio’s or Pizzaeria Regina. There is no pizza in Florida. So Matt being from Florida I totally understand why he’s willing to eat Domino’s beyond just price. That being said Steve Symington. Why don’t you tell people how they can get in touch with us

Steve Symington  

You can email info@7investing.com that’s usually me that replies to that personally. We don’t have bots that handle these so so yes, sometimes it’s a lot of email but send us questions about our service, how to subscribe, what you can expect or if you’re having troubles we’ll respond there but info@7investing.com  or you can find us @7investing on Twitter. We’re all very active. Several of us have access to that account. And you can also see our individual Twitter handles.

Dan Kline  

And Simon Erickson I’ll let you make one more comment and sign us off.

Simon Erickson  

Yeah, perfect. This is a completely off the cuff and he didn’t know I was going to say this but a huge thank you to Dan Klein being on vacation in Key West right now and still getting it done for our live stream show. I that’s that’s so impressive. Did I mean on your vacation to still make it uh, you’ve done a fantastic job with this live stream. I really like the interactive format, with people getting to chat directly with us as advisors. It’s actually me thanking you for making the time to be here this morning on your vacation.

Dan Kline  

We’re going to do shows from the Caribbean. We’re going to do shows from our new resort place in Davenport. We’re going to do shows from cruise ships, if I can possibly make that technology work. There is no such thing as a vacation. The joy of doing this is I get to do my job and I sometimes can do it at two in the morning after a night out in Key West. So this is one of those things where I’m gonna have a lot of weeks where you’re looking to go Dan is on vacation again. And the reality is is Dan is portable. What we do is portable and I’m very excited. And I think my computer’s overheating. I think that is why some of the internet issues so we might have to explore using some different technology or perhaps a phone on a stand but for that for everybody except Anirban who is sleeping. Thank you for watching 7investing Now and Happy Mother’s Day. We’ll see you Monday.