Category: General Investing

Interest rates are rising around the world. The Bank of England increased interest rates in December 2021 from 0.1% to 0.25% while countries such as Japan, New Zealand, and Brazil have all raised their respective interest rates too. 

The Federal Reserve, the central bank of the United States, also seems wary of inflation and is likely contemplating raising rates this year. 

How do these actions of central banks around the world impact stocks?

Interest rates can theoretically impact stock prices in a few ways. First, it can impact the profits of a business. Companies with debt will experience an increase in borrowing costs which leads to lower profits and cash flows, all else equal.

Higher interest rates can also theoretically affect stock valuations as fixed-income yields become more attractive. This means stocks require a higher rate of return – and thus a lower valuation – to compete with the now higher-yielding instruments.

Higher rates impact high growth companies disproportionately

Higher interest rates, in theory, also impact high growth companies more than low-growth companies.

This occurs because most of the current value of high growth companies is derived from cash flows generated much later in the future. Take Tesla for example.

Tesla is a high growth company whose cash flows it will generate many years in the future make up the bulk of the company’s value. 

Using the last full-year results (FY2020), I modelled* the company with the following parameters: Revenue growth of 50% for 10 years; achieve an 18% free cash flow margin in the 10th year; share dilution of 5% a year; and a terminal growth rate of 6%.

If I need a 12% required rate of return, the net present value (discounted value of all future cash flows) per share works out to US$1,362. But if I need a 15% rate of return, the net present value per share drops to just $739. Just a 3% increase in the required rate of return reduces the company’s net present value per share by 46%.

On the other hand, let’s assume a company that starts off at a similar size as Tesla now but has much lower growth rates of just 10% and a terminal growth rate of 2%.

Using a 12% required rate of return, the net present value per share is $49. If I increase the required rate of return to 15%, the net present value per share drops 24% to $37. The key difference between Tesla and the slow growth company is that the slow growth company’s share price drops much less when the required rate of return rises.

High growth stocks have been hammered

As you can see, the higher required rate of return impacts high growth stocks disproportionately. This is possibly one of the reasons why we are seeing high growth companies whose values are largely derived from future cash flow fall more sharply than companies that have slower growth rates.

Personally, I have a large chunk of my wealth invested in high growth companies whose share prices have taken a drubbing. While it is not pleasant to see, there are two reasons why I am still optimistic.

First, based on my projected future cash flows for these companies and factoring in the fall in share prices, many of the companies I have a vested interest in look likely to provide very high rates of returns even if interest rates do keep on rising.

Second, interest rates tend to impact valuations only temporarily.

The Fed and the world’s other central banks make rate hikes and cuts based on the economic conditions at that time. Most of the time, interest rate hikes or cuts along with other monetary and fiscal measures are effective enough that the central banks will have to reverse the rate change after several years and on and on the cycle goes. As such, I believe that rate hikes and rate cuts are merely short term noise that should not impact the way we invest.

What to do now?

Personally, instead of fretting over rising rates, I focus my efforts on finding excellent companies that I believe have durable long-term growth potential.

Besides looking for growth, I also know that interest rates can impact the cost of borrowing for companies. As such, I tend to prefer to invest in companies that have relatively low debt or debt that they can easily service even if rates go up. 

By focusing on these characteristics of a business, I believe my portfolio will still be well-positioned in any interest rate environment.

*You can find the calculation in this Google Sheet

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Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. Of all the companies mentioned, I currently have a vested interest in Tesla. Holdings are subject to change at any time.

Are the best investors dead? 

That’s what a Fidelity internal performance review seems to suggest. Fidelity supposedly reviewed the performance of its customers from 2003 to 2013 and found that the best returns were from its customers who were either dead or inactive. These are customers who either died and had their assets frozen, or forgot about their assets.

Although I have not been able to find the original research paper by Fidelity, multiple sources have referred to it (see here, here, and here).

Whether the research was legitimate or not, the notion that inactive investors outperformed their peers does seem possible.

The market rewards inactivity

The stock market is volatile. The past two years has clearly demonstrated that. Volatility tempts investors to trade frequently in the hope of timing their buys and sells to coincide with peaks and troughs. However, in reality, buying at the lows and selling at near-term peaks is easier said than done.

Investors who trade frequently end up paying more trading fees and may miss out on the best days in the market. The latter is particularly harmful, as missing out on only a handful of the best days in the market has historically resulted in significantly lower returns.

Inactive investors, on the other hand, ride out the short-term volatility of the market whilst staying invested. With the stock market indexes historically going up over the long-term, investors who have simply sat tight and held on to their investments have done extremely well.

Choose wisely and diversify

But not all investments go up over time. A study by JP Morgan found that two-thirds of all stocks underperformed the Russell 3000 index from 1980 to 2014. Moreover, 40% of all stocks had a negative absolute return over the 30-year time frame. 

In fact, the bulk of the market’s returns was driven by just a small group of stocks.

What this means is that investors can’t simply buy and hold any stock. We must choose wisely or we’d risk underperforming or even losing money over the long term. 

To reduce our risk of losses and increase our chances of holding just one of these high performing investments, we should diversify our portfolio.

This reduces the risk of omission which can be much more costly than the risk of commission.

Learning from the dead

Once we have identified a diversified investment portfolio, we can start to copy the “dead”. By simply ignoring near term price volatility, doing nothing and letting our investments compound over time, investors are likely to outperform their more active peers. 

This strategy is, in fact, practised by one of the best-performing investment funds in the world, the Fundsmith Equity Fund. The fund, which is run by Terry Smith, has produced an annualised return of 18.4% since its inception in November 2010. This is far ahead of the MSCI World index which has returned 12.8% in the same time. 

Fundsmith follows a simple three-step investment strategy: “1. Buy good companies; 2. Don’t overpay; 3. Do nothing”

But don’t be fooled by the simplicity of Fundsmith’s approach. Buying good companies is one of the pillars of its success. But the third step – – do nothing – has been an important reason behind why Fundsmith’s investments have been allowed to compound.

If Fidelity’s research and Fundsmith’s track record are anything to go by, investors could increase their odds of outperforming more active market participants if they are able to replicate this patient approach.

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Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. I do not have a vested interest in any companies mentioned. Holdings are subject to change at any time.

One of my favourite investing stories involves one of Warren Buffett’s best – maybe even his best – investment returns. This return came from his 1973 purchase of The Washington Post Company (WPC) shares. Today, WPC is known as Graham Holdings Company. Back then, it was the publisher of the influential US-based newspaper, The Washington Post. 

Buffett did not invest much in WPC, but the percentage-gain is stunning. Through Berkshire Hathaway, he invested US$11 million in WPC in 1973. By the end of 2007, Berkshire’s stake in WPC had swelled to nearly US$1.4 billion, which is a gain of over 10,000%

But the percentage gain is not the most interesting part of the story. What’s interesting is that, first, WPC’s share price fell by more than 20% shortly after Buffett invested, and then stayed in the red for three years. Second, WPC was a great bargain in plain sight when Buffett started buying shares. In Berkshire’s 1985 shareholders’ letter, Buffett wrote (emphasis is mine):

“We bought all of our WPC holdings in mid-1973 at a price of not more than one-fourth of the then per-share business value of the enterprise. Calculating the price/value ratio required no unusual insights. Most security analysts, media brokers, and media executives would have estimated WPC’s intrinsic business value at $400 to $500 million just as we did. And its $100 million stock market valuation was published daily for all to see.

Our advantage, rather, was attitude: we had learned from Ben Graham that the key to successful investing was the purchase of shares in good businesses when market prices were at a large discount from underlying business values.”

Buffett has investing acumen and privileged-access to deals that many of us do not have. But there are also times when common sense and patience are more important traits than acumen in making a great investment. Buffett himself said that no special insight was needed to value WPC back in 1973. What was needed for him to earn a smashing return were simple and attainable things: The right attitude and patience.

How many investors do you think have the patience to hold on through three years of losses? Not many, would be my guess. But Buffett did, and he was eventually well rewarded. 

Not every form of participation in the financial markets requires patience. But for market participants who look at stocks as a piece of a business and are investing on the basis of a business’s underlying value, patience may well be necessary, even if you have purchased shares of the best company at a bargain price. This is why Jeremy and I often talk about the importance of having a long-term investing mindset in this blog.

Buffett’s experience with WPC – of first losing, then winning – is far from an isolated incident. Another of my favourite investing stories has the same element. The story starts on 2 July 1998, when brothers David and Tom Gardner – co-founders of The Motley Fool, and two of my investing heroes – were invited to an American television programme called The View. In the show, the Gardner brothers were asked to name a stock for the programme’s new host to invest in and they happily obliged.

About six weeks later, the Gardners re-appeared in The View. But this time, they were booed by the live audience. David even found out later from his friend, a long-time follower of The View, that no guest had ever been booed on the show prior to this. It turns out that the Gardners’ recommended stock had fallen by a third in value in the six weeks between their first and second appearances in The View. But the brothers still had faith in the investment and urged the host to hold on for the long-term. 

I don’t know if The View’s host ever did invest in the company that the Gardners recommended. But if she did, and had she held on since 2 July 1998, she would likely be very happy today. The stock in question is the global coffee giant, Starbucks. 

In September 1997, Starbucks had less than 1,500 outlets and was mostly a domestic growth story in the USA. Today, it’s a bona fide global company with more than 33,000 stores in many different countries around the world. On 2 July 1998, Starbucks’s share price was US$3.54. About six weeks later (on 14 August 1998), it was US$2.40. A year after 2 July 1998, Starbucks’s share price was US$3.45, lower than when the Gardners first appeared in The View. Today, the coffee powerhouse’s share price is more than US$110. In a similar manner to WPC, Starbucks looked like a loser over the short-term, but turned out to be a world-class winner over the long-term.

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Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. Of all the companies mentioned, I currently have a vested interest in Starbucks. Holdings are subject to change at any time.

The stock market is an incredibly resilient thing. A wonderful example can be seen through some astounding facts I found out earlier this year about Germany’s stock market, courtesy of a blog post from investor Anthony Isola. 

Germany lost World War I, which lasted from 1914 to 1918, and signed the infamous Treaty of Versailles. The peace agreement placed usurious repayment demands on Germany, which resulted in hyperinflation in the country and the ruin of her economy in the 1920s. This paved the way for Adolf Hitler’s rise to power in Germany in the early 1930s. After Hitler’s ascension, he dragged the globe into World War II, starting with his invasion of Poland in 1939. During the war, Germany suffered decimating air raids on its cities conducted by the Allied nations and by 1945 she had lost the war. Here’s how Germany’s stock market did from 1930 to 1950:

Unsurprisingly, German stocks were smashed shortly after World War II ended. But what happened next was remarkable. Germany managed to rebuild, as the victors decided to support the country’s rehabilitation rather than punitively punishing her as they had done in the aftermath of World War I. Germany’s stock market rebounded, and then some. Isola wrote:

“Amazingly despite losing not one but two World Wars, suffering a vicious bout of wealth destruction due to Hyperinflation, experiencing a Great Depression, and living under the rule of a fanatically evil dictatorship,  long-term German investors realized positive returns by 1960. The German market’s real return compounded at an annual rate of 2.4% from 1900-1960. From 1950 to 2000, German stocks posted an annual real return of 9.1%.”

So even after accounting for inflation – and bear in mind that Germany endured hyperinflation in the 1920s because of theTreaty of Versailles – German stocks still generated a return of 2.4% per year from 1900 to 1960. Here’s a chart from Isola’s blog post that shows the performance of Germany stock’s market from 1870 to 1994:

In his blog post, Isola also wrote that “stock markets can be way more resilient than you can imagine. Provided you have the luxury of time to work in your favor.” This is why Jeremy and I are long-term investors. We want time to be on our side.

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Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life.I have no vested interest in any company mentioned. Holdings are subject to change at any time.

Note: Data as of 2 November 2021; an earlier version of this article was first published in The Business Times on 10 November 2021

There are 7.9 billion individuals in the global economy today. According to the World Federation of Exchanges, an association for exchanges and clearing houses, there are at least 47,919 companies listed in stock exchanges around the world. Estimates on the number of small/medium enterprises (SMEs) worldwide vary widely, but the ones I’ve seen peg the number at between 213 million to 400 million. 

There is also a litany of problems currently plaguing our globe. The legendary US-based investor, Bill Miller, provided a list of worries in his latest 2021 third-quarter letter: “Today’s worries include, but are not limited to, China’s regulatory actions, high and rising fuel and food prices, labor shortages, inflation or stagflation, the effect of Federal Reserve tapering, disrupted supply chains, potential default due the debt limit standoff and the ongoing dis-function and polarization in Washington.” These are in addition to the ongoing COVID-19 pandemic.

With the statistics and information in the first two paragraphs above, it’s an understatement to say that the business world, and hence the financial markets, involve a lot of moving parts. This is a problem for investors and begets the question: What should investors be watching now?

A walk in the park

There was once a lady who liked to walk her young dog each morning in East Coast Park using a very long leash. The lady would take a 10 kilometre stroll from one point in the park to another, walking at a steady pace of five kilometres per hour.

Her dog was always easily excitable. It would dart all over the place, diving into a bush here, and chasing after something there. You could never guess where the dog would be from one minute to the next.

But over the course of the two hour stroll, you can be certain that the dog is heading east at five kilometers per hour. What’s interesting here is that almost nobody is watching the lady. Instead, their eyes are fixed on the dog. 

The tale of the lady and her dog is actually an analogy about the stock market that I’ve adapted from Ralph Wagner, a highly successful fund manager with an amazing wit who was active from the 1970s to the early 2000s. If you missed the analogy, the dog represents stock prices while the lady represents the stocks’ underlying businesses.

It’s the business

There are many ways to slice the dice when it comes to making money in the stock market. But one way is to watch the lady (businesses) and not the dog (stock prices). No matter where the dog is leaping toward, it will still end up at one point in East Coast Park after two hours, following the lady’s path.

The US-based Berkshire Hathaway is the investment conglomerate of Warren Buffett, who is arguably the best investor the world has seen. In his 1994 Berkshire shareholders’ letter, Buffett shared a long list of problems that the USA and the world had faced over the past three decades: 

“Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%.”

But in the same period – 1965 to 1994 – Berkshire’s share price was up by 28% annually. This is the dog. What about the lady? Through shrewd investments in stocks and acquisitions of private companies, Buffett grew Berkshire’s book value per share by 23% per year from 1965 to 1994. Over 30 years of numerous geopolitical and macroeconomic problems, a 23% input of business growth had led to a 28% output of share price growth. 

It’s worth pointing out that Berkshire’s share price and book value per share did not move in lock-step. For example, Berkshire’s share price fell by 49% in 1974 despite a 6% increase in its book value per share. In 1985, a 94% jump in the share price was accompanied by book value growth of ‘only’ 48%. In another instance, Berkshire’s share price slid by 23% in 1990 even though the book value was up by 7%.

Berkshire is a great example of how the excitable dog will end up wherever the lady goes, even though it may be leaping all over the place en route. Berkshire is also, by no means, an isolated case.

The Nobel Prize-winning economist Robert Shiller maintains a database on the prices, earnings, and valuations for US stocks going back to the 1870s. From 1965 to 1994, the S&P 500, a broad stock market index in the USA, experienced a 6% annual increase in both its price and earnings, according to Shiller’s data.

At this point, some of you may wonder: Why are there some amazing dog-owners who are able to continue marching forward, despite the many obstacles they face? 

Optimism

One of my favourite pieces of business writing comes from Morgan Housel, a partner at the venture capital firm Collaborative Fund. It’s an article titled “An Honest Business News Update” published in August 2017 on Collaborative Fund’s website. Housel wrote:

“The S&P 500 closed at a new high on Wednesday in what analysts hailed as the accumulated result of several hundred million people waking up every morning hoping to solve problems and improve their lives…

…Fifty-five million American children went to school Wednesday morning, leveraging the compounded knowledge of all previous generations. Analysts expect this to lead to a new generation of doctors, engineers, and problem solvers more advanced than any other in history. “This just keeps happening over and over again,” one analyst said. “Progress for one group becomes a new baseline for the next, and it grows from there.””

This is why there are these amazing dog-owners: Because humanity’s story is one long-arc of progress. The arc is punctuated from time to time by disasters – of the self-inflicted and/or natural variety – but our human resilience and ingenuity helped us to pick up the pieces and move on. It took us only 66 years to go from the first demonstration of manned flight by the Wright brothers at Kitty Hawk in 1903, to putting a man on the moon in 1969. But in between was World War II, a brutal battle across the globe from 1939 to 1945 that killed an estimated 66 million.

At the start of this article, I mentioned that there are 7.9 billion people in the world today. The vast majority of us will wake up every morning wanting to improve the world and our own lot in life – this is ultimately what fuels the global economy and financial markets. This is the lady, walking steadfastly ahead, holding her dog on a long leash. And this is ultimately what investors should be watching.

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Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. I have no vested interest in any company mentioned. Holdings are subject to change at any time.

Investing is a game of probabilities. In any game where probability is a factor, luck undoubtedly plays a role. This leads to the age old question of how much of our investing performance is impacted by luck?

Is an investor who has outperformed the market a good investor? Similarly, is an investor who has underperformed the market a lousy investor? The answer is surprisingly complex.

Fooled by randomness

In his book, Fooled by Randomness, Nassim Taleb argues that we tend to misinterpret events as less random than they actually are. In other words, luck is more influential in the outcome of an event than we tend to think. He wrote:

“Past events will always look less random than they were (hindsight bias). I would listen to someone’s discussion of his own past realising that much of what he was saying was just backfit explanations concord ex post by his deluded mind.”

Harsh? Yes, but I can testify that I’ve experienced similar conversations. In a world full of unknowns and wide dispersions of possibilities, luck does play a significant factor in the final outcome. More than we want to believe.

This phenomena of luck and dispersion of outcomes is prominent in investing. Not only are short term stock prices volatile and random, but long-term stock prices are also influenced by luck.

Long term stock prices tend to gravitate toward the present value of the company’s expected future cash flow. However, that future cash flow is influenced by so many factors that result in a range of different possible cash flow possibilities. Not to mention that on rare occasions, the market may grossly misprice certain securities, such as Gamestop. As such, luck invariably plays a role.

Understanding luck

When it comes to investing, we should acknowledge that the future is not certain. There always is a range of different possibilities.

As such, the first thing we need to do is to understand that outcomes do not determine skill or luck.

A good example is that past performances in a fund does not correlate to future good performances. In his book, The Success Equation, Michael Mauboussin wrote:

“I compared excess returns for the three years ending in 2010 with the Morningstar ratings for the funds at the end of 2007… I found a poor correlation (r=-10). The primary reason individuals and institutions invest in a fund is that they liked the way it performed in the past. But those figures give little information about what the fund will do in the next three years.”

What this shows is that luck was perhaps one of the factors that impacted both pass and future returns for those funds that Mauboussin mentioned.

Identifying skill

The next step is disentangling luck and skill. Unfortunately, it’s not so simple. Michael Mauboussin wrote:

“Not everything that matters can be measured and not everything that can be measured matters.”

Skill is one aspect of investing that is hard to quantify. However, there are a few things I look at.

First, we need to analyse a sufficiently long track record. If an investor can outperform his peers for decades rather than just a few years, then the odds of skill playing a factor become significantly higher. Although Warren Buffett may have been lucky in certain investments, no-one can deny that his long-term track record is due to being a skilful investor.

Think of this as going to the casino and playing blackjack. You can go on a lucky winning streak for a night, maybe two or even weeks on end. But imagine going to the casino everyday for years. Luck will eventually catch up to you and your win rate, or rather your loss rate, will gravitate towards the mathematical mean.

Next, focus on the process. Analysing an investment manager’s process is a better way to judge the strategy. One way to see if the manager’s investing insights were correct is to compare his original investment thesis with the eventual outcome of the company. If they matched up, then, the manager may by highly skilled in predicting possibilities and outcomes.

Third, find a larger data set. If your investment strategy is based largely on investing in just a few names, it is difficult to distinguish luck and skill simply because you’v only invested in such few stocks. The sample is too small.

But if you build a diversified portfolio and were right on a wide range of different investments, then skill was more likely involved.

Parting words

Ultimately, our investing success comes down to both skill and luck. But disentangling luck and skill is the tricky bit.

Maubossin wrote:

“One of the main reasons we are poor at untangling skill and luck is that we have a natural tendency to assume that success and failure are caused by skill on the one hand and a lack of skill on the other. But in activities where luck plays a role, such thinking is deeply misguided and leads to faulty conclusions.”

It is important that we understand some of these psychological biases and gravitate toward concrete processes that help us differentiate luck and skill. That’s the key to understanding our own skills and limitations and forming the right conclusions about our investing ability.

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Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life.Of all the companies mentioned, I currently have no vested interest in any of them. Holdings are subject to change at any time.

A handful of Software-as-a-Service (SaaS) companies that I have a vested interest in released their quarterly results in the past few weeks. 

Here’s a quick round up on their performance and some insights from management.

Zoom Video Communications (NASDAQ: ZM)

The video conferencing leader continued to report healthy growth. In the three months ended 31 July 2021, it saw 54% year-on-year revenue growth on top of the 355% growth it enjoyed in the corresponding quarter a year ago. On a sequential basis, Zoom reported 6.8% revenue growth.

Zoom’s free cash flow margin for the latest quarter was an excellent 44% and the company is now sitting on more than US$5 billion in net cash. Although management expects some churn in its SMB (small, medium businesses) online segment, Zoom still seems to be in a high growth phase as its net dollar expansion rate continues to be above 130%.

Zoom is also spending on innovation as it accelerates the app ecosystem on its Zoom App platform. Eric Yuan, Zoom’s founder-CEO, shared the following comment in the company’s latest earnings conference call:

“Our internal innovation engine is very strong and bolstered by our growing Zoom Apps developer ecosystem and acquisitions such as Kites that will strengthen our position in AI transcription and translation. As organizations and people reimagine work, communications, and collaborations, we are faced with a once-in-a-lifetime opportunity to drive this evolution on multiple fronts.”

In terms of outlook, Zoom expects revenue of between US$1.015 billion to US$1.02 billion in the upcoming quarter, which is roughly flat quarter-on-quarter as the company is facing some churn from its SME clients. But from my vantage point, Zoom is still well-positioned for the long-term.

Veeva Systems Inc (NYSE: VEEV)

For the quarter ended 31 July 2021, the healthcare software company reported a 29% increase in revenue from a year ago, and 7.3% sequential growth in subscription revenue. Veeva is now sitting on US$2.2 billion in cash and equivalents and continues to generate a growing stream of free cash flow.

During Veeva’s latest earnings conference call, its founder-CEO Peter Gassner said:

“Looking at the bigger picture in clinical, we are advancing our vision to move the industry to digital trials that are patient-centric and paperless. On the product side, we are growing our product team significantly to support further innovations. On the customer side, early adopters are progressing with Veeva eConsent and Veeva Site Connect, and momentum with Veeva SiteVault Free continues. We are learning a lot as we bring sponsors, clinical research sites, and patients together in the Veeva Clinical Network. It’s an exciting area, and digital trials have the potential to change the course of drug development worldwide.”

Okta Inc (NASDAQ: OKTA)

Identity management software provider Okta reported healthy topline growth even as it lapped tough comparisons from a year ago. During the reporting quarter (the three months ended 31 July 2021), Okta’s revenue grew 59% year-on-year due in part to the inclusion of Auth0, which was acquired in May. Excluding Auth0, Okta’s organic revenue growth was still a healthy 39% year-over-year and 10.7% sequentially.

The company’s overall trailing 12 month net retention rate stood at 124% – which is great – and Okta’s standalone current remaining performance obligation was up 43% year-over-year.

Okta is guiding for US$325 million to US$327 million in total revenue for the next quarter, which would represent growth of 50% year-on-year and 3.2% sequentially.

During Okta’s latest earnings conference call, co-founder and CEO Todd McKinnon shared his confidence on the company’s future growth:

“As the world continues to work through the ongoing pandemic, organizations have had to maintain fluid plans for returning to offices. Regardless of the time line, it’s clear that most organizations are adopting plans that include more remote access. Organizations also realize that their interactions with customers will continue to shift more online and need to accelerate their digital transformation business plans. These factors, combined with the ever-evolving security threat landscape, mean that the demand for Okta’s modern identity solutions has never been greater.”

MongoDB Inc (NASDAQ: MDB)

The leading noSQL database provider saw its share price rise sharply last week after posting another set of excellent results. 

Revenue for the reporting quarter (the three months ended 31 July 2021) was up 44% year-on-year and 9.4% sequentially. Impressively, MongoDB’s Atlas product, which is a database hosted on the cloud, grew by 83% from a year ago as companies are starting to embrace the fully-managed MongoDB database-as-a-service offering.

Management is forecasting the next quarter to have sequential growth of between 0.5% and 2.7%.

MongoDB’s CEO, Dev Ittycheria, ended the company’s latest earnings conference call by saying:

“I just want to leave you with a few comments. First, I think what we really want to reinforce is that we believe customers realize that if they want to move fast, MongoDB is the best way to do so; second, Atlas’ growth of 83% reinforces the point that customers want a multi-cloud platform that enables them to innovate quickly and outsource the undifferentiated heavy lifting of managing their data infrastructure; third, we continue investing and evolving our go-to-market strategy across field sales, inside sales and the self-serve channels to capture this large market opportunity; and last but not least, we continue to roll out significant innovation to improve our platform through both ease of use and expansion of capabilities to encourage more and more customers to use MongoDB.”

DocuSign Inc (NASDAQ: DOCU)

The e-signature specialist continued its excellent run. For the three months ended 31 July 2021, DocuSign reported a 52% increase in revenue year-on-year, building on the 47% growth experienced in the same period last year. DocuSign’s revenue also rose 9.2% on a sequential basis, and its net retention rate continued to be high at 124%.

The company is also enjoying improving operating leverage and saw a free cash flow margin of 32% in the reporting quarter. DocuSign’s management is guiding for between US$526 million and US$532 million in revenue for the upcoming quarter, good for a 3.3% sequential growth rate at the midpoint.

In his opening remarks during DocuSign’s latest earnings conference call, CEO Dan Springer highlighted how the company is becoming an integral part of the tech stack in many companies’ adoption of digital workflows. He mentioned some examples in his opening remarks to analysts:

“Many have also seen a better way of doing business from anywhere. And we believe that will become their new normal. One of our customers, Stacy Johansen, who is the President of Downeast Insurance, told us that when COVID hit and they had to close their physical doors, DocuSign saved them. In her words, and I quote, If it weren’t for the ability to get an electronic signature, we wouldn’t have written half of the new business we did last year.

Having succeeded beyond expectations by fully embracing digital tools, Downeast resolved to do business this way from here on. Another example is one of Canada’s largest automotive dealers. In response to COVID, the company adopted DocuSign eSignature and DocuSign payments to support remote sales and service. The program was so successful, it spawned a larger initiative to offer digital transactions across their entire dealer network.

As one company executive put it, “DocuSign has become part of facilitating a full breadth of remote experiences.” These are just a few examples of what we’re seeing again and again, being able to do business and operate from anywhere is what people now expect, plus it saves time, money and trees.”

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Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. I currently have a vested interest in the shares of Zoom, MongoDB, Veeva, Docusign and Okta. Holdings are subject to change at any time.

There are many important things about the stock market that can change, such as the behaviour of market participants and their level of collective knowledge. I believe an interesting example of this can be seen in the 2008/09 financial crisis.

The period was an economic calamity and stock prices fell sharply. During the crisis, the S&P 500, a broad index for US stocks, fell by nearly 57% from peak to trough. But then-Federal Reserve chair Ben Bernanke prevented an even worse disaster from happening.

Bernanke was a scholar on the Great Depression that happened in the 1930s. In a wonderful 2002 speech for the birthday gala of celebrated economist Milton Friedman, Bernanke laid out the mistakes the US government had made during the Great Depression. He ended the speech saying (emphasis is mine): 

“I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

When the 2008/09 financial crisis erupted, Bernanke sought to prevent the same mistakes from happening. He largely succeeded and I think it’s telling that an 85% fall in stock prices – something that happened in the Great Depression – did not occur during the financial crisis.

I think that this trait about the market – that market participants can learn, collectively – has important implications for investors. Amazon’s founder Jeff Bezos once said (emphasis is mine): 

“I very frequently get the question: “What’s going to change in the next 10 years?” And that is a very interesting question; it’s a very common one. I almost never get the question: “What’s not going to change in the next 10 years?” And I submit to you that that second question is actually the more important of the two — because you can build a business strategy around the things that are stable in time. … [I]n our retail business, we know that customers want low prices, and I know that’s going to be true 10 years from now. They want fast delivery; they want vast selection.” 

I believe this applies to investing too. It’s better to build an investment strategy in the stock market around the things that are stable in time. What is one such thing? From my observations, I think one thing about the stock market that has been stable over the long arc of history is that it has remained a place to buy and sell pieces of a business. And I think this trait about the stock market will very likely continue to be stable over time.

With this in mind, what logically follows is that a stock’s price over the long run will continue to depend on the performance of its underlying business over the same period. In turn, a stock’s price will eventually do well if its underlying business does well too. All these mean that a lasting investment strategy is to identify businesses that are able to grow well over a long period of time.

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 Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. I currently have a vested interest in the shares of Amazon. Holdings are subject to change at any time.