Hyper-growth stocks (Puru Saxena) - Investing Wizards Ep 14

Summary + notes:

Long strategy

• Watch price action to see if the market agrees with your thesis. If not after 6-9 months, cut losses and move on (returns > being right).
• The best stock returns are made in the first 5-7 years of listing.
• Have a very short leash for bad behavior. Cut quickly if there's smoke.

Drivers

• The economy is basically 100% dependent upon the monetary cycle. The maximum gains in asset prices come when central banks are the easiest, typically when the economy is in the doldrums. QE, stimulus programs etc. trigger the start of bull markets in risk assets.
• Monetary policy = horse. Economy = cart. Asset prices are driven by changes in monetary policy both on the way up and on the way down.
• Inverted yield curve shows strain in credit markets (lenders have no incentive to lend).
• Pays most attention to monetary policy: ECB, BOJ, Fed — guidance and activity.

Hedging strategy (runs high-beta portfolio)

Shorts EFTs based on coverage e.g. IWO for US, EWZ for S. America, KWEB or CWEB for China.

Shorts the ETF itself — does not use options (no cost of premium).

Hedges 100% dollar for dollar.

Must be systemic — take every signal.

Surprising how effective these types of hedges are. The simple system is superior.

5, 10, 150 are not magical numbers. e.g. longer-term MA's cause less frequent hedging but also mean drawdown will be greater since hedges kick in later.

Can use e.g. Wealth Lab to test + pick specifics.

Long strategy

• Own stocks that are growing rapidly...which just happen to go up
• No focus on price or factors
• Focus on most promising, exciting, high growth companies, just starting to penetrate their markets, with massive TAMs and great CEOs
• Market caps at the end of the day are determined by the underlying growth of the business
• See e.g. Analyst NTM revenue estimates vs. price
• To make serious money in investing, the past is irrelevant. Need to go into names that can be 10x bigger in the next 10 years. Growth rate of large firms is limited to multiple expansion + modest growth. Therefore need to be in firms that can continue to grow at high rates for years.
• It's as simple as: e.g. $SBUX grew sales 10x in 20 years, and stock was up 10x in 20 years...
• Most investors cannot comprehend long-term compounding...table from Luca Partners...changes in valuation effecting investor return given changes in growth rate over next 10 years. For an over-valued company today, if it succeeds at compounding revenue at 25% over next 10 years, even with 50-70% valuation compression over next 10 years investor will still do quite well.

• Many of these companies are not creating new demand, they are just stealing existing demand...hence confidence in demand (e.g. e-commerce, payments, tele-health...just stealing existing demand hence durable, long-term growth opportunities)
• When I set out to look for new companies I don't decide to look for technology companies...but the rapidly growing companies happen to be in technology

$FUBO

• Bought due to strong revenue growth, good backers, now getting into sports betting
• If they succeed in getting into sports betting, they will be able to compound for a long period of time
• High short interest as factor? ...like a coiled spring, if there's nothing wrong with the business (e.g. no fraud) then when the shorts cover there can be explosive upside...hasn't seen any evidence of fraud

Knowing when you're wrong

• Company announcements + quarterly results (e.g. drop in revenue growth, user base leaving, failure to launch sports betting platform)
• Pay most attention to what the company says; very little to opinions of the company
• e.g. short interest % not a focus

$AYX

• Covid disrupted business results
• Management tried to quietly sell the business
• Would not buy back in unless management is changed; "turnarounds seldom turn"

One stock for the next five years: Opendoor, Protera, SoFi, Curiosity Stream highest upside for revenue growth