No. of Recommendations: 47
And some words of wisdom about what’s happening right now!

Later in the book, Schwab is talking about 1988 and 1989, right after the 25% one-day crash of October 1987.

But the market (i.e. S&P500) is just 1% below its all-time high. Yes, the S&P500 has not seen the huge gains that the SaaS stocks have over the past 2 years, but to say that we just had a crash/selloff is not accurate. So what what will happen going forward? No one knows, especially in the short term. 1) SaaS stocks could continue to decline in the short term. 2) SaaS stocks could stabilize around their current valuations. 3) SaaS multiples could reinflate.

While reading the recent Morgan Stanley analysis by Mr. Weiss, I have continued to think about valuation of the SaaS stocks. I've concluded a few things and have some pending unanswered questions which I plan on exploring further:

1) valuation ranges for the Cloud SW stocks has fluctuated with falls and rises over the years

2) I think (for me) it's better to think of valuation in a range of values within the historical, bigger range

3) the valuation multiple ranges (in my opinion) should be examined very carefully and in a nuanced way rather than a single number for the whole category. Weiss referred to a EV/Sales multiple number which I think is too broad. He did further divide it into 3 subcategories which I think is an improvement but I still think it can be done better (I will work on something over the next week or so).

4) I also think going back only 5 years as Weiss did is not far enough back especially since we saw multiple expansion over the past 2.5 years. Salesforce (CRM) has been in business for more than 20 years and has been public since 2004 (15 years). It is one company to study the history of as it is a pure play cloud company. I will see about which other older, more mature cloud companies I should study to gain more insight into how the market has valued the category over a longer time period.

5) Weiss included some SaaS companies (e.g. NEWR, MSFT, AMZN) that I would not invest in because I either don't like their business/financials or I think they are already too mature.

I have other thoughts that will require me to do more work to validate or toss out. But before doing an extensive analysis, my current bias/presumption/hypothesis is still that the SaaS companies got too overvalued and have pulled back from the highs. I also still think that the businesses are great and that in the long run most of these companies will grow at a rapid pace. I've said in August that I think we might see our SaaS companies (assuming their businesses continue to perform which I think most will) reach their former all-time high stock prices in about 18 months as I wrote a month ago on 9/15/2019:

Another question is when will our companies recover now that have now dropped between 20% and almost 50% (ESTC being an exception: only down 10%) from their July all-time highs. I don't know. I tend to think that it could be a while (and they may not have bottomed yet). This is just my opinion, but I would be surprised if these stocks go back to their all-time highs before the end of 2019. It will really depend on 2 things: how the businesses perform (and we're only getting 1 more cycle of earnings results before the end of 2019) in the coming quarters and when will the companies come back into favor. If the businesses perform then they should also come back into favor but at what multiples. No one can know, but my personal guess is that the highs on most of the companies might be matched in 18 months with a range of 6-24 months. If it's 6 months then the multiples will need to go back up. If it's 24 months then the growth of most of the businesses should be able to support the previously high stock prices with a lower multiple; and this is what's keeping me in the stocks. Again, this is just my personal opinion and I could be wrong.

So here we are a month later. The decline has continued as you all know. My portfolio peaked on July 26, 2019 at +100.05% YTD. Currently, I am still up +30.2% YTD with enough cash on hand to pay all of my 2019 income taxes and enough to cover my living expenses for about 2 years. Interestingly, this week my portfolio's value dropped below the 2018 peak in early September 2018. Bummer. I also deleveraged as much as I needed to ensure that I can ride this out for 2 years without any forced selling or any severe cutback in my lifestyle. Other than that I am not adding or selling and plan on staying concentrated in the companies that to me appear to be the clearest, sustainable winners in their categories.

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