You may note that ZM is missing from my line up of stocks. I had picked up a relatively small position on their IPO debut, but chose to keep this position around 2% of the total portfolio. I considered it a nibble and a side bet on the euphoria around the IPO, more than a long-term investment. I do love the company and their solution and was impressed with their first call. Zoom (ZM) screamed out of the gates on the day of the IPO, more than doubling from its $36 IPO price on the first day of trading to close above $78/share. It then posted fantastic growth and other metrics in their first quarterly earnings call and spiked again today above $105/share. Today I chose to book my profits and close the position at a price of $104/share.
Why, you ask, did I sell? They are growing at over 100% q/q…blistering pace. They have a very loyal and growing customer base, etc, etc. Well, the reason was three-fold. They are now valued at a total Market Cap of $28B, one of the larger companies in my portfolio. Their share price jumped almost 300% already in just a few short weeks since their IPO…I feel it is overdone. They do not really have a moat around their tech offering (hosting video calls) and they have several large competitors. And finally, they are valued at a stratospheric level by any metric one can use…PE or EV/S. Net, net, I just can’t see how they can feasibly 5x, much less 10x, themselves at these stratospheric valuation levels. Don’t get me wrong, I love the company and I use the technology personally. I just feel there are faster horses to transfer those funds to right now and chose to fold my small position and take some very nice and fast profits. To be sure, I am not one who is prone to day trading and I prefer to keep positions I feel can grow MANY years in row. I’m not sure ZM will be able to do that long-term from these valuations. I could be (and often am) wrong here and the stock could easily continue to scream higher on the hype and demand, but eventually either the growth will have to catch up with the valuation or the valuation will come down to match the growth. I will continue to watch it to see if it continues to Zoom upward or sputter and run out of gas in the next quarterly earnings call.
User comment: I admire your discipline, but I feel I can still get out when I see it decline… On the other hand I love it that you own such few stocks and can go deep on all of them.
User comment: I have owned Oracle since 1990. It dropped by half right after I first bought it (10 -> 5). But I was told it was a good company and to buy more. I am a believer in holding long in companies that should be good – perhaps to a fault – and it has worked ok. Thanks Victor for all your work on this!
Victor: Congrats! Great to hear it! I will gladly hear “I’m up only 45%” as a “complaint” any day…or any year, for that matter!! Adjusting for inflation over the last 100 years, you would only have averaged 7-8% return per YEAR in the overall stock market…a testament to the power of picking and investing in the individual solid, fast growing TOP companies and leaving the averages to the professionals. Seriously, who wants to be average and why would anyone want to buy an index that includes the 50% of companies that are BELOW average!? I never could figure that out! 😉. You can’t time the market or the stock….if you try to get out of a company stock when it’s down and NOT the company’s fault (i.e. market impact or politics or whatever), you will usually NOT be able to get back in fast enough for the rebound and you will miss the run up. Also, its worth pointing out in the U.S. to be very careful of the tax implications of “trading” stocks for less than a full year (unless they happened to be in an IRA or other retirement account that is exempt). LT Long term (greater than 1 year holding) vs. ST Short-term (less than one year) capital gains taxes can eat you alive…LT cap gains can be as low as 0-15%, whereas ST cap gains can be up to 53% including State taxes for the highest brackets, as the gains are taxed at your ordinary income tax rate for the year…
