As a proud shareholder of Nvidia since 2016 and a continued buyer of the stock in 2021 and January 2023, the results of the quarter one earnings call were phenomenal but not a surprise.
Nvidia guided for second-quarter revenue of $11 billion, plus or minus 2%; the chip maker has never before reported quarterly revenue higher than $8.29 billion, which it hit in the fiscal first quarter a year ago. Analysts on average were expecting $7.17 billion, according to FactSet, a gain from the $6.7 billion in sales Nvidia put up in the fiscal second quarter last year.
The experts expected Q2 revenue to guide $7.17 billion but now expect $11 billion. The numbers Nvidia reported are truly breathtaking but, once again, not surprising because, as shareholders of Nvidia know, the company is a powerhouse.
Nvidia is a fundamentally solid growth company. The media has covered this company’s who, what, where, when, and why in-depth over the past 7 years. Jim Cramer re-named his dog Nvidia in 2017. The CEO, Jensen Huang, was on the cover of Time Magazine in 2021. The stock isn’t some private investment that only a few insiders knew about.
The qualitative aspects of the company were terrific back 7 years ago. Understanding that Nvidia is equivalent to the Pat Mahomes of high-growth tech companies requires little due diligence. Buying the stock was a no-brainer, easy investment.
The fundamentals of Nvidia didn’t get worse; they have gotten better. What does change is sentiment, which is almost guaranteed to change dramatically. Negative sentiment is what helped drive the stock down to 108.13 in October.
Here is what investors can learn from Nvidia.
For most investors, you should buy and hold a stock like this. You don’t trade in and out of it, you don’t short it, you don’t use leverage. Just buy the stock and hold it.
It’s a simple strategy, but one many fail to actually execute. Of course, it’s painful during downturns, but it pays off without the stress of constantly getting in and out of the market.
The Power of Simplicity:
A grilled cheese sandwich is absolutely delicious, one of the most perfect yet straightforward things you can cook when made correctly. Too often, when I make a grilled cheese sandwich, the bread is cooked unevenly, and the cheese isn’t oozy enough.
Long-term investing is like a great grilled cheese sandwich. You buy and hold, simple as that. You hold during the tough times. You hold during the good times. Make it more complicated than that, and that’s where investing becomes stressful and more like a game of roulette. Your portfolio starts looking like burnt toast.
Investing isn’t a battle of intellect or having specialized knowledge. It’s mainly about being patient during euphoric and gloomy times. Let’s revisit Apple. Many investors had the vision to buy Apple stock. Many investors had the foresight to buy the stock when they were not the robust profit machine they are now. Those who made the most gains did not necessarily have a higher IQ or were great traders who got in at the right time; they bought the stock, sat on their hands, and held it for a long time.
The problem with investing is that perhaps our human nature makes us think we must be active in our portfolio. The paradox of investing, which does not apply to everyday life, is that more activity in your portfolio does not equate to better performance. Warren Buffett isn’t necessarily a more intelligent person than Carl Ichan or George Soros, yet his net worth is roughly nine times larger than Ichan and Soros combined! Buffett sat on stocks for decades, and Ichan, although still successful, took a different route that could have been more profitable.
The honest truth is that long-term fundamental investing is something most people universally agree is a solid strategy but never can do. Much like eating vegetables or exercising, the Warren Buffet strategy for most people is the best way to invest, but only a few people do it, which will likely remain the same in the future. The story is played out the same way every time. Investors who start consistently make bets that the market will crash, make ill-time short bets, or sit on the sidelines for an extended period underperform and lose money.
Many investors become fearful and panic, unable to hold stocks through even the whisper of a recession. In the stock market, you will also see a lot of arrogant investors who care more about their egos than making money. Both the scared and pretentious investors have the same problem: A lack of calm and patience when holding equities.
The buy-and-hold strategy lacks much sophistication and complexity, but….. it works. This strategy is the best and easiest way to capture the growth of Nvidia, a company with insanely high ratings on Glassdoor and a visionary CEO up there with Bill Gates and Jeff Bezos. Nvidia is about as perfect high-growth company you can find. Nearly unlimited demand, met by astronomical growth numbers. I will continue holding the stock like I have don
Vision to see great opportunities: Not being blinded by market timing or predicting a bear market.
Courage to buy into great opportunities: Be courageous, not fearful or arrogant.
Patience to hold them: The hardest and rarest of the three.
It takes vision, imagination, and a forward-looking lens into what a business can achieve and how big it can get. Don’t look at investing as a black box but as a reductionist art form. From ChatGPT: “Reductionist art refers to an artistic approach or style that emphasizes simplicity, minimalism, and the reduction of visual elements to their essential forms. It involves distilling or paring down the subject matter or visual elements to their most basic or fundamental components, often eliminating unnecessary details and complexities.”
Investors that can boil things down to the essentials and avoid the noise win.
While having difficulty finding an agent and getting rejected at more than 100 auditions, Leonardo DiCaprio grew increasingly disillusioned. At one point, he considered giving up his passion as the road to the big screen seemed a frustratingly long one. The agents wanted him to change his name to something slightly trendier, but Leo would not have it that way. His father encouraged him relentlessly by saying, “Go out there, son, and whatever you do, I don’t care if you’re successful or not, just have an interesting life,” a message which stayed with him.
Almost one-third of Americans have a net worth of zero or less.
Over half of Americans don’t know how to calculate their net worth.
Nearly one-in-four Americans aged 59 and above have yet to set for retirement.
That’s according to a new survey from Credit Karma.
This is a whole bunch of bad for many reasons. If you are 59 or older and have no nest egg, you needed a financial plan over 10 years ago. The sad reality for people in this precarious situation is dire and needs to be addressed asap.
You will likely need to continue working in your 60s and 70s to keep your head above water. Health probably becomes a significant factor. Many people will have to work until they die.
Healthcare and long-term care expenses are only affordable with a vast savings war chest.
You must rely on state and federal assistance without family covering your expenses. Anyone that has dealt with government-run-anything understands these options are subpar and inadequate.
State-run assisted living facilities are rampant with abuse and neglect.
There is no good way to spin this, and the government isn’t coming to the rescue. No politician or party will drastically overhaul the healthcare system, Social Security, or federal income taxes. Most people want roughly $1-3 million to retire easily and comfortably. A few $1,200 stimulus checks or wiping out $10,000 in student debt will not make a significant dent in reaching that goal.
I cannot provide a constructive message for people nearing retirement in their 50s and older. Things look bleak but are not hopeless. Righting the ship is still possible with quick action and the right resources. But I lack the personal experience in this subject to provide helpful advice on retiring without savings.
I want to warn those still decades from retirement: you have time but must show more urgency to achieve your financial goals. To retire comfortably, you must change your lifestyle and mindset about money.
Saving money and frugality does not create wealth. Investing does.
If you want to unlock wealth, you need to invest. Saving $5 a day by skipping Starbucks isn’t create wealth; what you do with that $5 and the other discretionary income will determine if you can build wealth.
Not buying luxury cars or designer clothes will provide you more savings and better odds of staying out of debt, but being frugal does not create wealth.
A lot of young people today are actually good at saving money. The problem is, where is that money going? Remember, many things you buy for $5-15 today will be $20-30 in the future. So, if you take that $5 from skipping Starbucks and stow it away in a savings account or something that cannot beat inflation, that $5 couldn’t even buy you one coffee in the future.
If you rush in to lock in your money in a 12-month CD with a 3-4% APY or a high-yield savings account yields upward of 4-5%, you are just losing less. As the great Harvey Spector said, “That’s the difference between you and me. You wanna lose small, I wanna win big.”
These vehicles won’t help you reach your retirement goals. If you put most of your money into CDs or savings accounts, you likely have too much of a scarcity mindset. Unless you have a salary of over $150,000, you shouldn’t be doing this because even Americans earning this type of salary aren’t pouring their discretionary income into inflation-losing vehicles.
Take smart risks, and think exponentially, not linearly.
If you make less or slightly above the median income, you cannot save your way into millions… It’s possible, but it would require a lot of sacrifice, luck, and time.
You are just an average person making around the median salary. How do you get ahead?
Get a part-time job, new job, or side hustle.
“A healthy person has a thousand wishes, a sick person just one.” – Tony Robbins.
Getting a part-time job or working overtime consistently can bring in more money; however, at what cost? Do you really want to work 50-80 hours a week? The cost of overworking will likely have a toll on your mental and physical health. The payoff needs to be huge if you are going to risk your health. But ask yourself again, is it worth sacrificing your long-term health and quality of life for a larger paycheck.
Job-hopping to increase your salary has worked for many people, but there is an obvious limit to this. You cannot expect a 10-20% yearly raise for the rest of your working life. At some point, there is a ceiling on the salary you can earn from a single job. This is a short-term strategy to build wealth.
Looking at a side hustle is a bright idea. How to turn passive income by committing a minimal amount of hours. The problem is you aren’t likely to get wealthy from it. A side hustle could replace a full-time income, but the odds are not in your favor.
Jasmine McCall makes $105,000 monthly in passive income for her Youtube Channel.
Could you be an outlier like Jasmine?
Wanting to be a social media influencer isn’t a bad idea. Trying to do it as a side hustle in addition to your primary source of income is low risk with a potential for a high return. The problem is the probabilities aren’t great. Building an audience requires a lot of legwork and patience. You’re first few years, you will likely only net a little. Remember, a lot of influencers that “made it” were highly accomplished in their professional careers. Many have a skillset and talent that allow them to succeed in social media.
The problem with the self-employed and those working a non-traditional career is that many end up working more hours than W2 employees and have the same wage or make less. They also have to pay more in taxes and insurance. Many of these workers have the same problem as those working a conventional job from an employer.
There is nothing wrong with wanting to pursue your dreams and passions. To be an outlier, you must embrace risk and failure. If one cannot tolerate failure, one likely won’t take the risk and experience growth.
Investing is the ultimate side hustle.
Investing is the best way to achieve wealth using a risk-reward ratio or looking at things based on probabilities vs. possibilities. Wealth from investing can grow exponentially, while the chances are not improbable.
A relatively small percentage of actors achieve financial security through acting. The same for high school athletes that want to go pro. Climbing the top of the corporate ladder and becoming a famous TikTok famous are things not in your statistical favor from happening.
My philosophy. You need to take risks if you want to get an enormous reward. That risk may have to be unconventional and out of your comfort zone. Most importantly, you have to risk losing a lot of your safety net to make a vertical move. That’s the cost of success: The loss of certainty for the potential of a bigger prize. But you need to take intelligent risks. Not just buying lottery tickets or praying and dreaming for a white knight to save you. Investing provides reasonable risk probabilities with enormous rewards, not just pie-in-the-sky hope and dreams.
Investing is the ultimate side hustle because it is accessible to anyone that can open a brokerage account. The barrier of entry is nearly nil. It is the ultimate weapon to build wealth, yet few take advantage of it for various reasons, which I have written about in the past.
A lot of people compare investing and gambling to the same thing, which is not categorically true:
Casinos are quite different from the stock market, where the chance of a positive return over a long period of time, say 10 years, is over 94%. Put another way, the chance of losing in the long term is just 6%, versus 100% with gambling. For every $100 put into the stock market, there is a 94% chance you will gain an additional $96 after 10 years (an annual return of 7%), and I am being conservative. Past performance indicates the annual return of U.S. Stocks has ranged from 9% to 14% over the past 10 to 30years.
The odds of making money in investing are incredibly high. The odds of making money in gambling are extremely low. The main difference is that investing is boring, while gambling is entertaining. Unfortunately, many people cannot differentiate investing from gambling, which explains why many do not invest anything at all, too conservatively or too recklessly.
The secret sauce with investing is that it can passively turn a small amount of money into a large windfall. It doesn’t require hours of editing videos or meeting with tenants. There are no maintenance fees, mortgage, or insurance needed.
The most important question any investor has to ask is, ‘What do you have to lose?’
Donald Trump asked this when he was appealing to black voters in 2016: “What do you have to lose by trying something new, like Trump?” he asked them. “You’re living in your poverty, your schools are no good, you have no jobs, 58% of your youth is unemployed, what the hell do you have to lose?”
If you are not investing, what do you have to lose? Turning a net worth of $50,000 to $5,000,000 requires risk. You can get this from compounded interest and just patiently waiting.
People generally have much more to gain than to lose. By the time people realize this, it’s too late. Investing long-term in your 50s and older is much more complicated than when you are younger.
I have seen this numerous times since when I was a financial advisor. A lot of people near retirement have a lot of financial regrets and missed opportunities. It wasn’t so much the bad investments but those never made when the opportunity was available. The window wasn’t short either, as people had decades to do something but let fear and complacency get in the way.
To tie this all together, the #1 trait for great investors, entrepreneurs, and really successful people, in general, is how people deal with adversity. If you can handle adversity, you can manage risk.
It doesn’t matter if it’s adversity created by the environment or adversity you create yourself. When you have a difficult situation, you need the mindset to take it and run with it. Some people just take it and make it work. They feed on adversity. Some people see trouble, and they just quit, as talented and intelligent as they are. It isn’t so much a game about IQ and intelligence but temperament.
There are some people who, in the face of adversity, become calmer. When the world is falling apart, their heart rate decreases for some reason. You will likely succeed in investing and life if you can be calm and opportunistic under adversity.
Cash is increasing, while debt and expenses remain low.
Annual bookings are rising with a limited amount spent on advertising/CapEx.
A Founder-led company that still has lofty goals.
The company has almost all the characteristics of a no-brainer stock you want.
My problem with Airbnb and the stock consists of two issues:
First, the stock became a public company in 2020. The explosive user growth happened before 2020, when the concept was new. The company is past its hypergrowth stage of the business cycle, and most of the good news about Airbnb is already priced into the stock.
It could have been an ideal investment if the company had gone public before 2016. The price would have been at a steal deal where the FUD of the business model would have created an ideal entry point to buy the stock. You could have reaped the rewards during the early stages of its growth phase. You ask most hosts and travelers today, and the golden era of Airbnb is over. It is now a mature company maximizing profits.
I still qualify Airbnb as a quality business, and if you invest in Airbnb today, you will likely see healthy returns in the long term.
Investment thesis: Invest in high-quality businesses and hold for the long term. Airbnb is a high-quality business with over 4 million hosts and 150 million users. They have the network effect, and management will find a way to monetize their growing ecosystem.
I have no problem buying Airbnb stock; the above thesis for holding the stock is acceptable. Again, the business model is great, and shareholders have good reason to keep the stock. I am highly skeptical that Airbnb can join Apple, Microsoft, Alphabet, Amazon, Tesla, and Meta, whose market capitalizations reached $1 trillion.
I have doubts Airbnb will kill the hotel industry and certainly not to the effect that Amazon disrupted retail. The hotel industry is doing quite well and is not likely to collapse. Short-term rentals (STRs) and experiences are also niche markets. How much juice is there left to squeeze? For example, global cloud computing has an expanding market valued at over $483 billion. The STR market size is worth $100 billion.
The STR market is oversaturated and full of potential landmines for investors in the form of local and state government regulation. Regulation won’t kill Airbnb, but it can slow its growth and zap its profits. How do you stop the network effect? Government interference. Ask Alibaba or Coinbase how government regulation can stall your growth.
Airbnb must diversify its profile and get into long-term rentals (LTRs). They need to attract corporate and student listings for those looking for leases of 3 months or longer. Daily rates work for STRs, but leases are ideal for LTRs.
The problem is the LTR online marketplace already exists and is crowded. Assume Airbnb takes all of Zillow’s market share; that’s only $10.42 billion.
Airbnb will likely consider acquiring a global home furnishing and cleaning service company, but does that make it a $1 trillion company? I don’t see it. For Airbnb to get to that size, they have to disrupt industries outside of their online marketplace, and I see this happening with a low level of certainty.
Airbnb needs more reward potential to be added to my portfolio. The risk is low-moderate, and the reward is moderate-high. I already have enough companies in my portfolio with similar profiles. Airbnb, by proxy, is connected with the housing and real estate market, sectors I want to avoid being invested in. At the right price, I would consider buying the stock, but I will pass for now. I don’t see the 10x potential.
Alphabet has roughly $113.76 billion in cash and $109.12 billion in total liabilities. The company is worth $365.26 billion, so it could pay off all its liabilities and still be worth over $246 billion.
That’s pretty insane.
The majority of big tech – Apple, Meta, Amazon, Microsoft, Nvidia, etc. have more liabilities than cash. That’s normal. That money is actively in use. A quality company uses its cash to build long-term value. When companies use debt and leverage it responsibly, they can provide more cash in the future for things like a dividend, share buybacks, or continuous reinvestments in the business.
Although this is not the worst thing in the world for Alphabet, it is a problem. The leadership at Alphabet needs to be more efficiently aggressive instead of calmly inactive.
Sitting on a ton of cash only works during a recession, and recessions don’t last forever. Other competitors are making bold moves, and although many will fail, those that succeed will be able to take away meaningful market share from Alpahabet’s core business if they remain stagnant.
Alphabets hoarding strategy reminds me of a talented doctor with a high income and a ton of savings but little investments. If that hefty salary keeps coming in, it works, but many doctors have impressive wages but so-so-accumulated wealth. A doctor with a high salary who produces just average investing results should have easily $10-20 million by the time they retire. The net worth of the average doctor is only around $1-5 million.
A doctor’s annual income tends to be 3-4 times the yearly income of the average American household, so a net worth of $1-5 million is just…. “meh.” Compare that with a teacher or plumber with a $1-5 million net worth.
Alphabet needs to be more active instead of just sitting on the revenue produced from its core businesses. Google Search is a continuous revenue stream, but any disruption could seriously cause a dent in the empire.
My message to Alphabet’s CEO Sundar Pichai: Stop with this scarcity mindset and beef up investments in the Other Bets division. The good news for Alphabet shareholders is that having a lot of cash is a problem but an easily fixable problem. It is not an existential crisis, at least not yet. I see this as a small roof leak requiring a patch-up. Alphabet still has a lot of data and a one-stop-shop digital ecosystem. Parking your money in Alphabet stock is safe, with a moderate amount of upside.
Pichai’s seat should be getting warmer. Alphabet needs to go on offense now. If not, their board of directors should strongly consider replacing Pichai with a more action-oriented war-time CEO. Alphabet has the soldiers, ammunition, and resources to win the AI race, but do they have the right leadership? Time will tell.
“Artificial Intelligence, Leonardo da Vinci drawing style,” an image NVIDIA’s creative team created using the Midjourney AI art tool.
I really like Nvidia. This company amazes me with what it can do. It blows my mind.
What many investors underestimate about Nvidia is its importance to technology. Nvidia is to technology what the fire hose is to a fire department.
Nvidia’s GPU tools are used as digital shovels for crypto miners.
Nvidia’s A100 chips are now the engines used to train ChatGPT and other generative AI.
With any new technological advancements or innovations come new markets and revenue drivers. Whoever the winner in the space is, Nvidia will be there. The players’ names and buzzwords may change, but Nvidia will be there.
Self-driving cars
The Metaverse
Autonomous robots
That’s why you cannot just look at a balance sheet and value Nvidia properly. Their growth potential is nearly limitless. The free cash flow for Nvidia can double in a year. Nvidia’s technology is powering the next big thing you cannot forecast.
The big secret about Nvidia is that it will always be overvalued at any price. You invest in a company like Nvidia for 2028 and beyond. The company and what drives its revenue will likely be drastically different in the future. As an investor, if you do not like roller coasters, there are calmer rides to get on. Nvidia is a high-quality technology company, but its sector is volatile. AI is fast-moving. You cannot map it out in a DCF model. You aren’t valuing Starbucks or Visa. Artificial Intelligence Computing isn’t slow-moving or predictable.
When the stock price falls, you give them the benefit of the doubt, like if Stephen Curry were to go on a long cold shooting streak. The bounce back is inevitable. I am not saying to go out and buy the stock right now, but when you invest in Nvidia, you are investing in a best-in-class company.
Interest in Chat GPT was not even on the mainstream media radar until December 2022.
Analysis of technological change requires imagination and the ability to quantify unknowable wonders. You will not find this in most financial market analyses. Just remember how often Chat GPT was discussed on Bloomberg or CNBC six months ago.
America will continue innovating based on four factors:
Moore’s law: the theory that the number of transistors you can fit on a microprocessor doubles every two years.
Koomey’s law: the theory that the energy efficiency in computing doubles every two years.
Kryder’s law: the theory that the amount of data you can fit in one inch of disk drive doubles every 13 months.
Shannon-Hartley theorem: As long as you can create channels with greater bandwidth, you can transmit information more clearly and faster. The more bandwidth, which is theoretically unlimited, the better.
Most of America’s tech industry revolves around these four rules. Eventually, when these wind-down, new advances will take place, driving innovation and efficiency further.
With Nvidia, I stress patience. The company was founded in 1993 and nearly went bankrupt in 1999. Owning the stock in the early 2000s may have felt like owning an overpriced gas-guzzling car.
But patience did pay for early investors. Owning $1,000 worth of Nvidia stock back then would be worth over $9,000,000 today. That’s why my investing philosophy consists of holding stocks for the long term and holding them for dear life. Long-term investing consists of holding stocks during bad times and when everyone says it is overvalued. This strategy awards patient laziness. The longer you hold, the bigger your reward.
The buy-and-hold strategy may lack intellectual sophistication, but it works. Wall Street tends to look only 14-28 months out. The average retail investor has an even shorter window. This short-view investing window will not net you 3,000% or more gains.
Salesforce iPod in 2004, and analysts said its P/E ratio was “too high.” The stock has increased more than 30 times in value since then.
People sold out of Google stock in 2009 because its valuation was “too rich.”
People sold out of Amazon in the 2000s because the stock was “too expensive.
If you want a company that optimizes growth, you look at Nvidia. Companies that favor growth are making riskier future bets that may or may not pay off, but when they do, and in a big way, they become the envy of Wall Street.
Lastly, I trust Nvidia because I trust Jensen Huang. As long as he is the CEO, I will hold the stock. Huang is an excellent CEO because he sells you on substance, not style and flash. Huang isn’t the best orator or salesman. He’s a hard-working guy who cares deeply for his company and employees.
Nivida is considered one of the best public companies in how they treat their employees, customers, and shareholders. Their employees are loyal, passionate, and dedicated. Huang preaches celebrating failure and intellectual honesty. Many tech companies take too little risk. You will be stuck in the mud if you fear taking risks. Many companies embrace risk, but many of those companies’ CEOS have a pie-in-the-sky mentality.
Jenseng demonstrates a great deal of emotional intelligence. He comes off as incredibly grounded yet relatable:
“I was a very good student and I was always focused and driven. But I was very introverted. I was incredibly shy. The one experience that pulled me out of my shell was waiting tables at Denny’s. I was horrified by the prospect of having to talk to people. You want customers to always be right, but customers can’t always be right. You have to find compromises for circumstances that are happening all the time and you have difficult situations. You have mistakes that you make; you have the mistakes that the kitchen makes. You can’t control the environment most of the time. And so you’re making the best of a state of chaos, which was a wonderful learning experience for me.“
A CEO like Huang is built for tough times. He understands how to navigate a company during turmoil and press the gas during a boom. I am confident he will lead Nvidia to a $1 trillion market cap as the growth story for Nvidia is still early. Buckle up and enjoy the ride up.
I listened to Raissa Gerona, the chief brand officer of Revolve, on the Glossy Podcast. I had never heard of the Glossy Podcast before, but it looks worth following on Spotify. Since Revolve is the biggest position in my portfolio, I would like to give my thoughts on Revolve before the Revolve Festival.
I recommend any shareholder of Revolve listen to the episode. It was very informative and gave a good primer on the state of the business.
Influencer marketing is still early.
Influencer marketing may seem oversaturated, but it’s still in its early stages and has doubled in size since 2019. The bigger the market grows, the better it is for the business and the stock. This type of marketing allows companies to engage with their customers on a personal level. User growth for Instagram and TikTok is expected to be steady for at least five years, so I don’t see any cause for concern about this form of advertising in the next decade.
“As someone who’s worked there for 11 years, it gives me peace of mind knowing that we have very senior leadership that understands the ebbs and flows of the business, and that’s gone through multiple recessions and obviously Covid — we’ve never experienced anything like this before. In 2019, we were doing $500 million in [annual] revenue, and then we just crossed $1 billion in revenue in 2022. “
The threat of TikTok being banned in the US is real, but Revolve has a strong presence on Instagram and YouTube shorts. If necessary, they have the team in place to pivot to where their customers spend most of their time.
The festival will have a fifteen-foot sunken UFO – whoa!
Looking at Revolve long-term, I see them opening up a flagship store in Los Angeles within the next five years. They should prioritize international expansion, Web3, and men’s wear. If a strategic acquisition target is available, they should pursue it more aggressively. 2023 is a good year to take on more obligations if it leads to meaningful future growth. Valuations for buyers are much more attractive than in the past few years.
Overall I see Revolve in a good position. They have a loyal customer base, and I see them capturing more female gen z clients, especially those born after 2000.
Free Cash Flow Problem?
Revolve’s Free Cash Flow influx mirrors that of Amazon. Revenue was up for these companies, and free cash flow was down.
Free cash flow is the cash from operations minus capital expenditures. Although free cash flow was down due to increased CapEx, these investments in brand marketing and fulfillment centers will produce a positive ROI. Forgoing profits for growth and expansion is a winning strategy in the long term. I would rather see a company invest than sit on cash. When the economy improves and demand returns, those investments will likely pay off and be reflected in the balance sheet.
Stock price vs. Intrinsic value.
The stock price of Revolve is publically available for anyone to view. The intrinsic value of Revolve is subjective, based on qualitative and quantitative factors of the business. I always go back to the great quote from Benjamin Graham: In the short run, the stock market is a voting machine, in the long term, it’s a weighing machine. This means that in the short term, the stock price may be influenced by sentiment, news, and market trends, but in the long term, the stock price will reflect the true value of the business.
Many investors, even good ones, make the mistake of following the stock price and letting the price movement dictate their thinking on how the business is doing. Like other e-commerce platforms, Revolve is currently mispriced and undervalued. Growth companies, particularly in e-commerce, are often grossly overvalued or undervalued based on future free cash flow.
Netflix’s stock price hovered around 175 in the summer. In March, it was trading at over 345.
Meta’s stock price hovered around 90 in November. In March, it was trading at over 200.
Nvidia’s stock price hovered around 145 in December. In March, it was trading at over 275.
Based on the stock price falling dramatically last year, you would think these three companies were distressed. It is hard to believe the intrinsic value of these three large companies changed that much in a few months.
The stock price dictates public sentiment, but the intrinsic value can take a while to metastasize and reflect for shareholders. It would help to ignore the noise because most stock analyses and commentary you see daily do not matter.
How I view investing:
The intrinsic value of Revolve is worth at least 100. Will that be reflected in the stock price? It will likely happen before 2030. Thus, I have never sold any positions I have accumulated over the past four years. That’s the bet I am making.
I can live with the stock price going to zero (unlikely). That’s the risk of investing. The good news is that is the worst-case scenario, or is it? What’s worse, buying a stock and watching your investment go to zero or buying a stock, doing the research, having the conviction, but selling too early and watching the stock generate 100x or more returns. The latter scenario for me is the worst-case scenario. Ask investors who held Amazon in the 2000s but sold because the stock was “too expensive” or those that sold Google in 2008 because the P/E ratio was “too high.”
Investors will make a lot of mistakes. People make a lot of mistakes in their life. 99.9% of them, you can recover from them. With a losing investment comes a lesson to learn. The biggest tragedy in investing comes from missing out on gains in something you believed in but didn’t have the patience in to reap the rewards. That would be a deep regret of mine.
Great investors will fail. With great success comes failure.
LeBron James has been to the NBA Finals 10 times. Six of those times, his team lost.
Tom Brady has been to the Super Bowl 10 times. Three of those times, his team lost twice to Eli Manning and once to Nick Foles!
Aaron Judge hit 62 home runs in 2022 and struck out 175 times that season.
Success comes with failure, but if you succeed enough times, those failures don’t become deep lifetime regrets. That’s why I am not a big fan of index investing. Index investing still carries risk but produces muted gains. The entire mantra of index investing is that active investing is too hard or unpredictable, so you shouldn’t try. I’m afraid I disagree with that philosophy; it would be like saying dieting is too hard, so you should take diet pills or supplements instead of trying to eat healthily.
I expect Revolve to be a big-time winning investment. I bypassed other lucrative opportunities like adding to my Amazon position or starting a new position in Lululemon and Louis Vuitton. Will it pay off?
Based on my research, I believe Revolve has a solid competitive position in the fashion industry and strong growth potential. Their focus on influencer marketing and customer engagement through social media has been successful and will likely continue to drive growth. Revolve is a good investment opportunity for those interested in the fashion industry and the potential growth of influencer marketing. While the stock price may fluctuate in the short term, I am optimistic about the company’s long-term prospects and see them as a strong player in the industry.
2020 and 2021, due to mainly the pandemic, were not standard years and must be considered anomalies. Those numbers might be a glimpse into the long-term future but not something you can expect in the next few years. 2022 although a lousy year with rising interest rates and the Ukraine conflict, should be considered a typical business year.
For a company like Revolve, compare their numbers from 2022 to 2019 instead of the last two years. 2022 was a bad year for the economy, whereas 2019 was a good year. If the crucial numbers like revenue, sales, active customers, and average order value in 2022 are better than in 2019, that’s a strong sign the company is doing well. If the opposite is true, that could be a sign the company is going in the wrong direction.
That’s how I look at growth companies. Revolve for 2022 had almost doubled the number of active customers, total orders placed, and net sales from where they were in 2019. With nearly twice the number of orders, the average order value has increased, a sign of a strong brand.
Bottom line: The 2022 numbers for Revolve are above the 2019 trendline.
Not everything is rosy. Some of the numbers are pretty bad. Macroeconomic issues hurt Revolve as they are not immune to inflation or rising gas prices.
When prices increase, consumers decrease their spending on non-essential items like apparel. There is no question Revolve will suffer, but I predict it will weather the storm of an economic slowdown better than its competitors. Before the pandemic, companies like Nordstrom, Macy’s, and H&M struggled. These high-end department stores have a laundry list of problems. Take Nordstrom, for example. They offer nearly a 4% annual dividend yield, which siphons funds to shareholders. This only makes sense if the business is healthy. This type of dividend for a struggling business is the equivalent of an unhealthy person donating blood. The old guard has a bunch of debt, stores, and employees. Revolve has none of these financial obligations, where its profits go straight towards fortifying its brand and investing in its logistics.
Strong Brand leads to Customer Loyalty + Consistent demand/Profitability
Revolve has Pricing Power. With PP, you can sell items at full price but avoid any long-term inventory glut
Revolve will emerge as a big-time winner and an industry leader when the economy improves. Like a high-end jewelry brand, Revolve will have consistent profitability, pricing power, and margins. The stock will be a hero based on the brand alone. If they continue to improve their digital infrastructure, it will allow them to create a deeper connection with their loyal customers and eventually create a cost advantage. If Revolve can replicate the Nike playbook, the stock will 10x relatively quickly. The stock remains a solid long-term hold.
One must go on working silently, trusting the result to the future.
Vincent van Gogh
Where does one start to become an investor? The pathway is not straightforward or a step-by-step process like other “careers.”
To become a doctor, you typically news to follow a specific pathway:
Earn a bachelor’s degree.
Earn a medical degree or osteopathic degree.
Pass licensing exams.
Complete a residency program.
Complete a fellowship program.
Pass all necessary exams.
Obtain a medical license.
Continuously renew license renewal and participate in continuing education.
To become an investor, you typically need the following:
Open a brokerage account.
Buy an investment.
Sell an investment.
There are a lot more steps in how to be a real investor. I’ll add some helpful steps and advice.
Investing is more behavioral than a skillset.
Successful investing does not require a high I.Q. or extensive education. Patience, memory, and observational skills are needed to be a good investor. Investing should be viewed by probabilities and not possibilities. In the long term, investing is like a casino where the statistical chances are in your favor. In the short term making predictions is more like roulette.
Some people think the behavioral aspect of investing is mobo jumbo, but ask yourself why the average holding period of stocks is just six months or less. How does an investor go from being a full-fledged long-term investor to selling your entire portfolio based on CPI data or spy balloons? You have probably heard the famous Warren Buffet story: Amazon founder Jeff Bezos once asked Warren Buffett: “You’re the second richest guy in the world. Your investment thesis is so simple. Why don’t more people just copy you?” To which Buffett replied, “Because nobody wants to get rich slow.”
That’s why I do not look at investing as a skillset but as a process that you need to experience firsthand to understand fully. If you are a parent, try asking someone single how to raise children. Almost anybody can provide the textbook definition of parenthood, but you will likely only understand it contextually once you become a parent yourself and experience it firsthand.
Long-term investing is a highly probable winning strategy that requires investors to witness massive downward spirals in their net worth. How one handles it is based on temperament rather than logic.
Finances are personal.
For many people, money is more uncomfortable than sex, politics, and religion. That could explain why so many Americans do not talk about finances and likely contributes to why we are so bad at managing it.
In investing, you are not in competition with Bill Gates, Elon Musk, or your rich neighbor. Your biggest enemy for finances is often the thoughts in your head. Like maintaining a healthy lifestyle, one must personalize investing to your goals and needs. Everyone has different diets and lifestyles. There is no best way to invest because everyone handles volatility and risk differently.
Investing has always had an undeniable link to luck.
Doctors, engineers, or professors do not want to hear this. Intelligence may hurt you as an investor. The truth is the janitor is on even footing with the brain surgeon working at the same hospital. Investing isn’t a high-IQ game. The technical skillset required to be a brain surgeon doesn’t translate to successful investing. The janitor can succeed if he has the correct behavior and mindset. Ask Ronald Read.
Investing is a game of probabilities, but even doing the right thing can cause you to lose money. Going all-in with a full house is statistically the right decision, but it gets beat by a royal flush every time.
Daily stock movements are unpredictable, yet analysts try to make sense of these movements, even marginal ones, with near certainty. Stock prices act like a roller coaster or whipsaw. Instead of trying to analyze the minutiae of volatility, I like many others, preach long-term investing. It puts the probabilities in your favor, and you avoid external noises.
From my observation, I see two significant problems really “smart” people are doing in the market. First, people need to focus on the goal of investing: making money. The stock market isn’t a place to make ideological statements or boast about your ego. Politics and religion are an endless black hole because there is never a clear winner or loser. There is nothing wrong with having strongly outspoken beliefs, but it has no place in your portfolio as it provides no competitive advantage in the financial markets.
Secondly, many intelligent people in the market make dumb decisions because of arrogance. There is a thin line between confidence and arrogance. Many smart people fool themselves by thinking they know things that are not knowable or predictable. Having vast information or research knowledge doesn’t translate to bigger returns. The most intelligent person in the room isn’t necessarily the one with the healthiest diet or the most successful financially. One of the best examples of a smart guy outsmarting himself and making a lousy decision is Steve Jobs, a brilliant entrepreneur who died too early, most likely because he couldn’t follow the advice of his doctors.
Simplification over Sophistication.
“The greatest enemy of a good plan is a dream of a perfect plan.”
Carl von Clausewitz
“The simplest solution is almost always the best.”
Occam’s razor was named after 14th-century logician and theologian William of Ockham.
How many people know all 613 commandments from the Old Testament? The majority of people remember only the first 10. You can even simplify the Old Testament as loving your neighbor as yourself.
Having a simple investing strategy is often the best strategy. Higher education rewards complex ideas and theories, but investing is a different animal.
Many successful investors would agree on the benefits of simplification, and most importantly, it keeps you sane. When you are confused and scared, you are more likely to make obvious mistakes. Even a small amount of anxiety can choke a vast amount of intelligence.
Outside of a rough snapshot, I don’t care about GDP, industrial production, retail sales, consumer spending, manufacturing outputs, imports, exports, etc. I tune out the noise. I am not an economist. I am an investor. The majority of economic data releases are non-factors. Even quarterly earnings reports are sensationalized as big events with significance and importance. Trying to make sense of all this is maddening and fruitless.
Understand how consumer behavior works, and find companies that generate free cash flow. Companies that can reinvest that free cash flow and expand the value of the enterprise in the future will likely be big winners.
Find order within chaos or stand still within a fire. Life is endlessly confusing and agonizing. Those that can maintain homeostasis within chaos will be the most successful.
Passive investing should not mean set it and forget it.
I recommend all investors watch 1-3 hours weekly of more traditional finance news channels like CNBC and Bloomberg. Watching too much financial news is a time-waster, but you at least must understand the general sentiment of retail and institutional investors and learn Wall Street vernacular.
Like how doctors participate in continuing education, investors should try to continue their education. Read or download an audiobook every quarter. I would avoid “How To” books about day trading or getting rich. Anything from Peter Lynch, Kenneth Fisher, and Joel Greenblatt are all winners.
You can explore less traditional sources for investments like youtube or Reddit once you are grounded with at least a base of solid financial knowledge from people that know what they are doing.
Balance is everything in life and investing.
A great investor must find a balance between obsessively looking at their portfolio daily and being too passive.
Have confidence but not arrogance.
Have a plan but be flexible and open-minded.
Investing is an art and science; you need to find the balance. Like improving your overall health, no one needs to run 5 miles daily to maintain fitness. It’s also okay to occasionally eat cookies and cakes, but not overindulge.
It would help if you had balance because it’s an assortment of uncertainties regarding investing and the economy. The dilemma in financial markets is that people are suckered into those who speak in certainties rather than probabilities. Certainties do not exist legally in the stock market.
It is okay to make mistakes.
“The risk of a wrong decision is preferable to the terror of indecision.”
Maimonides, Jewish Rabbi
Warren Buffett once said he’s owned 400 to 500 stocks during his life and made most of his money on 10 of them. Charlie Munger followed up: “If you remove just a few of Berkshire’s top investments, its long-term track record is pretty average.”
It is okay to make mistakes in investing, a lot of mistakes. Evaluating stocks from good vs. bad companies to cheap vs. expensive is subjective, and the odds are not in your favor to be right all the time. In investing, precise answers are not realistic or possible. Besides making money to achieve that goal, you need to learn from your mistakes and minimize them.
Everyone needs to create some room for error because if you have a long enough time horizon, the odds increase of a low probability infrequent event from happening. For company x to go from price y to price z, it cannot be predicted accurately in a flow chart.
Think exponentially.
Most of the writers portrayed an expansive future. But not George H. Daniels, a man of authority at the New York Central and Hudson River Railroad, who peered into his crystal ball and boneheadedly predicted:
It is scarcely possible that the twentieth century will witness improvements in transportation that will be as great as were those of the nineteenth century.
Elsewhere in his article, Daniels envisioned affordable global tourism and the diffusion of white bread to China and Japan. Yet he simply couldn’t imagine what might replace steam as the power source for ground transportation, let alone a vehicle moving through the air. Even though he stood on the doorstep of the twentieth century, this manager of the world’s biggest railroad system could not see beyond the automobile, the locomotive, and the steamship.
Three years later, almost to the day, Wilbur and Orville Wright made the first-ever series of powered, controlled, heavier-than-air flights. By 1957 the USSR launched the first satellite into Earth orbit. And in 1969 two Americans became the first human beings to walk on the Moon.
The world in the future will look drastically different from the world today. Compare 1923 with 2023. No one can accurately predict the future, but that doesn’t mean the future will follow a linear, step-by-step progression.
The problem with being really smart is that you can often think you know better than everyone else. Notice how the future is often forecasted with linear thinking, but when we look at history, it is driven by exponential, low probabilities events. How is history a description of impossible events becoming possible, yet you will hear future forecasters lay out the future in a predictive map?
A successful investor needs to have an exponential element in their portfolio. If your entire portfolio consists of index funds, you are either selling yourself short or fooling yourself with a false sense of financial security. There is no need to sacrifice your gains when you don’t have to. Index funds are the equivalent of accepting a plea deal when the risk of conviction is low.
As an investor, you must look at investing ideas as a scientist. Take other views and opinions, put them in your laboratory, and see what works.
Stop with Groupthink.
I always voted at my party’s call, And I never thought of thinking for myself at all.
H.M.S. Pinafore: When I Was a Lad Song by Arthur Sullivan and William
Groupthink, or investing based on a consensus, is one of the investors’ most common mistakes. Investing isn’t a consensus-building activity; it is an individual game like chess or golf. You will likely get mediocre results if you approach your portfolio as a politician approach legislating.
The greatest thing about investing in your portfolio is that it’s yours. You can do whatever you want. It reflects your personalized goals. You can invest as much or little, heavily diversified or concentrated; it is up to you.
In politics, the goal is not to be an outlier. Politicians need safety in numbers to get bills passed. When you lose the numbers, you lose job security. In almost any job, you must accommodate and compromise your wants with the employer’s needs to stay employed. The financial markets are a different beast. The more ambitious your goal is, the more you want to be an outlier. In running your portfolio, you are the boss and reap all the gains. You cannot be a long-term investor and follow groupthink/consensus because, eventually, the sentiment changes. If you can’t think for yourself, you will betray your goals and principles.
Obtaining and maintaining wealth can be summed up in two principles.
Delayed gratification and having fewer wants than needs.
If you haven’t heard, Coupang is the “Amazon of South Korea.” In many ways, it is out Amazoning Amazon by offering overnight deliveries. If you order something like fresh lobster or a birthday cake before midnight, it will likely show up at your door in the morning or sooner. Think of Coupang like Amazon and Uber Eats having a baby.
When evaluating an e-commerce company, I first want to see if they have a moat. Does the company have a robust end-to-end network, well-developed fulfillment infrastructure, and the technology to integrate it all together?
The high costs of logistics investments are massive in building a moat. As we have seen with Amazon, Alibaba, and Mercadolibre, once you have a moat, you have a safety buffer or a de-risked business.
A 5-10 year head start over competitors as building an end-to-end logistics network from scratch is expensive.
A strong logistic network can lead to lower costs, a strong brand name, and a network effect.
Ability to leverage customers from the core retail business to sell them other products and services.
For the reasons above, Coupang has a moat and is Amazon-proofing its business from the company it copied.
Look at Amazon. To compete with Amazon and pull Prime Subscribers away, you must offer a service or experience significantly better than what is already available. You can only do this with a fulfillment infrastructure and a controlled in-house fleet. Amazon also has a home-field advantage as they know the region of North America better than a company based overseas. Laying down the groundwork to build a logistics network is too capital-intensive for even a large company to commit, making Amazon’s moat likely safe.
Mercardolibre has a moat in Latin America. Amazon has the resources and capabilities to take market share away from Mercadolibre, but that would not likely happen. The largest e-commerce markets in Latin America are Mexico and Brazil. Mexico and Brazil are not among the world’s top ten largest e-commerce markets. Amazon is amazing, but even they have to curb spending. Pouring money competing against a worthy competitor in Mercadolibre would move resources away towards more profitable regions like Germany, UK, Japan, and India.
Look at a fulfillment network similar to a foundation towards a home. Coupang has invested $4.69 billion over the past 12 years in establishing an in-house logistics network. With the home base covered, it gives Coupang the map to expand into Japan, Taiwan, and possibly other markets in Southeast Asia.
Coupang has a similar market cap to Sea Limited, another e-commerce company in Southeast Asia. I prefer Coupang as an investment mainly due to its more substantial foundational base. Sea Limited has already retreated from France and the majority of Latin America. For them, expansion was too much, too quickly. They will likely have to re-invest to fortify their core operations to fend off competition from Coupang and Lazada (funded by Alibaba). This will be more costly now than they had this been done years ago instead of expanding in outside markets. Coupang can take on more risk, while Sea Limited will need to be more cautious.
I don’t see a strong moat for Sea Limited. I am not saying Sea Limited is a lousy investment. However, they are something other than a true e-commerce play, more of a gaming play with Garena, their gaming platform.
Coupang is a good investment due to its strong core logistic apparatus, which gives them the blueprint to capture markets overseas instead of retreating like Sea Limited. They will not overtake Amazon in market cap or even come close. However, analysts are also vastly underestimating the South Korean market.
South Korea is the crown jewel of eCommerce. By 2025 South Korea will likely be the third-largest eCommerce market in the world, behind only China and The United States. That is impressive for a country the size of Indiana. It is a small country that packs a massive punch. Having a dominant market share of South Korea, which has a high gross domestic product per capita, is more significant than having a dominant market share of 3-7 smaller countries in Southeast Asia.
The average Korean worker worked 1,915 hours last year, the fifth-longest among 38 OECD (The Organisation for Economic Co-operation and Development) member countries. Koreans have very little leisure time and will pay a premium for convenience. There is still a lot of juice to squeeze from South Korea. Coupang already launched Coupang financial and Coupang Travel recently. It will be exciting to see if their business can expand into something like Travelocity or a bank. The stock is undervalued just for the growth in South Korea alone.
Suppose Coupang continues to dominate South Korea and finds new regional markets with high urbanization, population density, and a well-developed digital infrastructure. In that case, the stock will be a big-time winner.
I am also making a bet on Bom Kim, the CEO. For an immigrant CEO, Kim is very Jeff Bezo-esk. I am an investor who puts a lot of weight on the company’s leadership. Strong leaders with savvy and grit can flip the script and make the improbable probable. Leadership is not something you can typically spot on a balance sheet or 10-K, but for a growing startup, it matters.
Kim has the rare trait of someone with a long-term vision but is not afraid to pivot in response to unpredictable market conditions. With Bezos and Jack Ma no longer running their empires, Kim has a chance to cement himself as the next great founder-led tech CEO.
Coupang investor checklist:
The overall growth of eCommerce revenue continues to grow.
Coupang is in the best market for eCommerce sales outside of China and the United States.
Founder-led CEO with the characteristics of a visionary has a ton of skin in the game.
It diversifies its business model by entering new industries that complement its core operations.
Expanding overseas will be costly but could be what boosts this stock to an astronomical valuation.
Well-known investors like Bill Gates, Stanley Druckenmiller, and Bill Ackman have been backers of Coupang. These investors wouldn’t have taken such a significant position if they didn’t do a lot of due diligence.
Invest in Myself 