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The service has helped me a lot for their picks, stock picking instruction guides,forums and other information. For $99 they have great reviews of companies, much better than I could find for free and are a well reviewed stock advisory service. They have 10 core stocks of familiar blue chip names they review each year that have easily beaten the market designed for beginner investors really that you can't go too wrong with even if you want to just have that as a portfolio.

Then it is up to you to decide among the others for type, sector etc where you have to do your own research and keep in mind the timing of their recommendations, they aren't infallible and will miss at times too. There is nothing nefarious about what they do as they track and post their results transparently and are generally just very enthusiastic about finding good investments.

I don't like their marketing emails either but you can unsubscribe and just get the stock picks and other monthly reports. They should make the free site better and less marketing oriented too. The subscription service's success is almost in spite of the free site.

Their recommendations on the growth stocks which was a newer area for me were really helpful. At least now w some metrics I can sort of sift through the 100s of ecommerce and other tech stocks growing sales at 20%+ per year and get some idea which have value as it is daunting otherwise.

I think indexes are still fine and they have advantages like being less stressful and still hold many ETFs. Both approaches are good and depend on your risk profile and I may have been a little cynical in response to some of the outright dismissions of stock advisory services. For me I am mainly swapping index ETFs for blue chips w a mix of ~ 35% in growth stocks, 65 % in blue chips,utilities,stable dividend payers etc so still being conservative. For now the returns have been good w their picks and my own so we'll see how this goes too but so far so good.
 

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The service has helped me a lot for their picks, stock picking instruction guides,forums and other information. For $99 they have great reviews of companies, much better than I could find for free and are a well reviewed stock advisory service. They have 10 core stocks of familiar blue chip names they review each year that have easily beaten the market designed for beginner investors really that you can't go too wrong with even if you want to just have that as a portfolio.
No problem with getting reviews and commentary. Probably lots of good information available to their subscribers.
 

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Canadian bank known for a "Wealth Management" division.
All of the big5 have a wealth management division...





 

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This was written in 2016.


Morningstar identifies 1404 mutual funds with 15-year track records. How many of them performed better than David’s Stock Advisor selections? ZERO. NADA. Goose egg. That’s right. The top performing fund is CGM Realty (CGMRX), a formidable fund that checks in at 14.9%. It’s not an accident that Mark Hulbert features the Stock Advisor newsletter as one of the best.
 

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All of the big5 have a wealth management division...





 

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I just wanted to show you guys that Motley Fool is not only about wrong marketing strategies, there's value that can be found in such a service. Does that mean you should buy a subscription? No, it may not fit your needs. Maybe you don't need investing ideas. For instance, I'm just testing to see their picks for a year. Maybe you don't need another forum to talk about some stocks. That's all good. I totally agree. But don't make the picture all black or white.

But does that mean the Motley Fool staff is just throwing garbage at their customers? No.

See, on Motley Fool forums, there's a thread about Acuity Ads (AT.TO) because it was one of their picks and it soared more than +1000% in less than one year. Now, people are all excited.

Here's two posts of a Motley Fool staff member to some of that excitement.

Maybe their marketing is wrong because it's all about the over-excitement, but the staff on the forums are doing it right.

Jim Gillies said:
Hi craftyone,

My question is why trim even if AT has become a large % of your portfolio? Are we not still essentially in the early stages of this company with a really long runway?

We haven’t even begun to see the positive news on illumin and with an impending announcement of a NASDAQ listing I’m not sure I will rush to sell any of my position at this time. Is that wrong to feel that way? lol”




So here’s the thing.

What if I’m wrong?

What if this whole thing collapses? What if there IS no Nasdaq listing? What if illumin is a flop?

Understand, I’m not saying think I am wrong. I’m asking “what if?”

There’s a portfolio management principle called “The Prudent Man” – as in, “Would a prudent man do this?”

It’s supposed to be intended as a general guideline for someone managing assets of value for another person or people, but I think it can/should apply to one’s own portfolio as well (and it is obviously going to be a different answer for every person).

Ask, “Is my current allocation ‘prudent’? Am I adequately balancing upside potential with preservation of capital”.

A 70-yr old with Acuity as 25% of their portfolio is a very different case than a 30-yr old with Acuity as 3% of their portfolio is a very different case than a 45-yr old with 2% is a very different case than a 55-yr old with 15%.

Or to steal from one of my U.S. TMF colleagues when asked how he eases into positions, “If I’m wrong, a little is all I want; if I’m right, a little is all I need.”

It’s FAR TOO EASY for people in possession of a home run stock to fall prey to thinking, “This is just the beginning!” It’s a version of focusing on the “reward” side of the “Risk/Reward” duality, and discounting the “Risk” side.

I could tell you stories of people who fell prey to this thinking….particularly when I ran Motley Fool Options which specifically deploys investment vehicles that can create a lot of profit/damage in a real short period of time. I’d encourage you (and everyone else) not to follow them.

But I’ll leave you with this story, and what you do with with your portfolio/position is what you do…

—————————————————————————————

I have a friend who put a significant amount of money into a stock that I do not think highly of. (If you must know, it’s the third stock discussed in this article: Log In ‹ The Motley Fool Canada — WordPress )

Here’s the thing though…about5 years back, that stock (briefly) caught fire. Got written up in a bunch of “pump and dump” newletters…had a quite a few write-ups on SeekingAlpha. Had a dedicated (I might suggest, “cult-like”) following on some stock message boards. Stock basically 6-bagged in 6 months.

My friend was giddy. My partner was staying at their house (she used to work in Toronto and rather than suffer through traffic every day, would usually spend a night or two a week in the friends’ guest room) and she told me that the stock price was all they could talk about the night she was there. They were explicitly expecting the good times to keep on rolling, and forecast that the next day was going to see the stock hit a milestone price. There were (serious) expectations that the stock would reasonably 20-bag over the next three years.

My partner asked if they’d pared back at all? (They’d put a large part of their available funds into this stock – like, somewhere between a third and a half…which is kinda dumb in and of itself…but it’s up massive, so…).

Absolutely NOT! They weren’t going to sell a share before the next 10- or 20-bagger!

The stock never hit that milestone price.

In fact, it drifted down, and their story kept changing. Euphoria at the top gradually gave way to anxiety at the stock headed down. At 10% below the high, they were talking about it being a “temporary set-back”. At 20% below the high, they talked of being “long-term investors”. At 30% below the high, they said, “Yeah, we were kinda dumb…when it gets back to [Previous High] we’ll take our cost basis out” (note: cost basis was ~1/3 the previous high). At 50% down, they started talking about retirement being delayed a few years.

At about 70% down (so about 10-15% below the average cost – at least in the female side of this couple…she was the one sharing info with us and was less of a “True Believer” than her husband) her stop-loss order she’d had kicked in and she sold most of her stake (she still has some; her husband probably still has nearly all he’s ever purchased; I think he’s added all the way down as well).

The stock today is about 30% below where she got stopped out. In their most recent quarterly report they included “going concern” language for the first time as, at their present quarterly burn rate, they likely don’t have the cash to last the next year. Somewhat inexplicably, they’re up 5% today. So it goes.

—————————————————————————————

Understand, this story ISN’T the AcuityAds story (obviously). This story that focus on a company that I’d never have gone near in the first place; that fails practically all of the things I look for/like to see in the companies I recommend/invest in personally.

But hopefully this story DOES impart some thoughts on getting too excited about an opportunity; about thinking that the “good times” are both entirely deserved AND going to continue for the long term.

Understand – I’m thrilled about what’s gone on with Acuity (I’m not unhappy about what it’s done in my personal portfolio as well). But if you’ve got, say, 20% or 30% in this company, and you’re justifying that to yourself saying, “Are we not still essentially in the early stages of this company with a really long runway?” I’d respectfully suggest that you look into that “Prudent Man” concept.

My $0.02.

Best,

Jim

Jim Gillies said:
Hi eDixit,

“A related follow-up question on allocation and watering flowers (I might also ask on SAC Forums later):

People love to say “water your flowers, trim your weeds”. People also love to champion that you shouldn’t let a single stock be much greater than 10% of your portfolio.

So if you happen to pick a winner, and it starts growing, when the heck do you water it??

I bought TTD back in June for a 5% allocation by book cost (it’s an MFUS starter stock). It’s since doubled and adding to this winner at this point would be adding to a stock which is already >10%. Any thoughts on this?

For AT, it’s less of a problem since it only went from 2%->3% so I can add at some point over the next month or so.

If it makes any difference, I’m early 20s with around 30k capital.”




So, there are some good questions here and I’ll try to give you some passable answers (even though I really should writing up Friday’s HG rec…call this procrastination).

I’m also going to try to make you think; and even perhaps to scare the life out of you. Let me know how I do.



I like to say that if I had to distill what I learned in engineering school to a single line it’s that all questions are open-ended, and if I had to distill what I learned in business school to a single line, it’s that the answer to all questions is, “It depends”.

And that’s kind of what I’d offer to you. “It depends”.

Should you sell a winner or add to it (or just hold)?



It depends. And the answers are open-ended (in that they generally lead to more questions) What was the original thesis? How is reality unfolding versus that thesis? What is the valuation today versus the start of the position? What valuation is justified? How do you know?

And so on.

A position has grown to >10% of your portfolio. Should you pare it back or let it run?

It depends.

What is the valuation today versus the start of the position? What valuation is justified? How will you feel if you take a 50+% DROP from today’s price? How would you feel if you round-tripped a 10-bagger back to your original cost basis? No, really – stop and think how that would feel.

I’ve been there. I’ve seen it in others. And it sucks.

As in, it sucks so bad, it may negatively impact your emotional state. I can almost guarantee that you’ll forego trimming on the way up/at the top because a stock is blowing away your expectations, and I can similarly guarantee that you’ll later capitulate and sell at a much cheaper price just to make the pain stop.



The “Cycle of Market Emotions” is real. I suggest printing off a copy of the graphic at this link, framing it, and mounting it on your wall.

My own take on the present market is that we are currently in the ‘Excitement-Thrill-Euphoria’ stage of that graphic. You’ll note that there’s no timeline on the X-axis of the graph – meaning, there’s no required length of time these stages can happen/take.

Now, you’re also in your early 20’s. You’ve got LOTS of time ahead of you. That’s your greatest asset in fact.



But, and no offense, you’ve also never seen a “real” bear market. You’ve never seen the “Desperation-Panic-Capitulation-Despondency” portion of that “Cycle of Market Emotions”.

You just haven’t.



Sure, the market dropped 35% in March…but then ricocheted right back and went higher – no harm/no foul.



How old were you during the Credit Crisis (which I’ll define as March 2008-to-March-2009…the implosion of Bear Sterns-to-the-market bottom…though you could argue things were unravelling in the housing market as early as Feb 2007). And sure, the market (measured by S&P500) dropped about 53% high to low during that period…but it then doubled off the bottom in about two years.



The last “real” bear market was in the wake of the bursting of the Tech Bubble – March 2000-to-October-2002 when, I’m guessing, you were in pre-school. I, however, wasn’t.

The S&P fell almost 50% over that period. The Nasdaq was down 78%. The TSX managed to keep rising through summer 2000 on the last gasps of Nortel euphoria, but once it rolled over in September 2000, it too was down 50% by October 2002.

Understand what that is: Two-and-a-half years of an unrelenting market grind-down. Two-and-a-half years where it largely didn’t matter what you bought…it was likely going to be cheaper in three, six, or 12 months later.

I am here to tell you – because I lived/invested through it – that that market environment was substantially less fun than where we presently find ourselves.

I am here to tell you that I know – personally – several folks who swore off investing for themselves for the next decade plus (if not for good).

I’m am here to tell you that I know – personally – an individual who, after 9-bagging (!) his portfolio in less than a year, saw that enlarged portfolio fall by 98% in value in the subsequent year (actually closer to 12 months). And funny thing – when you multiply an 800% gain (the return math of a 9-bagger) by a subsequent 98% loss, you end up overall down by about 84%.

I am here to tell you that I know – personally – another individual, this one then in his 50’s and eyeing retirement a few years afterward – that blew a 90-95% hole in his retirement accounts. (He’s lucky he was married to a gov’t employee with a guaranteed pension, else he’d probably be eating cat food today).

I’m also here to tell you that you’ll likely get to live through at least one of those types of markets during your investing career…maybe (probably) more than one.

In fact, in the interests of thoroughly depressing everyone, I think that the present market euphoria is likely sowing the seeds of future struggles (basic market cyclicality). That’s because the relentless interest rate decreases and persistent quantitative easing, not to mention the now-widespread belief that governments will intervene seemingly any time asset prices get “squishy” (which we saw in the wake of the March drop; which we saw in the wake of the Credit Crisis) has led to widespread risk-seeking behaviour, in my opinion. No price, it seems, is too high to pay – add to your winners!

Of course, the problem is no one knows when the present “enthusiasm” will turn to “fear/despondency”. Maybe it happens two years, and another 50% market run from here. Maybe it rolls over tomorrow. They didn’t ring a bell on 10-March-2000 to tell you the market had topped. Similarly, they didn’t shout “All clear!” on 9-Mar-2009. We simply don’t know.

Or maybe the market itself will be just fine, but individual stocks we own might take a beating for reasons either intrinsic (i.e. company specific performance related), extrinsic (i.e. market no longer willing to “pay up” related), or both.

And because we simply don’t know, we should take steps in our portfolios to mitigate downside risk.



Which then brings me back around to your “adding to a 10% position” question.

I would not add to a 10% position personally except in extremely rare cases (remember, the answer to all questions, “It depends”). Understand that a previously 5% position that became a 10% position did so because it outperformed the rest of your portfolio (I realize, that’s obvious). But further understand that momentum is “a thing” (see AcuityAds Holdings – last few days). It may wane and reverse (strike the word “may” – it will absolutely wane/reverse), but perhaps before it does that position continues to outperform and a 10% position becomes a 12% position…or a 15% position.

In other words, your large position “problem” may become an even bigger problem as you go through no action on your part; no need to supercharge that by “adding to a winner”.

Of course, it may not as well – but then that’s also exacerbated by adding to such a large position. Think about it…you have a 5% position that’s outperformed and become a 10%. You decide to “add to your winner” and take it up to, say, 12.5%. Then the stock gets whacked for whatever reason, and its down, say 30%.

With a 10% position, that’s 3% hit to your total portfolio; with a 12.5% position, that’s a 3.75% total portfolio hit.

Honestly, I think (particularly given your relative youth and portfolio size) the best thing you can do is be dedicated to adding money to your portfolio as frequently/as quickly as you can. In other words, today you’ve got something that’s grown to a 10% position…but given that you’re adding money every paycheque/every opportunity, perhaps, simply by wont of adding capital, that 10% position a year from now is back down to a 5%-to-7% position.



TTD: A Case Study

You specifically ask about TTD – a 5% position that has now become a 10+% position for you. I’ll answer with my thoughts which will probably break with Foolish orthodoxy and which you are free to ignore/mock, but there’s a big “undiscussed item” in that expansion from 5% to 10% of your portfolio, and that’s valuation.

TTD today trades for about 59x EV/Sales; 278.5x EV/EBITDA.



That’s rich. Moreover, those are essentially 52-week highs for valuation ratios.

Bluntly, I don’t think “adding to winners” at 52-week valuation high is a long-term winning strategy. I say that even as I acknowledge that it has been over the year. Sometimes momentum just takes over. But consider…



A year ago, TTD traded for: 18.7x EV/Sales; 74.4x EV/EBITDA.

Why can’t it fall back to those prior valuation ratios? No, really, why can’t it? Show your work.

At 18.7x EV/Sales on today’s numbers, TTD is about a $300 stock (so – a decline of more than two-thirds from here).

At 74.4x EV/EBITDA on today’s numbers, TTD is about $250 stock (nearly a decline of 73%).

Why are today’s valuation ratios more “correct” than a year ago?



Further, the valuation ratios of a year ago aren’t exactly the valuation lows for TTD. Over the past 52-weeks, TTD has traded for as low as 9.9x EV/Sales and as low as 41x EV/EBITDA.

Why can’t TTD trade back to those lows? (Again, show your work). If it did, you’d be looking at about a $160 stock (at the 52-week low of EV/Sales) or perhaps a $140 stock (at the 52-week low of EV/EBITDA).

And then, why should you consider those 52-week low valuation ratios a “bottom”? Is there a law that says TTD can’t trade for, say, 6x EV/Sales; for 30x EV/EBITDA?



Now, to dig a little further, go back to those valuation numbers from a year ago: TTD trading for: 18.7x EV/Sales; 74.4x EV/EBITDA.

Over the course of that year TTD’s stock has returned about 265.4% (closing price of $252.45 on Friday, 13-Dec-2019 to closing price of $922.42 on Monday, 14-Dec-2019). You can essentially break this return into two components:



1) Return due to company performance.

2) Return due to market participants willing to pay more for that performance.



Over the past year, TTD has grown revenue by about 21%. It has grown EBTIDA by just 1%. Had the market simply held firm at the multiples it was willing to pay for TTD a year ago (and I realize it cannot do both – sales grew faster than EBITDA…let’s run with that – lets run with sales growth in the interest of simplicity for this example), then return due to company performance (#1 above) would be 20.88%.



Now, a 21% return in a year is a perfectly acceptable return. In fact, given the long-term average of the stock market being around 10%-11% (with dividends reinvested), it’s arguably an outstanding return – the type of return that would be deserved by an excellent company firing on all cylinders, perhaps.



But TTD hasn’t given you a 21% return over the past year…it’s given you a 265.4% return.

The difference is in #2 above – Return due to market participants willing to pay more for company performance.

TTD closed yesterday at an EV/Sales multiple of 58.84x. It closed a year prior at an EV/Sales multiple 18.73x.

That’s a more than 3-fold increase. Specifically, it’s a 214.15% increase in the multiple investors are willing to pay.



There’s no way around it – the overwhelming bulk of TTD’s return over the past year has come from market participants (like you or I) being willing to pay ever-higher valuation multiples for TTD, and not from overall corporate performance. And I’m talking by more than a factor of 10-to-1 (i.e. 214.15% attributable to #2 above; 20.88% attributable to #1 above).



You can “chain-link” these two components of return to get to the overall stock return for the past year:



Total Return = (1 + Company Performance Return)( 1 + Market Pay-up Return) – 1

Total Return = (1 + 0.2088)( 1 + 2.1415) – 1 = 279.7%



But wait…this raises another complication. The return derived from the math above says that TTD shareholders should have a 279.7% return over the past year; instead we got 265.4%. What gives?



The answer can be found in the concept of dilution – most of which is tied back to equity rewards to insiders. As of the most recent quarter TTD has 46.945MM shares outstanding; a year ago, they had 45.121MM shares outstanding. That’s just over 4% dilution of your position.

Now, we think it fine that insiders are well-compensated – after all, look at the total return – TTD’s been a market-murdering investment – surely insiders should get paid. (They should). However, you must acknowledge that this does represent a drag on the return that you get. A rough approximation of the calculation is:



Total Return to Shareholder = Total Return * (1 / (Current Share Count / Prior Share Count))

Total Return to Shareholder = 279.7% * (1 / (46.945 / 45.121)) = 268.9%



You can see that this is closer to the actual total return of 265.4% – it’s sufficiently close that I’m not going to bother looking for that “other” 3.5 percentage points (I suspect it has something to do with the net cash as a percentage of enterprise value), but hopefully the point stands.



The Wrap-up

Presumably, investors have been willing to pony up a greater valuation not because of past performance (revenue growth over the past year of about 21% remember), but because of perceived future growth. Looking to CapIQ I can see that forecasts for 2021 expect revenue to rise by about 33% versus 2020, and by nearly 28% in 2022 versus 2021.

All else equal, that probably deserves a somewhat higher valuation multiple than existed a year ago.

But here’s the thing. Unless we see sharply revised upward revenue growth projections again, that component of the total return TTD has seen over the past year is unlikely to reoccur.

Remember, about 214 percentage points of TTD’s total return for the past year comes from investors willing to pay a significantly higher multiple for TTD’s future results.

If you assume that sales do, in fact, come in 33% higher next year than this year, then, assuming the present valuation multiple (nearly 59x EV/Sales remember) remains static, you’d expect a roughly 33% return a year from now (a stunning, wonderful, return, mind you), reduced by whatever dilution happens over the next year (note, 4% dilution again would turn a 33% return into about a 28% total return – still stunning when compared against the long-run average market return).



But expecting similar “investors willing to pay more” impact would require that the valuation multiple paid would need to go from that nearly 59x EV/Sales to almost 185x EV/Sales.



Possible? Sure. Likely? Nope. Crazy over-valued and primed for a subsequently crushing? Almost certainly.



Instead, what if the market decides that TTD is only worth, say, 40x EV/Sales a year from now (still a rich valuation and still well more than double the market multiple from this time last year).

If it does, total return will be zero from here. Any gains achieved due to rapid (~33%) revenue growth will be lost in multiple contraction. What goes up can, in fact, go down.



In summary – a 10% existing position in a highly-valued growth stock like TTD is a wonderful problem to have. But it’s not one I’d be looking to exacerbate by making my 10% a 15% because the stock’s been so good to me. Rather, I’d be looking at other companies that aren’t perhaps priced to such perfection – either new purchases or adding to ones I already owned but weren’t so “enthused” by Mr. Market.

My $0.02.

Best,

Jim
 

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I just wanted to show you guys that Motley Fool is not only about wrong marketing strategies, there's value that can be found in such a service. Does that mean you should buy a subscription? No, it may not fit your needs. Maybe you don't need investing ideas. For instance, I'm just testing to see their picks for a year. Maybe you don't need another forum to talk about some stocks. That's all good. I totally agree. But don't make the picture all black or white.

But does that mean the Motley Fool staff is just throwing garbage at their customers? No.

See, on Motley Fool forums, there's a thread about Acuity Ads (AT.TO) because it was one of their picks and it soared more than +1000% in less than one year. Now, people are all excited.

Here's two posts of a Motley Fool staff member to some of that excitement.

Maybe their marketing is wrong because it's all about the over-excitement, but the staff on the forums are doing it right.
Their forums are great for stock discussion and information. As you see in SAC there are ~ 160 threads one for each stock they cover but 100s more started by other posters on other stocks. You can find information usually on any stock you want w the search too. Lots of good free advice form the other posters and advisors on investing in general as well .
 
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