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A High-Reward Strategy For Investors With Patience And Time

Apr. 06, 2021 6:28 PM ETCRWD, DM, FUBO, HUBS, NOW, PINS, SFTBF, SE, ABNB46 Comments
Henri Blomster profile picture
Henri Blomster


  • Long-term compounding growth.
  • Deferred capital tax and minimal trading.
  • High-throughput maintenance to gain focus on optimal buying.
  • The power of specialization.

Patience Word In Wooden Cube
Photo by SinArtCreative/iStock via Getty Images

The general principles of comparative advantage and specialization are well documented, and the essence of strategy is choosing what not to do. This strategy is not about dividends, value, or passive indexes. This strategy is about growth. Moreover, this strategy is

This article was written by

Henri Blomster profile picture
Unorthodox approach to investing. Portfolio Manager Asilo Asset Management.

Analyst’s Disclosure: I am/we are long NOW, AMZN, CRWD, PINS, HUBS, ROKU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (46)

@Henri Blomster what other companies do you have on your list in the "Young Growth" area?

Do you have just disruptive growth companies in your portfolio or would you invest in undervalued companies with P/E < 2, for example, such as LPI?
Henri Blomster profile picture
Well, I have several lists.

1) The ones to dive into and read more about e.g. $APPS, $PGNY
2) The ones I did read about but did not believe in e.g. $DRIO, $OZON, $LMND
3) The ones that I will add to the buy-list in case they will meet pre-defined criteria e.g. "$MTTR Q4 2021 revenue 123MUSD" or "$STPK, Q4 2021 revenue 147MUSD".
4) A buy list with companies that I would be confident to buy and hold for the long term .e.g. $SOFI, $ASX:CTT
5) Actual stocks in my portfolio that I aim to hold until growth stops. In case I get enough money to build a new position I go to my buy list from which I select based on strength of conviction, size, and current price. The latest buys are $UPST, $GLBE, $DLO, and $HIMS.

Regarding your second question, I have tried and come to the conclusion to not invest based on low prize only. Just not for me and also because it involves more trading. However, I do invest in case I believe in turnaround. That would be low price, but also change in management, strategy etc. with anticipation of long-term change in business quality, not cyclicality.
Cambridge STR profile picture
Welcomed article. This year I have decided to increasingly rely on experts (younger than me) to pick my 'young growth' buys. I intend to spend less time on research and put more trust into these experts. Some sectors I can not bring myself to invest in, such as space economy, which seems a total boondoggle. Plus there are many foreign markets and healthcare sectors I prefer to avoid.

I am very reluctant to buy pre-revenue startup companies, yet sometimes buy ones that are pitched as a 'young growth' like Zymergen (ZY). Following your recommendation to start small, I had minimal damage from ZY's recent crash in share price.
Exile of the Mainstream profile picture
This article seems to have been brought to you by Ark.

And the graphics are a tribute to Softbank.
Henri Blomster profile picture
@Exile of the Mainstream
No connection to Ark apart from that I like the way Cathie Wood thinks.

Also, there are several stocks bought by Ark, that I would not have in my portfolio. At least at this stage. But this just highlighting that this strategy is not about copying ARK and not saying that ARK makes bad decisions.
What is your take on DRIPS? Do you advocate taking the cash each quarter or reinvesting the proceeds back into the company??Great article, very informative for myself. Thank you
Henri Blomster profile picture
I have not always been a growth investor but tried several different strategies along the road. DRIPS I have not tried, maybe it works.

Due to lack of experience my take is theoretical only. If a company has great investment opportunities, it should invest and not pay dividends. If a company does not have great investment opportunities, it should pay dividends and let the investor re-allocate those resources into areas where great investment opportunities are available.

Alternativey, the company should buyback shares and nullify them to concentrate the ownership of all remaining shareholders. In effect, the shareholders own same number of shares but these shares equals to higher percentage of ownership. Shuffling this capital back and forth in form of dividends and stock, and paying tax in between, is maybe not the optimal way to do this.
Reverse mergers were commonly thought of as lower tier businesses and a means of providing liquidity for Companies whose business model "wasn't proven"
Now we call them SPAC's as assume they are disrupters
Is gambling a bad way of making money? If I can and have the ability to make money from gambling - I will be ok with it. If I can and have the ability to make money from buying a good dividend paying stock - I will be ok with it. If I can and have the ability to make money from buying a good growth stock - I will be ok with it. There are several ways of skinning a cat period. My 2 cents
It's hard to stomach the market adjusting the price of the high-flying growth stock in the portfolio from a P/E of 400 to a P/E of 150 in the course of 6 weeks when the macroeconomic forces decide it's time for a 10% valuation compression across all sectors. Those are real dollars being vaporized out of the account balance. I'd rather see my dividend yield go from 8% to 9%. It's not that I don't have patience, it's that it's a long drop from the stratosphere to the hard deck. I'm not sure my sense of timing is good enough for this strategy.
Henri Blomster profile picture
I think the way many (not all) growth investors of the "keep-the-compounders" think about this is that one should not try to time the market. Thus not selling all the stocks at once and not buying all the stocks at once.

The margin of safety for value investors is low price. The margin of safety for growth investors is time. Let me explain.

There is often the argument (I guess coming from a bit more value oriented investors) that say Zoom has come down 50% from ATH. Risk is thus 50%, this is too big risk, do not go there.

The way a growth investor looks at the same situation is to separate volatility and risk. They would say, yes but I would probably have bought this stock earlier. And if not this one, then the other ones. Second, I would not sell the stock, because business is great.

In a different situation you get issues with the business and the stock is sold. But me, and following some others would compare that to the buying price , not all time high. In a modified example of Zoom the argument would be, "yes, but I bought it a year ago, it is actually a case of +159%, not -50%".

Similar situation -50%, + 159%, a difference based on the angle how one views the risk.

It is great to hear that you found a strategy that works best for you. I think this is most important aspect of investing: getting this fit of "what works best for me".
Jetta2000 profile picture
SPAC lover profile picture
@Jetta2000 wrong! You can make money from Spac safely , with at least 20% return. www.youtube.com/...
Henri, This was a fun read. May have been serendipity, as I have been thinking about this theme the last few days.
I'm going to comment about one specific aspect. Let's say, for discussion, that we want to focus on, and buy, companies in your target buy phase of the company lifecycle. Let's say that currently, that's a $1MMM to $10MMM market cap. In prior times we'd expect to see companies IPO before $1MMM and have some growth track record while in this range. Yet, today, many of the most promising candidates are avoiding IPO, going SPAC, or staying private, or stealth. Do you think it may be difficult to invest at this stage? What thoughts do you have on fishing for this size fish?
Henri Blomster profile picture
I am happy to hear that you enjoyed this.

I have one comment on the size of the fish. Probably because of the importance of the SMB-factor, the way many investors think is size. Small companies, big companies, small-minus-big, small having more risk and higher returns. This one important angle and we learn something. However, it does not separate differences between different industries, different markets, etc.

This is why I love the business life cycle model. Determining risk-adjusted returns based on the business life cycle (instead of SMB) would have issues of objectivity and selection bias. But for a stock picker, the business life cycle model gives an additional insight which is important.

Some industries are inherently more attractive than others and some companies have inherently a longer runway ahead of them than others. As a starting point, one would expect some to get older than others, and stay as teenagers for a longer period than others.

I am personally titrating how early I can go and my smallest picks are under 1B. On the other hand, there is the evVTOL space and Joby Aviation. It would be possible to invest, but the development phase is simply too early for me. At the time of my personal conviction point (if ever met) Joby Aviation might be worth 20B. Quite a difference 20B and 1B.

Regarding SPACs, there are issues with the structure, and for long-term buy and hold waiting for one year should reduce risk. I use this basic idea as a guideline, not an absolute rule.

Also, hype and the positive market is not the only reason for SPAC's becoming more popular www.nasdaq.com/...

In my view, investing in private markets requires an additional skill set and as of today would be too difficult for me. But one can learn, of course.
@Henri Blomster Thanks Henri, your response is helpful.
JES profile picture
You can follow this advice or just buy ARK funds.
I would bet on ARK to make better disruptive company investment decisions than I could
yes, but the typical ARK etf
owns 50% amazing companies and 50% total crap.
not all ARK companies will be winners.
Cambridge STR profile picture
@JES I agree to use a fund like ARK, which obviously has benefitted many people. The skepticism and criticism of ARK individuals holdings is often wrong, so investing through ARK helps to stay focused on core principals.
There are many ways to pick stocks, invest with the objective of making money. This is the best approach I have read on how to view long term investing in growth stocks.
You might couple this with a business cycle analysis as there are times when growth rules and times when it doesn't.
Cambridge STR profile picture
@mikied I also like the OP's clearly defined goal of his approach to make money through long-term compounding growth, deferred capital tax, and speculation.
Very good article. Putting into words and charts the vision and lifecycle of companies.
Steven Bavaria profile picture
Confirms the fact that IF you pick the right stocks - through prescient analysis, good luck or a combination of both - you will have above average returns. The author is to be congratulated for having apparently done that.

Of course, reality has shown (as pointed out by Nobel Prize winning economists and then actualized by indexing advocates like John Bogle and Charley Ellis) that the AVERAGE investor achieves EVEN LESS than an average equity return of 8-10% because they attempt to beat the average return and make bad choices re timing or they "hedge" or "balance" their portfolio by buying lower-yielding and lower-earning assets like bonds that drag their overall portfolio returns down.

That's why so many thoughtful investors come to the conclusion that they - personally - are unlikely to consistently beat the average return over their investment lifetime and turn to strategies that are more likely to MEET the average equity return consistently over the long term, using any one of a number of strategies to do this, including indexing, dividend growth investing or "DGI," or my own Income Factory® strategy. Neither is necessarily better than the others and all aim to achieve that long term equity return that has been so elusive to investors over time.

The choice of which strategy is best for a particular investor can often be more emotional and psychological, rather than financial, as it largely relates to what sort of asset classes (growth stocks, income stocks, credit risks versus equity risks, high cash flows versus lower cash flows, etc.) an investor is more comfortable buying and holding during all sorts of investment climates. For the great majority of investors, picking a well diversified strategy and sticking to it, through thick and thin, is the real secret to success.
FUBO will fail.
Business0wner profile picture
@SilverBandit this comment will not age well.
Life will teach you a lesson, to not try to control things you can't :-)
Cambridge STR profile picture
@SilverBandit the more I learn about FUBO, the less likely I predict failure. welcome to 2021.
Its a theoretical article! There are hundreds of hundreds growth stocks in their early stages! How do you choose the right ones from this pool such that you can hold up to maturity stage? In the hinds sights, it is easy to cheer pick KO here, NOW there, etc to explain a point! My 2 cents
Business0wner profile picture
@kalu0003 Highly flawed article. You could summarize it into:

"Buy any fast grower at any price and sell once the growth stops, you'll do well"

How could this possibly go wrong?
Henri Blomster profile picture
No, the point is not to buy any company. The point is to carefully select the company to be bought.

About the "until the growth actually stops". One alternative to that is sell your winners. People tend to do that, selling their winners and keeping their losers. It is called the disposition effect.

Another alternative is to sell the rumor. As there are always speculation and opinions on why the growth should stop, this leads to short holding periods. And combining short holding periods with the volatility involved in growth stocks this is a risky thing to do.

Third alternative is to sell to "overvalued". Having the experience of holding growth stocks, there are constant cries of "overvalued" along the way. Again, leads to short holding periods. And combining short holding periods with the volatility involved in growth stocks is a risky thing to do.

Not to say that growth investing is without risk. It is risky and it is also something that does not suit all investors.
Business0wner profile picture
Touched some initial good points but I think there's more flaws with this article than good tips:

- I think the author is wrong when he says valuations and price do not matter, in fact anyone in wall street will disagree. Even high growth stocks can and should be valued, in the stock market and in business.
Example: You're not going to have a big pharma buying out a small pharma for an infinite amount of money nor are you going to have Draftkings or whoever buying out FUBO in 2025 for an infinite amount of money. Every single bit of the business can be valued, every asset it owns and every future cash flow it expects to produce and in stocks you can and should do the same to maximize your returns or else you risk buying a stock like Palantir or ZoomVideo at the peak of market valuations and then watch it crashing 50%+.
I am sure everyone here knows that to make up a 50% loss you need a 100% return, goodluck on that.

- By undermining valuations you also undermine one of the most powerful tools in the market which is DCA and you don't address in the article.

- I agree that you should have scalability into the equation of your investments and not be invested solely on mature stocks as these aren't the ones that produce the biggest returns however with that said, you should always remember these Oracle's words: Price is what you pay, value is what you get.
Do not try to outsmart those who have beaten the market for decades and turned their own stock into 1000+ bagger.

Another thing is that you cannot claim the market is efficient throughout because you just admitted under the radar companies (and some big companies too like Palantir) are mostly retail and insider owned, and whilst insiders aren't responsible for their ridiculous valuations, retail for the most part lacks the skills and knowledge to value stocks and will pay any price for a ticker or any company they see a future in because they haven't got a clue about value.

Getting businesses at expensive prices will drastically reduce your returns and cost you time. Time is your money, so don't waste it.
Henri Blomster profile picture
Price does matter, this is clear. If you are certain of your assessment of price, go for it.

However, determining the exact future cash flows for a young company is much more difficult for one in the mature stage.

The market cap alone does not solve this problem because a company can be both mature and small. Understanding the business is more important for a company in the early phase, because there are limits on how much the management can do for a mature business.

One would expect to be more likely to find mispricing in small-cap stocks but there are dangers in trying to do that.

I just followed up a discussion on the social media about a small company in Germany in the EV space that reported huge growth numbers from a very low base. The valuation looked cheap and quite a few focused on that low price and thought that the micro-sized company is undetected by the market. The alternative approach from someone who thinks markets are most often effective: " there is probably something I do not understand going on here".

It was apparent that many had understood that the company sells batteries based on proprietary technology. Thus the growth is a reflection of competitive technology. In reality, this proprietary technology was still in the development phase. Most sales came from selling batteries from another company and the services related to this.

With focus on price, many wrongly assumed that this is a company with
-proprietary technology
-a factory that produces batteries based on that technology
-a track record proving the market fit of these batteries

My message here is that the importance of understanding the business is most important when investing in growth-stage companies.
Business0wner profile picture
@Henri Blomster Thanks for getting back and I agree on cashflows but my point remains, not all fast growers will turn into multibaggers.

You could be growing rev at triple digit and still take a loss until your last day. The stock will be shot down eventually.

Regarding efficient markets, this is true for big caps and less so for retail owned stocks.

Third and last, you should never buy a fast grower at any price without understanding how much of its growth is already priced in or else you could not just reduce your returns but actually make a huge loss.

Those are my key points.
I love reading and rereading this article. i found it interesting. i will try to follow this strategy on 25% of my portfolio to see how fruitful would it be in 5 years. thanks mate.
A great article, and also pretty much describes the strategy that I personally try to follow.
Assuming that you make more money 10 years from now, an investment of 1.5% of your portfolio today could be on a cost basis 0.1% of your portfolio 10 years from now. Are you saying never add to a position?
Henri Blomster profile picture
Great question.

No, I am not saying that. This is a framework and should be treated like that. This is not a smart beta strategy, i.e. rules-based investing.

A keep-the-compounders-investor who already has a portfolio diversified across market capitalization should have a different approach to buys, compared to one that starts to build the portfolio.

A young individual who, compared to salary, has a small portfolio, should make different decisions compared to an older investor whose portfolio's size equals financial independence.

I encourage to adjust according to personal needs, instead of treating given examples as strict rules.
Sharon Keren profile picture
Excellent! Many thanks.
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