Four Lessons from Crowdstrike That Will Improve Your Portfolio
Hey everyone! We have a quick announcement to make.
From today onwards, Jonathan Ang will be joining us on the blog!
To many of you, he needs no introduction 😄 – but if you don’t know him yet, he’s our GIM co-founder and also a dear friend of mine.
This is his first article here, and he will be sharing with all of you some crazy important lessons he wished he knew before buying into this amazing company.
So ready your pen and paper, and let’s get to the article!
For those of you who prefer reading, this is the companion write-up to my YouTube video here.
As we are nearing the end of 2021’s first quarter, I want to review one of the companies that have been doing very well. This company has reinforced at least four lessons for me. Hopefully, it does the same for you too!
I first introduced Crowdstrike (NASDAQ:CRWD) in my first video on 13 Aug (CRWD Analysis | This Unknown Stock Is Growing At 80% Yearly?!).
Since then, the price increased about 120%. As a result, I received heartwarming texts from many in our community who benefited from this growth after watching my videos.
I don’t do this for the ego boost – I am just working hard on my vision of putting more investors into more households by educating more of you through my videos.
In case you missed them, here are the three earliest videos I made about Crowdstrike:
My second video on 18 Aug (CRWD Analysis | Is CrowdStrike Worth Looking Into?) talked about why Crowdstrike stands out.
Then, I shared why Crowdstrike can probably continue to grow at 80% in my third video on 20 Aug (CRWD Analysis | Why is CrowdStrike Better Than The Rest?).
So how is this going to help you? Let’s break it down together.
Lesson One: Average Down
Our first milestone came with Crowdstrike’s Q2 earnings call (Sep 2020).
When the earnings results were released, Crowdstrike reported growth of over 80%. Despite this impressive growth literally in the height of a world pandemic, its share price fell from over USD140 to USD125.
In my video CRWD Analysis | CrowdStrike Q2 FY2021 Results (Sep 2020), I said this:
“Sometimes the market can be irrational, dumb or stupid. This is normal. In my past seven years investing, I have become numb to it.”
I then shared my valuations on Crowdstrike:
“So after keying in the Q2 growth rates in my valuation calculator, I worked out that Crowdstrike’s valuation lies between USD129 to USD 198 assuming the fundamentals do not change.”
Now, I’m not doing this to demonstrate my genius quotient in being spot on for the valuation range right – I want to emphasize the lesson here: Average Down!
It is important to recognize the pattern. The market will continue to do stupid things (e.g., “punish” a company’s stock price even when earnings results are good).
We have done our homework, we hold to our conviction that Crowdstrike remains an excellent company, and we take this opportunity to average down.
Even if others sell when the market is down (whether it is herd mentality, or without the knowledge that the company still maintains strong fundamentals), we know better.
Crowdstrike is a BEAST growing at 80%.
Also, if you aren’t doing it yet, keep an investing journal.
If you did not average down this time, record your thoughts and lessons in your journal. Challenge yourself to refine your journey at the next opportunity to average down.
Remember: investing is about recognising patterns. The key here is to avoid repeating poor decisions.
Our current average life expectancy is now over 80 years. This means if you’re in your 30’s, you still have over 40 years ahead of you.
Don’t be so hard on yourself – remember the next opportunity will come soon enough! Be prepared for it!!
Lesson Two: NO FOMO!
Over the next month, Crowdstrike’s stock price climbed steadily to USD152. Now just when people thought they missed out, the stock price returned to USD123.
Do you see the lesson here?
Some people are afraid to miss out when stock prices go up.
But after spending nearly seven years in the market, I want you to know something:
RELAX!
I assure you, there are always opportunities. There’s no need buy out of panic.
Opportunities will come along just like what happened here, where CRWD rallied to USD152 then returned to USD123.
Patience, people ☺
Lesson Three: Never Get Stuck in Price Anchoring
On 3 Dec 2020, Crowdstrike released its Q3 earnings. Its stock price hit the USD160 – USD170 range, and many people at this point didn’t dare to buy Crowdstrike, just “because the stock prices have already gone up”.
Here’s the problem with this thinking. The companies we study are continuously growing.
Their values cannot possibly remain stagnant. What may be worth USD100 today may not be worth USD100 this time next year, because the companies we study are growing at over 40%.
That is why in my previous video when I shared my valuation of Crowdstrike, I didn’t say Crowdstrike is worth exactly USD200.15. I placed it in the range of USD129 to USD198.
So knowing this, buying Crowdstrike around $160-$170 as a starting position would still be OK.
If Crowdstrike suddenly posts 400% growth, or if its stock price hits USD300, and its valuations are USD400 to USD600, I would be happy to buy it at a higher price.
It’s about understanding the valuations of the company. We must not be fixated on stock prices.
Lesson Four: Investing Is Not Studying
The more we study, the better we become in a subject, and we see this in better test scores, or better exam grades.
However, the thing about investing is that despite putting in the work to study and research, we don’t always see immediate results.
My experience has taught me that exponential gains made in investing typically happen in spurts over time, rather than steadily from one month to the next.
For example, people who invested in Crowdstrike for the two and a half months between Sep and mid Nov 2020 may even have seen a loss of 7%.
The crazy gains only came during the past one and a half months, where the stock rallied by 68%.
In the four months (Sep to Dec 2020), most of the gains are only realized in Nov to Dec.
If you were impatient and sold Crowdstrike in Sep or Oct, you would have missed out on the enormous gain if you had thought the stock was not moving.
The key is to understand this: despite stagnation in stock prices, Crowdstrike was anything but stagnant. It was growing crazily to the tune of 80%!
Once you ‘see’ this pattern, you will keep your eyes only on the fundamentals, your patience will be rewarded, and you will find you are now “immune” to the movement of stock prices in the market.
If this article has increased your learning today, share this with like-minded friends!
Together we can put more investors into more households.
I’ll sign off with my usual reminder to say no to lousy companies – only buy the best growth companies in the world
~ Jonathan
