Investing In Stocks

Posted on 22 June, 2023 . 26 min read

Welcome, everyone!

Today, I have the distinct pleasure of introducing Ian, who will be sharing his insights and framework for investing in stocks. The goal is to help us all become savvier investors.

Ian and I have been acquainted for two years now. I've always been impressed by his decision-making framework when it comes to investing. Recently, I reached out to him with the idea of having a conversation around this, which he enthusiastically agreed to. This laid the foundation for today's masterclass.

To tell you a little bit about ourselves, we've founded a platform called Xillion. Our mission is to expedite the journey to financial freedom for everyone. Our offerings include tools to enhance your 401k, track your budget, establish financial goals, and decide whether to buy a house or continue renting. We provide advice on how much you should set aside for emergencies, especially in uncertain times like these when layoffs are frequent. Moreover, we help optimize your investments, helping you pick the right ones to fast-track your journey towards financial freedom.

One unique feature we've developed is the 'Money Score.' While credit score is a familiar concept to most, it only represents 10% of your financial life. The money score we've created encapsulates the remaining 90%. So, make sure to visit to find out your money score. We've created all these tools with one promise - that by investing less than 10 minutes a week, you can chart your path to financial freedom. If you have any questions about this, I'd be more than happy to answer them towards the end of our discussion.

Now, let me turn it over to Ian.

Hello, everyone. I'm Ian Seibel. Before I start, let me just say that I'm not a certified investor or fiduciary. So, consider my advice as suggestions rather than professional investment counsel.

My journey into the realm of investing started when I began to accumulate more money than I was spending through my job. I serve as a VP of Finance for an industrial company. When I was promoted to this position, I started earning a substantial amount more than I was spending, leading me to wonder how best to use it. I started immersing myself in investing, beginning by reading various books on the topic.

The wide range of information and strategies presented in these books sparked my interest in stock picking. However, I was not ready to fully commit, so I opted for a balanced approach. I invested half of my money in the S&P 500 and divided the remaining half between hand-picked stocks and cryptocurrencies.

Using my financial skills gained from work, I dove into researching stocks - an activity I found gratifying given my financial and entrepreneurial mindset. The intricate workings of various businesses always intrigued me. Consequently, this exploration of different businesses was truly fascinating.

This led me to develop a keen interest in tech stocks. The unique economics of tech businesses, characterized by high upfront costs and incredibly low marginal costs, can lead to some extraordinary financial results. Having been accustomed to the financials of an industrial company, delving into the world of tech stocks was like stepping into a new universe.

The stark contrast between the financial landscapes of the tech industry and traditional industries was truly captivating.

Piggybacking on that, Ian, I'd like to share that I've had the chance to work in both manufacturing and software sectors. In manufacturing, achieving double-digit margins, say around 20%, is considered quite impressive. However, in the software industry, you start at a 90% margin, with most software companies boasting of a whopping 95% margin. Therefore, the gross margins in the software industry are exceptionally high.

Ian agrees and adds that these high gross margins are usually offset by significant operational expenses upfront. However, as sales continue to grow, operational expenses do not increase at the same rate. The technology industry's business dynamics are truly intriguing. He then highlights his experience where his hand-picked stocks started yielding higher returns than his S&P 500 investments. However, this also brought along increased volatility. This volatility is common in stock picking due to the potential for high upside. We'll discuss this more in-depth later on.

So, why should one invest in stocks? Historically, stocks have been one of the highest returning asset classes. Even when considering risk profiles, stocks have generally offered substantial returns. Furthermore, investing in stocks allows you to partially own companies, which is an exciting concept. It's fascinating to see how stockholders can potentially influence companies through their ownership, even to the point of taking over companies through open market purchases.

Moreover, stocks represent a claim to the company's cash flows, which may be distributed in several ways. Besides, investing in stocks is easy and accessible, thanks to modern apps. They also provide liquidity that many other investments with similar or higher returns lack, allowing investors to buy and sell quickly.

One crucial point that Ian made is that when you buy a stock, you're essentially entrusting your money to some of the world's best-run companies. These companies employ the brightest minds globally, so when you invest, say, ten thousand dollars in Apple, you're essentially hiring the employees at Apple to work for you and grow your wealth. It's about delegating to the experts and watching your money grow significantly as a result.

In addition, investing in stocks can be an enlightening journey. You learn a lot about different businesses, which can be particularly beneficial if you're an entrepreneur. Studying various companies can provide valuable insights into the benefits and risks associated with different business models and sectors.

To understand how stocks compare to other asset classes, let's look at the various returns and associated risks. Savings accounts, for instance, yield around one percent, which, interestingly, is a rather generous estimate. The gap between that and the S&P 500, which gives about a 10% return, is significant.

Continuing along the line of asset classes, we have Certificates of Deposit (CDs), real estate, and bonds, each with their own returns and risk profiles. Real estate, in particular, is noteworthy. Despite the seemingly low return of 4%, real estate is potent due to the considerable leverage it offers. People often speak highly of real estate investments because of the amplifying effect leverage has on that 4% return. For more insights on this, I recommend checking out the previous Xillion master class on real estate.

Bonds are also quite a hot topic, especially given the current interest rate climate. The risks associated with bonds primarily stem from short-term interest rate impacts. Bond types vary widely, ranging from relatively safe US government bonds to individual company bonds, each carrying its risk profile.

Next, we delve into stocks. The S&P 500 and growth stocks are asset types that I personally prefer investing in. They do offer higher returns, but it's crucial to note that these come with their share of volatility and risk. However, the liquidity that stocks offer is a significant advantage that somewhat offsets this risk. When discussing growth stocks, it's impossible not to mention risk because as returns increase, so does the risk factor.

Venture capital represents the apex of this risk-return dynamic, with the highest potential returns and associated risks.

It's essential to keep in mind that every investment type has its own advantages and limitations. For instance, real estate may offer good returns due to leverage (put down 20%, bank provides 80%), effectively amplifying your 4% return by five times. However, real estate isn't a liquid asset; if you need to access your funds within a short period, it might take up to six months to liquidate your real estate assets. Therefore, the liquidity of your investment is a crucial factor to consider when making investment decisions.

Angela has a question: "I noticed that you specifically highlighted growth stocks. Does this mean you're suggesting a focus on those particular kinds of companies? What would the yearly returns look like if one's approach was more generalized stock picking instead of specifically targeting growth stocks? Or is the point here to concentrate on growth stocks?"

What I would say, Angela, is that more generalized stock picking might fall under the category of the S&P 500. The point here isn't necessarily to focus on growth stocks exclusively, but to present a framework that illustrates the potential for higher risk stocks to offer higher returns.

The S&P 500 is considered lower risk, and with that lower risk often comes lower returns. However, it's crucial to understand that growth stocks carry a high degree of risk. These are often companies early in their life stages, rapidly growing sales, but simultaneously losing money at a high pace. There's a considerable risk associated with any venture losing money, and many growth stocks fit that profile.

Historically, small cap stocks have been classified as growth stocks. What I mean is that a high growth company is typically smaller in size. Take Google, for instance – it's not growing substantially today, hence not a growth stock. Similarly, Facebook's revenue has declined in the recent quarters, taking it out of the growth stock category.

Growth stocks are companies like Remotely, Samsara, Toast, and Square. These companies are increasing their revenue at rates of 30%, 40%, or even 50% a year. They embody the traits Ian mentioned – they're losing money because they're investing everything back into the business. They aren't paying dividends or buying back stocks; they're continually investing, hiring people, and developing more products. Typically, these companies are not valued at $100 billion; you'll likely find them in the range of around $5 billion to $25 billion.

I hope this explanation provides some clarity, Angela, and thank you for your question.

As a rule of thumb, if anyone offers you more than 10% returns and they don't explain the associated volatility, liquidity, or risk, they're not providing a full picture. In such scenarios, there might even be the potential for a Ponzi scheme. Be mindful - it's incredibly challenging to outperform the S&P 500, and we'll discuss how you might potentially achieve this in this conversation.

Let's imagine you invest $100,000 in each of these four areas and examine the expected returns over 20 years. Growth stocks could potentially turn your investment into $1.5 million, while angel investing in illiquid startups could escalate up to $4 million. In contrast, cash would only grow to around $155k, and real estate could become approximately $600k. This graph gives you a visual idea of how your investments could grow. The real power of compounding starts after seven to ten years, and after that point, it takes off.

We want to give an overview of the different types of long-term investing you can engage in, providing another perspective on how you can view it. All of these investment types assume a 10-year plus time horizon, which means you're going to buy and hold for at least ten years, purchasing more but never selling.

My personal favorite strategy is the Buy and Hold approach for stocks. This method requires a bit more work because you need to understand what you're investing in. It's important to note that when you're picking individual stocks, you can't predict your return. In contrast, if you're investing in an all-weather fund – a mix of stocks, bonds, commodities, and cash – you have a much clearer idea of potential returns based on historical trends. When you're selecting individual companies, the outcome can be incredibly varied. You could either realize amazing returns or suffer substantial losses – the value could go to zero or soar to 100.

The risk profile for such an approach is high in both the short and long term. But this risk should ideally yield a higher return, as evidenced by the S&P 500. The S&P 500 serves as a comparison point for any stock picker – are you outperforming the S&P 500? If you're not, you need to question why you're investing so much time in this. It might be more beneficial to simply purchase S&P 500 stocks and hold them.

It's interesting to observe the short-term risk profile. Consider something like the COVID pandemic, where the S&P 500 saw a 30% drop in a short span. However, over a long-term horizon, large companies worldwide are expected to continue growing their financial returns, so the long-term risk can be considered low. Over 10 years or more, there are only a few instances where the market has dipped significantly. Of course, there are always potential Black Swan events, unpredicted incidents that could impact the market. But the longer your investment horizon with the S&P 500, the lower your risk. It's crucial to understand your time horizon and risk profile, balance both, and then consider the returns you're aiming for.

If you're wondering why we're emphasizing the S&P 500, consider this - the S&P 500 comprises the 500 leading companies globally, run by some of the smartest individuals, managed efficiently, and capable of raising capital effectively. They dominate the world, and their dominance keeps growing. For example, two decades ago, Apple was a niche company, but today everyone wants an Apple product. These companies, like Google, Facebook, and soon Airbnb, keep growing, especially in the tech sector.

Let's take a look at the volatility of S&P 500 returns from 1950 until this year, 2023. The S&P 500 resembles a roller coaster, with numerous ups and downs. Stocks typically ascend like an escalator, but when they fall, they plummet like an elevator. However, when in doubt, zoom out. If we look at the average 10-year rolling returns, the roller coaster seems a lot less intimidating. Zoom out even further to 30 years, and it becomes a smooth road. If you invest consistently over time, in a 30-year timeframe, you can expect 10%+ returns with the S&P 500. This should be your benchmark. If you can't beat it, it may be wiser to invest in it rather than trying to outperform it.

The psychology of money is complex and can be emotionally taxing. It's vital to understand that although current market conditions might feel tumultuous, if you zoom out to a 10-year perspective or longer, these moments will seem insignificant. This notion applies to many aspects of life, including investing and stock picking.

There are pros and cons to this investment approach. The potential for higher returns, control and flexibility over your investments, and learning opportunities are some advantages. However, it requires a significant time commitment, increased risk, and emotional intelligence not to sell during market fluctuations. A certain level of financial understanding is essential.

So, it's noteworthy that one does not need an extraordinary understanding of finance. You can gain a solid foundation quite quickly, with resources like books and YouTube videos. Finance may appear complex on the surface, but it's fundamentally straightforward. Some individuals may project an illusion of complexity, but if you take the time to dig a little deeper, you'll see it's all quite elementary.

When it comes to growth stocks, the Price to Sales (P/S) ratio is a key metric. As a general guideline, if the ratio exceeds ten, it starts to raise concerns. Essentially, P/S is the comparison between a company's revenue and its market capitalization. If the number is high, it means you need to anticipate incredibly high future cash flows to justify the stock's valuation, because when you invest in a stock, you are essentially staking a claim on those future cash flows.

Price/Earnings (P/E) ratio operates on a similar principle, and we use it often because it represents what you actually get to keep. P/S is useful, particularly for growth stocks that might have negative earnings. Understanding a company's long-term profitability potential can guide your decision-making when dealing with P/S.

Unit economics can also be insightful. It involves looking at each individual sale a company makes and understanding its impact. This approach is ideal for subscription companies like Netflix. By examining factors like customer acquisition costs, monthly sales, and gross margin, you can garner a robust understanding of a company's financials.

Adjustments in EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a commonly used metric, but it's crucial to scrutinize the adjustments. The company is choosing to adjust its EBITDA, which often results in inflated profitability figures. Understanding what factors contribute to these adjustments can be pivotal.

Free cash flow is another critical metric that indicates the cash left over after operations. This figure can be trusted more because it adheres to generally accepted accounting principles. Comprehending what drives this figure can provide valuable insights.

Maintenance capital and growth capital are two other significant metrics to understand. Maintenance capital is what you need to keep your business running, such as new buildings, vehicles, or servers. On the other hand, growth capital is intended for acquiring new business to drive growth. Differentiating between these two can be crucial to comprehend a company's investment dynamics.

Lastly, understanding a company's moat is of paramount importance. A 'moat' refers to the company's ability to maintain its competitive advantages over competitors. However, it's vital to understand that not all growth stocks have developed their moats yet, which might mean higher risk. Notable exceptions exist, such as Tesla, whose strong brand and visionary leader formed a formidable moat early on. But for many growth stocks, building a moat is an ongoing process.

There are various forms of moats – a strong brand, high switching costs (making it hard for customers to switch to competitors), network effects (where each additional user enhances the experience of other users), and intangible assets like copyrights. Assessing whether a company has a moat and being honest about its implications is an essential aspect of investing.

Ah, that was a lot of terminology I know, and you might be thinking that you need to understand all of this in depth, but hang tight, we'll discuss an easier framework towards the end which can help you identify stocks that might suit your investment style. Remember, all of this information is publicly available. For instance, Nvidia's price to sales ratio is currently 41, which would generally be a signal not to invest. Compare that to Facebook's price to sales ratio which stands at five or six, or Shopify's which is 12. But we'll delve into what these ratios mean and how you can fit this information into your own investment framework.

And just a note, I'm not trying to overwhelm anyone with this information. None of this is complex when you break it down. If you look at it iteratively, understanding each term one at a time, it won't seem that daunting. Take price to sales for instance, you could probably get a good grasp of it in about 30 minutes. It's all common sense but couched in a lot of jargon.

Moving on to the subject of best and worst investment decisions, I just wanted to address a follow-up question that came up. Some may wonder if I recommend sticking to growth stocks in a particular sector. How would you understand the competitive moats in an industry like manufacturing, for instance, if you've never worked in it?

Well, this is where a framework I've developed comes in handy. It has served me well. I've been working in tech for the past 18 years, particularly in the US, so I know that sector really well. But importantly, I love reading about business, political, and economic news. That's where my investment ideas have come from.

My point here is, if you don't know the competitive landscape of a manufacturing company because you aren't familiar with the sector, you don't need to invest in it. Find your own investing 'moat' by looking at the intersection of what you know, where you live, and what you love. You can identify hundreds of companies this way and then double down on those which are likely to experience high growth over the long term.

One of the best decisions I've made as an investor is holding on through market volatility. It's my personal investing strategy and while it might be tough at times to watch the value of my investments swing wildly, what I've found is that the gains from my winning investments have more than compensated for the losses. That might sound easy, but watching your net worth fluctuate isn't for everyone. So, if you're just starting out and want to try this strategy, you might begin with a small amount of money and see how you react when the market undergoes major swings. This will give you an understanding of whether stock picking is right for you and give you a sense of your risk tolerance. Remember, understanding risk versus reward is key.

Absolutely, and to chime in on what Ian just mentioned, if you're just starting out, you may consider investing 10% of your liquid net worth into individual stocks, with the remainder in low-cost index funds. If you lose it, it's not going to be the end of the world. You will learn about investing, your own personal style, your strengths and weaknesses. If investing engages you, you might then increase your individual stock allocation from 10% to 20% over time. Conversely, if you decide that it's not worth your time or the potential hassle, you can revert back to low-cost index funds.

If you have a higher risk tolerance and believe that the tech sector will do well over the next 20 years, you can invest in NASDAQ 100, which is even more volatile but heavily concentrated in tech stocks, and ride that wave.

Reflecting on some of the worst investment decisions I've made, they are usually ones that, in retrospect, I knew were missteps even as I was making them. For instance, investing in companies that are clearly not operating efficiently. For instance, COVID-favorable stocks like Peloton, which benefited significantly during the pandemic, but when COVID impacts began to diminish, it became evident that Peloton was not an efficient operator.

This is something many investors, including Stanley Druckenmiller, a very famous investor, have mentioned. His quote, 'you asked me what I learned - I didn't learn anything. I already knew that. I wasn't supposed to do that,' resonates with me. The worst decisions aren't always the ones where you make a mistake unknowingly, they're the ones where you knew it was a mistake going in and you did it anyway. It's crucial to remind yourself to be rational, and sometimes that might involve sleeping on a decision for a night or even a week.

As for the fear of missing out, I can tell you from experience that every time I've ventured outside of my sphere of competence, I've ended up losing money. To avoid this, I recommend investing in long-term trends, not short-term waves or hype cycles. For instance, I bought Facebook at its IPO, and even though it crashed afterward, I bought more because I believed in its long-term potential. Today, that belief has paid off. My goal is not to ride a hype cycle but to invest in a company that I believe will do well over a seven-to-ten-year period.

Allow me to illustrate my approach using an example from my personal investing history. You'll see I've had some losses, but also gains - illustrating the nature of investing. Anytime I've lost money, it's shown as a negative, and gains as positives. You'll see more pluses than minuses - an indicator of success over time. The shipping company I talked about earlier was a significant loss, however.

I don't identify as a trader; I'm an investor, looking for long-term growth. Although I've made some beneficial trades along the way, my focus is on long-term investment. For instance, when Facebook IPOed, there was a lot of hype, and the stock price crashed post-IPO. However, I saw the long-term potential and bought more stocks when the price was low. My approach is not to ride the short, one-to-two-year waves, which are typically driven by speculation and are too unpredictable. Instead, I seek to ride the seven-to-ten-year trends.

Consider the ongoing AI hype cycle, for instance. A couple of years ago, it was all about cryptocurrency, and before that, social media was the buzz. These hype cycles come and go, but long-term trends, like the growth of technology companies, tend to offer a better return on investment over the long run. That's where I've made most of my returns, notably from investments in Facebook and Tesla.

Remember, as Warren Buffet once said, you only need a few right decisions to build a strong portfolio. So focus on those long-term trends, invest wisely, and stay patient.

"You understand my perspective, right? For instance, let's take a glance at my personal history during the COVID-19 pandemic when I attempted to ride the options. This was my, shall we say, enlightened attempt at buying call options when the stocks were plummeting. It ended with me losing more money than I made, netting a negative outcome. The point being, short-term trends are incredibly hard to predict and profit from.

On the contrary, long-term investments can be more reliably spotted based on your individual strengths and expertise. For example, my current long-term bets are Toast, Square, Robinhood, Remotely, Doma, Hippo, Redfin, Teledoc, Fiverr, Freshworks, Samsara, and WeWork. Admittedly, I haven't seen the best returns yet, but these are my long-term bets. I firmly believe these companies will flourish over time.

Take Toast as a specific example. Every time I visit a restaurant, I observe what terminal they use. I converse with the staff about their user experience. Anytime Toast was mentioned, the feedback was highly positive. This suggests a trend to me: many restaurants are still using outdated terminals, and I foresee that they will be replaced within the next five years, initially in the U.S., then globally. Thus, I decided to invest in Toast. In my opinion - and remember, this isn't investment advice - Toast has the potential to be a major winner in the long term, possibly a 10x stock in the next decade.

I hope this clarifies my perspective. Yes, the FOMO (Fear Of Missing Out) can be strong, especially when you see friends riding the shorter-term waves. But we should always remember to look at the bigger picture, focusing on the long term rather than getting swept up in short-term hype cycles.

Also, we must acknowledge human psychology. People are more likely to broadcast their wins rather than their losses. If someone tells you they rode a wave and made a $15,000 profit, they might be concealing a $10,000 loss that they aren't talking about. It's essential to stay mindful of this.

Now, let's continue to understand diversification and concentration and their associated benefits and risks. While concentration can build wealth quickly, diversification is essential to preserve wealth. This understanding is vital for any investor.

You should note that if you own 10 non-correlated stocks, your risk level is comparable to that of investing in the S&P 500. I paid $160,000 to learn this in business school, but you're getting this nugget of wisdom for free.

Before we finish, let's touch upon some tools for investing. Many of these are free, such as Koifin, a comprehensive financial platform that provides extensive financial information. Finviz is excellent for stock screeners if you're having trouble finding stocks within certain industries. Whale Wisdom is handy for deriving stock ideas via 13Fs filings.

Of course, books, podcasts, and newsletters can be immensely helpful. We will be sharing this information with you at the end, so don't worry about taking notes.

Lastly, when it comes to finding investments, a fantastic quote by Peter Lynch resonates with the framework I've discussed: "Invest in what you know". If you love Apple products, investigate Apple as a potential investment. If you're an avid user of the Cash App, look into Square. If Pinterest is your go-to platform, consider it as an investment.

Always exercise caution with social media. While it can be a useful tool for idea generation, it's equally important to avoid the echo chamber effect and the associated risks.

Finally, consider Warren Buffett's advice. Over six decades, he made approximately a dozen good decisions. That boils down to one significant decision every five years. This is coming from a man who considers reading financial statements a pastime. So, it's crucial to remember that not every investment decision will be a winner. Even Warren Buffett, one of the most successful investors of all time, experiences more losses than wins. However, his successful investments more than make up for the losses.

So, if you find some losses in your portfolio, don't be disheartened. It's part of the investment process. Just like even Warren Buffett has his share of losses, it's normal and expected. The goal is not to avoid losses entirely, but to ensure that your winners outperform your losers over the long run.

Again, as I mentioned earlier, I've lost a considerable sum of money but made most of my profits from Tesla, Facebook, and Square. Last year, when the market was crashing, I doubled down on these companies, and I'm optimistic that these will continue to propel my investments forward.

The crux of it is to invest in what you love. But let me expand on that a little. If you love Apple products, remember that there are a billion other people who also love Apple products, which might mean you don't have a unique edge. However, if there's a smaller, recently public company with a product you've used at work, at the gym, or one that a friend introduced you to, then that might be a unique investment opportunity. It could be that only a few thousand people know about it, and financial institutions haven't begun covering the stock. That's where you could find a significant opportunity.

When I invested in Facebook, it wasn't popular; their stock was crashing. Similarly, with Tesla, they hadn't even shipped their first car when I invested. Now, considering investment in giants like Google, Facebook, Apple, Nvidia, or even Tesla, you might not have a unique edge. It might be better to invest in indices like the S&P 500 or NASDAQ 100. Instead, use your unique insights from your work or personal experiences to find niche investment opportunities.

At Xillion, we provide tools to assist in this process. For instance, we help you analyze Price-to-Sales (P/S) ratios and offer recommendations like Shopify, which Ian is a big fan of. If you're looking for ideas, we can help you narrow down options. For instance, you may never have heard of a company like Amplitude, but our tools can show you its P/S ratio and that it's part of the tech sector, potentially sparking interest in further research.

You can try out Xillion today with a one-month free trial at We're reaching the end of our presentation, but we have a few minutes for questions, so please ask away. There are no bad or silly questions. Also, you can view our portfolios in real-time on Xillion, where we share weekly snapshots of our investments.

To answer your question regarding Xillion, we aim to be more than just a social investing app. Our goal is to be your financial partner and help you make well-informed decisions across various aspects of personal finance, not just stock investing. We aim to assist with 401Ks, real estate, angel investing, and even purchasing a house.

Currently, we're focusing on U.S.-based customers, but I believe some of our tools could be useful to you in Canada. American stocks are among the most liquid and hold the most significant names worldwide, making them relevant regardless of where you're based.

We've been discussing financial principles like Price-to-Earnings and Price-to-Sales ratios, and you might be wondering how to track these amidst your busy schedule. From my personal experience, I listen to quarterly earnings and use platforms like Koyfin to track trends. Depending on the number of stocks you have, this could take about five hours a week. It's a substantial time investment, but tools like Koyfin can really help. They allow you to see trends over time, use screeners on stocks, and other useful features. Listening to the management conversations, financials, and even podcasts about investing can also aid your understanding.

In terms of rebalancing portfolios, the process differs for each investor. For example, I typically follow a Buy-and-Hold strategy. When two or three stocks quickly become dominant in my portfolio, I adjust where I allocate my new capital. I tend not to rebalance between stocks. Although there are benefits and risks to doing so, I typically hold my stocks until I'm ready to exit a position.

Contrarily, I usually rebalance once a year. This doesn't involve a specific sector allocation like 30% tech or 20% manufacturing. Instead, every December, I evaluate if my stocks still align with the investment thesis I had when I bought them. If they no longer align, I remove them from my portfolio. For instance, when I bought Tesla, I believed it would become a trillion-dollar company. As it neared this valuation, I began selling. Last year, I sold all my 401k and index funds and invested in other stocks, like Samsung and Toast.

We appreciate your appreciation of our contrasting approaches to rebalancing. As for the Price-to-Sales ratio, you don't need to calculate it. Several tools, including our platform Xillion, have already done it for you. Remember, any ratio above 10 indicates an expensive stock with potentially less room for growth. For instance, Snowflake has a ratio of 25, implying less potential growth, while Square has a ratio of about 2 or 3.

We'd like to thank you all for your insightful questions. It was a pleasure discussing these topics with you, and we appreciate Ian for sharing his wisdom. Thank you, everyone.


The Price to Sales (P/S) ratio is a key metric in growth stocks. It is a comparison between a company's revenue and its market capitalization. If the number is high, it means you need to anticipate incredibly high future cash flows to justify the stock's valuation.

A 'moat' refers to the company's ability to maintain its competitive advantages over competitors. Understanding whether a company has a moat and being honest about its implications is an essential aspect of investing.

Maintenance capital is what you need to keep your business running, such as new buildings, vehicles, or servers. On the other hand, growth capital is intended for acquiring new business to drive growth. Differentiating between these two can be crucial to comprehend a company's investment dynamics.

Free cash flow is a critical metric that indicates the cash left over after operations. This figure can be trusted more because it adheres to generally accepted accounting principles. Comprehending what drives this figure can provide valuable insights.

The S&P 500 serves as a comparison point for any stock picker – are you outperforming the S&P 500? If you're not, you need to question why you're investing so much time in this. It might be more beneficial to simply purchase S&P 500 stocks and hold them. Over a long-term horizon, large companies worldwide are expected to continue growing their financial returns, so the long-term risk can be considered low.

One of the best decisions an investor can make is holding on through market volatility. While it might be tough at times to watch the value of investments swing wildly, the gains from winning investments have more than compensated for the losses. This might sound easy, but watching your net worth fluctuate isn't for everyone.
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