Black Friday Deals on Wall Street

Nate Crosby |

Summarizing last week’s trading, the large-cap S&P 500 lost 2.45%, the Nasdaq 100 lost 3.38%, and the Dow Jones Industrial Average lost 1.83%.

 

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Weekly Wisdom

“The stakes of what each of us is trying to do are too high to allow ourselves to be riven by the chatter of the news or the noise of the crowds.” -Ryan Holiday

 

We all have a short window of time to experience and accomplish all that we are here to do.  The flow that social media, traditional media, and advertisers want you to be in likely doesn’t serve you or your goals. By controlling what we can control and opting out of distractions we can build a mental fortress, a stronghold that no distractions can penetrate.  Check out the latest edition of Dynamic Growth as we discuss how opting out allows you to opt into your full potential. 

 

Why Disruption of our Financial System will Ultimately be Good for You and Me

     In our day-to-day lives, we often get frustrated by disruption. The coffee pot that decides to stop working Monday morning or the traffic jam that threatens our on-time appointment are never welcomed events in our lives. 

     In the world of investing, disruption can provide real opportunities to create wealth as well as improve our lives.  Our financial system is antiquated and ripe for disruption.  I had a front-row seat to this situation earlier this week as I attempted to make a withdrawal from my bank in a dollar amount that was quite a bit more than I would typically withdrawal but under the cost of a Toyota Camry.  The teller informed me the withdrawal exceeded what they could give me in cash, but they could order it in for Wednesday of next week.  Yikes!  The United States Government printed 5.5 trillion dollars of money in the past year and a half, yet a financial institution of that size doesn’t keep enough cash on hand to allow one person to purchase a practical car on demand?  

      During the 2000s an online bookstore called Amazon.com began changing the way consumers purchase goods. Now, if my family is like yours, much of your shopping this holiday season will be done online in the comfort of your home.  The boom in online retail has led to the boom in financial technology companies or “fin-tech”.  We not only want to buy our goods conveniently, but we also want to pay for them conveniently as well.  Payment companies like PayPal, Block (former Square), Shopify, Mastercard, and Visa have achieved sky-high growth rates over the past 5 years.  These innovations in how we pay for things will continue to grow.  I also believe what we use to pay for things will evolve as well. 

     While I can’t go to my bank and on the same day withdraw enough cash to buy a practical car, on the Bitcoin ledger individuals are sending millions of dollars in one transaction in a matter of 10 minutes.  View the ledger and see for yourself here. The adoption of the lightning network will shorten the transfer time even further.

     Disruption has a way of attacking slow-moving, inefficient, and high-cost segments of the economy.  Our current financial system operates in a currency that loses value each year and is not totally accessible to its owners. The banking system as we know it will have to evolve or risk becoming extinct. We like investment opportunities in companies that provide convenience and power to individual consumers.

 

Maybe A Bit of An Overreaction 

This year we often discuss where to look for value since it is few and far between. A famous adage among value investors is “you are trying to buy a dollar for 50 cents”. Basically, you are looking for a gap between the price people are willing to pay and the intrinsic value something actually has. In the stock market today there are a lot of companies that are dollar bills that are selling for $100. With little effort, you can conjure up electric car startups that command a multi-billion dollar evaluation without making a car. A premium like that may be deserved if the company is growing very rapidly or incredibly profitable. In the case of Docusign, we saw an intense run-up for the stock in 2020, in the wake of Covid, the stock soared a whopping 200% in one year. The work-from-home model created intense demand for their service of signatures that didn't have to be signed in person but could be signed digitally.

 Docusign increased revenue 56% year over year (from Jan 2020- Jan 2021) and was not slowing down; they continued to increase for the following quarters. On December 2nd they reported for Q3 and came in dramatically under expectations. The consensus that they were going to grow at this rapid pace forever got checked and the stock got cut by 42% in one day. Analysts were expecting revenue of 573.8 million for the fourth quarter, Docusign expects to see revenue within the 557-563M range. Docusign admits that the rapid pace of growth driven by the pandemic is coming to an end, and they are returning to pre-pandemic growth levels. 

Docusign still has something going for it, as we have discussed on the podcast, Docusign provides superior service. It is simply more convenient to sign something digitally rather than travel to sign your name to a document. The stock fell below $135 down from $230 yesterday, so a significant drop-off, but many analysts are saying this was a big overreaction. Analysts from Citigroup, RBC Capital Markets, and Wedbush all lowered their price targets closer to the $210 markdown from the $340 level. A significant drop but still above where it's currently trading.

Another adage in investing is “don't catch a falling knife” coming from the fact that a significant drop in a stock price may tempt you to jump in, but oftentimes this crushes retail investors as it takes many trading days for big institutional investors to dump shares of stock. If you are interested in investing in Docusign, tread lightly and be prepared to take bruises in the short term, but we like the prospects of Docusign for a long-term investment as they are still growing and have now fallen at a significant discount.

 

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Nate M. Crosby, CRPC
Crosby Advisory Group, LLC
www.crosbyadvisory.com
Phone: 855.496.0770
       419.496.0770

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Disclaimer

This newsletter is for informational purposes and should not be taken as direct investment advice without consultation.  Investing involves risk including the potential loss of principal.  Understand all risks and fees before investing. Crosby Advisory Group, LLC is a registered investment advisor in Ohio and Florida.  Employees of Crosby Advisory may own investments mentioned in this newsletter.  Insurance products are sold and serviced through Crosby NMD Insurance.