A Message From the Past

Everything is wild. Stocks are going from extremely high valuations to all time low valuations. How can one make sense of this?

One of my favorite ways to find the signal in the noisiest of times is to step back and truly look at the business. Look at what the business was 3 to 5 years ago versus now.

Spanning time horizons is hard, but a few tricks are below:

• Listen to earnings calls from the past
• Find write ups from the past (a few years back, Seeking Alpha was the best place for this)
• Use advance google search to find resources before certain dates

It takes time and effort to do this kind of thing. The easy (lazy) way to do this is to just by memory. If you follow a company closely, you can see their evolution in slow motion. The problem is that memory is a fickle thing. What we remember is often a few deviations away from reality. Whenever possible, it is good to rely on better information than our memories.

Below are a few examples of how far some of my favorite companies have come:

• Block – 5 years ago, Block was Square and had no involvement in Bitcoin. Cash app had 7 million users (now 44 million). Square was dominated by the Square ecosystem (now much more up in the air).
• Spotify – 5 years ago, Spotify had 160 million users (now 404 million), gross margins were 5% lower and they were a music company (now audio).
• Sea Limited – 5 years ago, Sea Limited was essentially Garena. Shopee was just starting. Sea Money was barely a thing. Even Garena was a far cry from what it is today, not dominated by Free Fire.

Other examples aren’t quite as impressive. When you look at Stitch Fix for example, not a ton has changed. They have improved their product and do keep iterating, but fundamentally it is a very similar company. That isn’t a bad thing (especially with a lower price tag). Many companies have shrunk over the past 5 years. It is easy to lose track of this kind of history, but when chaos hits and charts make no sense, zoom out.