3 times I recently said 'No'
With conviction, speed, and zero regret.
I don’t know why, but I keep seeing parallels between football (or soccer, in U.S. terms) and investing.
In the 11-a-side game, 90% of the time is spent without the ball.
Which means your movement off the ball - the positioning, the tactics - often matters more than the final act with it.
Similarly, the most impactful moves with investing are the ones you don’t make.
The non-buys, the holds, the avoided selling.
As creators, we love talking about what we hold. Our 2x, 5x, 10x.
But I believe it’s just as important to elaborate on the nos and the thinking behind them.
So, today I’m bringing you 3 recent examples.
Stay until the end!
1. Bill Holdings - BILL
BILL is a cloud software provider, vertically specialized in financial operations and treasury for SMEs in the US.
Teh stock kept showing up from quantitative screening: strong profitable growth, rising margins, leading cash flows, all at an attractive valuation.
A company that 10x in revenues since 2020, with astonishing FCF/share expansion:
At roughly $9B market cap, it seemed like the company was trading at less than 15 times 2028 earnings potential.
Was this too good to be true?
Well, I actually spotted a warning sign in a similar dashboard of the one below that numbers couldn’t tell.
Nearly 1 client in 10 was leaving every year.
Meaning, the Net Retention Rate was stable at 92% (strange how consistent this number was, just a coincidence?) since more than 3 years.
It seems high, but in reality this reflects a significant churn rate.
As former Finance Manager, I know how painful it is to switch these types of software. Operations-wise, it’s a nightmare!
So, I wondered: if 10% leaves, how many more are quietly thinking about it?
Despite the nice growth trajectory, I perceived poor customer retention.
For me this is an unwavering quality metric to which I never seek compomise.
So, despite a nice big picture, I had to pass.
Now, the stock has since dropped after my ‘no’, for a mix of reasons.
But even if the opposite had happened, my decision would still stand, as it was based on a precise fundamental reason.
2. Doximity - DOCS
I mentioned DOCS in a past article back in September last year (here it is), as I saw a lot to like:
Strong ownership and execution
Promising industry tailwinds
Solid unit economics
My first 80/20 risk-reward model was pointing to a clear asymmetric 5-year opportunity.
3 elements held me back this time.
1️⃣ I was hoping for a different segment mix strategy, meaning a bolder B2C expansion into telehealth - but Management seemed more focused on the adv and marketing solutions (still 80% of revenues back then).
2️⃣The remaining segments seemed harder to scale and I was afraid of a plateau. 80% of physicians were already present on the platforms as well as many contractors.
3️⃣Being the ‘Linkedin-for-doctors sounded cool, but not with Microsoft lurking as elephant in the room.
Deep inside though, there was another big reason.
An that was the opportunity cost of missing another telehealth play with even stronger quality signs and outlook, which I now own.
But I’ll always cheer for Doximity and its wonderful mission!
3. Snowflake - SNOW
At some point in 2024, this seemed the only unloved tech stock of the party.
Yet - best-in-class B2B retention, cash flows, and growth said otherwise.
At $130, I was very close to starting a position.
In the end, I passed because of the combination of a few reasons.
1️⃣ Circle of Competence
Being completely honest, I did not fully understand some of their use cases despite extended research.
So, it was not clear to me how they could turn from AI loser to AI taker.
2️⃣ Sector Exposure
I was already exposed to Enterprise SaaS and I did not necessarily need this overlap.
3️⃣ Beta
I was avoiding stocks with significant Beta, as I saw an extended bull-run becoming pronounced, with significant downside risk (even if temporary).
The stock ran +70% since then.
But guess what? I’m totally fine.
Staying disciplined and avoiding what I don’t understand is a win that prevails over any missed opportunity.
Many more will come.
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Thank you again for your valuable time.
Happy Investing,
Francesco - Business Invest
Great lessons in saying no, thank you 🙌