I talk a lot about conviction when I’m discussing the companies in which I invest. I do my research and compare a company to others in the same industry and decide if this is the best investment for me. Then I write up a quick 15 minute thesis – why I like the company, what I expect to see in the future and what I’m worried about and keeping an eye on.
For me, this process builds conviction. By the time I’m done, I’m pretty convinced this company is a good investment for me.
In thinking about this today, I realize that I often use Amazon, Apple and Netflix as examples of my high-conviction companies. Readers are probably thinking “no $hit Sherlock.”
These companies are up several thousand percent in the last 15-20 years. It’s easy to have high conviction. Let’s see you maintain your level of conviction when you’re losing your shirt!
The Trade Desk
This morning I was pleased to see that The Trade Desk (Ticker: TTD) was up big.
And to put this in perspective, look where the Trade Desk has been this past year.
High Conviction?
I bought my first shares of the Trade Desk in 2020. The Trade Desk is a digital advertising company. That helps, right?
Let’s say you’re a nice boring industrial company like Fastenal that makes fasteners, among other things. The good folks at Fastenal know a think or 2 about screws and washers, but what do they know about marketing and advertising.
They typically hire someone to do that. But if you’re a screw-guy (or gal) what do you know about hiring people to place ads and how do you evaluate whether they’re doing a good job? That’s the problem.
The Trade Desk offers a platform that does this for me.
With a few clicks (and a few bucks to subscribe) the Trade Desk will help me place my ads, balancing cost with likely engagement. They do a lot of this so they’re pretty good. I can then monitor the engagement real-time and make adjustments.
The Trade Desk has had pretty solid growth in both sales and revenue. My conviction is high.
What Happened?
The shares I bought in 2020 are up 85%. Yay.
The Trade Desk price got as high as $128 per share. I had it on my buy list for when it pulled back to $100. It pulled back and I bought.
It then pulled back to $50. That’s 50% off my target. I bought more.
I watched it go to $25.
No mas.
My cost basis is about $65 per share. Today’s bump to $30 is nice, but I am still quite a bit under water.
Why?
That’s the other important question. I’m down 80% from the high and my conviction is high??
A little company called Google (part of Alphabet) is also in the advertising business. Amazon has also recently been dabbling in ads. That’s some stiff competition.
That’s not new. I was aware of Google’s place in advertising in 2020. Amazon is a fairly recent entry, but I knew there would be stiff competition.
Analysts are bearish on the Trade Desk, but that’s to be expected. It’s a long shot.
But, for me, it’s a long shot that I believe in. Fred’s hardware down the street probably won’t call Google to help them with an ad campaign. But they could go online to the Trade Desk and get started in a few clicks.
Also, tariffs and inflation are still a problem no matter what people may tell you.
They’re eating into consumer’s wallets but they’re also hurting companies, especially small ones. Advertising is one of the first cuts when things get rough.
Tariffs and inflation won’t last forever (though inflation is certainly not transitory).
Wrap Up
Company stock performance stinks, but conviction remains high.
And this isn’t a small holding for me (well, it is much smaller now) but it’s a good-sized investment.
I bought more during 2 pull-backs and I never once thought about selling.
Today’s bump is because the CEO Jeff Green has bought more shares. The Trade Desk is also rumored to be in deal talks with OpenAI. They’re pretty big these days, I hear.
And Yahoo Finance’s AI is nice enough to tell us this.
Yahoo didn’t know about the share purchase, but here it is.
So, today, the Trade Desk is my biggest loser. My conviction remains high. And a new business deal and the CEO choosing to put his own money behind the company make me even more optimistic.
It will definitely take years to play out, but I expect to be looking back on the Trade Desk as one of my big winners.
I’ll keep you posted.