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YouTube IRA-05: Million dollar IRA: Trimming two winners (AYX, QTWO)

Nicole Seaman

Director of FRM Operations
Staff member
Since my last update, I exited Volkswagen (ticker: VWAGY) because I want to reduce the number of positions in my portfolio (I now own 32 stocks). This video is about my decision to trim two winners: I sold 170 shares of Alteryx (ticker: AYX) but I still hold 200 shares. Further, I sold 80 shares of Q2 Holdings (ticker: QTWO) but I still hold 150 shares. Consequently, my IRA portfolio now contains the following positions: Apple (AAPL) 175 shares; Applied Materials (AMAT); 200 sh; American Homes 4 Rent (AMH) 500 sh; Alteryx (AYX) 200 sh; Bank of America (BAC) 625 sh; BlackRock (BLK) 25 sh; Chegg (CHGG) 500 sh; Cloudera (CLDR) 2,602 sh; CyrusOne (CONE) 200 sh; CooTek Cayman (CTK) 1,400 sh; CVS Health (CVS) 220 sh; Dropbox (DBX) 500 sh; Physicians Realty Trust (DOC) 700 sh; Enbridge (ENB) 350 sh; Facebook (FB) 175 sh; Alphabet (GOOGL) 10 sh; GreenSky (GSKY) 1,000 sh; HP (HPQ) 800 sh; Instructure (INST) 1,385 sh; Invitation Homes (INVH) 300 sh; Lennar (LEN) 500 sh; Pivotal Software (PVTL) 2,000 sh; QTS Realty Trust (QTS) 300 sh; Q2 Holdings (QTWO) 150 sh; Redfin (RDFN) 500 sh; Sprouts Farmers Market (SFM) 1,000 sh; Skyworks Solutions (SWKS) 150 sh; TJX Companies (TJX) 200 sh; William Lyon Homes (WLH) 1,000 sh; Xero (XROLF) 1,000 sh; Yext (YEXT) 1,200 sh; and Zuora (ZUO) 800 sh.

I mentioned how easily the forward P/S multiple can support any price target if the growth rate is high. Given a constant continuous sales growth rate of g% and current P/S ratio of P, the T-year-forward P/S ratio is given by P*exp(-gT) = P(T) such that if our target P/S ratio is P(T) and our growth rate is g%, the stock becomes "fairly valued" in T years, where T = ln[P/P(T)]*1/g years. This inverts the question to become, "If the growth rate is g%, how long will it take for the price to become fair?" For example, AYX trades at a P/S of about 24 and one SA article assumes a 50% sales growth rate (understandably, given the guidance!); if your target P/S ratio is a modest 5.0X, then this can be reached in only ln(24/5)*1/0.5 = 3.14 years. To me, this is both an argument against casual use of the forward P/S, if only because it can justify virtually any price target; but also illustrates why fast growers who *seem* currently rich are one of the best investments you can make because they quickly become fair.

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