Wall Street analyst Mark Mahaney, managing director at RBC Capital Markets, is widely known as one of the most accurate stock pickers on the Street.
He recently spoke at the Fortune Brainstorm Tech conference in Aspen, Colorado, on the surprising methods he’s developed over his 20-year career for spotting winners and losers on the stock market.
He’s the first to admit that he hasn’t gotten every single call right. His misses, although rare, clearly burn in his memory.
His most major misfires, in his own words: “I put a sell on Amazon in 2003 right before it began one of its major inflection points. I’ve had a buy selectively on Snapchat since its IPO, and I did put a buy on Blue Apron at its IPO,” he admitted on stage during his talk, to an appreciative audience.
He said that one key tenet of getting rich on tech stocks is that it’s not for short term thinkers looking to make a few quick bucks.
He also warned that, no matter how solid tech companies look at the time they go public, “there will be blood.” They may flourish as startups, and land big checks from a savvy private equity investors, but they “can still blow up” after they go public, he said. “It comes with the territory.”
So Mahaney’s top advice was to “focus on fundamentals” while thinking long term. Does the company have a real shot at growing its customer base for many more years to come? If it operates in a huge market, like global advertising (Google), global retail (Amazon) or entertainment (Netflix), the answer is yes. As big as those companies are, they have still only scratched the surface of the global spending in their industries.
He also offered one surprising tips on a good time to pounce on a tech stock: “look for the lucky lexicons.” That means to listen for how people talk about companies.
“When companies become verbs, nouns, when they become part of the popular vernacular, that’s usually a pretty good time to invest in the stock,” he said.
For instance, it was a good time to invest in Google when people started saying they were going to “Google”for something instead of search for it, “tweet” something instead of share on social media, it or “Netflix and chill” instead of — well, whatever their evening plans entailed.
When that happens to a company, “their need to advertise has dramatically shrunk because they are already part of the vernacular” and those companies are “usually a safer investment.”
As for spotting losers, he said the telltale sign is a sharp decline in growth. This means “there’s something going wrong,” he said, like maybe the company has maxed out its market and can’t think of new ways to expand. Tons of turnover in the CEO spot is also a “disaster” for investors.
The whole talk is excellent and punctuated with humor. Take a look.
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