Tag: Philosophy

As I consider the companies that provide software stack solutions for long term investment, I generally look at several criteria to influence my stock selection decisions. These might surprise you, as none are traditional financial metrics. I do consider financial metrics in making final selections, but focus more time on analyzing the company’s products, market opportunity, team and strategy.

Some traditional stock analysts would consider this approach to be backwards. They may start with a set of financial indicators (like P/E, P/S, ROE, etc.), establish ranges for these and then filter out the majority of companies. This approach may work in more mature industries. However, in the evolving software stack space, I think that qualities more closely associated with the company’s product offerings, competitive positioning, total addressable market, developer evangelism and leadership are predictors of long term success. These forces will ultimately drive financial metrics (assuming an experienced CFO is in place) and translate into stock price growth over the long term.

First principle thinking has gotten a lot of coverage recently. Popularized by luminaries such as Elon Musk and Ray Dalio, first principles provide a framework for breaking down a complex space into a working model from which decisions can be made. In its simplest terms, a first principle is a basic assumption that cannot be deduced from other assumptions. First principles can then be combined to form a working model for making decisions.

I thought it would be useful to kick off this blog with an outline of my basic tenets. These will provide the foundation for the coverage, scope and conclusions that readers can draw from the coverage of software stack companies.