The Motley Fool Take
Shares of The Trade Desk, provider of a data-driven digital ad buying platform, are among those that have fallen hard this year — presenting an attractive opportunity for long-term investors. Even after a recent 19% bump following a solid earnings report, shares were 54% lower than their 52-week high.
While most advertisers are struggling with the looming possibility of a global recession, The Trade Desk is growing at a healthy clip. The company went public six years ago and has crushed the S&P 500 over that time; it was recently up over 1,500%. Moreover, the company was only founded in 2009, yet it already has nearly $1.5 billion in trailing-12-month revenue. Simply put, it entered the ad space and quickly took market share.
In its third quarter, The Trade Desk generated revenue of $395 million, up 31% year over year, but management projects slowing growth for the next quarter. The company is scaling up, anticipating growth. But if the global economy sours, The Trade Desk could be left with steep losses.
There are risks to any investment, but even with nearer-term macroeconomic uncertainty, The Trade Desk is a stock worth owning for the coming decade. (The Motley Fool owns shares of and has recommended The Trade Desk.)
Ask the Fool
Private vs. Public
From G.W. in Provo, Utah: I see that Twitter is now a private company since Elon Musk bought it. What happens when a company goes private?
The Fool responds: Companies “go public” when they issue shares to be traded on the open markets. Going private means their shares are delisted from the stock exchange and are no longer available to ordinary investors.
A common way that companies go private is when they’re bought by private equity firms. Whether an individual or a firm buys the company, the existing shareholders receive payment in exchange for their shares.
Operating as a private company has pros and cons. Being public can cost much more, as public companies must file regular, detailed reports with the Securities and Exchange Commission and other regulators. Private companies can keep much of their business private. Shareholders have some say in how public companies are run, but a private company can be completely controlled by a single owner — such as Musk.
From S.B. in Lexington, Ky.: What’s “goodwill”?
The Fool responds: It’s an intangible asset that you might see on a company’s balance sheet if it has acquired another company.
When one company buys another, any sum it pays above the net value of the acquiree’s identifiable assets (perhaps to fend off rivals trying to buy that company) is recorded as “goodwill” on the balance sheet. Goodwill represents nonquantifiable intangible assets, such as a base of loyal customers or a well-regarded brand.
There are more quantifiable nonphysical assets that can also show up on a balance sheet, as “intangible assets”; these might include licensing agreements or proprietary technology. Such intangible assets can be sold. But though goodwill may be impaired at some point and thus devalued, it remains with the company and can’t be sold off.
The Fool’s School
You can learn a lot from famous investors. Here, for example, are some bits of wisdom:
Warren Buffett: “When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.” This is a good reminder that we don’t need to be very active investors. Buy well, then hang on.
Peter Lynch: “All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out.” Investing mistakes are inevitable, but hitting some home runs can more than make up for them.
John Bogle: “If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.” It’s important to know what to expect from stock investing. For example, the stock market will swoon every few years — and it has always recovered from downturns.
Charlie Munger: “The No. 1 idea is to view a stock as an ownership of the business and to judge the staying quality of the business in terms of its competitive advantage.” Don’t view stocks as lottery tickets that might or might not pay off. They make you a part-owner in a business, so choose those businesses well, looking for advantages such as strong brands or proprietary technology.
Warren Buffett: “We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” Attributed to Buffett, this quote asserts that people of average intelligence can grow quite rich with stocks, as long as they invest regularly and don’t succumb to greedy buying or panicky selling.
Mellody Hobson: “The biggest risk of all is not taking one.” Yes, the stock market can be volatile, but there are few better ways to build wealth over the long run, and most of us need to be saving and investing for our futures. Social Security will not be enough.
My Dumbest Investment
From D.T., online: My dumbest investment? Well, I only did trading; I forgot to invest. I also used to trade based on recommendations from business channels. That was the dumbest part.
The Fool responds: You point out a critical distinction: Trading and investing are far from the same thing. Yes, when we place “buy” orders and whenever we sell, those transactions are called trades — but ideally they’ll be the relatively infrequent trades of long-term investors. For best results, most of us would do well to find well-managed, growing companies and invest in them when their shares are undervalued, aiming to hang on for many years (if not decades), giving them time to grow.
In contrast, there are more active traders (including day traders) who jump in and out of different stocks frequently, often without knowing much about the companies in which they invest. That can be risky.
However, following others’ recommendations isn’t necessarily dumb — as long as you do your own research into each portfolio candidate as well. Remember that not every pundit has a good track record and that not every recommendation is good for everyone. Some might be risky stocks, for example, and some might be meant for holding only a short time. Focus on the long term, do your research and be an investor, not a trader.
Who am I?
I trace my roots back to 2011, when two guys prepared to launch an online jewelry store, only to quickly change direction. I was bought by PetSmart in 2017 for $3.35 billion and spun off as a publicly traded company in 2019. Today, I’m a premier retailer of pet products, offering more than 2,000 brands and more than 100,000 products. I have more than 20 million active customers and rake in more than $9 billion annually. I offer pharmacy services and a wellness and insurance program. More than 1,000 veterinary practices use my software. Who am I?
Can’t remember last week’s trivia question? Find it here.
Last week’s trivia answer: Microsoft