Why I Sold My Uber and Lyft Stock at a Loss

People love to talk about buying winners because sharing your losers sucks. But every investor experiences them. I have with Uber and Lyft. And I’m going to talk about them now.  

Selling a stock can be just as hard as buying one, sometimes harder. That is especially true when we’re losing money. We can get weirdly attached to a stock and resistant to let it go, even if we know it’s the best decision. Doing that would mean we have to admit that we were wrong and other weird psychological phenomena that I won’t get into here. 

Taking a Loss in My Uber and Lyft Stock

Last week I sold my small positions in the ride-hailing companies, Uber and Lyft, at a loss. The latter was the larger position, which also lost more money. I think it was down over 50%, maybe closer to 75%. No matter how you look at it, those numbers are ugly. Uber was much smaller, maybe less than 5%, but still a loser. And the saving grace was that they were smaller positions, meaning I invested a relatively small amount of money in them, making them smaller losers. But, to me, they still felt big. Everyone hates losing money. At least I do.

Why I Sold Them

The reason I sold them wasn’t because I’m masochistic or have some fetish with losing money, no. Rather, I felt like these companies were losing because the industry was going to struggle for the foreseeable future. I’ve held on to losing stocks before. But many of them started to swing positive, eventually. Some took longer than others. But these never did. With the pandemic, I think it will be long before people start using drivers in mass. 

And regulation is coming down. California tried to create a law where these companies’ drivers will be treated as employees, which didn’t ultimately succeed since Uber and Lyft threatened to shut down their California operations. So the state relented, for now. But stricter laws that protect the drivers looks inevitable in California. And it could spread to other states. 

There is still value in Uber and Lyft. People will still use them. People will still drive for them. It is a solid business model. But the scalability, I believe, has lessened. Much of the growth has happened. And the investors who captured most of the most valuable upside were the private ones who bought in before the IPO.

Even With Headwinds, There Is Still Potential

There is still the delivery services, and it appears to be making great headway even with headwinds, replacing the revenue it had in rides, at least for Uber. And that sets up a great scenario where they will potentially have two great revenue sources after the pandemic. And there is a growth story there. 

And Lyft looks like they are offering the same service, but I don’t see how well they are doing in it and if they’ve been able to be as successful in pivoting as Uber has. And that lack of visibility may be the reason its stock has performed more poorly than Uber’s.

Also, Uber does have a great CEO, with Dara Khosrowshahi, who left Expedia to take over after Uber’s co-founder, Travis Kalanick, was ousted. But even the greatest CEO would have difficulty navigating a business where a business model dependent on travel is pitted against a pandemic that has kept people sheltered like hermits. Khosrowshahi is a great business leader, but even he has his limitations. 

In the long long run, I think they will do well. People need rides; they will need to go to the airport. City dwellers will want to live without cars and have the convenience of just tapping on their phone and getting picked up and schlepped to their destination on their steel chariot. That trend is not going away. It will only grow. But it will take time.

But I don’t think it’s worth waiting.

Closing Thoughts About Selling Tech Stocks

Sometimes it’s best to exit an investment, even at a loss, to get into ones that you believe will have a higher degree of success in the short and long term. The keyword in that sentence is “higher.” 

Money is a resource. And if we allocate it in the right vehicle, it can fly to far great heights than you ever imagined it could. That 50% loss can be recovered in less than a year, and you can start having a positive investment soon after that. That is especially true with technology stocks.

Because, often, staying in losing positions makes you lose the opportunity to find winners. See, just because you’re losing doesn’t mean you’ve lost. 

Sometimes, you just have to admit you’re wrong, push through the pain of selling at a loss, and find the winner that can give you bigger gains than you thought you could produce. 

Sometimes, to win, first you’ve got to lose. 

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Why I Won’t Sell My Shopify Stock

Shopify is one of the biggest positions in my stock portfolio, and I believe it has an incredibly bright future. 

About two years ago, I bought the stock, but it was terrifying then. Around that time, a short seller, Citron, was on the scene and was putting reports about how Shopify was illegitimate and a “scheme.” It’s laughable now since they publicly announced that they were wrong about Shopify. But it wasn’t funny then—at all. Their words moved the price a lot. It felt like riding the worst rollercoasters ever, and, with each rise and nauseating dip, someone was taking or adding to my net worth. I hated it.

I’ve had a history with Shopify that extends beyond just as a person who owns their stock. I have a creative agency that has used Shopify to build online stores for our clients. And I’ve been well aware of Shopify’s power and ability for years. I saw first hand that businesses were making hundreds of thousands and millions of dollars on Shopify since we helped build them.

And you would think that after having that experience and doing further research on the company and seeing its incredible growth and climb into success, it would have given me the confidence to hold onto it when things with the stock got rocky, with Citron making waves. But it didn’t. I still got spooked.

When a stock price moves so violently down and you own it, it’s hard not to doubt. I even wondered if Shopify was a legitimate investment. And that says nothing about them and more about me, that I’m easily shaken. And I also knew that short-sellers are incented to make negative statements about the companies they’re shorting because they get richer when the stock price goes lower. But I still doubted.

I don’t think I sold my position, or if I did, I bought back in. Regardless, I own stock with the price from around that time. And, in one of my accounts it’s up 389%, another over 500%. And I don’t say this to brag. I only tell you this because it’s easy to sell when everyone else is. Getting scared out of a stock when the markets get turbulent, like the past couple of weeks, is common. 

But to get the gains, you have to go through the pain. And Shopify, I think, still has a lot more room to gain. 

It’s just getting started. The pandemic pulled the future of e-commerce closer. Some say it has sped up the move to online shopping by five years. No matter what you think, e-commerce isn’t going anywhere and will only continue to grow.

And retail as a whole is huge—like, massive. Global retail sales are over $23 trillion. $5 trillion of that is in the US alone. And retail is still growing. People aren’t going to stop buying things, even in a pandemic. Families still need diapers. People still need to eat. Socially distanced kids need toys. Some people are buying more, others less. But humans still need things. As long as that is the case, they will continue clicking and buying.

And yes, Amazon is huge, but even they can’t gobble up $23 trillion worth of business. There is plenty of space for competitors, or, better yet, alternatives. 

There are plenty of reasons why businesses wouldn’t want to sell on Amazon. Amazon doesn’t let other retailers own the channel, the distribution, not even the customers. When a brand sells on Amazon, they must play by Amazon’s rules and pay their fees and use their systems to tap Amazon’s customers. 

Shopify is different. When you build an online store there, it’s yours. The sales are yours; the customers are yours; the email list you collect is yours; the branding is yours. Sure, you pay to use Shopify’s services and platform. But it’s a pittance compared to starting without them. To build your new system and e-commerce site from scratch would cost bundles more. So using Shopify makes sense. 

My wife and I used Shopify to build a little online business selling vegan and gluten-free cookies. It took me less than a day to set up the website. Shopify’s free trial was risk-free, and all I had to do was spend my time putting the site up. And since then, we’ve been able to grow a business that seems to have real potential, slinging delicious, clean cookies, through the incredible power of Shopify. 

Not all e-commerce plays will win. For instance, Stitch Fix reported earnings a couple of days ago, and their stock tanked because their business model isn’t relevant at the moment. They dress women who want great outfits styled for them by professional stylists. But since people aren’t really going out, there’s no real need for anything other than the sweatpants we’re all wearing. 

Shopify isn’t Stitch Fix. 

They are launching new products that have a lot of potential. Last year they launched their fulfillment services, where they will store inventory and ship products for customers. It’s just like Amazon’s fulfillment service, except its from Shopify. And it has been a business-to-business company, meaning they have a product that helps other businesses. But now they’re trying out a B2C play, leveraging their stores, and listing them on an app. People can look for various products and stores by location or other filters to find interesting new products.

And they have a lot of stores. This site states that there are over five hundred thousand stores on Shopify, which amounts to $40 billion worth of sales. Those numbers are huge, but, I believe, they will only get bigger. The pie is growing, with e-commerce taking more and more market share from brick and mortar. And Shopify has great brands using their software. Allbirds, Shopnova, Kardashians, and many more are using them to power their online stores. And this gives Shopify a vast advantage over other platforms trying to make a play in this space. 

Lastly, I’ll mention that they have an app store that is mature with a healthy eco-system of developers building supporting software for Shopify and its customers. It’s a significant edge. Imagine the iPhone without apps. What would that experience be like without being able to open up an app to check your bank accounts, or play games, or take notes, or the thousands of other things people do on their phone? The Apple App Store set the iPhone apart. Shopify has the same thing. Except their apps help you get deliveries optimized and recorded, and figure out accounting and fulfillment, and set up a subscription system so vegans can buy your vegan cookies every week to get their fix. A mature app store is difficult to cultivate, and to have one already established only establishes Shopify as an incumbent that will be very difficult to dislodge. 

There are a lot of reasons to be afraid these days. But the more I consider this company, the more confident I get in its future. 

And plan on holding my position in Shopify for a long time. 

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