Episode #30 - Airbnb is public. Are you in?
Tackling the question of owning individual stocks through the vacation rental prism.
Intro:
Welcome back! At this point, you’ve almost certainly heard of Airbnb, but should you own it as a part of your investment portfolio?
On December 10, 2020 Airbnb entered the world of publicly traded companies through an IPO. Out of the gate, the $ABNB stock more than DOUBLED what is was expected to go for upon IPO.
In this note I will spend some time discussing whether you should own Airbnb and use that as a prism to refract a common general question: Should you own individual stocks at all?
Background:
I’ve been pretty dedicated to the concept that your best bet, financially and pragmatically, is to invest in stock indices. For example, I covered the S&P ETF, total-market mutual funds, and other tools that help you move away from constantly managing your stocks. The reasons to avoid this manual trading seem obvious: who has the time for all of that money management? Who can time buying and selling correctly? Who wants to do the research to confirm if a stock is a good investment?
I stand by my recommendation to avoid active trading, but it can be hard to resist the temptation to open your Robinhood or Public account and make some easy trades. You might say, “why not? It’s so simple, feels like fun, and I have a chance to make some serious money!”
The theory vs. the practice
Ok, I’ve gotta come clean on trading individual stocks for the group. Before I was better educated about the diverse portfolio theory, I got roped into my fair share of Motley Fool advertisements (strangely enough, I still get the spam emails even if I no longer pay - I may open a support group for that some day) and made some exciting individuals stock plays early in my investing career.
In the spirit of figuring out my single-stock investment theory, I want to use Airbnb as a test case. Let me share some of my principles with you, and you’ll let me know what you think!
The theory boils down to three components:
1) I feel strongly that companies with excellent consumer products that I use on a consistent basis are more likely than not to be strong investments. When my personal interest in the item the company has to offer dwindles, I need to take stock of that change and see if it’s me or the company and then I would need to change my investment plan accordingly. This “go with what you know” strategy pioneered by Fidelity’s Peter Lynch has its drawbacks, but it does resonate with me when coupled with additional factors.
2) The second principle is that I need to be willing and able to hold the company for the long term (think 7-10 years) to make these investments worth the risk. This likely sounds familiar based on the long plays I recommend when it comes to ETFs and Mutual Funds. Day-trading just doesn’t feel like a way I can confidently earn money in the market. In addition, longterm-ism helps counteract the problem of timing the market.
3) The third principle I try to stick with is excellent experience with the product. In the event that I want to invest in a company whose product I use, I need to make sure that the product passes a high-level sniff test to ensure I’ll want to stick with the investment for a long time to come.
It should be clear to you that I’m not jumping in to buy stock in companies that make something I use, rather I take a look at the full-on experience and see if it lines up with the above principles. In future notes I may dive into other specific companies on the market that I hold, but for now a closer look at Airbnb.
A Closer Look:
I’ve stayed in fifteen Airbnb’s since 2015. Some were for pleasure and some were for fun - the night my wife and I got married we took an Airbnb. I’ve Airbnb-ed in Bermuda, Puerto Rico, Jerusalem, and across the continental USA. Nearly every time it’s been a flawless experience, whether for a weekend of four weeks. I did experience a challenging weekend during the pandemic, but by-and-large each trip has been spectacular. Getting to see different parts of the world using the same operating system to find my place to stay never gets old.
From a brand perspective, I don’t know anyone who has ever said “Oh, I’ll find a Marriott” or “I’ll take a Holiday Inn” or “I’ll find a Ritz.” If someone told you, “I’m going to find/take/rent an Airbnb” that just clicks.
A wild statistic on the broader value proposition of the company is that the vast majority of people who take Airbnbs go DIRECTLY to the site. They don’t go through Google or some other search engine. This means that Airbnb doesn’t need to spend much on advertising to drive traffic to their page. I believe this organic growth is an under-appreciated value for the company that may not be priced into its current valuation.
Additionally, the company was hit hard at the beginning of the pandemic and was forced to delay its IPO and slash hundreds of jobs. However, this seems to only make the company more lean and powerful as a long-term growth driver.
I have yet to pick up some shares because I am concerned that the rocket of growth it started with may be too high, but I do think that I’ll wait a bit longer and pick up some. Until then, I gotta pack my bags for my next Airbnb, December 27-30 ☺️.
Interact:
Do you own any stocks of companies that you currently use their products? Have any of the principles I’ve laid out guided you as to where to put your money?
Please comment below about which company you’d want to add to your portfolio, even if you don’t own the actual item they make?
What do you think about Airbnb in particular? Any other stocks that follow these principles that you’d like to get into and hold for a long time?
Gratitude:
Thank you Dr. Gillian Steinberg for helping me with some tightening of these essays - she’s an awesome writing coach who I’ve gotten to benefit from for the purposes of this and other writing projects! Any weakness in the episode is a function of my lack of applying her advice, not her ability as a coach.