I've been a big proponent of Upstart stock because of the proven benefits. Its AI lending program is statistically superior to those that rely on traditional FICO scores. Their focus on subprime consumer loans is but a foray into lending markets that are orders of magnitude larger, such as car loans and mortgages. I was not a fan of their pandering to Wall Street by removing loans from their balance sheet, but I don't think it will derail them from their long-term goals. Best of all, their stock has been trading as if they're going to zero, when their financials are absolutely stellar.
On TIKR Terminal, which I highly recommend for long-term, fundamental investors, analysts tend to agree, with estimates guiding for solid growth. However, they also predict serious setbacks in 2025, which would put a huge dent in their progress:
2022 2023 2024 2025 2026
Revenue: 1,083.23 1,379.37 2,107.31 1,379.00 1,57.00 CAGR 9.3%
% Change YoY 27.7% 27.3% 52.8% (34.6%) 12.2%
This seems very strange to me, and I can't find any sort of reasoning behind it. For one, we're witnessing the credit cycle rollover as I type this. The macro environment couldn't be worse for them. Still, they are maintaining growth and have stabilized their lending program. Additionally, their AI is learning at a faster pace than ever as this cycle provides reams of data that might've otherwise taken years to accrue. What could possibly be the driver of such a catastrophic shortfall, specifically in the year 2025? I have no other idea outside the expectation for a repeat of this year's downcycle, with Upstart again falling prey to a collapse in debt markets.
But the thing is, no one can predict these things–like, not in the slightest.
My larger questions, therefore, are what goes into guidance like this, and how accurate are analysts at these ranges? My gut tells me the answers are 'random bullshit' and 'not very', but I honestly don't have access to the data. There are countless analysts, some better than others. I don't know which ones factored into the consensus estimates for Upstart on TIKR, not to mention the limitless estimates that go into stocks around the world, across a multitude of platforms, and at varying timeframes.
There's no way they can predict what will happen with a company in ten, fifteen, thirty years. But even three years out seems impossible, quite frankly. Just look at the last three years, during which we experienced the fastest crash in history due to a global pandemic, the fastest recovery in history due to loose monetary policy that extended FAR past its expiration date, and therefore the biggest inflation shock in over 40 years. Zero people could have foreseen these macroeconomic events, let alone the effects they would have on individual companies. 99% of Reddit guaranteed the second Great Depression in April 2020–a year in which $SPY ended up rising 18%.
So my last question to everyone here is: How do you manage guidance and estimates in spite of their horrific track record?
A small slice of people are far better than others when it comes to investing. I tend to believe that this has to do more with emotional control and composure than intelligence and foresight regarding macroeconomic trends. There are traders who can use technical analysis to make 300% in a year, but they'll rarely beat a long-term investor that sits on their hands and lets their winners run upwards of 100X. That's why I keep buying during times like these, when people can't manage the red in their accounts and the comparisons between current totals vs ATHs.
At the same time, sticking with a select group of stocks requires some sort of foresight, right? Or else, why would you pick that stock in the first place? To go back to the original example, I'm gobbling shares of Upstart now because it's not only fundamentally cheap, but also specifically because it's riding the downturn, and I want to buy closer to the bottom than the top. Also, they're miles ahead of any other AI lender, perhaps even decades, aside from maybe Pagaya, which operates in another sector anyhow. But I wouldn't deign to predict what's going to happen on a year-to-year basis.
In the end, I wonder how much investing relies on luck vs. ability. The old saying “time in the market beats timing the market” sounds great, but not to the investor who threw their life's savings into tech stocks in November 2021. This is straight up luck, as inflation had just emerged as an issue, and no one truly knew it would be this pernicious–least of all the Fed. If these first-time investors view this experience as indicative of the market as a whole, they might eat their losses and never come back. Given their limited experience, were they bad investors, or simply unlucky?
FWIW, I'm down 50% from the highs. I've always believed volatility is the price you pay for returns, and that the market over the long term goes up. But past performance has no bearing on future returns–or does it? Have my years of success indicated that I have a knack for picking stocks? Could Warren Buffett possibly have been lucky? How much experience is required to claim that one's success or failure is due to skill or a lack thereof?
TLDR: TIKR Terminal provides analyst estimates for each company. Some estimates go out as far as 2026 or 2027. Do you think analysts can make estimates for individual companies, let alone macroeconomic trends, with anything resembling accuracy? And for those that can, how much of their success can we attribute to 'talent' vs. 'luck'? What are the metrics that distinguish these features?
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