Interesting points you raise @pdevries about services industries that involve physical human effort (mowing lawns, cleaning gutter, etc.) thriving because AI can't replace those jobs. Leaving aside robotics and what robots will eventually be capable of, if you take the position that AI will displace many other less labour-intensive jobs and perhaps usher in a period of shorter working weeks and people being able to spend less time working for a living, maybe people become less "time-poor" and actually start looking for productive ways to spend that time, so mow their own lawns instead of going for a walk once a fortnight, or skip a gym session and clean their own gutters. Just saying, it's very hard to predict just how this is all going to play out. However, in the shorter term, those people buying a "Jim's Mowing" franchise might do well. Anything that is unlikely to be impacted by AI is probably going to be a safe enough place to be from an employment perspective in the near-to-mid-term.

I agree @Bear77 , but also those people losing their jobs and income to AI may well be the same people who have been paying to get their lawns mowed etc. and might no longer have the disposable income to outsource those activities.

Yep - as I said in that post: "...it's very hard to predict just how this is all going to play out."

Marcus says he isn't tempted by any of the fallen tech names (nice chart tho):

Interesting @RogueTrader. The higher they got - above the others - the further they have fallen, from their respective high points - in percentage terms - by the looks of that graph (repeated below).

However sentiment remains negative as the graph perfectly illustrates. The selling has increased, not started to flatten out.

Logic just doesn't cut it. I could argue that XRO has significant competitive advantages that AI can not displace, such as a trusted network, loyal customers, interconnectedness / compatibility with multiple already-in-use apps and software applications, track record, reputation, sales force, helpline manned by humans (hopefully), etc., but that won't stop the share price going lower if the market is still scared of SaaS.

That (above) is three weeks worth of trading data for XRO - Friday 23rd Jan to Friday 13th Feb inclusive, and look how the sell-down days dominate, and look how XRO closed at or close to their lows on so many of those days, including closing at their lowest point of the day on Feb 4th and Feb 12th, the two days in which they suffered the greatest % falls (-15.9% and -8.43%).

It's bearish, not bullish. Logic doesn't cut it. It's reality that matters, and the reality is that SaaS companies will keep being sold down until they don't, and that could be Monday or it could be weeks away, but why buy when they're clearly still falling?

If I was already holding, I would not want to sell at current levels - with any of these companies - so I guess the temptation to buy more to reduce my average buy price ("average down") might be too strong to resist, but as far as initiating a new position... nah, not yet.

[my opinion only; I've been wrong before; I will be again].

Disc: Not holding.

I agree @Bear77 anybody's guess when this will reverse (I'm hoping it's Monday too!) From the 'Chanticleer' in the AFR Friday: "If WiseTech, Xero and Pro Medicus looked cheap last week, they look even cheaper now – better to wait for signs that this wave of AI selling has truly exhausted itself than try and fight the momentum behind these trades."

AI panic is going viral. No one’s standing in the mob’s way

And not to be left behind, 'The Australian' also had its own take on the SaaS rout on Friday, dubbing it a 'Sassacre':

Code red: AI unleashes its own tech wreck on software shares

I couldn't get those AFR or Australian links to work on my PC @RogueTrader but that might just be my computer which has been acting a little strange since the last Windows update.

SaaSacre eh?! Does roll off the tongue a little bit easier than SaaSpocalypse. Wonder how many more of these we get before it's over...

That Chanticleer quote you gave from the AFR summarises my attitude perfectly: "If WiseTech, Xero and Pro Medicus looked cheap last week, they look even cheaper now – better to wait for signs that this wave of AI selling has truly exhausted itself than try and fight the momentum behind these trades."

Perfect summary.

Very interesting graph @RogueTrader and perspective from @Bear77 . In the sense of reading into these tea leaves to try to get some notion of where the current market might be heading…

The relatively synchronized movement between the 4 stocks (PME, TNE, WTC & XRO) since early 2024 - the beginning of the most recent leg of the bull market - is striking and leads to 2 questions:

1) will all four stocks bottom out at the same time - whenever that is? If the selling is not company-specific but instead driven by sector-based fear, as it seems to be, then the answer should be more or less yes.

2) at the close of Friday, the P/Es were PME 52.7, WTC 50.3, XRO 51.2, and TNE 48.3. So all four have fallen to much the same level, which is not how things were at the peak. So…assuming the fear-driven market continues to drive the prices down, and the four stocks above continue to move roughly in tandem, to what P/E level will these 4 descend before leveling out? 

And will that P/E level be in any way indicative for what the “new” market - after the fear abates - is willing to pay for well-managed growth stocks?

Regarding the moving in tandem, WTC reports on Feb 25. As it’s very likely there’ll be something in the WTC report which is frowned upon, this might trigger another round of selling, potentially of all 4 stocks.

Why those 4 are moving together is also something of a mystery to me. Also reporting on Feb 25 is EOL, the SP of which has been far less impacted than that of the four preeminent companies above. Currently, EOL retains a P/E of 76.8.

I hold all above except XRO, and while I am a happy holder of EOL, I find it difficult to imagine it has a greater potential for future growth than PME, TNE, and WTC.

Still mystified as to the logic/explanation of what’s going on out there.

One difference between XRO, PME, WTC and TNE (the four stocks beaten down to P/Es of ~ 50) and EOL, still at P/E >75, is that the first four are in the ASX 50, and EOL is only in the ASX300. So different class of investors, most likely, which shines some light on the types of investors selling XRO, TNE, PME and WTC.

@Clio

I definitely don't have all the answers.

But I think one part of the explanation is definitely investor psychology. A couple of books that I have recently read are particularly useful in this regard:

Daniel Kahneman - Thinking Fast and Slow

Steven Pinker = When Everyone knows that everyone knows

In short, the whole momentum trade shouldn't exist in a purely rational world. If everyone simply bought shares when they believed that they were undervalued, and sold when the believed they were overvalued, there would be no such thing as momentum. Momentum is purely a symptom of human psychological biases, and the flow-on, more complex 2nd, 3rd order and beyond effects that stem from these biases.

For example, I might know that PME, XRO, WTC etc have dropped by 60% and are now below my estimate of fair value. But rather than rushing out and buying, I try to anticipate what everyone else will do. I know that usually the momentum trade holds, that other people are reluctant to buy shares that have suddenly dropped dramatically. So I hold off buying myself, not because I think that the shares are not good value, but because I don't believe that other people will start buying them yet. Then I try to look for subtle 3rd or 4th order signals of when the tide might be turning and it might be time to start buying. Usually I am not that successful, because everyone else is also trying to second guess the same 3rd and 4th order effects. Only one person can perfectly get it right and time the exact moment when the herd behaviour turns. Everybody else by definition has to get it wrong (either by a little bit, or by a lot). Mostly it just comes down to luck

The Chanticleer quote that @Bear77 posted is a perfect illustraton of 2nd order thinking: "If WiseTech, Xero and Pro Medicus looked cheap last week, they look even cheaper now – better to wait for signs that this wave of AI selling has truly exhausted itself than try and fight the momentum behind these trades.". Basically "don't buy these stocks, even though they are cheap, because nobody else is going to start buying them yet". The momentum trade exists, because everybody "knows" that it exists.

Intelligent Investor has a similar article re PME. A few months ago they had it as a "buy" below $150 and even suggested that you might take a "nibble" at over $200. Now they acknowledge that nothing has particularly changed with regard to the company's performance (and they do not see AI as a major threat), but despite the price now being well below $150, they don't recommend you buy yet:  "(1) we believe Pro Medicus offers better value now that at any point in recent memory and the stock is at least modestly undervalued based on our mid- and long-term forecasts; (2) today's fear may have a long way to run. As John Addis put it recently, 'Fear and greed at the extremes have similar extents. The optimism in prices riding an AI narrative can go far beyond what most investors expect, and when that greed turns to fear, the same thing can happen'.". Very much the same reasoning as Chanticleer.

So to sum up the situation, there is a complex interplay involving a new, uncertain threat (AI). The magnitude of the threat is very difficult to understand and is rapidly evolving. It has triggered a massive fall in (previously very high) Saas share prices, which is almost certainly being exacerbated by human psychology.

What can a rational person do to try and make the most of this situation? It's both very simple and infinitely complex. The first step is to value each company as best you can. If the price is significantly below your estimate of value, you should start buying. The margin of safety you require should depend on how confident you are in your valuation. And the further the price falls, the more you should buy (as long as nothing changes and you remain confident of the value).

Perhaps all of this is just a complicated way of stating the blindingly obvious. It basically reinforces the conventional wisdom of buying cautiously in tranches when a share price is falling. When it falls significantly below your estimate of value, you start buying, and as it falls further, you buy more.

I personally find the psychology of investing fascinating. I also think it helps in situations such as the "Saaspocalypse" to have a framework to try to understand what is going on. Hopefully by doing this you can make more measured, better decisions.