***
It’s a story that The Hustle has covered extensively: the pandemic forces an entrepreneur to pivot.
Jonah Lupton’s story certainly fits that mold, but his pivot is not one we’ve seen before.
Over the past year, Jonah has gone from a startup founder of SoundGuard (an eco-friendly, soundproof paint startup) to a fund manager at Chamath Palihapitiya’s Social Capital.
As of March 1st, Jonah began investing with Social Capital’s “Emerging Managers” Class of 2021, an investment program which spreads $50 milion of assets across 10 fund managers, who come from all types of backgrounds (the program had 1500+ applicants).
The career change isn’t completely out of the blue since Jonah spent a decade of his professional life — from 2002 to 2011 — managing assets for high net worth individuals at Morgan Stanley and Smith Barney.
“I decided to walk away from the investment industry after the financial crisis,” he tells The Hustle. “When your clients are losing money every month, the job is no longer about finding good investments because you’re forced to become a psychologist and convince your clients to stay invested even in the midst of so much uncertainty. I needed a mental break from the industry, I needed to try something different.”
After leaving the industry, Jonah jumped into entrepreneurship and over the next decade he started 4-5 companies of varying success.
Prior to the pandemic Jonah’s most recent startup, SoundGuard, was gaining momentum but by the Summer of 2020 it was clear that many of the company’s prospective clients were pausing or canceling projects.
Jonah, who already had a size-able Twitter following became more active on FinTwit (Finance Twitter) and began publishing a weekly Substack newsletter and posting his investment portfolio for everyone to see. This increased level of transparency coincided with the explosion in retail investing.
Today, Jonah shares his investment related content with 500,000+ Twitter followers as well as 35,000+ Substack readers (subscribe here) and 2,000+ members in his Stocktwits chat room (join here). He also launched Fintrics to help investors determine appropriate price targets for their favorite stocks (signup here).
The Hustle caught up with Jonah to find out more about his investing strategy, why he’s so transparent on Twitter and his plans for an exchange traded fund (ETF).
***
One year ago, were you investing heavily in the markets?
Not at all. I was putting 100% of my time, effort and capital into SoundGuard. If you’re an investor you want your entrepreneurs totally committed. I wouldn’t invest in someone that had $500k sitting in a stock portfolio as their backup plan.
I try to be “all or nothing” with my endeavors.
What happened to that business?
The pandemic crushed SoundGuard so I started getting more involved in FinTwit. I’ve been building my Twitter following for more than a decade but 2020 was the first time I started posting about stocks or publishing my investment research.
What is the criteria you’re using for finding stocks?
There are a few things I look for:
- High growth: I want to see at least 30% revenue growth over the next 3 years, but I prefer 50% or more. Even if the price-to-sales (P/S) multiples are high, I’m willing to pay a premium for the best growth companies assuming they can continue to grow at that pace.
- Reasonable valuation: Since I’m aiming for capital appreciation (vs. capital preservation), I want to own stocks that have significant upside. I believe the best opportunities still exist within small caps and mid caps so that’s where I’m focused.
In addition, I only want to own stocks that I believe have a high likelihood of going up 5x over the next 5 years which is a 38% CAGR (compounded annual growth rate). Some of these stocks might only go up 3-4x over the next 5 years but others might go up 10-20x. - Catalysts: I want to own companies that have potential catalysts on the horizon that could take the stock price much higher. For example, one company I’ve written about multiple times this year is DermTech.
After studying this company very closely I determined one huge catalyst would be the large insurance companies coming out in support of their PLA products and issuing full-coverage guidelines.
Turns out my assessment was correct and after Blue Cross Blue Shield of Texas made this exact announcement a couple weeks ago the stock was up +80% in the following days.
What about the FAANGs of the world?
These are all great companies but they’ve already gone through their hypergrowth phase. I could see these stocks going up 10-20% per year but due to the size of their current market caps I just don’t see any potential for 5x in 5 years, so I have no desire to own them.
I’m also looking for companies that I can get very excited and passionate about which Apple, Facebook and Netflix no longer do for me.
What does the daily process look like?
I’m usually up around 6am. I’ll have breakfast and check my investment account as well as my Social Capital fund. Assuming I have some cash in my account, I’ll start putting in limit orders for any positions I’m looking to increase.
Then I’ll spend the next couple hours reading, reviewing charts, doing some due diligence, working on my next Substack newsletter and of course seeing what other investors on Twitter are talking about.
FinTwit has become an amazing resource and communication channel for me. There are dozens of other investors that I talk to regularly via DM, email, text and Zoom that I first met on Twitter.
I also get pitched dozens of stock ideas every day on Twitter — several of them have turned out to be my biggest winners over the past year.
What’s the motivation for all this work. Why give it away?
I want to help retail investors uncover small-to-mid-cap names before the larger institutional investors get to them. There’s a whole world of small cap stocks out there that are not covered by Wall Street analysts.
These analysts are looking to write research and sell research to big funds, and that means they’re going to focus on the large caps because that’s where there is more institutional capital.
And there are hedge funds that are running billions of dollars that only invest in larger companies because they need to. They need to be able to get in and out of positions, and there’s not enough liquidity in the small caps stocks.
There are probably 40-50 analysts that cover stocks like Apple and Facebook, and — for a smaller stock — maybe 2-3 analysts, and their research, estimates and price targets are updated infrequently (maybe once every 3 months).
You’re saving people a ton of time.
I’m spending 10-15 hours per week doing the research and writeups for my Substack newsletter then condensing it down into a 10-15 minute read. The writeups are a mix of opinions on the company, why I’m bullish and then including links to all of the primary sources such as investor presentations, press releases, earnings releases, SEC filings, analyst reports, CEO interviews, social media accounts and more.
That way people can do their own research.
I’m also spending another 8-10 hours per week in my Stocktwits room and doing my CEO interviews. I think there’s a lot of added value for investors if they can read my Substack writeups and then watch a 20-30 minute interview with the CEO where I’m able to dig a little deeper on certain topics.
If you were to find one or two really great names, why not just go all in on them?
My ambition is more than just writing a Substack plus I have to be cognizant about the fact that thousands of other investors are copying what I’m doing so proper risk management and portfolio sizing needs to be something I’m constantly mindful of.
This isn’t to say that I don’t have high-conviction investments because even when I have 30-50 stocks in my portfolio, the top 10 names typically make up 50-60% of my capital.
In addition, one of my goals over the next year or two is to build a strong research team and then launch an actively-managed exchange traded fund (ETF).
It’s also possible that I might want to run a hedge fund someday. However, that’s probably at least 3-5 years away. Regardless of where the future takes me, in order for my career to continue progressing forward I’ll need to establish a track record, continue building my credibility and keep proving that I not only know how to pick stocks but that I can construct and manage a top-performing diversified portfolio in good markets and bad markets.
What would your ETF strategy be?
We’re starting to see a lot of demand from retail investors for these smaller high-growth companies. However, it takes a lot of time and skill to find them and do adequate research.
Add to this what’s happening with SPACs where you have late-stage startups tapping into the public markets earlier than ever before and you have two powerful trends which could continue for many years to come. Even though I do believe the number of SPACs being launched is unsustainable, it’s undeniable that we’re seeing some incredibly disruptive companies come public which gives retail investors the opportunity to participate in that hypergrowth.
I’ve been saying that SPACs in general are giving retail investors the opportunity to play the role of late-stage VC. Over the past couple decades, retail investors would never have had access to these companies — they were reserved for the likes of Sequoia, Benchmark, Greylock, Kleiner Perkins and many other iconic VC firms who were investing in the later stage rounds. .
With that said, there are still plenty of risks with these SPACs and some of the companies they are taking public. It’s really important for investors to do the necessary research in order to understand these companies, their technologies, the markets they operate within and so forth.
If investors want to own these smaller, high-growth companies but don’t have the time or skill required to properly vet them, then they need a better way to invest and that’s where my ETF could play a role.
How much crossover will there be between your public picks and Social Capital?
Going into the first week of running my Social Capital fund, I wasn’t sure how many of my favorite stocks I’d be able to buy since some of them were already up big in 2021. However, once we got that big pullback in early March it gave me a chance to build my positions a little more aggressively.
Now that I’m 3-4 weeks into running the Social Capital fund, I’ve been able to construct my portfolio exactly how I wanted to. However, I’m still sitting on some cash and will take advantage of any future dips or pullbacks.
In terms of crossover between my personal portfolio and my Social Capital fund, I’d say it’s about 95%. If I’m going to spend dozens of hours every week doing the research, listening to earnings calls, reading through SEC filings, reviewing investor presentations, looking at charts and so forth — and I build up the conviction to take a position — then it only makes sense to own that stock in both my personal portfolio and the Social Capital fund.
Would you invest in Tesla?
Tesla is a phenomenal company with a very bright future.
However, the stock is up nearly 10x over the past 18 months. Even though I love what the company is doing and still see tremendous upside, I’m really focused on companies with market caps under $10 billion that I believe can 5x over the next 5 years.
Due to Tesla’s current market cap, I just don’t see them doing it. With that said, I’m still rooting for Tesla to continue their success and I wish all shareholders the very best. I think it’s very possible, within 10 years, that Tesla is the largest company on the planet.
