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Welcome to Long-Term Mindset, the Wednesday newsletter that helps you invest better.

Today's Issue Read Time: <3 minutes

• Lesson: Why SaaS stocks plunged last week?
• Timeless Content: Buffett's advice to his wife
• Thread: Philip Fischer's checklist for buying a stock
• Resource: Stock-based compensation explainer
• And more!

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Friends,

This isn't turning out to be the summer that software-as-a-service (SaaS) bulls envisioned. As we highlighted a few weeks ago, chip-makers (NVIDIA) saw an immediate benefit from artificial intelligence (AI) following the release of ChatGPT. Big cloud companies (Amazon, Microsoft, Google) were soon to follow.

"Surely, the applications running AI will be next, right?" Right???

Based on first-quarter results, this has been precisely WRONG. Many companies actually met or beat revenue expectations for the quarter, but the forward-looking forecasts ruined everything.

The list was long -- Salesforce, UiPath, Veeva, MongoDB, and many others -- but they all shared one thing: either full-year guidance that was revised downward or fell significantly short of expectations.

How could this be? There are a few possible explanations:

1. It needs time: Perhaps we've just gotten over-excited and AI-juiced data consumption is just around the corner.
2. Spending elsewhere: As businesses try to take full advantage of AI, they may prioritize in-house projects. That leaves less to spend on current applications.
3. No more moats: Similar to above, the ability for AI to make in-house apps via coding could reduce the moats SaaS companies have built down to zero. This isn't likely, but for the most basic applications, it could be a valid concern.
4. Something else: An upcoming election, a looming recession, or maybe just the gravitational forces of the moon. Sometimes, it's impossible to tell why things unfold the way they do.

No matter the explanation, it reminds us of an important lesson: the future is NOT guaranteed. How do we navigate this realization: make sure you've got lots of cash sitting on the sidelines, live well below your means, and approach the markets with an open mind.

Do that and, over the long run, you can weather these unpleasant surprises with much more grace and ease than you might expect.

- Brian Feroldi, Brian Stoffel, & Brian Withers

One Simple Graphic:

One Piece of Timeless Content:

Warren Buffett is a brilliant investor, and many copy his methods. But you might be surprised to hear his investing advice to his wife.

One Thread:

Matthew Cochrane @TheMattCochrane Warren Buffett called Philip Fisher's book, "Common Stocks and Uncommon Profits," one of the best books on investing. It might be my favorite investment book ever, so much wisdom inside! Here is Fisher's 15-point checklist of questions to consider before buying a stock: 8:21 AM • Jul 30, 2023 483 Retweets 2795 Likes Read 43 replies

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One Resource:

Silicon Valley loves to pay its employees with stock-based compensation (or SBC for short). But, SBC is not as motivational as some might have you believe. Check out this data-filled report on SBC practices from Morgan Stanley analyst Michael J. Mauboussin.

One Quote:

👋 What did you think of today's newsletter?

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​🧠 Do better​

More From Us:

📗 If you've read Brian Feroldi's book, he'd love a review.

👨‍🎓 Interested in learning to read financial statements like Warren Buffett? Check out our self-paced course, The Buffett Method.

🎬 Check out our YouTube channel! Last week, Brian Stoffel covered why SaaS stocks are pulling back and Why he sold Crowdstrike.