Unleashing the Power of Concentration and Diversification - Salesforce Case Study
We examine how DynaLogic's signals performed on a stock that has risen in price since January 2020.
As legendary investor Warren Buffet wisely puts it, "Concentration creates wealth, diversification preserves wealth."
In our Just Do Something case studies, we have examined numerous companies that witnessed soaring success, only to later experience drastic collapses. Through our innovative strategy of selling on strength and reinvesting in the iShares S&P 500 (SPY) ETF, we've shown how the principle of "Concentration creates wealth and diversification preserves wealth" can pave the path to impressive gains.
Yet, this maxim also holds with companies that not only sustain growth but also evade a dramatic collapse after a significant run-up, or generally have a more complex journey. Today, we’d like to explore a case study on Salesforce to show how DynaLogic helped create concentration and diversification in this exceptional case.
Salesforce, Inc. is an American cloud-based software company headquartered in San Francisco, California. It provides customer relationship management (CRM) software and applications focused on sales, customer service, marketing automation, e-commerce, analytics, and application development.
Founded by former Oracle executive Marc Benioff, Salesforce quickly grew into one of the largest companies in the world, making its IPO in 2004. Salesforce's continued growth makes it the first cloud computing company to reach US$1 billion in annual revenue by fiscal year 2009, and the world's largest enterprise software firm by 2022.
Today, Salesforce is one of the largest technology companies in the world, and as of September 19, 2022, is the 61st largest company in the world by market cap with a value of nearly US$153 billion. Salesforce ranked 136th on the most recent edition of the Fortune 500, making US$26.5 billion in 2022. Since 2020, Salesforce has also been a component of the Dow Jones Industrial Average. Wikipedia
On January 2, 2020, Salesforce stock closed at $166.99. On July 24, 2023, Salesforce stock closed at $209.59, an increase of 25%. Let’s see how using the DynaLogic sell signal overlay and reinvesting the proceeds in the S&P 500 ETF (SPY) played out.
Salesforce Price History 1/2/2020-7/24/2023
Price History with DynaLogic Sell Signals
Now let’s see how the two scenarios played out.
Not only is there a pickup in performance by executing the sell signals and paying the capital gains tax, but even more importantly, diversification was created in the process with 47.5% allocated to SPY and 52.5% still invested in CRM..
In this case, the DynaLogic signals used concentration to create wealth and diversification to preserve wealth, leading to both a modest increase in total return and better diversification to protect your gains!
An individual stock is much more volatile so leaving your original investment plus your gains in a single stock is much riskier, as there is potential for a much sharper drop than you would see in an ETF or a bundle of stocks.
Additionally, we have only shown case studies where you reinvest into the S&P 500. That said, you have plenty of other options. If you had put the sale proceeds from CRM into one of our strong add/initiate signals that we highlighted in this article, your return would have done even better. Regardless, being smart and following the system to trim a winner lets you diversify and provides optionality to reinvest the proceeds opportunistically or in a safer bet like an ETF, while also keeping you in that winning stock so you benefit from any future increase.
DynaLogic doesn’t listen to the experts and isn’t swayed by emotions. DynaLogic uses a mathematical algorithm to alert our subscribers to opportune moments to enter or add to a position, and when they need to consider trimming a position.
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“The predetermined buy and sell triggers built into the strategy make life easier and a more efficient use of time as it takes the emotion out of the equation.” T.S.
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“I've been following DynaLogic for a while now, its an invaluable tool to use as part of my investing strategy. I find its difficult for me to sell stocks when they are rising, only to kick myself when I didn't take gains if it drops down the road. So many publications focus on telling you what stocks to buy but I haven't found anything like this that alerts you when to sell which is really helpful when you can't monitor all your stocks all the time. I've also had some really nice gains off the buy signals too.” - Kevin
