TIP837: Adobe, Lululemon, PayPal – Are our Biggest Losers a Buy Now? w/ Daniel Mahncke & Shawn O’Malley

What It Covers

Daniel Mahncke and Shawn O'Malley conduct a post-mortem on three portfolio losers — Lululemon (sold at $116 from $200 entry), PayPal (sold at significant loss in the low-to-mid $60s), and Adobe (down ~70% from highs) — analyzing what went wrong, which warning signs were missed, and whether any represent buying opportunities today.

Key Questions Answered

• •Discounting as a leading indicator: For retail brands like Lululemon, monitor the percentage of inventory sold at full price before revenue numbers deteriorate. When Lululemon began heavy discounting, it signaled brand erosion months before margins visibly compressed. Full-price sell-through rate is a more reliable early warning metric than headline revenue or earnings, which lag the underlying brand health by several quarters.
• •Management communication as a red flag: Across all three failures — Lululemon, PayPal, and Adobe — leadership instability preceded financial deterioration. Specifically, when PayPal's management stopped discussing new initiatives (ads business, AI integrations) that they had enthusiastically announced weeks earlier, that silence was a stronger sell signal than any earnings miss. Track what executives stop saying, not just what they say.
• •Opportunity cost framework for portfolio decisions: When managing a concentrated portfolio where adding a new position requires selling an existing one, evaluate each holding against the best available alternative, not just against its own intrinsic value. The hosts sold PayPal and trimmed Lululemon not because the businesses were worthless, but because capital could be redeployed into higher-conviction ideas with cleaner theses.
• •Valuation model assumptions matter more than outputs: The Trade Desk was flagged as overvalued by their model even with an assumed 30x exit multiple — yet the actual multiple collapsed to 10x. The model's conclusion was correct, but for the wrong reasons. Always stress-test the assumptions embedded in your exit multiple and growth rate, not just the final fair value number, since those inputs drive everything.
• •Insider buying and selling as asymmetric signals: A lack of insider purchases as Adobe's stock fell 70% raised concern, while Trade Desk CEO Jeff Green's $150 million open-market purchase at $25 per share has since lost another 25%. Historical studies show insider buys carry predictive power, but they are not reliable in isolation. Combine insider activity with qualitative business assessment rather than treating it as a standalone buy signal.
• •CoStar mispricing via narrative fixation: CoStar's market cap dropped from $40 billion to $11 billion largely due to losses tied to homes.com, yet the total investment in that division was only $3–5 billion. The core commercial real estate data business — 50% margins, 60 consecutive quarters of double-digit revenue growth — remains intact. When market narrative fixates on one loss-making unit, strip it out and value the remaining business independently.