Anirban's portfolio sells

Investment Analysis Clubs Saul’s Investing Discussions
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Hi all,

A big thank you to all those who participated in poking holes into my portfolio (individual positions, risk management, sell decisions etc). It’s all highly appreciated.

Over the weekend, I had deliberated on what is to be sold, and I took some action early morning (Australia time).

Sells & punts

o Sold CLNE @ $4.34.

This one is probably not going to work out. I bought a few token Jan 2017 $3 calls as a punt.

o Sold TCS @ $19.36.

This one has been struggling and is probably not going to be the growth story it was suppose to be. TCS just reported a so so Q3. However, TCS’s Q4 is usually their biggest quarter and they make 70% of their monies in that quarter. If that quarter turns out to be good, the stock might pop given it has been beaten up thoroughly. I bought a July $17.50 call for $3.60 as a punt on the upside.

Sells & stock replacement

o Sold MTH @ $33.55.

MTH was bought for running a covered call. It’s been a good candidate for running covered call. The stock is completely beaten up and trading at a pretty cheap valuation and it can be range bound, so writing covered calls in the upper end of the range makes sense. Earnings are right around the corner. So, I replaced this with an equivalent number of 2017 calls. I bought the $25 strike for $11.50. I 'm going to wait out the earnings and then start writing calls against the leap. I think it will continue to be a good candidate for playing around with a diagonal strategy.

o Sold INVN @ $14.88. This one I really wanted to see how the next quarter is going to play out, especially following a full quarter of supply chips to Apple’s iPhone. The MEMS area is likely to be a growth area with wearables. Wearables are just starting out, so if management can really execute this can be a big winner. But I also don’t really like the CEO, he’s not got much skin in the game, and the founder CEO has been long gone. I was tempted to sell out completely but ultimately decide to keep potential upside by going for a stock replacement strategy. So, I bought the $10 2017 calls for $6.90 as a replacement. The bid/ask spreads are wide on INVN options and these are volatile as well. This might backfire but at least my capital exposure to INVN has reduced.

Pending Action

o GTLS & FIVE. These two I have to ponder a bit more.

I now have about 2% cash in my investment account.

Anirban

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The moves look smart. while keeping the exposure in the stocks, it netted some cash. The key is to be prepared to lose on the calls, not saying that you would. It is important to remember why you did it. The process. It has to be done systematically and continuously going forward to let the probability work for you. You can limit the exposure further if needed by making those calls into spreads (risk of total loss also rachets up). A single point of time investment into anything is more risky than holding all portfolio into one asset (a good one).

2% cash is very low. One of the things that I learnt from TMF1000 when I found myself in similar situation in 2008 crash was the time to build cash reserves is during boom and not busts. PRO with its rolling 22% 3 year returns is headed into 2015 with > 25% cash and that is the most successful portfolio service I have ever seen or hope to see easily. That kind of result with that kind of cash is non-trivial and very much Buffet like. In 2008, the only reason I ended up doing well is by selling the kitchen sink which was going deep into credit card debt to invest in the market at is bottom. I had 15 days of living expenses and I was one layoff away from bankruptcy in a few months. That period passed with rich rewards and I think I was enormously lucky to escape unscathed. TomE has seen those cycles for the last 50 years and he was down to 1% in cash. Imagine the disciple. At one of the greatest crashes in last 100 years, he still had 1% cash at market nadir. Those were the times I bought WFM and SBUX near $8 (pre-split for WFM). today, I have 1.5 years of living expenses + 15% portfolio cash and I was able to make 18% last year for the entire portfolio including cash. When I look at Pro, I think 15% is less too and I need to make it to 25% if and as the market keeps rising.

SOrry for rambling…

Anurag

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Sold TCS @ $19.36

My friend, I thought our bet was for 10 years. You argued the long term benefits of holding TCS. You already accepted defeat here and its not even 6 months.

Anirban,

I saw your portfolio review thread on this board and read the entire thread. This particular thread makes me feel that you are not making conscious decisions yourself, but are using Groupthink cloud your judgment on making buy and sell decisions.

Saul is a very successful investor and only has a handful of stocks which he is on top of day in and day out. If you are trying to emulate his strategy here, you need to be on top of your game. It is not only going to be hard for you to emulate Saul, but rather impossible to adapt to his strategy, unless you allow him to hit the buy and sell button for you.

If I have learnt one thing over my investing life, it is that you need to create a strategy that works for yourself. I agree with a few others here on the stocks you have picked and I also responded to your post on the HG board with my comments on your portfolio.

I have 120 stocks in my portfolio and am not doing anywhere close to the research that you are indulging in. The one thing that people miss when they do research is common sense. I have tried to articulate this with respect to restaurant stocks. People blindly invest in restaurant stocks on the basis of success stories like BWLD and CMG. The store level economics are very important to follow but the main common sense question that you need to ask is, would I like to go here time and again. If I weigh this question against CMG or BWLD, my answer is an emphatic yes. For the rest, it is “maybe”. That is what gives me pause to back up the truck. But I do have a stake in these like CHUY, ZOES and PLKI, but not too much money.

I hope whatever you do as an investor, you need to carve out a niche for yourself and strictly follow the strategy that works best for you. At this point, you are trying a hodgepodge of techniques and I think that will hurt you as opposed to helping you.

Good luck
Vish

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Anurag,

I said I have 2% cash in my brokerage account NOT how much cash I have readily available for investing. If there were screaming bargains in the market I could easily put another 30% to work. We keep cash available, always above & beyond, 6-month contingencies.

Anirban.

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Good for you Anirban! 30% cash is healthy. It allows one to make safe mistakes and make good bets when the time is right. Cash by itself is a very good opportunistic leverage. Not many think of cash in these terms. I need to raise mine.

Anurag

1 Like
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Hi Vish,

Great to see you here.

Based on what I know today, chances that TCS would be a market beating investment seems remote. However, it’s on my watch list, and if things change for the better I might jump in. I could still win the bet, but then I would never have a problem following through on our deal for the bet. Let’s see how it goes.

With respect to my process: you could be right that I might be falling for group think but I don’t think so. I buy only when I think I should buy. I don’t buy because Saul, John, Anurag, or anyone else bought. Yes, I do pay attention to what you, Saul, John, Anurag, and several others post, but I take my own actions. If you look at my holdings versus Saul’s, you will notice there aren’t that many overlaps.

The point of a yearly review is to think about the various holdings, whether they are working or not, understanding what worked well and what didn’t etc. PRO also does a yearly review. I think it’s okay to do a bit of cleanup following the review.

Anyways, I could be wrong, very wrong. Let’s see.

Anirban.

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With respect to my process: you could be right that I might be falling for group think but I don’t think so. I buy only when I think I should buy. I don’t buy because Saul, John, Anurag, or anyone else bought. Yes, I do pay attention to what you, Saul, John, Anurag, and several others post, but I take my own actions. If you look at my holdings versus Saul’s, you will notice there aren’t that many overlaps.

My point was not about you buying the stocks. It was about you listening to others and selling positions based on what others have to say. You just sold a few because people on the board asked you the question, why are you still holding this?

The answer to this question should go back to your buy decision. You should write down why you buy a stock. Then before selling, you should revisit your write up and see if the thesis has truly changed. If not, there is no point in selling, even if the stocks are down.

Saul jumps from one stock to another and does it superbly. I dont think anyone other than he himself can emulate that strategy and kind of return he is generating. He has truly mastered that strategy. You are doing part of the work by studying the companies, but again as I said elsewhere, you need to be careful of technology. It changes faster than you change your underwear.

You need to build a strong foundation to your portfolio. I agree with Anurag that you need to buy all the stalwarts recommended by TMF in SA, HG and RB and also II and IV. That will provide a strong foundation to your portfolio. They should be the majority of your portfolio, if you hold 50+ positions. That way, you only have to worry about a handful of stocks. Even if I have 120 stocks in my portfolio, > 75% is in just a handful high conviction stocks that I keep adding to on dips.

I truly hope you generate multibaggers out of your high conviction stocks, but again, as Anurag mentioned, stocks like INBK are micro caps and are extremely risky. You cannot put too much in them. I think Fletch mentioned once on RB that he is ok letting go the first few bags on INBK. If they do turn the corner, he will happily invest in it. That is the right way to do it.

Again, there is a lot to learn here at TMF and every single day I learn something from fellow investors. I am sure you do to.

Vish

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I just checked and I have exactly 2/3rd (66.82%) of my portfolio in my top 25 picks. 50% of my portfolio is in my top 11 picks. Here are my top 25 and percentages:


Ticker    %of Portfolio
HDB         23.82%
AAPL         6.34%
CMG          5.36%
NFLX         3.30%
HHC          1.87%
UA           1.85%
BRK-B        1.66%
KO           1.65%
JLL          1.56%
BOFI         1.55%
BIDU         1.36%
BWLD         1.36%
BIP          1.30%
BLX          1.28%   
MKL          1.28%
TRIP         1.28%
WFM          1.22%
TSLA         1.21%
PRAA         1.18% 
PCLN         1.16%
PEP          1.15%
MIDD         1.14%
SBUX         0.98%
DEO          0.98%
MELI         0.95%

Vish

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Hi Vish,

Let’s see each point again.

My point was not about you buying the stocks. It was about you listening to others and selling positions based on what others have to say. You just sold a few because people on the board asked you the question, why are you still holding this?

How about thinking that I took a rationale decision based on my understanding of the stocks I sold? I actually analysed each one of them, and decided reduced exposure via stock replacement exposure was better.

Saul jumps from one stock to another and does it superbly. I dont think anyone other than he himself can emulate that strategy and kind of return he is generating. He has truly mastered that strategy. You are doing part of the work by studying the companies, but again as I said elsewhere, you need to be careful of technology. It changes faster than you change your underwear.

I don’t disagree with your comments regarding technology stocks. I also don’t disagree that it’s hard to replicate Saul’s process. Saul’s process requires research + experience. I don’t jump in and out of stocks. My buy to sell ratio was 4:1 last year, in dollar terms, and this includes positions I trimmed because they ran-up fast.

You need to build a strong foundation to your portfolio. I agree with Anurag that you need to buy all the stalwarts recommended by TMF in SA, HG and RB and also II and IV. That will provide a strong foundation to your portfolio. They should be the majority of your portfolio, if you hold 50+ positions. That way, you only have to worry about a handful of stocks. Even if I have 120 stocks in my portfolio, > 75% is in just a handful high conviction stocks that I keep adding to on dips.

I would just say that this is just one approach. I have a smaller number of stocks and for my high conviction holdings I 'm okay with putting more monies to work. I can put more monies into my high conviction position because of the effort I put into understanding those positions. I think this is another approach to investing.

I truly hope you generate multibaggers out of your high conviction stocks, but again, as Anurag mentioned, stocks like INBK are micro caps and are extremely risky. You cannot put too much in them. I think Fletch mentioned once on RB that he is ok letting go the first few bags on INBK. If they do turn the corner, he will happily invest in it. That is the right way to do it.

No investment is without risks. BOFI has the risk of very high P/B multiple. INBK has the risk of being a thinly traded stock and a micro-cap. I feel very comfortable with my level of investment into INBK. Contrary to what most might think, I 'm not investing there with the hope of a big home run. I have invested there because I see a committed management team, insider ownership, investments towards diversifying the bank away from RVs and horse trailers, solid management of risk, steadily improving net interest margins, improving efficiency ratios, low PE relative to earnings growth, and attractive price relative to book value. BOFI is also getting into acquisitions to fuel growth and that makes the business more complex going forward and introduces risks. So my analysis says INBK is a very good buy for a patient investor and that’s why I have invested in INBK.

If they do turn the corner, he will happily invest in it. That is the right way to do it.

I don’t think there’s any one way that’s the right way to invest. You and Anurag have done well with 100+ stocks. Saul has done well with 20. PRO had a great year with 18% return being only 70% long. Stock Advisor has killed the market with 100 plus active buys. IV has beaten Stock Advisor with 30 or so active stocks. There are many different ways to invest and win.

Again, there is a lot to learn here at TMF and every single day I learn something from fellow investors. I am sure you do to.

This I totally agree with. There was one simple thing that Saul said in the discussion around my portfolio review that really resonated with me. I 'm para phrasing here. Saul said that if you are studying companies, then presumably you are able to determine if stocks you hold are working or not, and whether stock A offers a better risk - reward tradeoff compared to stock B. Once you have made an assessment, you can follow through on your assessment. The point of portfolio review would be lost if after determining what wasn’t working one didn’t do anything.

I truly believe that for each one I sold or substituted with a stock replacement, I have a very a rationale argument for doing so and feel totally comfortable doing so.

Anirban

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I just checked and I have exactly 2/3rd (66.82%) of my portfolio in my top 25 picks. 50% of my portfolio is in my top 11 picks. Here are my top 25 and percentages:

Ticker %of Portfolio
HDB 23.82%
AAPL 6.34%
CMG 5.36%
NFLX 3.30%
HHC 1.87%
UA 1.85%
BRK-B 1.66%
KO 1.65%
JLL 1.56%
…

Hey Vish,

You have an unusually high allocation to your top holding HDB. I know it has grown to this size and I know you picked this one up early in its days. HDFC Bank is a good Indian bank, but 24% to one single holding is a risk in itself. Add to that all the other risks. Indian markets are not as well regulated as some of the more evolved securities markets. You have country specific risks. You have emerging economy risk. You have currency risk. And, by no measure is HDB cheap. It’s Price to Book ratio is around 5.

I 'm not saying HDB is not a good holding. I haven’t done the research to make the judgement. Just saying that it appears very high for all the perceived risks associated with owing companies operating in emerging economies.

Anirban

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There was one simple thing that Saul said in the discussion around my portfolio review that really resonated with me. I 'm para phrasing here. Saul said that if you are studying companies, then presumably you are able to determine if stocks you hold are working or not, and whether stock A offers a better risk - reward tradeoff compared to stock B. Once you have made an assessment, you can follow through on your assessment. The point of portfolio review would be lost if after determining what wasn’t working one didn’t do anything.

If you follow this strategy, I can say with high conviction that you will not be successful in the long run. I cannot say this a 100%, but very few people do this successfully. Saul is one of them. You cannot predict how your stocks will behave. There are always periods when stocks perform really badly and then suddenly they will turn. INFN is an example. TSLA is the other way round. So your approach above will essentially mean, you buy TSLA, ride the stock from 30 to 290 and then jump into INFN just before it starts going up.

I can most certainly say, it will not work. It is your money and you need to make the right decisions with it. So I am not going to convince you one way or another.

There is another poster by the handle huddaman. He does this all the time I think. You should check with him to see how he is doing with this strategy.

Vish

1 Like
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some comments…

  1. I 100% back the desire to learn and experiment the way one wants and that is the correct way as well. It is important to learn on one’s own what works for them and what does not. Insight and emotion are important components of investing. People often say one needs to get rid of emotions to do well and I am not sure I agree with that. It is very much part and parcel of who one really is and can be.

I don’t think Anirban is playing a roulette here - unrecoverable risks. His results can be anywhere but they are unlikely to be devastating relative to the market. So his experimentation is safe from that perspective.

  1. There are certain things one cannot learn fast enough because many kinds of information are not additive. Investing is an evolutionary journey. I am so much different myself than what I was a decade ago and I am sure that is again going to be the case 10 years down the road.

  2. I don’t think I have personally analyzed even half the stocks with rigor in last 10 years that Anirban has done in just last year. So hats off to him. I think he is off to the races. 2015 may or may not be his best year but I am convinced that he is all set for an awesome 2025 timeframe with his methodical approach. I like to throw curve balls his way just like others throw it my way. I learnt the most from such exercise.

  3. Indian markets are pretty sophisticated despite one Satyam in distant past and a few Harshad Mehtas along the way. All those past hiccups have made the market far more mature and less fragile. Indian has the second largest number of firms listed after the US. It is also far more sophisticated than many other nations especially China as investors have freedom to short stocks. Shorting brings a lot of stability and health to the markets. Indian markets have healthy liquidity as is evidenced by barely a dozen Indian firms having to trade abroad unlike China. HDB is a conservative exceptionally run bank with 20-30% growth for more than a decade now. It is a company that pays pittance to its management who get paid like government servants. HDB is a kind of firm where one can put 100% of the portfolio. There will be all kinds of volatility but the risk of permanent capital destruction is pretty low. We followed HDB with great intensity during the days of Global Gains newsletters. Those boards are now public so anyone can see the past analysis and progress.

Anurag

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Is anyone maintaining a public spreadsheet on Saul’s existing picks with their relative allocations going forward? I would myself like to see the ability of being able to jump successfully. I can maintain one for the board. Saul shared his picks so far but not the relative capital allocation. If he agrees to share that info, we can all witness the magic in action and maybe enrich ourselves too.

anurag

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If you follow this strategy, I can say with high conviction that you will not be successful in the long run. I cannot say this a 100%, but very few people do this successfully. Saul is one of them. You cannot predict how your stocks will behave. There are always periods when stocks perform really badly and then suddenly they will turn. INFN is an example. TSLA is the other way round. So your approach above will essentially mean, you buy TSLA, ride the stock from 30 to 290 and then jump into INFN just before it starts going up.

What you are talking about is market timing. There’s no element of analysis/thinking it it, right? If you think INFN has significantly better prospects than TSLA going forward, then selling TSLA and buying INFN is absolutely the right thing to do.

If you read my portfolio review, for each one I sold there is a good deal of doubt regarding the potential going forward. TCS, I have soured on, after seeing how Kindel and company have been performing. I like the concept, I like Elfa, but I don’t like how they are running, and I can’t see them being a market beater. Since I also know that Q4 is their big quarter and the stock has been sold off, I bought a few calls as a play on Q4. I think the decision is sound, based on what one can gather by following the earnings releases.

The same story for INVN. Do I think they are over sold? Yes. Do I really believe in their ability to be a market beating investment? No, because I did listen to the conference call, and I looked at what happened with their deal with Apple, and I also looked at what else is out there with respect to competition. But I also realise that MEMS can play a big role in wearables and hence the stock replacement strategy. It reduces exposure, while allowing for upside.

With CLNE, it doesn’t really matter at all. It’s a tiny exposure and I still have calls for the upside punt. It was always speculative and will continue to be so for a while.

Let’s finally look at MTH. That stock came via a buy write for playing around with covered calls. It’s a stock I have owned for a while, and it’s been a good covered call candidate. I have written 7 calls so far, and I have been wanting it called away and it never does. I just replaced it with a leap and now I will continue with a diagonal type strategy. This is purely for fun.

Anirban

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HDB is a kind of firm where one can put 100% of the portfolio.

I have to disagree with this statement because in most case I think it’s crazy to put 100% in any one investment (even cash), no matter what it is. It is puzzling to me that you can have 100-150 stocks and then but 23% into a single one.

Chris

1 Like
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If you think INFN has significantly better prospects than TSLA going forward, then selling TSLA and buying INFN is absolutely the right thing to do.

I can give you much better or rather interesting language for this.

We had an extremely popular and influential advisor by the name Bill Mann who founded PayDirt, Global Gains and Fool Funds. He was also the lead advisor for HG for a few years and those days were eclectic. We used to have a 10-20% pop in seconds after a new rec was released. Then the whole show collapsed and while it was collapsing, he left all TMF newsletters to found the Fund.

He used to say: “Every day, every one of my stocks is at sale, for the right price”. The logic is mesmerizing. Isn’t it? This is how he justified many of his sells at market peak in 2006 and he turned out to be right. But that was also a period where every sell would make the investor appear to be a genius. His mojo soon left him as his high convictions picks collapses one after the other and then later he sold firms like CMG and GWR and countless others on this logic only to see them gallop away to multibaggers. He even bought back CMG after missing more than a double in FoolX portfolio with an editorial admitting his mistake but the sells have continued. After 5 years, all FoolFunds perform sub par to SPY and only marginally better than the arbitrarily chosen indices. I occasionally send him jibes by posting on his Question authority. My latest was: "how is it your portfolios are out of cash at market peal when you justified holding high cash levels during 2009-10? " Of course, I never get responded back. But I digress. The problem is with false precision. There is no way of knowing precisely whether or not a company is overvalued since DCF analysis assumes a certain path in the future which is usually highly volatile and this creates false precision. He has been an abject failure so far. Today the Fool Funds perform exactly as TMF used to critique mutual funds a decade ago. The team has more of the folks that think like Bill Mann today - DCF based false precision. Now this can be done right. And some folks have shown it indeed. We have Jim Mueller’s rising star portfolio that is climbing in strength all the time, we have IV whose picks actually thrash the market with this methodology and then we have MFO where we see 90% accuracy based on careful analysis. But all these folks are exceptional individuals with amazing skill and insight. I will give TMF credit for tinkering constantly and be filling to fail to get these gems out there over time.

So yes, you are technically right that jumping to a better opportunity should lead to good results. The problem occurs in determining if the opportunity is actually a better one. The uncertainty of the future leads to rather unpredictable results. That is why I really want to track Saul going forward with reasonably precise spreadsheet so that we can all learn this remarkably useful skill. If anyone is actually that good or becomes that good who can do the flipping with > 60% precision, that person will become one of the leading investors in the world (rate of return wise) in 20 years. And probably quite rich. With results like Saul and for that long, I can only imagine him to be living in a mansion with butlers. I am sure he is modest enough to not let such vanity consume him.

Anurag

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I have to disagree with this statement because in most case I think it’s crazy to put 100% in any one investment (even cash), no matter what it is. It is puzzling to me that you can have 100-150 stocks and then but 23% into a single one.

Well, think carefully about what you wrote.

a) those in the US with 100% cash have not done too badly especially in this low inflation environment for a at least 2 decades now. In general, it never happens. Such individuals usually have mortgages that gives them sizable leverage.

b) There are many firms where a 100% investment will not be devastating: BRK, COST, HDB, PEP etc. Each of these firms are actually so diversified effectively that they constitute a proxy to the national or international economy.

c) Jim Mueller (TMFTortoise)- one of the most astute investors and analysts has, I think, > 30% in NFLX and he does not recommend anyone else doing that. I can keep going on this way. And these are all very successful investors with long track records. And I say this despite being the one who has had 250+ stocks in his portfolio for 5+ years now. I rarely sell. Just collect the best in class firms from TMF world.

Anurag

1 Like
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It is puzzling to me that you can have 100-150 stocks and then but 23% into a single one.

I agree with you on this, Chris. It would not be the way I would choose to run my own portfolio. However I recall hearing that Peter Lynch used to have hundreds of stocks in his Fidelity Magellan fund, but there were only a handful that did the heavy lifting. So he might have 10% in Walmart, and then tiny fractions of a percent in numerous other issues.

Obviously he had a staff. That would be much more difficult for the individual investor.

Jeb

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Well, think carefully about what you wrote.

I think about risk carefully all the time.

a) those in the US with 100% cash have not done too badly especially in this low inflation environment for a at least 2 decades now. In general, it never happens. Such individuals usually have mortgages that gives them sizable leverage.

I wasn’t talking about what happened but about exposure to what might happen. There have been times (example: Germany during the 1920s) where holding all cash would have wiped you out.

b) There are many firms where a 100% investment will not be devastating: BRK, COST, HDB, PEP etc. Each of these firms are actually so diversified effectively that they constitute a proxy to the national or international economy.

Maybe, but as you said yourself one does not know what the future holds. BRK is a collection of many companies but for the others you don’t know what will happen. Everyone has heard of Enron, Worldcom, Lehman Brothers, and many other 100% losses. It can happen so why risk it by putting all your eggs in one basket.

Anurag, I don’t really think you would advise someone to put 100% in one company so why would you say it’s ok to put 100% in HDB? There are people on here would have considered going all-in on a single investment (sweet adeline did this recently). Why encourage them?

Chris

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Well, think carefully about what you wrote.

I think about risk carefully all the time.

a) those in the US with 100% cash have not done too badly especially in this low inflation environment for a at least 2 decades now. In general, it never happens. Such individuals usually have mortgages that gives them sizable leverage.

I wasn’t talking about what happened but about exposure to what might happen. There have been times (example: Germany during the 1920s) where holding all cash would have wiped you out.

b) There are many firms where a 100% investment will not be devastating: BRK, COST, HDB, PEP etc. Each of these firms are actually so diversified effectively that they constitute a proxy to the national or international economy.

Maybe, but as you said yourself one does not know what the future holds. BRK is a collection of many companies but for the others you don’t know what will happen. Everyone has heard of Enron, Worldcom, Lehman Brothers, and many other 100% losses. It can happen so why risk it by putting all your eggs in one basket.

Anurag, I don’t really think you would advise someone to put 100% in one company so why would you say it’s ok to put 100% in HDB? There are people on here would have considered going all-in on a single investment (sweet adeline did this recently). Why encourage them?

Chris

1 Like