Better than I would have believed

This is a post about stock picking. And about 2017. I had a very rough 2016, so I certainly believed the coiled spring would begin to unwind in 2017, and the stocks I own would go up. I thought maybe I’d be up 20% this year. Maybe even more.

But here we are, not yet through 3 quarters, and I’m currently up 53%. To say this year has been better than I would have believed is an understatement. Now hold your horses – I know that the market could drop 25% in the next 2 weeks, so I’m not calling it an early victory or anything, but I am taking a step back to just try to understand what has happened in the last 8 and a half months. A lot of thoughts come to mind:

  • Apparently my highest expectations were wrong. I don’t think I really understood, until now, the real potential of owning individual stocks vs passive investing. I mean, I’d seen Saul’s results. I knew it was possible. But I just thought it would take some once in a decade, if not once in a lifetime events to be up 50%+ in less than a year. But I truly don’t believe this has been a once in a lifetime year. Look at the indexes. More on that below.

  • Based on my results I often think we’re surely due for a correction…but then, index-wise, it doesn’t look as unsustainable: this isn’t even the best year in recent memory. In 2013 the S&P was up more than 30%! This year it’s barely 1/3 of that. We’re in a bull market to be sure, but not some supercharged bull that is running several times faster than the average year. Indexes are well within one standard deviation from historical average.

  • Individual stocks aren’t simply “outperforming” passive investing in 2017. The ones we follow on this board are utterly crushing indexes. To get a 50%+ return in passive investing would take many years, not many months.

  • We’re all doing well, as are most TMF picks – it’s not a magic code only some can crack. You don’t have to be a stock analyst, or a writer for the Fool. You don’t have to find things before everyone else. You don’t have to be Saul. Just find a few things that speak to you, and make sure some smart people, like the ones on this board, don’t completely poke holes through your theory.

Now, I’m also not quite optimistic to think this is just an average year. I don’t think I’ll be able to do this every year…otherwise I would retire right now. And I recognize that last year (which was fairly miserable for most of us) was probably not a huge outlier on the negative side, either. There will certainly be down times. But nonetheless, this has been a huge education in the power of individual stocks, and as Saul has said in the knowledge base, to how you CAN outperform the market if you simply avoid the things that put a drag on your portfolio. Why own an index that includes stocks you’d never pick?

Anyway, here’s hoping for continued success, while understanding that this has been a very good year already for the stocks we follow. Thanks to you all for poking holes in my bad ideas, and helping me find good ones.

Bear

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Now, I’m also not quite optimistic to think this is just an average year.

2017 is not an average year. Extrinsic forces peculiar to 2017 are acting on the market and it has to do with all the cash that’s sitting overseas due to tax avoidance. In the past the idea was to punish these companies for being so unpatriotic, the stick policy. Now a non establishment POTUS wants to make it easy for these companies to repatriate the cash, the carrot policy.

What would that cash do? It should stimulate the economy as well as put cash in shareholder’s pockets. This is a once in a lifetime thingy and the beneficiaries are companies with large cash hoards overseas.

This thread at the NPI board (with lots of references to Saul’s board) might be a more appropriate place to talk about it:

The Bull is Intact - According to this Bull
http://discussion.fool.com/the-bull-is-intact-according-to-this-…

Denny Schlesinger

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2017 is not an average year. Extrinsic forces peculiar to 2017 are acting on the market and it has to do with all the cash that’s sitting overseas due to tax avoidance.

Denny, you are saying cause and effect here. I don’t think we can actually know if that’s the case or not. It’s ok not to know the cause(s).

This is a once in a lifetime thingy and the beneficiaries are companies with large cash hoards overseas.

Not true. It was done before.

https://en.wikipedia.org/wiki/Repatriation_tax_holiday

In 2004, the United States Congress enacted such a tax holiday for U.S. multinational companies in the American Jobs Creation Act of 2004 (AJCA)) section 965, allowing them to repatriate foreign profits to the United States at a 5.25% tax rate, rather than the existing 35% corporate tax rate.[1] Under this law, corporations brought $362 billion into the American economy, primarily for the purposes of paying dividends to investors, repurchasing shares, and purchasing other corporations.[1] The largest multi-national companies, Apple Inc., Microsoft Corp., Alphabet Inc., Cisco Systems Inc., and Oracle Corp., recalled only 9% of their cash possessions following the 2004 act.[2] In 2011, Senate Democrats, arguing against another repatriation tax holiday, issued a report asserting that the previous effort had actually cost the United States Treasury $3.3 billion, and that companies receiving the tax breaks had thereafter cut over 20,000 jobs.[3] A second repatriation tax holiday was defeated in the United States Senate in 2009.[1]

Repatriation happened 12 years ago so it’s not exactly a “once in a lifetime opportunity”.

Chris

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Denny, you are saying cause and effect here. I don’t think we can actually know if that’s the case or not.

I’m saying it but I can’t prove it. Actually it was Laszlo Birinyi who said it in an interview which you can find in the NPI thread I linked.

It’s ok not to know the cause(s).

I agree with you insofar as it is often difficult if not impossible to determine cause and effect in complex systems but I’m not convinced that ignorance is bliss. LOL

On the other hand, the first time I worked with charts back in the early 1960s while at IBM we were told differently. IBM was promoting IMPACT, an inventory management system. One had to determine various things about the items being tracked, one of them was whether it was cyclical on an annual basis. The way to do it was to chart the usage for several years and to match the charts. If you saw a matching pattern in all the charts this was an indication of cyclicality but not enough. You also had to explain why the pattern existed otherwise it could be a coincidence. I created a catchy little phrase for it:

“It is not enough to know what the chart is saying, you have to figure out why the chart is saying whatever it is saying.” LOL

Denny Schlesinger

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From my perspective the year was not as great as yours. My stock picks are up 23% and the S&P 500 is slightly in the negative. This is because of the EUR to USD exchange rate I’m dealing with…

Are the rules already changed on bringing cash back in by corporates? Or this is a theory that in anticipation of cash coming back, reduced taxes, lax regulations (may be this one is already happening)… more money is coming in from sideline?

There are multiple assumptions here.

  1. That people believe that tax laws with change.

  2. That people believe that the changes will be positive for business. One example would be allowing repatriation of cash at lower tax rates.

  3. That the reason the market is doing well is explained by (1) and (2) above.

Personally I am least persuaded by (3), simply because I never trust anyone to explain why the market is doing anything.

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Are the rules already changed on bringing cash back in by corporates?

Not yet. The bet is that the POTUS will get his tax reform, one way or another. I don’t know what the odds are but Laszlo Birinyi thinks it will happen.

Denny Schlesinger

the logic of bringing cash back home seems to be overwhelming, but there are many politicians who seem to think a large tax that they are not going to get is better than a smaller tax they are going to get. Like a starving man refusing a near certain small meal for a large meal that in fact is non existent.

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Individual stocks aren’t simply “outperforming” passive investing in 2017. The ones we follow on this board are utterly crushing indexes. To get a 50%+ return in passive investing would take many years, not many months.

Or 5 months in 2009. :wink:

No fan of passive,

Naj

Hi all,
the bulk of this thread escapes me. Do you all really believe that the reason for the outperformance of this board is due to repatriation of cash? Perhaps it has something to do with the overall market rise, but there has been a strong, actually amazingly strong outperformance of stocks on this board versus the averages, and I don’t think any of them have large piles of cash outside the country. I have actually tried to figure out what is driving it and I don’t know that I have the answer, but I do know it is not repatriated cash.

I think part of the reason is there is a strong and specific sector in favor right now and it includes internet stocks, especially growth internet stocks, and SAAS recurring revenue stocks right now. These factors cover quite a few of the most popular stocks found here, but it doesn’t cover them all.

I also believe that Saul’s ability (not sure if it learned or innate) to have a feel for what type of stocks the market has begun to favor is a factor here because his portfolio has turned to those type of stocks now even though they weren’t really prevalent there a couple years ago. In fact I think that is a big part of Saul’s outperformance record, finding good growing companies that the market likes at that time. I don’t think he is always so successful but when he gets it right, he nails it. (Not meant to be a negative there, his long term record is both enviable and speaks for itself.)

I think a part of the recent hot trend may be a little bit of crowdsourcing, where the board has attracted like minded people and a better overall result happens than just an individual would achieve, i.e. KITE is brought in and promptly triples. (I am not ignoring the fact that Saul decided correctly to jump aboard a stock with no earnings and only the hopeful promise of earnings in the future after reading a couple of posts and investigating).

Finally, I think it has been a little bit of luck, not to be expected to be continued (at this torrid pace). Whatever it is due to, it is impressive and I wish I would have jumped on some of these a little earlier…

But then again, if I would have jumped all in on a few of these, I would have killed it for everyone else because nothing I find interesting ever climbs that fast, ha ha…

But I definitely have benefitted as well.

Randy

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