A Review of my holdings

Investment Analysis Clubs Saul’s Investing Discussions
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Hi Saul,

Thanks for your comments and probing questions. As always, they help me think more, which is really the driving force for me to post!

I will embedded my responses below your questions:

First, I am amazed at how organized you are and how you are able to follow 53 stocks. How can you do it? You seem to know what is going on with each one, and I know from the beautiful write-ups of individual stocks that you have posted elsewhere on the board, that you extensively analyze each one. But how can you have the time to follow 53 earnings releases and 53 conference calls, for instance, in addition to any other stocks that you are following as possible additions??? I am retired but I couldn’t do it.

I agree, I have too many positions. I do spend a lot of time learning about the businesses and when I look into a stock in detail I would read several recent earnings, the 10K, look at presentations, and what not. I like learning about businesses. I also sleep very little! That said, I don’t extensively analyse each one of the companies I hold. The coverage over at TMF depends on the stock, newsletters, and the analyst following it. Most Inside Value recommendations have superb coverage; Options/PRO have excellent coverage as well. The coverage of stocks at SA, RB, and HG can be choppy because these newsletters have 100’s of active positions. Then, there are the boards, where I can follow coverage of others. E.g., Fletch has such great coverage for BOFI that you don’t need to do much more than just read his earnings analysis.

So, while I try to stay on top of what’s going on with my holdings, I don’t explicitly analyse all of them. I spend time on about 15 holdings.

But, yes, I agree that the total holdings is getting to a point where a new position would require jettisoning something from the portfolio. I have tried to avoid jettisoning positions because my historic sell record has been poor, but then again that was when I didn’t know as much about my positions as I know now.

Then on some of your positions, I have some questions. These are meant in the sense of true questions, not criticism of your positions:

Why are you holding YNDX? Surely there are other stocks growing at 46% where you don’t have the political risk of losing it all (CRTO jumps to mind just off the bat).

This is a ‘value’ play on company with strong fundamentals. Yandex, as you may know, is essentially the Google of Russia. When I got in it was a good value, now it’s an even better value. The business as such has so far shown resilience to all the problems in Russia/Ukraine. They are the market leaders, they have been acquiring other assets to expand their ecosystem, so if and when things improve this stock will rebound. I don’t think Russia will explode anytime soon, although it might take a while for things to get better, and I believe Yandex has the staying power to ride the storm.

Why are you still holding half of INVN when all the news is so-so to poor? Surely there are better places for your money.

Yes, agreed, this is a sloppy company and I really don’t have a good feel for their CEO. I also think the MEMS area can quickly get commoditised. I follow this one quickly, so really, I 'm waiting to see how the next quarter comes out. I want to see what having Apple as a business has done for them to make a final decision on INVN. This one is on a short leash.

I don’t follow it any more so I’m not up to date on it, but I was in WETF for a while and got out because it seemed to be over 50% dependent on one Japanese fund. Seemed too risky for me.

The Japan fund is surely a risk for WETF. I too was thinking of exiting this position, I 'm now up 3x on my cost basis, but the recently launched Euro zone QE has got rethinking. There’s going to be more easy money for the next year or so, and some of these are going to find itself into stocks and various ETFs. I think WETF is going to benefit from this inflow of funds. That said, this one is looking expensive, so may be I will reduce my exposure. Thanks for rising this one.

Why in the world are you still in TTS? I took a little position to put it on my radar and sold out after a couple of weeks. A MF letter that I won’t identify had recommended it three times, but now sold out …

TTS was a ridiculous buy when it was originally recommended, I believe in the low $20’s or so. My cost basis is significantly lower, around $8.50, which to me seemed about right when I got in, considering the unit economics. In the past two days, one of real money portfolio sold its position and that caused the more recent drop in TTS’s share price. If I didn’t have a position in TTS, I would actually consider starting one. It would be a risky play but there’s considerable upside as well. Store level economics is excellent but they really had problems with their expansion. It looks like an execution problem and that’s what booted their founder/CEO out. While the short attackers and others have been selling shares, the directors have been buying. I believe the insiders now own about 50% of the company. The directors who have been buying come from private equity and hedge fund backgrounds, and they are walking their own talk. So put the three things together. The unit level economics is good and there’s an opportunity to go from regional to nation, bringing scale to an otherwise fragmented industry. Expansion has sit a roadblock, most likely because of expansion being faster than they could handle (training issues etc); this looks like a management problem, so the board gets a new CEO to fix the problem. Insiders appear to be confident that the worst is behind them, so they are also buying shares at prices they must consider ‘cheap’.

And why in the world would you still be in TCS? Every quarter is a disappointment, and there is no reason to think that will change. It’s another that I took a brief look-at position when it was recommended, and quickly got out when I read the CEO’s well-intentioned remarks. Something like “Our employees come first, and then our customers”. I figured stockholders come last, and that’s the way it has turned out.

Lured by the fact that the stock is now cheap, but it’s cheap for a reason!!! As I was telling Chris, I 'm probably going to chop off TCS to make room for a new position. So, I agree, this was a mistake, to stick around for so long. Actually, I got into this one because of the story, without doing much due diligence. I now never start a position without doing my due diligence!

And I know CLNE is a tiny position, but it seems like a failed company. Why not reallocate your assets.

It’s tiny and getting smaller by the day. I will be exiting this one along with TCS soon.

I’ve always had trouble buying restaurant chains. They seem inherently limited. How many outlets can you build without getting to a point of diminishing returns. I know the Fool has done well with some of them but it’s just not my thing.

Yes, the Fool has a very strong record with restaurant chains. They picked CMG, BWLD, PNRA when they were much smaller. They did well with SBUX. If you think about SBUX, it’s likely to be a great dividend-growth stock. They are a mature concept in the US, but there too they have done well with moving from coffee/donuts to breakfast & lunch/dinner fares, introducing a line of fresh juices, expanding on tea and so on. The best thing with SBUX is that their international expansion, especially with emerging markets has just started and it seems to be going well. They are where McDonald’s was some 20 years back with India.

In general, people in the cities like eating out. There’s a lot of competition, I agree, but I also think the frequency of eating out has increased. Eating out but at healthier options is a trend that will continue for a while. The ZOES position is a play on these trends along with the local to national idea. The local to national idea is also the driver behind the CHUY position. With SBUX, it’s really the expanding footprint internationally that’s going to be the growth driver for the next 20 years. They got into tea in the US, but it’s timing corresponded with their expansion into China & India, two big tea drinking nations.

I suppose, what I 'm saying is it’s really important to have a good thesis guiding the restaurant positions. I got out of Paneria Bread (PNRA) because they are a fairly “mature” concept. They had some 2000 odd stores in the US (the number can be a bit off as I 'm noting this off the top of my head). PNRA has been struggling in the US and they have made no progress on expanding elsewhere. So, while it might be a ‘value’ stock on a PE basis it’s more than likely to be a value trap IMO.

I also don’t own CMG. It’s a Motley favorite but I don’t hold it. CMG has 1600 stores in the US. In the US, their expansion now has to come via other concepts or approaches (e.g., get into Pizza, catering etc). They seem to be doing that well, but they really don’t have the room to expand the store level footprint. As I noted in a response to Anurag, their YoY revenue growth has fallen for three straight years from 23% to 20% to 17%. Earnings growth has been good, but earnings growth can’t forever exceed revenue growth. They opened a few stores in Europe and that hasn’t gone well. The cheery consensus that CMG is the next McDonald’s has this selling for 55x trailing earnings!

I will sign off now. This turned out to be a really long post with a lot of rambling.

Anirban

Best

Saul

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“In general, people in the cities like eating out. There’s a lot of competition, I agree, but I also think the frequency of eating out has increased”

We just had a new strip mall open near my house and the majority of businesses there seem to be one or another type of restaurant. In tough times where wage earners have continually sinking median incomes, I am amazed to see how many spend their money on expensive dining out food. And on fancy new cars, always a money waster but now available with 6 more year financing.

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The only individual that I came across that truly practices LTBH at a large scale and a multi decade basis is TMF1000 and he managed to retire at 40. He has been playing the LTBH game for last 50+ years with over 100 stocks now with extraordinary results that really pop out.

Retiring at 40…I am envious…

I am a big fan of TMF1000.

I was hooked when he first shared his story about SYY…and how holding a small position in it for 30 years grew and grew…

I am aiming for 55…another 19 years…

Hopefully my pension will still be around!

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Great discussion Anirban!

I have tried to avoid jettisoning positions because my historic sell record has been poor…

What does that mean? That some of the ones you sold went up afterwards? Are you trying to tell me that they did better than the ones you would have bought on average? Look, I know you better than that. If you, Anirban, look at two stocks and say to yourself “This one is a sell and that one is a buy”, don’t you think on average the ones you think are buys will do better? I’d bet a bundle that, on average, the ones Anirban figures are buys will do better than the ones Anirban figures are sells! If not, why are you bothering to evaluate stocks at all?

Again, you don’t have to be right about the stocks you sell, just the ones you hold in your portfolio.

The business as such has so far shown resilience to all the problems in Russia/Ukraine. … I don’t think Russia will explode anytime soon, although it might take a while for things to get better

I’m not thinking Russia will explode. I’m thinking that they have an autocratic government that at any time may decide that they want the Google of Russia under government control, and simply take it over. That is not a zero probability occurrence, given what they do to control the press, etc.

And, as far as restaurant chains, I don’t think I have the feel for what will expand well and what won’t.

Thanks for all your contributions.

Saul

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What does that mean? That some of the ones you sold went up afterwards? Are you trying to tell me that they did better than the ones you would have bought on average? Look, I know you better than that. If you, Anirban, look at two stocks and say to yourself “This one is a sell and that one is a buy”, don’t you think on average the ones you think are buys will do better? I’d bet a bundle that, on average, the ones Anirban figures are buys will do better than the ones Anirban figures are sells! If not, why are you bothering to evaluate stocks at all?

Hi Saul,

Thanks for that encouragement and kick, both at the same time :slight_smile: That’s the reason this board is so good. Yup, I agree, if I think some stock is going to suck especially after having done all that work than it’s more than likely to suck!

Thanks for chiming in … I will be looking at jettisoning CLNE (0.5%), TCS (0.6%), GTLS (0.6%), and INVN (0.9%) next week. I might also sell MTH (1%) as it’s only purpose was to play around with covered call and covered calls are really not a very tax efficient way to make money because of the tax implications for me. I will have a final look at these and make the decision. If I get rid of these low conviction ideas, I will have 3.6% cash to put to work.

What’s your top ideas for new money right, now? (Possibly start a new thread so that others can contribute as well, and this new discussion doesn’t get buried in the discussion around my portfolio.)

Thanks again for all your efforts and knowledge sharing.

Anirban

PS: I have been looking at an interesting leasing business, one that leases aeroplanes to airlines. I will share that research soon. I 'm not fully sold on the business but it’s run by stalwarts, it well run, and is not expensive.

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Anirban,
I’ve read this entire thread, and I’ve read a number of your other posts and have always been impressed by the depth of you analysis and understanding of several businesses.

But, to say the least, I’m utterly astonished to see you’re invested in 53 different companies. I am retired (presumably I have more time at my disposal than you), hold fewer positions and am still overwhelmed with trying to stay on top of everything. I’m looking to unwind a number of my positions via covered calls and a few outright sales just to thin the pack.

For drill, I ran some speculative time studies, I assumed each stock I own would require on average 10 - 15 minutes a day. Split the difference and that means each five companies take an hour a day. But you can’t just track what you currently own, you have to devote time to the stuff you don’t own in search of new, better opportunities - say you spend another hour a day looking into stuff you don’t currently hold. Of course I’m not suggesting that anyone methodically devote 10 minutes a day to every issue they possess, I’m just speculating on an average amount of time which would be spent in a lumpy fashion across one’s entire portfolio.

Given these numbers, 53 companies requires roughly 12 hours a day. Obviously, you aren’t spending that amount of time on investment studies. But even if you cut my estimates by 50%, that’s still 6 hours a day. That’s pretty much a full time job (at 7 days a week).

There’s another issue with owning so many different companies which is how do you obtain above average results? The more companies you own, the more gains in one are likely to be off-set by losses in another. Unless you have an uncanny ability to pick a large number of companies that consistently excel I don’t understand how you can hope to beat the market. Given that this is a likely outcome, why bother with all the analysis and spend an inordinate amount of time - you could just as well buy an S&P index fund and come out roughly in the same spot.

Mind you, I know this all sounds rather critical, but it’s not meant to be a criticism. I started by asserting that I was astonished, and I maintain that position. I would really appreciate some insights as to what your process is, how do you do what you do? How much time do you actually spend nurturing and tracking your investments?

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As you know Anirban, it puzzles me too how you manage to keep track of 53 companies. I’m afraid that with 53, I’d forget what company some of the symbols referred to, much less what their earnings and prospects were.
Saul

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I’m not Anirban, but I’ll let you know my thoughts on holding a fair number of companies.

I have 42 positions.

Do I study them all daily for hours on end? No, I cannot as I work a FT job and have a family.

I do spend a fair amount of time reading here at the Fool though.

Many others, Saul, Anirban, TMF Staff and more, do fabulous research and write some outstanding posts.

I try to read and absorb all I can.

My XIRR since 2005 is currently 19.28%.

If something happens to one of my companies, I’ll get an e-mail from the Fool on it, more than likely. Or, I’ll see a headline somewhere.

I fall under the buy and hold camp and I strive to hold most of my companies for a long time. Now, I did sell my small position in TCS a few weeks back though.

I think as time goes on, I may get up to 50 positions. Or, I may drop down lower than I am. We shall see. I sort of like the idea of holding all stocks forever, as I can’t predict the future.

As an example, TCS may look bad now, but in 20 years, they may be a 100 bagger. You just never know.

I love this board and it has helped me a lot. I read a lot more than I post on it as I’m trying to absorb a lot of information.

Fool on,

mazske

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With respect to managing a larger number of holdings, the key is to crowd source the work to the best in Fooldom, be it analysts or community members.

Overall, following 50 odd companies is not that daunting for the following reasons:
i) I really only focus on the quarterly earnings report or any major event that moves the stock price significantly. All the companies I own and am interested in are on my Yahoo finance app, so a big green/red movement is immediately visible. I don’t pay any attention to small stock price movements.

ii) With respect to following earnings, I have two sets of stocks, stocks that I follow closely with my own research and stocks where I rely on TMF coverage. After all, for all the TMF services I subscribe, it would be foolish not to use their coverage, especially from the analysts whose acumen I have come to respect and trust. Also, holdings such as FB, MA, MKL, AAPL, SBUX, WFM, MELI, AMZN, and MIDD probably don’t need a quarterly checkin. A checkin once or twice a year should suffice as these are solid companies which one can really plan on holding for the long-term.

Here’s another way to look at it. The US market requires companies to report 4 times a year. There are other developed securities markets such as Australia where companies report only twice each year. Put another way, sometimes there’s just too much news in the US securities market which I just tune out.

iii) In my holdings, there are several companies for which I 'm fine with the Fool’s excellent research and follow-up. I have the companies on ‘My Scorecard’ and I get all relevant news sent to my email box. I decide what to read and what not to read based on the headline. I have also come to know Fool members who provide excellent research and earnings followup. For instance, for BOFI I just read Fletch’s excellent coverage over at Rule Breakers. For Solar City, I look at Jim Mueller’s excellent coverage over at his Messed Up Expectations board and also the Rule Breakers coverage, usually provided by Simon Erikson. Danny Vena provides excellent coverage for MELI; Danny really knows the business inside out and just reading his analysis is all that’s needed to follow along MELI. There are many others: AAPL, WFM, SBUX, AMZN (Inside Value has excellent coverage), CSTE, ROIC, PGR, NFLX (Jim Mueller again!), MA, TSLA (Alex Scherer), HHC, SSW (Jim Gilles coverage is awesome!), …

iv) I limit my research to a small set of companies, including ones that are not part of Fooldom. Currently, I follow
o PSIX
o MZOR
o CHUY
o ZOES
o INBK
o CRTO
o CAMP
o SWIR
o PRLB
o UBNT
That’s just 10 companies, which is doable.

v) Another thing I tend to do is do upfront research before starting a new position. So, putting in some work upfront allows me have a thesis and a better understanding of my expectations from the company. It also helps to some extent avoid “story traps”.

vi) Finally, I tend to reserve sometime during the beginning of the year to do a yearly portfolio check-in. I look at my long holdings and short positions separately, and try to figure out what’s working and what’s not. This year, thanks to the discussion on this board, I think the yearly review has been more useful than ever before.

Overall, while I do spend significant amount of time on my portfolio, I have found it quite manageable. I probably spend about 1.5 hours each day, most of it during my train commute! Sunday evening is my research day. So far, it has worked out fine.

With respect to results tending towards index funds - the jury must still be out on it. Stock Advisor has over 100 active recommendations and it’s handily beating the market. David’s side of the scorecard has achieved around 22% CAGR over the past 10 years. Also, since I tend to invest in small caps, it seems prudent to spread the risk a bit.

Thanks again to all for chiming in with their thoughts. Overall, this has been a great discussion.

Anirban

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iv) I limit my research to a small set of companies, including ones that are not part of Fooldom. Currently, I follow
o CHUY

Anirban, I’ll preface by saying you’re one of the most important posters on this board.

I took a look a CHUY several days ago when you mentioned them as potential buys for small market cap restaurant chains.

Aside from your recommendation and 10 minutes of my own personal research, I know nothing about this franchise and would like your and anyone else who’s knowledgeable on CHUY’s opinion for my potential strategy.

They have a weak quarterly expectation of .13/share to be announced on feb 25th. This is lower than all the quarterly earnings reported for them dating back to 2012.

13 cents/share seems awfully low and like a walking the park for them to beat, is there something I’m missing? If not, I was planning to buy a week or so before earnings to reap the gap up after they beat expectations, and then probably sell off within the next quarter as I don’t know enough about them to put confidence in staying in for the long term.

Thank you for your time,
Sweetadeline

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With CHUY, I think the main issue is the uncertainty with respect to their ability to expand outside their core markets. This is the usual ‘local to national’ story and it may not pan out. What’s working for them though is the store level economics. That’s pretty excellent. Also, if they don’t generate enough free cash flow then expanding becomes hard …

I would suggest keeping this position small and watching it evolve. If there’s more traction (e.g., a few quarters of good same store sales), I would add some more.

I agree, the valuation is attractive considering it’s a growth story, but there’s a fair degree of uncertainty with this one.

Anirban

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Time management is very important and I think people spend way too much time on their holdings instead of on their new prospects. I ran a poll at Value Hounds to find out:

How much time do you spend on tracking the stocks in your portfolio vs. researching potential candidates?


More than 50% on current positions                 51% (34 Votes)
More than 50% on researching potential candidates  16% (11 Votes)
About 50/50                                        18% (12 Votes)
I just buy and sell TMF recommendations             6% (4 Votes)
Gone fishing:                                       7% (5 Votes)
[http://discussion.fool.com/poll-how-much-time-do-you-spend-on-31...](http://discussion.fool.com/poll-how-much-time-do-you-spend-on-31529705.aspx?sort=whole)

It’s a long thread and you’ll find a good discussion.

Denny Schlesinger

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Let me throw in on the CHUY talk. I live in North Texas and there are quit a few of these around. The original locations food quality were very good, everyone loved it, but the new ones not so much. If you ask people around here about it most are very indifferent now about the brand. I was very interested in this stock until I started checking around here. It really looks like they have a MAJOR management issue with their new locations keeping the quality up. Until they get that rectified, I am not going to touch this one.

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Denny,

I can’t agree more!

I like spending time on potential investments, reading the 10K’s etc, to learn about the new opportunities. Doing so also has additional benefits. Perhaps the biggest one is that each new business that is analysed sharpens ones investment acumen. One of the things I like doing is analysing recommendation that sort of fall outside my competency (which is more or less in the technology/information dissemination domain). Sometimes, this additional analysis also helps identify new positions.

Anirban

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was very interested in this stock until I started checking around here. It really looks like they have a MAJOR management issue with their new locations keeping the quality up. Until they get that rectified, I am not going to touch this one.

This concern has also been raised in the conference calls. Apparently, there has been some missteps in the expansion process, and some of the newer stores that are not in the comp base have not performed as well as the stores that are currently in the comp base. This is another reason for the depressed expectations. Management has acknowledged the problems, and also noted that they had similar problems earlier on and they have dealt with these problems and they think they can address the new crop of problems. One can attribute these issues to growing pains. We can also attribute this to sloppy management. The jury on this is still out there, so let’s see how this plays over the next year or so.

The risks are high, and I wouldn’t be surprised to see another 30% drop on some bad news.

Anirban

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