Active VS Passive (or mix)

Investment Analysis Clubs Saul’s Investing Discussions
1

Hi dear members, I would like do get your ideas about something I have witnessed the last 12 months.

I have started in January 2019 with a Saul style of portfolio. I selected what I thought at the time do be the best stocks to buy. I invested in AYX, MDB, NTNX, SHOP, TTD, TWLO and ZS in equal parts

AYX 14.3%
MDB 14.3%
NTNX 14.3%
SHOP 14.3%
TTD 14.3%
TWLO 14.3%
ZS 14.3%

Because I kept my old software running with this initial allocation, I can see how it would be now if I never changed nothing up to now.

I would have now 08/08/2020 the following allocation :

AYX 9,7 %
MDB 11,2 %
NTNX 2,3 %
SHOP 32,7 %
TTD 17,5 %
TWLO 13,2 %
ZS 13,4 %

From 01/01/19 to 08/08/20, the performance would have been +204 %

Compared with my actual portfolio which show the present trend of so called Saul’s stocks :

CRWD 11,9 %
DDOG 10,8 %
ZM 9,8 %
FSLY 9,7 %
LVGO 9,1 %
AYX 8,0 %
SHOP 6,9 %
OKTA 6,8 %
ROKU 5,14 %
DOCU 4,2 %
TWLO 4,1 %
TTD 4,0 %
MDB 3,9 %
TDOC 2,9 %
COUP 2,7 %

The performance of my actual portfolio from 01/01/19 to 08/08/20 is +167 %

Therefore I would have done better at doing nothing instead of actively managing the portfolio. Plus I would not have taxes to pay.

It reminds me about a blogger on SA. He had some investment ideas such as being passively active or what he call “the coffee can cup” (meaning you first have to focus on buying great stocks and after you should not touch them for many years). The idea behind this thesis is that you should let the winners win and let the losers loose without touching anything and not over thinking about all bad and good news constantly flowing.

Seems too simple, right ? But look at my (not modified) portfolio :

  • I would have let NTNX go by itself to a miserable allocation of 2,7 % and that is the place it deserve. Not much harm can de done anymore with this stock. Only good surprises.

  • I would have let SHOP become 1/3 of my allocation, without trimming it which would have been a mistake.

  • The 7 selected stocks, except AYX, where dropped by the time from most of the forum members, while none can be considered as bad investment over the last 18 months (exept NTNX which would have been a terrible investment.)

My thoughts about that is that MAYBE, I am selling too easily some good stocks because of growth deceleration. But if they have a great TAM and/or are a clear leader in their field, I believe it is a good idea to keep a part of them. That is the reason I have not completely sold TWLO, TTD and MDB. But I do not touch them anymore. I will only let them dye or win. And by the way, no taxes for what I do not touch.

Finally, selecting a bunch of great stocks and letting them go many years would not be different than investing in an index ETF like QQQ except you first select your stocks. Which makes a huge difference. And by the time you do no pay taxes.

As you have understood my personal investment idea presently is not to be completely active or completely passive. But being active for the most part of my portfolio and passive for a little part (SHOP, TWLO, TTD and MDB) I will not touch anymore whatever happen. Because something in them let me think few of them may have a bright future… Even if they do not suit the original high growth doctrine.

I would REALLY be pleased to know what do you think ? And I would equally be pleased if you do not share my conclusion.

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2

Lucozon,
Most of your returns are based on SHOP, which I owned too and sold. Of course it’s disappointing to see a former holding take off like SHOP did, but the real question is not what would’ve happened if you stood pat, but what are the prospects going forward. IMO, the prospects of your current portfolio are much better than your old portfolio over the next 3 years.

Best,
bulwnkl

Long

CRWD 20%
MELI 19%
ZM 14%
FSLY 13%
NET 11%
DDOG 9%
TCDA 6%
OKTA 5%

5 Likes
3

Hi Lucozon,

By passively investing you would have learnt nothing about how you invest in high growth stocks. It is natural to not get everything right the first year, and these 40% difference (+ taxes) would most likely be compensated in the next years (because as Saul points out every month, his method beats any index or passive investing).

Also, the passive approach you are describing is really not robust: had you not selected SHOP the results would have been different. With Saul’s approach you can be reactive and correct mistakes rapidly if need be.

In the passive approach you would have 2.3% in NTNX. What surprises me the most is when you say
« Not much harm can de done anymore with this stock»
It is like if, because it is only 2.3% of your portfolio you don’t put as much value to these $ as the other allocations of your portfolio. From my perspective this 2.3% are causing a lot of harm: how much are you loosing by having them in a zero confidence stock (you don’t own them in your current portfolio) vs having them in your most confident stock?

zilba

9 Likes