An Observation for Investors

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An observation for investors

Yes, picking the best of the best companies without worrying if they are expensive, in a concentrated portfolio, is a strategy that works. Here we are nearly six months into the year, and the S&P is still in negative territory, the Dow is still in negative territory, the Russell 2000 is still in negative territory, the IJS is still in negative territory (and yes, the nasdaq finally is up year to date).

How does that compare with a concentrated portfolio of expensive companies? Well my portfolio finished up over 100% YTD today for the first time this year (100.5% to be exact). And look, any of you could have done the same or close. There were no secrets, the stocks were discussed at length on the board, all of them. You saw in my monthly summaries what I was investing in, and the relative sizes of my positions, and how many positions I had. You also even saw my mistakes, like exiting Coupa when I did, and exiting Afterpay. It just proves that you don’t have to be in all the winners, or worry about the ones that got away. Up 100% in a flat/down market is quite adequate. You just have to accept the realization that you just can’t do it, it’s just impossible to do it, if you spread your investment out to every good story, second level companies, third level companies, fourth level companies, and end up with 30, or 50, or 100, companies in your portfolio, and then being proud that you had one that went way up. That’s just not what it’s all about.

Best to you all,

Saul

PS, And yes, being up over 100% in this market is truly, truly, surreal! Bizarre even. But you know that it was done in the real world!

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I can testify that your strategy works, and I couldn’t agree more. I think that most people, IF, and it’s a big IF, can desensitize themselves to fear, they follow your methods too. It isn’t rocket science.

My suggestion to those who have been to fearful to try, take a small amount, say 25% of your portfolio, and give this a try for a year. If you aren’t successful, it ain’t the end of the world. Whoever loves you with that 25% of your investments, will love you without that 25% of your investments.

My other suggestion would be to think of your gains as a margin of safety. The better you do, the more insulated you are.

I hope more of you give this a try. It works.

Best,

bulwnk.

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And let me emphasize that I wasn’t saying you should invest in the exact same stocks I invest in, or in the same proportions. All the successful investors on the board have some differences with each other, somewhat different portfolios, different rankings of their companies, etc. It depends on your own level of confidence in each company, but the key is put your money in the best of the best as far as your own confidence, in a concentrated portfolio. Don’t invest in hope, or second tier, and expect the companies you are investing in to be wildly expensive when compared to an old economy company. Why would you expect anything else?
Saul

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Many thanks for posting this. I started in Oct 2019 and made a mandatory number of mistakes. I am up 40% anyway. That’s with 6 pot stocks still in the mix, all losers (IIPR is a winner but in a Roth IRA); oh, and also two binary biomeds…so very far from perfect but I now really like where most of the money is. I also beat SPX in my 401k by moving to ETFs with mostly MF recommended content.

Anyway, do you have a link to your current portfolio composition? I have a link to yours from summer 2019.

It is hard to find anything on these boards… We invest in cutting edge companies but use 1990s discussion boards design :slight_smile:

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Anyway, do you have a link to your current portfolio composition?

https://discussion.fool.com/my-portfolio-at-the-end-of-may-2020-…

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I am sharing this “newbie” testimonial for the benefit of other lurkers/learners. I came across this board late last summer while researching companies that were recommended as part of one MF’s premium portfolios services (one where you are encouraged to follow along - and learn - by buying equal percentages of all of the recommendations). After reading Saul’s Knowledgebase and the exceptional commentary and analysis here, which rang deeply true, I pivoted, realized that my portfolio fee was a “sunk cost”, and switched focus…itself a Saulinian move! I’ve since whittled my portfolio from 40 stocks to 23 (Saul is right: once you sell a stock, you forget about it! the hard part is letting go). As I cultivate confidence, conviction and a greater willingness to stare down fear, I will concentrate further…it’s a slow process for me. Still, even though I am by no means a master or highly concentrated, I am up 56% YTD. Not bad for a beginner! The discussions, plus Saul’s encouragement (exhortation?!) to buy on the way up, helped me reallocate funds and build positions in ZM, CRWD, DDOG much more quickly than I would have otherwise. They are now among my top five holdings. One day I will share a more detailed write up … in the meantime, I offer this as encouragement to anyone who needing a nudge to try this out.

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Many thanks!

I am surprised you added FSLY considering the rate of growth and gross profit growth. I read somewhere you wanted 50% plus growth. But, yeah, you obviously know what you are doing, no question about that, just curious.

It was the one stock I cut at the start of the crash and then the money went into larger, higher-conviction buys along with new cash and money from three stocks I cut during the crash.

I do own FSLY indirectly in my 401k though and it is a sizable holding there (for a 401k, okay). I won DDOG and CRWD both directly and indirectly.

Considering the relative weight of the 401k, the best I have been able to do without putting all the 401k into a basket of 20 tech REITs (SRVR), lol, has been to ensure I have 50% of total holdings in 37 companies and that includes DDOG, CRWD, and FSLY. Then 64 more companies make 26% of total holdings and the bottom 24% is split among 200+. But, no, there is no way out without changing employer. I would rather have no employer match and be able to use an IRA instead, but it is not an option…

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It is hard to find anything on these boards… We invest in cutting edge companies but use 1990s discussion boards design :slight_smile:

Hi MAS4R,
First make a login to Motley Fool.
Then when you find Saul’s Investing Discussions make it a Favorite by clicking on the little red heart.
Now make a shortcut to “Favorites and Replies” that is a link or tab in the page’s header. I just drug the icon in the URL over to my desktop for starters.

Now, once you are on the forum choose “Threaded” in the left column header and the “Collapse”. For now. This condenses each thread and only shows the Original Post. Once you open that, the middle header has the number of replies. If there is more than one, it will be a link and will uncollapse the thread. Also, there is a date column whose header has Previous / Next. You are on the most recent posts if the Next is greyed out. You can hit previous a number of times to get to the end of a month where Saul’s portfolio is usually posted for that month.

This is off topic bit I hope it helps and message me offlist if you need help.

Take care,
MS

PS “Unthreaded” will show any recent replies to older posts.

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to those who have been to fearful to try, take a small amount

That’s what I’m doing. I was nervous to start in this strange market so ended up putting 75% in for now. These boards have been far better than all the news and Twitter feeds I follow. I agree with the comment about the design though. Navigating the forums have been almost more difficult than deciding what to invest in. haha I’ve got my favorite bookmarks figured out though.

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If feels surreal for me too Saul, I don’t use options but YTD I am up 168%. Only really feels real when I drawdown some of the profits.
Looking forward to what the rest of 2020 will bring.

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168%? Without options? I’m sure that I’m not alone in wishing that you would tell us more about your holdings and how you have achieved 168% growth this year.

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I recommended your post simply because of your name, which must have influenced your choice and consumption of your favorite alcoholic drink. :slight_smile:

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Saul I want to thank you and all of the regular contributors on this board. I’ve only recently started posting. Being relatively new to the board I’ve spent a lot of time (and continue to) reading and studying the posts.

Slowly I’ve created positions in great companies.

My portfolio is up currently over 78% YTD.

Since 13-14 yrs old I’ve invested in the markets - a very small amount to start of course. But it’s added up. Yet my understanding was always that 10% a year is a great return.

Finding this board has expanded my mindset to MUCH greater possibilities.

I’m now working on shifting more and more of my ‘old’ portfolio into these great companies.

What I find hard, especially in my non-taxable account, is to not trim some positions to create cash when I’m up 78%YTD. In this account I can only add money once a year, so the growth through new funds is limited.

My mind asks “why not sell some when you’re up so much, wait for some volatility to drive these companies down a bit (never know when that will happen but it seems to happen every 1-2 months) and re-enter to catch the up-swing? I mean if ‘stopped’ right now and made JUST 78% on the year I’d be very happy …” If anyone has experience with how to think about this I’d love some perspective. I’m sure I’m missing something - or a whole lot!

Thank you again everyone!

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My mind asks "why not sell some when you’re up so much, wait for some volatility to drive these companies down a bit (never know when that will happen but it seems to happen every 1-2 months) and re-enter to catch the up-swing?

Miklo,
You probably thought the same thing when you were up 48% and if you had gotten out you never would have gotten back in because you would still be waiting for that pullback. Think of it this way, you made that extra 30% (so far) because you DIDN’T get out. In fact, some people would have gotten out at up 20% (we were in a pandemic and market crash back then and here you were up 20%? Get out and take profits, right?), but you would have missed 58% more. The problem is that if you try to get out and get back in you have to make two very difficult decisions that are often very emotional and frustrating. And you don’t really know where these stocks are going. I figure it’s hard enough to find and stick with a selection of the best companies in the world, and not try to time the market too. A lot of people talk about timing the market but none of them are up over 100% (doubling your assets in less than six months) in this disaster market.

I hope that helps. And reread the Knowledgebase.

Saul

A link to the Knowledgebase for this board is in the Announcements panel that is on the right side of every page on this board.

For some additions to the Knowledgebase, bringing it up to date, I’d advise reading several other posts linked to on the panel, especially “How I Pick a Company to Invest In,” and “Why My Investing Criteria Have Changed,” and “Why It Really is Different.”

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My mind asks “why not sell some when you’re up so much, wait for some volatility to drive these companies down a bit (never know when that will happen but it seems to happen every 1-2 months) and re-enter to catch the up-swing? I mean if ‘stopped’ right now and made JUST 78% on the year I’d be very happy …” If anyone has experience with how to think about this I’d love some perspective. I’m sure I’m missing something - or a whole lot!

This is a universal question. A principle here is to hold a stock as long as it continues to satisfy its selection criteria.

On the flip side , given that the facts are unchanged is it appropriate to keep augmenting positions? Or is caution the byword.

???

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The problem is that if you try to get out and get back in you have to make two very difficult decisions that are often very emotional and frustrating.

I sold out to 70% cash some time back when this pandemic looked like it was going to be truly awful. Pat myself on the back, I beat the market by 12% in a single week. Problem is, the very next week I lagged the market by the same amount. That is how fast the market can swing, how irrational it can be, in the short term. I learned in a short time-frame how futile this can be. I got back in rather quickly, but getting out was futile. (Now at only 7% cash, and roughly 50% of assets in high growth names). Up 24% YTD, so at least I’m still doing well.

In the late 90’s I started entering track events in my Corvette as a safe, fun, and educational way to get high-speed driving kicks. One thing you learn in those driving schools is how to slow down the sensory over-load of high performance track driving. If you feel the track is moving past you too rapidly to react to it is because you are looking too close to your front bumper. Move your eyes further up the track and things start to slow down, become manageable, and now high speed track driving becomes possible. You start improving, going faster, making fewer mistakes. It’s a lesson I’ve only now realized I need to apply to my investing…

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And look, Miklo, right now this minute, your up 78%, portfolio is currently up about 83.5% instead. Would you have guessed that this morning? Would I? You’ve got a good thing going. Just stick with it. We both know the market will head the other way after a while, but we don’t know when, and where our portfolios will get to before that happens. Most of the market rise over time takes place in a small proportion of the trading days. You don’t want to be sitting on the sidelines and miss those days. They won’t be obvious in advance.

Look, since the market bottom on March 16, when everything looked terribly glum, my portfolio is up 146%… in three months! Do you think I could have imagined that??? All the talking heads were saying that you should go into cash! “How to deal with a depression?” I was just happy that I was only down 16% when some of the averages were down close to 40%. You just can’t guess the market. But you can make a reasonable guess at finding the best companies, and then stick with them.
Saul

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bulwnk wrote:

My suggestion to those who have been to fearful to try, take a small amount, say 25% of your portfolio, and give this a try for a year. If you aren’t successful, it ain’t the end of the world. Whoever loves you with that 25% of your investments, will love you without that 25% of your investments.

That’s what I’ve been doing since I discovered this board in 2018. Starting in March 2019, I’ve been selling some more traditional companies and using the knowledge from this board to buy newer companies discussed here. In some cases, they were S.A. recommendations that I bought or added to because of what I learned here. Others were companies I would not have paid attention to without this board.

If I had held the companies I sold, that part of my portfolio would be down about 2.5%. During the same time, the companies I bought are up over 73% (and over 76% this year).

I now have over 33% of my portfolio in companies discussed here, with about 40% of my portfolio in AMZN, AAPL, NFLX, and MELI. They are “only” up over 30%. The rest has been flat or slightly down lately, and I’m planning to move more of that part into companies discussed here.

So, if anyone who has been following the board, but not wanting to completely convert your portfolio, I would also encourage you to convert a percentage of it.

Among other things, reading this board has made me better at when to sell a company, including a few official recommendations (I’m looking at you Blackberry) in order to invest in better opportunities (TDOC, ZS, and MDB at the time).

Back in June, 2019, while trying to decide whether to hold BB and wait for the price to recover, I looked at several factors in including that the quarterly (yoy) revenue growth was only 9.4% compared to the over 40% for companies discussed on this board. So I decided to sell BB and go with some of them. I would not have made that decision if I hadn’t been following this board.

Thanks,

All the best,

Raymond

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If I had held the companies I sold, that part of my portfolio would be down about 2.5%. During the same time, the companies I bought are up over 73% (and over 76% this year).

Thanks Kayaker Raymond, that’s just what I’ve been trying to tell people!
Saul

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If I had held the companies I sold, that part of my portfolio would be down about 2.5%. During the same time, the companies I bought are up over 73% (and over 76% this year).

Thanks Kayaker Raymond, that’s just what I’ve been trying to tell people!
Saul

As others mentioned before, I too was unsure of concentrating my portfolio and exiting some position that i’ve held to move into the high growers discussid in the board. So i began shifting my portfolio and tracking the performance of sold shares vs. new positions.

I know Saul and other have preached of forgetting a position once we get out, but i wanted to learn where would i’ve ended if i’ve stayded the course. Prior to this “experiment” i would have guessed that some of these bets would pay off and others wouldn’t, but i was shocked to find that in evey case the results where improved (and by a very large margin in some cases).

I don’t want to bore you with details but here are a couple of examples:


Exited NVDA at $259 bought CRWD at $58  = +41% vs +72% respectively so far.
Exited MMM  at $150 bought AYX  at $94  =  +6% vs +69%
Exited SNPS at $155 bought LVGO at $39  = +22% vs +78%
Exited IDXX at $285 bought COUP at $200 = +10% vs +29%

Its worth mentioning that i didn’t attempt to time the market, i didn’t wait for a pullback to go into the new positions. Instead i just exited a position and bought the new one on the same day or next couple of days.

Hope it helps to encourage other to “take the leap”

Saludos!

Martin

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