Anurag Gupta

Anurag,

Was impressed with your posting history and profile. Wish I could send you an email directly, but have to settle for a forum post.

Do you still follow this investing method outlined in your profile?

How I Invest

I practice the tmf1000 method of investing: buy and sell in stages with few exceptions. I try to keep my portfolio turnover to less than 5% annually. Buying in stages allows me to grow my best bets in a risk adjusted manner.

JC, You can send him an email directly. Reply to one of his posts and then check the box that says “Email the Reply to the Author”. The default is to “Post this reply to the boards” which you may want to uncheck.

Hi JC

Yes, I have been using this method for about 10 years now. Going forward, I am trying to reduce my sells even further. On a dollar based churn, I am probably at 2% annual level (dollar amount moved from one investment to another) for the entire portfolio. The 5% churn is the ticker churn since I have 250+ stocks. This amounts to < 13 stocks sold annually whose net dollar value is < 2% of my entire portfolio. Essentially very little selling. The only exception is options trading where sells are timebound. The amazing thing is that I sell so infrequently and so little and yet when I look back it is clear that not indulging in any of those sells would have been even better. So selling is quite injurious to portfolio in general. Every once in a while i have big time losers and it is ok to have them since we also end up keeping big winners this way. One can only lose 100% but there is no limit to the upside. This asymmetry is pretty profound.

I discriminate between my stocks not by selling but by choosing which stock to add more capital.

Anurag

4 Likes

Hi Mr. Gupta,

It is good to see you here!

We have been very busy and rarely post on the SA boards these days, but we continue to read your posts (they led us here to this very good board, in fact, although our father – ADrumlinDaisy/ChanceEldrDancer – told us also that we should look at it).

Anyway, we truly admire your approach to investing, which is very similar to TMF1000’s, and we have been trying to implement it. But we just do not have the time or, honestly, expertise to evaluate stocks or companies to the extent that would give us an edge over the market in figuring out when there is an opportunity to buy at better value points. So what we do is just buy Stock Advisor BBN’s when we have money, and rely on the BBN classification as indicating that we are buying at better value points. We do not worry too much about whether we already own a BBN or not since as a practical matter this procedure does not really seem to produce huge over-weighting.

We think David (especially) and Tom and Jim M and Jason M are extremely good investors, and we rely on them heavily. That has been working very well so far, but of course everything has been working very well since 2009!

Also, because we have small portfolios but add money monthly, we do not maintain much of a cash cushion. We plan to do that over time, though.

We are intrigued by Saul’s approach to investing, which seems very, very different. He has a concentrated portfolio and a very strong growth emphasis, as far as we can tell so far. He is very impressive, as is this board, but we are a little concerned that even brilliant people like Anirban and Saul may not be able to duplicate the depth of research and analysis that the MF Stock Advisor staff can do.

Of course, Saul beat them all when it came to WPRT!! So we are not really sure what to think.

Anyway, we just wanted to say hi and, if you have time and it is not a bother, seek your quick feedback on the above approach we are taking. We know you are busy though and do not want to inconvenience you, so we understand if you do not want to respond!

Very best wishes,

Captain Haiku

Martha and Victoria

(We could not possibly try to write this post in haiku!)

11 Likes

Hi Martha and Victoria

I think your approach is as sound as it gets - for novices as well as highly experienced investors. The Gardners have built a high performance system of investing. This system while not perfect, has the highest possible probabilistic success rate and the last decade’s results in a very tough environment is the proof that it works. It is also in the line of thinking of many existing and past investing greats from the Davis Dynasty to Lynch to Buffet and our own TomE with ~50 successful years of investing (he is not that old, he just started at the age of 12) through all kinds of market cycles. So ample confirmation bias in this approach.

You are doing the right thing by relying on those stock pickers who have a proven (well documented and public) track record on picking the best businesses and analyzing them well - the Gardners, Tom E, Jason, Jim and the likes. When we invest with SA team, we don’t invest alone. We have an army of accomplished staff working for us 24/7 (for $100 per year - unbelievable). That eliminates the need to follow each and every stock in great detail independently. We can just read up those page posts and updates in minutes that took 100s of hours to be created. Secondly, if we have chosen good companies to begin with, hallmark of SA picks, then the need to keep any eye of them is not very high. Most SA firms require a look only once in 2 years. SA updates keep us focused on the most relevant opportunities.

You can enhance your existing approach by taking advantage of risk ratings if you don’t already. David’s concept of risk rating may be imprecise but it is intuitive, usable and vastly superior to industry standard volatility measures of risk. In the latest SA issue, David articulates this nicely once again. One can chose the risk ratings to size the invested capital. A stock with significantly higher risk rating should receive relatively smaller capital. The idea is to let market do the heavy lifting on riskier stocks. It can also help decide if the existing position is enough or can be safely added upon more. There is no need to use the risk rating ratiometrically to avoid false precision. Once we tell our minds that “A” is substantially riskier than “B” by some subjective metric (this is where I love the nomenclature of “jawbreaker” or “carbon steel” assigned to various numbers of risk ratings), it becomes easy to allocate relative amounts. Our brains are powerful calculating machines that take 99% of our life’s decisions without our consciously realizing it. All we can do is learn to control our emotions of greed and fear and let the brain spit out those relative weighting estimates that turn out to be largely correct. I recently did a quick analysis by plotting the risk rating of all SA and RBS stocks against their market outperformance. I found that a relatively larger number of stocks rated 8 or below did better than those with higher risk. So this approach works and it is counter to the conventional wisdom of requiring higher risk for higher gains. For the kind of firms we have at SA, low risk should correlate with higher returns simply because those firms with low risk are best operators by default as that is exactly what the risk rating is based on and we have already seen that such businesses outperform the rest.

Also, because we have small portfolios but add money monthly, we do not maintain much of a cash cushion. We plan to do that over time, though.

This is sound approach for now. Cash cushion and its management would make more sense once the portfolios reach close to 6 figures.

Good luck and Fool on!

Anurag

6 Likes

Thank You, Mr. Gupta!

Captain Haiku

Martha and Victoria

1 Like

Anurag,

What qualifiers do you use to determine when you sell a stock? I own a portfolio of 55 stocks and have some dogs I have held for close to 4 years now and feel like I have given them a chance to grow. For reference the stocks I am considering selling are:

TDC
TCS
AMRC
COH

I would sell stock when you:

  1. realize it was a mistake buying the company stock in the first place (e.g. Warren Buffet with Tesco in the UK)
  2. realize that the investment thesis has broken down due to change in circumstances
    If neither apply unless you need the money for another reason or your risk appetite changed why would you sell.
    A
1 Like

Selling is always harder than buying, for me at least. Most of this is psychological- once you own stock in a company it tends to become “your” company, the more you learn about it the more that feeling gets reinforced.

Another problem with selling- what do you do with the money? Selling requires a decision, buying another stock with the money requires yet another decision. Both need to be right because they are serially related.

I would add another reason to sell- If the stock price has gone up so much that it has clearly outrun the prognosis for the company. It was not overpriced when you bought it, now it is. At today’s price other stocks are a better bargain. This is tricky, because the market usually looks 6 to 12 months ahead and you may have a longer time span in mind.

How do you determine if a stock is overpriced?