I will get to the details very shortly, but the TLDR version is I lost 15% this year.
That’s bad. No reason to sugar coat it. But the amount I lost is truly nothing compared to the knowledge and experience I’ve gained in 2016. Could I have learned the lessons less expensively if I’d had half or 3/4 of my money in index funds? Maybe. But maybe sometimes you have to jump in with both feet when you’re really passionate about something. I’m 36. I’ll be ok. I also helped my Dad (who’s 67) invest, and we took a conservative approach and he handily beat the S&P. So there really is a risk / reward component to this art.
I like my style, which is very similar to Saul’s…and hopefully has become more so in large part thanks to this board and his tutelage herein. Someone pointed out today that “modified buy and hold” might not be the best description. I don’t really care what you call it, but as I pointed out here (http://discussion.fool.com/modified-buy-and-hold-32203068.aspx), I see it as a balance between the short term and long term. Why tie one hand behind your back? Consider both.
I feel good about the companies I own. I understand them infinitely better than I understood the companies I owned at the end of 2015. I’m excited. I’m resolved. I’m enjoying the journey. And I’m not fooling myself. If I can’t get the hang of this in the next year or two, I will go back to being a passive index investor. I’ve got plenty of time to let compounding work for me.
But here’s to 2017! Looking forward with anticipation! But first, let’s talk about the year we’ve just completed.
Previous Month Summaries
January: I didn’t start doing this until February
This Month My Portfolio 1.20% S&P 1.82% Nasdaq 1.12% Russell 2000 2.46% YTD My Portfolio -15.10% S&P 9.54% Nasdaq 7.50% Russell 2000 19.74%
Well, the last few days have been an inauspicious end to an inauspicious year. But it’s nice to finish December in the black, even if the only index I beat was the Nasdaq.
Changes this month, and why I made them
SKX - After SKX jumped to $26, it no longer looked like a bargain to me, and I sold a good bit. When it was over $27, roughly 20% higher than the week before and more than 40% up from the recent low, I sold the rest. I didn’t really sell out because of any problems or risks, but simply because growth has slowed and the stock is not screaming buy right now. It’s not super expensive at a PE of 15, but until margins start growing again, I’ll let others worry about it.
AMN - Here’s another that was up almost 20% this month, so I sold. It tends to move to factors not related to the company’s performance. Also, the growth has not seemed super inspiring.
BOFI - Took a small position around 28. Interested, but need to study more.
SPLK - After the close to 20% drop, seemed worth getting back in. I still don’t completely understand this business, but as with BOFI, I’m eager to learn more.
Trims, Adds, and Holds:
I’ve been adding to my top 7 positions, which now make up 78.6% of my portfolio. That’s a lot, but concentrating on what I know best seems a better strategy than spreading myself too thin. I’m doing a better job of realizing what I actually know instead of just what looks “cheap.”
I’ve added to:
I’ve mostly added on dips, so even though some (LGIH and HUBS especially) are down substantially in December, I still had a net positive month.
The only trims were XPO and AMZN. I took a little of my gains off the table.
PAYC, FB, SSW, TWTR, and PERI remain unchanged. Would have added to PAYC, but it is already so big from my adds last month.
About SHOP… Yes I realize it’s basically irresponsibly huge. But it’s my highest confidence company, by far. I continue to buy each time it dips to 40 or so. I just don’t think we’ll see that opportunity too many more times.
HDP - still just watching. Really glad to see Saul took a position…and especially enjoyed the conversation that ensued here: http://discussion.fool.com/hortonworks-32537042.aspx?sort=whole#…
VEEV - still too crazy expensive…kinda feel like it will get acquired and I will miss out, but I’m still waiting at these levels.
STMP - maybe I was wrong to sell this. It’s volatile, but they just keep killing it. But like UBNT, their incredible margins actually scare me. How is it sustainable??
My Current Allocations
SHOP 25.7% PAYC 10.9% LGIH 9.5% HUBS 9.3% YELP 8.8% XPO 7.1% SQ 7.2% AMZN 4.9% FB 3.8% SPLK 3.4% SSW 3.0% TWTR 2.4% BOFI 2.8% PERI 0.9%
Random Thoughts and Conclusions
New Years Resolutions:
Since I’ve started investing in individual stocks (end of 2014), I’ve had 2 meager years. In addition to under-performing the market, I’ve lost a lot of money. In 2015 I didn’t keep good records, but I estimate I lost about 11%. In 2016, I lost 15.1%. However, since I started keeping these monthly journals in February, I am basically flat. That’s even with INFN, SEDG, and others taking huge bites out of my portfolio.
Here are some things I learned in 2016:
“It’s so cheap” is not an investing thesis http://discussion.fool.com/quotit39s-so-cheapquot-is-not-an-inve…
Just because a company is growing like crazy, that doesn’t mean it will continue to do so. See INFN, SEDG, SKX, RUBI, FIT. Networks are huge…businesses where there are real switching costs are much more steady that those that sell products that customers can buy once and never again.
Services and software mean more differentiation, network effect, and margins possible than products, most of which are in danger of becoming commodities sooner or later (and whether sooner or later can be hard to predict).
I’m still working on this, but there are many reasons to sell (or not buy) a company. Most center around inability to predict their future, aka being “too difficult,” as I said in the post above (see #1). I discussed a few of these reasons here: http://discussion.fool.com/reasons-not-to-own-a-stock-32519619.a…
I’ve learned to stop gambling and invest in companies with long term advantages and short term catalysts. I’ve learned to stay away from things I can’t understand or am just hoping will work out, and stick with proven winners that are winning for understandable reasons.
Here are my goals for 2017:
Beat the S&P, Nasdaq, IWM, and IJS.
Have less volatility than the IWM and IJS. This means being down less in down months…obviously I’m ok with being up more in up months. I’m basing this goal on the fact that Saul has been able to achieve gains even in years where the market is down (even though small caps were down in 2015, he gained 16% or something).
No matter what the market does, achieve a positive return for the year.
I think these goals are reasonable and achievable. I think I’m getting the hang of this investing thing, but if it still proves to be too difficult, by all means I will go back to passive investing.
My best to all,