Bear's Portfolio at the end of January 2017

Investment Analysis Clubs Saul’s Investing Discussions
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Previous Month Summaries

Dec 2016 (contains links to all 2016 monthly posts): http://discussion.fool.com/bear39s-portfolio-at-the-end-of-2016-…

Portfolio Performance


This Month
My Portfolio            10.45%
S&P                        1.79%
Nasdaq                    4.30%
Russell 2000             0.28%

YTD
My Portfolio            10.45%
S&P                        1.79%
Nasdaq                    4.30%
Russell 2000             0.28%

Well, what can I say, January was a good month. But then, I had some catching up to do after last year! …still do.

SHOP had a lot to do with the month being so good, of course, as I entered 2017 with SHOP commanding more than 1/4 of my portfolio. Obviously I wanted to remedy that a bit, but it was nice to get a bump before I did. And it’s still my #1 position by a long shot.

However, it wasn’t just SHOP. All 14 of my positions are trading higher than they were one month ago, and 10 them were up at least 7% in January. A few years of months like that and I can retire. :wink:

Changes this month, and why I made them

Sales:

None

Buys:

HDP - I couldn’t resist after Saul explained the need to look at “revenue plus the net change in deferred revenues” here: http://discussion.fool.com/hi-bear-they-have-an-enormous-amount-… and the article by Bert he links to.

Trims, Adds, and Holds:

Added to Splunk. We’ve discussed: http://discussion.fool.com/splunk-32565994.aspx?sort=whole#32565… Andy had a good point about share based comp that I’m still considering.

Added to FB. In response to Matt’s bullish case, here’s what I wrote: http://discussion.fool.com/matt-you-are-awesome-value-that-that3…

Added to AMZN. This is quite simply a very high confidence company for me in the long term. I move my position size around more than most, selling some when it goes up and buying more when it dips, because I feel like it goes in fits and starts, and other (smaller) companies often have more catalysts for appreciation. But I would rank Amazon among my favorites in the long term. At a ~9% position, it’s not so big that I wouldn’t buy more if there were a major dip.

Trimmed some SHOP, PAYC, and HUBS. I was extremely heavy in SHOP and needed to trim. With PAYC and HUBS, I just wanted to have a little less exposure, because although I love the recurring revenue, I don’t understand the businesses (at least the secret sauce) with these quite as much. I’m trying to base position size not just on the stellar results a company has had, but on what I see as their opportunity and strengths vs competition, and how well I understand all that.

I’m holding a little cash (5% or so). Always seems like something will present itself as a buy during earnings.

One other little note: I’ve tried to trim in a timely manner, as I do hold stocks that tend to get expensive from time to time. I’ve also shifted into less expensive things (depending on how you calculate “expensive”…maybe what I really mean is “less volatile”) and may switch back if the extremely pricey stuff dips…I guess that’s called re-balancing your portfolio. Sort of.

Watchlist

I’m watching the companies Saul owns that I don’t. Presently there are four, besides KITE, which Saul says doesn’t really count.

With ANET I just can’t get excited about the product…even after the drop I just don’t feel comfortable. I’ll see what happens after earnings.

With TWLO I just don’t understand it – I’m getting closer, and the fact that AMZN and FB use it carries a lot of weight with me, but I’m just not comfortable yet.

I’ve said plenty about UBNT, but basically I worry they’ll run into the same buzzsaw INFN ran into…maybe that just shows that I don’t understand the company. Either way, it’s not something I should own.

Lastly, I really just don’t like banks (despite my very small BOFI holding), plus SBNY just doesn’t seem like a great value to me at this level.

Here are a few others I’m watching, but haven’t pulled the trigger. Mostly just hoping for a cheaper price, except with DY…I’m just not sure what to make of it.

VEEV
TEAM
CYBR
GOOG/GOOGL
DY

My Current Allocations

NOTE: The “Change” column lists the % change in share price during January.


Ticker	Curr	Change
SHOP	16.5%	18.5%
AMZN	8.9%	9.8%
LGIH	8.4%	8.1%
YELP	7.9%	9.6%
PAYC	7.5%	1.6%
SPLK	7.7%	13.1%
FB	7.0%	13.3%
XPO	6.0%	3.7%
SQ	6.3%	7.3%
HUBS	5.5%	9.1%
HDP	5.2%	
SSW	2.6%	5.0%
BOFI	2.4%	3.3%
TWTR	2.1%	8.1%
PERI	1.0%	31.0%
cash	4.8%

Random Thoughts and Conclusions

This was a month where stock picking seemed to work for me. One thing I really liked was that even on days when it was down, my portfolio was only down about as much, or sometimes less than, the small cap indices. This was a goal of mine for this year. Someone mentioned that my portfolio was very volatile (ie, this goal was unlikely), but I was basing this goal on the fact that Saul has often been up when the market as a whole is down…many times for the whole year!

The recent thread about correlations between Saul’s portfolio and the FDN was fairly aggravating. No one seemed to mention 2001-2003 where Saul quadrupled his money in just 3 years while the market LOST 12%. You really can’t just pick his worst 10 year stretch of his investing career and conclude that stock picking must not work!

Anyway, I still believe in this venture, and I’m excited to see what else we can do in 2017.

My best to all,
Bear

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Nice month Bear.

I like that some of you take the time to share your monthly numbers. I never look at my monthly numbers, maybe it’s better that I don’t, but still it’s very informative.

So you just maid me do a quick look at my 7 stocks just for fun.

FB. Up 12.27%
AAPL. UP 4.77%
NFLX. Up 13.66%
AMZN. Up 9.82%
SHOP. Up 18.54%
BRK. UP .71%
PAC. Down 6.3%

My big difference is that I’m very heavy in cash, over 50%.
I have buys in but haven’t hit. I. Don’t see selling any of these holdings for years to come,
so I will only be buying going forward, but being incredibly cautious as I don’t see myself being fully invested again until we get a substantial correction/ bear market.

In the meantime if my portfolio continues outperforming, I’ll be very happy with the returns I’m getting.

Chris

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Maid=made.

Hopefully your returns have nothing to do with my house keeper. :wink:

Chris

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Hi Bear - nice write up and well done. I need to do my performance analysis when I next get access to an xls license - (the things you take for granted when you’re employed).

I like the point about Amazon being a high confidence low risk stock and I’m annoyed I didn’t buy in below 750 on the pull back which I fully intended to but never mind.

Depending on when you were doing your trimming of PAYC as it got to 50 in the month, with the recent falls I’m actually looking to add to it as well as my Criteo holding.

I’m comfortable with my oversized SHOP holding and also looking at TEAM as well as HDP.

I’ve held on to my BOFI as well as HUBS but they are on notice. If BOFI metrics deteriorate any further I will probably exit - although I appreciate for banking the numbers look good. I would have swapped over to either INBK or Signature had they not risen so far so fast also. Maybe BOFI can sponsor me into HDP or TEAM or a Paycom top up.

I’m thinking about UAA as the growth seems relentless and it’s uptake here in Asia seems strong everywhere, but my memories of Skechers hitting the wall linger in my mind.

Ant

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No Ant nooooooooooooo!!!

Stay away from UA.

Chris

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Yeh it took me about 5 mins looking at that to reach the same conclusion. But I do need to look at Lulu.
Ant

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That Lulu store next to the escalator in Singapore is always packed isn’t it Ant? (you know the one I’m talking about).

I often sat at the Coffee Bean across from that store in Singapore. I would probably get to Orchard about 2 or 3 times in a month and would always stop there for coffee. It seemed to always have a reasonable amount of traffic going in and out but I would never say it was packed. It is a reasonable sized store with a men’s section as well though it mostly looked like wasted space when watching the customers

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Bear,

Congrats on your monthly results, it’s great getting a month like that, especially after having some pain in previous months, makes it all the sweeter.

Just have to comment on one of your last statements, though, and since you brought it up…

The recent thread about correlations between Saul’s portfolio and the FDN was fairly aggravating. No one seemed to mention 2001-2003…

That’s because, as you just stated, the thread was about the correlation between Saul’s portfolio and the FDN, and the FDN wasn’t around in 2001-2003, so what was there to compare in those years?

…2001-2003 where Saul quadrupled his money in just 3 years while the market LOST 12%.

Again, the thread was not comparing “the market” to Saul, and the FDN is definitely not the market.

You really can’t just pick his worst 10 year stretch of his investing career…

Nobody cherry picked “his worst 10 year stretch”, the FDN has only been around from 2007 to present, so those are the only years that were relevant to the discussion.

…and conclude that stock picking must not work!

That wasn’t a conclusion that anyone espoused from the posts I read.

Anyway, congrats again on a great start to 2017, let’s hope we all end the year much better off than we started!

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Yup it is and I noticed the ones in Australia are pretty busy too. I see more and more women wearing LULU gear here in Singapore.
Ant

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Good enough reason for me to return

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This was a month where stock picking seemed to work for me. One thing I really liked was that even on days when it was down, my portfolio was only down about as much, or sometimes less than, the small cap indices. This was a goal of mine for this year.

Just 2c: you realize this is entirely random, right? If you didn’t have earnings news in your stocks, they are going to fluctuate up and down with no thought as to who owns them. The danger with thinking this has something to do with skill - and not luck - over the very short term, and one month is over the short term, is that you will confuse a rising stock price with skill and a falling stock price with no skill. Over the long-term, this correlation can make sense (though valuations can remain out of whack for a while as previous markets show), but short-term? It is irrelevant, and you don’t want to be either discouraged or encouraged by what is happening (though if EVERY stock you pick goes down that often tells you something like, for example, you own a lot of stocks with high PE ratios and low profits but accelerating growth rates - which is the type of thing that can fall hard and then bounce hard back positive as investors get more happy).

Instead, maybe what you ought to do - just a thought - is to track the fundamental news and story and valuation behind each one of your positions which is a far more predictable track to follow (good news usually means a happy stock).

Then a statement like “I was extremely heavy in SHOP and needed to trim.” becomes ‘the valuation on SHOP reached unsustainable levels at 4.6b or roughly 8.4x projected 2017 sales and given that the company is not yet earnings positive I decided to trim this position, especially after the stock had such a terrific runup lately’.

Course, you don’t have to do this - just make money. Just a thought…

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(though if EVERY stock you pick goes down that often tells you something like, for example, you own a lot of stocks with high PE ratios and low profits but accelerating growth rates - which is the type of thing that can fall hard and then bounce hard back positive as investors get more happy).

So if every stock goes up it’s not my skill, but if every stock goes down it is my fault?

a statement like “I was extremely heavy in SHOP and needed to trim.” becomes ‘the valuation on SHOP reached unsustainable levels at 4.6b or roughly 8.4x projected 2017 sales and given that the company is not yet earnings positive I decided to trim this position, especially after the stock had such a terrific runup lately’.

I absolutely do look at it valuation this way, but my statement is correct: I wasn’t trimming SHOP because the valuation is stretched, but because it was closing in on 30% of my portfolio. I actually don’t think the valuation is unsustainable. I just wouldn’t say it’s cheap like it was at $40 (3.6B, 6.8x proj sales).

Bear

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Congrats on a terrific month. You have done even better than Saul.

when you flip a coin 10 times, the expected result is 5 “heads” and 5 “tails”. this does not mean that you get 5 “heads” every time. just the average if you repeat the experiment a large number of times. it is quite normal to get only 3 “heads” as you did all last year or 7 “heads” as you did in January. but to conclude that you will always land 7 “heads” from here on out, is premature.

it is not a secret that I am quite skeptical with regard to some core assumptions that most people in this group hold dear. I did not pick Saul’s “worst ten-year stretch”. I picked Saul’s last ten year stretch. that is a subtle but huge difference. ten years is a statistically significant stretch of time that cannot be ignored.

the world has changed. connectivity, computing power and access to information is radically different. 20 years ago it was labor intensive to go find stocks that satisfy this-or-that criteria. most people did not do that and those who did had a big information advantage. that advantage had evaporated. everybody has access to those stats. mis-pricing is corrected very quickly, quicker than you can detect and react.

and since you mentioned FDN… FDN is up 7% in January. not bad for a no-brainer, dumb index.

individual FANGs did, ytd:

FB 13.5%
AMZN 9.7%
NFLX 13.7%
GOOGL 3.5%

if you average the FANGs out you get 10.1% ytd.

#6

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So if every stock goes up it’s not my skill, but if every stock goes down it is my fault?

if you have a portfolio that is 100% retailers and a retailer outside your group reports poor news and all your retailers go down, that tells you something. Similarly, if you have a group of stocks and they all go down in unison or up in unison - which is not usually a normal thing - then it might be that, for example, those stocks fit a certain type: high PE, low earnings, high sales growth - that fit a pattern where they are more volatile on both directions. It can be helpful to know this.

I’ll refrain from commenting again - wasn’t trying to needlessly offer unwelcomed advice, though I always get in trouble myself when I forget price movement has a direct correlation to valuation so it is in effect a lecture to myself…that I need all the time!

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the world has changed. connectivity, computing power and access to information is radically different. 20 years ago it was labor intensive to go find stocks that satisfy this-or-that criteria. most people did not do that and those who did had a big information advantage. that advantage had evaporated. everybody has access to those stats. mis-pricing is corrected very quickly, quicker than you can detect and react.

6, the world has changed, but stocks still fluctuate - PCLN for example started 2016 at $1275, moved to $954.02 a month later, and recently hit a high of $1605.47. Agree, mispricings can be fixed quickly, but thankfully for the active stock picker the future is, as of this moment, still unknowable. That fact alone creates distortions for those paying attention.

Besides, in your example, there is always a chance that the coin flipper who flips it 10 times heads is me…and if you think that’s luck then my money won’t care…

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but to conclude that you will always land 7 “heads” from here on out, is premature.

No one’s concluding that. I wish!

the world has changed. connectivity, computing power and access to information is radically different. 20 years ago it was labor intensive to go find stocks that satisfy this-or-that criteria. most people did not do that and those who did had a big information advantage. that advantage had evaporated. everybody has access to those stats. mis-pricing is corrected very quickly, quicker than you can detect and react.

This is the core of the disagreement. You think having more information than most or being able to find a mis-pricing is the only way to gain an advantage. I think the way to gain an advantage is to be able to value businesses well and predict their sustainability. I’m not saying others don’t do it as well, or better than I can, but I think in the long run there are more that do it worse, and that’s what makes a market. It’s not just crunching numbers. It’s more art than science.

Bear

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mis-pricing is corrected very quickly, quicker than you can detect and react.

Not in thinly traded stocks and options.

Denny Schlesinger

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price movement has a direct correlation to valuation

Only in the long run as per Ben Graham’s dictum that the market is a voting machine in the short term and a weighing machine in the long term. Traders use the first and value investors the latter.

Denny Schlesinger

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mis-pricing is corrected very quickly, quicker than you can detect and react.

… and we are on the cusp of another computational earthquake moving from traditional computing machines into thinking machines. traditional computing runs a fixed algorithm that was discovered and coded by a human. if the underlying logic changes. the machine ceases to work, kinda like what happened to Saul in the last 10 years.

AI and machine learning are a revolutionary quantum leap. the algorithm is adapting dynamically to the changing environment, almost immediately. the algorithm fixes itself on the fly. human intervention is not necessary.

150 years you traded stocks with other humans and exploited your advantage over them. i have no idea how to trade in a world dominated by intelligent machines with ready access to all relevant information.

by the time you figure out how to make 20% a year, it will be no good because everything will change from under you and be different… sigh…

#6

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AI and machine learning are a revolutionary quantum leap. the algorithm is adapting dynamically to the changing environment, almost immediately. the algorithm fixes itself on the fly. human intervention is not necessary.

150 years you traded stocks with other humans and exploited your advantage over them. i have no idea how to trade in a world dominated by intelligent machines with ready access to all relevant information.

I agree that machine learning AI bots will make trading much more difficult for people. But long term stock gains will still be attainable. You say the machines will have access to all relevant information, back in 2013, all information was saying Apple was dead and would never grow again. It dropped nearly in half, but came back higher than before. Then it did it again in 2016, down about 30%, again, the news was it would never grow again. They just posted another record quarter and the stock has been climbing again. So if the learning machines had this info, they would have sold out before us humans were able as things dropped (and maybe bought back in before us as things started to rise), but what about us long term buy and hold investors, like myself, that continued to hold all the many Apple shares I already had, and added on both of those dips, realizing that Apple is a company that is not going to stop minting money anytime soon, or stop buying back massive amounts of shares anytime soon, etc, etc?

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