Bear's Portfolio at the end of October

PaulWBryant · October 31, 2016, 5:32pm

Previous Month Summaries

Portfolio Performance


This Month
My Portfolio           -5.21%
S&P                      -1.94%
Nasdaq                  -2.31%
Russell 2000           -4.60%

YTD
My Portfolio            -16.74%
S&P                      +4.02%
Nasdaq                  +3.63%
Russell 2000           +5.22%

The difficult year continues, but I think there are some silver linings this month. 1) Even with my biggest position (SKX) falling, and with another large position (SEDG) dropping 20%, I’ve remained pretty close to the Russell 2000 for the month (5.2% vs 4.6%). Which means that the rest of my portfolio overall is doing much better than the market, a couple outliers notwithstanding.

For stocks losing ~20% or more this month…I continue to believe in SEDG and MITK and YELP, and am tempted to add to them at these prices, although I have not in the last couple weeks. I don’t think the businesses are in trouble…I think these are just the fluctuations of the market.

Changes this month, and why I made them

Sold out of 3, bought 3 new ones, so I remain at 16 stocks in my portfolio, although a few of the positions are tiny.

Sales:

VEEV - I wanted to lock in my gains and redeploy (namely, into HUBS). This just isn’t growing as fast as some others. It has a P/S of about 12 and is growing revenue at 34%. Compare to HUBS with a P/S of around 8 and growing at 51%.

CRM - Still a great business model but just starting to stagnate a little in terms of organic growth. I just feel there are better options.

WATT - I just wanted to lock in my gains and put the money elsewhere. I’m not sure how to value a company that’s entirely speculation. I also learned of some others trying to do similar things. Obviously not something I feel I could ever understand enough about to be confident in.

Trims:

SKX - Trimmed a little before earnings just in case. Turned out to be the right call. Definitely want to buy it back now but can’t figure out what to sell.

SHOP - I’ve actually still been buying on dips, but I sold a bunch to raise cash to buy other things, and to limit my exposure ahead of their quarterly report. But it’s still my second largest position.

Buys:

TWTR - Well after watching a couple NFL games and all the debates on Twitter, I just couldn’t help but get back in. Unfortunately I did it at an average price of $20.40. So I was a little early…stupid merger mania. But I’m planning to keep this position mid-sized and just go along for the ride. I don’t know if they’ll eventually get acquired or not, but I continue to believe that the network is quite valuable.

HUBS - I’ve been wanting to own this. This month provided some good opportunities.

WSM - Not a big growth stock, but more of a value play. That’s rare for me, but this one just had too much going for it to pass up. First, they’re trading at a very low PE for such a steadfast company – I don’t think there’s much downside risk at all, as expectations are for very little growth. Upside abounds, though, IMO. Also, I like the e-commerce growth, which doesn’t seem to run up against the brick wall that is Amazon. They have a solid dividend that is easily covered and a very nice share buy-back program, wherein they have bought back nearly 15% of shares in the last few years.

Adds:

SEDG - Last bought around $15.50. Been cautious since. But it’s soooooo cheap…I just think the fear is overblown. Also, some institutions have recently taken large stakes. I’m waiting for now.

PAYC - I’ve been buying opportunistically. I really like the product, the revenue is growing as fast as HUBS, and it’s now recommended by TMF (I’m not a member of any paid services, but I noticed the disclosure on a public-side article.)

My Current Allocations

To model Saul’s summaries, I’d like to say a little about the other companies I own – the ones I haven’t already touched on above.

SUNW - Even without me buying a share, this position grew from 7.9% of my portfolio in September to 10.2% now. Shares are up from 2.57 to 3.17. That’s almost 25% appreciation in a month! But I’m not adding…this position is plenty large considering how tiny the company is. But I love the revenue growth, and their business model doesn’t seem as susceptible to pricing pressure as SEDG or many other solar companies.

SSNI - It may be hard to predict the impact of the large contracts they’ve won…but they look significantly undervalued to me.

XPO - They are at an inflection point, going from negative EPS to positive. With net margin last quarter just over 1%, they’ve got plenty of room to grow that EPS.

AMN (formerly AHS – ticker changed today) - Demand for nurses and doctors will not be slowing down anytime soon, so this company should always be in demand.

SPLK - another fast grower, but it ain’t cheap. Looking forward to learning more with the quarterly report.

MITK - growing like a weed, but incredibly tiny. Seems like a great bargain now, but there’s just no news, so I’m waiting to learn more.

FIT - Growing really fast…definitely a lot of fear built into the share price. I keep waiting, but I’m definitely more likely to add than to sell.

YELP - Wild stock, but cheaper than most that are growing this fast. It’s come down more than 20% in October for no obvious reason. Definitely getting into a realm where I’m considering adding more.

PERI - I just don’t understand this one. Haven’t touched it in a while. Would love to learn more.


Skechers	                13.5%
Shopify	                        11.8%
Solaredge	                11.5%
Sunworks	                10.2%
Paycom	                         9.2%
Silver Spring Networks	         8.5%
XPO Logistics	                 5.9%
Twitter	                         5.6%
AMN Health	                 4.7%
Splunk	                         4.3%
Hubspot	                         3.7%
Mitek Systems	                 3.6%
Williams Sonoma	                 3.0%
Fitbit	                         2.2%
Yelp	                         1.2%
Perion	                         0.7%

Random Thoughts and Conclusions

I don’t know how to make money by saying “hey this seems to be going up” and trying to get in for some of the gains. So I’m trying to price companies – to figure out what they’re worth and buy when they’re selling for less than that. I look for companies that I believe have some short term potential, but I avoid companies that I wouldn’t want to hold long term.

In the short term stocks often don’t do what I expect them to. Sometimes they seem to trade at prices that have no relation to the company’s performance. That’s why I don’t want to own companies that aren’t worth holding for the long term. If a company gets 20% or 25% cheaper, I don’t want to worry that its demand has dried up or that it can’t maintain its margins. I want to be buying more.

I also believe that just because a stock has gone up doesn’t mean that it’s expensive. If SHOP keeps growing like it has for the last couple of years, we might well look back a couple years from now and marvel at how cheap it was at 3B or whatever.

That brings up another thing: I ALWAYS keep market cap in mind. Did you know SKX and SHOP have about the same market cap? Yet SKX makes around $1B each quarter while SHOP’s revenue is less than a tenth of that. You could buy every share of SUNW for less than $100M. TWTR is around $13B. AMZN and FB, around $380B each. In looking at PE and EPS and even PS ratios, we can lose sight of the size of the company. I think SUNW could be a billion dollar company eventually. Not saying it will happen in the next couple years, or at all, but the opportunity is there. I don’t think AMZN will grow to 10x its size anytime soon. But obviously AMZN is worlds safer.

These thoughts have been somewhat more random even than usual, but that’s what I’m pondering. I’d love to hear thoughts, comments, etc.

My best to all,
Bear

SaulR80683 · October 31, 2016, 5:58pm

Hi Bear, keep working at it and keep learning. You sound as if you are really making an effort to figure out how investing works. Don’t get too discouraged. It’s been a very tough year.
Saul

PaulWBryant · October 31, 2016, 6:08pm

Thanks, Saul. I know you’re frustrated too, but thanks for sharing the bad with the good. It really is helpful.

Bear

YouAreNumberSix · October 31, 2016, 9:32pm

YTD
My Portfolio -16.74%
S&P +4.02%
Nasdaq +3.63%
Russell 2000 +5.22%

People need to compare their results against the S&P Small Cap Value index which is the highest performing asset class of the last 100 years. An easy way to track that is to follow the IJS ETF that is replicating that index.

The performance of IJS is the opportunity cost of what you and others are doing.

IJS is up 11% YTD.
It is down 3.8% in October.

drillerjim101 · October 31, 2016, 10:02pm

Bear,

Your posts are refreshingly transparent and we all can identify with the discouraging results this year has dealt us. However, please keep sharing. You have great investing instincts that will pay off long term.

Jim

PS I’ve been wondering if you have any relation to the late great Paul “Bear” Bryant of Alabama fame…one of my heroes.

CRAIGDOC66 · October 31, 2016, 10:05pm

“The performance of IJS is the opportunity cost of what you and others are doing.”

So I am guessing that you are a believer that past performance IS absolutely a guarantee of future performance.

As it turns out in the past you are right and it is certainly possible that in the future you could be right but it is also a huge leap of faith to put all your eggs in one basket (The small Cap Value Index) on the assumption that it WILL continue to perform and outperform.

A shift to a different asset class is certainly possible and should that happen, anyone investing “all in” in IJS could be in for a bumpy ride.

buyandwin · October 31, 2016, 10:58pm

I’m new to this board.

Personal history I’ve been retired over 13 years. I live entirely off the market and have done so since I retired in 2003 with minimal resources I have no pension-SS is small and decreasing. (Didn’t cover 20% of my FED and State tax bill this year).

The largest increase in expenses has been the escalating taxes in addition to the “Getting Older” inflation costs What is a getting older cost? Wife can’t do as much dinner cooking, so we go out to eat 5 or 6 evenings a week and 4 or 5 lunches and we need someone to clean the house and do the laundry. You know, the expenses that you never think about when you plan on retiring.

For every $1.00 I spent in 2003 (the year we retired) I spent $2.69 in 2015 (That’s about a 7% annual compounded increase)

I have a focused portfolio and it is geared towards growth of income. I do very little trading. In the 13+ years of retirement I have spent over 3 times my original starting portfolio. In fact if I wasn’t successful in the early years we would have been living in a cardboard box down by the railroad tracks since about Nov 2008 when we would have run out of money.
The point of my post is that Yes, You can learn to do well in the market if you pay attention to people that know and you are willing to learn and not waste money on every fad that comes along. People do things differently. They are right when they are successful and wrong when they are not. Two people can have the same portfolio and one can make $1 M and the other can go broke.

b&w

strelna · November 1, 2016, 2:49am

My own tendency would be to immediately eliminate all the ones with inferior fundamentals, e.g. ROIC, OM, debt etc. and those with alarmingly high short positions but then I am less of a risk-taker!

YouAreNumberSix · November 1, 2016, 8:43am

So I am guessing that you are a believer that past performance IS absolutely a guarantee of future performance.

Of course, and so do you. You are here because Saul had great performance in the last 37 years and you believe that this is a strong predictor of his future performance.

There is no “absolute guarantees” but strong probabilities.

Take a box with an unknown number of black and white balls. You draw balls at random and put them back in the box. If you draw 3 times and get two blacks, there is not much you can conclude. The sample is too small. If you draw 1000 times and get 750 black balls, then you can say with very strong confidence that 3/4 of the balls in the box are black. Absolute guarantee? No. Strong indicator? Sure it is.

it is certainly possible that in the future you could be right

It is not just possible that I am right, it is highly probable.

but it is also a huge leap of faith to put all your eggs in one basket (The small Cap Value Index)

How is that? The IJS is invested in 450 companies. The S&P 500 has 500 components. If that is a leap of faith, what do you call putting all your money on 16 stocks?

anyone investing “all in” in IJS could be in for a bumpy ride.

Not nearly as bumpy as what the original poster is experiencing.

LongNShort · November 1, 2016, 9:06am

Hi Number6,

thanks for the hint. I’ll look into spicing my portfolio with a little dose of the IJS.

I googled for it and the underlying index seems to be the S&P Small Cap 600. Is that correct?

And where did you get the 100 years CAGR from? Is it that long in existence? Would you have a link?

Thanks

LNS

PaulWBryant · November 1, 2016, 9:49am

I’ve been wondering if you have any relation to the late great Paul “Bear” Bryant of Alabama fame…one of my heroes.

Jim, thanks for the kind words. No relation to Bear Bryant – I just stole his name for my Fool handle. “The Bear” seemed like a humorous choice for a moniker.

Bear

YouAreNumberSix · November 1, 2016, 11:37am

Yes. IJS goal is to track the performance of the S&P Small Cap 600. Not beat it, just match it.

The ETF was started in 2000, so it does not have 100 years of historical data. But we do have 100 years of data for the S&P Small Cap 600.

There are many references to such studies, here is one:

http://www.marketwatch.com/story/8-lessons-from-80-years-of-…

It pegs the average historical returns of this asset class at 14.4% per year.

My point is that a young investor should put 80% on the money on IJS and reserve 20% to “play” with individual stocks. If you are a super-investor capable of 25% average return, your “play” stocks will dwarf the IJS part over time and you will find yourself in the same league with Saul. Otherwise, your IJS will grow steady and save you from yourself, while you still enjoy playing in sandbox just for fun.

You have to earn your way into the world of individual stock picking.

buyandwin · November 1, 2016, 12:06pm

Hi #6

The problems as I see it is----Just because something worked before (even 100 years) doesn’t mean it will work today-tomorrow or any longer That’s why we need to be paying attention to make our portfolio grow and keep working to upgrade it and IMHO learning more and more about each of the stocks in our portfolios. The fewer securities someone owns allows that person to do that.
In my portfolio there are no sacred cows. When I want to deploy cash–The money goes to the best performing stock in my portfolio at the time. It has to earn my investment dollars by growing. Laggards are dealt with by selling to provide capital for the leading securities. This leads to a focused growing portfolio. I rarely sell so there are less transaction fees and fewer capital gains tax payments to strip away dollars. Currently I have only 8 securities in my portfolios.
The growing income portion provides the funds I need for my living expenses and the excess income provides capital for reinvesting and additional portfolio growth to cover inflation.

b&w

fireblade909 · November 3, 2016, 12:20pm

#6,

you state that IJS is down 3.8% in October. The month-to-date performance on Morningstar today shows that it is down more than 6%. Other claims you have made about the positive performance of this index have been refuted on this board.

Why would anyone pump an index? Can you clarify your position with IJS?