Bear's Portfolio at the end of September

Investment Analysis Clubs Saul’s Investing Discussions
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Previous Month Summaries

January: I didn’t start doing this until February
February: http://discussion.fool.com/bears-portfolio-at-the-end-of-februar…
March: http://discussion.fool.com/bears-portfolio-at-the-end-of-march-3…
April: http://discussion.fool.com/bears-portfolio-at-the-end-of-april-3…
May: http://discussion.fool.com/bear39s-portfolio-at-the-end-of-may-3…
June: http://discussion.fool.com/bear39s-portfolio-at-the-end-of-june-…
July: http://discussion.fool.com/bear39s-portfolio-at-the-end-of-july-…
August: http://discussion.fool.com/bear39s-portfolio-at-the-end-of-augus…

Portfolio Performance


This Month
My Portfolio            -1.35%
S&P                     -0.12%
Nasdaq                  +1.89%
Russell 2000            +0.80%

YTD
My Portfolio            -12.23%
S&P                     +6.08%
Nasdaq                  +6.08%
Russell 2000            +10.29%

Again, nothing surprising here. SKX is now a more than 20% holding, and it was down almost 6% this month. But I just continue to load up as the market undervalues this company. I also had SUNW, AHS, and CRM all down around 10-12%. The rest of my portfolio did quite well…can’t wait for these few to bounce back, too.

Changes this month, and why I made them

For the first time since I started this project, I managed not to start any new positions this month. I sold out of 4 holdings, which brings me to 16 stocks currently in my portfolio. Almost 3/4 of my portfolio is concentrated in my top 7 companies. I like the concentration into the companies I feel provide the biggest opportunities and about which I have the highest conviction.

Sales:

AMZN - I’m sure this will be controversial, but I sold Amazon to buy more SKX and SHOP. Amazon is a high conviction company for me, but I can’t convince myself there aren’t better opportunities for value + growth. It also seems like it’s due to run into the law of large numbers eventually. I hate not owning it, but I just don’t believe it’s as good a place to put my money as SHOP or PAYC.

FB - Pretty much ditto with Amazon. Great company, but hard to value. And unlike Amazon, FB’s runway isn’t practically infinite. How many more users can they even get? And ad growth has to slow down eventually.

STMP - This was a try out that I just never got excited about. I cashed out a very small gain to put my money where I think it’s better suited.

P - See STMP.

Trims:

CRM - Just trimmed because I like other stuff better. See adds.

Buys:

None

Adds:

SKX - Loading up. Backing up the truck. ETC ETC ETC. I think it has 50%+ upside in the next 3-6 months.

SHOP - This thing is currently growing so fast, it’s hard for Wall Street to keep up!

SEDG - bargain basement. Bought as low as 14.50/share.

SSNI - this company is severely undervalued. I think part of that may have to do with their lumpy revenues.

PAYC - second only to SHOP in growth. And they’re actually profitable!

XPO - I still believe they’ve just hit an earnings inflection point. Could be big potential in the near term.

My Current Allocations


Skechers	       20.3%
Shopify	               12.7%
Solaredge	       11.2%
Silver Spring Networks	8.2%
Sunworks	        7.9%
Paycom	                6.8%
XPO Logistics	        6.2%
AMN Health	        4.3%
Mitek Systems	        4.2%
Salesforce	        4.1%
Splunk	                4.0%
Veeva Systems	        3.5%
Fitbit	                2.3%
Energous	        1.6%
Yelp	                1.4%
Perion	                0.8%
CASH	                0.3%

Random Thoughts and Conclusions

Though some of my top holdings took sizable hits this month, I bought opportunistically and I’m optimistic about the coming month. I’ve become a little skittish about earnings season, and am toying with reducing exposure to my largest holdings before earnings are released. I hate to give up the upside, but I’ve been burned a lot this year (INFN, RUBI, SKX…) If anyone has any thoughts on that, I’m all ears.

Bear

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If anyone has any thoughts on that, I’m all ears.

Bear,

One idea if you would like to reduce your exposure to the market’s mood swings after earnings are released is to take a look at potential option strategies. You can go long on calls or short on puts near the current stock price that expire shortly after the earnings date.

For a put strategy, look to sell puts slightly below the current stock price. The puts may generate a decent annualized return if they expire worthless, but also be prepared to take possession of the stock if prices dip below your strike price. In either case, if you are bullish on the stock you’ll get to buy it at an even lower price, or, you’ll get to keep the premium you sold if earnings happen to be a smash.

If you don’t like the idea of not participating in the upside, you can instead buy a call at a strike price slightly over the current share price. Again, look for options contracts that expire shortly after earnings date so you’re not paying too much in premium. Keep in mind, the stock has to have a smash release for you to participate in the upside - well past the premium you paid. There’s a good chance the premium could expire worthless. But on the flip side, if the stock tanks you’ve seriously capped the amount of damage that can be done (you’ll just lose what you paid for the option contract, and no more).

I too am loath to see earnings release day on some of my stocks. The market almost always seems to overreact - in either direction. There’s a good chance I will follow the same put and call strategy to help smooth things over

Hope this helps.

Best,
–Kevin

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Bear: I’ve become a little skittish about earnings season, and am toying with reducing exposure to my largest holdings before earnings are released. I hate to give up the upside, but I’ve been burned a lot this year (INFN, RUBI, SKX…) If anyone has any thoughts on that, I’m all ears.

Bear, I suggest listening to that skittish feeling, it is your best friend. Don’t act on the feeling alone, but see it as a reason to take a much closer look at those largest holdings.

For example: SHOP

I am invested in SHOP myself, but they are still losing money. I don’t care how much revenue they have coming in, I do not care how fast that revenue is increasing, Shopify is still losing money and will continue to loose money for more than a year!. Do not loose sight of this. I too would be skittish if SHOP were 12.7% of my portfolio.

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Bear, also a good way to weather out those wild fluctuations during earnings is to add slow and steady stocks as a buffer. Companies which are very likely to continue growing, or at worst not fall very fast. You can also sell a portion of such companies when a great opportunity shows up elsewhere among the more risky stocks. For this purpose I have money invested in BRK.B, CASY, BLL, and two index funds (VFIAX, VSMAX). This makes up about a third of my portfolio at the moment. Because of this I don’t have as much exposure to the upside of the riskier stocks, but I also don’t care when one of them drops 30% at earnings.

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Thanks, Kevin. Maybe the option you didn’t discuss that would be most appropriate would be buying puts, right? Then I don’t lose any upside, and I protect completely against any kind of 30% fall or whatever.

Does that sound correct?

Thanks,
Bear

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Maybe the option you didn’t discuss that would be most appropriate would be buying puts, right? Then I don’t lose any upside, and I protect completely against any kind of 30% fall or whatever.

Yes, if you would rather keep your positions as they are you could purchase puts as insurance against a significant drop.

There is a bit of a psychological difference in this strategy. You have to recognize this is money spent you actually hope to lose with the stock going up. In the other two scenarios you are rooting for a gain with the options purchased/sold and the stock going up.

Either way these can be tools you can use.

Best of luck!
–Kevin

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Hi Bear,

I will say I disagree about both Amazon and FB. FB is currently the top performing stock in my portfolio, it’s gained 88% in under 3 years. I don’t know if that’s impressive to this board or not, but it works for me! I’m happy with it and holding for the long term.

On Amazon, I’m thankful that Saul pointed out when he was getting into it. I bought at the end of May and I’m up more than 16%, and I’m thrilled with it. When I look at my scorecard, it truly seems to gain a % a day. I know that’s not true but it’s been going strong and I love it.

It seems that all of your portfolio is small and mid caps. I hope you have some diversification beyond this portfolio, possibly in your 401k or other areas where you’re stashing some savings.

Back in the tech bubble, I fell in love with some tech stocks, notably NOK, YHOO and PMCS. It was a lot of pain. I’m older and more wary now. Right now I’m more concerned about things getting rougher in the economy and I’m considering holding more cash or backing off a bit. The case for Skechers that I like the most is that people needs shoes. But that’s necessity, not growth. It’s just a small bit of support for the business.

Karen
community team - ticker guide
long FB, AMZN

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SKX - Loading up. Backing up the truck. ETC ETC ETC. I think it has 50%+ upside in the next 3-6 months.

I’d like to hear more about the thesis for a 50% increase in the next 3-6 months and your assessment of the catalysts for that growth. What’s going to happen that will bring this stock up?

Also it might be helpful for you to assess any risks that SKX may face, just to have a balanced view.

Thanks,
Karen
community team - ticker guide

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I’d like to hear more about the thesis for a 50% increase in the next 3-6 months and your assessment of the catalysts for that growth. What’s going to happen that will bring this stock up?

The market’s current valuation of SKX reflects a remarkably pessimistic outlook, including not only lower, if any, growth, but also fear of threats to Skechers’ business model. It’s current PE of 12.9 is very low both historically for the company and in comparison with peers in its segment.

A return to a stock price roughly 50% higher than today’s doesn’t require much. Catalysts include, but are not limited to:

  • An EPS beat for Q3 vs a not particularly difficult comp (or guidance), which also further lowers PE and thus creates upward pressure on stock price

  • Meeting or beating Q3 revenue expectations of double digit growth, reassuring the market that the sky is not falling and that the company is healthy

  • Better perceived outlook for retail

  • The realization that demand for Skechers is greater than demand for shoes in general

  • Increased confidence in the plight of Skechers relative to Nike, Adidas, Under Armour, etc.

Bear

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Is a PE of about 13 not about right for a shoe company?

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I will say I disagree about both Amazon and FB.

Well, past performance is not necessarily indicative of the future. One could argue that after an 88% gain in under 3 years, FB has gotten ahead of itself. Amazon perhaps less so, since they have clear growth path with AWS. But, everyone knows Amazon is great and so while the company will certainly continue to grow, the real question is whether Amazon will grow even faster than the overall consensus. That’s a pretty steep hill to climb.

As for Bear having small and mid caps, my view is that at his age he should be investing in more volatile growth stocks since he has time to recover from corrections and overall bad markets.

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As for Bear having small and mid caps, my view is that at his age he should be investing in more volatile growth stocks since he has time to recover from corrections and overall bad markets.

Facebook, Amazon, Neflix and Google have been wonderful volatile stocks. Great price appreciation in the past 5 years and no reason why they can’t continue to do well over the next 10 years +.

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I just took a few minutes to review how our family’s portfolio is doing and we’re at – now in late October – 0.49% YTD vs the S&P at 4.85%.

Time to do some pondering on what’s working and what’s not working in my portfolio strategy, and I largely follow MF Pro, which is beating the market – not me, I’m off track from what they’re doing enough to be off by more than 5%.

This stuff isn’t easy, is it?

Karen

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I just took a few minutes to review how our family’s portfolio is doing and we’re at – now in late October – 0.49% YTD vs the S&P at 4.85%.

Time to do some pondering on what’s working and what’s not working in my portfolio strategy, and I largely follow MF Pro, which is beating the market – not me, I’m off track from what they’re doing enough to be off by more than 5%.

It doesn’t have to be anything remiss on your part - probably just swings and roundabouts.

If you are largely in line with Jeff, you will do fine over the long term. There are some very smart TMF analysts, and he’s probably the smartest.

Do you follow the short / hedging strategies and options - or are you mainly long stock?

This stuff isn’t easy, is it?

My new tracking portfolio just went down 2.5% in just one month - but I’m still not worried. You don’t need to obsess about short term performance. When you start getting anxious to ‘do something’ is when you are more likely to make mistakes.

Jeff is a great example of how to make patience work for you.

Ian

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