Hi all! I’ve been reading Saul’s board since late last summer, trying to catch up on all the important posts, starting right at the beginning. I really wanted to be sure I understood the “lay of the land” before I started posting. I am actually not quite yet caught up – only about 90% of the way there – but I have my reasons for wanting to share a few posts at this point. Looking at my schedule and the pace of my reading, I don’t think I’ll be caught up until early June, but I have some thoughts I wanted to share before then.
My investing style is quite different from Saul’s. All things being equal, you’re probably better off emulating Saul’s process than mine – he has the better historical record by far. My style allows me to sleep well at night, but I’m increasingly willing to let my style be influenced by Saul’s (although I can’t imagine mimicking it, elevated returns notwithstanding). I’m here to absorb what I can and see how much I can personally integrate profitably (plus pick up stock ideas for further research). One nice thing, though, is that I think I can contribute here as well. Despite differing styles, Saul and I have independently reached some of the same conclusions. Two of my largest holdings (in a diversified, not concentrated, portfolio) are Infinera and Skyworks Solutions. I know both companies well, and hope to share my knowledge here. Every quarter after earnings are reported, I study these companies’ results and try to produce an insightful analysis of each. Sometimes “verbose” might be a better description, but I strive to create something useful. This board seems to have a MUCH better attention span than many, so I’m hopeful my lengthy contributions will be appreciated (including this one). In the next few weeks, I’m going to try to post here some key thoughts from prior analyses of INFN and SWKS. I hope you find them both useful and a good lead-in to more current analysis. The coverage here of INFN and SWKS is pretty impressive already. I’ll try to supplement rather than duplicate (but please recognize - at least for the next couple of months - I won’t have read all the current posts).
But I’m going to post something completely different today. During my catch-up reading, I found many interesting, well-thought-out, and well-regarded posts about companies that fit Saul’s criteria. On the other hand, posts that analyzed Saul’s process – especially those that tried to attach labels – were not so well-received (although, frankly, I think that some of this board’s most insightful posts were the ones that highlighted subtle aspects of Saul’s “secret sauce”, if you will, trying to identify the characteristics that make him as successful as he is). I am NOT here to try to attach any labels to Saul. Labels present a caricature and Saul is far more nuanced. However, I recently ran across an article that tried to partition professional investors – and their trading strategies – into five categories, of which three were successful and two not (in the author’s opinion). As I read the descriptions, I saw elements of Saul’s philosophy (as well as Tom Engle’s) among the winning strategies (or “tribes”, using the author’s parlance) and also recognized things Saul has advised us NOT to do among the losing strategies. Again, I’m not trying to pigeonhole anyone. Maybe my first post on this board will be a total faux pas, and I’ll regret it. I hope you’ll read it and think about it. If you see yourself as aligned with a losing “tribe”, I hope you’ll contemplate which aspects of winning “tribe” strategy might best fit your personal style so they can be most easily adopted. If my post generates a few insightful posts, I’m happy for that. If it generates a maelstrom of posts, I’ve probably done the board a disservice. I’m hoping for the former, of course. Please think twice before responding.
Before I describe the article, let me quickly describe the source. AAII Journal is a monthly publication of the American Association of Individual Investors. After a couple years of subscription, I upgraded to Life Membership. That was back in the ‘80s. I feel it was money well-spent, although I haven’t paid attention to what the current cost would be (so I don’t know if I’d consider it a bargain today). AAII has a stock-picking service, but I didn’t find it worked well for me. It might work very well for others, but I can assure you that their style is not Saul-like. I don’t want to portray it negatively, but it you’re drawn to Saul’s style, it probably won’t appeal to you. The AAII Journal, though, is light on stock recommendations and heavy on personal finance issues (investing, retirement, insurance, tax, estate planning and the like). It is too scholarly to compete with a magazine like “Money”, but not scholarly enough to be regarded by academics. That in-between ground is a sweet spot for me, but obviously not for everyone (that’s what “Money” is for, and that’s who Suze Orman is trying to reach, right?). I still read AAII, but I align myself much more closely with The Motley Fool these days.
Lee Freeman-Shor is the author of a book called “The Art of Execution” (Harriman House 2015). I’ve not read the book. He also wrote an AAII Journal article called “Being Wrong and Still Making Money”, which is based on the research that spawned the book. The author managed professional money managers, and analyzed their trading history, trying to identify successful and unsuccessful strategies. Out of this research, he identified five “tribes”. [The following italicized descriptions are quoted from the article.]
Rabbits – Rabbits tend to cling to their first impressions of a stock and do not like being wrong. When losing money, Rabbits neither buy more nor sell shares.
Raiders – Raiders like nothing better than taking a profit as soon as practical. They prefer taking a sure profit than risking a loss by holding on to their shares for an even bigger gain.
Assassins – Assassins sell stocks that have fallen by a prespecified amount or that have declined by any amount and showed no signs of recovery after a certain period of time.
Hunters – Hunters invest a lesser amount at the outset with the intent of acquiring significantly more shares if the stock’s price falls. If their conviction in a stock lessens for a good reason, they sell their shares.
Connoisseurs – Connoisseurs make long-term, high conviction investments in companies with very predictable earnings. They take small profits as the stock appreciates, rather than selling entirely out of the position.
To be true to the article’s intent, you should examine your proclivities within the framework of: When I’m losing, is my behavior more like a “Rabbit” or an “Assassin” or a “Hunter”; when I’m winning, am I more like a “Raider” or a “Connoisseur”? Then you can smile to yourself and ask, “What would Saul do?”. If you study the Knowledgebase, he’s probably already told you – at least in broad brushstrokes – what he would do.
Especially for the next couple of months, if you want me to respond to your post, please respond to MY post, not just any post in a thread I’ve started. That’s the only way I’ll see your post in a timely fashion.
Thanks and best wishes,
TMFDatabaseBob (recovering Rabbit)
Peace on Earth