So here is my quarterly update. Probably not as impressive as some here, but I have found that I really like to do this because it allows me to take a step back and try to look at the overall picture of where my portfolio is at 4 times a year. Mine is a little different than some of the summaries on here as I am a couple of years from retirement and this represents a decent chunk of my expected retirement assets. As such I have a higher number of stocks than most here and they are diversified over a much broader range of the market. To be clear I am saying nothing disparaging about others, especially Saul. I just don’t have the time at the present to feel comfortable with a highly concentrated portfolio as some here do. Hopefully, despite my differences, people find this useful. I do appreciate any input or comments but I must admit, just the act of doing this has improved my thinking and clarified my beliefs. I am sure I am doing a better job of managing my portfolio since I started doing this.
As always, I start with total holdings and changes from last quarter.…
Total Equity Holdings (not including options) ’17 Q1 65 Q2 63 Q359 Q4 56 ’18 Q1 53
And my changes during the quarter:
Buys: 4 OKTA, NTNX, NKTR, MDB,
Sells: 7 CHUY, WCFB, CLNS, LKQ, CELG, WETF, NGG,
Adds: 7 SHOP, CLNS, FB, GPT, KMI, HASI, TLND
Reduce:3 APPL, NFLX, LGIH,
I know this is not popular here on this board but I do like having a larger number of stocks for a couple of reasons. First, I don’t follow my companies as closely as some here. With a full time job, I buy for the long term and unlike some on this board (Saul!), my ability to zig before my companies zag is not very good. I tend to do exactly the opposite of what I should when I get too active. Secondly, most of my larger positions have gotten there because they started as a small position and the gains have driven their move up the list. I like this philosophy of letting the winners run and really allowing the company performance pick my winners. Having said that, my goal remains to both do a better job of eliminating stocks that are no longer performing as a business. In the past, I believe I have hung onto stocks long after their story has changed. Market sentiment comes and goes and I don’t want to chase sentiment, but when the company changes, I need to react. I also want to get down to a reasonable number of stocks overall. I have set 50 as that goal and I am getting close now. I like the progress because I actually dropped 7 stocks which gave me space to add 4 new ones while still allowing to total to fall. I am starting to get close now to being in a position to just stay even, ie, if I buy something new I need to eliminate something to make room. Who knows, perhaps when I get to 50, I will decide to shoot for 40.
I will add that although I have a fairly large number of positions a much smaller number of stocks make up the majority of the overall portfolio value. A larger number of them are there because it forces me to keep my eye on them with the idea of adding to them as they grow (and show promise).
Overall, here is my performance for the first quarter :
Q1 Mine 1.3% S&P -1.6 R2000 -0.9 Nasdaq 1.8
My goal has always been to beat the S&P, which is what I would mostly own if I indexed and I did so in the first quarter. I haven’t exactly crushed the averages, but I don’t mind this too much as my portfolio is (I feel) lower risk and more diversified, both because of the companies I own, and how I manage it, and because the portfolio is about 12% cash, short-term bonds and preferreds. (I don’t own any long-term bonds). I will add that historically my portfolio has tracked about ½ way between the Russell 2000 and the S&P 500 and in that stead, I am also happy with the performance. I think this board has influenced my portfolio to contain more high growth holdings which is certainly helping recently. I will also add that I had one bad stock, CLNS, that I am entirely out of now which cost me about 1.6% all on it’s own this quarter (more on that later).
Looking at my top stocks I have 12 with more than 2% assets (1 down from last quarter) with HASI moving in and CLNS completely sold out, and NRE out due to a price drop (just barely). Otherwise it’s the same list with SHOP and NFLX moving up a couple slots each. SHOP because of adding to it and increasing in value, and NFLX after a big rise, despite me selling off a little more again this quarter (it keeps rising).
Q1 price Ticker Q1-18 Q4-17 change(%) Notes AAPL 6.3 7.2 -0.9% Sold some again this quarter BRK.B 5.4 5.5 0.6 NFLX 5.0 3.7 54.1 Sold some and still rose in ranks TFSL 4.3 4.5 -3.0 ATVI 4.3 4.1 6.5 SHOP 3.4 2.4 24.3 Added some early in quarter and late LGIH 2.4 3.5 -5.9 Sold a couple times PRAA 2.4 2.2 5.6 CGNX 2.2 2.6 -15.0 FII 2.1 2.3 -7.4 GOOGL 2.0 2.0 -1.6 HASI 2.0 1.5 -19.0 Added here after drop CLNS 0.0 3.2 -51.3
So a short discussion on the top stocks…
APPL (Apple): Really can’t add much here that everyone doesn’t already know. I will repeat what Warren Buffet has said, that APPL is really a consumer products company and is still undervalued. Their services business continues to grow and they are expanding in all directions. There is concerns of both Iphone8 and IphoneX, but I guess my thought is the combined sales are still very good. With all that being said, I did trim a little here when it was in the 170’s and will probably continue to do so to move others up the list. I feel that it is getting closer to fairly valued, and doesn’t justify being as big of a position that it is.
Brk-B (Berkshire Hathaway): Nothing to say much here except your getting Warren Buffet as a money manager without having to pay for him. The company’s value is greater than the price at present and Warren is directing assets and I am not paying him any fees at all to do so. Very safe holding and if I owned only one stock. This would be it. The big risk here is if Warren passes, which he will one day, but if the stock takes a big hit on that day, I will probably be buying. I think the sum of the parts here is greater than the company as a whole. Did I say you are getting Warren for free??
NFLX (Netflix): This is a sea change type stock that I had bought at a small fraction of today’s price. My net purchase price is $6 and change. It always seems overvalued but the growth is consistent and large and I don’t see it stopping any time soon. They are expanding into the world at an incredible pace and are building such a moat around the company that I don’t see how anyone catches them. As I say to friends when I talk about Netflix. I pay them $9/month and I pay Spectrum $140/month, and the truth is I watch as much Netflix (and now Prime) than I do cable. The value disparity is crazy. Having said that, I did trim a little here when it got to $320 or so. It is not a cheap stock and I would have trouble buying here, but it keeps going up and I keep trimming to keep it a reasonable size position. I guess I should have never sold any!
TFSL (Third Federal Savings and Loan): Although not a Saul type stock, this is probably the safest stock in my list even though it was another so-so quarter. TFSL is a small bank that is in the middle of (seemingly permanent) a conversion from a mutual savings and loan. 81% (up from 80% last year) of their shares are owned essentially by the bank (waiting for the second step conversion) and therefore the true book value per share outstanding is approx. $30 (stock at $14.5) and the true P/E is less than 9!. Their earnings have been climbing about 10% a year, dividends (4.5% now) go up and they are buying back stock every year as well. They still have excess capital so there is no reason to stop anytime soon and the dividend is less than one half of the real earnings (based on outstanding shares). I am expecting a 20% or so increase in dividends again this summer. I didn’t buy any this quarter but with the market acting up, I am thinking of adding to this position again. As I move closer to retirement, I have great confidence in this being a good safe holding with decent returns that I can hold forever.
ATVI (Activision Blizzard): I think this is another sea change type stock as gaming continues to grow. It is one of those companies that uses the ever increasing technology instead of having to create it. E-sports and Virtual reality are two areas that should lead to even more long term growth. They also now sell their games on-line and make huge margins on the games as well as monthly fees to play the on-line muti-player games. This is another that I bought at much lower prices.
SHOP (Shopify): Well known here. I added a bit to this in 3rd quarter when the price dropped after earnings and I have continued to add when the short attack came and added a little more with the recent attack. I am working to get this to be a bigger portion of my portfolio. My feeling is that this might even get another boost (like they need one) if Amazon gets hit for monopoly practices. Shop being one of the few “competitors” in this space, and will have an even clearer runway for long term growth.
PRAA (Portfolio Recovery Associates): Debt collector I have owned for years. I had been reducing this one and last quarter I mentioned that they may be turning a corner and I am actually thinking of adding here again. The market for debt to purchase is finally coming around and there are few players left in the business (good for those left). They have been buying more debt for the last couple quarters (which is just future revenues and cash flow for them) and they are adding collection agents to handle the business so they clearly believe they are growing again. This has been a huge long time winner for me and I think the future is (finally) getting better.
LGIH (LGI Homes): Well known around here, and has done well for me. I pulled a bit out over the last quarter as it does feel like they will have a tougher time to continue to show growth. But their last earnings forecast was $6-7 for 2018 and if they underpromised like they have done for a while now, it is still a PE of less than 10 so kind of hard for me to sell too much more.
CGNX (Cognex): I have owned this for some time and it sells vision systems for industry. They continue to find new uses and with the advent of AI and automation, those uses should continue to grow. Last time I mentioned the price had gotten high and (unfortunately) the market took care of that for me, down 15% this quarter and even lower earlier but coming back. As this is in a taxable account and I like the company long term so I am reluctant to sell and accrue high taxes now, I am good holding.
FII (Federated Investors): This is a financial company that runs money market funds. They are cheap, pay a good dividend, and starting to show earnings growth as interest rates rise. They are very leveraged to interest rates as their profits climb quickly if rates rise since they reap benefits of both rising rates and increased interest in money market funds. I believe that interest rates will continue to rise and that means they have good growth ahead. There are few money market funds left after the financial crisis, so the competition is minimal. I will also say that this is a good diversification play which counteracts many stocks which could be badly affected by interest rate increases.
GOOGL (Alphabet): I have slowly added to Alphabet over the years. Google is a money machine and is a cornerstone stock of the digital /internet world we live in. Every time this takes a hit, I tend to add a little. I do so similarly with Amazon but haven’t had as many opportunities with Amazon (it is in the 1-2% category).
CLNS (Colony Northstar): I no longer own this stock but thought I would discuss it anyway because it was an expensive mistake that I have recently sold out of completely. It is a real estate trust which is the result of a merger of a couple REITS which were significantly undervalued due to their management structures. The story is long, but I had believed there was value here hidden due to the management difficulties that Northstar realty had (prior to merger). The earnings came out and were very poor. They cut the dividend and basically said that the Northstar assets of the merger were much worse than expected. I am only writing about this here because this is one I kept waiting for the market to recognize what I thought was value. It has been sliding for quite a while and I should have been able to see that I was missing something and just get out. I didn’t. A lesson learned. I am not saying that I should sell just because a stock is dropping but a slow continuous slide should have told me something. It’s a learning from this board that I may need to keep learning. I don’t need to own the company if it is not working out. I can’t get caught up in the emotion of my decisions. I clearly should have just moved on quite a while ago and it didn’t really matter if it went back up. So I sold out completely and I don’t care if it does go back up now! Time to look for something new….
Now on to my holdings between 1-2%. There are 13 holdings are all within 1-2%, up 4 from last time and a total of 25 above 1%. These should all be stocks I like and want to buy more of (or are getting reduced over time).
NRE European Real Estate trust, fell out of my top bracket just barely
ANET Well known around here
AMZN Amazon, Long term holding, well known,
AYX Well known around here.
SKX Sketchers, casual shoe company, growing like crazy in China.
PAYX Paychex, payroll firm, long term growth, improves with interest rate
ULTA Ulta Salon, very high growth in retail no less!
FB Social media, getting pretty cheap with growth, regulation is a concern
KMI Kinder Morgan, Oil and Gas transmission, rough couple years, but very high cash flows. Hard not to see this as market overreaction.
INBK Internet banking, still growing well but sold some this quarter as the price to growth has gotten high.
GPT Triple net, industrial lease REIT. REIT selling is getting overdone in my opinion
NKTR Bio company, well known around here.
MA Mastercard. I have slowly added to this one. Huge tailwinds, predictable growth.
Now a discussion of buys and sells.
Sells: I won’t say much about the sells I made, most are because I have decided to cut back on the number of stocks I own and for one reason or another, I thought I could do better somewhere else.
Buys: OKTA, NTNX, NKTR, MDB. All of these are high growth companies and I am trying to get more exposure to this area. The only exception here is Nektar Therapeutics, which I have also started based on conversations here, very exciting prospects.
Adds: My adds a are a mix of companies that are growing rapidly, taken a hit for for non-business reasons or are companies that I have wanted to build my position in. I am trying to take a more active role in growing companies I want a position in rather than just waiting for price appreciation to drive position size.
So overall my top 10 holdings make up 38% of the portfolio and the top 20 about 52%. In addition, I have about 12% in cash and short term bonds. The remaining 36% includes about 10% in options which is a mix of shorted puts (bullish) and diagonals (long LEAP options and short a nearer term option) both types of options are ways to profit from flat to slightly reducing stocks. I feel like these are another means of diversification and is spread around a number of slow growth large cap companies. Overall they should be adding a reasonable return while dampening out volatility.
I did go through my portfolio and added up the newer high growth companies that do fit this board and I am now at about 10%. I feel comfortable here as I do think this is growth sector.
Overall, It will be interesting to see how my overall portfolio does in more flat and down markets since I haven’t really done these type of quarterly comparisons before. I have tracked my portfolio in general but not to this depth. And for that, I appreciate the push this board has given me to do this. I think it is improving my thinking with real, hard numbers… And would recommend the process to anyone. It doesn’t really matter whether you do it monthly, quarterly, or even yearly. I believe that just depends on how often and how much your portfolio changes over time.
As always, I am interested in everyone’s thoughts/ advice / questions.
Owner of every stock mentioned in this post……( except that ones I sold off)….