[A fellow investor confesses to not listening to ERs nor reading financials previously for years.]
Your “confession” doesn’t surprise me much, […]. I don’t think most investors read and follow numbers nearly as closely as those of us in or around the Saul Gang. I think that long-term, good stock picking is more a matter of reading the future demand for a product or a brand or a philosophy, and with your LT holdings, you read it perfectly. Then there is always the question of whether or not they’re still in the driver’s seat for their market. Harder to tell with some than others. Take NFLX. Brilliant execution IMO, but they didn’t have real competitive threats until recently either. Now every dog in the TV/video space is trying to start competing head-to-head with the Big Dog. Surely one or more will eventually be successful, and some of them have big bucks behind them. What will that do to NFLX? Ah, that’s where the quality of our thoughts and opinions matter most. Separate the winners from the losers, so to speak.
This prompted me to consider my holdings just now and determine what changes I would make if I had to make no changes from today for the next 10 years. I decided I might kick out my longshot position in UPST, make minor changes in position weight, and leave the rest. Then I would probably Trim all current holdings by 30% and put those funds into more stable “boring” companies that don’t grow as fast but are pretty sure not to go away in a decade. I would definitely not add anything more from the tech sector. I believe in it, sure, but not to hold for 10 years with my hands tied behind my back. One just has to look at the largest tech holdings going back every 5 years to realize how the tech industry leaders change. Of the leaders 5, 10, 15 years ago, quite a few are gone or largely irrelevant now, and very few of those leaders are still leaders. So even among the “giants” we still need to have the vision to pick the right ones to hold LT, or returns just become the NAZ average. The MSFTs, AMZNs, NFLXs, GOOGLs are all easy to see in hindsight. But it pays to remember that XOM, GE and IBM were also easy to see midway in their heydays.
I went mostly by numbers when choosing companies for about 2-1/2 years, but the results were mixed (read “average” or a little better.) Then results got considerably better when I weighted my own conviction with the numbers. Finally, they took off after watching Saul from the wings for awhile. The biggest and best thing I learned from following Saul, was to buy only the best companies, period (Duh! Who wants their 21st best idea, and WHY?) Ignoring all other Saul techniques, I would have paid for the insight in just that lesson to buy only the best. So much for TMF’s “Buy 75 and hope for 5”. One disagreement I have–easy to say in this market, but I swear it’s not the reason–is that I would never leave a hyper-concentrated port unattended for years, maybe not even a month. In other words, today’s best companies are not likely to be tomorrow’s best companies–now, here’s the kicker–especially in tech!
I will probably never own 50-100 companies again. I will probably never own only 6 again either. I have never and will never, allocate funds by weighting pre-determined sectors to reach some magic degree of diversification. I want to change with the times. Not day to day, but maybe from one 5 yr period to the next.
So after all these years, I still make changes, and my overall methods continue to slowly evolve. I hope that’s a sign of being open-minded and nimble. I suppose it could also be a sign of a lack of knowledge and skill.
Older and wiser? Well, I’ve got one of the two for sure. The other is more like a work in progress, and hopefully it continues as long as I continue to breathe. No guarantees. Sounds just like investing, right?