Dip Question

Investment Analysis Clubs Saul’s Investing Discussions
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New to this board in the last few months and have been enjoying learning a lot from so many great posters.

I am in the process of building out a more concentrated portfolio. So, I need to buy and sell quite a bit. I assume it is better to buy in stages as opposed to plunking it all down at once among different stocks? I have starter positions in a small number of stocks that will help me concentrate. When should I buy second and third positions? Any ideas? Also, with recent market downturn and accompanying dips in stock prices, how might I determine those next buys? Do I look at 52 week high and when the stock hits 15 or 20 percent off that figure, then should I buy? Pay no attention to prices and just buy? Look at past 6 month h8ghs and when a percent off then buy?

Thanks in advance for responses.

John

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I am in the process of building out a more concentrated portfolio. So, I need to buy and sell quite a bit. I assume it is better to buy in stages as opposed to plunking it all down at once among different stocks? I have starter positions in a small number of stocks that will help me concentrate. When should I buy second and third positions? Any ideas? Also, with recent market downturn and accompanying dips in stock prices, how might I determine those next buys? Do I look at 52 week high and when the stock hits 15 or 20 percent off that figure, then should I buy? Pay no attention to prices and just buy? Look at past 6 month h8ghs and when a percent off then buy?

There is no magic methodology and nobody can give you a correct answer to all of your questions. The important part is understanding your methodology for buying and selling stocks. As a word of caution, if you are still developing your methodology, you may want to take it somewhat slowly as you will invariably learn from that process. For this reason, I would choose to invest at a more reasonable rate as opposed to plunking the entire amount into several stocks at one time. This gives yourself some time to learn about your style and the companies you are invested in.

As tempting as it is to follow folks on this board, it is an unwise idea. Nobody will be there to help you when you most need it. You’ll have to make all decisions on your own. What will be your strategy for making those decisions?

I’m going to be in a similar boat soon when my 401k which only allowed Mutual Funds is transferred to my IRA. I’ll have a lot of decisions to make on what do to with that money and when. I likely will not invest it all at once. I will be looking for the right opportunities to invest in the right companies and there is no way I can predict what or when that will be. Things change too quickly and I’ll need to evaluate the landscape when the time comes.

Not sure this helped at all, but had some time on my hands and figured I’d type a bit.

Take care,
A.J.

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Not sure why you say you’ll need go sell a lot if you are building a concentrated portfolio from scratch.

Don’t focus too much on stock price, especially not in looking for a particular percentage off of a high. Find companies that are executing well and growing (revenues especially and earnings if the company has already reached a profitable stage).

Growth at a reasonable price (GARP) is something that you may want to look at.

For a few companies you should be sure to research further as possible buys, I would recommend taking a look at Celgene (CELG) - may be a great bargain at present, Ubiquiti Networks (UBNT), NVidia (NVDA), Arista Networks (ANET), Shopify (SHOP), Hubspot (HUBS).

Caveat Emptor

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Growth at a reasonable price (GARP) is something that you may want to look at.

anywhere past the mid stage of a bull market that is hard to find. It’s a lot easier to find near the bottom of a Bear when everybody (including you) is consumed by fear.
Even after the recent decline (lots of volatility but price wise so far just a normal correction) I have trouble finding anything that I would call a “bargain”

Making the big assumption that this decline is just that, limited to may be 12% or so down, now is a reasonable time to buy. Of course it could be start of a bear and we are only a third of the way down. I bought a little NVDA pre earnings and a little TSLA post earnings, both close to their lows. But even then I hardly consider them to be anything but expensive. Just less expensive than they were.

The older this Bull gets the more I am concentrating into fewer stocks, the ones whose basic business is so great that they will be doing fine the other side of the inevitable recession.

My WAG, supported by only a few facts, this Bull Market is not over. Too much “Sturm und Drang,” too much drama and volatility. This is not the way bull markets usually end .

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You pretty much captured my thoughts, too.

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John:

I am in the process of building out a more concentrated portfolio. So, I need to buy and sell quite a bit. I assume it is better to buy in stages as opposed to plunking it all down at once among different stocks? I have starter positions in a small number of stocks that will help me concentrate. When should I buy second and third positions? Any ideas? Also, with recent market downturn and accompanying dips in stock prices, how might I determine those next buys? Do I look at 52 week high and when the stock hits 15 or 20 percent off that figure, then should I buy? Pay no attention to prices and just buy? Look at past 6 month h8ghs and when a percent off then buy?

You didn’t give any clue as to what you want the portfolio to do. Do you plan on deviving income to live on? Are you retired? If so, do you have a pension? Is this play money or serious money? Do you have someone to support you, if you screw up real bad? Answering those kind of questions will give you some clues as to what you should do.

Your post is interesting to me because I am retired almost 15 years and live entirely off my concentrated portfolio for all that time. My portfolio consists currently of 8 securities that pay growing distributions. When they were originally bought they weren’t bought with the idea of them being superstars. My portfolio consisted of a whole big hodgepodge of mostly garbage. I started upgrading my portfolio by selling the biggest loser and redeploying that cash into my biggest winner. I immediately saw there was an improvement in the portfolio and even more important --my attitude–I wasn’t depressed looking at the big loser any more. Cleaned out one loser after another and the winners kept improving Eventually no losers in portfolio =Portfolio growing -Income growing More cash available to me-Eventually reached the point where more income was coming in faster than needed so portfolio was growing at a faster pace.
There are no basic rules as to how to do this because it has to be done while the market is doing it’s thing. Mostly I think, it is common sense based on your own personal goals.

b&w

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My portfolio consisted of a whole big hodgepodge of mostly garbage. I started upgrading my portfolio by selling the biggest loser and redeploying that cash into my biggest winner. A very good approach. Except I might say “winners” instead of winner .

Water the flowers , pull out the weeds. Never wait to “get even”. Finding the flowers isn’t too hard ,you just have to be able to tell if the are annuals or perennials. If they are the former, don’t expect them to last through the coming winter.

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“Not sure why you say you’ll need go sell a lot if you are building a concentrated portfolio from scratch”

Because I have an unconcentrated portfolio now.

John

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Hi b&w,

“You didn’t give any clue as to what you want the portfolio to do. Do you plan on deviving income to live on? Are you retired? If so, do you have a pension? Is this play money or serious money? Do you have someone to support you, if you screw up real bad? Answering those kind of questions will give you some clues as to what you should do.”

I am 57 years old so 8-10 years from retirement if that’s what I choose to do. Not sure I want to retire or not. All funds in ira type accounts with 60 percent in mutual funds and the other 40 percent in individual stocks (what I am trying to concentrate from 30 or so stocks to 15-20). So, that’s it. Any thoughts?

John

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Hi John

I am 57 years old so 8-10 years from retirement if that’s what I choose to do. Not sure I want to retire or not. All funds in ira type accounts with 60 percent in mutual funds and the other 40 percent in individual stocks (what I am trying to concentrate from 30 or so stocks to 15-20). So, that’s it. Any thoughts?

From what you wrote above, it sounds like you really haven’t decided anything and you are just thinking—which is fine.
In my previous post I gave you the actual method of how I built my portfolio to support me from day 1 of retirement because I really didn’t have much money to start with, and I was pulling money out from that same day 1 (July 1 2003) I had to learn or I would have to live in a cardboard box if my money ran out.

Here are some more points to think about

  1. I currently have 8 securities–I have found that 8 to 10 is the maximum I can handle.
  2. Since I am withdrawing money for expenses—I only buy securities with growing distributions
  3. To minimize taxes, I seek securities that pay partially or wholly tax deferred distributions (In 2016 92% of distributions received was in some way tax deferred)
  4. The largest taxable event I have each year are the RMDs from my IRAs
  5. I don’t trade much because when I have something that works for me I keep it (Trading would entail taking capital gains and paying additional taxes which would leave me with less money to invest (after taxes)

Any other thoughts?

If you read so far, and if you think anything I said makes any kind of sense for you to consider. The easiest thing to do is to look at your own portfolio and sell the biggest loser you have and redeploy the cash to your biggest cash producing security you currently own. This will eliminate a piece of trash in your portfolio --give you a tax deduction–and see an immediate improvement in your portfolio with your best stock continue to up and pay even more distributions.

The object of a retirement portfolio is to replace your working dollar income with portfolio retirement dollar income. Remember you don’t know how long you will live–So you really don’t know how much money you will need to live on. Here is a ball park figure I retired in 2003— For every $1.00 I spent in that first year of retirement I spent a little over $3.00 in 2017.

The question you have to ask yourself is —For every $1.00 you spend today how much do you think you will spend in 15 years? How about 25 years?

The next question to ask yourself—What happens to you and your family, if you are unfortunate enough to become disabled tomorrow?

You asked for thoughts. So I gave you some that might be important to consider.

best regards
b&w

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Hi b&w,

“If you read so far, and if you think anything I said makes any kind of sense for you to consider. The easiest thing to do is to look at your own portfolio and sell the biggest loser you have and redeploy the cash to your biggest cash producing security you currently own. This will eliminate a piece of trash in your portfolio --give you a tax deduction–and see an immediate improvement in your portfolio with your best stock continue to up and pay even more distributions.”

Thanks for your thoughts. You mean I can get a tax deduction from the sale of stock within my retirement portfolio (401k, traditional, Roth IRA’s)? If that is true I have missed any years of tax deductions:(

I currently have 30+ stocks I’d like to reduce to around 20 and maybe eventually 10-15. I can think of 8-10 losers (SAM, TRIP, MIDD, AMT, CELG, CMI, ZOES, CMG, GILD) that I would sell now and redeploy to SHOP, ANET, NVDA, HUBS, AYX, SQ, PSTG, JD. So, lots to sell and lots to buy. The sell part is easy, but the buying is more challenging. How much to put into these new stocks and how quickly. These are my questions. Was thinking around 3-4 percent in each one eventually, but starting with a 1.5-2 percent in each and building from there. Am I on the right track?

John

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John,

Buy and Win has a very interesting way of building an income producing portfolio.

However, a lot of the securities that he holds are much better suited for a non tax protected account.

I recommnend that you do a serious “Saul” analyisis of his portfolio. It will not take long he had around 10 securities. Then do a “Saul” like analysis of the larger positions in Saul’s portfolio. It will be illuminating.

Buy and Win makes a lot of sense, as does Saul. So much so that if I ever master the “Saul” method, I will attempt to master the “Buy and Win” method.

However, other than practicing the evaluation method condensed in the Saul FAQs on the various equities, I do not recommend you attempt to do both methods at the same time.

I evaluated a few, 8 or so “Saul” stocks, then my biggest holding, 70
percent of my net worth, AT&T, and I practically had a heart attack. I liquidated AT&T and put the money into three broad ETF’s. (The only real choices in my 401k) I find it amazing how risky “safe” stocks can be.

I have followed Saul for a couple of years, and only last April started putting money into “Saul” type stocks. I have done well, but in this market everyone is a genius.

I have my little “Saul” account fully invested and another larger account 50 percent invested. My big, 401k is fully invested but the majority is in broad ETF’s with some in a bond. (I borrowed money, I get a good interest rate for the money I loaned, and I have intimate knowledge of the borrower.)

Even my non-Saul stocks, Google, Amazon, CDW, and Village Farms get the “Saul” review before and after they are purchased.

The common thread between Buy and Win and Saul is the 100 percent investment. It forces you to sell something to buy something. In this way you have to find something better before you can trade. With cash, the bar is low. You only need
to buy something better than cash. This makes for sloppy analyisis.

Cheers
Qazulight

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Hi John:

Thanks for your thoughts. You mean I can get a tax deduction from the sale of stock within my retirement portfolio (401k, traditional, Roth IRA’s)? If that is true I have missed any years of tax deductions:

Sorry-My bad- I think you did say that most of your investments are in IRAs. And you are right There are no deductions for sales in an IRA.

You have to set your goals based upon your projected future needs.
Do you need (want) income?
Do you want capital gain?
You should (IMHO) upgrade your portfolio after you have thought out what your future needs would probably be. The transition doesn’t have to be in one day.

If you want a concentrated portfolio of 10-15 stocks and you want a limit of 3-4% you are talking about possibly having up to 70% in cash. Is that what you want?

Am I on the right track?

In a big train station there are a lot of tracks some have trains on them Some don’t have trains and go nowhere.If the train on that track goes where you want to go—Then you are on the right train on the right track.

It is best to figure out where you want to go, before you get on any train.

b&w

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Thanks. Good advice. Just finished the knowledge base and so will do some evaluation before moving forward.

John

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Hi Gazulight:

Buy and Win makes a lot of sense, as does Saul. So much so that if I ever master the “Saul” method, I will attempt to master the “Buy and Win” method.

I think you are reading too many complexities into the “Buy and Win System” I prefer to say that I had needs and I looked to solve those needs.

Necessity is the mother of Invention*
In 2003 at age 70 I sold a failing business to scrape some funds together and try to survive. I was lucky I had ZERO DEBT and the proceeds of the sale which wasn’t too much and no other income except minimal SS.
I didn’t have time to read books because I was burning money from day 1. I invested in the market. I inquired on some Yahoo message boards about securities that paid growing distributions and I bought some Then a strange thing happened One declared a distribution a couple of cents higher than they paid the previous quarter- Then they paid that distribution and I looked at the security price- It was sometimes about the same-sometimes a little more. Once in a while, had a bad one that I had to get rid of but overall the income increased- I added to the better stocks I had from the dividends that came in. I rarely trade, I DO ACCUMULATE by adding to what works.

My METHOD requires 4 things

  1. A need
  2. A goal
  3. A head
  4. Courage

What has this “Method” accomplished for me?
It has given me dignity to be able to pay my expenses—and —hopefully someone out there will be inspired to be able to help themselves when things don’t look so good to them, the same way 15 years ago others helped me.
Best regards
b&w

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Hi John,

I hope you don’t mind, but I wanted to make sure you see this. I kind of wrote it for you, and kind of for anyone who has the same questions. I wish someone would have given me this years ago. :slight_smile:

Feel free to disagree or fire away with any questions or comments.

http://discussion.fool.com/Message.aspx?mid=32994069

Good luck!

Dan

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