Notice anything? It’s VERY heavily weighted toward technology. There’s a 2.8% allocation to biotech and a 14.2% allocation to housing. The technology weighting is everything else: 87% allocation!
In past period’s Saul had his money spread across more sectors of the economy. He has large positions in combines like Sketchers, Signature Bank, LGI Homes, Celgene, and others. So what happened? I think as Saul has looked for growth in sales and earnings in companies that they all happened to fall into the technology category. So Saul is an 87% allocation at all worrisome to you?
At the risk of exposing my relative ignorance…I wonder if simply labeling a company ‘Technology’ is too broad a classification here in our digital, internet age?
Certainly Amazon, Splunk & Arista aren’t exactly similar companies that are going to rise and fall in tandem? Splunk & Talend might trade together. Amazon and Shopify? OK. Ubiquity and Arista? sure. But I think Saul is more diversified than it seems at first glance.
So Saul is an 87% allocation at all worrisome to you?
Hi Chris, interesting question. I guess I don’t see technology as monolithic. For instance:
I see Amazon as primarily retail, but also cloud hosting
I see PayCom as payroll services (accounting if you will), and human resources,
I see Shopify as a service enabling small and medium businesses to set up their business on the internet
I see Twilio as replacing a lot of call center functions and just getting started
I see Horton and Splunk as organizing big data.
I think that technology is infiltrating all kinds of occupations and businesses that didn’t use to have it, and to talk about investing in non-technology companies is a bit strange. Would you call Tesla a non-technology company because it makes cars?
Yes, technology is not monolithic and there are many aspects of diversification. Yet, these companies will likely move together should there be a general selloff or bull run in tech. If there is a recession and businesses need to cut back on spending then some will me more exposed than others. For instance, PAYC will be less exposed than UBNT.
Tesla is primarily a car company because the consumer of their products are looking to buy cars. But TLSA also now has Solar City so they are partially a utility and sell equipment (battery storage) to utilities and consumers.
Yet, with all that said, I would be a little nervous if I had 87% in tech-like companies.
Hi Chris, I noticed that as well a few weeks back. My personal guess would be that if the market turned, especially on tech stocks, you would find that Saul would very deftly start reallocating to less tech heavy companies. I could be wrong and no ill intent meant. I just think that Saul has a sense about both the market and his positions specifically by following them closely and knows how to not overstay his welcome. I have been watching how his portfolio has become tech heavy in the last year or so just as the market in tech stocks has taken off.
A response more out of appreciation and deference than judgement…
My rough estimate says he’s got about 50% in Internet-related software, counting companies like Shopify, Paycom, and Hortonworks. And not quite 20% in Internet-related hardware - Arista and Ubiquiti.
Maybe this is Saul’s high-tech version of 60% stocks / 40% bonds?
The Internet explosion and bubble of the 90’s has matured into a bunch of companies that are either making good money or are expected to.
Maybe looking at the stocks in FDN could give us some more investing ideas.
The current retail implosion seems to be keeping Saul out of anything sold at a retail store, such as Skechers. If he were looking for turnarounds, he might be buying something in the retail world. Outside of turnarounds, Denny recently made a good case for Ross Stores. And more store closings (and a possible Sears bankruptcy) mean more goods sold at discounters like Ross, and I think that means more discount store growth at the expense of what’s left of regular retail, including pretty solid companies like Nike. At least temporarily, though there could be a vicious circle.
This is making me curious about my own allocation. I calculated it just now - Internet-related software and hardware are roughly 10% each by dollar value in my own portfolio.
My worst-performing stocks have been in retail and solar. Software and hardware have done quite well.
Yes, technology is not monolithic and there are many aspects of diversification.
Hi Chris, I think what it is is that you are thinking in terms of sector allocations, and I am thinking in terms of individual companies that I think will (or will not) do well.
Saul’s way of classifying his stocks sounds Rule Breakers-esque to me. David likes to find companies, in a variety of business fields, that use technology to gain an advantage. Looked at one way, they’re tech companies. But you could look at them differently, like Saul (and I believe, David) does, as having some non-tech business that is enhanced by technology.
There is a similar issue with classifying companies as U.S. vs. foreign. Some companies are U.S.-based, but sell a significant fraction outside the U.S. Apple is an example. Apple would nominally be classified as U.S., but it’s probably better to look at it as part U.S. and part foreign.
I keep a sheet of sectors (there are 50) and my investments in them. It sometimes comes in handy when I want to see quickly what exposure I have got. The one for what I think people are describing here I title ‘Business services, data processing, storage and Saas’ (software-as-a-service).
Holdings in it are currently ADBE UK:FDM UK:HLMA MMS PAYC SHOP and SPLK.
Holdings in it are currently ADBE UK:FDM UK:HLMA MMS PAYC SHOP and SPLK..
It appears that there is a rush to nowhere going on. The consensus of opinion of this thread is that diversification translates into safety and is the most important metric, and that nothing else matters including the individual securities being held
I question that—In the list of 8 securities you provided you have 2 securities that appear to be UK (United Kingdom?) securities. Thats a full 25% of your list and appears to be too large a position for example for a USA investor. I also noticed there are SHOP and SPLK listed–That also is a full 25% of the portfolio that start with the letter “S” which is way too much considering there are 26 letters and most are not represented that should be.
IMHO stocks do matter and seeking peer approval of one’s selections will lower the portfolio performance to the lowest level that will get the most approval votes and not necessarily the best portfolio results.
It takes courage to make money in the stock market-----Not peer approval.
I like the A stocks myself. AAPL, AMZN, and ATVI are three of my favorites. Very heavily weighted in the A’s…
I only own one “A” stock–ARCC–But I only own 8 securities in total so I guess I’m overweight in the A’s. like you are. The point is you say they are your favorites so I assume you are making money. I’m happy with ARCC and I’m making money also… That’s the name of this game. Making money to reach our own individual goals. To say one is not diversified because we have 87% in one segment—And a segment that everyone cannot readily define because of individual interpretation is a waste of energy.
This is the big leagues and you can learn only so much from successful oldtimers. But when it’s your turn to get up to the plate and swing the bat, you are the one that has to hit the ball.
Hi b&w,
I was really kind of kidding. I thought your scarcasm of OVERLOADING ON U.K. And S stocks was funny so I added my post about A stocks.
I do think my A stocks have done pretty well, though. APPL overall is a 4 bagger for me, ATVI a 3 bagger, and AMZN is a 2.5 bagger. But I have owned them all for sometime so it may not be as good as what you have done, and they are some of my better stocks, which is why I like the "A"s. but that did cause me to go back and look and I actually have 11 stocks beginning with C. Seems way overweighted and I may need to get rid of at least of couple of those.
I do think my A stocks have done pretty well, though. APPL overall is a 4 bagger for me, ATVI a 3 bagger, and AMZN is a 2.5 bagger. But I have owned them all for sometime so it may not be as good as what you have done,
My A stocks have done well also.
Apple is an 11 bagger for me. Amazon is a 5 bagger.
I had sold my Activision Blizzard position a few years ago. But, I bought more shares a year or so ago. They aren’t yet a 2 bagger for me.
I was really kind of kidding. I thought your scarcasm of OVERLOADING ON U.K. And S stocks was funny so I added my post about A stocks.
The sad part is You were kidding-I was kidding —but how many here get themselves all wrapped up in the Diversification game hoping it will help them. Overcoming fear will help many, if they admit to themselves that that is their true problem
Apple is an 11 bagger for me. Amazon is a 5 bagger.
That is impressive. And I am glad for you. Have you given any thought as to what would remain if you were to have to liquidate those stocks from a taxable account?
If you are in a 30% fed & State bracket it would cost about $40 per share of AAPL and $215 per AMZN share in taxes due, to liquidate. While AAPL is currently paying you about 1.5% annually in dividends —AMZN is paying you absolutely nothing and probably will continue paying nothing for years to come.
b&w, maybe they qualify for the much lower long-term capital gain tax rate.
Dividends are generally taxed at the same rate as ordinary income, unless they’re in the “return of capital” category. Do you get a lot of that kind of dividend?
I think “technology” shouldn’t really be considered an asset class. It’s just the basis for doing business. Retail (AMZN, SHOP), finance (PAYC, BOFI), advertising (FB, GOOG), all rely on technology to some extent. Then there’s the tech infrastructure (hardware, like ANET, or software, like TWLO, HDP).
As to the tax on capital gains, what kind of dividend yield would be required to equate to an 11 bagger minus long term capital gains since 2009 or 2007, which is the last time AAPL was in the teens? My guess is somewhere around 20%, even if you assume the dividends are completely tax free. If someone can reliably pick investments that yield 20% tax free, more power to them. For others, investing in stocks for the hopes of capital gains is still worthwhile.