FAQ/Knowledgebase: Sep 2014

Saul’s Investing Discussions FAQ/Knowledgebase

This document pulls together key passages from Saul’s board posts and organizes them by topic. Immediately below is an index of the posts by post number, should you desire to go back and read the original posts in their entirety. Following that is a section on each topic with selected passages. Passages that apply to multiple topics are duplicated under each respective topic section.

Note that some of the passages have been edited in minor ways before inclusion in this document.

Added to the FAQ this Month

Posts 2893, 2898, 2913, 3115, 3119, 3218, and 3313. These are marked as (New!) in the index and topic sections.

Post Index

About This Board: 2913 (New!)
Saul’s Historical Results: 20, 4
General Approach and Philosophy: 5, 6, 7, 27, 40, 18, 1366, 1401, 1433, 435, 1315, 1368, 2151, 2350, 2387, 3115 (New!), 3218 (New!)
Evaluating an Individual Company: 6, 1234, 5, 2003, 2011, 2165, 1416, 1451, 2537, 3115 (New!)
GAAP vs. Non-GAAP: 197, 985, 6, 970
Prospecting for Companies: 120, 122
Portfolio Management: 6, 5, 50, 64, 114, 18, 21, 22, 51, 52, 383, 78, 907, 964, 1392, 1438, 2110, 1129, 41, 435, 1416, 4, 3313 (New!)
Benchmarks and Financial Indexes: 5
Thoughts on Multibaggers: 7, 63, 4
Calculating Portfolio Returns: 26
Buying: 5, 78, 1007, 1146, 1160, 1164, 21, 2350, 2387, 2898 (New!)
Price Anchoring: 40, 18, 5, 78, 71
Selling: 7, 50, 27, 64, 40, 21, 5, 18, 51, 52, 78, 838, 907, 964, 1392, 1401, 1433, 1438, 71, 1417, 2151, 2489, 3218 (New!)
Dips and Downturns: 1129, 1295, 1380, 2332, 1297, 2405, 1285, 3313 (New!)
Dividends: 2110
Professionally Managed Money: 5, 8, 17, 79
Secondary Stock Offerings: 2207
Graphing: 5, 2003, 2893 (New!)
Teaching Investing to Kids: 1075, 3119 (New!)
Investment Primer: 84, 677
Board Basics: 2450, 2460, 2794

About This Board

  • (New!) I visualize the board as a tool for people improve their investing skills, to share information and ideas, to learn how to choose stocks for themselves, and to learn how to invest intelligently. I certainly expect people to make their own investing decisions and not to try to copy every stock I have, although it’s nice when others on the board are interested in some of the same stocks as I am because we have great discussions about them. Please remember to make your own decisions about what you buy and sell, and feel free to disagree with me as I certainly make bad purchases at times. The only thing I have ever guaranteed is that I make mistakes at times and that everything I buy doesn’t go up. [Post 2913]

Saul’s Historical Results

  • Annual Results since 2000:
    2000 - 19.4%
    2001 - 46.9%
    2002 - 19.7%
    2003 - 124.5%
    2004 - 16.7%
    2005 - 15.6%
    2006 - 8.6%
    2007 - 22.5%
    2008 - (-62.5%)
    2009 - 110.7%
    2010 - 0.3%

At this point I have a little reminiscing: I remember in 2010 there was a lot of talk in the media about the “Lost Decade” for the stock market, which was unchanged in 10 years. At this point I was up 570% in those same 10 years, inspite of 2008, so I was wondering what they were talking about.

2011 - (-14.5%)
2012 - 23.0%
2013 - 51.0% [Post 20]

  • From 1991 to 2007 I averaged about 32% per year compounded. This produced a rather amazing overall multiplication of my total portfolio, In fact, if you sit down with your calculator and multiply 1 by 1.32 (since I averaged a 32% gain) 17 times, you’ll be amazed too. (It’s the power of compounding). You’ll note that this was not a large multi-bagger on one stock, but on my entire portfolio, the whole works!

In 2008, in the big meltdown, I dropped 62.5%, which was pretty terrifying.

In 2009 I was up 110.7%. The way percentages work, after dropping 62.5%, gaining even 110.7% doesn’t get you back to where you started.

In 2010 I was up just 0.3%. In 2011, I was down 14.5%. If you wonder what happened, that was when, with the help of MF Global Gains, I got into all those little Chinese stocks that turned out to be fraudulent. (This was partly the fault of MF GG for recommending them, but certainly in large part my own fault for being naïve. Starrob even warned multiple times about these stocks but I ignored his warnings.)

In 2012 I was up 23.0%, but, as of the end of 2012, four years after the 2008 collapse, I was still not all the way back to where I had been at the end of 2007.

This year, 2013, put me up to a new high, a higher multibagger than I even had had at the end of 2007. For 2013, I ended up with my entire portfolio up 51.0%. This was quite a successful year. [Post 4]

General Approach and Philosophy

  • Go for companies that are growing fast, and hopefully that are not yet discovered and bid up in price. Avoid “story” stocks that are always going to make money next year or in two years or in five years (Westport is an example of what I mean, or early stage biotechs whose drugs are still in preclinical). If it’s next quarter, that’s okay. Absence or near absence of debt is important, except in companies where debt is part of their business model, where it’s sort of excusable (like DDD which does a lot of acquisitions). [Post 5]

  • Stock picking does work (obviously). Especially if you are lucky, as I must have been. [Post 5]

  • I don’t invest in options. [Post 6]

  • 32% a year compounded doesn’t mean you make roughly 32% every year. For example, here’s a string of the gains of my entire portfolio for twelve consecutive years starting in 1993. Numbers are percent gain. In other words 21.4 means every $100 turned into $121.40, and 115.5 means every $100 turned into $215.50. Here they are: 21.4 - 15.4 - 43.4 - 29.4 - 17.4 - 4.9 - 115.5 - 19.4 - 46.9 -19.7 - 124.5 - 16.7. (So don’t be discouraged if you only make ten percent some year. Keep trying for good gains). [Post 5]

  • When you are first starting out you don’t mind concentrating your investments in half a dozen winners. However, when you are retired, and you are investing for a livelihood, and you don’t have any other income to replace potential losses, you don’t let any position get too big. You never let a position grow bigger than 12% to 15%, and even that is way too much, no matter how much you like the company. (My biggest position now is just under 9%). [Post 5]

  • You can’t really keep track of more than 20 to 28 or so stocks, and that’s an outer limit. You need to read all the quarterly reports, and the transcripts of all the quarterly conference calls, which gives you a busy earning season. They often say a lot more on the CC than in the earnings release. Reading the transcripts works much better than listening to recordings as it takes a quarter of the time, and you can skip the forward-looking statements messages, etc. Look at investor presentations too. And get a news feed from your broker on each of your stocks. [Post 5]

  • You can beat any mutual fund over the long run. You can’t tell much from a mutual fund’s results because you are always buying last year’s results. For example, if it’s a oil company fund, and last year oil stocks were in, it will show great results, but this year it could do terribly. Also, you are always buying the results they had when the fund was much smaller and nimbler than it is now (because those good results they had when they were tiny made people pour money in). [Post 5]

  • If you have the time, do a weekly graph on your stock, on old fashioned large graph paper. It helps you keep things in perspective. A drop from $51 to $49 doesn’t look so bad if you look back and see that it’s been between $52 and $48 for the past six weeks, or if you see that your stock rose from $40 to $51 in the previous two weeks and the “drop” to $49 is meaningless. (The problem with graphs that your computer makes is that a move from $10.00 to $10.05 will fill the whole space if that’s the whole move for the day or week. There’s no fixed scale.) Mark where you made purchases. [Post 5]

  • I pay no attention to 2-baggers, 5-baggers, 10-baggers or whatever in individual stocks, nor do I count them. This is relevant because this way it never crosses my mind to think anything like “This stock is slowing down, but it’s a 9-bagger. Maybe I should hold it for another year to try for another 10-bagger.” Going from a 9-bagger to a 10-bagger is only an 11% gain, so counting 10-baggers is meaningless to me. If I’m no longer in love with the stock, I should be able to put the money into something that will be up 30% in a year, and it will never even cross my mind that I missed having a 10-bagger.

What I do pay attention to is how my total portfolio is doing. When I multiplied my results out from 1991 to 2007 it came to a 115-bagger on the whole portfolio. That’s what is really important to me, since my family and I have to live on the gains.

Here’s another way to think about it: If you have an 80-bagger on a stock that grows to an 85-bagger it sounds exciting, but it’s only a 6% gain on your money. If you take the same money and put it into a new stock where you just get a tiny little 2-bagger, you’ve made a 100% gain on the same money. Which is why I don’t pay attention to trying to get multiple baggers. If they happen fine, but it’s not my focus. [Post 7]

  • One problem investors have is getting attached to their previous decisions and not willing to consider that they may have made a mistake. Not accepting that an investment could be a mistake is a dangerous error. I try to always reevaluate my investments and get out if i’ve made a mistake, or if information changes. Which is why I don’t hold stocks generally for 5 or 10 years. [Post 27]

  • I make mistakes but I don’t regret my decisions. I figure I did the best I could at the time. I also don’t anchor on a price. For example when TSLA went from $30 to $75 in no time, I sold half my position. I then saw it continue up to $110. When it got back to $90 I got back in. I didn’t feel I had to wait for it to get back to $75 where I sold it. In fact when it was at $90, EVERYONE on the TSLA Board was saying they’d buy back in at $60 or $55. NOONE thought it would continue up. I figured if everyone figures it will go down, it won’t. And it didn’t. [Post 40]

  • I buy no bonds of any type. [Post 6]

  • I’m usually nearly 100% in stocks, and only rarely and briefly as much as 10% in cash. I have a couple of small accounts in which I can buy on margin, but my amount of margin in rarely as much as 4% or 5% of my total investment. [Post 6]

  • I don’t invest in futures. (I tried them when I was younger and saw a bunch of money disappear overnight. You are competing against experts). [Post 6]

  • I usually don’t buy a company all at once or sell all at once, but taper in and taper out, unless I have a good reason to get out in a hurry. [Post 18]

  • Trading in and out is self destructive. You remember the trades where you made a few dollars and it encourages you, but you forget the losses. Never take a position to make a few percent. You should be investing in stocks that you can see at least tripling, if not going up ten times. [Post 5]

  • I always buy with the idea of holding indefinitely, never with the idea of a short holding period, but in practice I guess my average holding period is six months to two years. I sell when I’ve fallen out of love with the company or I think the story has changed, or I think that the price has gotten way out of line. [Post 18]

  • Never miss getting into a stock because you are waiting to buy it 25 cents cheaper. The decision is whether you want to invest in it or not. Once you decide, take a starter position, at least. Don’t wait around for a slightly better price. When it’s at $50, I can guarantee that you won’t remember or care whether you paid $10.05 or $10.30, but you’ll be kicking yourself if you didn’t get in. (For a concrete example, earlier this year I bought some shares of a little unknown company AMAVF at $15 and change. It hit $170 this week for an 11-bagger in less than a year. Do you think I care whether I paid $15.25 or $15.50? The issue is: Do you want to buy the stock? If the answer is yes, don’t fool around trying to buy it a bit cheaper. You are buying with a long term perspective.) [Post 5]

  • I’ll base my purchase decisions on how well the company is doing, and my evaluation of how it will do in the future, and how well its price matches its prospects, rather than whether the company came in two cents above, or two cents below, what the analysts predicted. [Post 1366]

  • Sometimes you can’t take time to sell. A case example: I bought LOCK after it was recommended by MF. Bought between $18 and $22. Then bad vibes started coming out, investigations rumored, etc. I sold out of my entire position 6 weeks ago at about $17.40 average. It’s been dropping steadily since and it’s down 17% today, and is selling at $10 and change.

You can adopt the MF mantra that if you just hold on it will come back in time, and maybe it will. But I employed that money in much more profitable ways than watching a stock go down and then hoping it will start to come back. [Post 1401]

  • I’m in no way a trader. I never, ever, ever, EVER, buy a stock thinking I’ll try to sell it in a week or a few days for a small profit. I always buy for the long term, but sometimes decide I’ve made a mistake, and go on. And don’t worry about whether I made an error in selling. I worry about what I’m going to buy with the money. (I sometimes even buy something I’ve previously sold (YHOO, NUAN. NUAN was an error both times, and I got out both times).

After all, I lived through the internet bubble of 1999-2000. I sold out of AMZN, YHOO, and AOL in about February one day, after YHOO, as I remember, had gone up $30 to $50 per day for three days in a row. I said to my wife, they may keep going up, but this is insane. I’ll let someone else have the rest of the ride. The bubble broke about 3 weeks later. Some times selling can be the most important thing you can do. I didn’t get out of the market, just bought non-internet stocks and was up considerably for the year. Sure I could have held through the decline, and 10 years later AMZN came back, even if YHOO and AOL never did, but WHY? [Post 1433]

  • It’s a lot harder to make great returns as the amount you are managing gets larger. You can’t just get in and out of a stock with one or two trades as the dollar amounts become too big. You can’t invest in companies that are really small or illiquid, because it’s too difficult to accumulate a position that will be meaningful to your portfolio. And if there’s bad news you’ll be stuck and unable to get out in a hurry without moving the market. It’s like turning a battleship instead of turning a motorboat. [Post 5]

  • You can beat ANY index over the long run, in spite of what you may hear. [Post 5]

  • I always buy with the idea of holding for years but I often have to sell out sooner as conditions change. [Post 5]

  • Peter Lynch suggested a monthly graph of stock price vs trailing earnings on a log scale map, which I have found very helpful. I scale it so that if the stock is twenty times trailing earnings the price and the earnings graphs will overlap. That gives you a quick visual perspective of whether the stock is cheap, reasonably priced, or wildly priced, and also give a nice visual of how fast earnings are growing that you can compare with your other stocks, as you use the same scale for all of them. [Post 5]

  • When things go bad with growth stocks they can lose 70% of their value, but if things go well they can go up 300% or more. If you have only one stock, that is very dangerous. If you have 25 stocks and three or four crash and eight or nine take off and fly, you don’t worry so much about the three or four. [Post 435]

  • I have some thoughts on the Estimates Game. I exaggerate a little for the clarity of the message, but what I am saying is essentially all true. I hope you find these ideas useful:

The whole earnings and revenues estimate game that the analysts play has put the company CFO’s, who give the outlooks, in a no-win situation. Here’s how it has come to work over time:

It doesn’t seem to make any difference how good or bad the actual results are, whether they are up 3%, or 30%, or 70%, or more. The only thing that the headlines pick up is whether the earnings beat the analysts’ estimates or missed the estimates. (Who cares???)

For example, a company whose earnings are up just 3%, but beats estimates by a nickel, will get screaming headlines. The headlines won’t say “ABC earnings only up 3%!” Oh no! The screaming headlines will say “ABC beats estimates by five cents!” The price will undoubtedly rise.

On the other hand, a company whose earnings are up 70%, but misses estimates by two cents, will get equally screaming headlines, not saying “DEF earnings up an amazing 70%”, but saying “DEF misses estimates!!!” The price will undoubtedly fall.

The whole estimates game is only about whether the earnings and revenue beat or miss a number that some analysts have picked. It totally ignores the question of how well the company is actually doing, and how good (or bad) the revenues and earnings really are.

However, the companies aren’t stupid. They have figured this out. And they have started to give lower and lower estimates for their next quarter, picking numbers that they are almost certain to beat (by a lot). They don’t want the bad publicity of missing analyst estimates. (Again, who cares!!!)

So what happens? The companies give low estimates and the analysts say “Good earnings, but disappointing estimates for the next quarter. We’re downgrading them from a buy to a hold.”

Thus the companies are screwed whatever they do. If they estimate high, where they think they will be, and miss, they get the “missed estimates” headlines, and if they estimate low, to let themselves beat estimates handily, they get the “disappointing estimates” headline. They lose either way.

How do we as investors deal with this puzzle. Think “How is the company doing? How much are earnings and revenues actually up?” Ignore the “missed by 2 cents” headlines if earnings are up by 40% or whatever. What the analysts had estimated doesn’t matter a hoot in the long picture, and if a stock sells down in spite of great results because of “missed by 2 cents” headlines, treat it as an opportunity.

Just my opinion. [Post 1315]

  • If a company makes 70 cents, up 75% from 40 cents, I don’t care a hoot if the analysts expected 72 cents or 68 cents, and if the company thus missed or beat predictions by 2 cents!!! What matters to me is that the company is growing earnings at 75%, and if the company sells off because of an “earnings miss” (which is a ridiculous term for a company increasing earnings by 75%), I might take advantage of it by adding to my position. [Post 1368]

  • No one knows how long a stock price can keep climbing. If you sell now at $135 it could keep going up to $200 before it takes a rest. When it was up $15 from where you sold, would you buy back in or just watch it go? And if you timed it right and sold now, and it dropped $15 would you get back in, or would you wait for down $20? And then if it got to down $19 and started back up, would you panic at down $12 and buy back in? And then, what if it goes down $5 from there? Do you buy, sell or hold? In other words, trying to time the market in these stocks will drive you crazy. If you don’t have a good reason to sell (Things aren’t right with the company, it’s too big a proportion of your portfolio, sales and earnings are continually disappointing, etc), just stay with it and enjoy the ride [Post 2151]

  • You’d be much better off staying nearly 100% in the market and just deciding WHICH stocks you want to invest in, instead of complicating it with deciding WHEN you want to buy, and trying to time the market. For example, you don’t want to buy now because the market looks good, but I suspect you didn’t want to buy seven weeks ago at the bottom either, because then everyone was saying the market is going lower. And if these stocks go up 10% from here you certainly won’t want to buy, but if they go down 10% from here, you’ll wait for 20%, and then if they start back up you’ll wait for them to get back to down 10% again, which may never happen.

Just think, if you stay fully invested you can forget about all those crazy-making decisions, and just concentrate on which stocks you want to own for the long term. [Post 2350]

  • I have very clear guidelines for what a consider a real investment prospect. Rapid growth in sales and being profitable are indeed a part of those guidelines. When I find a company like that and decide to take a position, I usually quickly build it to an average position, which is currently about 4.5%. However, when I come across a little company which is growing VERY rapidly, and isn’t yet profitable, I sometimes take a tiny position, just to keep it on my radar, and also because I can’t resist.

My idea is to put them away for years. Since I have tiny positions, selling for a 20% gain would be a lot of work for insignificant gain. I’m hoping, if I collect a few of these tiny positions, that if one of them goes up 10 or 20 times, I won’t mind if the others crash. If any of them become profitable and turn into a real company, I would then treat them like a normal investment and I might add to my position. If they go down in price I WOULD NOT add. I’d assume that there’s a good chance that they are down for good reason, and I won’t toss away more money. If they all go to zero, it won’t affect my overall results in any meaningful way, as these are really small positions. Basically, I’m just playing around with them. Remember that you don’t have to do the same. I’m willing to accept that these may be silly stocks to take even a small position in. [Post 2387]

  • (New!) I look for companies that are growing fast, have recurring income, insider ownership, some kind of moat, reasonable PE, etc, and hope to find most of them in stocks I’m investing in. I don’t try to learn all the financials. Then, like with SYNA, CELG, BOFI, UBNT, etc, hopefully I sit back and let them grow (but keep an eye on them). [Post 3115]

  • (New!) I definitely DON’T sell winners that have had a run (not as a policy, anyway). I only sell if I have a specific reason. [Post 3218]

Evaluating an Individual Company

  • I look for companies that are easy to follow, ( which is why a lot of my companies are recommended by the MF). It means that I generally avoid foreign companies. (Arcam, the Swedish 3D printing company, is an exception.) [Post 6]

  • I want a company with rapidly growing earnings. I usually won’t touch a “story” company that is losing money, but that "will break even two years from now”, no matter HOW enticing the story is. [Post 6]

  • I won’t touch ANY Chinese company. Not even Baidu. This is due my experience in 2010 or so with 13 little companies (some recommended by MF global Gains), of which fully 11 turned out to be fraudulent in one way or another. You simply can’t tell what’s going on in a Chinese company. Consider that Yahoo is a major company and owned 40% of Alibaba, and the Chinese CEO blithely gave himself the fastest growing subsidiary as a present without telling Yahoo. If it can happen to a big company like Yahoo, what chance do I have? I probably wouldn’t invest in companies in other emerging markets either. [Post 6]

  • I suggest not getting PE off Yahoo, or Seeking Alpha, or eTrade, etc, but getting trailing earnings off the last four earnings reports, which you can always find on the company’s Investor Relations site. Then divide the trailing earnings into the stock price. [Post 1234]

  • I look for a company that has a long way to grow. A company that I can hope will be at least a 3 bagger and maybe a 10 bagger. (That’s one reason I sold out of my position in Apple. Most people who are long Apple are hoping for a rise from $450 to $550 or $600. That’s equivalent to buying a stock at $4.50 because you hope it might get to $5.50 or $6.00. I wouldn’t buy a stock at $4.50 unless I though it could get to $20.) [Post 6]

  • That means a company that has a long runway, that ideally can grow almost forever. (Like Solar City, for example, or WisdomTree. What I mean is a company where the addressable market is so big that their share of it allows them to keep growing for the foreseeable future. That’s no guarantee that they will, but it’s better than a company that already has 40% of it’s total available market, for instance, and can only double once.) [Post 6]

  • I want a company that does something special, a “Rule Breaker”, not a company that just makes a commodity product well. [Post 6]

  • I avoid mining and drilling and natural resources stocks, which tend to go in cycles from boom to bust. [Post 6]

  • I want management to be interested in making a profit. (That’s why I sold out of amazon even though I love the company. I saw an interview where Bezos touched on a dozen or so goals he had for the company over the next ten years. Making a profit just wasn’t on his radar screen, never even mentioned. (I realize that this has made me miss out on the increase in amazon’s price, but I just wouldn’t be comfortable with it). [Post 6]

  • Never miss getting into a stock because you are waiting to buy it 25 cents cheaper. The decision is whether you want to invest in it or not. Once you decide, take a starter position, at least. Don’t wait around for a slightly better price. When it’s at $50, I can guarantee that you won’t remember or care whether you paid $10.05 or $10.30, but you’ll be kicking yourself if you didn’t get in. (For a concrete example, earlier this year I bought some shares of a little unknown company AMAVF at $15 and change. It hit $170 this week for an 11-bagger in less than a year. Do you think I care whether I paid $15.25 or $15.50? The issue is: Do you want to buy the stock? If the answer is yes, don’t fool around trying to buy it a bit cheaper. You are buying with a long term perspective.) [Post 5]

  • Here are some ideas for evaluating a new company.

  1. Go to the company website and find out what they do. To get there, google, for example, “Zillow Investor Relations” and you’ll get the Zillow investor relations website.

  2. Read the text part, at least, of their last quarterly report. “Analyzing the financials” sounds intimidating, and probably isn’t necessary. They usually tell you in words what is going on.

  3. Read the transcript of the conference call. You should be able to find it on Seeking Alpha “Zillow Q1 2014 Transcript” should get it. (Yep, I put it in on Seeking Alpha and it came right up).

  4. Go back through at least two years of quarterly reports and pull off at least adjusted earnings and revenue. Make a table (pencil and paper) for each. Since you are interested in Avigilon, here’s what their revenues look like

2012 - 18 24 25 33 = 100
2013 - 32 39 51 56 = 178
2014 - 56

You see what a good visual image this gives you. You can see both sequential change and year-over-year change at a glance. And that 78% increase in revenue from 2012 to 2013.

Here’s earnings

2012 - 02 04 08 08 = 22
2013 - 08 10 22 19 = 59
2014 - 19

Incredible rate of growth.

Then do a running 12 month trailing earnings:

12 2012 22
03 2013 28
06 2013 34
09 2013 48
12 2013 59
03 2014 70

Gives you a picture of where they are going and how fast. You should graph this on a piece of log paper. (On log paper a move from 10 cents to 20 cents is the same length as a move from 50 cents to a dollar (100%).

To compare, here’s the earnings for BOFI. Regular good growth, but of course not as fast.

2012 - 58 64 67 70 = 259
2013 - 74 78 85 91 = 326
2014 - 100

12 2012 259
03 2013 275
06 2013 289
09 2013 305
12 2013 326
03 2014 352

Now Avigilon will sell at a higher PE than BOFI so it balances out. There’s a limit how high you should pay for rapid growth though. [Post 2003]

  • By the way, other patterns jump out to the eye as well. For example, if you look at Aviglion’s earnings,

2012 - 02 04 08 08 = 22
2013 - 08 10 22 19 = 59
2014 - 19

you notice that earnings don’t rise between the fourth quarter and the first quarter of the next year, it’s called “seasonality”, and then rise in the second and subsequent quarters. When that happens in the future it won’t bother you because you’ll say “Oh yeah, their first quarter is always a little light”.

Same with revenue, by the way:

2012 - 18 24 25 33 = 100
2013 - 32 39 51 56 = 178
2014 - 56

A quick glance will show you that BOFI does not have the same seasonality, but rises a little each quarter.

2012 - 58 64 67 70 = 259
2013 - 74 78 85 91 = 326
2014 - 100 [Post 2011]

  • This is another a nice way to evaluate companies for investment. Using this method, the first step is to look at Cash Flow. You want to make sure the company is self-sustaining, producing positive Free Cash Flow, and not eating away at its Cash Balance. You’d also like to see Free Cash Flow as a percent of Revenue (Free Cash Flow Margin.) grow from year to year

The second step is to see if Revenue is growing year over year, and whether operating expenses grow at a slower rate so that Operating Margins. can increase as revenue expands.

Third is to make sure that the share count is not increasing unreasonably fast.

Our fourth step is to take the market cap (stock price by total number of shares) and divide it by Free Cash Flow to get the Free Cash Flow multiple… It’s actually a P/FCF ratio instead of a P/E ratio, and rational ratios should also be somewhere in the 20’s or so, depending on rate of growth…

Fifth is to check levels of cash and debt.

Sixth the consensus earnings estimates and rate of growth. This could be deceptive as companies often low-ball their estimates, and analysts go along.

Seventh, look at the 10K to evaluate the business, its competitors and its risks.

Finally read the last couple of conference call transcripts to see how management feels about the business now and in the future. [Post 2165]

  • I look for recurring revenue. I LOVE recurring income and the razor and razorblade model. [Post 6]

  • I look for insider ownership. [Post 6]

  • First, I look for a company that is rapidly growing its revenue. By rapidly I’m looking for usually AT LEAST 25% per year. (That usually rules out companies with no revenue like start up biotechs or start up diesel-from-algae companies, as well as slow-growing companies. I do occasionally make an exception as I have done for a small position in SZYM, which has two large factories coming into production by the fourth quarter and another the first quarter of next year, with big time partners). [Post 6]

  • I pay no attention to GAAP earnings and only look at non-GAAP or adjusted earnings. I know this bothers some people, but it’s what I do. I feel that GAAP earnings ridiculously distort the picture. (Consider company X that has a big tax benefit this quarter and reports huge GAAP earnings, and then next year they pay normal taxes and looking at GAAP, it appears as if their earnings have tanked, just for a trivial example. Or company Y that has outstanding warrants. If their stock price goes up, GAAP rules makes their apparent GAAP earnings go down due to repricing of warrants. Just nonsense. I especially remove stock-based compensation as an expense). [Post 6]

  • I think a stock growing earnings consistently at 9-10% per year, and selling at 60 times earnings, is inherently risky. It’s maybe six times higher than it should be, which gives a lot of room to fall.

When I look at my stocks, starting from the biggest, there’s:

UBNT, trailing earnings up 100% from a year ago with a PE of 19.
BOFI growing trailing earnings at 28% and at a PE of 23.
CELG, growing trailing earnings at 20%, PE at 22 to 23.
SYNA, trailing earnings up 88%, PE of 14
AMBA, trailing earnings up 32.5%, PE of 20

You get the picture. That’s where almost 50% of my portfolio is. [Post 1416]

  • To get an idea how my method of evaluating stocks works, here’s a post I made on the XONE board on June 27 last year, when MF was touting XONE as the next greatest thing. The price was $59.

“Frank, I’m just commenting about why a stock with negative earnings, that has never had a profitable year, would be selling at such a huge inflated price. Granted, some is about prospects for the future, and some is the 3D hype, but some must be hopes of the company being acquired. (The price took off after SSYS just acquired MBot (or whatever the name was)).”

“Look, last year they lost $10.2 million on $28.7 million of revenue. That’s a negative margin of 35.5%. It means they lost 35 cents on every dollar of sales!!!”

“In the first quarter of this year.they lost 20 cents the first quarter in spite of great revenue. Say that by magic they overcome the loss in the next three quarters and finish the year with 25 cents profit. I’m not rejecting the possibility. With that miraculous result, they’d then be selling at over 200 times earnings. (220 times to be exact).”

“What can I say? I think the technology and the company have great futures, but the stock may be miles ahead of itself. Miles and miles and miles. I may be totally wrong, and greatly underestimating, but it’s worth considering those figures.”

That post got all of 2 rec’s. XONE’s price at yesterday’s close was $25.70, well less than half its price of $59 when I was writing. Lest you think that XONE is just down because of the current sell-off, let me compare it with UBNT, one of my stocks which has been absolutely pounded in this sell-off. On the same date, June 27, 2013, UBNT was at $17.43. It closed yesterday at $32.40, up 86%. Or Ambarella! It’s hard to find a stock that’s been killed more than AMBA has been in the last couple of months. It was at $16.18 on June 27, 2013, and closed yesterday at $24.20, up 49.5%.

Intelligent stock picking does pay off.

And, by the way, in the quarter just reported, XONE had a loss of 38 cents, increased from the loss of 20 cents a year ago. And it’s still a misleading “Buy” in MF RB. Eventually, even some time soon, for all I know, it may turn around and start making money (or be acquired), but there was a lot of opportunity loss for anyone who has held it all this time. And it’s minus 54% compared to its benchmark according to MF. Tell me again how it’s always a mistake to sell out of a position. [Post 1451]

  • Given a choice between a low PE company and a high PE company, growing at comparable rates, I’d go for the low PE company every time. Which is why my big four positions are SYNA, UBNT, CELG and BOFI. All reasonable PE’s. I have to admit that my next one, Z, is a folly, but this kind of stock is a distinct minority in my portfolio. [Post 2537]

  • (New!) I look for companies that are growing fast, have recurring income, insider ownership, some kind of moat, reasonable PE, etc, and hope to find most of them in stocks I’m investing in. I don’t try to learn all the financials. Then, like with SYNA, CELG, BOFI, UBNT, etc, hopefully I sit back and let them grow (but keep an eye on them). [Post 3115]

GAAP vs. Non-GAAP

  • It’s important that you realize just how insane that GAAP rule is. Let’s consider what would happen if some terrible news came out about PSIX during the quarter. For example, if a big new engine had a bunch of defects, or a new competing product showed up which was taking lots of their customers, their revenue was dropping like a rock, and their price really crashed (for GOOD REASON!).

GAAP rules for repricing the warrants would mean that the company would show huge (imaginary) increases in GAAP earnings for the quarter!!! And this is from a system that is supposed to be giving the public a clearer idea about what is really happening at the company!

(For those who wonder what their rational is, it’s: stock price down = obligation from warrants reduced = more GAAP profit) [Post 197]

  • Some people, even some people on these boards, feel that GAAP is important because companies may try to fudge non-GAAP results. I know, for instance, that Fletch, who is trained as an accountant, follows GAAP (although even he admits that the GAAP rules on repricing warrants every quarter according to the stock price give bizarre values). I think you’d have to say that some accountants like GAAP, while lots of CFO’s don’t. I use adjusted results because they tell you what the real company is doing. And realize that GAAP can sometimes give inflated revenues or earnings, not just lower ones. For example, today’s Pandora results gave them about $15 million extra in GAAP revenue that they didn’t really make this quarter because of the GAAP release of some held back revenue. [Post 985]

  • I pay no attention to GAAP earnings and only look at non-GAAP or adjusted earnings. I know this bothers some people, but it’s what I do. I feel that GAAP earnings ridiculously distort the picture. (Consider company X that has a big tax benefit this quarter and reports huge GAAP earnings, and then next year they pay normal taxes and looking at GAAP, it appears as if their earnings have tanked, just for a trivial example. Or company Y that has outstanding warrants. If their stock price goes up, GAAP rules makes their apparent GAAP earnings go down due to repricing of warrants. Just nonsense. I especially remove stock-based compensation as an expense). [Post 6]

  • I don’t like excessive stock compensation either, but you have to remember that at most small technology companies, that is most of their compensation as the companies don’t have much money. It also allies their interests with ours if they have options which are only valuable if the price goes up.

I ignore GAAP earnings because the stock-based compensation is already accounted for in diluted shares. More shares reduces earnings per share. Taking it as an expense also double counts it, which is why almost every company that I know of subtracts out the stock based compensation non-cash expense when they figure adjusted earnings or “real earnings”.

By the way, analyst earning estimates are almost always adjusted earnings too, as far as I know. Also if you read the companies’ disclaimers they almost always specify that they use adjusted earnings for their own internal evaluations of how the company is doing. They often give GAAP results as a formality, and then base their entire discussion of results on adjusted results. [Post 970]

Prospecting for Companies

  • As you probably noted from my list of stocks in post #3, some 15 of my 25 stocks were MF SA and MF RB picks (mostly RB, actually), although I have to admit that I had invested in 4 of them before they were picked by MF RB. I really prefer to invest in MF picks because the discussion boards and continuing coverage is incredibly important to me, so those are truly my favorite places to prospect.

I got Arcam (which is currently a 9-bagger for me in a year) from a Seeking Alpha article on 3-D printing stocks. Random article.

I got Solazyme, I think, from a newsletter called Game Changers published by Street Authority (which I no longer take by the way), added to by articles on Seeking Alpha.

I got Yahoo, before its RB recommendation, and TMUS, from a newsletter called Stock of the Month, also published by Street Authority. Note that these newsletters from Street Authority have no discussion boards and no real ongoing support, such as you find on MF.

I got INVN and AMBA before their MF selections, as well as UBNT, AFOP and SYNA, all from Zack’s Home Run Investor. Be aware that the guy writing the newsletter doesn’t seem to know much about what the companies actually do, just that the analysts are raising estimates on them (which is Zack’s thing). He’s used to doing short term trading, and it shows. Most of the companies don’t interest me at all, and you really need to research them yourself, but I did find the above stocks some months ago (nothing of interest lately).

I got PSIX from the free Vista Partners Newsletter. I believe it’s a actually paid recommendations by the companies. I’m not sure how I got on their mailing list. They seem to be somewhat selective but most of their companies are start-ups that I wouldn’t touch. I just got lucky with PSIX.

I got the idea for my little positions in DPZ and NGVC from articles on a free MF board called Pencil’s Palace. [Post 120]

  • I’ve also gotten ideas from articles in the NY Times or the BBC (on my computer) random posts on MF, especially on RB New Stock Ideas, but actually on all the boards where people mention some company they are interested in. The places I mentioned are the most common ones, especially, as you see, the MF recommendations. [Post 122]

Portfolio Management

  • I don’t invest in options. [Post 6]

  • 32% a year compounded doesn’t mean you make roughly 32% every year. For example, here’s a string of the gains of my entire portfolio for twelve consecutive years starting in 1993. Numbers are percent gain. In other words 21.4 means every $100 turned into $121.40, and 115.5 means every $100 turned into $215.50. Here they are: 21.4 - 15.4 - 43.4 - 29.4 - 17.4 - 4.9 - 115.5 - 19.4 - 46.9 -19.7 - 124.5 - 16.7. (So don’t be discouraged if you only make ten percent some year. Keep trying for good gains). [Post 5]

  • When you are first starting out you don’t mind concentrating your investments in half a dozen winners. However, when you are retired, and you are investing for a livelihood, and you don’t have any other income to replace potential losses, you don’t let any position get too big. You never let a position grow bigger than 12% to 15%, and even that is way too much, no matter how much you like the company. (My biggest position now is just under 9%). [Post 5]

  • You can’t really keep track of more than 20 to 28 or so stocks, and that’s an outer limit. You need to read all the quarterly reports, and the transcripts of all the quarterly conference calls, which gives you a busy earning season. They often say a lot more on the CC than in the earnings release. Reading the transcripts works much better than listening to recordings as it takes a quarter of the time, and you can skip the forward-looking statements messages, etc. Look at investor presentations too. And get a news feed from your broker on each of your stocks. [Post 5]

  • I tend to sell a piece if my position has gotten too big for me to be comfortable with. (Usually, that means more than 10 to 12 percent of my portfolio. However, years ago when I was still working, and could add funds to replace losses, I seem to remember letting rare positions get to 20% if I was in love with the company).

I tend to sell a piece if I feel the price has shot up wildly. I did that with TSLA, selling half, but now that I have more information under my belt, I’m nibbling again and re-building my position again). On the other hand, BOFI has gone straight up for 5 months since I bought it, but my position isn’t too big (6.4%), the rise isn’t too fast or with lots of hype, their revenue and earnings are moving up, and the PE is still well under 20… so I’ve added multiple times along the way and added a little as recently as last week. In other words I don’t sell just because something is going up.

I tend to sell a piece if I feel the story has changed. I’ve had IPGP for a long time but the last few quarters they seem to be turning into a slow grower, so I’ve reduced to a half position. I sold out of AAPL as it seems to be becoming a value play instead of a growth play. I sold out of ISRG because of all the bad publicity with the head of the GYN Association saying it was overused and of no additional benefit. While they will continue to do well I figured that hospital boards would hesitate longer before buying a new machine, and with a high PE, a slow down would drop the price.

In general when I’m thinking of selling I seem to usually sell a little first while I’m evaluating, then decide for sure what to do. I might even decide to buy back the little piece I’ve sold if I reconsider. [Post 50]

  • Should one stay with high-flyers like NFLX through downturns? I’ve noticed quite a number of people on the boards bragging about how they stayed with NFLX through its downturn and now it’s higher than ever.

In July 2011, NFLX hit a high of $303. It then started crashing for good reasons (terrible decisions by management), which certainly gave you enough warning to get out. It got to $60 by November and after a brief rise over $100, to the low $50’s a year later. It’s now back to $335.

While, if you stayed with it all the way, you’d feel some relief, this amounts to a 10% increase over an incredible 2½ years, during which many of us saw our portfolios increase by 50% to 100% if invested in MF stocks.

If you invested in NFLX under $100 say, you made a great investment, but it seems to me that if you rode it all the way down, and back up again for an eventual 10% gain, there was a lot of opportunity loss in what you could have done with the money.

I didn’t think of this as trying to guess tops and bottoms, but selling because management had screwed up in a couple of major ways and changed the basic outlook of the stock. Then they got it fixed, but $300 to $55 is a loss of more than 80%. That required a 400% gain to get back to where they had been. NFLX pulled it off, but not many companies will! At $55 there was no guarantee at all that they would get it fixed and regain customer confidence. [Post 64]

  • Reading the MF SA Mastercard board I came on this wonderful quote by Craigrow in answer to a question about why the stock dropped 1.5%. I thought his response was wonderful and very useful for us all to keep in mind: “All stocks have some ‘noise’ in them. For MA, it’s probably 1%-2%. Any move that’s less than 2% for MA I ignore. It’s just people moving in and out for reasons likely unrelated to the business. For more lightly traded stocks, the number is higher, maybe 5%.” [Post 114]

  • I buy no bonds of any type. [Post 6]

  • I’m usually nearly 100% in stocks, and only rarely and briefly as much as 10% in cash. I have a couple of small accounts in which I can buy on margin, but my amount of margin in rarely as much as 4% or 5% of my total investment. [Post 6]

  • I don’t invest in futures. (I tried them when I was younger and saw a bunch of money disappear overnight. You are competing against experts). [Post 6]

  • I usually don’t buy a company all at once or sell all at once, but taper in and taper out, unless I have a good reason to get out in a hurry. [Post 18]

  • I was in lots of internet stocks in the internet bubble, especially YHOO, amazon, and AOL. They were priced ridiculously but reputable analysts from big brokerage houses were saying “Sure it’s at 200 times revenues, but comparables are selling for 400 times revenues, so it’s cheap”.

What got me out was one series of days when YHOO at the time went up $30 to $50 a day for three days in a row. I said to my wife, “This is insane. I’ve made enough. I’m getting out. They may keep going up but I’ll let someone else have it.” And I got out of all of them. And three or four weeks later they crashed, and lost 90 to 95% of their value. I didn’t get out of equities. I’m always nearly 100% in stocks. I just bought non-internet stocks and finished 2000 with 19.4%. Less flashy, but I was lucky to have gotten out. [Post 21]

  • As my biggest positions are usually 7-9%, no stock can influence my results that much. For instance, I had an incredible year this year with Arcam - going from $15 to $170 at most, but I never had a very big position because it was a foreign stock (Swedish) with small volume and hard to get in and out of. And when it went way up and my position size got big, I trimmed it back down (several times). I also had good runs though this year on AMBA, TSLA, PRLB, SSYS, CELG , BOFI, WAB, YHOO, PSIX, etc. so it’s hard to say that any one stock makes the difference. [Post 22]

  • Trading in and out is self destructive. You remember the trades where you made a few dollars and it encourages you, but you forget the losses. Never take a position to make a few percent. You should be investing in stocks that you can see at least tripling, if not going up ten times. [Post 5]

  • I always buy with the idea of holding indefinitely, never with the idea of a short holding period, but in practice I guess my average holding period is six months to two years. I sell when I’ve fallen out of love with the company or I think the story has changed, or I think that the price has gotten way out of line. [Post 18]

  • There really are some times when it makes sense to sell a stock, even if it is still on the MF recommendation list. I mentioned that I may sell if the basic story changes. I sold out of ISRG because of all the bad publicity with the head of the GYN Association saying it was overused and of no additional benefit. While they will continue to do well I figured that hospital boards would hesitate longer before buying a new machine, and with a high PE, a slow down will drop the price. Well, they pre-announced a slowdown in revenue and they are down NINETY DOLLARS today, as I write. Many RB’ers are still in it, and suffered that loss today, and the entire loss from $580 to $410 as of today, but it seems to me that the handwriting was on the wall. [Post 51]

  • When everyone was anxious about the Fed starting to taper, and the talking heads were all predicting a vast sell-off when it happened, I wrote that I think that tapering of the QE has been anticipated for so long that it won’t surprise anyone. The market is so expected to go down that it may even go up. It also won’t be tapered until the Fed is sure that the economy is doing well enough. That’s actually what happened when the Fed tapered in early December, the market went up and kept going up. The lesson is don’t get rattled by the disaster coming headlines that sell papers and columns online. Use your head. [Post 52]

  • For perspective:

the average size of my top four positions is 7.5% of of my portfolio.
the average size of my next four positions is 6.0% of of my portfolio.
the average size of my four large positions is 4.0% of of my portfolio.
the average size of my eight “average” positions is 2.75% of of my portfolio.
the average size of my three small positions is 1.8% of of my portfolio.
the average size of my two very small positions is 0.6% of of my portfolio.

Since there are 25 positions total, 4% should actually be average, and the ones I called average should be “below average”. [Post 383]

  • I’ve argued several times against waiting for a price slump before getting in to a company. If you like it and are convinced, at least take a starter position now. I’ll never hold off buying, trying to get a stock 15 cents or 25 cents cheaper. When it’s at $35 a share, you won’t remember or care whether you paid $10.15 or $10.40 for it. [Post 78]

  • Much as I like the MF recommendations, I am struck by a lack of an exit strategy. No one at MF seems to realize that there is nothing wrong with saying “Sorry, we made a mistake with this one. Let’s sell it and move on.” I’m not just talking about the stock, but also the company behind it.

WPRT, of course, is the poster child for this. Even when it has seemed clear for a long time that the company was broken, no one said “It was a great idea but it’s not working. Let’s redeploy the cash.” That doesn’t mean that there’s no chance that WPRT will dig itself out of the hole and be successful sometime in the future, but that there’s an opportunity cost to leaving your money in a stock which keeps going down, as well as whatever paper loss you have.

What brought me to write about this was accidentally looking into a stock called Momenta (MNTA), and discovering that it was a MF RB pick. That is, it was a MF RB pick in 2006!!! It was added at $15.78 and as I write it’s at $11.53. That’s eight years!!! And a loss of over four dollars(!!!) in all that time when the market was mostly going up. And no one said “Hey there are better places for your money” during this huge bull market we’ve had for the last five years.

Again, I’m not saying it won’t do well in the future. I’m talking about eight years!!!. Are people just unwilling to ever say a MF recommendation is a mistake?? It makes no sense. [Post 907]

  • Just saying that “it would be better if I held” because at some time in the future the price was up is not valid (it’s silly, even). Just think of a stock that you sold at $200. It dropped to $50. It gradually came back and now, 5 years later, it’s at $220. Would you say it would have been better to have held because it’s now up 10% in 5 years!!! That really is silly. You could have thrown the money at a dartboard of MF recommendations and beat that result by 500%. And could have done even better than that by intelligent picking. [Post 964]

  • I’ve run out of easy things to sell to raise funds for attractive opportunities. What I’ve tried to do is

(1) sell a little of stable, slower moving companies (like Westinghouse Air Brake [WAB] railroad supplies, or MasTec [MTZ} construction) which I have confidence in but which haven’t fallen hardly at all and which aren’t going to run away from me when the growth stocks start back up.

(2) sell high flying stocks with earnings growth that doesn’t warrant their high PE, and which therefore seem vulnerable. That’s why I sold out of all the 3D printing stocks before the crash, and why I was lucky enough to sell a third of my NGVC, for instance, but especially the ones losing gobs of money like XONE and WPRT which you mentioned.

(3) sell my little experimental positions in stocks which may turn out well in the future, but where I have surer places to put my money. (INBK for example).

(4) sell stocks which may not be losing money, but where earnings are disappointing and falling (even if they may have good excuses) ELLI and INVN are examples. [Post 1392]

  • It simply doesn’t matter what happens to a stock after you sell it. The only thing that matters is what the stocks you are holding do. You are trying to establish a stable of stocks that you want to hold long term. If you have a portfolio of 30 stocks and sell 10 of them over time because you have legitimate questions about them, and you were “wrong” about half of those sales (they eventually do all right and move up), so what, as long as you replace them with good stocks and end up with 30 you are happy with.

The MF has a lot of propaganda about never selling. However, if you make a well thought-out decision to sell ten stocks for what you perceive to be good reasons, and then make an equally well thought-out decision to buy 10 replacement stocks for what you also perceive to be good reasons, it’s simply not plausible, and even silly, to assert that you will not end up better off. (To assert that implies that you are a real idiot, and it would really require the worst of luck and judgement not to be better off). [Post 1438]

  • Dividends aren’t a big part of my investing. I have, on occasion, set dividends for some companies on automatic reinvesting (so Schwab will automatically put them into fractional shares of stock at no cost). When I just checked my Schwab account I don’t see that I currently have any stocks on that plan. In general, I treat the dividends as just fungible dollars. They just get mixed in with whatever cash I have in the account. If I’m wiring some money to my checking account to live on I don’t, in any way, separate out the dollars that came from dividends.

I hope that helps. It’s just the way I do it and it seems the simplest to me. [Post 2110]

  • I got killed in 2008 like everyone else. Probably worse than someone who was in defensive stocks. It was my first negative year after 19 positive years in a row. I stayed 100% in stocks, selling anything which hadn’t gone down to buy more of the ones down the most.

Finally, I was down so much that I got scared and started to think of selling out and going into cash. All the talking heads were saying, “Sell! Sell! Sell! Get out! Get 100% in cash!”

I said to my wife, “If everyone is shouting ‘Sell!’ and even I am scared enough to be thinking about selling, there’s no one else left to sell! This must be the bottom.” And it was (Nov 2008).

And I was up 110.7% in 2009. It didn’t entirely make up for my loss in 2008, but I sure felt better. [Post 1129]

  • I always buy with the idea of holding for years but I often have to sell out sooner as conditions change. [Post 5]

  • Since I’m almost always nearly 100% invested unless I’ve recently sold out of a big position, I often don’t have the money to take a full position all at once. If it’s something I absolutely fall in love with, I’ll jump into it right away with whatever money I have available, and will likely trim some other large positions to fill out a full position. If I’m not sure, I’ll take a small position and start graphing it and getting news feeds to put it on my radar. I then may start adding more as money becomes available, often building to a “full” position, which is an average position, not a “large” position like the ones I listed a few posts back (which stocks have to grow into). I may do this fairly rapidly, or if I’m building two or three new positions I may have to split available funds between them. Or as I get more familiar with the stock that I’ve taken a starter position in, I may say to myself, “This is stupid, it’s not my kind of stock”, and sell out of my starter position. That does happen. [Post 21]

  • I usually keep a certain amount of cash in my brokerage account (usually 1% to maybe 5% of my total (it’s 1% now). I count this as part of my total portfolio. I also have enough for several months worth of living expenses that I have withdrawn from my brokerage account and is now in my checking account. I don’t count this as part of my portfolio.

If I need more money for living expenses and need to sell something it’s always a complicated decision. Sometimes I’ll trim a stock which I think has gotten way ahead of itself. Other times it’s a stock I’ve becomes disillusioned with and am tapering out of. It all depends.

When I am pulling out of a position, I’ll sometimes take a small part of that cash and instead of reinvesting it in another stock, I’ll take advantage of having the cash at hand, and transfer it to my checking account for future expenses, whether I need it now or not. [Post 41]

  • When things go bad with growth stocks they can lose 70% of their value, but if things go well they can go up 300% or more. If you have only one stock, that is very dangerous. If you have 25 stocks and three or four crash and eight or nine take off and fly, you don’t worry so much about the three or four. [Post 435]

  • I think a stock growing earnings consistently at 9-10% per year, and selling at 60 times earnings, is inherently risky. It’s maybe six times higher than it should be, which gives a lot of room to fall.

When I look at my stocks, starting from the biggest, there’s:

UBNT, trailing earnings up 100% from a year ago with a PE of 19.
BOFI growing trailing earnings at 28% and at a PE of 23.
CELG, growing trailing earnings at 20%, PE at 22 to 23.
SYNA, trailing earnings up 88%, PE of 14
AMBA, trailing earnings up 32.5%, PE of 20

You get the picture. That’s where almost 50% of my portfolio is. [Post 1416]

  • My goal, and my entire focus, is on making 30% to 35% per year on my entire portfolio. I don’t care a hoot about counting multiple baggers on individual stocks. The only thing that really matters for me is how my portfolio as a whole does. [Post 4]

  • (New!) Thoughts on random stock price moves.

We all tend to get worried or elated over moves of our stocks with no news attached. For example SZYM was up over 3% on Friday and finished on the high close of the week. However, if the week had ended on Thursday, we’d be saying it fell over 2% on Thursday to the low close of the week.

And PFIE closed at $4.74. How in God’s name did it ever get as low as a $3.23 just 4 weeks ago? That’s up almost 50% in 4 weeks, but it should never have gotten that low.

And for a trivial example, SKX dropped from $58.70 to $58.30 on Friday. Did anything happen that caused it to be worth 40 cents less on Friday? Of course not. It’s a heck of a lot more important that it’s up from $52.30 four weeks ago on really good news.

And why was SYNA up over $2 and more than 2% on Friday? Maybe a recommendation from someone? Or a mutual fund bought some shares.

The message in all this is to keep your eye on the company, and how it’s doing, and not on the stock price. My thought of the day. [Post 3313]

Benchmarks and Fina

9 Likes

Thanks again Neil, for gathering everything together in the FAQ/Knowledgebase. I’m impressed by how sensible the whole thing seems when you gather it all together in one place like that. ?? I really appreciate all your hard work.

Saul

2 Likes

(I tried to put in a smiley face, but got a double question mark instead).

Neil,

I will echo Saul’s thanks for the wonderful and very useful update to the FAQ/Knowledgebase. Thank you again for the hard work.

Cheers,
Chris

2 Likes

Thanks everyone, I’m happy to help.

Neil

1 Like

Each September, Fortune magazine publishes the list of “100 fastest growing” companies in the world.

This seems to match with your preference of high grow companies.
Would this list be a good source for your investment choices ?

Bridgewater

Here is this year’s list.

http://fortune.com/100-fastest-growing-companies/hci-group-2…

1 Like