Help for a Newbie please

I was married to an airline pilot for many years. I know you guys like to go fast.

Peace,
Dana

Marine mentality - show me a wall, we will run in to it, head on! As you might know Marine’s aren’t happy unless they are miserable. ;-} (ie. snow, rain, cold, hot, hungry)

GaFez

I have been a MF investor for more than a decade. I have built a nice portfolio - BUT I now have over 120 stocks, because I have I think every newsletter published. So, how does one unwind a portfolio of that size, and go from 120 stocks to 10-12


First - don’t follow my advice. I could be the world’s biggest moron with access to the internet.

Second - figure out the tax implications, if any.

Third - my advice (see first point) is to “stat rank” all those stocks in order of your highest confidence. I would also include stocks you aren’t invested in today but want to be invested in.

Then I would start selling out of the lowest conviction stocks first, adding to the highest conviction stocks. Don’t have to do it all at once (bandaid style) if you don’t want to. Your call.

To me, this is easiest way to rebalance your funds into the stocks you feel most confident about moving forward. Currently your port must feel like an index, and moves are probably more subtle.

So prepare yourself for more turbulence if you go this route. As a pilot, I am sure you can handle it. :slight_smile:

Dreamer

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My advice:

Look up the studies on the optimal number of stocks to hold for maximal diversification and performance. Believe it or not, there is actual hard data on this so it is much less subjective than you might think.

120 stocks did not diversify your risk by as much as you might have thought beyond 10. There is absolutely now way you could have kept abreast on any aspect of 120 stocks.

Second, do not listen to any advice from these boards including mine.

Last, no not read the NPI.

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DumaFlotchie says:
Look up the studies on the optimal number of stocks to hold for maximal diversification and performance. Believe it or not, there is actual hard data on this so it is much less subjective than you might think.

120 stocks did not diversify your risk by as much as you might have thought beyond 10.

There is a caveat to this diversification rule of thumb. The diversification studies were based on the premise that the companies owned were in different industries. Today, most of Saul’s picks aren’t. So one can’t accurately say “I have 10 Saul stocks and therefore, according to the studies, I am diversified.”

My understanding of Saul’s answer to this issue of lack of industry diversification seems to be, “if I’m up 100% while the market’s up 5%, it doesn’t matter if I lose 25% when the market goes down 15% because I’m still way ahead.”

(FWIW, I think there’s something to be said for this approach if you can handle the volatility. At this point, it seems extremely likely that Saul’s returns since his “day 1” will never trail the long term market averages.)

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And if you divide that 2% of your cash between your 10 highest conviction stocks, you’d only be adding 0.2% of your assets to each at a time, also less scary. And your 10 highest conviction stocks may also change over time, which is normal.

And if that seems to be too many trades and trading fees, each week add to one of your top 10, until you have gotten all of them.

Leana

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Don’t do what I did. Discovered Saul’s board and had lots of different stocks. Consolidated everything over the first three months this year. I should have sold the trimmings and sat on the cash and taken my time to buy into Saul board stuff. Why? Because I bought all the consolidations right when the market was highest, just before the March dip. Oh well, they are still good choices and I’m back up to 28% June to June. That also includes 20% of my positions in 2020 target fund that is ultra conservative (retirement fears yada yada). March to March (early March 2018) I was up 33% including 2020 target fund just with using Motley Fool suggestions. So, to summarize, get your cash and sit patiently. These guys believe in the buy-and-hold but they all seem to have the ability to pounce on a dip or sell on a surge. I understand my current little girlie profits because I bought on a surge LOL.

GaFez,

I love your exhuberance for investing and certainly this board and the brilliant folks who contribute here have incredible knowledge and ideas. And obviously the returns are wildly attractive. But first I would strongly encourage you to consider your own investment personality characteristics and tolerance for churn before you jump in with both feet.

Just so you know I am a very different investor probably from many who follow this board but have followed Saul from long before the existance of this board and have huge respect and admiration for him. Like many he saved my investment rear with some of his bear posts on companies like WPRT. Saul provided a well thought out alternative to the TMF never sell mantra and changed my total thinking on investing.

On the other hand I do have a portfolio of more than 100 companies (gasp!) and I’m ok with that. I have a very busy practice, two adult daughters we love spending time with, a partner who has been going through some scarey and energy draining cancer related medical issue for a number of years, a budding knife making hobby, love playing tennis, and am a rabid soccer fan. This is a long way of saying there are many parts of my life that I choose to make a priority over managing my portfolios and I suggest you look at your own life circumstances and how they fit in with your investment style.

A number of my holdings are companies like NFLX, AMZN, AAPL where I am up substantially. For example my cost basis in NFLX is $2.81 per share, current price $360.69/ share. Frankly I don’t pay a lot of attention to those companies as every time I have sold off some shares, I have regretted it.

I do have a a portion of my portfolio in Saul type stocks that I have to monitor much more closely and those have obviously done very well. But my holdings are arranged in a way where I can sleep well at night. I have been investing since the early 70s and lived thorough multiple down turns. I know this style works best for me. I can watch parts of my portfolio drop by 40 to 50% and not panic.

At some point there will be a recession. I haven’t stopped investing and don’t plan to then. But before you completely rebuild your portfolio, think about your own situation. No one, in particular me, but even Saul, can tell what is best for you. So first figure out and get comfortable with your own investment process and issues and then by all means sell and buy away!

Just my 2 cents.

David

43 Likes

And if that seems to be too many trades and trading fees, each week add to one of your top 10, until you have gotten all of them.

Leana

Thanks Leanna - I am fortunate to get free trades in my account, so that won’t impact the decisions at this time.

Thanks for the heads up!

GaFez

Don’t do what I did. Discovered Saul’s board and had lots of different stocks. Consolidated everything over the first three months this year. I should have sold the trimmings and sat on the cash and taken my time to buy into Saul board stuff. Why? Because I bought all the consolidations right when the market was highest, just before the March dip. Oh well, they are still good choices and I’m back up to 28% June to June. That also includes 20% of my positions in 2020 target fund that is ultra conservative (retirement fears yada yada). March to March (early March 2018) I was up 33% including 2020 target fund just with using Motley Fool suggestions. So, to summarize, get your cash and sit patiently. These guys believe in the buy-and-hold but they all seem to have the ability to pounce on a dip or sell on a surge. I understand my current little girlie profits because I bought on a surge LOL.

Thanks Moneyslob, because that is exactly what would happen to me too! I am learning more on the month I have been on this site than I have in all my years of investing - and I have done pretty well though. Sure I have left lots of higher returns on the table because of impulse buying and selling and simply buying when the New Recs come out from all the letters I buy from TMF (also Options too!).

Nothing ever on margin though!!

Thanks to all who have kindly welcomed and advised this late to the party Newbie.

GaFez

<< Never heard of anyone have 120 stocks? >>

I have 134, many with multiple posiAtions (shares, puts, calls long and sort.)

And I’ve been trimming in anticipation of the 2020 recession.

David - Many thanks!!

I love your exuberance for investing and certainly this board and the brilliant folks who contribute here have incredible knowledge and ideas. And obviously the returns are wildly attractive. But first I would strongly encourage you to consider your own investment personality characteristics and tolerance for churn before you jump in with both feet.

I do hope these posts also help some others on the sideline as they are helping me! I hate to clutter the post board for my sole education. Hopefully others have similar questions and concerns.

You are on target! I plan to start in one portfolio (tax deferred) by trading mostly from those stocks, selling and then buying, and learning the ropes along the way. As I have hit “top of descent” toward retirement (airline lingo :wink: ) in two years, this will be a perfect way for me to be prepared for when the paychecks stop coming in!!

I can’t thank all of you enough for the sage advice.

GaFez

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Yeah, I too am at Top of Descent towards retirement(2 years) and cannot help but ponder what path I should be taking even though I am enamored with the Saul method (sell red, buy good companies with good people, and don’t keep much cash) but . . . when it does go bad, not just a dip, it is going to take 5-10 years to get back on track. I am set in a minimal way because I have plenty of SSI and retirement paycheck. The stock stuff is just the icing on the cake. But I might want to have the most money early in retirement while I can still stand up on a surfboard or ride a mountain bike downhill or dance the Tico Swing.

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GaFez,

You’re getting a lot of great advice, so not sure I have much to add. But I would encourage you to read this thread from a little over a year ago that TMFDatabaseBob started: http://discussion.fool.com/an-ode-to-diversification-32612641.as…. DatabaseBob diversifies with a high number of stocks and believes there are advantages to it. The entire thread of back-and-forth arguments is great and might help you think through it. For myself, I find staying between 20-25 stocks is a sweet spot. Not all my holdings require as close attention (e.g. GOOGL, MA) as others (e.g. NTNX, SQ), and I like that.

Good luck!

Matt
Long GOOGL, MA, NTNX, SQ
MasterCard (MA), PayPal (PYPL), Skechers (SKX) and Square (SQ) Ticker Guide
See all my holdings at http://my.fool.com/profile/TMFCochrane/info.aspx

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GaFez,

It looks like we’ve (mostly) all been there. I had something like 120-140 stocks by buying most of the MF recommendations. I was losing money at worst and trailing the S&P by a long shot at best.

I sorted my positions by performance vs S&P, started at the bottom (worst), charted last 6 months or YTD (was there a recent uptick and did it look promising to continue- usually no), did a little Yahoo Finance research (looking for increasing revenues and profits), checked guidance, and then started selling out of positions. Very few (maybe none)at the bottom of that sort were worth keeping.

After selling a few positions, I checked my top performers the same way, looked hard at what the group was investing in, and decided where to place my recovered money.

It took me a year and a half to get down to where I am now: 15-20 stocks (I wish I had moved more aggressively). Ended up with about a +60% overlap with the group at large. I keep a few others that are not as high flying, but perform better than S&P and have promise to do much better.

You’ve received a lot of good advice. You really can’t go wrong, IMHO, by transitioning from what you and I had to the approach recommended by this group.

Good luck,
-Bob

1 Like

GaFez,

This retired ETC from the USNR salutes you, sir.

Personally, I have close to 80 positions. My XIRR since 2005 is closing in on 17%. I have small positions in the Discovery 2017 stocks, the Partnership Portfolio and several of the Rising Stars. I also have some of Saul’s companies, as well as ones like Amazon, Alphabet, Markel, Facebook, etc.

I’m happy with how many positions I have. I’m treating PP and D17 as baskets, so if each of those two only counted as 2 positions, I’d then have half as many.

Think about treating your PP, D17 and RS as baskets.

I’ve also become a landlord in the past 18 months and I’ve built up to having 5 rental units. Since I recently retired from a 2nd career, I’m treating my REI as a PT job. Yet, I dare say, at this early stage of REI, I may do better in RE than in stocks.

I plan to keep investing in both stocks and RE. Check with me in a decade and I’ll let you know which investment did better for me.

Fool on,

mazske

All holdings are listed in my profile

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Mazke -

Snappy Salute Returned Sir!!

Personally, I have close to 80 positions. My XIRR since 2005 is closing in on 17%. I have small positions in the Discovery 2017 stocks, the Partnership Portfolio and several of the Rising Stars. I also have some of Saul’s companies, as well as ones like Amazon, Alphabet, Markel, Facebook, etc.

I’m happy with how many positions I have. I’m treating PP and D17 as baskets, so if each of those two only counted as 2 positions, I’d then have half as many.

Think about treating your PP, D17 and RS as baskets.

That for the information. That is good advice. I will unwind some old stuff, research the new stuff and will clearly have to dust off my Excel skills to create a robust spreadsheet to do the analysis! Yikes.

Best regards,
GaFez

Everyone starts off doing things differently and at some point it gets too cumbersome and you have to simplify. I started off with not too much money and knowing less than nothing, with a need to learn fast because I had no other means of income. 15 years ago I started with Value Line and their 100 best stocks. I started small I put $1000 into each new selection each week. They usually had about 4 to 6 changes a week. it didn’t take me long to figure our out that
While the stocks were doing well (not super well-but mostly positive) it was a lot of work and the commissions were eating me up alive. I had about 65 stocks. I called a halt and started to prune the portfolio. I decided to pull the weeds (sell the losers) and water the flowers (add to the winners.)

By doing this–I cut down on the trading and therefor cut down on transaction costs and I found that the portfolio was growing and I was able to pay my bills and make a living from the market. My portfolio currently has 9 securities in it and I don’t do much at all, other than collect dividends, spend the dividends that I need and reinvest the excess income in additional shares of the securities I own.

b&w

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For example, if you are interested in a company, maybe you want 8 % of your portfolio in it. But if your conviction is not high enough, maybe start with a 1 or 2 % start postion (or whatever percentage) and then ajust later when your conviction changes.

I always start off with a small position. I never know how great (or not so great) it will become. After the initial position is bought, it has to earn every additional dollar I allocate to it by performance. And if it doesn’t perform It gets cut. I usually have 7 to 10 positions. Currently it is 9.

b&w

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I decided to pull the weeds (sell the losers) and water the flowers (add to the winners.)

Buyandwin - Once again sound, sage advice. I have lots to think about and one clear message is don’t do anything fast. Thank you for taking the time to “help a newbie”.

Best regards,

GaFez

buyandwin, I recall that you have a somewhat unique approach within Fooldom, with a strong bias towards dividend-paying stocks. Could you post your present holdings and their approximate yields.

volfan84