So let me start by saying that JSeargent recommended this board a few months back from the Options board where I have spent an inordinate percent of my time visiting. Since then I have been lurking here regularly and it is probably second only to the options board as a favorite place to visit.
I love the interchange and discussions on different stocks and actually now own a few of Saul’s presently owned stocks. (I didn’t want to call them recommendations since he is just very kindly sharing his portfolio and not necessarily telling people to follow along). In fact I just sold a 2017 Leap put on SKX. But I didn’t write this post to discuss that sell. What I wanted to discuss today is my thoughts on investing philosophies in general and perhaps Saul’s in particular. Hopefully I won’t offend anyone, especially Saul because I have the utmost respect for him and his sharing. In fact these musings have gotten me thinking quite a bit about my own, somewhat haphazard investing philosophy. But that might have to wait for another post, except maybe a slight mention for comparison along the way.
Today I want to talk about investing styles and what I have come to realize about them in general while following this board. So a little background is in order… I have been fairly actively investing for 30 years, ever since I graduated college and took a job at a major industrial company. They had a nice matching savings plan and deciding how to split up my monthly investments between stocks, bonds, international stocks and bonds, money market, my company’s stock, etc, had me fascinated from the start that these simple decisions could have a profound effect on my future including retirement. Since then, I started my own IRAs and got into mutual funds to start, began dabbling in stocks, hit my first double somewhere along the way and was hooked. In the beginning, it was hit or miss, some big successes, some failures, and I learned a lot along the way. The biggest thing I learned was that you need to have a consistent path or philosophy. It doesn’t matter as much what the path is, there are many good ones but you must stay consistent or you will get caught in every passing fancy. This always starts well and then the markets turn and you get burnt. When you change with the wind, it’s easy to get caught in the crowd mentality and usually at the worst possible times. I could go on this topic for quite a while but I digress.
My point is, you need to have a sound philosophy, and you need to stick to it. So I am always trying to condense people’s strategies and learn from them. With that mindset, I came to this board and started reading Saul’s posts and became fascinated to see what he does and why it appears to work so well.
But before I do, let me give some examples of my favorites from the past and my synopsis of each.
Peter Lynch. Probably my first following. His philosophy was to look for simple companies that would grow for years and buy small positions in each. He never sold and by holding on, the ones that did well became big positions over time. He loved chains that were spreading across the country and made a lot of money buying companies like this. LEggs is probably his most well known example but the one that hit me the most was his discussion of Taco Bell. He bought then when they were very small and grew for a number of years. At one point, they were bought out by Pepsi at a big premium, and what struck me was that he was upset by the buyout. At the time I couldn’t understand why a big jump in stock price of a company he owned would upset him, but his explanation that he knew they were going to keep growing for another decade or two and Pepsi stole those gains from him was eye opening for me.
Warren Buffet. I won’t say much here, but he loves cash machines, toll road stocks and thinks very long term and very low risk.
David Gardner, he buys very high growth,high risk stocks. Looks for game changers. Buys and never sells. Similar to Peter Lynch, he lets the big positions develop by growth and is looking for a few stocks to carry the entire portfolio.
TMF1000, Tom is a little like Peter Lynch. He looks for a simple business model that can grow for decades. Wants to hold forever but with a twist. He likes to get to know a stock and then use the ups and downs to buy and sell the volatility for added profits and as a source for future investments. He owns a lot of stocks but relatively few account for the majority of his holdings.
I could go on with a number of other people on these boards who seem to do well and each has his own path. But now in come to Saul.
Saul threw me for a loop for a while. He seemed to buy and sell quickly, only keep a few stocks and pick some really off the beaten path selections, as well as better known without a seeming pattern. I certainly don’t know the percentages but the turnover is high, at least for an old buy and holder. But overall, if you believe his numbers and even by the preannounced holdings, seems to do very well.
So that being said, my take is the following. He looks for long term holdings, looks for fast growing stocks with reasonable PE’s and reasons for them to keep growing. But, in my opinion, the key to his secret sauce is that he has a trader’s M.O. For his portfolio. He keeps a very few stocks and stays 100% invested at all times but has no qualms with dumping a holding at the first sign of trouble. I would go so far as to say almost a gut feel to maintaining a position. When done right this allows him to avoid some of the bigger fall offs that are typical of the types of stocks he follows.
I have followed a similar stock picking philosophy in the past. Finding high growth, low PE stocks is not impossible, they just usually have baggage of some type, and when they fall, they can fall far in a short period of time. This high volatility or risk is the reason you get the great PEG ratios that almost all of his stocks have. Somehow, though Saul seems to be able to sniff out the bad news quickly and have the traders mentality of getting out and not looking back. It is impressive…and educational.
I am still learning here but thought I would share my thoughts with you, Saul, and e board as a whole. Sorry for talking to you in the third person. I didn’t know if I should be writing this to the board or to you.
In any case, this message is meant to be a compliment that I am trying to learn from and has been an evolving thought for a while that I thought I would share. Sorry for the long post, and if I get some interest I can discuss further with specific examples.