Just a little catch up!

I also have not chimed in on this previously (even though I wanted to), but I will add a few brief thoughts on this topic since others are.

I went mostly to cash on 11/23/21 - documented here: https://discussion.fool.com/4056/portfolio-changes-34986313.aspx…. I announced it there because I had been very vocal about TMDX, so I thought people on the TMDX board deserved to know I had sold some - plus I sold most of my other growth stocks that day.
(FYI - I still lost a significant amount from my ATH).

I would encourage people to find sources with differing views - this board (Saul’s) is skewed heavily to the bullish growth side. I seek out people who are bearish (or maybe skeptical/cautious) and try to balance my information intake.

I can recommend Jesse Felder as one source. He has a paid service I have been subscribing to for several years. Very conservative - has been leaning bearish for a long time.

The other person is Chris Perruna on twitter. @cperruna. He has been documenting his investing journey through a blog and through twitter for about 20 years. Go back to the spring of 2021 and follow all his tweets and see the process he followed that led him to go into mostly cash over time. He is mostly a growth stock fintwit personality, but he recognized early the warning signs that were starting to appear and documented it all on tweets.

I’m not trying to tell anyone what to do - just mentioning some ideas that helped me. Everyone please do your own research and make your own decisions.

Peace

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That 237% number you present sounds very daunting. It’s a headline grabber for certain.

To put it bluntly, that’s not a headline number, because it’s wrong. Firstly, that number seems to have been calculated without considering anybody’s real portfolio as a whole, and assuming that every stock had equal weight. It’s based on an average of all the “worst drawdowns” of all the individual stocks, but the problem is that each drawdown occurred at different dates, so it has nothing to do with anybody’s real-world portfolio. Not to mention that a stock like AMPL was sold a long time ago, and was never given the same weight as DDOG.

Secondly, pining away for some arbitrary high that happened in your portfolio on some random day last year is not what disciplined investors do. Long term, disciplined investors don’t have anchoring bias like that. They measure their progress over the last 3 to 5 calendar years and look forward another 3 to 5 calendar years.

But if you must anchor to a previous high, why not use Saul’s actual results? Let’s take an investor who started with $100K at the end of 2016, followed all Saul’s buys and sells, and see when the all time high was, and where that investor is now.

Portfolio Starting with $100K Matching Saul’s Performance since 12/31/2016


**Month-Year        Value**
Dec. 2016        $100,000
Dec. 2017        $184,200
Dec. 2018        $315,700
Dec. 2019        $405,380
Dec. 2020      $1,351,000
Oct. 2021      $2,470,000 <-- All time high
Dec. 2021      $1,886,000
Aug. 2022 YTD    $971,280

So a portfolio started with a modest $100K at the end 2016 that matched the returns Saul has documented and achieved here, would have been worth almost $2.5 million at the all time high on Oct. 2021, and still be worth $971K today after the 49.5% drawdown Saul said he was at YTD last Friday. It’s still almost 10x the starting value!

So, for this portfolio to get back to its all time high, it needs a return of 154% from here (half way between a double and a triple), and certainly not 237% (which is more than a triple).

Now, suppose you decide that your early retirement number is $2 million. Your plan is that if you hit that number, you’ll put 60% in an index fund, and 40% in a bond fund, and safely withdraw 4% thereafter for your living expenses. Our investor above would have achieved the goal last year, and could have gone to the 60/40 allocation to avoid the steeper drawdown.

But suppose that you started with only $50K in 2016. At the all time high last year, your portfolio, following Saul, would have been worth $1.2 million. You would not yet have been at your $2M goal, so you could not have gone to a safer 60/40 allocation at that point. Why pine away for that $1.2M arbitrary high when you know it wasn’t your retirement number? You have many years ahead for your portfolio to get to that number. Looking back on a decade chart or 20-year chart, all these massive drawdowns look like tiny bumps compared to the massive upward slope to the right. Zoom out.

You need to tolerate the volatility until you get to your retirement number. That’s your edge.

Incidentally, the greatest investors of all time have experienced 50%+ annual drawdowns multiple times. Warren Buffett’s Berkshire Hathaway was down 50% during 1998-2000 and again down 50% during 2007-2009. Charlie Munger once experienced a 53% decline running his own fund. Neither Munger not Buffett are growth investors, yet they both had years where their portfolios were cut in half.

Quote from Buffett on the folly of market timing:
“We haven’t the faintest idea what the stock market is gonna do when it opens on Monday — we never have. I don’t think we’ve ever made a decision where either one of us has either said or been thinking: 'We should buy or sell based on what the market is going to do,” Buffett added, referring to his longtime business partner Charlie Munger. “Or, for that matter, what the economy is going to do.”

Quote from Munger on tolerating volatility:
"If you can’t stomach 50% declines in your investment you will get the mediocre returns you deserve”.

We may not know what these growth stocks will return the rest of this year. But what I do know is that the move toward the cloud, and the demand for analytics and machine learning systems that the companies in Saul’s portfolio are satisfying, are still in the very early innings. These companies have years of compounded sales growth ahead. Only a fraction of the total addressable market has been captured so far by the likes of MongoDB, DataDog, Cloudflare, Crowdstrike and Snowflake.

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To my amazement there are 22 posts on this OFF-TOPIC thread already, which I had started with a little mid-month update. IT’S MY OWN FAULT, certainly, as I started it, but I started it as just a bit of encouragement to the board in seeing how much our companies are up from their bottoms.

And I could also point out that as of Friday’s close my portfolio (while still down 49.5% for the year), has grown to be TWELVE TIMES as valuable as it was at the beginning of 2017, up 1100% in five and a half years, while the S&P is up roughly 100%. It just blows me away that anyone would still think that they could do better than what we’ve been doing with a more “conservative” approach.

Let’s END THIS THREAD HERE. Feel free to contact me off board if you must.

Thanks for your cooperation.

Saul

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