My portfolio at the end of April
Here’s the summary of my positions at the end of Apr. It’s a couple of days late because we had so many earnings last week that I’ve been working on.
Please note that the PE’s that I’ve given are based on adjusted earnings, usually as the company has given them, but occasionally with small modifications as I’ve calculated them.
I don’t have to tell you that we went through a major correction and are now coming out on the other side. I read that early January was the worst start of a year on record. Early February got even worse and Feb 11th was my personal bottom when I hit 80.5% of what I started the year with. I indicated last month that I finished March at 97.6%, while the S&P was at 101.4% and the Russell was at 98.4%. I’m now at 98.2% (I was over 100% earlier last week, before the INFN debacle), while the S&P is at 101.0% and the Russell was at 99.6%.
Please also note that I don’t ordinarily measure against the S&P, or any other index, but since I started this board I post my results against it since the MF uses it as their yardstick. Six months ago I started including the Russell 2000, which is the most popular small cap index, as I thought it was unfair of me to compare my gains in 2015 against a large cap index that on average wouldn’t do as well as my small caps.
There’s a reason that I don’t measure against indexes. My goal is to make money each year that my family and I will live off. That’s what counts for me. If the S&P is down 10% it would be small comfort for me to be down 5%. I need to make money!
Also, measuring against the S&P is setting the bar very low, as it’s a mix of 500 large cap stocks, made up of good stocks, mediocre (average) stocks, and poor stocks. Averaging good, poor and mediocre stocks, you’d expect a mediocre result as compared to selecting 10 or 20 good stocks. I mean, you REALLY should be able to select a small basket of stocks that will do better than this mixture of five hundred mixed stocks.
I have to start off by remarking how humbling investing is. While I do well overall, I am constantly made aware at how flawed my individual decisions are, how often I’ll buy a stock and have it go right down, and how often the reverse happens: I’ll sell something and it goes straight up from there. One has to be satisfied with the preponderance of small correct decisions working out for the best, which they have by a large margin so far (fortunately for me).
For quite some time the graph of my position sizes looked like a couple of giants (my biggest two positions averaging about 20% of my portfolio each), two tall positions (my third and fourth positions, at about 12% each), and then about ten pygmies, since the top four had taken up about 60% to 65% of my portfolio.
By the end of February I reduced the top two to 35% and I felt it was more balanced and less risky with no stocks over 20% or 21%. Having 22% of my portfolio in a single stock was really too much. In March, I continued to bring down the top two towards a maximum of about 15% of the portfolio in any one position, which is what I recommend in the Knowledgebase. Now, at the end of April, my top three positions average just under 15%. The largest is 15.65, which is much more reasonable and more in line with where I like to be. My bar graph of position sizes now has a more balanced look. I have a total of 17 positions, which is more than I like, but four of them are tiny “put-on the-radar” types, so only 13 can really be called “positions”.
LGIH, SKX, and SWKS are still my three largest positions, at about 15% of my portfolio each. I continue to add a little to LGIH from time to time, in spite of its large psotion size, but the real reason it’s moved into first place is that the price has moved from $24 to $28 (up 17%) during the month. I had trimmed some Skechers a couple of months ago at about $34 because the position was getting too big, but I started adding this month at $26.50, and added more after earnings. (I still think it’s a bargain at a price of $33, and a PE of 18). I’ve already said that I had trimmed my Skyworks down to about 14%, selling at an average price of about $75.50, but then, when it tanked Friday after earnings I increased my number of shares by about 16% (a lot), at a rough average price of $67.50. I feel very good about all three of these positions.
SBNY and AMZN have moved up two places each to be my 4th and 5th largest positions, at about 9% each. I added to both of them continuously during the month in small amounts. Signature Bank’s price has just moved up a little, but Amazon’s has gone from $599 to $660 in the month, especially after earnings. (see my earnings review from a few days ago). These top five are high conviction stocks (as you’ve probably picked up from my posts about them).
Next are PN and CBM in 6th and 7th places, both at about 7.25% of the portfolio. In March, PN had almost doubled in price to $8.50. This month it reached $8.90 but settled back to finish at $8.30. It is a very small company, and not a high conviction stock, so I trimmed it a small amount as I really didn’t want such a small, just-out-from-its-IPO company to be 9% of my portfolio. CBM started April about $42 and finished about $48 after excellent earnings. I also added considerably to it during the month. Neither of these two is as high conviction as my top five (see my recent Brief Reviews for more color on them).
(Excluding Amazon, which I consider a special case), the PE’s of the rest of these current top seven are, respectively, 11.20, 17.96, 11.70, 18.06, 10.67 and 19.00, which is quite respectable and gives them an average PE of roughly 14.75.
Their average rate of TTM earnings growth is ridiculously high if you average in PN’s rate of 387%, but even removing PN as an outlier, the other five have an average rate of growth of trailing earnings of 51%. A rate of growth of 51% and a PE of 14.75 sounds very underpriced, but I expect all the rates of growth, (except SBNY’s), to slow down in 2016.
My own predictions for their 2016 rates of earnings growth are 25%, 35%, 25%, 23%, 50% and 40%, with an average of 33% However, if their earnings grow 33%, they will have average PE of 11% a year from now.
These big seven make up about 77.5% of my total portfolio. This doesn’t seem unreasonable to me, as they are my highest conviction stocks as well as being my biggest positions, and they are at reasonable PE’s. They are in fairly different fields: home building, retail shoes and sneakers, microchips and IoT, Internet marketing and cloud services, commercial banking, insurance company services, and pharmaceuticals. This wasn’t by design, but it spreads the risk. Also I’ve reduced the top two to about 30% where at times they have been much more, and three months ago were perhaps 42% of my portfolio. All together it’s more balanced and less risky, and I sleep better at night.
Now we come to Arista (ANET) at about 5%, and then three more stocks that are all at just under 4%. These are Shopify (SHOP), Mitek (MITK) and Syncronoss (SNCR). ANET and MITK were small 2.5% to 3.5% positions last month, and SHOP was a try-out position. ANET has moved up from $62.00 to $66.50 during the month, and I have added little bits continuously along the way. SHOP has moved from $28.50 to $31.50, and I have added along the way. If you are not familiar with SHOP, I did a Quarter-End Review at the end of March. There’s also a much briefer summary in my Brief Reviews of all my stocks a couple of weeks ago. I haven’t bought or sold MITK significantly during April, but it bounced about 10% on good earnings. SNCR has fallen from 5% last month to 4% now. The company is doing well but its future is based on cloud services. I don’t know if they can compete with AMZN, MSFT and Google in the cloud in the long run. The price dropped from $52 to $22.50 on these fears, abut it’s now back to $31. I had added at $27 and $24 and recently sold some back at $32. It’s just a 4% position now, and I think I’ll hold for the moment and see how it does. Its PE is only 14 and it’s been growing at a fairly consistent 25% per year.
Next we have two small positions which have been reduced during the month, INFN and CASY. Here’s what I wrote about INFN in my Brief Reviews a couple of weeks ago:
I really had to wonder what’s going on with this one. Everything is good. Revenue is substantially up, earnings are way up, margins are stable to up, they are going into new fields, growing geographically, there is more and more need for bandwidth, etc etc. So why is the price stuck in the $14 and change range??? down from $25 a year ago??? A couple of possible reasons.
One, it is no longer the story stock with a great story and future but no earnings. Now it’s a regular company and is being evaluated according to its real earnings and has a real PE.
Two, it’s a technology company and it lives in a tough neighborhood, with tough competitiors and tough customers.
It has a current PE of 19 and I don’t think we are going to see any PE expansion. Oh, maybe moving between 17 and 22, but 30-35 times earnings is gone for good! I think the price will rise, but it will rise in sync with whatever earnings growth there is, keeping the PE around 20. Just my guess.
I had reduced my position a little, but not enough. Well since then, as we all now know, they reported disappointing results and disappointing guidance, and the price dropped precipitously. I reduced my position further after earnings.
And here’s part of what I wrote about CASY’s:
We all know and love Casey’s, the company. Everyone who knows Casey’s stores loves them. But CASY, the stock, has gone nowhere since I bought it from $104 to $108 about seven months ago. Granted last quarter’s earnings were slightly disappointing, but the quarter before was great, and if you pool the two quarters, this year was up 29.7% from last year. Casey is expanding, building new distribution centers, etc, trying new stuff like deliveries and pizza apps, and maybe investors are a little skeptical. And probably worried about a potential rise in the price of oil, as low gas prices are their sweet spot…
I’ve been selling some CASY’s over the past month or so for cash when I see more promising prospects. It’s not that I see anything terrible happening with CASY, it’s just that I see other stocks that look more promising. Casey’s has a PE of 20. Its price now is $112.
Finally I have four tiny “put-it-on-the-radar” positons. I hate to even mention them because I don’t want anyone to jump in and take a position in one of them because I have one. Sometimes these positions get bigger (SHOP, for example this month) but they really are “put-it-on-the-radar” positions and at any time I may decide they’re not for me and sell out of them. With that proviso, these four positions are really small, from 0.6% to about 1.4%. They include CYBR and GBX which you already knew about, and two new ones, that I don’t even feel comfortable mentioning yet. GBX and CYBR were try-out positions last month and still are. CYBR is a very high PE, and GBX is a value type stock which is usually not my style at all, which is why they’re still both quite small.
To summarize, this month my big three are still my big three. I’ve added to all three recently. AMZN, SBNY, CBM, ANET, and SHOP have notably moved up in position. CASY, INFN, and to a lesser extent SNCR have moved down. I sold out of the rest of my INBK.
What I do is “modified buy-and-hold” . Of my top positions, I’ve had SWKS and SKX for about a year and 10 months and a year and 11 months, , and LGIH for 7 months. I’ve had SNCR for 14 months, INFN for a year. I had INBK for a year and a half before I sold. I had BOFI for about three years before I sold it. I held CELG and WAB for over two and a half years each. When I buy a stock, it’s with the idea of holding it indefinitely, actually for as long as circumstances seem appropriate, and NEVER with a price goal, or with the idea of holding it a few days or a few weeks, or with the idea of trying to make a few points and selling. If I try out a stock in a small position, and later decide it doesn’t fit, I sell it, and I really don’t care whether I gain a dollar or lose one. I just sell out to put the money somewhere better. I’m not trying to trade it and make a dollar on it, I’m just trying to decide if I want to keep it long term.
Since I began in 1989, my entire portfolio has grown enormously. If you are new to the board and want to find out how I did it, and how you can do it yourself, I’d suggest you read posts #4 through #8 at the beginning of the board, and especially the Knowledgebase that Neil keeps for us, which is a compilation of words of wisdom, and definitely worth reading if you haven’t yet.
I hope this has been helpful.
For Knowledgebase for this board,
please go to Post #17774, 17775 and 17776.
We had to post it in three parts this time.
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