My portfolio at the end of August
Here’s the summary of my positions at the end of August. As I usually do, I’ve figured them as of the last weekend of August as I have more time on a weekend to figure all this out. Thus what this amounts to is a full four weeks since my end of July summary.
I’ve really tried this month again to tell you more about what I was thinking about, why I did what I did, and what each stock did. Please note that any 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. When you get to the end of this please feel free to ask questions.
At the end of July my portfolio was at 99.9% for the year. I am now at 104.6%, so it was a very good month (up 4.7%), and I am at my highest level of the year. I’ve even caught up some on the S&P 500. The last I looked, at the end of June, it was doing 5.8% better than I was. As of the end of this month it’s doing 1.4% better than I am, so I’ve caught up 4.4% in the two months.
In fact my portfolio is up 30.0% from the February 11th low, when all the “smart” guys were mocking us for being buy-and-hold investors, and not going all into cash (the way they were). Up a full 30% (!) I wonder how much their cash is up since then.
I have to reiterate that we’ve been going through a very difficult period of time in which to make money in the market, and it’s been a very difficult year for me. Up 4.6% for the year so far may not sound so bad, but it’s way, way, under my expectations.
We keep having people warning that the market is frothy, extended, and overvalued. However, we have a rising economy, rising employment, rising wages, more hours worked, falling unemployment, low interest rates, low oil prices, and rising company revenues and earnings, etc. And it’s a market that just keeps inching up, like watching grass grow, or paint dry, in spite of nearly everyone being pessimistic about it, and not a euphoric booming market that should make you worry.
Now let’s get to my positions. I have no new positions this month and eliminated a few old ones: LGI Homes (LGIH) is still my largest position at 17.3%. (This is big: it’s 33% bigger than my next largest). I didn’t buy or sell any LGIH this month. It ended last month at $34.21 and rose this month to $35.47, up about 3.5%, which was less than the rest of my portfolio, hence its percent of the portfolio slipped a tiny amount from 17.5% to 17.3%.
17.3% is still very big! I’m ambivalent about what to do, as I’d like to let a successful position run, but this is real money, and the real world, and 17% of my portfolio in one stock, in a cyclical industry, does make me nervous. To reiterate what I wrote a couple of months ago:
I note that I waver about position size. When I was younger, and my portfolio size was smaller, I was more willing to concentrate my positions, and I think that enabled better returns. However, it meant more risk, and now that I have a larger portfolio, and it is harder to exit a position in an emergency, and I’m retired as well, without new money to make up for losses, I find myself being more cautious. So I may not be consistent in my thoughts about position size.
LGIH did announce earnings, which were 96 cents, up 45% from 66 cents a year ago. Average home price was up nicely. Closings were up nicely. Gross margins are holding steady. The housing market is doing very well. As management put it in the conference call : Absorption was very strong, averaging 6.8 closings per community per month. This was up from 6.4 last year; all while increasing the average sales price by 6%, and adding 11 communities outside of Texas.
Their PE is 11.7. I guess I’ll let this successful position run.
Amazon (AMZN) is still my 2nd position. It was 12.8% last month and 12.9% this month. Its stock price only rose from $759 to $769, or about 1.3%. I’m not complaining about the 1% rise though, as Amazon is up 49% since I started my position at $515 a little over six months ago. I added a tiny amount during this month. I don’t have to tell you how I feel about AMZN. It’s one of my favorites. But I do feel my position is now big enough and I probably won’t be adding except perhaps tiny amounts when I can’t resist.
Signature Bank (SBNY) is still my 3rd biggest position at 11.6%, just behind Amazon. The stock price actually fell 0.6% this month from $120.2 to $119.5, due I think to worries about their having had to increase their reserve for taxi medallion loan losses. I wrote this after June earnings were announced:
They are clear about what’s going on: Growth was great, book value was way up, loans were way up, efficiency ratio was way down, new banking teams came on, all the things you want to hear from a bank. This quarter’s earnings were impacted by a one-time set aside in case of possible specific taxi medallion loan losses. This reduced net income and earnings on paper. They said they did not expect any additional set asides for this problem next quarter (or even at all). So next quarter they will have the net income they would have had this quarter, if not for the set-aside, plus the growth in net income they have sequentially every quarter (for 26 quarters in a row, anyway). This means next quarter should be a double large sequential gain.…
That is pretty much the way I still see it: They set aside some money this quarter for a possible one-time loss. This made a small reduction in their quarterly earnings - but their business is doing better than great. I figure this set-aside eliminates the uncertainty for me, but the market is waiting to be sure. I added a small amount this month.
Skechers (SKX) is still my 4th largest position at 9.75%, pretty much flat with a month ago. Its price of $24.72 is up about 3% from $24.02 a month ago, to which price it had sunk after earnings. I added a tiny amount this month when the price dropped to $23.40. Their PE is 13.7. They gave cautious guidance in July. It’s hard to imagine that a company which had been growing earnings at well over 50% for years will suddenly grow just 5% to 10%. We’ll have to see what happens. These big 4 make up just under 52% of my total portfolio.
We then step down to my Middle-Size positions:
Shopify (SHOP) was 6th last month but has moved up to 5th this month. It’s at 7.7% of my portfolio, up probably by 1.5% from last month. I added a bit on the way up, but the real reason it’s up so markedly is that the stock price moved up 21% from $34.27 to $41.50 in the past four weeks. (You’ll remember that I took this position at about $27.50 about three months ago after it was recommended two months in a row by a MF service. It was then written up by Bert shortly afterwards. He wrote them up again this month.) They have no earnings yet but their revenues have been rising over 90% compounded for several years and were up 93% last quarter. That’s Revenues! Up 93%! And renewable revenue was up 70% last quarter.
Arista (ANET) was 5th last month and is now 6th, at 7.1%, although that 7.1% is up from 6.5% last month. It hasn’t been standing still, and its stock price has risen 11% from $71.3 a month ago to $79.0 now. It’s just that Shopify went up even faster and passed it. Arista’s business keeps booming and worries about the Cisco lawsuit are fading (very) gradually. Their earnings and revenue last quarter were both up 37%. Their PE is 28. I added a little to Arista this month at about $69.50. And by the way, Bert recently wrote them up again.
Bank of the Internet (BOFI) was one of the smallest of my small positions last month at about 3.0%. It is now my 7th largest position at 6.5%. This is partly because the price has risen 36% from $16.80 to $22.90, but partly because I substantially increased my position size at prices between $16.15 and $17.15 four weeks ago. I have discussed this at length and won’t say any more about it, except to reiterate that there is still plenty of risk here if something blows up. The PE by the way is still only 12.3.
Silver Spring Networks (SSNI) was 7th last month and is now 8th at 5.75% being passed by BOFI, although SSNI was no slouch itself, rising 11% from $12.57 to $13.95. I also added some to SSNI at prices from $11.80 to $12.50. Look, they don’t have much earnings, and they have a high PE (63), but they have won a series of huge mega-contracts that don’t show up on their books yet, and what they install has recurring revenue for at least 15 years and growing.
Salesforce (CRM) has moved down from 8th place to 9th at 5.6% of my portfoio as Bofi moved up and pushed everyone else down one slot. I must say that I am disappointed about this stock (not the company). The stock has gone nowhere since I started to accumulate a position about three months ago. I bought it mostly about $82 and it’s now $79. Not a catastrophe, but not great either. The problem is that its PE is quite high because it’s a SaaS company so it only gets to count its revenue month by month. Its performance has been great. It dominates its category. Its revenue rises each quarter, not only year-over-year but sequentially as well. Its operating cash flow rises, its deferred revenue rises (it currently has $4.0 billion(!) in deferred revenue, and $7.6 billion(!) in “unbilled deferred revenue.” In other words, the success of their business is not being fairly described by the current accounting system.
Now lets drop down to some slightly smaller positions:
Synchronoss (SNCR) was a 3.8% position last month and is now tied for my 10th and 11th largest positions (with PAYC) at 4.6%. That’s partly because the stock price rose 10% from $37.35 to $41.05, and partly because I added to my position after earnings were announced (mostly around $40.50). The stock rose (and I added to my position) because it seems they have finally turned the corner, and that all the expenses they had in the last six to nine months, to build out enterprise solutions, in partnerships with Goldman Sachs and Verizon, look like they will pay off. Their current PE is 18.
Paycom (PAYC) was about 3.5% last month and is now tied with SNCR at 4.6%, for 10th and 11th place. The stock rose 8.7% from $47.2 to $51.3 and I also continued to add to my position on the way up. I started this position in Paycom about three and a half months ago at about $37.50, and have added all the way up. Its current price is up about 37% from where I started, but the rest of my positions are naturally up less as the stock has gone pretty much straight up, and I’ve been adding along the way. Its revenue has been rising about 50% per year, plus or minus, and earnings have been rising about 100% per year, again, plus or minus. Its current PE is 71. Recommended by a MF service in June. Recommended by Bert.
To move down again a little, my 12th largest position is
Hubspot (HUBS) at 3.65%. It rose a little in price from $54.60 to $56.80 (after being as high as $59.50), but I also added to my position during a decline the first week of this month at $51.10 and $53.40. I’ve been in this stock since the week before Brexit (remember that?). I bought initially at $47.50 and added to my position at $42.50 on the Brexit fall. (It’s up about 34% since then). I kept adding to $52.50, but haven’t added above that. This is a recurring revenue company with decreasing losses, positive operating cash flow, and increasing metrics on every part of its business (as you might deduce from the stock action).
My 13th largest is Mitek (MITK) at 3.25%. It went from a price of $7.55 to $7.71, for a small 2% gain on the month. I added a little during the month, being consistent with only buying below $7.80. I’m not letting my position in Mitek get large because it’s a truly small company, with a small float. Its PE is 28.6. It keeps announcing new patents granted and new contracts signed.
Then I have my last two positions, 14th and 15th, which are really small, at 2.1% and 1.6%. These are Atlassian (TEAM) and CyberArk (CYBR) . After rising from $46 to $56 over a couple of months, CyberArk fell off to about $54 this month. I’m cautiously building, but very cautiously. Atlassian was at $30 a month ago, and at $29 now, but inbetween it got up to $32 before falling back. I’m keeping both of these small because of high PE’s in spite of their great stories.
I exited some stocks during the month. These included Rubicon and Cambrex which were small positions last month, for reasons I have discussed. I also exited Skyworks, which was a very small position last month, and which I have also discussed, and LogMeIn, which I just had as a tiny position for a couple of days, and got out because I decided it was just a play on benefits from synergies after a merger, and that wasn’t my thing.
To summarize, this month my big four are still the same (LGIH, AMZN, SBNY, SKX). Then, SHOP, ANET, SSNI, CRM, SNCR and PAYC follow, with SHOP having pulled ahead of ANET this month, and BOFI slipping in after ANET. My final four smaller and very small positions are HUBS, MITK, TEAM and CYBR. During the month I exited RUBI, CBM, SWKS, and LOGM (which I just looked at for a couple of days).
What I do is “modified buy-and-hold” . I’ve had SKX for 27 months, and LGIH for 11 months. I’ve had SNCR for 18 months. I had INFN for a year and INBK for a year and a half each before I sold them. I had SWKS for 26 months before I sold out. I had BOFI for about three years the first time 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, 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 without hesitation, 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. I often change my mind about a position during the month though, so you should never just try to follow what I’m doing without making up your own mind about a stock.
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.
A link to the Knowledgebase is also at the top of the Announcements column
on the right side of every page on this board