My portfolio at the end of February
Here’s the summary of my positions at the end of February. As I often do, I’m ending the month as of the last weekend of the month as I have more time then. I’ll just miss one trading day, Monday, Feb 29. Please note that the PE’s, etc 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 have been in a major correction. I think I read that early January was the worst start of a year on record. I finished January at 90.9% of what I started the year with, while the S&P was at 95.5%, and the Russell 2000 Small Cap Index was at 91.1%.
Early February got even worse and Feb 11th was my personal bottom when I hit 80.5% of what I started the year with. Right now I’m finishing the month at 89.2% of what I started the year with (which puts me up 11% from my bottom about two weeks ago), while the S&P is at 95.3%, and the Russell 2000 Small Cap Index is at 91.3%.
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. A few months ago I started including the Russell, 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 ordinarily 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 if I would 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; so 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 (Ambarella and SolarEdge for example), 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).
At the end of last month I had eighteen positions total, although a few were such small positions that I hesitated to call them “positions” at all. I’ve now cut down to thirteen positions, which has concentrated my portfolio to a more comfortable level for me. I haven’t used that money to enlarge what I have in my four largest positions though, rather dividing the those dollars between nine additional positions instead of the 14 additional positions I had last month, which were necessarily quite small.
SKX, SWKS, LGIH and INBK are still my four largest positions, although SKX passed SWKS during the month, and is just slightly ahead, and LGIH passed INBK. Note that the first two are definitely larger, both just under 18%, while the second two are about 12%.
The PE’s of my top four are, respectively, 20.8, 11.6, 10.9, and 12.9, which is quite respectable and gives them an average PE of roughly 14.1. Their average trailing rate of TTM earnings growth is 65%, so even if that drops by half this year, to 32%, they will still be inexpensive with their average PE of 14.
These big four make up about 59.6% of my total portfolio. Although these are fairly high-conviction stocks, that’s a real lot in four stocks. They are in completely different fields: microchips, banking, retail shoes and sneakers, and home building. This wasn’t by design, but it spreads the risk. You may also notice that I’ve reduced the top two to 35% where at times they have been much more, but third and fourth have grown. All together it’s more balanced and less risky with no stocks over 20% or 21%.
Next is a fairly big position, INFN about 9%. It’s PE is about 20.3 and its trailing rate of TTM earnings growth is over 100%. Remember this is trailing(!) and next year’s rate almost certainly won’t be nearly as high.
SEDG was in this group last month, but I decided to exit it when I was reducing the number of positions. While they clearly have a dominant position in their field, I sold out for several reasons. First, they had increased in price almost 100% from about $15 to $29.50 in a few weeks with the passage of the renewing of the tax credits, and this was at a time when others of my stocks were way down at PE’s below 15, so I had better places for the money. Second, they have so many risks. Risks for the solar industry, risks of electric utilities fighting back, risks because Solar City, a very large customer, greatly cut back their growth strategy, and finally, their ASP (average selling price) falls continuously so they have to continuously cut their costs just to keep up. I sold out at an average price of about $26.25.
Now we come to eight medium to small positions, which descend in size from about 6% of my portfolio down to about 1.5%. These include CASY, SNCR, CELG, SBNY, PN, CBM, MITK, and AMZN. You’ll notice the SBNY grew quite a bit this month as I learned more about it and felt somewhat more secure. PN announced great earnings and got killed because they mildly reduced their huge estimates. Together, these eight positions make up about 33% of my portfolio, and combined with my large and fairly big positions make up about 102% (because of 2% margin)
If I exclude my (tiny) position in Amazon as a special case (which you can consider as you like), the other seven have an average PE of 16.5 and a huge average rate of growth of annual earnings (also excluding Amazon) because several have very high values, (showing how meaningless some averages can be). If the average rate of growth of these seven also falls by two-thirds, they’ll still be cheap with a current PE of 16.5.
Actually you’ll note that the weighted average PE of all my stocks, again excluding the tiny position in AMZN, is about 15, which is very comfortable. The highest PE of all my real positions is only 22 (Celgene). That’s not bad.
During the month I sold out of AMAVF (fortunately before earnings were announced), FB, AMBA and CYBR, all because they were more risky, but especially because three of them had high PE’s, I was worried about AMBA, the fourth, and I had rapidly growing stalwarts with PE’s of 10, 12 or 15 where I could redeploy the money. (AMBA has moved up as soon as I sold).
While I sold out of some of my positions this month, you’ll note that my top five, representing over two-thirds of my portfolio value, haven’t changed. There are no new positions this month.
What I do is “modified buy-and-hold”. Of my biggest three positions I’ve had SWKS and SKX for about a year and eight months and a year and nine months, and INBK for a year and five months. I had BOFI for about three years before I sold it. I held CELG and WAB for over two and a half years each. In no way am I a “short-term trader”. 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.
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 (currently post #15056.), which is a compilation of words of wisdom, and definitely worth reading if you haven’t yet.
I hope this has been helpful.
Saul
For Knowledgebase for this board
please go to Post #15056.
A link to the Knowledgebase is also at the top of the Announcements column
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