My portfolio at the end of January

My portfolio at the end of January

Here’s the summary of my positions at the end of January. Please note that 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 this was the worst start of a year on record, although it may have turned around this week. 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%.

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 couple of 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 last year against a large cap index which 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. 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 currently have eighteen positions total, although a few are such small positions that I hesitate to call them “positions” at all.

SWKS, SKX, INBK and LGIH are still my four largest positions, in the same order. Their PE’s are, respectively, 12.3, 18.1, 13.6, and 10.3, which is quite respectable and gives them an average PE of roughly13.6. Their average trailing rate of TTM earnings growth is 69%, so even if that drops by as much as two-thirds this year, to 23%, they will still be inexpensive with an average PE of 13.6.

INBK recently reported December results, and I’d suggest reading anirban’s excellent analysis. SWKS just reported on Thursday and did exactly what they said they would.

These big four make up about 58% 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’ll note that LGIH has moved up into my top group, mostly through me adding to my position.

Now two fairly big positions, INFN and SEDG, both about 8% more or less. Their PE’s are both between 20 and 30. The trailing rate of TTM earnings growth is over 100% for each of them.

Now we come to my middle size positions, a group of six stocks which descend in size from about 5% of my portfolio down to about 3%. These include SNCR, CASY, AMZN, CELG, AMBA, and PN. I added especially to INFN, AMZN and CELG this month, took a new position in PN (which F1Fun introduced to the board), and sold out of my CYBR small position (PE too high when there were fast growing stocks selling at 10 to 15 times earnings). Together, the six of these middle-sized positions make up about 25% of my portfolio, and combined with my large and fairly big positions make up about 99%.

If I exclude Amazon as a special case (which you can consider as you like), the other five have an average PE of 16 and an average rate of growth of annual earnings of 64.4% (also excluding Amazon), even if I put an arbitrary cap on the unrealistically high rates of growth of AMBA and PN at 100% each. If their rates of growth also fall by two-thirds, they’ll still be cheap with a current PE of 16.

Finally I have six small to very small positions, SBNY, MITK, AMAVF, FB, CBM and CYBR, at 1.5% down to 0.2%. These are really small in the context of my usual position size. You don’t have to tell me that some of these positions don’t fit into the guidelines I’ve preached. I know. That’s why they are so very tiny. SBNY was recommended by Ophir Gottlieb’s CML Pro newsletter. MITK was introduced to our board by Neil. As you see, I took aback a tiny 0.2% position in CYBR.

This all adds up to over 100% as I have about 4% on margin.

What I do is “modified buy-and-hold”. Of my biggest three positions I’ve had SWKS and SKX well over a year (about a year and seven months and a year and eight months), and INBK for more than a year too. 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 the idea of trying to make a few points. 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
on the right side of every page on this board

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and the usual pictures…

http://stockcharts.com/freecharts/candleglance.html?TOP4-R-5…

http://stockcharts.com/freecharts/candleglance.html?Middle:,…

http://stockcharts.com/freecharts/candleglance.html?small:,S…

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Saul, I never understand your penultimate para. ‘In no way am I a “short-term trader.”’

It seems to me (qv your previous post on what you did in the month by way of example) that you are very definitely a ‘short-term trader’! Certainly I understand that when you buy a stock it’s ‘with the idea of holding it indefinitely’ etc. etc. (Aren’t we all?) But that’s not how you play it. It seems to me that, while you may not completely relinquish a holding - and thus can claim that you ‘held it’ throughout, the actual facts on the ground may be quite different. And why not? It seems to me that that is precisely why you do so well: complete flexibility with a great deal of pro-active or pre-emptive action. You focus on a small number of companies and give them undivided attention. You like to retain a stake in a company if at all possible. But the fact that you hold stock in a specific company for a long time, during which time it may go from a negligible position to a large position and back again, as many times as might seem necessary, is a very modified form of buy and hold indeed!

What I find puzzling is that you so firmly deny what seems to me self-evident: that you are a highly successful active trader of a limited number of stocks - mostly held for the very short term of less than two years. Good for you. It’s a system which works.

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Streina,

Your query about whether Saul is or is not a “short-term trader” may best be answered according to one’s definition.

This is a definition according to McClellan Financial Publications:

“A short term trader, in our view, would be someone looking to trade every few days. Some people have an even shorter time frame than that, but that style is not something we can address in a once daily publication. Intermediate term refers to trading every few weeks, and long term is a few months. Interestingly, these are the same definitions that Charles Dow originally put forth over 100 years ago.”

By this definition, Saul could never be rightly called a “short-term trader”.

Hope this helps.

Jim

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By this definition, Saul could never be rightly called a “short-term trader”.

All semantics really, and we are all free to call things whatever we want, but if you’re paying short-term capital gains on it…you’re a short term trader in my mind (and in no way is that a bad word- whatever works for you!), regardless of your hope that the company will pass the ‘Saul-test’ forever.

Can we all agree that very few companies (if any) will pass the ‘Saul-tests’ forever? From the trades Saul announces here and the reasons for said trades, it seems very few pass the test for more then a few quarters to a year or two. The metrics used to decide to buy or sell greatly limit the potential to hold a company for ever - and greatly increase the need to make short term trades.

Greg
BJRI, DAR & LUK Ticker Guide

See all of my holdings here:
http://my.fool.com/profile/CMFGalapagos/info.aspx

6 Likes

You like to retain a stake in a company if at all possible. But the fact that you hold stock in a specific company for a long time, during which time it may go from a negligible position to a large position and back again, as many times as might seem necessary, is a very modified form of buy and hold indeed!

Saul has a very good understanding of what his stocks are worth to him. He views his stocks in terms of relative value but also taking into account company specific risk and company specific allocation.

Let’s use and analogy. Saul recently bought 4 chickens which are laying a lot of eggs. The price of chickens rises a bit while the price while the price of salmon has plummeted. Saul decides to sell one of his chickens and buys a couple of salmon. Now Saul may still think that chicken are great but in comparison the salmon have become a better deal.

This type of thinking and action is not short term trading. It is exchanging something for what Saul now believes is something of greater value given the recent changes in prices.

A trader would view things a lot differently. Many/most traders rely on momentum and other factors to try to buy something to make a quick buck because they think it will rise or fall in the short term. Saul does no such thing. He thinks that both chickens and salmon are great but at the current prices he thinks that salmon have become a better value than chickens. He is not looking to sell either to make a quick buck but rather is willing to hold both for a long time until he gets new information. This new information could be something specific about chickens or salmon that he didn’t know before, it could be that the price of donkeys (which he also thinks are great) has plummeted), or that the price of chickens and salmons has changed such that it changes his view of their current value.

So Saul is really looking at many dimensions of each stock, assessing the risks, his allocations, the relative value of many different companies. He takes all this into account together and makes quick decisions. Sometimes he makes a bad choice which he quickly corrects, but most of the time he makes very good decisions.

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“Let’s use and analogy. Saul recently bought 4 chickens which are laying a lot of eggs. The price of chickens rises a bit while the price while the price of salmon has plummeted. Saul decides to sell one of his chickens and buys a couple of salmon. Now Saul may still think that chicken are great but in comparison the salmon have become a better deal.”

I think a produce is basically what it is and it can be worth a bit differently to you or to me.

But when you talk about a business, a quarter or two does not represent what it could be. A business is dynamic and not dead and stable.

When you look at the stock like many here do, you are not (only) betting on the potential of the business but on the shorter term move of its stock.

That is trading.

tj

1 Like

All these discussions of whether Saul is a trader or not do not add any value at all.
In my opinion just a waste of time.

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INBK recently reported December results, and I’d suggest reading anirban’s excellent analysis.

In what forum would I find the analysis?

Sorry, Please disregard, I think I found it.

http://discussion.fool.com/thoughts-on-inbks-q4-15-and-fy2015-32…

1 Like