My portfolio at the end of July
Here’s the summary of my positions at the end of July. I’ve really tried this month to tell you more about what I was thinking about and why I did what I 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.
At the end of June my portfolio was at 97.1% for the year. In spite of a terrible day on July 21st when SBNY, SWKS, SKX and PYPL all announced earnings and all plunged, followed by July 26th, when Gilead reported and CBM plunged, I am amazingly still up 2.8% to 99.9% for July. It was a positive month inspite of everything. All I can do is 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. Just under breakeven 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, the small and mid-cap market has been relatively flat for almost two and a half years in spite of a rising economy, rising employment, rising wages, more hours worked, falling unemployment, low interest rates, low oil prices, and rising revenues and earnings, etc.
Companies with rising earnings and rising revenues, but flat stock prices which result in falling PE’s, doesn’t sound like a frothy market to me. It’s not a euphoric market, but rather a depressed market where a miss of a few pennies can cause a 20% drop in the stock price (witness SKX). Last month I gave some examples of PE compression which I won’t repeat here, but if you are interested you can reread my end of June post (all my end-of-the-month summaries are in the topics on the right of each page on this board under “additional information”).
We are still in compressed valuations, and a stock market that is having a camouflaged bear market by not advancing as the economy grows, and as the companies that make up the market grow. There seems to me to be lots of room for growth in stock prices.
I know that peple blame it on all the unrest in the world, but they aren’t remembering. We’ve lived through the Cold War, when we were under threat of nuclear attack constantly, and the assassination of a President, and the Berlin air lift, and the Cuban missle crisis when it looked as if we were going to have an atomic war with the USSR, and several major wars (VietNam, Korea, Iraq, etc), and the breakup of the USSR, and loads of other things more momentus and scary by far than whether or not one out of the 28 nations that makes up the European Union, decides to leave.
Now let’s get back to my positions: LGI Homes (LGIH) is still my largest position. A month ago (end of June), I wrote
LGIH was up to about 18.4% and SKX was 14.7%. They towered over my other positions. Much as I love these two…this was too much. And 18.4% especially was too much. In fact, that was 25% larger than the second place position, and 61% larger than my third place position. So I sold a little more of LGIH, bringing my total number of shares of LGIH to 93.5% of the shares I had before Brexit. However, LGIH has done so well over the past week compared to other stocks that it still makes up 18.0% of my portfolio.
I continued to trim LGIH a little this month as it still towers so high over my other positions. I trimmed probably another 7.2% of the shares I had, bringing me to about 86% of the number of shares that I had had originally, but LGIH has continued to do so well that it is still about 17.5% of my portfolio, and still towers over my other positions. In fact it’s 37% larger than my second place position, and 46% larger than my third. That’s 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 18% of my portfolio in one stock does make me nervous. To reiterate what I wrote last month:
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.
I’ve made some changes in my portfolio, which I will describe below. A month ago, my 2nd to 5th positions were
SKX – 14.4%,
AMZN – 11.5%,
SWKS – 9.2%,
SBNY – 8.9%.
These have changed considerably this month. To start with, as you know, I had already been reducing Skyworks (SWKS) because there were all these issues coming up about competition, and especially about the technology, and I realized that I simply wasn’t technically savvy enough to evaluate the situation. In additionally they were in a tough sector, where they are dependent on large, powerful customers who are always looking out for a supplier with a better or cheaper product, and who also don’t want to be dependent on a single supplier. And finally, they were having flat to down earnings (although for reasons apparently beyond their control – which may be true for the whole sector). Fortunately, by the time earnings hit, with its unenthusiastic guidance that pushed the price down further, my SWKS position was already a lot smaller than it had been at the beginning of July. It’s now a small position.
As far as SKX, this is what I wrote after recent June quarter earnings were announced:
SKX and SWKS sounded in their conference calls like they were a little lost in the woods and hoping to find their way out. I was surprised by SKX.
I sold about 30% of my position in Skechers (SKX) just after earnings, most at $27.50, but a little at $25.50. I then did a little reconsidering! I decided that if I looked at the first two quarters of the year together, since some revenue had been pulled out of one quarter and into the other, earnings for the two quarters combined was up 24.7% and revenue was up 18.3%. That didn’t seem to warrant a 25% drop in price to a PE of 13 plus. So I decided to not sell any more of my position. I even bought back, at an average price of about $24.40, almost half of what I had sold. It’s still my 4th largest position at 9.7% of my portfolio.
I keep adding small amounts to my Amazon (AMZN) position, its stock price keeps going up, and two stocks that were ahead of it (SKX and SWKS) have been reduced in size, so it has now moved up to be my 2nd position, at 12.8% of my portfolio.
I wrote this about Signature Bank (SBNY) in that same post after June earnings were announced:
SBNY, on the other hand, is an entirely different story. 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 a possible specific loss, which 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 will be a very large sequential gain. I bought A LOT of SBNY this week…
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. The stock price tanked 8% or 9%, so I added a bunch of additional shares. I figure this set-aside eliminates the uncertainty. SBNY has moved up to my 3rd biggest position at 12.0%, just behind Amazon. And, as I mentioned, SKX is 4th at 9.7%. These big 4 make up about 52% of my total portfolio.
We then step down to my Middle-Size positions. A month ago the first four of them I listed were Cambrex (CBM), Arista (ANET), Shopify (SHOP), and Silver Spring Networks (SSNI). Three of them are still there in the same order (5th, 6th, and 7th), but Cambrex has moved down to a smaller position (see below for explanation) and Salesforce (CRM) has moved up from the smaller category to join them in 8th place.
Where last month they ranged down from 5.7% to 3.8%, this month they are higher, from 6.5% to 5.1%. I’m sure this represents reallocation of funds from the trimming I did on LGIH, and the reduction in position sizes for SKX and SWKS, and tends to reduce the huge dominance of my top positions and spreads out more into the mid range.
I added to all of these middle size positions during the month, except for Cambrex, which was adding enough itself early in the month, by rising rapidly in price. As I did not understand the price rise in the face of their weak guidance, I didn’t add, and even trimmed a little at the higher price. Then when Gilead lowered guidance and sold off, and Cambrex followed suit as Gilead is a huge customer for them, I sold some more of my position. I was primarily worried because they have built a huge new facility on the expectation of increased business, and a fall-off would leave them with a lot of unused overhead. Finally, yesterday, I needed some cash to take an initial position in LOGM (after reading Bert Hochfeld’s write-up yesterday, added to a mention of LOGM on this board by Ant), and I sold a little more Cambrex for cash.
Last month my Smaller Positions were: Synchronoss (SNCR), Rubicon Project (RUBI), Paycom (PAYC), Hubspot (HUBS) and SolarEdge (SEDG), ranging in size from 3.2% down to 1.2%.
This month this group of small positions represents a bit higher percentage range, again reflecting that the biggest positions don’t so entirely dominate the portfolio. They now range from 3.8% to 3.0% and include most of the same suspects: Synchronoss (SNCR), Rubicon Project (RUBI), Paycom (PAYC), Hubspot (HUBS), Mitek (MITK), Cambrex (CBM), and Bank of the Internet (BOFI). I added to all of these positions except MITK and CBM during during the month.
Mitek has slipped from the middle-sized to smaller group, but that’s not because its position size has appreciably changed. It’s mostly that the percentage brackets for what I called middle-sized have moved up. I’m not increasing my position in MITK because it’s a truly small company, with a small float, and I did reduce it slightly during the month.
As far as SolarEdge, I sold it during the month, as I explained in one or more posts, and haven’t looked back.
Finally, I have been building a small position in BOFI for about ten weeks now. When I referred in the last couple of months to a stock I “wasn’t ready to talk about yet,” it was BOFI. The reason I didn’t want to talk about it was because I got so much hassle the last time I changed my mind about this stock, that I didn’t want to discuss it. I still don’t want to discuss it, but I felt that I should include it in my monthly summary. I have no intention of increasing it to larger than the 3.0% position that it is now. I’ve changed my mind before on this stock several times. Be aware that if I change my mind again, and either sell out or buy more, it shouldn’t be a surprise to anyone, but I currently have absolutely no intention of doing either.
Finally, there are four really small positions that range from 1.7% down to 1.0% and total 5.6% of my portfolio all together. These are Alassian (TEAM) which Kevin recently recommended, CyberArk (CYBR), Skyworks (SWKS), and LogMeIn (LOGM). You’ll remember that Skyworks descended as I lightened my position. I keep adding small amounts to CyberArk. Alassian is a new position this month. and LOGM is a one day old position.
Last month my three tiny positions totaled just 1% or so. These included CYBR, TSLA, and FB. I don’t have any tiny positions like this this month. Currently CYBR is bigger and I’ve sold out of Tesla and Facebook. Both SolarEdge and Tesla were new small positions last month so it shouldn’t be a surprise that I decided to sell them. I had been reducing FB for some time, and sold out in spite of saying it always turned out to be a mistake when I sold it. I just couldn’t warm up to FB. This month I started a position in PayPal (PYPL), and then sold out when it appeared that they caved in to attack talk from Visa.
To summarize, this month four of my big five are still the same (LGIH, AMZN, SBNY, SKX). Then, ANET, SHOP, SSNI, CRM, SNCR, RUBI, PAYC, HUBS, MITK and CBM are still following in almost the same order as last month, with the exception that CRM has moved way up into the group, SSNI has moved up, CBM has moved down, and BOFI is tagged on the end. Then there are four much smaller positions: TEAM, which is new, CYBR which has grown, SWKS, which was greatly reduced, and LOGM, which I just started. I sold out of TSLA, SEDG, and FB during the month. I took a brief position in PayPal but then sold it after the deal with Visa.
What I do is “modified buy-and-hold” . I’ve had SWKS and SKX for 25 months and 26 months, and LGIH for 10 months. I’ve had SNCR for 17 months. I had INFN for a year and INBK for a year and a half before I sold them. 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.
Saul
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
