My portfolio at the end of Jun 2018

[Retirementdough]

I have only been investing for 20 years, so many here have a lot more experience and wisdom. However I have been reading these boards and many others and studying investing and truth is that small cap growth investing seems to have greater returns when you have quality companies. Even if one or two companies go bankrupt as long as one or two “turn out” you will have significantly greater returns than the averages. Saul has done a great job of demonstrating these principles with numbers. At the same time Duma brings up a good point for new investors, whom may not be seasoned to mentally with stand a downturn.

I personally am looking forward to the next “50%” correction. I will scrap up every penny that I have and invest it. That time will give the greatest opportunity for big gains, life/lifestyle changing gains. 2007-2008 was the greatest gift of my life to date in terms of wealth creation, if I only had more disposable income at the time. I can only hope for another event like that.

If you are a new investor you can invest in these high valued quickly growing companies, just make sure to leave some cash on the sideline for if or when the correction comes. If it does not come for 5 or 10 years, than the money you invested will reward you, if it comes next month, then the money you left on the sideline will reward you.

To demonstrate this idea. I present this overly simplistic data set. Lets assume you have 100,000 dollars which to invest. Let’s look at 4 differing allocations for stock to cash. 90/10, 80/20, 70,30, 60,40. Let’s assume two senarios. The first is that your stock investments increase by 20% the first year, after which you reallocate your investment mix to the originally 90/10, 80/20, etc. Then the second year your stocks return negative -20% the first year, after which you assume all remaining cash would be invested into stocks as the opportunity has presented itself. Then reallocated after a positive 20% return to assume a cash position. The second is that you start with a negative -20% return followed by total cash allocation into stocks, then a reallocation once you receive positive return in the following years.

Stocks	Cash	Yr 1 assume 20%	Stock 	cash	total	Percent Return
90000	10000	20	108000	10000	118000	0.18
80000	20000	20	96000	20000	116000	0.16
70000	30000	20	84000	30000	114000	0.14
60000	40000	20	72000	40000	112000	0.12
						
106200	11800	-20	84960	11800	96760	-0.03
92800	23200	-20	74240	23200	97440	-0.03
79800	34200	-20	63840	34200	98040	-0.02
67200	44800	-20	53760	44800	98560	-0.01
						
96760	0	20	116112	0	116112	0.16
97440	0	20	116928	0	116928	0.17
98040	0	20	117648	0	117648	0.18
98560	0	20	118272	0	118272	0.18
						
						
90000	10000	-20	72000	10000	82000	-0.18
80000	20000	-20	64000	20000	84000	-0.16
70000	30000	-20	56000	30000	86000	-0.14
60000	40000	-20	48000	40000	88000	-0.12
						
82000	0	20	98400	0	98400	-0.02
84000	0	20	100800	0	100800	0.01
86000	0	20	103200	0	103200	0.03
88000	0	20	105600	0	105600	0.06
						
88560	9840	20	106272	9840	116112	0.16
90720	10080	20	108864	10080	118944	0.19
92880	10320	20	111456	10320	121776	0.22
95040	10560	20	114048	10560	124608	0.25

Total return is after 1, 2 and 3 years based on original 100K investment. Now this is overly simplistic as for real analysis one would need to look at more years data. However one can see how holding some cash for opportunity buffers against the downturn. It gives the opportunity to deploy cash to capture the value at depressed prices which allows one to overcome downturns quickly. If I had taken this a few more years out you would really see the value in have deployable cash during a downturn.

I guess the point I am trying to make is I would not be afraid of investing in the types of stocks discussed on this board as a new investor, but I do think it would be wise to hold some cash on the sidelines to take advantage of opportunities when they present themselves. Most likely no one will be able to invest at the exact right downturn however when a major “correction” occurs it will present an opportunity for outsized gains. You can still make money and keep some opportunity cash. If the market goes up for years you will still make good money (yes you will lose opportunity cost on sideline cash) but will most likely make it up when the downward correction occurs. In the meantime you participate in the best of both worlds.

[SaulR80683]

Saul,
First off, many congrats on your incredible performance. And also thank you for your monthly posts. I just started reading them these last two months. On your recommendation, I just read your posts 4-8. Do you still feel that passionately against investments in Chinese equities?
Best,
Jay

Hi Jay, and thanks for your congratulations. I’d strongly recommend that you read the entire Knowledgebase, of which posts 4-8 were only the earliest ideas. As far as being against investing in Chinese equities, yes, I still am. But that’s just me. I know that people have made good money in Chinese equities, but I feel when I can find many very rapidly growing companies here, why take the risks of investing in China, but again, that’s just me.
Best,
Saul

[brittlerock]

As far as being against investing in Chinese equities, yes, I still am.

Me too. But, I reserve the right to change my mind. JD.com and IQ both look pretty enticing. Both have opportunities beyond China. As Chinese companies become internationalized it get harder and harder to truly distinguish between a Chinese company and any other transnational corporation.

Nevertheless, I wouldn’t touch BABA. Jack Ma still has a stranglehold on the company along with his 30 or so original founders. I simply don’t trust him (or them). Jack loves to make lists. Some time ago he published a list of the 10 keys for a successful company. The investment community was at the very bottom of the list. His reasoning was that investors make all kinds of demands on the company and then they are the first to head for the exit doors with the first sign of trouble. Therefore, no respect for investors. This, of course, demonstrates failure to comprehend the most basic difference between entrepreneurs and investors. Jack Ma is not atypical when it comes to leadership of Chinese companies. But I’m beginning to believe that JD.com and IQ both have leadership that does not embrace the typical Chinese model. Not yet convinced - no position to date.

BTW, since BABA went public, that list has magically vanished. I wonder why?

[strelna]

Saul, I am always amused that you compare your concentrated bets in Saas with the general market indexes and then ask innocently and in bold ‘What bull market?’. The question rather obviously answers itself: the bull market is in Saas! You don’t need me to tell you that, it’s no accident you are where the bull market is. The suggestion implied, that everyone could be doing this and widows and orphans are disadvantaging themselves pointlessly, is not applicable.

Your comparators could be, say, FDN, PNQI and let’s include a single company, CRM. Now that’s realistic and genuinely shows how splendidly you are doing YTD. In time, there will be better comparisons - rather surprising there are not.

The thing is, no fund manager of an imaginary fund, let’s call it The US Smallcap Saas Fund (the prospectus shows 70% or more will be invested in smaller software companies) would get away with comparing their performance to the general market. The market is irrelevant. It’s like a farmer specializing in hydroponically-grown asparagus comparing his results, not merely with the general agricultural commodities index, but the entire hard and soft broad commodities index!

Naturally, he would only be interested in others’ results who were also in the farmed asparagus sector. We are all so grateful to you that we don’t mind these endearing indulgences!

[hlygrail]

But any successes i have/had from individual stock investing seem to require a fairly high attention span and regular reevaluation and/or rebalancing/reloading as opportunities present themselves.

Not being in a position to be retired for at least the next 15 years, I think, for me, it comes down to better time mgmt that i need to impose on myself to allow just enough time for research and reflection on existing port and potentially new/better stock alternatives to add while still minimizing the day-to-day analysis paralysis i sometimes succumb to. I still have full time work and kids/family and any diminished anxiety i feel in old age due to financial stock-picking success could easily be outweighed by regret of lost time not spent away from the computer

Dreamer, I normally wouldn’t semi-sidetrack from the rest of this thread’s direction, but felt compelled to comment on your statements above…

I’m roughly in the same boat you are in. But I KNOW that every bit of time I put into this effort pays off multiple times over down the road. I WILL be able to retire much sooner than most people, and that is in direct correlation to my invested time now. I don’t waste time on Facebook or playing too many games, I try to balance time w/ family and work. It took many years of segmentation to finally get to this point, where I can spend some amount of time, pretty much every single day, looking at my holdings and planning the next moves, contingency plans, doing research, reading this and other MF boards, etc.

Not trying to be preachy at all, just really encouraging you and others to make the time, even if it’s difficult, because you aren’t getting any younger, and I doubt you want to be doing the same level of frenetics when you’re 65.

To put a finer point on this, in 2014 I was on track to retire roughly “on schedule” or maybe a few years early. In 2014 I took a more direct, hands-on approach to my retirement planning, starting with some ‘play money’ to get serious about investing. Almost exactly four years later now, that ‘play money’ is now a 15% bigger pile than all of the other stuff being managed through a financial advisor. Yes, I added along the way, and yes I also took more control of the advisor-managed stuff, which is now also almost entirely in individual company holdings as opposed to funds. And now, after only those 4 years of much-more-significant effort (pretty much daily), it’s likely I will be able to exit at least 9 or 10 years earlier, if I want. One hour a day now =~ an extra -XX years down the road.

TL;DR: People make time for what is important to them. If the #1 thing is family, that’s great – make that your first focus (if you said work is #1, I’d likely challenge that). But somewhere along the way, you also need to make your future self a priority – somewhere on that top-5 list at least – and dedicate the time now to create the payoff later. Bonus points if you can truly partner with your SO/wife/partner and make it an ‘our’ priority.

[LifeOfDreamer]

I try to balance time w/ family and work. It took many years of segmentation to finally get to this point, where I can spend some amount of time, pretty much every single day, looking at my holdings and planning the next moves, contingency plans, doing research, reading this and other MF boards, etc.

Bonus points if you can truly partner with your SO/wife/partner and make it an ‘our’ priority.

---

Great response, thanks.
Sometimes we verbalize stuff or put things on paper or in an email to force the issue. Like writing down a weight loss goal and workout plan with a daily ledger to capture progress, and leaving it on the counter in plain sight, so i dont blow it off.

Or maybe telling my mgr in an email my training plan and goal dates for completing it. I dont mean to get all tony robbins up in here, but without goals or tracking, i personally have a tough time staying on track.

It is a fact that whatever i focus the most on tends to improve in the manner i want it too. Whether that is the home budget, stock picking, success at work, weight loss/diet/exercise, finally reading those books, etc…

I value the autonomy and freedom i have in life and work, but deep down i know i sometimes need someone to hold me accountable. I love my movies, tv, audiobooks, and food. I also really enjoy learning about interesting companies and their stocks. I imagine my interest in stocks is akin to how those who collect stamps or baseball cards or cars might feel. Or perhaps how a foodie exploring new restaurants/cultures may feel.

So i know what i should do…just need to make my own time segmentation plan, which i did quite a bit of work on this past week, and implement it.

The family definitely comes first, and i dont plan on having my money buried with me so wealth for me is really all about supporting my kids and hopefully i get to buy myself a cool gadget or two along the way and live near somewhere worth taking a walk.

As for the spouse…not her thing. So that is why i have all of you.

Dreamer

[PhatGus]

…and live near somewhere worth taking a walk

This thread (as always) is full of incredible information and education, but for some reason that is what struck me most. Beautiful sentiment, Dreamer.

-Scott

[NajdorfSicilian]

As always, Saul, thanks for the update.

best,

Naj

[ProdigalFool17]

I catching up on post from over the weekend and the cautionary comments on “this type of investing” referring to Saul’s portfolio and choosing high growth stocks. Saul disputed those assertions relative to his long existing portfolio.

One of the arguments was that this type of investing would be especially bad for “new money”.

I don’t think the data from my new money portfolio supports that claim either. I made a starting point at the end of May and made adjustments to consolidate from 17 to 12 stocks in early through mid-June. In making those buys before the losses at the end of the month, my losses in the 9 day drop were harder compared to had I made those same adjustments later in the month. But even with that, my “new money” portfolio was only -0.57% for the month.

Over the same time period, the SP500 and NASDAQ were up… but it’s not like I was obliterated.
SPY 269.02 271.28 +2.26 +0.84%
QQQ 168.97 171.65 +2.68 +1.58%

Further… just today… in the first day of trading of July, I made up that differential and am beating the markets BARELY.

Yes, there’s more volatility, but I don’t see that new money is punished any more harshly other than I was buying new positions right at the highs before the 9 day drop. The rest of my positions that were in place before that made up for those losses.

So… my data doesn’t match the assertions that were made.

Further, in the case of a NASDAQ down 20% scenario and these types of stocks hypothetically being down 40-70%… okay… yep… that’s possible. In Saul’s case, he could lose 2 years of gains… but over 3 years… 4 years… 10 years… he’s WAY ahead of the market. In my case, with new money, if the bear started today… just as I’m starting… yep, I’d be down 40-70%… and I’d be buying all the way down and all the way back up… and 4 years… 10 years from now, I’d be beating the market as well. There’s always no better time to start than now.

Respectfully, my opinion, it’s cool if you don’t agree.
Mark

PS… Being the ProdigalFool… I looked at my Portfolio prior to the dot.com crash … and prior to the Financial Crisis… in both cases, I got hit by personal disasters that over shadowed the stock market events and had to pull my money out of the market… first to deal with massive medical bills and second to deal with damage from a Cat 5 Hurricane. In both cases, had I been able to hold those stocks through the stock event instead of sell for the crises I was dealing with… I would’ve KILLED the market in the long run. I’ve learned not to be afraid of bears… I’ve learned just to ride them out. My experience… you don’t have to agree.

[EdGrey]

For the record, FDN is up about 28% YTD.

After a too-brief search, the highest YTD flyer of stocks mentioned in this forum is Enphase, at about 170%. I haven’t checked Saul’s entire portfolio, and it’s not like you’d want to put your net worth into Enphase.