My portfolio at the end of November
Here’s the summary of my positions at the end of November. As I often do I’m posting during the last weekend of the month even though we miss one trading day on Monday, because I just have more time on the weekend. The summary this month is again longer with more detail and discussion than before. 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 started off last month (October) saying that it had been a terrible month, and a terrible three months since August, as our stocks had been in a real correction. A number of stocks had gotten pounded, some for no reason at all. In spite of that, I finished October at up 13.1% for the year while the S&P was up 1.0%.
Well this has been a heck of a lot better month! At the end of this month (November) we’ve bounced back and I’m up 21.9% while the S&P is still hanging around break-even for the year. (It’s up not quite 1.6%).
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. 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 stocks, 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 currently have fourteen positions total. I’ll try to tell you what I’ve done with each during the quarter.
My biggest position, SWKS, was also my biggest position last month at a position size of 21.9%, a price of $77, and a PE of 16, and a rate of growth of earnings of 76%. It now is at a position size of 21.3%, a price of $82, and a PE of 15.5, and a rate of growth of earnings of 63%. Note the huge disconnect between the PE and the rate of growth! There has been NO company specific bad news. I’m trying to keep my position size under 22%. I recently posted a mid-quarter review on SWKS.
SKX was my second biggest position last month and is still my second biggest. Last month it was at a position size of 17%, at a price of $31 (split adjusted), a PE of 20, and a trailing rate of growth of 73%. Right now it’s at a position size of 16.9%, a price of $30.40, a PE of 19.5 and its trailing rate of growth is still 73%. It got as low as $25 or so during the month. I also recently posted a mid-quarter review on SKX.
What did I do during the month? I bought SKX at $25.50, $25.75, $27.50, at $28, a lot at $30, a little at $31. Haven’t sold any.
INBK was my third biggest last month at 12.8%, and is still my third biggest at 12.6%. It’s at a price of $31.75, a PE of 17.7, and a rate of growth of earnings of 118% (!) You tell me: Does that makes sense to you?
What did I do during the month? I bought some at about $28.50, $29.00 and $31.35. I was willing to add to my INBK as I was no longer over-weighted in banks.
Please note that sometimes I can add during the month to a position but it stays the same percentage, or even becomes a smaller percentage, of my total portfolio… That’s because other stocks have appreciated more rapidly during the month than the stock we are talking about. The portfolio must total at 100% and if one stock grows faster, the slower growing stocks lose percentage. I sometime catch myself thinking something like “Gee, SWKS was up 80 cents today and the value of my SWKS position was up XXX dollars, so why is its percent of my portfolio down?” Well, if SWKS was up 1% that day, but the portfolio as a whole was up 1.5%, SWKS’s percent of the portfolio fell, even if its dollar value went up!
My big three make up about 51% of my total portfolio. Although these are pretty high-conviction stocks, that’s a REAL lot in three stocks. They are in completely different fields: microchips, banking, and retail clothing. This wasn’t by design, but it spreads the risk. Their average trailing PE is roughly 17.6, which I’m very okay with. Their average rate of growth of trailing earnings is roughly 85%, which is even better. This is not an inherently risky portfolio. After three months of getting pummeled, and a couple of good weeks, I’m still up 22% year-to-date.
Now we come to a group of seven stocks which descend in size from INFN at about 9% down to AMZN at about 5%. There are no significant gaps so I would call this whole group my Middle Size stocks.
INFN was my fourth biggest last month, and is still my fourth biggest at 8.9%. It’s share price has moved up to $22.40, its PE is 32.5, and its rate of growth of earnings is 176%. What did I do in INFN during the month? I bought some at $18.00.
**LGIH was new in October, and had grown during that month to be my sixth biggest position at 6.9%. It’s now my fifth biggest at 7.8%**Its price was $28, and it’s now up to $33. In the last two quarters quarterly earnings were up 50% or more. I posted a mid-quarter review on LGIH too. I added small amounts throughout the month.
CASY has moved up from seventh to sixth, at 6.9%. It was at $106 last month and is now at $118, with a PE of 24. I also did a mid-quarter write-up on CASY. I’ve been adding to CASY too.
SNCR was eighth and is now seventh at 6.5%, a price of $39, a PE of 18 and a rate of earnings growth of 29%. I bought some at about $33.50, $35.00 and $37.50
SEDG was ninth last month and is now eighth at 6.1%, a price of $19, a PE of 19.9, and a rate of growth of earnings so high it’s ridiculous. I added a little during the month. I also did a mid quarter review a few days ago on SEDG.
You’ll note that there has been an amazing amount of consistency to the relative size of my positions. They don’t move around a lot. AMBA, my next stock, is the exception. AMBA was fifth last month at 7.6%. and is now ninth at 5.5% with a price of $58.50 and a PE of 19.8. I wrote last month that I’m not tech savvy enough to be able to judge AMBA’s growth prospects going forward, in spite of all the recs and re-recs from various MF services, and it was because of this that I somewhat reduced the size of my position. If it does well from here, I have enough to profit nicely.
Last month, out of curiosity, I averaged my PE’s at this point and got 19. Out of curiosity again, I averaged the PE’s of my top nine stocks, making up approximately 93% of my portfolio this month again, and got 20.3.
AMZN, which was eleventh last month, has moved up to tenth at 4.7%. AMZN was new in October and I had a 2.2% position. I’ve added steadily and the price has gone up too.
Now we get down to four Small positions, which run from 1.8% down to 1.2%. These are really smaller than my Middle positions, and average a third the size of AMZN (the smallest of the Middle-sized positions).
These small positions are WAB which I held for a long time before, and sold when I thought it was too high, with too high a 1YPEG, but which has since fallen quite a bit in stock price so I reinitiated a position, PRAA which someone on the board has written about, and which has been a MF rec since 2004 (I think), AMAVF, which was smallest last month, and finally ABMD which I reduced in size because of its high PE, and my annoyance at the difficulty and uncertainty in figuring out their real adjusted earnings.
I sold out of my position in CNC during the month for cash, as it was a company with potential political and regulatory problems and thus one of my lower conviction stocks.
What I do is “modified buy-and-hold”. Of my biggest three positions I’ve had SWKS and SKX over a year (about a year and five months and a year and a half), and INBK for over a year. I had BOFI for about three years, before I sold it. I kept CELG and WAB for over two and a half years each. In no way is this “short-term trading”. When I buy a stock, it’s with the idea of holding it for as long as circumstances seem appropriate, 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.
A word about “Saul stocks”.
Some posters on the board refer to Saul Stocks as if a low 1YPEG is the only or primary qualification. This is NOT the case. If you take a glance at the Knowledgebase, you’ll see that I use many things to decide on a stock. Here’s a brief résumé of what I look for, shortened, but taken right from the Knowledgebase:
I want a company with rapidly growing earnings. I usually won’t touch a “story” company that is losing money, but that “will break even two years from now,” no matter how enticing the story.
I look for recurring revenue. I love recurring income and the razor and razorblade model.
I look for substantial insider ownership.
I look for a company with rapidly growing revenue. (That usually rules out companies with no revenue like start-up biotechs, as well as slow-growing old fogies).
Wanting to be an informed investor means that I generally avoid foreign companies. And I won’t touch ANY Chinese company.
I look for a company that has a long way to grow. A company that I can hope will be at least a 3 bagger and maybe a 10 bagger. I’d never buy a stock at $45 hoping it will get to $55.
That means a company that has a long runway. What I mean is a company where the addressable market is so big that their share of it allows them to keep growing for the foreseeable future.
How do you know when a company is too big? Let me try an answer off the top of my head: Take Skechers. Their market cap is less than 1/20th of Nike’s so you can easily imagine it doubling and doubling again, and if Nike just rises 5% to 10% per year with the market, SKX will still be under 15% of Nike’s market cap. On the other hand, can you imagine Nike doubling and doubling again? It’s impossible. They already have most of the market.
I look for smaller companies. It’s the problem of big numbers. If you have a chain of 200 stores and you can add 50 a year, the first year you add 25%, but the same 50 stores only adds 20% the second year and 16.6% the third year, etc. To maintain the same growth rate, you have to add a larger number of stores each year, and you run out of places to put them.
If you have another kind of firm, with $100 million in sales, and double it, the next year you will need to add $200 million to maintain the same rate of growth, and $400 million the next year, and it soon becomes impossible.
I want a company that does something special, a rule breaker, not a company that just makes a commodity product well.
I avoid mining and drilling and natural resources stocks, which tend to go in cycles from boom to bust.
I don’t usually buy restaurant chains. (Yes, I bought Casey’s).
I want management to be interested in making a profit. That’s why I stayed out of Amazon until they started piling up all this free cash flow.
I look for companies that are growing fast, have recurring income, insider ownership, some kind of moat, reasonable PE, etc, and hope to find most of these qualities in stocks I’m investing in.
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 #9939), which is a compilation of words of wisdom, and definitely worth reading if you haven’t yet.
Hope this has been helpful.
For Knowledgebase for this board
please go to Post #9939.
A link to the Knowledgebase is also at the top of the Announcements column
on the right side of every page on this board