My portfolio at the end of September
Here’s the summary of my positions at the end of September. This month the end of the month and the end of the week coincided. I told you a lot about the individual stocks just a week ago in my Brief Reviews (thanks for all the rec’s by the way), so I won’t repeat that information but I will try to tell you what I was thinking about, why I did what I did, and what each stock has been doing.
I suggest that you read this in conjunction with those Brief Reviews that I posted a week ago. (Besides, I made no trades at all during the week). When you get to the end of this, please feel free to ask questions.
Please note that any PE’s that I’ve given are based on adjusted earnings, usually as the company has given them, but rarely with small modifications of my own.
At the end of August my portfolio was at 104.6% for the year (up 4.6%). I am now at 106.5%, so I gained another 1.9% and I am at my highest month-end level of the year.
I’ve even caught up with the S&P 500, which I had fallen behind earlier in the year because of some stock nose-dives in Skechers and Skyworks especially. At the end of June, the S&P was doing 5.8% better than I was. When I posted my end of August results it was doing 1.4% better than I was, so I caught up 4.4% in July and August. The S&P is now up 6.1% so I caught up another 1.8% in September, and I’m now finally 0.4% ahead.
In fact my portfolio is up 32.3% from the February 11th low, when all the “smart” guys were mocking us for being buy-and-hold investors, and not going all into cash (the way they were). Up over 32% (!) I wonder how much their cash is up since then.
I have to 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 difficult year for me. Up 6.5% for the year so far may not sound so bad, but it’s way under my expectations.
We keep having people warning that the market is frothy, extended, and overvalued. There is also the uncertainty of a presidential election coming up. However, we have a rising economy, rising employment, rising wages, more hours worked, falling unemployment, low interest rates, low oil prices, and rising company revenues and earnings, etc. And it’s a market that just keeps inching up, like watching grass grow, or paint dry, in spite of nearly everyone being pessimistic about it, and it’s certainly not a euphoric booming market that should make you worry.
Now let’s get to my positions. I currently have 14 positions. I have a couple of new positions this month, and eliminated a few old ones which I’ll discuss later. My top six positions are the same as last month, and in the same order, with the sole exception being that Skechers and Shopify, which last month were 4th and 5th, are now virtually tied for 4th. This is partly because Skechers dropped in price in response to a downgrade by Morgan Stanley, and partly because Shopify has contined to rise in price, and also because I added to my Shopify position.
LGI Homes (LGIH) is still my largest position at 17.1%, down from 17.3% last month. (This is still quite a large position, and it’s 22% larger than the next position). It ended last month at $35.47 and closed this month at $36.84. I took some profits this month at $38.40 (because the position at that point had grown to over 18%), and bought back about forty percent of what I had sold at $37.00.
17.1% is still very big! I’m ambivalent about this, as I like to let a successful position run, but this is real money, and the real world, and 17% of my portfolio in one stock, in a cyclical industry, does make me nervous. To reiterate what I wrote a couple of months ago:
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.
LGIH’s earnings last quarter were 96 cents, up 45% from 66 cents a year ago. Average home price was up nicely. Closings were up nicely. Gross margins are holding steady. The housing market for starter homes is doing very well, with a shortage of homes for sale. As management put it in the conference call : Absorption was very strong, averaging 6.8 closings per community per month. This was up from 6.4 last year; all while increasing the average sales price by 6%, and adding 11 communities outside of Texas. Their PE is just 12.1. I’m continuing to hold an oversized position.
Amazon (AMZN) is still my 2nd position. It was 12.9% last month and 14.1% this month. Its stock price rose from $769 to $837 during the course of the month, or about 8.8%, and Amazon is up 63% since I started my position at $515 a little over seven months ago. This is certainly the highest monthly close I’ve seen it at. I added a tiny amount during this month. You must be aware how I feel about AMZN as I keep telling you I love the company, but I do feel my position is big enough now and I probably won’t be adding except perhaps tiny amounts when I can’t resist.
Signature Bank (SBNY) is still my 3rd biggest position at 11.4%. The stock price actually fell 0.8% this month from $119.5 to $118.5, due, I think, to worries about their having had to increase their reserve for taxi medallion loan losses. I wrote this after June earnings were announced:
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 possible specific taxi medallion loan losses. This 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 normally have sequentially every quarter (for 26 quarters in a row, anyway). This means next quarter should be a double large sequential gain.…
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. I figure this set-aside eliminates the uncertainty for me, but the market is waiting to be sure. I wrote the following in respnse to a question about the company:
Taxi medallion loans were only 4% of their loans 6 months ago, and as they grow their business every quarter, those loans become even less. Even though they took the write-off, they didn’t show a loss, they didn’t even show a decline in earnings, their earnings just GREW more slowly than they had been growing. Meanwhile, book value per share was up 22.6%! The efficiency ratio was 31.3%! You just can’t imagine how incredibly good those numbers are!
Efficiency ratio is very simplistically non-interest expenses (SG&A, etc), as a percent of revenue, the inverse of operating margin. This means that SBNY has an operating margin of about 69%…Operating Margin! An ordinary large bank like Bank of America had an efficiency ratio of 88% in 2014 and 66.5% in 2015. That means that their expenses were 88% of their revenues (!) in 2014 and 66.5% in 2015. For comparison, SBNY’s were 35.1% in 2014, 33.6% in 2015, and 31.3% last quarter. Their PE is just 15 at present. I may turn out to be very wrong, but I’m really not worried at all about my SBNY stock.
I added a small amount this month.
Skechers (SKX) is tied for 4th largest position at 9.0%, down from 9.75% a month ago. It’s price of $22.90 is down from the $24.72 that it closed at last month. It dropped $2 with a downgrade from Morgan Stanley, and has not recovered. I added a tiny amount this month at $23.40. Their PE is 12.7. They gave cautious guidance in July. We’ll have to see what happens from here. The stock is still up from my initial purchases at $15 to $18 split-adjusted, over two years ago, but it’s way down from it’s high at over $53 !
Shopify (SHOP) moved up from 5th and is tied for 4th with Skechers this month at 9.0% of my portfolio, up from 7.7%. I added a significant amount this month at $39.70, $41.00, and $42.40, but the portfolio percent is also up because the stock price moved up from $41.50 last month to $42.90 at this month’s close. (You’ll remember that I took this position at about $27.50 about four months ago after it was recommended two months in a row by a MF service. It was then written up by Bert shortly afterwards. He wrote them up again this month.) They have no earnings yet but their revenues have been rising over 90% compounded for several years and were up 93% last quarter. That’s Revenues! Up 93%! And renewable revenue was up 70% last quarter.
Arista (ANET) is still 6th, now at 7.5%, up from 7.1% last month. Its stock price is $85, and has risen 35% from when I started this position 6 months ago at $63 (and then added at $58). This is the highest it’s been since I’ve been invested in it. The price was at $79 a month ago. Arista’s business keeps booming and worries about the Cisco lawsuit are fading (very) gradually. Earnings and revenue last quarter were both up 37%. Their PE is 30.
These big 6 make up about 68% of my total portfolio.
Silver Spring Networks (SSNI) is now 7th at 5.8%. It was 8th last month at the same percentage. During the month its stock price rose slightly from $13.95 to $14.18. I didn’t add or subtract during the month. They don’t have much earnings, and they have a high PE (64), but they have won a series of huge mega-contracts that don’t show up on their books yet. In fact, they have won ALL the mega-contracts that have come on the market this year. What they install has recurring revenue for at least 15 years and growing. The price got as low as $10.30 a few months ago and is up 38% since then.
Synchronoss (SNCR) is now tied with BOFI for my 8th and 9th largest positions at 5.1%. It was at 4.6% last month. The stock price has been flat at about $41.15, but I’ve added a little during the month. It seems to me that they have finally turned the corner, and that all the expenses they had in the last six to nine months in order to build out enterprise solutions in partnerships with Goldman Sachs and Verizon, look like they will pay off. Their current PE is 18.
Bank of the Internet (BOFI) is tied with Synchronoss for 8th and 9th at 5.1%. This is down from 6.5% a month ago. It closed the month at $22.40. Two months ago I substantially increased my position size at prices between $16.15 and $17.15, and I reduced my position this month at roughly $22.25, selling some of what I had added, because this is a stock that I don’t want to allow to grow to much over 5.0% of my portfolio. I have discussed this at length and won’t say any more about it, except to reiterate that there is plenty of risk here if the legal stuff blows up in their faces. The PE by the way is still only 12.
Paycom (PAYC) is in 10th place. It’s been pretty flat, having been 4.6% last month and now 4.8%. Its stock price was pretty flat too, at $51.30 last month and $50.10 this month. I added a small amount to my position during the month. I started this position in Paycom about four and a half months ago at about $37.50, and have added all the way up. Its current price is up about 34% from where I started, but the rest of my purchases are naturally up less as the stock has gone pretty much straight up, and I’ve been adding along the way. Its revenue has been rising about 50% per year, plus or minus, and earnings have been rising about 100% per year, again, plus or minus. Its current PE is 70. Recommended by a MF service in June. Recommended by Bert as well.
Ubiquity (UBNT) is a new position this month. It is my 11th largest out of 14 positions, at about 4.2% of my postfolio. My average purchase price has been about $52.35, and the stock hasn’t moved much all month, closing at about $53.50. It had taken a bit of a run before I becasme re-aware of it, so I missed that earlier rise. I had been in Ubiquiti before but got out when they stagnated for a while. For eight quarters actually, but they are finally accelerating again. The CEO seems to have gotten interested in the company again, and in the last three quarters they seem to have taken off. Last quarter, revenue was up 28% and earnings were up 38%. Their PE is 22 even after the price rise. There has been a lot of discussion on the board in the past month, if you are interested.
To move on down again a little, my 12th largest position is
Hubspot (HUBS) at 4.1%, up a bit from 3.65% last month. It’s been flat this month too, rising only slightly from $56.80 to $57.60 (after being as high as $59.50). The reason its percent is up is that I bought some when it dropped to $53.50 one day on no news. I’ve been in this stock since the week before Brexit (remember that?). I bought initially at $47.50 and added to my position at $42.50 on the Brexit fall. (It’s up about 34% since then). This is a recurring revenue company with decreasing losses, positive operating cash flow, and increasing metrics on every part of its business (as you might deduce from the stock action).
My 13th largest is Mitek (MITK). It was 13th a month ago too, but it is a larger position now at 3.95%, where it was just 3.25% a month ago. That may not sound like much of a gain, but it’s actually 21% larger. It’s partly because the price rose 7.5% from $7.71, to $8.29, and partly because I added a little during the month, this time adding small amounts even up to and over $8.00. I’m cautious because Mitek is truly a small company, with a small float, and its PE is up to 30.7. However I’m starting to feel a little more secure as it keeps announcing new patents granted and new contracts signed.
My final and smallest position is Splunk (SPLK) at 3.0%. I discussed Splunk, the company, in my Brief Reviews a week ago. I’ve taken my position at about $58.30 to $60.70. It’s gone nowhere during the month and finished at $58.70.
I exited Salesforce, CyberArk and Atlassian during the month. With SalesForce I was concerned about a weak June quarter, and then they lost a big customer, HP, to Microsoft, which seemed very odd to me, as moving all your cloud from one company to another sounds like a major step and not one which is undertaken lightly. Salesforce also seems to be desperately chasing after large acquisitions (LinkedIn, Twitter) that they can’t really afford without a lot of dilution or a lot of debt. And they have a huge PE already, even if the accounting system doesn’t fully value them. I asked the board for help in analyzing the situation and ended up selling out. CyberArk and Atlassian were my two smallest positions (Atlassian was just a try out). I decided against them and sold out and redeployed the cash into some of the above companies that I liked better.
You’ll notice that I have just 14 positions, and I don’t have any really small try-out positions this month. I’ve settled into a portfolio that I really am comfortable with for now.
To summarize, this month my big six are still the same (LGIH, AMZN, SBNY, SKX, SHOP and ANET). Then SSNI, SNCR, BOFI and PAYC follow, and are pretty much unchanged except that I reduced the size of my position in Bofi, to keep it at a size where I’m more comfortable. My final four smaller positions are HUBS, UBNT, MITK, and SPLK… Ubiquiti and Splunk are new. I exited Salesforce, CyberArk and Atlassian.
I’ll list the positions here:
LGI Homes 17.1% Amazon 14.1% Signature Bank 11.4% Skechers 9.0% Shopify 9.0% Arista 7.5% Silver Spring 5.8% Synchronoss 5.1% Bank of Internet 5.1% PayCom 4.8% Hubspot 4.2% Ubiquiti 4.1% Mitek 3.9% Splunk 3.0%
Let me make a suggestion: When I want to compare positions I never just look at that column of numbers, as I find it very hard to grasp. I always look at my bar graphs of position size. If you want to get a visual picture of my position sizes (or your own), I’d strongly suggest you make a quick bar graph of them. Either your computer can do it for you, or if you are not computer savvy, you could do it with pencil and paper in probably two or three minutes (17% = 8.5 inches , 14% = 7 inches, 11.4% = 5.7 inches, etc., or if you are a metric person like me, 17% = 17 cm, etc.). But do it in bars.
What I do is “modified buy-and-hold” . I’ve had SKX for 28 months, and LGIH for a year. I’ve had SNCR for 19 months. I had INFN for a year and INBK for a year and a half each before I sold them. I had SWKS for 26 months before I sold out. 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.
What I mean by modified buy and hold is that, when I take a position in 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. I do sometimes take tiny positions in a company to put it on my radar and get me to learn more about it. I’m not trying to trade it and make money on it, I’m just trying to decide if I want to keep it long term. If I do try out a stock in a small position and later decide that it’s not what I want, 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.
You should never just try to follow what I’m doing without making up your own mind about a stock. In these monthly summaries I’m giving you a static picture of where I am now, but I may change my mind about a position during the month. In fact, I not infrequently do, and make changes in the position. I usually don’t announce these changes until the end of the month, and if I’m busy or have some personal emergency I might not announce them then. Don’t just follow me blindly! I’m an old guy and won’t be around forever. The key is to learn how to do this for yourself.
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 (a couple of times) if you haven’t yet.
I hope this has been helpful.
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