My portfolio at the end of the year 2016

My portfolio at the end of the year 2016

When I look back to my post at the end of last year (2015), I see that I wrote:

I finished the year up 16.0%, with the S&P down 0.7% and the Russell 2000 Small Cap Index down 5.7%.

Well, this year was almost the opposite. Last year was the year for growth, this year for value, as the beaten down oil and commodity stocks have made a comeback throughout the year. I don’t invest in oil and commodity stocks and other cyclical stocks as a rule, and it wasn’t my kind of market. This year I finished up 2.5%, with the S&P up 9.5%, and the Russell 2000 Small Cap Index up 19.5%.

How does that look over the two years? I was up 16.0% and then 2.5%. To calculate my results we multiply 1.16 times 1.025, which equals 1.189. So I was up 18.9% in the two years. I wasn’t totally happy with that, but this was not a great year for growth stocks (which most of my stocks are). Strange to say, I feel content at the end of the year. I feel good about the stocks I’m invested it, and don’t feel any urge to sell out of any of them. It’s wait and see how the new year unfolds.

To calculate the S&P for the two years, we multiply 0.993 times 1.095, which equals 1.087. So the S&P was up 8.7% in the two years.

The Russell was much wilder. Down 5.7% and then up 19.5%. That gives us 0.943 times 1.195, which equals 1.127. So the Russell was up 12.7% in the two years. So I soundly beat both the averages over the two years, for what that’s worth. What’s most important, I made enough money for us to live on, which is what counts.

I had 15 positions at last year’s close and I have 15 again this year, but I find that the only two which are survived from last year are Amazon and LGIH. The ones I exited you all know about. There were SKX, SWKS, INFN, INBK, CASY, SEDG, CBM, CELG, CYBR, SNCR, AMBA, AMAVF and FB, in no particular order (although the last two don’t really count as they were tiny 0.5%, or too-small-to-be-called positions).

My stocks have really been on a see-saw the past few months In October I had lost 8.5%, and had dropped from plus 6.5% to down 2.0% in the course of the month, due partly to Amazon, Skechers and Bofi falling after earnings, but mostly due to my largest position, LGIH, which dropped 20.6% over the course of the month for no discernable reason. Shopify also dropped over 5% with no apparent reason, and some others did as well.

Then in November I regained all I had lost in October, and more, starting at down 2.0%, falling a little more before the election, but then rising like a rocket over the last two and a half weeks after the election, up 9.9% for the month, to finish the month at up 7.9% for the year. What a surprise!

So what happened in December. My portfolio settled back, dropping 5.4% to finish the year up 2.5%. What a wild ride!

Please note that any PE’s that I give are always based on adjusted earnings, usually as the company has given them, but rarely with small modifications of my own.

Now let’s get to my positions. At the end of October I was able to say that I had exactly the same 14 positions as at the end of September, with no additions or deletions. At the end of November I could say the same thing: I still had the same 14 positions with no additions or deletions. At the end of December there have been some changes. Skechers, which I had had for 30 months (2 ½ years) is gone, as is Synchronoss, which I had had for 21 months. Finally, Mitek, which I had held for 11 months, but which had been reduced to my smallest position last month, is gone as well. These were long term positions and I had to have good reasons for selling out.

Why did I exit Synchronoss? Here’s what I wrote about it a month ago:

Synchronoss started at $37, but boomed on earnings, and finished up 33% at $49.20. I added after earnings and the conference call, at about $46.60, and was very happy with my purchase. As I have mentioned, I feel they have truly turned the corner, and it should be nothing but up from here for some time. And even after the boom in price the PE is only 21.

As you can see, I was really enthusiastic. It was my fifth largest position at that point. And then they had an unexplainable attack of total insanity. Here’s what I wrote in my own notes:

After a long wait, they finally turned the corner. Their cash cow activation business had slowed down but was still raking in the dough. Their cloud business had become over 50%. Their new enterprise business with Goldman and Verizon was finally bearing fruit. Earnings had taken off again after several quarters of flatlining. All they had to do was sit back and rake it in. So what did they do?

1. They sold their cash cow, which was guided to be $74 million for just the next quarter, and 37% of their total revenue for the quarter. That’s wrong! You keep your cash cow legacy business until it becomes a small enough part of your total that you don’t miss it.

2. They are taking on new debt of $900 million which is roughly half their capitalization.

3. They are acquiring a company that they clearly didn’t need (based on the “sit back and rake in what you have earned” scenario). This is a huge acquisition. This acquired company is almost half their size, is losing money, and has grown revenue VERY slowly. Why is SNCR doing this? You mean they couldn’t find a bolt-on acquisition that would make them happy?

4. The CEO that has made them so successful is choosing this crucial moment, with everything in flux, to remove himself from the day to day running of the company.

5. And who is replacing him? The CEO of the slow growing, money-losing huge acquisition. What a great choice.

This is no longer the company I was invested in. It’s barely recognizable. It’s an unknown quantity, with a huge debt load, less revenue, and a CEO who is also an unknown quantity. It may do fine, but it will do it without me.

As you can tell, I was furious. I sold out as soon as I figured out what was happening, and got out of almost all of my position between $42.50 and $40.00 with a few shares at about $39.80. The price had been at $49.50 and is now at $38.30 so a lot of people agreed with me.

Why did I exit Skechers? Here’s an excerpt from what TMF Pencils wrote. It sums up my feelings quite well:

…it’s disappointing seeing SKX not meet expectations this year. Growth in the U.S. has ground to a halt (even dropping), and it looks like management expects the same thing to happen internationally as a whole. The stock has been a very disappointing performer, and based on management’s guidance we shouldn’t expect growth to turn around in the near future. But that doesn’t mean our investment in SKX won’t pay off or that the stock doesn’t represent an attractive value for patient investors. Looking at the balance sheet, it’s clear the underlying business is still strong…. it’s really just a matter of how long this slump lasts and/or if SKX can find other lines to generate growth. Their balance sheet is strong and inventory and accounts receivable are being managed well…

In other words, it has changed from a growth stock to a hoped-for value or turn-around stock. Personally, I was amazed to see rapid growth just disappear like that. They had year-over-year AND sequential declines in earnings for two quarters straight. Even though I love the shoes, I decided to put my money elsewhere.

Why did I exit Mitek? Here’s what I wrote a month ago:

…my smallest position has continued to sink, and has fallen in two months from $8.30 to 5.95, a drop of 28%. There is no reason for the drop that I’m aware of except revenue growing without earnings growing. They had announced beforehand that 2016 would be an investment year, investing in grabbing market share …so, to tell you the truth, I’m not sure what’s going on. And as I don’t understand what was going on, rather than adding to this small position, I reduced some of my position.

This is really a tiny company. Their total trailing 12 month revenue is just $35 million dollars! I didn’t understand what was going on, but when they increased revenue last quarter by 23%, but decreased earnings per share by 22% it was enough for me and I sold the rest of my position. It may do fine. All three of these companies may do fine. But I’m trying to find better places for my money.

I now have 12 real positions, plus one position that is half-way between a real position and a evaluation look-see position, and two tiny look-see positions. So say 12 and a half positions and a couple of tiny ones that may or may not be there next month.

Let’s look at position sizes. Remember that a percentage of the portfolio can rise, not because I added, but because it rose more than the rest of the portfolio. Similarly, a percentage can fall not because I sold some, but because the price fell, or rose less than the 9.9% that the rest of the portfolio rose.

First, let’s look at the 14 companies I had at the end of November and where they are now.


**November                 December**

LGI Homes		14.2%			13.2%
Signature Bank		12.7%			12.1%
Shopify			11.0%			12.5%
Amazon			10.2%			12.2%

Synchronoss  		 7.4%			  ------
Ubiquiti		 5.7%     		 8.0%
Arista			 5.7%			 7.9%
Skechers		 5.7%			 -------
PayCom 			 5.5%			 6.3%
Silver Spring 		 5.4%			 4.5%
Bank of Internet	 5.2%			 5.2%
Splunk			 4.6%			 5.7%
Hubspot			 3.4%			 4.9%
Mitek       		 1.9%			  -------

So what’s changed and what’s the same?
Well the top four are still the top four, they’ve just moved around a bit. I added some Amazon, sold a little SBNY after a huge run-up, and LGIH fell some in price.The top four as a group remained pretty stable, advancing just from 48.1% to 50.0%. This probably reflects that I have fewer full positions.

Ubiquiti and Arista have moved up to fifth and sixth place, with medium-large positions, at 8.0% and 7.9%, but well behind the top four.

PayCom, Splunk, Bofi, Hubspot and Silver Spring follow at medium position sizes ranging from 6.3% down to 4.5% of my portfolio. They are in 7th through 11th places.

Then I have a new smaller position: Twilio (TWLO) at 3.9% and in 12th place. It first came to my attention when someone brought it to the board. I liked it. I discovered that Bert had recommended shorting it when its price was at $56, but I got into it at $35. Bert felt their moat wouldn’t hold and that people would migrate to cheaper competitors. I found Tinker’s thesis more compelling: Twilio has 80% of the market and essentially all of the developers use Twilio. Moving away from the dominant player makes little sense to save a couple of pennies.

Revenue is up about 70% for the first 9 months of the year. This isn’t something new as revenue was up 84% last year off a much smaller base. Active customers are up 45%, so each customer is spending more (more increase in revenue than in customers). Their “Dollar-based Net Expansion Growth Rate” is 155%. Their losses per share, based on a constant 83.9 million shares, has been down each quarter, and for the first 9 months is down from 25 cents to 15 cents per share, and should be just 2 or 3 cents next quarter. Losses are just about 5% of revenue and shrinking fast. This is obviously a rapidly growing company, and in spite of what Bert said, they are very close to breaking even (lost 4 cents last quarter, and will probably lose 2 or 3 next quarter.) They also have a close relationship with Amazon (and could be acquired).

Then I have a new half-sized position: Hortonworks (HDP) at 2.3% and in 13th place. What in the world is a company called Hortonworks. Well it is an important seller of Hadoop (whatever that is). Actually, what Hadoop is is a database or a framework for distributed storage and distributed processing of very large data sets on computer clusters built from commodity hardware. Because of its architecture, which has built in redundancy, Hadoop is highly reliable. (Doesn’t help much, does it?) Well Bert says Adopting Hadoop is probably “mandatory” for any organization that wishes to do advanced analytics and get actionable insights on their data. Probably 60% to 70% of data that enterprises have access to goes unused for business intelligence and analytics… Application developer professionals are adopting Hadoop “en masse,” and analysts predict that 100% of large enterprises will adopt Hadoop. The Hadoop market is supposed to have a CAGR of 50% to 60%. That’s not bad.

In the past year and a half the stock price has dropped from about $28 or $29 to a low of $6.40 a couple of months ago, and a current price of $8.30. That means it lost over two-thirds of its stock price. So what’s the fly in the ointment? Well it’s losing a bunch of money and the thought is they will have to do another secondary to raise more money. So why did I buy it? Because I read the Prepared Remarks and the Presentation associated with the last earnings report. Their Adjusted EBITDA fell from a loss of $29 million to a loss of $15 million sequentially, and they say, unambiguously, that they will be at breakeven for Adj EBITDA this quarter, and that they will reach Cash Flow breakeven next year. They, of course, have mostly recurrent revenue, and have a lot of deferred revenue that they can’t count yet towards earnings. What counts is what they call their “Operating Billings” rather than revenue, which includes growth in Deferred Revenue. It was up 65.5% last quarter, and up 16.6% sequentially. That’s moving. I took my positions at about $8.10 to $8.70.

I also have taken two tiny positions that I don’t want to talk about yet, because I’m not sure I’ll stay in them and I don’t want anyone to buy them because I’m looking at them. They add up to just 1.3% of my portfolio, taken together. I also have a Net 0.1% of my portfolio in Cash.

Well what happened with my big four during December? Going through them alphabetically:

Amazon was down about 4% for the month, starting at $780 and finishing at $750. This is apparently because of worries that they might have troubles with the new administration, and partly it’s perceived that limitations on free trade would hurt them. There was no actual negative news that I saw. I bought a bunch at about $758 this month.
LGI Homes had a disastrous October, falling 20% to $29.20, then bounced back to 33.23 at the end of November, but crashed again in December to $28.73, below where it fell to the first time. As I’ve said, its PE is now 9.1, while it continues to grow like mad.
Signature Bank, my second largest position at the end of October, and again at the end of November, had an exuberant month (because it is a bank, and banks had an exuberant month based on the election results). It started at $118.30 and finished up an enormous 27% at $150.20. I thought that this magnitude of rise was perhaps “irrational exuberance” and I sold a small part of my position on the way up.
Shopify started at $43.30, got as low as $39.50 during the month, but finished at $42.90. I added to my position several times.

What I do is “modified buy-and-hold”. I had had SKX for 30 months, and I’ve had LGIH for 14 months. I had had SNCR for 21 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. I even held little MITK for 11 months.

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.

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

66 Likes

Thanks Saul for all you do, it is much appreciated.
Wishing you and all the board contributors a Blessed 2017.

Kindest Regards,
Steve

Would hurt for 2017 to smile upon growth stocks either :slight_smile:

3 Likes

Would hurt for 2017 to smile upon growth stocks either :slight_smile:

Since I don’t have a clue what is going to be the economic impact of the new presidency (could be huge) I’m just standing pat with my positions and I have accumulated about 10% extra cash to have flexibility to take action based on what I see, not on what pundits expect (they are wrong as often as right).

Wishing all a most prosperous 2017 and beyond! Before your wealth take care of your health!

Denny Schlesinger

4 Likes

I had 15 positions at last year’s close and I have 15 again this year, but I find that the only two which are survived from last year are Amazon and LGIH.

What I do is “modified buy-and-hold”. . . . 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.

And the lion eats a “modified vegan diet.”

What you do seems to be very intelligent and successful – I am not sure why it is so important to you that it have the words “buy and hold” attached to it, though.

I would call what you do a very intelligent and successful form of momentum investing, which seems to have almost nothing to do with buy and hold as that label is generally understood. A buy and hold investor who has a 87% annual turnover rate (or higher – there were some positions that came and went during the year, I am sure) is not a buy and hold investor – the “modified” overwhelms the “buy and hold.”

There is nothing wrong with that – no ethical content to either label (buy and hold or momentum).

Why do I care?

I do not – except that you seem to, and maybe this is worth thinking about. Maybe just avoid the labels entirely, and in so doing avoid any hidden shackles on your thinking. Just call what you do “Saul’s Method” and then let it define itself – that will free you from the constraints of an imaginary adherence to buy and hold.

I am just one primate trying to help another primate achieve clarity. We are all in this together.

HM

54 Likes

Hi HM.

… a very intelligent and successful form of momentum investing …

I’ve considered this too.

I think that virtually all momentum investors look at stock price momentum, so I understand why Saul shuns that label. To the extent Saul’s approach is momentum-based, it seems to me that Saul’s primary focus is on business momentum, although a lack of confirmation from stock price momentum causes his eyebrows to raise (or something like that).

I think we’re in full agreement, though, that labels should play a negligible role. Understanding the thought process and how to apply it is what’s critical.

Also, as I’ve pointed out before, only one of us IS Saul. His exact process won’t be a perfect fit for any of the others of us. We can learn a lot from what he presents and modify our own processes where Saul’s methods make sense to us and are a good fit.

To my mind, focusing on business momentum is far more sensible than focusing on stock price momentum. If nothing else, the trends are more persistent.

P.S. Thanks, Saul, for your kind words of encouragement regarding my earlier post. Thanks too to those who contacted me privately and requested more. I’ve developed a list of my “Bottom 9” holdings, which might prove entertaining (at my expense) and hopefully instructive (please note, though: a bad outcome doesn’t always imply a bad process). I have other projects I’m working on right now, so that write-up may be a few days out, if I get to it at all… I’m hesitant to make promises right now, but I think it could be a useful post.

I should also note: In that earlier post, I said that I welcomed comments and criticism, but I was silent on the issue of questions. OF COURSE I welcome questions!

Thanks and best wishes,
TMFDatabaseBob
See my holdings here: http://my.fool.com/profile/TMFDatabasebob/info.aspx
Peace on Earth

9 Likes

What you do seems to be very intelligent and successful – I am not sure why it is so important to you that it have the words “buy and hold” attached to it, though.

Hi HM, I guess that what I am referring to is my intent when I buy the stock. Which is NEVER with the idea of a short term, or even mid-term profit or goal, but always with the idea of holding for long term. I won’t buy a stock for a dollar or five dollar profit. I look for a stock that I’ll be comfortable with as far as I can see into the future. I figure that rules me out as a trader, by definition.

Then, as far as momentum, I had held a good number of those stocks for 2-3 years. That doesn’t coincide with any definition of momentum investing that I’ve ever heard of. I held on to SKX from the $50 something range down into the $20 something range (which was clearly an error in retrospect, but certainly isn’t momentum investing.) Similarly with SWKS. And Mitek had been as high as $9.30 or so, but I added on the way down, even into the high $6 range, until I lost confidence gradually. That’s as far from momentum as you can get. Momemtum just doesn’t seem to fit.

The best I can come up with is “Modified” Buy and Hold. Sorry, but nothing else seems to fit.

Sorry,

Saul

3 Likes

Seeking Alpha has an article called: 2017 bargains? The Russell 2000 Worst Performers. It was dominated by Biotechs and Pharmaceuticals, so they weeded them out and posted another 25 excluding biotechs and pharmas.

http://seekingalpha.com/news/3232948-2017-bargains-russell-2…

Infinera made the list. It’s been descending steadily and is right near its bottom. I’m glad I sold it months ago. It’s a hardware company dependent on a few large customers, with no recurrent income and collapsing revenue.

HortonWorks is also on it and is 20% off its bottom a few months ago. I’m glad I just bought a little position in it this week. It’s a software company with lots of both recurring revenue and deferred revenue, and rapidly expanding sales. It’s possible TAM includes almost every enterprise in the universe instead of a few big clients.

Both on the same list!

Saul

5 Likes

Hello Saul,

I’ve been an active reader of your site for a year now. It’s been very educational to review your monthly summaries along with digest the critical analysis provided on companies you track.

I started with the TMF back in 2013 focused in MF Options and then PRO. I’m happy to follow those services while incorporating your investing discussions to build out my portfolio in other companies.

Your discussions have led me to invest in LGIH, SHOP, and HUBS. I would not have blindly followed people into these companies. Having reviewed your analysis, continuing discussions and then conducting my own research, I was very happy to make the investments while having you to thank for allowing me to be informed with conviction to make the investment.

I enjoy when each month closes to review your summaries and gain perspective. This has helped me also review my current portfolio in hopes of refining my own investment style for compounding returns in years to come.

Thank you Saul for your hard work and diligence to instruct.

Happy New Year!

Scott

5 Likes

The label “momentum investing” refers to price momentum. Business momentum is labeled “growth stocks.”

Denny Schlesinger

10 Likes

I had held a good number of those stocks for 2-3 years.

Of the following terms:

  1. Day trader
  2. Short term trader
  3. Mid term trader
  4. Modified Buy and Hold
  5. Buy and Hold
  6. Long Term Buy and Hold

Can we assign a length of time for each?

Day trader is up to a week, maybe 2. Short term is more than a week, but less than a month. Mid term is more than a month, but less than a year, and then I’ll jump to the end and say that Long Term Buy and Hold is 5 years or more.

For instance, TMF has an “Everlasting Portfolio” which promises to hold purchases for a minimum of 5 years. Can we agree to characterize that as a Strict Long Term Buy and Hold? BTW, no other MF real money portfolios has this rule, although many have positions they’ve held for 5 years. I’m not counting the non-real-money services like Stock Advisor or Rule Breakers, btw.

So, where does “Buy and Hold” or “Modified Buy and hold” fit into the continuum? Perhaps the first question is whether “Buy and Hold” is something shorter than “Long Term Buy and Hold,” or just an abbreviated name for the same thing.

In my view, Saul appears to be using the 1.003 year hold length requirement to qualify for US capital gain tax rates (which is often called “long term capital gains”) as his criteria for Buy and Hold. And so any stock he holds for longer than that is Buy and Hold. He seems to have many trades that are shorter than that, although he does point out the “good number” of trades he has that were held longer than that, at 2-3 years.

But, to me, with no (or almost no) stocks being held 5 years or more, it’s clear that Saul’s approach is not any sort of “Buy and Hold” any more than someone who’s been divorced 2 or more times going into their next marriage is likely to stay married this time. Both are going into it thinking it’ll be long term, but the facts just aren’t bearing that’s how it’s going to play out.

Saul’s is more of a Keynesian approach (John Maynard Keynes is attributed to have said: “When the facts change, I change my mind. What do you do, sir?”) than a buy and forget approach. This is a good thing, but the important thing is to differentiate between weekly re-evaluations and weekly trades. Saul has shown that one can re-evaluate one’s holdings frequently, but to do so with the current long term view in mind. And while not being afraid to change one’s mind within a month, not to to take a view that’s only a month out.

So, when there’s news on a company he owns, Saul re-evaluates the situation immediately. If his long-term view remains intact, he’ll leave his investment alone, or perhaps buy more on a stock price depressed by the short term thinking of others. However, if his long term view is now different, he’s not afraid to lighten up or get out, even if he only help that stock a short time. Saul’s not afraid to change his mind at any time and make what turn out to be short term trades, but he’s always doing so with the long term view in mind.

Understanding that distinction is important, but it still doesn’t strike me that “Modified Buy and Hold” successfully describes it. In my view, the term needs something with “constantly re-evaluating” in it.

7 Likes

It’s been very educational to review your monthly summaries along with digest the critical analysis provided on companies you track…Your discussions have led me to invest in LGIH, SHOP, and HUBS. I would not have blindly followed people into these companies. Having reviewed your analysis, continuing discussions and then conducting my own research, I was very happy to make the investments while having you to thank for allowing me to be informed with conviction to make the investment…I enjoy when each month closes to review your summaries and gain perspective. This has helped me also review my current portfolio in hopes of refining my own investment style for compounding returns in years to come.

Hi Scott, Thanks so much for your kind words. Learning about stocks is what this board is all about. And, for sure, I get many of my investing ideas from posts that other people have made on the board about stocks they’ve become interested in. We all learn.
Best,
Saul

HortonWorks is also on it and is 20% off its bottom a few months ago. I’m glad I just bought a little position in it this week. It’s a software company with lots of both recurring revenue and deferred revenue, and rapidly expanding sales. It’s possible TAM includes almost every enterprise in the universe instead of a few big clients.

If they are booking a lot of deferred revenue, I would watch what is happening to cash flow and bookings more than earnings. If they are booking service contracts that cause a lot of deferred revenue, it is likely they collect all the cash around the time they invoice the contract but all the revenue for the invoice drops to the deferred revenue bucket.

Day traders tend to close the trade the same day, they use lots of leverage and it becomes dangerous to leave positions open overnight. I don’t don’t day trade but my broker specializes in day traders. I’m offered more than twice the margin for day trades than for overnight open positions!

So, where does “Buy and Hold” … fit into the continuum?

I used to struggle with that. It’s not “Buy and Forget.” It’s not “Sell at the first sign of trouble.” Peter Lynch gives a good recipe for selling: “When the story changes (for the worse).”

My “Modified Buy and Hold” means that I add on dips and take profits on rises and sell covered calls while holding steady the core position.

Can we assign a length of time for each?

Except for day trading, I wouldn’t. How long you hold is irrelevant. How much you profit is. I’ve done day trades that I had no intention of doing but the price movement told me it was the right thing to do. This is specially true with options which are much more volatile and have limited upsides. For example, if the option, when sold, makes you $100 in three months but a sudden price change gives you $50 in a week, you take it having gotten half the profit in just seven days. With stocks it’s TA but rather more complicated to explain and it happen much less often.

I’ve stopped worrying about labels, they just hem you in.

Denny Schlesinger

4 Likes

Saul, what is the reason for excluding your 2014 returns from your analysis? Also you should probably include dividends in the S&P return (which add about 2 points per year; compounded).

What do you account for the relative poor 3 year performance? (since the board was started) Have you had other periods in your history where similar results occured? What did you learn from this in the past?

tecmo

4 Likes

Saul, what is the reason for excluding your 2014 returns from your analysis?

In 2014 he was down 9.8%

So last 3 years:

-9.8
+16
+2.5

Average past 3 years was 7%.

This vs the SPY (13.3, 1.2, 12) at average 9% over past 3 years.

3 Likes

In 2014 he was down 9.8%

So last 3 years:

-9.8
+16
+2.5

Average past 3 years was 7%.

Not average, you meant cumulative. $1,000 invested in this board picks and trades on Jan 1st, 2014, would grow to $1,072 as of today. That’s 7.2% total return over three years which is about 2.4% annualized.

#6

2 Likes

Not average, you meant cumulative. $1,000 invested in this board picks and trades on Jan 1st, 2014, would grow to $1,072 as of today. That’s 7.2% total return over three years which is about 2.4% annualized.

Correct…thanks for the correction.

This vs the Spy at 9% annual return.

Saul, what is the reason for excluding your 2014 returns from your analysis? In 2014 You were down 9.8%!

That’s an interesting philosophical point? Where to begin and end that kind of calculation. Why not start one year earlier than 2014, in 2013, when I was up 51%? In fact, why not start in 2009 when I was up 110.9%? (Better not go back to 2008 though, when I was down a bunch in the Great Recession.)

In fact, if I go back and start at 1999, I can pick up the 115.5% from that year, AND the 124.5% from 2003, but best not go back to 1998, because that was only up 4.9% and that will reduce the averages. There is no clear point to begin.

At any rate, I can tell with some accuracy that it’s been a 293 bagger since 1989. (Up 293 TIMES, not 293%. I don’t have an advanced calculator, but it comes out to well over 20% per year compounded). Doesn’t mean I have all that money: I’ve been retired since 1996, over 20 years now, and my family and I have been living off what I make in the market, sent my daughter to prep school, college, grad school, bought cars and houses, etc etc. (For all my past results, see the Knowledgebase, Part 1)

What’s different now? Am I doing somethng subtely different now than what I was doing years ago that is holding back my results. To tell you the truth, I don’t know! It’s almost impossible to remember exactly how I was investing 15 or 20 or 25 years ago, what small changes there may have been, compared to how I’m investing now. I can make some educated guesses:

When I had a lot less money, I certainly concentrated my investments more: I had fewer investments, maybe just 7 or 8 at a time. I could get in or out in a few trades. It’s definitely harder to maneuver a large portfolio (as any portfolio manager will attest to). I’ve said before that it’s like turning a battleship instead of a speedboat. I probably was more aggressive (especially in the years before my retirement when I had additional funds coming in). With five or six or seven positions, they obviously were of a percentage size of my total portfolio that I would hesitate to risk now. Perhaps the market has changed as well. Information is incredibly available now with the internet, and there may be fewer mispriced stocks to take advantage of than when only analysts were invited to conference calls, press releases could only be obtained from your broker, and you even had to call your broker to get a quote. And companies would send out an annual report some months later, and they had no web sites for you to look at (there were no websites). It seems that must have made a difference.

Saul

PS. To get back to the question Why did I exclude 2014? – I didn’t. When I was starting to write up my end of the year summary I looked back to last year (2015) to see what I had done, and saw what stocks I had at the end of last year, and last year’s results, which I compared against. Nothing more nefarious than that.

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

22 Likes

Saul,

Thanks for your: Portfolio at the end of the year 2016.

I like your Modified Buy And Hold method of investing.
And I like that you call it Modified Buy and Hold.

Thats what it is. Derived from TMF and their long term B&H.

Best to all in 2017,

Frank

1 Like

Why not start one year earlier than 2014, in 2013, when I was up 51%?

The reason I asked about 2014 is becausse that was the year the board was started; thus there are 3 years of public information about your stated returns. The years before this are interesting but not as interesting as the years you started publicly posting your trades and the thought process that generated those decisions.

I also think it is helpful to try and learn from this recent under performance - thus my question about if your process has changed at all since your very good returns from earlier in your cycle (when you were not posting your decision making process).

When I had a lot less money, I certainly concentrated my investments more: I had fewer investments, maybe just 7 or 8 at a time. I could get in or out in a few trades. It’s definitely harder to maneuver a large portfolio (as any portfolio manager will attest to).

Thanks for clarifying - but I am doubtful that your portfolio is at a size that makes it difficult to get in and out of positions - perhaps I am mistaken here but I don’t think you have posted the size of your portfolio (which is absolutlely fair for you to hold confidentially). I would have thought that anything under $100M would be pretty easy to maneuver - but maybe this is something you could help explain to help others learn from.

Information is incredibly available now with the internet, and there may be fewer mispriced stocks to take advantage

Do you think this is makes a good case for more passive investing then?

tecmo

8 Likes