My portfolio at the end of three-quarters

My portfolio at the end of three-quarters

Here’s the summary of my positions at the end of Sept. As I often do, I’m posting it on the last weekend of the month as I have more time then. We miss three trading days of Sept but if we went to next Friday we’d pick up two days of October, so I’ll stick with the last weekend of the month. The summary this month is again longer with more detail with more discussion than I used to have. I’ve also added the current prices of the stocks for orientation.

This month I added to AMBA at $79.80, which low price I thought was a ridiculous response to incredibly great earnings, but I was later able to buy a lot more at $68.50. It continued on down and closed Friday at $58.30. For those following these things, that gives this stock, which is growing trailing earnings at 136%, and whose last quarterly earnings were 88 cents, up 138% from 37 cents, a PE ratio of 19.8 and a 1YPEG of 0.15 !!! I have enough now and will wait and see.

With BOFI, when their integrity was impugned, and even Fletch was worried, I sold about a third of my position at an average price of about $115. Then after the CEO answered all the questions at the H&R Block Acquisition Conference Call, my confidence went way back up and I bought back as much as I could at $108.60 and then the next day at $112.50, and even a tiny bit a bit later at $117.10. It closed Friday at $125.20.

I also added to SEDG, SNCR, CASY, PAYC, INBK, INFN, and ANET, but sold out of ANET when it lost that preliminary decision in its lawsuit. I’ve discussed my reasons at length on the board.

I took a tiny look-see position in CNC (I later sold some of it as it was still low conviction and I needed cash to buy stocks on sale).

I added a little SWKS to my huge position at the beginning of the month at $85, and sold it back when the position size got up to about 21.5% of my portfolio. I also sold a little ABMD for cash (high PE, high 1YPEG).

This was a tough quarter for the stock market. Really a tough quarter. It’s felt as if each of my stocks took a hit and then bounced back, and then took another hit and another bounce, and so on. At the beginning of this quarter (at the end of June), I was up 35.0% on the year, and the S&P 500 was up 2.1%. We are now three months later at the end of September and I am up 33.3% and the S&P is down 6.2%.

In this very stormy quarter, the S&P dropped 8.3% and my portfolio dropped 1.7%. A number of posters said that I did well in a rising market but “wait until a down market” when my “high-beta Saul-type stocks” would tank. Here we are, and no “tank” (yet). I’m sure that if the S&P loses another 10% in the next quarter, my stocks will be down from here, but the movements in my portfolio seem reasonable as a whole (down 1.7% for the quarter), even though individual stocks like AMBA have had big drops.

You’ll note that a hundred dollars invested in my portfolio would have done 42.1% better than a hundred dollars invested the S&P so far this year. (133.3 divided by 93.8 = 1.421).

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 good stocks, mediocre (average) stocks, and poor stocks, so averaging good, poor and mediocre, you’d expect a mediocre result as compared to selecting 10 or 20 good stocks. Nevertheless, I am amazed that my entire portfolio is up 33% in three quarters in a market, or a market as measured by the S&P anyway, that is down.

I currently have twelve positions total. My big three: SWKS, SKX, and BOFI (which are Skyworks, Skechers, and Bank of the Internet, for the symbol handicapped :wink: ) are still the same that they have been for many months, and make up roughly 56% of my portfolio. This just about what they made up a month ago, in spite of my selling a little SWKS and BOFI. It’s mostly because I did such a good job of selecting my highest conviction stocks and these stocks have simply grown faster and fallen slower than the rest of my portfolio.

BOFI was briefly over 20% and I trimmed a little and reinvested in other stocks, but shortly after I trimmed it fell with the most recent short attack, so even though I bought back as much as I had cash for, its percentage of the portfolio fell a little. I expected to continue to cap each of my stocks at 20% so I can sleep well at night, but SWKS is now at 21%.

In July I wrote that I had added a bunch to SWKS between $91 and $102, mostly after it fell back after great earnings because other chipmakers had poor results, and I said that it was not clear yet how that will turn out. In August I bought a bunch more at $86, and I still am not sure how it will turn out, but I hope well. This month I couldn’t resist adding a little at $85.00 but trimmed it back at $88.30 because the position size was up to 21.5%. It closed at $87.80.

I sold a little SKX at $154 for cash when it got over 20%. After the current turmoil, at $139, it’s still at 19.4% of my portfolio. But that’s because some of my smaller positions like AMBA dropped more, leaving SKX with a bigger proportion of the portfolio.

Here are the big three:
SWKS ($87.8) at 21.0% - trailing PE is 18.0- ttm earnings growth is 76%
SKX ($139.2) at 19.4% - trailing PE is 32.0 - ttm earnings growth is 107%
BOFI ($125.2) at 15.7% - trailing PE is 23.5 - ttm earnings growth is 39%

Their 1YPEG’s are 0.24, 0.30 and 0.60 respectively.

My big three make up about 56% of my total portfolio. Although these are pretty high-conviction stocks, that’s a REAL lot in three stocks. They are in entirely different fields: microchips, banking, and retail clothing. This wasn’t by design, but it spreads the risk. Their average trailing PE is 24.5, which I’m very okay with. Their average rate of growth of trailing earnings is 74.0%, which is even better. You’ll notice that these big three positions all have low 1YPEG’s. It’s not really meaningful to average 1YPEG’s as it is with PE’s or rate of growth, but if you are curious, they average at 0.38.

This is not an inherently risky portfolio. For comparison, consider UA. Last I looked, it had a PE 112, a rate of growth of earnings last year of 27%, and a 1YPEG = 4.37 !!! To me, THAT’s risky.

Next, I drop down to INBK, which is a large position at 10.9%. It’s only a little more than half the size of my big positions but I also have strong conviction about it. (I bought INBK at $16 and added at $22 and $24). I had said for months that I especially had strong hopes for INBK but couldn’t take a bigger position in it because it’s such a small company with lack of liquidity, and that I already had a much larger position than was probably prudent for me. It indeed has continued to rise since then, and has grown on its own to become my fourth largest position in spite of my concerns. INBK plus my big three makes up about 67% of my portfolio.

INBK ($32.78) at 10.9% - PE is 21.0 - earnings growth is 123% - 1YPEG is 0.17

Next four middle size positions: AMBA, INFN, SEDG and CASY running from just under 7% to just under 5%.

AMBA ($58.30) at 6.8% - PE is 19.8 - earnings growth is 136% - 1YPEG is 0.15
INFN ($20.11) at 6.2% - PE is 34.7 - earnings growth is 142% - 1YPEG is 0.24
SEDG ($24.54) at 5.4% - PE is 37.2 - earnings growth is 200% - 1YPEG is 0.19
CASY ($106.4) at 4.8% - PE is 21.7 - earnings growth is 55% - 1YPEG is 0.39

Note that their average rate of growth of earnings is over 100% for the trailing twelve months, all their 1YPEG’s are under 0.40, and two are under 0.20 !!! I added to all of them in small amounts during the month.

These eight so far make up about 90% of my portfolio. All eight were in my portfolio last month, and my biggest five positions are still the same. I’m emphasizing this so you won’t think my messing around with my small try-out positions represents big changes in my overall portfolio.

Next I have three stocks with smaller positions between 4.2% and 3.9%. These are

ABMD ($22.3) at 5.0%, PE is 88- earnings growth is 112% - 1YPEG is 0.79
SNCR ($25.4) at 4.6%, PE is 17 - earnings growth is 32% - 1YPEG is 0.53
PAYC ($76.4) at 4.2%, PE is 104 - earnings growth is 200% - 1YPEG is 0.52

You’ve probably figured out why these are smaller positions: ABMD and PAYC have high PE’s, and all three of them have 1YPEG’s over 0.50. I tolerate the high PE’s in ABMD and PAYC because both of them have very high recurring revenue, in fact all three of them do. I like all three of them.

I’ll repeat what I wrote last month on PAYC: Lest you think I’ve lost my mind buying PAYC with such a high PE, let me point out that they have a recurring income model with a 91% retention rate (which is very good as it includes companies that were acquired or ceased to operate). To quote from a positive public article on Seeking Alpha: The way that Paycom’s subscription revenue recognition is set up bodes well for the company going forward. Put simply, Paycom experiences punitive up front expenses when it posts excellent quarters of growth in that it pays a huge one-time commission expense up front (hitting the expense line of its income statement) while it recognizes revenue over the lifetime of the relationship with the customer. This of course sets up the company for huge margins, theoretically reaching 99% over time, as it eventually recoups the entirety of its acquisition costs and can then post pure margin recurring revenues to the income statement. But again, the net income line is punished for high rates of growth.

I had first looked at Paycom in June discovering it from an excellent post on our board by Andy (buyandholdisdead) but I reconsidered and got out in July, and re-reconsidered and got back in in August with a more substantial position.

Please note that all three of these small positions together total just about 12.1% of my portfolio, so please DON’T get all excited about them and go take a big position in one of them because I’m in it! (The positions add to a little more than 100% because I have about minus 3.1% in margin).

Finally I have a small try-out position in CNC at 0.75%

CNC ($58.60) at 0.75%, PE is 21 - earnings growth is 80% - 1YPEG is 0.25

Note that ALL of my stocks have a 1YPEG under 1.00. In fact only one of them has a 1YPEG of 0.79 (ABMD), and all the rest have 1YPEG’s of 0.60 or less. While, as I said above, averaging 1YPEG’s isn’t meaningful in the same way as averaging earnings growth for instance, the average 1YPEG of all my stocks is only 0.365, and the average of my big four is even lower at 0.33. I reiterate, this is not an inherently risky portfolio.

What I do is “modified buy-and-hold”. Of my biggest four positions I’ve had SWKS and SKX over a year (about a year and three months and a year and four months), BOFI for close to three years, and INBK for just over a year. 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 and I sell it, I really don’t care whether I gain a dollar or lose one. I just sell out to put the money somewhere better.

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 #9286), which is a compilation of words of wisdom, and definitely worth reading if you haven’t yet.

Hope this has been helpful.

Saul

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

63 Likes

Saul-

as a recent reader of your posts, I see that your portfolio is somewhat concentrated (compared to mine definitely). You call a 5% position small.My largest position is ~7% of my portfolio and I have 55 stocks.

Also, you seem to trade more readily than the traditional Fool,and your portfolio composition changes quite a lot over a few quarters. You do sell just after buying a few days or weeks or months before. I agree that with new information you ought to be able to change or correct your previous decision but we can never be sure that the new ‘information’ is relevant to the business and to the stock in the long run. You yourself are successful at doing so and many traders do make moneys. But it may not be for everyone.
Do you leave a certain % of your portfolio alone without touching it for the long haul? A subset of your portfolio that you sowed for the long term while trading only a (small?) part of your portfolio?

The bulk of the money I made over the past decade investing in individual stocks have mainly come from 2 stocks that is not in this 55-stocks-portfolio. In 2011, I divested one of the two stocks and plough the money to start that 55-stock portfolio. I was lucky to know when to sell since that stock fell down a lot just after I sold it and it never came back to the level at which I sold.
I still hold a chunk of money from the other one of those two stocks. This ‘chunk’ is >30% of my total but I do not include it in my 55-stock portfolio. This can generate some cash at times to plough into new buys.

The point of all this is that my major gains have been made with a very small number of stocks. You just have to happen to be in there and you are on your way.

Now I am trying my hand at picking stocks with the help of MF (SA and RB), and I have not got significant gains over the past 4 years. I would like to focus a bit more of my money towards the best ideas and reduce the number of stocks I have accumulated since 2011.

How do you account and view transaction fees and taxes? You may have a lot of short term gains on which you will have to pay a lot of taxes.

tj

7 Likes

Saul-

one more question for you:

You sell to take out what you need and to have cash to plow it back in where you think it is a better opportunity.

what is your general method to manage that? do you take out money regularly throughout the year to cover your expense? or you take it out when you have enough gain during the year? how do you decide that this money has run enough and you think it should go elsewhere?

You see this last question is very difficult. I get you are looking at some metrics but then you don’t. The metrics (1YPEG etc…) for BOFI were looking good when you decided to sell,weren’t they? why did you suddenly decide to sell just before the short attack started? or is it because of this news you sold?
Then you seem to say that you realized your error and you bought back in when the short attacks die down. I can’t see myself doing that continuously. You react to every bit of news and you increase the risk of being wrong,and luck is there for so long before it reverse itself.
It is easy to say that you realized your error and you corrected it but how did you happen to have cash to do that just as the short attacks die down? I would think managing a portfolio like that would be very exciting but I myself would not be so sure in proceeding this way.

tj

2 Likes

Hi tj,

Really, honestly, and truly, most of your questions are answered in the Knowledgebase. Neil and I worked really hard on perfecting it. The most recent version got 80 recs when it came out. 80! We tried to answer all your questions in it because I can’t answer them again every time a new member joins the board. Please read it, and if you still have questions afterwards I’ll be glad to take a stab at them.

Best

Saul

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

15 Likes

Not Saul but…

here is ample academic evidence that you don’t need anywhere close to 55 stocks to achieve diversification. That has been discussed on this board and on others. Why not just buy a mutual fund if you want 55 stocks? Because no individual can really keep up with 55 stocks.

my major gains have been made with a very small number of stocks.
with 55 stocks assuming equal sized holdings you have to be very lucky /smart for any position to be big enough to matter a lot even if it is a multi bagger.

2 Likes

Hi Saul-

just answer my question on BOFI then or comment.

tj

Not sure what academic evidence you are referring to but there are plenty of individual investors who do well with >55 stocks.
They are not equally sized.

do you have a number you think would be optimum for an individual investor’s portfolio?

tj

google to get a quick answer to these kind of questions. It took me about 30 seconds

http://www.aaii.com/journal/article/how-many-stocks-do-you-n…

As a rule of thumb, diversifiable risk will be reduced by the following amounts:

Holding 25 stocks reduces diversifiable risk by about 80%,
Holding 100 stocks reduces diversifiable risk by about 90%, and
Holding 400 stocks reduces diversifiable risk by about 95%.

but the real point is that diversification is just an Exchange Traded Index Fund away today. I use a equal market weighted form of Std and Poor 500, others are even more diversified.
There is no need to buy umpteen stocks to get it,since you can buy an index. Rather than making your own with 55 stocks.

The biggest diversification needed is between asset classes. Stocks ,cash, real estate etc. Equities mostly move together that is why bear and bull markets exist.

6 Likes

and here are the pretty pictures of Saul’s stocks to look at…
http://stockcharts.com/freecharts/candleglance.html?SWKS,BOF…

http://stockcharts.com/freecharts/candleglance.html?SMALLPOS…

P.

5 Likes

Saul I must have missed the CNC discussion somewhere along the track. Are you not worried about going into an election year in the US that any repeal of Obamacare reforms might have a sudden impact to the business model CNC are operating? Of do you hope to be in and out by then?
Thanks
Ant

Saul I must have missed the CNC discussion somewhere along the track. Are you not worried about going into an election year in the US that any repeal of Obamacare reforms might have a sudden impact to the business model CNC are operating? Of do you hope to be in and out by then? Thanks Ant

Hi Ant, Here’s a long thread on Centene started Aug 30th (with 25 recs).

http://discussion.fool.com/centene-cnc-31893048.aspx

Actually I never buy a stock with the idea of being in and out in a defined period of time. I only buy “forever” - but forever never seems to last forever :wink:

In spite of all the posturing, it’s hard for me to imagine a repeal of Obamacare, as you’d have 10 or 20 million people suddenly lose their health insurance, which would cause a huge uproar. Actually, you’d have the health insurance companies strongly lobbying against repeal. But who knows? I guess the uncertainty has held me back though from taking a larger position.

Saul

3 Likes

In reading back through the thread about Centene myself, I see that it’s currently 30 million people, and growing. Hard to imagine kicking 30 million people off health insurance, but as I said, who knows?

1 Like

I might agree Saul but given how 1) I’m not in the States 2) Obamacare is highly politicized and 3) Most US politicians are talking rabidly about repealing it; then it makes it hard for me to judge.

I have to say and I will leave it at this - from the outside, the US healthcare system just looks systemically messed up.

Ant

9 Likes

the US healthcare system just looks systemically messed up.

Oh, it certainly is.

6 Likes

Most US politicians are talking rabidly about repealing it;

I think the operative word there is the adverb … there is a lot of distance between rhetoric and feasible action.

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In the unlikely event that Obamacare is repealed, GOP must put a replacement plan in its place that gives the millions of Obamacare beneficiaries some coverage or they will be committing political suicide.

3 Likes

In the unlikely event that Obamacare is repealed

Repealed? Never. Politically tweaked? With certainty.

Meet the new boss, same as the old boss.

Bob

3 Likes

Saul,

Not that it really matters but I noticed an inconsistency in your post on the size of your holdings. The individual sizes of your small positions don’t match up to the range you state. Rather than being between 4.2% and 3.9%, which adds up in the total correctly, they are listed as 5.0%, 4.6% and 4.2%. Maybe you got off a column or something when checking those?

Next I have three stocks with smaller positions between 4.2% and 3.9%. These are

ABMD ($22.3) at 5.0%, PE is 88- earnings growth is 112% - 1YPEG is 0.79
SNCR ($25.4) at 4.6%, PE is 17 - earnings growth is 32% - 1YPEG is 0.53
PAYC ($76.4) at 4.2%, PE is 104 - earnings growth is 200% - 1YPEG is 0.52

Please note that all three of these small positions together total just about 12.1% of my portfolio

And may I say once again…thank you so much for sharing. Based on discussions I believe quite a few people have shifted their portfolios to better match your philosophy on investing. I have been moving that direction myself, but more slowly than some others.

Steve

3 Likes

Sorry, you are correct. My error. Those percents should be 4.2%, 4.1%, and 3.9%.

Saul

This was a tough quarter for the stock market. Really a tough quarter. It’s felt as if each of my stocks took a hit and then bounced back, and then took another hit and another bounce, and so on. At the beginning of this quarter (at the end of June), I was up 35.0% on the year, and the S&P 500 was up 2.1%. We are now three months later at the end of September and I am up 33.3% and the S&P is down 6.2%.

Hi Saul:

I just popped in to congratulate you on your great performance YTD in the face of a crappy market, and to share my performance stats - they’ll make you look even better :slight_smile:


Sep broker	18%
sep funds	 0%
John taxable	-7%
Fiona	         8%
Anna	        -2%
	
Average	        10%

As before, I prefer to look at each account separately, since I employ different strategies in each. John taxable, Fiona and Anna are all held at IB so I rely on their twrr calculation for the return. For my Sep broker and funds I calculate my own xirr, which should be similar to the twrr.

My total gain over all the accounts is 10%.

My taxable account got hit pretty hard this month, since I use leverage, options and made volatility trades a little early. I’m not too worried about the short term underperformance as I believe it will bounce back by the end of the year or early next year.

I use a smaller amount of leverage and options trading in Fiona and Anna’s accounts. Fiona’s account looks so good relative to the others because I raised a whole lot of cash for her so that she has it available for the buildout of her cafe/restaurant in Baltimore.

I’m pretty happy with my Sep brokerage account performance - obviously this is the largest account. It’s a very diversified account but is doing well against the S&P, though not as good as you.

The Sep funds - what can I say - I keep thinking I should liquidate them, although the largest component is the Vanguard Healthcare fund, which has been a stellar performer since I first owned it in the mid 1990’s. It’s been hit this month with all the drug price control talk.

One quick question/thought. It occurred to me as I was writing this that I’m not sure whether you are quoting your YTD returns as xirr (i.e. annualized) or strict YTD.

Anyway, congratulations on your continued great performance and for inspiring so many people on this board, which has become one of the must read gems of TMF.

John

11 Likes