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 ) 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.
For Knowledgebase for this board
please go to Post #9939.
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