My portfolio at the end of three-quarters

Investment Analysis Clubs Saul’s Investing Discussions
#2

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
#3

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
#4

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
#5

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
#6

Hi Saul-

just answer my question on BOFI then or comment.

tj

#7

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

#8

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
#9

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
#10

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

#11

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
#12

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
#13

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
#14

the US healthcare system just looks systemically messed up.

Oh, it certainly is.

6 Likes
#15

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.

3 Likes
#16

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
#17

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
#18

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
#19

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

Saul

#20

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
#21

Hi John, It’s strict YTD. Thanks for your compliments. Saul

1 Like