Here’s the summary of my positions as of Aug 28th. As I often do, I’m posting it on the last weekend of the month as I have more time then. We just miss one trading day of August on Monday. The summary is longer with more detail this month and with more discussion. I’ve also added the current prices of the stocks for orientation.
This was a tough month for the stock market. .
At the end of June I was up 35.0% on the year, and the S&P 500 was up 2.1%.
At the end of July I was up 48.8% and the S&P was up by 2.2%.
We are now at the end of August and I am up 40.0% and the S&P is down 3.4%. I’m thus ahead of the S&P by 43.4% so far this year.
I would certainly have liked to have done better this month, but let’s look back two months to the end of June. I was then up 35% and the S&P was up 2.1%. If you had told me then that in the next two months the S&P would fall 5.5% to minus 3.4%, but I’d be up another 5%, to plus 40%, I’d have been ecstatic.
Please 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. 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 40% in eight months in a market, or a market as measured by the S&P anyway, that is down. As I wrote last month, please don’t expect equal results in the next four months. 
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 is even more than they made up a month ago. It’s mostly because I did such a good job of selecting my highest conviction stocks and these stocks have simply grown faster than the rest of my portfolio. BOFI and SWKS seemed to take turns being first and second for a while earlier this year, then last month SKX took over with a big run-up. This month SWKS fell off a little with the tech-and-China panic, and has partly bounced back.
BOFI was briefly over 20% and I trimmed a little and reinvested in other stocks, but shortly after I trimmed it fell a little with the most recent short attack, so its percentage of the portfolio fell when almost all my other stocks bounced back in price. I expect to continue to cap each of my stocks at 20% so I can sleep well at night, as I said that I would a couple of months ago.
Last month 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. This month I bought a bunch more at $86, and I still am not sure how it will turn out, but I hope well.
I sold a little SKX at $154 for cash when it was approaching 20%. After the current turmoil, it’s still at 18.85% of my portfolio. Note that with trimming SKX and BOFI when they approached 20%, and adding a little to SWKS, my top three make up an even higher percentage of my portfolio than last month.
Here are the big three:
SWKS ($88.6) at 19.9% - trailing PE is 18.2- ttm earnings growth is 76%
SKX ($142.0) at 18.8% - trailing PE is 32.6 - ttm earnings growth is 107%
BOFI ($117.6) at 17.3% - trailing PE is 22.1 - ttm earnings growth is 39%
Their 1YPEG’s are 0.24, 0.31 and 0.57 respectively.
Please note that although SKX and BOFI are now both at a lower price than where I trimmed them, that doesn’t represent genius at my part. I just trimmed them a little when they became 20% of my portfolio.
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 24.3, 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 0.37.
This is not an inherently risky portfolio, even after the run-up. For comparison, consider UA. Last I looked, it a PE 104, a rate of growth of earnings last year of 27%, and a 1YPEG = 3.85 !!! To me, THAT’s risky.
Next, I drop down to INBK, which is a large to middle size position at 9.3%. It’s only about 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 have been saying 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. (I did add a very tiny bit at $30.37 this week. It was as high as $36.00 just two weeks before).
INBK plus my big three makes up about 65% of my portfolio.
INBK ($30.15) at 9.3% - PE is 19.3 - earnings growth is 123% - 1YPEG is 0.16
Next two middle size positions: AMBA at about 7% and ABMD at about 6% (Ambarella and Abiomed).
AMBA ($96.3) at 7.3% - PE is 39.5 - earnings growth is 114% - 1YPEG is 0.35
ABMD ($98.2) at 6.1% - PE is 90.9 - earnings growth is 112% - 1YPEG is 0.81
Note that both of them grew earnings at over 100% for the trailing twelve months.
As I said, it’s been a wild month. For example, I bought most of my position in ABMD in July at $65.50 and it finished July at $77.50 (I had bought more at $71 and a little at $77). Then this month it got as high as $106.50, and dropped back to $93.80 before closing at $98.20. I was still adding a little at $89, but then sold a moderate amount at an average price of $100 for cash to buy other stocks that hadn’t had such a wild ride. (At $100, it was up 53% in a month). Note that in no way does this mean that I was selling out. I still have a 6.1% position and no current expectation of selling any more.
On the other hand, I didn’t sell any Ambarella when it was $120, but I didn’t buy any more either when it got down to $88. I’m satisfied with the size of my position and I’m buy-and-hold on this one for now. (My purchase price was mostly at $69.60.)
Next I have three stocks with middle to small positions between 5.0% and 4.2%. These are
INFN ($22.3) at 5.0%, PE is 38.4.8 - earnings growth is 142% - 1YPEG is 0.27
SEDG ($25.4) at 4.6%, PE is 38.5 - earnings growth is 200% - 1YPEG is 0.19
ANET ($76.4) at 4.2%, PE is 38.8 - earnings growth is 77% - 1YPEG is 0.50
I like all three of them, and I did add to SEDG and ANET this month, but I haven’t built quite as big positions in them because of
A: Not enough money,
B: Not quite as much conviction,
C: As far as ANET, it has those lawsuits, as far as INFN, it’s in a tough industry, and SEDG has the danger of eventually turning into a commodity product.
These nine so far make up about 93% of my portfolio. All nine were in my portfolio last month, and my biggest four 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.
Finally I have three small positions between 3.4% and 3.0%. These are SNCR, PAYC, and CASY. The last two, PAYC and CASY are new positions for me.
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 this month with a more substantial position.
I discovered Casey’s General Store through a discussion by TMF Flygal, who when asked to vote between two other stocks on a paid service (I don’t remember which one), dissented and said she stuck with her preference for CASY. I looked further into it and liked it, and took a small position.
SNCR ($40.4) at 3.4% - PE is 19.8 - earnings growth is 32% - 1YPEG is 0.62
CASY ($106) at 3.4% - PE is 22.7 - earnings growth is 41% - 1YPEG is 0.55
PAYC ($38.3) at 3.0% - PE is 116 - earnings growth is 200% - 1YPEG is 0.58
Note that 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.
Please note that all three of these small positions together total just about 9.8% 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 2.2% in margin). The top six stocks, about which I have strongest convictions, make up 79% of my portfolio.
I sold out of EPAM and CRTO this month (and eliminated my tiny position in SWIR). I exited EPAM mostly because it was fairly priced (1YPEG about 1.00), and used the money to add to other positions. I already explained why I was cutting back on CRTO (because of decreased earnings growth due to “investing more in growth” and because of the ad blocker issue, which I am not enough of a techie to evaluate).
Note that ALL of my stocks have a 1YPEG under 1.00. In fact only one of them has a 1YPEG of 0.81 (ABMD), and ALL THE REST have 1YPEG’s of 0.62 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 0.43, and the average of my big four is even lower at 0.32. 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 two months and a year and three months), BOFI for close to three years, and INBK for about 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.
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