Because of the incredible run-up, Shopify has grown to 19.8% of my portfolio. I’m reluctant to let it, or any stock, pass 20%, not because I have doubts about Shopify but because of position size. (But I didn’t want to let any stock get over 15% either). What would you do in my place?
- I would just ride it and let it grow. Don’t cut winners.
- I’d trim a bit and keep its position size under control.
- I’d sell half. (Why?)
- The stock price is out of control. I’d sell out.
- I don’t have a clue what’s the right thing to do.
I once let a position grow to be half the portfolio. I sold when there were clear signs that the investment had run its course. I sold at about half the top price yet it still is my best investment ever. Had I rebalanced I would have left a lot of money on the table. In another case I started taking profits early because I knew this run was based on a great product from a shoddy company, a flash in the pan. The company did go broke.
You got to know your stock to decide what to do.
You’ve got to know when to hold 'em
Know when to fold 'em
Know when to walk away
And know when to run…
Artist: Kenny Rogers
Album: The Gambler
Please forgive me…I couldn’t help myself.
One strategy is to sell enough. To get your money back and keep the rest.
What I’ve done in the past, is sell 1/2 of a very large position and I still have those stocks…for the most part I let them ride.
Sadly, there were some that I held way too long…fast run up and a slow fall down…and me holding onto the hope it will go up. :). The only one I have now that fits that category is FEYE…I’m hoping it gets bought out but I’m wavering from day to day on selling it.
I would delay making the decision until sometime before the next earnings report.
At this point the market sentiment keeps driving the stock higher. Sure that sentiment could change, but one would think some newsworthy event would drive the sentiment. My take would be to hold and see what happens with the price before next earnings. Make the decision then. If it hasn’t climbed much higher by then, maybe trim some.
Just my take which is many times wrong and will now likely cause the stock to plummet.
I held Cisco Systems between 1997 and 2000. I made 14X money. In 1999, CSCO became the largest company in the US at that time when it reached a market cap of $300B. I thought to myself, Y2K is coming up, and it won’t be good to CSCO. The company I worked for at the time, Clorox, had thoroughly modernized its equipment out of fear of Y2K issues. I figured any large company would be doing the same thing. I have always believed most large companies are like sheep. Anyway, I said to myself, “self its time to get out of CSCO cause it isn’t doubling or tripling from this stratospheric valuation anytime soon.” I bought at a split adjusted price of 4.80 and sold a little over 67. To be clear, CSCO went up a little past 80 and people told me I was an idiot because I didn’t understand the “new economy”. The next year, if my memory serves me well, the stock dropped to a little over $5 a share because most large companies did update their equipment prior to 2000 so demand dried up.
I think the best way to go is to hold until you believe the thesis is broken or you believe the valuation is unsustainable. One of the things that I appreciate about Saul is when he makes what he believes is an error, he addresses it, and moves on. As I am addressing my current errors, I am holding most of the cash back so that when we get a downdraft like we did in February of 2016, I have money ready to go.
Although the market PE is clearly higher than historical norms, the PE may be justified IF corporate taxes are reset to a rate that is more competitive to the rest of the world. I think that will be the case so the valuation is not as horrible as many believe. As always, the future is as clear as mud.
PS The CSCO money enabled me double the size of my house and supported my family’s travels for 10 years so the return was immeasurable to me.
What a great story bulwnkl! One can only hope to accomplish this for him/herself and family.
What I decided to do was trim about 2.7% of my position, bringing position size down from 19.78% to 19.25%. (I had previously trimmed small amounts at $71 and $82 (obviously, not enough to slow the growth of my position size). If it keeps going I’ll probably trim a little again when it gets to 21% or 22%.
What I decided to do was trim about 2.7% of my position, bringing position size down from 19.78% to 19.25%.
That’s what I voted for. I made the mistake of trimming mine too fast. It was getting close to 30% (not a typo) in January, so I cut it almost in half. That one I don’t feel bad about. But then in February I cut it way back again. Still understandable…it looked expensive. But then I cut it a third time in March…down to just 6% or so. That was probably a little too valuation-based.
If I every find another Shopify (not a certainty) I’m going to try to remember this error.
It was still only a 6.2% position at the beginning of May, so I actually added a small amount a couple days ago. I knew that would probably be the top (sorry, everyone!) But I just couldn’t live with it not being a larger position. I added few enough shares that I would still want to add a LOT more if there were a significant pullback – to me, that’s the key: be thinking about what you would do next. If it goes up, great, at least I had enough that I’m happy. If it goes down great, I can buy more. I’m sure given a big enough pullback you could buy more too…might be worth trimming 10% or something instead of just 2.7%…but you know what you’re doing!
There are many ways you can think about this.
You have accumulated a lot of wealth so I imagine if SHOP went to zero you and your family would still be ok in that your lifestyle would be unaltered. So if you believe SHOP will continue then holding it can allow you to make more money.
Staying disciplined in your own rules is an important part of preserving wealth. There is no need for you to swing for the fences anymore. As a person becomes more wealthy, it is usually more important to protect what you have accumulated than to go for spectacular returns.
Now #1 and #2 are really 2 opposing points of view, but they do not consider at all what you believe about SHOP, the company, and the stock. SHOP has also grown to my largest position, but my allocation is a little less than yours. Here’s what I think, FWIW. SHOP does not have a cheap valuation IMO and its valuation is taking into account its past growth and projecting that the growth will continue into the future. I think it’s very likely to play out this way: continued top line growth for a while longer. SHOP is a $7B market cap company. I think it becoming a $70B or $100B company in the next 7-10 years is a likely outcome. If that happened it would imply growth of 30% per year. The shift to online commerce is happening before our eyes and SHOP is smack in the middle of that with products and services offerings that have and are dominating in its market. I don’t see any evidence of a competitor displacing SHOP but it is something to keep an eye on going forward. So for these reasons, I am not selling any SHOP at this time. If the stock price were to get to $120 in the next 3-4 months, I would be tempted to sell some; otherwise, I intend to let it ride until I see evidence of problems or slowdown for SHOP. The problems or slowdown could be slowing growth, losing of marketshare, contracting margins.
I don’t know if this is helpful to you, but remember #1 and #2 and consider which one is more important to you.
I have owned TSLA since 2012. Have added on the dips along the way. Now I have a 34% position. I see this as a long, unique story with lots of upside ahead. I might be wrong of course. But so far so good. Cannot speak to what you should do Saul, but I am sure you will get it right
SHOP has been great. I have a 10 % position.
Best to all, going forward.
Almost half your portfolio in TSLA and SHOP – wow! What are your other top 10 positions?
I have almost 35% of my portfolio in just two positions: SHOP and MELI. I have managed
to convince myself that both are companies with long, long runways in front of them and
am exceptionally hesitant (stubborn) to trim or sell. I wrote myself a note on this problem a
few days before MELI reported and its stock increased by $38 a share compounding the problem.
So now the issue seems more troubling - still…SHOP and MELI are great companies…right?
Currently have :
ANET , LGIH , NVDA , AMZN , AAPL , UBNT.
And 3 small positions:
KITE , TLND , PAYC
and 20% cash
I would suggest that you follow the principles that have made you a successful investor for the past 20+ years.
Although I do realize that it is important to reconsider ones strategy and methods, it is equally important to recognize what has led to success.
I saw a part of an interview with the Chipolte CEO. Granted, most of it was just CEO speak to try to get people to invest in Chipolte again. But he did say that in hindsight, I thinks that their problems began when they drifted from their core focus and allowed them to be distracted by touchy-feely stuff. There may be something there.
Anyway, this is all grain of salt stuff as you know who you are, what you are comfortable with, and where you are trying to go. In hindsight, I probably should have stopped typing after the first sentence and just pushed submit.
Best of luck to you and thanks for the forum.
1) You have accumulated a lot of wealth so I imagine if SHOP went to zero you and your family would still be ok in that your lifestyle would be unaltered. So if you believe SHOP will continue then holding it can allow you to make more money.
In a lifetime of investing I’m aware that you only encounter a very few Shopify’s (I was going to say just one or two Shopify’s in a lifetime. That’s probably underestimating, but it isn’t many more than that.) So I know that I should hold it all and let it grow. But it’s hard to sleep nights when you have 20% of your family’s assets in one stock. (I’m sleeping fine, but Shopify has been going straight up). I sort of did a small compromise and sold a little bit to make me feel virtuous and sensible, and left the rest.
How about buying a put to hedge against a stock price drop. You would still get the benefit of any further uptick in the stock price but also be able to sleep at night if the price drops. We buy insurance for our homes to protect us from unexpected events. Why not the same for stocks if it gives us peace of mind
Saul, I’m sure you’ll make the right decision.
I trimmed SHOP a bit @70, kicking myself the past week, but it still managed to move back into my top spot, which is tiny (3.5%) compared to what a lot report on this board. It is my first doubler for which I want to thank you!
I only invest a small portion of my long term portfolio in your type of stocks, with the rest in boring index and dividend ETF’s, even some bonds. The Saul stocks have been exciting at times, much more fun to track and study. I may even become a savvy investor one day if I keep following the advice on this board. But in the meantime I sleep comfortably in retirement knowing that we can weather whatever mood the market is in.
looking at it from a dollar standpoint rather than a percentage standpoint can make sense. You can’t buy groceries with percentages.
That is what am going to do if this tech bull persists, sell my big positions down to a certain dollar amount.
I think: none of the above vote choices.
Where there is upside momentum and a wish to exit in part or fully owing to risk in some form, I would not interrupt the momentum but gratefully receive it until it expires.
Of course a stock can drop precipitously outside of results but usually you are safe to watch and wait.
So I would keep on my desk a constantly revised note of both the latest high and the stop-loss % below it at which I will (definitely and instantly) sell. According to the circumstances, this stop-loss can be hugely generous or extremely tight. Often it will often be best to steadily tighten, especially if (unlike SHOP) the company has little real merit and emotion is conquering all rationality. (It is some time ago but I seem to remember that was the case with DDD, a classic case of a mentally-held/desk-top stop-loss working perfectly.)
I am not selling SHOP because my holding is much smaller.