Poll: Shopofy

Investment Analysis Clubs Saul’s Investing Discussions
21

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

The two are very different for the following reason. We insure our houses against a catastrophic event such as an earthquake, flood, fire, hurricane, etc. Such an event would cause permanent damage which would need to be repaired if we want to continue to live in the house. A drop in a stock price is often very different. If the business is not permanently impaired then a drop is usually based on either market sentiment or on business results being lower than expected. In either of these case the stock price will likely go back up. If we have done our homework and we continue to believe in the business why would we want to spend any money to insure against a stock price drop? It’s an expense that just lowers returns. The better decision if you think you have too much in one stock is to sell some and reinvest into something else.

Chris

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22

"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. "

so what happened after you sold half? do you still have this stock and what if you never sold?

tj

23

…“If I every find another Shopify (not a certainty) I’m going to try to remember this error.”

how would you know you would be facing the same situation? you wouldn’t really, right?

what if that is an AMZN 17 or 18 years ago? there were many reasons to cut or to sell at that time.

consider the same for AAPL in early 2000 or NFLX…or…

how would you have known you don’t have an AMZN but a pet.com?

Is there really anything to be learn from your loss?

tj

2 Likes
24

so what happened after you sold half?

I didn’t sell half. I sold all at half the top price. Now down an additional 2/3rd from my average selling price.

Denny Schlesinger

25

“If the business is not permanently impaired”
sometimes asier to tell in retrospect than in real time.

Look at the Tesla battery fires from hitting objects on the road.Not the best example but the one that comes to mind. Could an outsider be sure a massive chassis rebuild was not necessary ? Tesla could not have afforded that.Or even be sure that the batteries did not have some flammability flaw?
I owned Tesla at that time, kept my shares but did not have the guts to buy more.

1 Like
26

What I decided to do was trim about 2.7% of my position, bringing position size down from 19.78% to 19.25%.
I’m not surprised Saul - it seems you have always toggled and rebalanced your portfolio on extreme occasions. I wouldn’t be surprised if the stock price now corrected and you buy it back at profit as also seems usual for you.

I voted for the trimming option too - not just because of the Shopify stake but because you also hold Amazon. Whilst I hold Shopify I don’t hold Amazon but I do hold Ali Baba. If I also held Wix etc I would consider not just the individual stocks but also the combined exposure. Clearly they might all be on different valuations but if you were holding not just 19% in Shopify but 50% in Shopify + Amazon + Wix or something like that then I would also consider trimming.

Right now I have ~3% in Shopify and ~3% in BABA so 6% combined which is nowhere near a worrying threshold for me even if they are my top 2 holdings. I have another 1% in the First Dow Internet ETF that has a core Amazon holding which I guess could fit the same space as might 0.5% in YY.

I agree though that Shopify feels like one of those once or twice in a lifetime opportunities - like Amazon, ARM, Microsoft etc. I have the same feeling about BABA but probably greater.

Ant

1 Like
27

It went up a little over 30% since I bought some recently, but it only went from about 1.35% of my portfolio to 1.75%. Saul, I envy you your dilemma. :slight_smile:

I say sell some calls on some of it.

I think the company will continue to grow at a decent clip, so I’m more worried about an overall market drop taking SHOP down with it.

28

Is anyone buying more at the current share price?

29

Is anyone buying more at the current share price?

uh-uh … but I might sell you some. :slight_smile:

Dan

30

Is anyone buying more at the current share price?

Somebody is. They traded 2.8 million shares yesterday, so 2.8 million shares were bought.
Saul

31

I am not adding SHOP at these prices. I try and buy on pullbacks. Looking at the chart of SHOP she looks extended to me and since I have a partial position already I’m content to wait to add. I bought SHOP initially on the pullback to 39.80s, PAYC on the pullback to 39.75, HUBS at 48.30 and more recently
NVDA at 100 and VRX at 11. I find almost everything pauses or pulls back. If not in the name I would establish a partial position and add on pullbacks. Just my .02, and worth what you paid for it.

Rob

1 Like
32

You don’t have to sell it, I would probably hedge it directly with options.

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33

Hi Saul,

I realize this is way late, and you’ve made your decision already, but I’ll gamble that you might find it anyway, maybe for future consideration.

Maybe I’m missing some trick, but in order to make the most money possible with the least amount of risk possible, it seems to me that this would be the perfect time for placing a trailing stop-loss sale order. I just don’t see how you could lose unless SHOP went way down very suddenly and it blew threw your stop-loss price, which doesn’t happen very often (but can!)

As you know, a stop-loss order “follows” you. If SHOP goes up 11.2% from here, your trailing stop-loss trails up with the price. My only question would be where to put the stop-loss order at - what percentage.

So if SHOP starts from say, $90, where your 12% (just for example) stop-loss price would be .88 * 90 = $85.50. If SHOP goes up that 11.2% (again, just for example) your stop-loss price trails up with the price, so we would have a stop-loss price of 90 * 1.112 *88 = $100.08, and your trailing stop-loss price would move up to: $100.08 * .95 = $95.08.

The only risk, IMHO, is, as I said, if the price dropped precipitously through your stop-loss price in a market or stock-specific rout (which I’ve never had happen, but certainly could) because a trailing stop-loss order, when triggered, turns into a market order (no limits whatsoever.) Barring such a collapse, you could keep on earning a bunch if it continues to rally. Once you pass your stop-loss limit - that is once your limit, say 12%, is met by, say a 12% subsequent gain - whatever level you have chosen, every point further up is guaranteed profit and you can never go down past your original holding price. If it goes up another 30% this year, you get it all. If it goes down x% right away (only if right away) you lose a maximum of 12% (or whatever level you choose, which can be varied as the price continues to rise.) If it goes up 30% and then goes down 12% or more, the most you lose is 12%, after a 30% gain or in this case, 14.5%. And the cost is either $0.00 or only the amount of your loss limit * StockPrice * Shares which still leaves you sitting tall with a very cheap insurance policy.

I know you’re aware of all this and I apologize for the redundancy. But I point it out for others here; it can be a powerful tool to have in the toolbox, and I’m somewhat surprised that it wasn’t mentioned as one more option.

If the market fritters away another 5-10% of my YTD gains in the weeks ahead, I’ll put a stop-loss order on all my holdings at somewhere around 5-7% (since my gains have already been hammered thoroughly.)

Dan

34

It seems to me that this would be the perfect time for placing a trailing stop-loss sale order. I just don’t see how you could lose unless SHOP went way down very suddenly…

Hi Dan, Thanks for the suggestion. I have, of course, considered stop-losses back when my assets under management were much smaller. In agreement with many others, I decided that with high beta stocks such as I own, putting a stop-loss 10% under the market price for a significant amount of shares is just asking the market to drop the price and take me out 10% below the current price. I prefer to be in control of when I buy and sell myself. If I want to trim a stock because my position is too big, I’d prefer to take the current price, rather than wait for a 10% fall. When I trimmed Shopify, it was mostly at around $93.80. I was happy with that. I can’t see how putting a stop-loss at 12% below the market would have gotten me a better result (I would have been stopped out considerably below my actual price.)

So if SHOP starts from say, $90, where your 12% (just for example) stop-loss price would be .88 * 90 = $85.50.

You made a mistake there somewhere: 88% of $90 is not $85.50. It’s a rather terrible $79.20. Why sell at $79 when you could get $90 now. Putting in a stop-loss at $85.50 would be a 5% stop loss, and would be almost certain to be taken out with random market fluctuations.

If the market fritters away another 5-10% of my YTD gains in the weeks ahead, I’ll put a stop-loss order on all my holdings at somewhere around 5-7%

My style of investing is to make decisions based on how each individual company is doing and what I think its prospects are. I would NEVER sell all my holdings because of a market move. Think of Amazon which was $5 in 2000 or 2001. If it went up to $7 and you had a 40% gain, but then it “frittered away 10% of your gain” so you sold your entire position, you’d have missed $980 of future gain. (I wasn’t smart enough to hold Amazon all that way myself, I’m just using that for an example.) I don’t know what the market is going to do. I have enough trouble finding good stocks. I don’t want to also try to time the market.

Hope that helps

Saul

16 Likes
35

Thanks, Saul.

Interesting. I need to go back and re-read the boards files to see what you have done when stuff hits the fan, but I think I know.

No, I’ve never “sold out” but there have been several times when I wish I would have. It’s that cheap crystal ball I bought last year. Damn thing keeps on breaking down. All I really know is that a lot of my holdings are still over-priced. I’ve had worse problems - like when they stay “under-priced.” :slight_smile: Well, this is exciting, I’ll say that.

Dan

36

If it goes up another 30% this year, you get it all

Not exactly–The fed will take their share somewhere down the line.

Maybe I’m missing some trick, but in order to make the most money possible with the least amount of risk possible, it seems to me that this would be the perfect time for placing a trailing stop-loss sale order.

Placing stop-loss orders of any kind stand out like a sore thumb and can act like a magnet during times of market weakness to find cheap shares and pry them out of weak hands. Don’t be surprised if your order is executed and it turns out to be the bottom trade as the next trade is up strongly and the stock recovers and leaves you outside watching the price moving higher without you.

And if your sale left you with a profit the tax man will want some of the remaining gain you might still have at tax time. If it left you with a loss you might have to carry it forward for a while because the FED really doesn’t want to take the whole burden of your investing mistakes.

b&w

3 Likes
37

Thanks, Saul. Interesting. I need to go back and re-read the boards files to see what you have done when stuff hits the fan, but I think I know.

Hi again Dan,

You might want to look in the Knowledgebase under my historical results, right near the beginning, where I describe my experiences in 2000 and 2008. Also perhaps “My General Approach and Philosophy” (also in Part 1).

In Part 2: “What is my selling policy?” and “Portfolio Management” may be helpful.

More recently, on this board, right around Feb 11, 2016, when the tech group was crashing and hit bottom, I remember making some posts about what I was doing. Here’s my post #16869 at the end of February:

"Has anyone besides me noticed that a couple of weeks ago, when we were all the most scared (me included), because it looked as if the market was going to keep falling forever, was at the very bottom (at least for now). My bottom was Feb 11.

When all the paid services were telling us how to ride-out the Bear Market that was coming, and about to arrive, it was the bottom. When the news was full of world-economy-collapse articles and debt-will-kill-us articles, it was at the bottom. When all these guys who were short the market suddenly appeared on our board to scare us more, to tell us that their market indicators were saying that the market was going much lower, to make fun of us for being buy-and-hold investors, and to say that we were fools to hold our long stock positions — that was the bottom (for now at least, which is all we can know). By the way, I don’t remember even one of those guys telling us that his market indicators were saying that the market had just hit even a temporary bottom, and was about to turn.

I’m also saying that you should listen to your fear, and when you are really afraid because the market is tanking (at a time when the economy actually isn’t), it’s probably just Mr. Market doing his thing. The decline may be very scary but it doesn’t change the companies that we are investing in. And if, and when, you get so scared that you are seriously considering whether you should go 100% into cash, as those shorts were recommending, it most likely IS just about the bottom.

Please remember that I don’t know where the market is going from here. I’m just making observations."

If the market fritters away another 5-10% of my YTD gains in the weeks ahead, I’ll put a stop-loss order on all my holdings at somewhere around 5-7%

With regards to this again:

My end of May results were up 36.2%. I’m now up 37.1%, up for the month so far. Sure, I’m down 4.5% from my intraweek high a week ago Thursday, but so what? Why should I even consider selling out of all my holdings? I can’t even conceive of it.

Friday’s close was actually my second highest weekly close for the year, which makes it my second highest weekly close ever. What should make me doubt the economy and the world enough to sell out of everything? Did someone drop a nuclear bomb on the US? Actually the economy is still moving along at a nice very moderate pace, nothing to set off alarm bells. Unemployment is low. Wages are rising (slowly, but rising). Interest rates are rising slowly but are still close to zero. Energy prices are way down, which is bad for oil producers but good for the entire rest of the economy. The EU looks like it will stay together (except for England), and not split into a myriad of little bickering states. And, BEST OF ALL, everyone is worried about the stock market. It’s a goldilocks opportunity: Not too hot, not too cold, just right. Is that a time when you really would consider selling out of all your holdings? (That’s just the way I think about it).

Best of luck to you, whatever you decide.

Saul

21 Likes
38

Placing stop-loss orders of any kind stand out like a sore thumb and can act like a magnet during times of market weakness to find cheap shares and pry them out of weak hands. Don’t be surprised if your order is executed and it turns out to be the bottom trade as the next trade is up strongly and the stock recovers and leaves you outside watching the price moving higher without you.

Dan,

What b&w is referring to here can be best understood with an example.

ABCD got down to $3.30 yesterday on a down day for the market. You have a stop loss to sell 7000 shares of this little volatile stock at $3.00. The market maker sees your shares sitting there and he, or one of his friends, puts in an order to sell 8000 shares at market at the open. Some will go off at $3.30, some at $3.25, some at $3.15, etc and he ends up with an average price of, let’s just say, $3.12.

However his last shares hit that $3.00 or go slightly below it. This triggers your 7000 shares to sell and you get only an average price of $2.90. Some other stops by other people were triggered too. Guess who bought your shares at $2.90? The same guy who sold at $3.12 buys back your shares and the rest of the ones he sold. The price goes back up, but without you! You are out. You don’t know what hit you when the stock closes at $3.40 for the day. The guy who did this to you made 22 cents on the in and out so it was a nice quick 7% on his roughly $24,000 dollars.

Saul

11 Likes