Portfolio status May 2014

Hi all,

My portfolio has been dinged a fair bit over the past two months or so. In terms of costs basis (and excluding sales that have locked gains/losses), my long stocks are up a mere 1.28%. I also have exposure via long calls, diagonals, short puts, spreads (all good things from the MF Options world), which I 'm not delving into for this post. Suffice to say that options have also not been going great guns, but that’s for another day.

Okay, so back to my long stock holdings. The table below summarises my current holdings. The second column shows the percentage of the total capital investment allocated to each stock. The fifth column shows the size of the holding relative to the current NAV of the long stocks. There are some superb business in this mix, right? Apple, Starbucks, Tesla, Markel, Amazon, Facebook, to name a few. There are some big winners as well. Netflix has been a 6x (6-bagger). Facebook has doubled.

Several of the so called momentum stocks are significantly down over their purchase price. I 'm down close to 50% on Twitter. Twitter has a lot of potential but may be I acted too quickly in terms of filling out my position. The current pricing would have been a better entry point. What can I say? Hindsight is 20/20! Its the same story with another business that I think has much potential - The Container Store. I have strong faith in these companies, so I 'm sitting tight and I may look to add a bit at some point if these prices persist.


-----------------------------------------------------------
stock   %cap   purchase    current   %portfolio Gain/Loss
-----------------------------------------------------------
AAPL	4.24	$514.46	   $597.51	4.87	16.14%
SBUX	2.83	$48.57	    $70.94	4.08	46.06%
CSTE	2.75	$37.84	    $51.41	3.69	35.85%
PGR	3.63	$24.91	    $25.36	3.64	1.82%
WFM	4.39	$45.27	    $37.91	3.63	-16.27%
NFLX	0.54	$56.04	   $349.88	3.35	524.35%
UBNT	3.5	$36.04	    $34.42	3.3	-4.49%
ISRG	3.6	$436.64	   $374.09	3.05	-14.32%
BRK.B	2.99	$123.08	   $126.86	3.04	3.07%
SCTY	3.3	$54.47	    $50.19	3.01	-7.86%
AMZN	3.27	$336.45	   $297.70	2.85	-11.52%
FB	1.29	$26.57	    $58.02	2.78	118.37%
TSLA	1.58	$108.61	   $191.56	2.75	76.37%
WETF	2.19	$7.50	     $9.56	2.75	27.38%
MKL	2.27	$518.79	   $624.67	2.69	20.41%
PSIX	2.43	$66.67	    $70.61	2.54	5.92%
SWIR	2.62	$18.02	    $17.64	2.54	-2.14%
AMBA	2.08	$19.47	    $24.05	2.53	23.54%
MELI	2.83	$97.10	    $84.99	2.44	-12.47%
PNRA	2.62	$168.96	   $152.89	2.34	-9.51%
CBOE	2.43	$50.08	    $48.72	2.33	-2.72%
ROIC	1.89	$12.99	    $15.84	2.28	21.94%
GTLS	2.77	$87.93	    $72.50	2.26	-17.55%
NUAN	3.13	$21.52	    $15.28	2.2	-28.99%
SSYS	1.64	$67.72	    $89.27	2.14	31.82%
CELG	1.73	$118.84	   $147.32	2.12	23.97%
LNKD	2.98	$204.88	   $147.02	2.11	-28.24%
CAMP	2.71	$22.31	    $17.28	2.07	-22.55%
COH	2.89	$59.46	    $41.99	2.01	-29.39%
INBK	2.28	$23.53	    $20.38	1.95	-13.40%
CLNE	2.11	$10.86	     $9.82	1.88	-9.58%
MTH	2.04	$42.01	    $38.94	1.87	-7.31%
FIVE	1.89	$38.90	    $37.64	1.8	-3.24%
INVN	1.7	$17.52	    $17.44	1.67	-0.43%
MIDD	1.68	$231.47	   $224.19	1.61	-3.14%
TWTR	2.98	$61.36	    $32.26	1.55	-47.42%
BJRI	1.59	$32.67	    $28.99	1.39	-11.26%
LQDT	1.78	$18.37	    $13.91	1.33	-24.28%
TCS	2.08	$42.79	    $27.34	1.31	-36.11%
QGEN	1.24	$21.28	    $22.59	1.3	6.14%
RAX	1.5	$56.32	    $36.12	0.95	-35.87%
-----------------------------------------------------------

With respect to Table above, I should point out that I did add to some of my positions over the past month or so. I have added to

  • Whole Foods (a small bite with respect to my original position)
  • Wisdom Tree (I added a bit today)
  • Ubiquiti Networks (I doubled my positions on the recent sell off, which looked totally unwarranted)
  • CAMP and FIVE are relatively new positions.

I also made one sell decision (TXRH). I sold because I wasn’t really getting hooked to the company (so was lagging on readings the earnings release and transcripts etc) and I wanted to raise funds to buy Ubiquiti. Could be a bad decision, but we will see how it pans out.

Some other stats on the portfolio, before I start talking about my losers. The table below shows the market cap distribution for my holdings. My portfolio is heavily weighted towards small and mid-cap holdings (a majority drawn from Stock Advisor and Rule Breaker recommendations). A total of 26 out of the 43 holdings are in this small to mid-cap range. About 56% of my portfolio is allocated to these small to mid-cap businesses. Volatility is part and parcel of small and mid-cap investing. These stocks have been beaten down. But, in the long run, one would expect these small to mid-cap businesses to become much bigger … some of these mid-caps would likely become large caps, and therein would be the opportunity to get big gains.


----------------------------------------------
                             # holdings  %NAV
----------------------------------------------
Mega Cap       (100B, )           4	13.54
Large Cap    [10B, 100B)	 10	28.29
Mid Cap	     [2B, 10B)	         13	28.37
Small Cap    [250M, 2B)	         13	27.85
Micro Cap    [, 250M)	          1	1.95
----------------------------------------------

Now, let me blah blah about my looser, I worry/think a fair bit about Coach, Rackspace, and Liquidity.

Coach is having a tough time figuring out how to compete with the likes of Micheal Kors. When I visited Washington DC in March, I went to the Pentagon Mall. There the Michael Kors shop and the Coach Shop are pretty much next to each other. The Michael Kors shop was teeming with potential buyers, the Coach shop was empty. Honestly, I thought the product lineup at Micheal Kors looked great; I even made a purchase there. Bottomline, I think Coach is going to struggle for a while …

Rackspace is getting crushed by the price cuts by Amazon, Google, and all others in the cloud computing fray. Here, I think its probably very difficult for Rackspace to meaningfully sell ‘fanatical’ service as other services such as AWS will continue to improve their APIs making their service easier to use and maintain. But there may be a potential buyout here by one of the many trying to get a foothold into Cloud Computing. Oracle, IBM, and some others may be interested in buying Rackspace. Consolidation of this market has been ongoing for sometime and will not end anytime soon. There were some buyout rumours today, which pushed the stock up some 20%. So, here, I think patience is required. At current values, Rackspace looks cheap compared to competitors, and I think a lowball buyout offer may eventuate sooner than later … so I 'm going to just let it play out.

And, then there’s Liquidity. I better not get started on that one!

Should I sell? Let’s start with Coach. Right now, I think the multiples look cheap enough that selling doesn’t make sense. I will wait till September when their new lines are suppose to come out, and then decide what to do. Same story with Rackspace. Patience is required.

I 'm also getting more and more comfortable with Tom and David G’s line of thinking that selling more often than not results in performance deterioration, and often the best thing to do is to hold for a very long time. There are practical considerations though, in terms many companies one can meaningfully follow, but may be this works as long as one follows the bigger holdings.

If you got this far, thanks a bunch for reading all the way to the end. I write these commentaries with the intent of clearing my thoughts. But, I also do hope that some of the more experienced and astute folks out here will browse through it and share their thoughts.

Thanks again,

Anirban

14 Likes

Anirban,
I am in a similar situation and I appreciate your sharing with us here.
I also bought more UBNT this week and bought a new position in Amazon for my wife’s IRA, I just couldn’t resist.
Overall I think one needs to be patient and not force the issue.
Keep on posting
All the best, Erik

Anirban, thanks for the nice post. I have a couple of questions. Obviously they are things in which I disagree with decisions you have taken, or I wouldn’t have questions about them, but I don’t mean them hostilely, just puzzled :

First, do you find it difficult to follow so many positions? Especially at earnings season. How do you keep track of all the conference calls?

Next, I’m puzzled that you have a position in INBK, but not in BOFI. I have thought of INBK as a little secondary position, once my BOFI position was filled. I have also thought of Fletch as the resident MF expert on these little banks, and he has given extensive summaries on why BOFI is his biggest position, and then just gave a convincing enough evaluation of INBK to convince me to exit my little position in INBK.

Third, I see you mention having faith in a very losing position, TCS (The Container Store). When MF first came out with TCS as a recommendation I read about it, looked at past quarterly reports, and thought to myself “Why would any investor buy this?” I don’t remember the numbers exactly now, but I remember they had a very low rate of growth of revenue (10% or less, I seem to remember), and a quite high PE (about 40 or more as I remember). Sure they are nice people, but that’s not a nice investment. What made you buy? And above all what made you stay invested in what was apparently not a good choice?

With regard to the idea that once you have chosen a stock you are wedded to it for life, and it would damage your investment results to get rid of it and put the money in a better stock, I disagree totally (as I’m sure you know). While I am not at all a trader, I think that “I’m stuck for life” is a very wrong-headed way of looking at investments.

At any rate, the best of luck, and I love discussing stocks with you.

Saul

7 Likes

Hi Saul,

First of all, thank you very much for responding. I value your opinion and feedback a LOT and I take no comment of your as hostility. I put this out on this board to get your feedback.

Let me try and respond to your questions.

First, do you find it difficult to follow so many positions? Especially at earnings season. How do you keep track of all the conference calls?

Obviously, I don’t personally closely track all of them, but I have evolved a methodology that seems to work. It sort of works, but I often feel that I should be pruning some to make things more manageable.

Anyways, here’s my current methodology.

I have found that some TMF services do an excellent job of providing stock coverage and some not so good a job. You are a TMF One member, so you would know what I 'm talking about. Folks like Jeff Fisher & Jim Gilles over at TMF Options and the Inside Value Team (Joe M., Scott, and Phillip) provide excellent coverage of earnings and company news. They provide detailed valuation (earnings, FCF, EV, sales, EBIDTA multiples etc.) discussion. So, for any stock that’s covered by MFO or IV, there’s not much extra work to be done. I have found TMF coverage plus the boards to be sufficient. Further, because IV and IV are not the frontline services through which TMF brings in lots and lots of new members, the boards are frequented only by the serious investors and not by those crying wolf because they lost money on TFM recommendations. Looking through my list, many of my holdings are covered by MFO or IV (e.g., AAPL, SBUX, CSTE, PGR, WFM, BRK, AMZN, MKL, COH, ROIC).

The stock coverage over at Stock Advisor and Rule Breakers is a bit choppy but some analysts are doing a very good job of coverage. I have found the coverage for FB, TWTR, LNKD, NFLX, WETF, and TSLA to be top-notch. So again, for these, I just spend time on the boards looking at coverage and the board posts.

I don’t pay a lot of attention to any holding that 1.5% or less of my portfolio. So, I 'm not spending time on BJRI, TCS, LQDT, QGEN, and RAX. Rackspace I 'm following, sort of, as I work in the computer networking space. I 'm a computer systems performance expert by training and a networking researcher, so following networking/cloud businesses a bit easier for me … but that doesn’t mean I don’t make mistakes there!

The ones I 'm spending more time on are the likes of SWIR, CAMP, UBNT, PSIX, NUAN, ISRG, and INBK. For these, I 'm generally relying more and more on my own analysis of calls, earnings, news etc.

Next, I’m puzzled that you have a position in INBK, but not in BOFI. I have thought of INBK as a little secondary position, once my BOFI position was filled. I have also thought of Fletch as the resident MF expert on these little banks, and he has given extensive summaries on why BOFI is his biggest position, and then just gave a convincing enough evaluation of INBK to convince me to exit my little position in INBK.

When I saw the initial BOFI recommendation, I was hooked. I really liked it and I did want to buy. But at that time, I didn’t have funds to invest, so it went by.

At today’s prices, though, BOFI appears to be on the expensive side. BOFI is selling at 3.3x Book Value. That’s a bit rich, but may be okay given BOFI’s market cap is about 1B. BOFI could also be a takeover target but I wonder how much more one would pay over today’s prices. Is 4x book value possible? I don’t know.

Capital One (CFO), which I believe owns ING’s online banking, is at 40B market cap and selling for 1x book value.

So, its just that BOFI looks expensive to me. If the price drops to around 2x book value in the near-term, I would buy some. At 3.3x book value, there’s a lot of expectations built into the share price.

With respect to INBK, its still about 1/2 of the size of my bigger positions. I have seen Fletch’s arguments. However, having read through INBK’s annual reports and quarterly earnings etc and tracing its history, I believe that this is a risk worth taking. Further, as I have noted before here (post 1026):
http://discussion.fool.com/inbk-31225177.aspx?sort=whole
whether INBK is meeting Fletch’s 6-pronged bar depends on one looks at the business and analyses.

INBK has done some admirable things e.g.,
— INBK has come a long way from being a lender to RVs and horse trailers to now having a good mix in its loan portfolio.

  • In the past year or so, INBK has invested heavily in new people to expand and diversify its loan portfolio. So, in the short-term efficiency ratios have been hit but I think management is investing in the business, sacrificing short-term profits, to scale the business.

Finally, INBK is selling for 1x book value. That provides downside protection and the investments in the business provide upside. The 10% founder/CEO ownership is another good side. I ‘m going to ride this one out for sometime. Multiple expansion and earnings & book value growth is going to happen sooner than later (and here I ‘m completely disagreeing with Fletch).

Third, I see you mention having faith in a very losing position, TCS (The Container Store). When MF first came out with TCS as a recommendation I read about it, looked at past quarterly reports, and thought to myself “Why would any investor buy this?” I don’t remember the numbers exactly now, but I remember they had a very low rate of growth of revenue (10% or less, I seem to remember), and a quite high PE (about 40 or more as I remember). Sure they are nice people, but that’s not a nice investment. What made you buy? And above all what made you stay invested in what was apparently not a good choice?

For Container Store, I have a non-metric oriented thinking. I look around myself (friends, colleagues, acquaintances etc) and see a trend towards compact living. Many couples are deciding to not have children and live in apartments. These are high income families living in small spaces and organising things neatly is important. These folks can be expected to spend money buying expensive storage and organisation stuff. I see a lot of potential for this type of high-end store concept in big cities. There’s probably lots of opportunity in international, high-wage earning cities.

I also like that Container Store owns Elfa Storage Systems - a specialised storage solution provider from Sweden. We have Elfa products in our apartment and they are very good. I know that many other carry similar products but there is a big quality gap between Elfa and the competitors.

So TCS was a buy based on the products being sold, the concept, and the evolving taste of high earners not the current state of the finances.

Its a small position, so I ‘m not really thinking about discarding it. I ‘m going to watch the next few earnings and see where its headed. I think the thesis is still intact.

With regard to the idea that once you have chosen a stock you are wedded to it for life, and it would damage your investment results to get rid of it and put the money in a better stock, I disagree totally (as I’m sure you know). While I am not at all a trader, I think that “I’m stuck for life” is a very wrong-headed way of looking at investments.

Okay, I agree, I didn’t do a good job of wording this. I think there are several legitimate reasons to sell. Its just that I ‘m trying to limit my sell frequency.

I think the number one reason to sell - for me - has to be a break/departure from the original thesis. I ask this question for all my losers.

  • Is the Twitter investment thesis broken? So far, it appears not. It just appears that I paid too much to buy it and may be I should have been patient in my buying.
  • Is my TCS investment thesis broken? So far, I haven’t given it enough time to play out. I would need bit more time to see if its going to work out or not.
  • Is the LQDT thesis broken? I think so, and I will be looking to dump it. LQDT, however, is sort of from my options play, so I will be using covered calls on them to get rid of that position.
  • Is BJ’s broken? Possibly. I don’t see great upside (yet another steakhouse) but I don’t see big downside (reasonable valuation for what they are doing). So, I ‘m using a combination of options to lighten this position. I used options to exit out of DWA.
  • Is RAX broken? Hard to say because there’s some value to the ‘fanatical’ service model they advocate but the benefits of ‘fanatical’ service are being eroded by API improvements in other cloud platforms. Companies like Amazon have been crushing RAX by cutting prices, but it can also be argued that price cutting will come at the cost of slower innovation in the API side of things. Further, many companies like IBM and Oracle are jostling for a slice of the cloud, and I think RAX is a great acquisition for someone with big pockets. If a big pocket guy comes and buys RAX, they can compete with AWS (Amazon’s Web Services) and Google etc in this space. And RAX just this past Friday announced that several companies have been feeling them out for potential buyouts etc. So, while I think RAX is having it though, I think its worth the wait.

Now, back to my reasoning for being slow at selling. My past history of selling is not that great. I have often sold out early and worse made bad reinvestment decisions! I wrote about this recently over at Stock Advisor. My analysis of past sells don’t look that pretty. See the post here:
http://discussion.fool.com/1081/both-david-and-tom-have-been-try…

Hope some of this makes sense. If not, please do respond with your thoughts.

Thanks,

Anirban

9 Likes

Anirban, some thoughts.

With BOFI and INBK: I guess it depends on what you use for your benchmark. You are using P/S and saying BOFI is high at 4 while INBK is low at 1.

I’d say that is because BOFI is so much better at turning the “S” part of the equation (sales), into profit. As of Friday’s price of $75.20 and trailing earnings of $3.52, they just have a PE (trailing!) of 21 or so, and a forward PE of well under 20. And their management has already shown they know what they are doing, and they are still small enough in their field to have a huge runway in front of them.

INBK’s last four earnings have gone 59, 25, 19, 13. Not exactly confidence inspiring! If they bounce back to 19 cents next quarter they will have trailing earnings of 76 cents. With a price of $20.38, that will give them a trailing PE of 27. So are they a better bet than BOFI?

Then TCS. Yes, they have nice products, and nice stores, and nice people. But (as I remember, I haven’t gone back to reread the calls) they pride themselves on putting their employees first (and their customers second). That means their stockholders come in a distant third. If it makes you feel good to hold a company like that, go ahead, but it’s not an “investment”.

And LQDT. I was in it for a few months after it was recommended by MF. I started wondering “Why am I in this stock. This isn’t a company that is going to become a great company”. I started selling it about $40 and finished selling out at about $34 after the stock fell when they starting reducing estimates, I guess it was about six months ago. I had no hesitation in selling at a loss. I expect to make some mistakes and don’t mind admitting them and getting out of them. (It’s now at $13, I see). If you stayed in, it was a mistake you didn’t admit.

RAX I stayed in a starter position just for a week or so, long enough to do further study and decide it wasn’t right. That’s what starter positions are for, not to be stuck in for life.

ISRG I got out of when the head of the Gynecologists association publically stated that there was no benefit in using the robot for uncomplicated hysterectomies. I figured the handwriting was on the wall. Staying in after that was also a mistake, in my opinion, and the market’s. It may recover but it will never again be n explosive growth stock.

I see a big problem of MF as their inability to hardly ever admit a stock was a mistake. It comes from ideology, in part. Also from having to recommend new stocks every month and feeling what will subscribers say if we change our minds? David Gardner can’t possibly ever have as good results as I have had, because he’s recommended and KEPT so many stocks. If you keep holding the ones with bad results while they go down and down, and then keep holding them while they go nowhere, it kills your averages. When MF was so excited that AMZN had become its first 100-bagger, I had a 140 bagger on not one stock, but my entire portfolio. It’s a different way of investing.

I wouldn’t hesitate to get rid of the deadwood. And don’t look back and kick yourself if a stock you sell then goes up some time in the future. The stock you bought with the money probably went up too. As Huddeman put it: I don’t have to be right on the stocks I sell, just on the ones I keep.

Saul

15 Likes

I was talking about BOFI’s book value and just noting they it looks expensive. It’s true that BOFI has been good at earnings and that’s fueling the P/B multiple. A slight hiccup can result in the cushy multiple being cut down. Let’s just agree to disagree on this.

Re selling - I have nothing against selling. I do sell just not as frequently as I buy. I take time to sell. I sold out of SDRL (before they tanked from 40s), DWA, and TXRH.

Anirban.

1 Like

My error, Anirban, you were talking about Book value, not Sales, and I carelessly mis-read it. Sorry. (In my defense, I had a routine endoscopy this morning and they do warn you not to make any important decisions for 24 hours after general anesthesia). Whether it’s sales or book value doesn’t really change my points much though, so I guess we will have to agree to disagree on those two stocks.

Saul

1 Like

I have nothing against selling. I do sell just not as frequently as I buy. I take time to sell.

Anirban,

A case example: I bought LOCK after it was recommended by MF. Bought between $18 and $22. Then bad vibes started coming out, investigations rumored, etc. I sold out of my entire position 6 weeks ago at about $17.40 average. It’s been dropping steadily since and it’s down 17% today, and is selling at $10 and change.

Sometimes you can’t take time to sell. You can adopt the MF mantra that if you just hold on it will come back in time, and maybe it will. But I employed that money in much more profitable ways than watching a stock go down and then hoping it will start to come back.

Just saying…

Saul

4 Likes

Hi Saul,

Yup, the LOCK recommendation didn’t entice me, so I never got a starter position. Lucky me, I suppose!

I agree, sometimes we need to act quickly, but other times we should be patient. It depends on your investment time horizon as well. TCS could very well be one which I should have sold earlier. But, the position is small now and I 'm inclined to let the story play out.

Re. ISRG - first a disclosure. My wife’s a practicing OBGYN. She thinks there’s a divide b/w the established brigade and the newer folks coming into the system. Her opinion is that robotics may not be suitable for simple hysterectomy procedures. However, procedures that require 2-3 hours surgery time are suitable and extremely valuable (precision, which implies reduction in injuries to say the bladder, gut etc; ease compared to traditional methods).

In the US, it appears surgeons have been, at times, positioning to use robots for even the simplest procedures. ISRG sales team has been trying to push robotics into every nook possible.

However, it’s also true that a large # of newer graduates are getting robotics training. It’s also true that these machines are finding their way into hospitals in China and India. The software & hardware capabilities if of these robots are increasing at exponential pace. And in the robotics surgery area, ISRG is the leader. So I 'm willing to cut management some slack and let them reset their strategy.

As with any investment, I think purchase price matters. So buying ISRG at 30x PE or near all time highs is certainly going to ding future profits. At today’s prices I think the odds of success are higher.

Anirban.

2 Likes

Hi Anirban,

the LOCK recommendation didn’t entice me, so I never got a starter position.

That was an excellent decision. Don’t ascribe it to luck.

As for ISRG, my wife’s (female) gynecologist loves the DaVinci too. I just felt that with that kind of publicity, on top of all the suits they were having, people would stop using the robot for routine surgery’s where it wasn’t needed, hospitals would hesitate on buying new machines, and when you deleted all the routine hysterectomies and gall bladders, the number of surgeries and need for new machines would fall. Here’s a quote from Bloombergs:

Intuitive Surgical Inc. (ISRG) said in a preliminary report that first-quarter revenue declined about 24 percent amid a sharp drop in sales of its robotic surgery system. The shares fell.

Intuitive shipped 87 robots in the first quarter compared with 164 a year earlier (a fall of almost 50%), the Sunnyvale, California-based company said in a statement released in advance of their earnings report. Intuitive also took a pretax charge of $67 million to reflect estimated costs of settling product liability claims mostly related to alleged complications from surgeries performed with certain robotic scissors or tip covers that have been taken off the market, the statement said.

The company’s shares declined 6.8 percent to $456.64 at the close in New York. (It closed yesterday at $370, down another $85 from this clipping). The stock dropped 22 percent last year after questions were raised about the safety of its da Vinci robot and Intuitive’s marketing and sales practices.

The company said in January it expected to sell fewer robots in 2014 than the 546 sold last year. On April 1, Intuitive announced that U.S. regulators cleared a new version of the robot, the first major upgrade in five years.

First-quarter revenue fell to about $465 million from $611 million a year earlier, Intuitive said. The revenue reflects a $26 million deferral associated with a customer trade-out program for the new robot.

Why would I want to buy this stock? Why? You say that buying it at 30 times earnings would be dinging future profits, but what do you think ISRG’s PE is today. Even with the fall in price it’s at a PE of 28 today (because earnings are falling, I presume). Why would I run out and buy this company. Let’s see, declining revenue, machine sales cut in half, settling law suits, withdrawing parts from the market, declining profits, shrinking patient population considered suitable for use of robot, still high PE…

I’m sure sales will start up again sometime, maybe been in 2015, but it will never be a high rapid growth stock again. I stayed with them for the initial short attacks and early ambulance chasing lawyer attacks (that’s just to be expected), but when the head of the OB-Gyn Association said there was no advantage in using this for routine hysterectomies, I new the game was over. The machine was no longer a “must have” for hospitals.

JMO

Saul

7 Likes

Re selling - I have nothing against selling. I do sell just not as frequently as I buy.

Hi Anirban and Saul,

This great discussion got me thinking so I thought I’d throw in a short story. This story is not to convince or dismay, but only give some real action fodder for the guys that can learn something from it and maybe not make similar mistakes.

I hesitated on TCS, waited around a while, rebuffed several pitches by TMF but then, finally bought TCS as a starter position, solely on the recommendation of TMF. (I did that a lot when I first started with TMF but am learning that I do have to pick and choose, only I haven’t developed a complete set of pick and choose tools yet…so mistakes abound.)

I had reservations about TCS due to:

  1. Their high prices,
  2. The concept that if they LOVED their employees, all would be well and
  3. That the same products were available but in several other stores.

As soon as I bought TCS, down it plummeted and I was trapped as I HATE to sell or admit an error so quickly. Once I get used to having a loser, I am more capable of selling it for that inevitable loss (though TMF suggests I could hold it for 5 years and be OK so I’m a bit ambivalent on selling quickly).

Then I decided I had better read about why TCS was recommended. Seems they will open many stores this year and that should give their share price a boost. At the same time I had sold a put at a lofty price level which was way underwater. So, still under the ether, I allowed the put to be assigned and immediately sold 2 calls on the stock. I finally had a success with the stock as the calls expired and I lowered (slightly) my still lousy cost basis.

Now, with a larger than I really have any desire to have position (but still small

(Just like SODA which I should have known better since, at the time I also resisted buying it at first and thought, “Who the hell can make a business out of carbonated water and artificial flavors”?) I personally drink only water or wine, eschewing all colas, ade drinks, colored water, vitamin water, etc.

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Sometimes you can’t take time to sell. You can adopt the MF mantra that if you just hold on it will come back in time, and maybe it will. But I employed that money in much more profitable ways than watching a stock go down and then hoping it will start to come back.

Just saying…

Hi Saul,

I am struggling with never admitting a loss on something recently purchased and thus reluctant to sell it (…like SODA & TCS). I bought those two before I started vetting what TMF had already vetted.)

It does seem to make more sense to sell a loser quickly and use that money to buy something that is obviously on sale and apparently going higher, the latter being a component of your system.

The hard part for me is to determine if I have sold too early, if it was a temporary blip or if in fact, there’s enough bad news/vibes to hold the stock down long enough that I would be better to try and ride something else up instead. I think it’s really an easy problem for me to fix since I have very little conviction on some of the stocks I buy, relying too much upon TMF vetting and recommendation. This is an error easily committed by anyone with lots of stocks and thus, unable to check out all and gain conviction and comfort on every purchase. I’m working on that one too and hope to whittle down my holdings to about one third of what I own now.

One other barrier in my mind that stops me from selling quickly is the tax situation. Do you pay attention to your gains re: taxes, (assuming you have some investments in a taxable account)? When you go in and out during high volatility periods, I imagine you generate losses and gains so how do you manage that or do you?

Thanks,
Mykie

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As soon as I bought TCS, down it plummeted and I was trapped as I HATE to sell or admit an error so quickly.

Hi Mykie,

I also bought a starter position in TCS because of the MF pitch, and had the same reservations you had, but took my loss almost immediately, and moved on. I think the key is to not worry about what a stock is doing after you’ve sold it. Just concentrate on the stocks you are in.

Saul

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The hard part for me is to determine if I have sold too early, if it was a temporary blip or if in fact, there’s enough bad news/vibes to hold the stock down

Hi again Mykie

I think the way to handle that is to use Huddamans great quote: “I don’t have to be right on the stocks I sell, just he ones I keep.” If you think about that for a few minutes it’s really a piece of wisdom. It doesn’t matter what the stocks you sold do after you are out of them. The only thing that matters is how the stocks you are in do. Really, think about that and absorb it.

As for taxes, I take almost all my starter positions in an IRA account, but if I’m selling out of a small position at a small loss, it’s good for taxes anyway.

Saul

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So, still under the ether, I allowed the put to be assigned and immediately sold 2 calls on the stock. I finally had a success with the stock as the calls expired and I lowered (slightly) my still lousy cost basis.

Excellent use of options, Mykie!

If you have more than your desired position on TCS, then writing calls against a portion of your shares is good. It will bring income, which sort of reduces your cost basis. I say sort of because from a taxation point of view it does not; premium income is short term gain.

I regularly use this strategy on stocks that I would like to eventually remove from my portfolio. I had DWA, which I wanted to sell, so I wrote calls on a portion of my shares. The shares got called away, eventually, I closed my position at a 60% gain.

Right now, I 'm running a similar strategy on BJRI. Looking at the current valuation, a buy around $25 looks like a decent entry point. My buy around $32 clearly was over enthusiasm, and I think this yet another steak house is struggling to grow its footprint. It may still work out if one has patience for 10 years but I just have a hard time following a steakhouse for 10 years. So, I made it interesting by selling puts at $25 combined with selling calls at $30. While my long position shows a loss, options have more than covered my losses and at some point the shares will get called away.

Similar story with MTH, which is under water but it was bought as an income play for use in options trading. I should have removed it from my list of long holdings but forgot when I posted it here. Again, the MTH position shows up as a loss, but with options and dividends it is profitable. Given its very low PE multiple, I intend to keep writing calls as and when I get opportunity.

So, absolutely, options if used properly can give a big boast to your portfolio. My long side of the portfolio is showing poor returns. However, my full portfolio is still running at an IRR of 11%, which I think is good because written puts negatively weigh on the portfolio’s NAV (i.e., if I don’t write any new puts, I would expect the negative value of written puts to at least deplete by about 75% or so; my written put success rate is about 85%).

The point Saul and I were discussing about though was the tie length one waits before selling. Saul’s developed a great strategy based on recent performance of company. He’s looking at the recent trends (revenue growth, eps, etc) to judge whether or not a company should be bought. A similar approach works for selling, where slower growth in revenues or eps is reason for selling. Estimates revenues or earnings, either from analysts or the company, can be used to judge future growth opportunity. I think this is a great method. What I think it doesn’t capture is very long term opportunities. I don’t think Amazon or Netflix can ever be justifiably picked using these techniques. I don’t think that’s a problem as the pond/ocean has enough fish that you can catch and fry.

My strategy has been to focus more on future opportunities … the very long term opportunities for some of my selections. Netflix, Amazon, MELI, WFM, SBUX, and ISRG come to mind, but after coming to this board I have also seen the benefit of shorter-term opportunities such as UBNT, AMBA, PSIX, etc. I 'm leaning more on selling the ones that are shorter-term opportunities based on reported metrics. I will continue to hold onto the ones I think are longer-term opportunities until I think they don’t have a place in the future.

I think DG is very very good at identifying these long-term opportunities. Picking things like Marvel, Amazon, Netflix, Priceline, UA, various 3D printing stocks, early on is very very difficult. He’s got an eye for the future. But, someone who’s picking at least 2 stocks each month (1 for SA and 1 or 2 for RB) finding a great future success is not feasible … there’s got to be some that are going to be average performers or losers.

Anirban

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Anirban, Saul and Mykie
What a great discussion
Thank you all three of you.
It is interesting to see how fast Saul pulls the trigger.
I too had bought LOCK and thought this would be a great stock to own with all the internet problems I was reading about, boy was I wrong!
The problem is, I am still in the stock and see no hope in the short term.
On the side were I first missed buying a stock was PSI. I missed the run up and was waiting patiently to buy (I had orders in at $70 and $65, GTC). I didn’t get any, so I finally decided to pay up because I really liked their story. Just after I bought, I read that Saul got out of PSIX because they didn’t go down as much as the rest of the market and he wanted to free up some money for other stocks.
Who said investing was easy!

Reading this discussion here though I really understand what Saul is trying to teach us. What I get out of this is focus on your stocks and really get to know them. He listens in on all the conference calls etc and is not afraid to get out when he hears something negative.
I think I understand that part, the problem is, where and how does Saul find the new stocks?

I have a sizable portfolio (close to retirement), but still working full time and therefore do not have enough time to really spend the necessary time to get to know all the stocks.
I can’t wait until retirement, as I assume Saul is spending a few hours each day on tweaking and researching his portfolio.
Again gentlemen, it is a pleasure to be able to follow the discussion here
I can not thank you enough
Erik

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I read that Saul got out of PSIX because they didn’t go down as much as the rest of the market and he wanted to free up some money for other stocks.

Hi Erik,

I certainly didn’t get out of PSIX. If you reread what I wrote I said I sold a little bit for cash. I later mentioned buying that little bit back, and I it still makes up a 3.42% position for me.

As for where I find stocks, mostly on MF. Though I found two really big stocks for me PSIX and Arcam, from Seeking Alpha articles. I also occasionally get ideas UBNT, HZNP, AMBA, from Zacks newlsetters. Also get ideas from this board land others.

It is interesting to see how fast Saul pulls the trigger.

I’m in no way a trader though. I never, ever, ever, EVER, buy a stock thinking I’ll try to sell it in a week or a few days for a small profit. I always buy for the long term, but sometimes decide I’ve made a mistake, and go on. And don’t worry about whether I made an error in selling. I worry about what I’m going to buy with the money. (I sometimes even buy something I’ve previously sold (YHOO, NUAN. NUAN was an error both times, and I got out both times).

After all, I lived through the internet bubble of 1999-2000. I sold out of AMZN, YHOO, and AOL in about February one day, after YHOO, as I remember, had gone up $30 to $50 per day for three days in a row. I said to my wife, they may keep going up, but this is insane. I’ll let someone else have the rest of the ride. The bubble broke about 3 weeks later. Some times selling can be the most important thing you can do. I didn’t get out of the market, just bought non-internet stocks and was up considerably for the year. Sure I could have held through the decline, and 10 years later AMZN came back, even if YHOO and AOL never did, but WHY?

Hope that helps

Saul

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I certainly didn’t get out of PSIX. If you reread what I wrote I said I sold a little bit for cash. I later mentioned buying that little bit back, and I it still makes up a 3.42% position for me.

Erik,

Here’s where I wrote it.

Saul

Post #1365

PSIX – I sold a little at $77 for cash to buy other stuff (hadn’t fallen much and high PE)

Post #1375

PSIX - Well I bought back the little I had sold and a little more at $70.60 and $71.10. (Don’t think of this as a trade. I sold it initially because I needed cash, not because I was trying to trade it. I bought it back because I like the company, the price was down, and I had cash from the sale of INBK.

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Saul,
I Know you didn’t sell all your shares in PSIX and did not mean it in that sens. I had waited patiently for a pullback that didn’t come, my GTC order. I raise my buying price, just to see PSIX drop the day after I paid up and reading your post about lightening up. You probably sold to me :slight_smile:
What I really wanted to bring across is your ability to focus and really having the great sense and ability to get the most out your portfolio.
Like LOCK, you are out and I am still in.
You have a gift and are willing to share it with us here. It is much appreciated.
I think I could have the same stocks as you have in the portfolio and you would still beat me, as you are a much better investor.

Saul, you are not a trader and I know that, but you are also not making the mistake I did and that is " Fall in Love with your position"
Saul, sorry for being not specific enough in my comments
Erik

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you are also not making the mistake I did and that is " Fall in Love with your position"

Erik, the best way to deal with that is to remember Huddaman’s little gem of advice: “I don’t need to be right on the stocks I sell. I just need to be right on the stocks I keep.”

That is really so powerful, and so important! Really think about it. It simply doesn’t matter what happens to a stock after you sell it. The only thing that matters is what the stocks you are holding do. You are trying to establish a stable of stocks that you want to hold long term. If you have a portfolio of 30 stocks and sell 10 of them over time because you have legitimate questions about them, and you were “wrong” about half of those sales (they eventually do all right and move up), so what, as long as you replace them with good stocks and end up with 30 you are happy with.

The MF has a lot of propaganda about never selling. However, if you make a well thought-out decision to sell ten stocks for what you perceive to be good reasons, and then make an equally well thought-out decision to buy 10 replacement stocks for what you also perceive to be good reasons, it’s simply not plausible, and even silly, to assert that you will not end up better off. (To assert that implies that you are a real idiot, and it would really require the worst of luck and judgement not to be better off).

Best,

Saul

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