Portfolio Update August 2019

This is going to be rather philosophical and a lot of introspection. At this point in my investing career I think this is something I personally need to do. Hopefully it will be of interest and maybe insight to others, or spur helpful comments for me to ingest.

My July update was a disclosure that I’ve been de-risking, for multiple reasons. Some were purely emotional (risk aversion), some where macro trends (which fed the risk aversion monster), some were burn-out. But I thought I’d post an update for this month.

My changes over the last 3 months have had their desired impact in that I’ve been stressing less about the IRA and the markets. At a time like this I’ve been more concerned about protecting against a loss versus capturing a gain. Some use the “cushion” from this style of investing to “allow” for some loss, whereas I’ve been using the cushion to “allow” for missed gains. Make sense? It comes down to what you are comfortable with as an investor, and what your goals are.

But have my changes shielded me from volatility? This is unclear. While I have certainly stressed less since late June, which has its merits, how have I done financially? That is less clear. For example, I’m only down 1.3% from where I would be if I had made zero changes from June 24th forward. (Now, what are the odds I would have made no changes in 2 months?) And I’m down less than 1% from my portfolio way back in early January. And I’m probably over-thinking all of this. But there is something positive to say about stressing less.

For me my long-term goals are rather well defined. And while I cannot, in any way, reach those goals with a traditional balanced portfolio the way asset allocation theory would want me to be (following that is what got me into this mess in the first place), I also don’t need to have the inherent risk of a very concentrated portfolio either. This is about me finding that middle ground.

So why am I even still here? Why do I read, lurk, and sometimes even respond? Well, Stock Advisor, over the last 3.5 years, has helped dig me out of my hole. And this board over the last year is responsible for roughly half of that digging overall. There is obvious value to the approach discussed on this forum, but I needed to find a way to leverage this in a manner that fits my personal risk profile. And if anyone here feels the same, maybe seeing my approach will be as helpful as seeing other’s approach.

Year to Date:


Month      Me       Benchmark   Beat    Monthly
01/25     15.6%       8.0%     + 7.6%    + 7.6%
02/22     26.0%      13.4%     +12.6%    + 5.0%
03/29     30.9%      14.7%     +16.2%    + 3.6%
04/26     36.4%      19.7%     +16.7%    + 0.5%
05/31     33.3%      12.3%     +21.0%    + 4.3%
06/28     41.5%      19.5%     +22.0%    + 1.0%
07/26     49.3%      23.8%     +25.5%    + 3.5%
08/30     43.7%      20.3%     +23.4%    - 2.1%
YoY       16.9%       2.5%     +14.4%

Activity:

Holdings:


TICKER  ALLOC.  YTD
======  ======  ====
PSJ      20.4%  32.5% high-growth ETF
SPHQ     19.2%  19.4% S&P 500 subset
Cash     16.4%
QQQ       9.4%  22.1% NASDAQ
PTF       8.6%  51.4% high-growth ETF
PSR       7.9%  24.2% actively managed REIT mix
AIEQ      5.6%  20.2% “the robot”
PSA       2.7%  29.7% REIT
VNQ       2.7%  23.6% REIT index
EXR       2.5%  22.9% REIT
CCI       2.4%  33.7% REIT
VOO       2.2%  17.5%

High-growth is now at 29% of assets, split between two actively managed Invesco ETFs. An additional tech exposure close to 10% through the QQQ. REIT exposure is at 18.2%.

PSJ, PTF Both of these are actively managed ETFs from Invesco and are focused on high growth areas. One is the Dynamic Software ETF, the other is Technology Momentum. I observed in last month’s portfolio update that both of those ETFs had year-over-year returns that closely matched my own returns, and with obviously less work on my part. I’ll admit, this is the biggest reason I’ve pivoted towards having a large allocation in these two. My gains are higher, but not as much as I would have hoped given the work involved the last year.

PSR This is an actively managed ETF of REITs, again from Invesco. The thought here is they choose a subset of the available REITs that they feel are going to do the best based on current market and macro environments. It does not have a large market cap and it does not seem to have high volumes. This concerns me sometimes. Once or twice I put in a large buy order only to have Vanguard flash me a warning and wanting confirmation that I wanted to do this trade due to these conditions (the metrics obviously flagged this on their system). I am, however, quite happy with my allocation and this funds performance. I won’t add to it, however, which explains my other REIT holdings. The REITs are my way of dealing with the cash pile I had, to gain some dividends while reducing tech exposure. I’ve been in and out of REITS for over 4 years now. In 2015 they saved my bacon and brought my portfolio to an annual gain when my target date retirement fund (which was 80% of assets) was negative. A 20% share of REITs over-powered 80% of losers that year. You could say 2015 was a watershed year for me, and is what started my Stock Advisor and active management over the last 4 years.

AIEQ As I mentioned last month this ETF is a bit of vanity for me. About 5 years ago I started pivoting my career into data science, machine learning etc. and this ETF uses those technologies to actively manage a fund on its own. This fascinates me. The fund’s track record is not high enough yet for me, it had a rough patch last year, but this year it’s doing better and I’m wondering if it is starting to learn enough now given its time in the market.

QQQ, SPHQ These two funds are my way of diversifying in a way that does not “buy everything”. Both historically run a bit better than VOO. Both are also Invesco funds. At this point I really do wonder if I’m putting too much into the hands of Invesco…

Thoughts
My long-term goals are a 16% CAGR for the next 10-13 years, as well as aiming to beat the S&P 500 by 8% per year. I believe these goals are quite achievable with work, but I also believe I can hit these goals without the highly concentrated and risky portfolios here. This path should give me twice what I really “need” to retire, so I have some room for under performance. Time will tell how this plays out.

One thing I found interesting is tracking my current portfolio (at 29% high growth, all ETF) versus what it was in early January (at 80% high growth) versus what it was June 24th (at 60% high growth). All three portfolios are with 1% of each other. As well, year over year my own performance roughly matched two different narrowly focused high growth ETFs. Is there anything for me to learn there? For me the lesson was my own brand of stock picking was not doing much better than a selection of ETFs. (Comments welcome if anyone believes I’ve learned the wrong lesson here - that is what this is for.) Will be interesting to see if this changes much over the next few months. While some on this board are clearly doing better than I am, that point is mostly irrelevant. If I can’t beat the ETFs at this game why should I personally bother to play it? Those that can, play on! My hat off to you.

So I continue with the narrowly focused sector ETFs, based mostly on the continued positive view on these types of companies discussed here. But I diversify some into other categories as a risk mitigation. When this trade war nonsense settles down I expect my appetite for risk will rise again, and I will start back into individual stock picks. I don’t believe I’m done with stock picking for good at all. Just for the time being.

28 Likes

Congrats bjurasz, if you’ve gotten your portfolio to something that lets you sleep easier and if it will provide for you and your family’s needs, that’s great!

My only comment after a brief read is regarding the following…

…I also believe I can hit these goals without the highly concentrated and risky portfolios here.

I used to think that about these stocks, but not so much anymore. They have risk, sure, but every stock does, and the potential gains just blow anything else out of the water and make it worth it in my opinion. Heck, ULTA (which was a fantastic legacy stock for me from my old buy/hold long term time with TMF), dropped 30% today. Large 1-day drops don’t just happen to SAAS/cloud/software stocks.

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Large 1-day drops don’t just happen to SAAS/cloud/software stocks.

Knock on wood with that one.

Can we look at Nutanix around the end of February 2019? Perhaps that was a one-week drop. What about October 2018?

Just be careful to never say never with this. Any stock can get walloped if it does not perform. The SAAS stocks are not immune!

Karen

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Any stock can get walloped if it does not perform. The SAAS stocks are not immune!

Hey Karen, I hope I didn’t come off as sounding like that’s what I was saying! Believe me, I know the SAAS stocks can drop hard and fast, I’ve owned a few that have. My comment was in response to the OP’s statement that he’s moved out of the concentrated risky portfolios discussed here. I was just saying that IMO the companies we’re invested in here aren’t riskier than other individual stocks.

The only additional risk I see here is that the Market decides to “revalue” our sector by assigning lower P/S ratios, thus dropping all our stocks at the same time.

2 Likes

Hi bjurasz,

Thanks for posting your update. However, I do notice your holdings are entirely funds and you know that this board is for discussing high growth stocks, not etfs/reits. Perhaps when/if you decide to add growth stocks back to your portfolio, these end of month updates would be more useful for the majority of investors who frequent this board.

I’m not trying to sound harsh or berate you, it’s just that there are so many posters here it’s become difficult to keep posts that are on-topic for Saul’s Board.

Best Wishes,
Matt

10 Likes

bjurasz (Dang! That is hard to spell!)

I can sympathize. I have in fact dropped from near 100 percent to about 55 or 60 percent in my “Saul” port and am at 25 percent equities in my 401K.

Even so, my experience has been that to invest or not invest based on macro economic events that may happen is an excellent way to make a small fortune. (Out of a large one)

Even so, my intention is to raise cash on euphoria.

This is probably a bad idea. In fact my record on this is so consistent that anyone reading this should immediately by calls.

However, I value my sleep more than profits. So more cash (Enough to buy a 32 foot 40 year old sail boat) will be raised.

Cheers
Qazulight

1 Like

Hi bjurasz,

I have to agree with Matt. It is clearly stated that discussions of ETF’s are off-topic for our board. I’m sure that you know that, as you are an old-timer on the board. Sorry.

Let’s please not continue this thread.

Saul

6 Likes