Psychology question for Saul

Investment Analysis Clubs Saul’s Investing Discussions
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So I have a question I had been thinking about for a while and Saturday morning seemed like a good time to ask it. Truthfully, I have been reluctant to ask it because sometimes the intent gets lost behind individual interpretations and I don’t want to offend anyone. Also, I want to be clear that I do not in any way want to somehow cause Saul to post less or tell us all less about his portfolio movements…

So with all that, Saul, my question is do you think your openness and willingness to let us in on your portfolio movements is causing you to change how you manage your portfolio?

There is a lot I could add here about perhaps your results haven’t been as good as you have been historically. I could talk about your recent email about getting out of BOFI where it almost sounded like you were apologizing while explaining your change of thought. There also have been points in the past where people have jumped on you for inconsistency, i.e. Amazon. And there certainly have been others.

Only one other point I’ll make. My reasoning and almost expectation that this is at least In a little part true is that I believe you are very good at this. You are good at it because you use a very logical approach and don’t get too swayed by the market and don’t hesitate to get out when it changes. But you are also good at this because you have a very clear gut feel for when something doesn’t seem right. You try to explain it and it always makes sense, but in the back of my mind I always find myself saying, yes but I can just as easily come up with countering arguments.

This is in no way a slight. I just believe that the decisions you make are a result of looking at the facts, and then going with your gut. This doesn’t concern you because you know that you can change your mind tomorrow, if the facts or your opinion changes.

So after saying all that, is it possible that by sharing your reasons, you are squelching, perhaps just a little bit, that gut instinct because then you would have to explain it, and then you doubt whether it is a good idea? And so, perhaps, you don’t get out as fast as you would “if no one is watching”.

Thoughts? … But remember, this is just a philosophical thought experiment, please don’t go political post on me. Nothing here is meant as a slight on how anyone may or may not run their own portfolio or how they should.

PS: thanks for all you do for this board
Randy
Someone who may overthink some of his own moves…

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… I believe you are very good at this. You are good at it because you use a very logical approach and don’t get too swayed by the market and don’t hesitate to get out when it changes. But you are also good at this because you have a very clear gut feel for when something doesn’t seem right…

… This is in no way a slight. I just believe that the decisions you make are a result of looking at the facts…

… But remember, this is just a philosophical thought experiment…

… PS: thanks for all you do for this board

Randy, one thing that jumped out at me is that your post is laced with apologies. Why? You are asking a very legitimate question. There is an elephant in the room that nobody wants to talk about.

Plurality of opinions is a good thing. So is an open mind and a healthy dose skepticism.

#6

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Of course sharing publicly affects how decisions are made. Owning a stock yourself with your own money changes how you invest as well. You will invest differently if you are managing other people’s money. Just try it. You don’t do the same things, you don’t rely as much on your gut, you try to cover your butt much more, and you try not to get blamed for anything.

It cannot be anything but.

It is something that Saul, or anyone else who does things publicly needs to account for and adjust for. It will change the portion of your brain you are thinking with, and the priorities you are using in your decision making.

Tinker

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Owning a stock yourself with your own money changes how you invest as well. You will invest differently if you are managing other people’s money. Just try it.

Couldn’t agree more. One tries to be too safe in managing other’s money I believe. I know the stocks I’ve recommended to some friends and family have been on the “safe” side. They generally haven’t worked out well. So, I stopped giving any advice. I don’t want anyone managing my money and don’t want to manage anyone else’s.

It will change the portion of your brain you are thinking with, and the priorities you are using in your decision making.

Yep. This has always been in the back of my mind regarding Saul’s investments and public disclosure. I hope that Saul can do his thing, and that we can let him do his thing.

Seeing folks gripe over Saul’s investment in AMZN was a bit nauseating. In fact, I’ve seen Saul’s “type of stocks” changing slightly as well. There are more companies on the path to earnings, but not yet there (simple reasoning). But there is no reason to lambaste him for making changes. In fact, I think he is making changes subconsciously that aren’t easily explained. Let’s allow that to happen.

I believe if the folks on this board don’t nitpick every detail, things would be much easier for Saul. We are hopefully all in this together and attempting to enrich everyone’s knowledge and investing skills. I think Saul would agree that he is not perfect and that nobody is.

Take care,
A.J.

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I’m not Saul, but as another person who posts his positions publicly each month I will say that I firmly believe it has helped me make better decisions. Sure, it makes me think twice about trades – “oh, I’m going to have to admit this” – but I believe that’s a good thing. If it’s done anything it’s made me less impulsive, but I’ve never shied away from following my gut because I was afraid it would make me look stupid or I didn’t want to have to explain it.

Just one man’s opinion, but I think Saul’s result in 2016 that wasn’t up to his usual standard was just random. It had to do with specific choices and more than usual went against him, and/or not as many as usual went his way. It’s not like he ever had a bad year prior to posting. And in 2015 he beat the market like a freakin’ drum!

Bear

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So with all that, Saul, my question is do you think your openness and willingness to let us in on your portfolio movements is causing you to change how you manage your portfolio?..I could talk about your recent email about getting out of BOFI where it almost sounded like you were apologizing while explaining your change of thought. There also have been points in the past where people have jumped on you for inconsistency, i.e. Amazon. And there certainly have been others.

Thanks Randy for an excellent question, and thanks to the others who have offered support. Actually, I don’t think discussing my portfolio movements (usually just once a month) has greatly affected my performance. I think my results were affected in 2015 by several of my higher confidence stocks crashing, to my surprise, and I think to the surprise of most people on the board. (I’m referring to companies like Infinera, Skyworks, and Skechers. In each case, the management kept telling us everything was great, until the stock collapsed). And I really didn’t feel that I was aplologizing when I was explaining my reasons for getting out of BOFI. I could have just announced it with no explanation, or waited until the end of the month, but I wanted others to understand in case thay hadn’t noticed what was going on.

…My reasoning, and almost expectation, that this is at least In a little part true is that I believe you are very good at this. You are good at it because you use a very logical approach and …don’t hesitate to get out when it changes.

That’s true. I do try to use a logical approach, and I don’t hesitate to get out if the situation changes. It’s partly because I don’t worry if the stock goes back up some time later on. Who cares? For example, all those metrics turning down for Bofi, all at once, just didn’t feel right to me. If I was wrong, so what? I put the money into other good companies.

But you are also good at this because you have a very clear gut feel for when something doesn’t seem right. You try to explain it and it always makes sense, but in the back of my mind I always find myself saying, yes but I can just as easily come up with countering arguments. I just believe that the decisions you make are a result of looking at the facts, and then going with your gut. This doesn’t concern you because you know that you can change your mind tomorrow, if the facts or your opinion changes.

Absolutely correct. There are almost always possible countering arguments. You can always say the stock may come back if this, this, and this happen. But I guess I do react to a gut feeling, that this doesn’t feel right.

So after saying all that, is it possible that by sharing your reasons, you are squelching, perhaps just a little bit, that gut instinct because then you would have to explain it, and then you doubt whether it is a good idea?

I don’t think so.

And by the way, I agree that managing money for other people who are looking over your shoulder would be very tough. I pity the fund managers who have to do it. And then have all the money withdrawn from the fund by investors when it’s at the bottom, and they should be putting more in, and vice versa at the top.

Best,

Saul

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<<<I’m referring to companies like Infinera, Skyworks, and Skechers. In each case, the management kept telling us everything was great, until the stock collapsed)>>>

I remember watching CNBC and the CEO of Worldcom was on (or was it a different company w a W, I forget but it was a large cap). Yes WCOM. The CEO had margined his interest in his stock options and stock holdings to banks in order to leverage his personal assets. Having $100 million plus in stock was just not enough compensation for this guy. And his wife would host extravagant corporate parties. Paying pop stars hundreds of thousands of dollars to play one party, etc.

Anyways, the CEO straight-faced on CNBC lied to the world. Dead faced, no problem, just outright lied. I always say trust actions, not words. So many people however trust words and not actions. Literally. I have made a study of it. Probably half or more of the people in the world will be more persuaded by someone’s words than by their deeds, even if they continually fail to follow through.

Whereas, not so much by someone who actually walks the walk but does not necessarily mouth the words.

Many of us may have experienced this in romantic relationships where flowers, sweet nothings, etc. trump real commitment, sacrifice, etc. Again, I am saying half or more than half, not everyone. But to my astonishment I saw this play out almost formulistically. So perhaps this propensity to believe words more than deeds is part of our built in courting rituals. I don’t know.

Point being, most CEOs, far, far, more than half, will look after themselves and their executives first, investors second. So you are not going to hear bad news from them until after the facts. Which is why it is so important to holistically analyze what is going on.

If you actually find a CEO who is on the ball and honest, that is a blessing and a rare event.

Usually the words of CEO are lined with a figment of truth and integrity, but the words will be spun. The CEO of WCOM, who I suspect went broke when the margin calls came in, and who I think also went to jail, never bothered with figments of truth. But that extreme aside, you have to expect spin. If you can take the spin and match it with real world facts, then you have a better assessment of what is really going on. The same with brokerage opinions.

And frankly, CEOs don’t always really know what is really going on. But you can often see it by unusual insider trading. XONE was one of those clear instances where the CEOs inside selling meant business was not so very good. Twilio’ recent insider selling, although because they sold at a much lower price than the announced day stock price clearly created a red flag, in the end, the CEO and founder of Twilio only sold 10% of his personal holdings. You cannot blame the guy for taking $35 million and then hanging on to $320 million in shares thereafter.

Nevertheless, had their been bad news coming out of Twilio, not a prayer in the world management would have announced it prior to the secondary going off. Shareholders are not the primary party of interest, insiders are.

My whole point being, grain of sale, follow the facts holistically, figure out what is moving the share price (often something, other times just random, or FUD) and observe patterns that indicate CAP and TAM issues, and put it all together with what people are saying, as they will usually talk with some figment of truth that is very well spun.

Tinker

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Thanks for your reply Saul (and others)… still mulling over my beliefs about this. No offense, but I truly don’t know if you would be able to tell if it was affecting you. I would say that it is important that posters on this board respect your decisions and process. It is fine to ask questions but they should be based on trying to understand your logic, not question it, or point out that you are not following your own advice, or aren’t really “modified buy and hold” as many seem to want to do…

As for Bear, on your comment about thinking it improves your portfolio management, I would agree with that. I think for the average investor, a little more logic, less emotion and written clarity is good. I strongly believe it is for me. Starting the quarterly summaries for me have been energizing in terms of understanding where I am going, how often I am turning over my portfolio, how much I am spending on commissions (that was a very interesting calculation) and just whether my portfolio ranking represents my best stocks. I think portfolio turnover, i.e. How much your portfolio changes month to month, quarter to quarter, along with proper diversification, are two of the most important things you control…

Great conversation, I’ll end with the recommendation that more of the followers on this board share their portfolios. Even on a quarterly basis, like I do, it is well worth your time and energy and it gives us all a chance to see how the other guys (and gals) out there are doing it. Instructive for all, most importantly, for yourselves…

Randy

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Let me offer you an alternative explanation that is simpler.

Saul is an “aggressive growth” investor. He will do well when the market favors aggressive growth (2012, 2013, 2015) and he will do poorly when aggressive growth is out of favor (2014, 2016).

Interestingly, Saul portfolio performance bears a strong resemblance to the behavior of aggressive growth funds. Take the FDN ETF, for example. FDN invests in aggressive growth with a large stake in online giants like AMZN, FB, GOOG, NFLX and others.

Here’s what FDN had done in the last 5 years:

2012: 21%
2013: 53%
2014: 2%
2015: 22%
2016: 6%

Compare to Saul:

2012: 23.0%
2013: 51.0%
2014: (-9.8%)
2015: 16.0%
2016: 2.5%

The results are strongly correlated. Is that a coincidence?

#6

“In God we trust. Everybody else, please bring data.”

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Great conversation, I’ll end with the recommendation that more of the followers on this board share their portfolios. Even on a quarterly basis, like I do, it is well worth your time and energy

I have been considering this as well for all of the reasons you and Bear wrote about. I will say that it is somewhat scary - the idea of having your personal portfolio out there for everyone to critique. The funny thing is, I’m sure some of the critique would be extremely worthwhile. Separating the wheat from the chaff in terms of the suggestions you receive would be the key.

I know there are many on here who would offer very thoughtful and sound advice so am thinking it may be worth the effort.

I will have a pretty big change taking place in my portfolio within the next year or so. My company was recently bought giving me the chance to roll my old 401k into my IRA. I’m extremely excited about that as the current restrictions will be taken away. Currently, I can only invest 50% of my 401k in equities. The remaining 50% can be in cash or just a small set of Mutual Funds.

Within 12-18 months, my 401k will transfer to my IRA. At that point, I will have a lot of decisions to make. I’m thinking that would be a good time to begin sharing my new portfolio as well.

I hope the transition takes place faster than we are told. I’m surprised the process is going to take more than a year!

I learn from others sharing their portfolio. I agree that it would be great to see what others are doing as well.

Take care,
A.J.

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#6:

Very interesting observation.

Do you by any chance have the corresponding figures for VGT which does not have AMZN in the top ten holdings:

AAPL 13.29%
MSFT 9.55%
FB 6.07%
GOOG 5.11%
GOOGL 5.02%
INTC 3.59%
IBM 3.19%
V 3.17%
CSCO 3.11%
ORCL 2.53%.

Top ten holdings of FDN for comparison:

FB 10.35%
AMZN 10.09%
NFLX 5.40%
GOOGL 5.08%
GOOG 4.96%
CRM 4.82%
PYPL 4.74%
YHOO 4.23%
EBAY 4.01%
CTXS 2.81%

Cheers.
alpha

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#6:

I should have said that although the coincidence is very remarkable it may indeed be just a coincidence.

I believe Saul’s portfolio did not have AMZN in the earlier years and was not composed entirely of technology stocks. Another ETF composed entirely of aggressive growth stocks from all sectors, if such an ETF exists, will be perhaps more appropriate to compare.

alpha

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Wow, #6, great observation! That’s quite a close correlation over the past 5 years.

So does it also correlate relatively closely if you go further back than 5 years? If not, maybe Saul (without realizing it) has slowly transitioned to this “aggressive growth” portfolio over the more recent years and that’s why his returns haven’t been as favorable as they once were (as some here have pointed out).

Not taking anything away from Saul’s returns, just trying to maybe pull some more conclusions from this data.

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#6
so over recent years we would have done better with far fewer worries by just investing in FDN.
Of course that was not known in advance.

What is well known is that over time stock picking is less important than sector picking. And this tactic in less important than strategy, to be in or out of stocks, real estate, cash, bonds etc .
But the macro factors that move the best strategy are even harder to figure in advance than the likelihood of a company increasing earnings.

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Do you by any chance have the corresponding figures for VGT which does not have AMZN in the top ten holdings:

I don’t have the numbers for VGT but I do own IGM (“iShares North American Tech”) which is almost identical to VGT in stock selection and distribution.

The last five years for IGM are as follows:

2012: 6.80%
2013: 19.16%
2014: 24.29%
2015: 13.70%
2016: 13.03%

IGM has the following top ten holdings:

AAPL 8.86%
MSFT 8.47%
AMZN 6.43% (Deviation from VGT!)
FB 6.02%
GOOGL 4.34%
GOOG 4.24%
INTC 3.49%
V 3.08%
CSCO 3.03%
IBM 2.91%

IGM does not have ORCL in the top ten. It has AMZN instead.

#6

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I believe Saul’s portfolio did not have AMZN in the earlier years and was not composed entirely of technology stocks. Another ETF composed entirely of aggressive growth stocks from all sectors, if such an ETF exists, will be perhaps more appropriate to compare.

Right. This could be a coincidence but the correlation is remarkable. This is the beauty of statistical sampling. That you don’t have to inspect every member of the population. A small random sample can capture the essence of large populations without being an exact copy.

#6

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As the newer person on this board, “Saul’s” board, I would like to give my early and humble feeling on this if I may.

You guys and gals have something really special here. I see it as a really solid group that are really an investment club, all with the same goal in mind. To invest well and grow your portfolios, hopefully together into independent wealth for your future.

Saul may have the name plaque on the front door, but all of you are as important to this process as this seems like a true democracy and even playing field. It’s not about just listening to Sauls advice and following his results, it’s about taking all the info presented by everyone and making your independent decisions for your portfolio and future.

You cannot hold anyone’s feet to the fire but your own, because ultimately the decisions you make are your own. Saul or anyone else on here is just sharing their beliefs, from that point on its up to you in how you use it.

Love this board and very happy to have found it.

Chris

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Great conversation, I’ll end with the recommendation that more of the followers on this board share their portfolios. Even on a quarterly basis, like I do, it is well worth your time and energy and it gives us all a chance to see how the other guys (and gals) out there are doing it. Instructive for all, most importantly, for yourselves…

Here is my portfolio as of year ending 12/31/2016 and the 2016 year results.

ARCC 16.3%
UTF 1.0$
ETE 14.9%
EVA 6.0%
GAB 21.2%
HASI 19.0%
MPLX 21.3%
NRZ 0.2%

99.9%

2016 portfolio growth total was 18.23% which included 3.8% that was removed for all living expenses including FED and STATE taxes. Portfolio income was 7.17% of 2016 starting portfolio value and increased 27.53% over 2015 income.

The portfolio consists of 8 securities of which 1 is a BDC- 2 are REITs-3 are MLPs and 2 are CEFs

This type of portfolio has supported my family for almost 14 years of retirement because I have no other income other than modest SS.

b&w

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b&w,

Definitely different holdings than are discussed here, but can’t argue with your results!

Congrats on a method that seems to work great for you, wish I knew more about the investment vehicles you’re invested in…guess I can read up and learn if I want, huh?

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Chris (nee Citibeach),

Glad you found this board, I enjoyed you’re posts when I saw them on other boards, especially on the CMG board over a year ago when the stock started tanking with the food safety scares. Some of your posts are what helped give me the confidence to sell half my CMG position back near $600.

You’ve found what I think is the best board around, I’ve learned so much here from so many.

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