Question to Saul and Bear and others with great

Investment Analysis Clubs Saul’s Investing Discussions
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Firstly, kudos to you both on an amazing start to the year.

I do have two questions for you both and for anyone else posting their portfolios this month.

Firstly, and nothing but the most respect for you both, but given both of your under performance last year and now dramatic turn in performance, how much of this do you attribute to stockpicking using the saul method and how much is related to a sector rotation which though in your favor now could just as easily shift. I ask this as I tend to use a combination of investing approaches and although my returns are not as impressive as yours they definitely are a little more consistent from year to year.

My second question for you both relates to your specific portfolios as well as those still to post their portfolios. Of your current stock picks which three would you say almost attractive for new money. This is especially as so many of them have risen so dramatically.

Thanks, and may the rest of the year continue to favor us all.

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I’ll chime in, but you ought to give my thoughts two seconds of consideration:

*much of the analysis with some of these stocks is stock related, not business related. I mean, if we can’t even determine the share count on WIX then it follows that every single conclusion made after that is flawed in some way, though admittedly all it would take is a call to IR to get this resolved.

*there is little doubt that buying companies with high top line growth and negative NG earnings can produce truly sensational returns, especially if those companies eventually transition from fake earnings to real live earnings that stand the test of time. What I like about Saul’s method is he doesn’t even care about GAAP earnings which seems the right way to approach it if you want to invest this way. Go for growth, and sell at any hint of trouble, but keep your own counsel. It seems like you’d need a steel stomach to make this work, but time and time again - even in the short time I’ve visited this board - Saul keeps his own counsel and is rewarded. There is no sense in being right if you don’t get paid for it, so kudos to him!

*if it matters, I watched an MSN portfolio in 1999 go up 10x - that’s taking a $100,000 portfolio and turning it into $1,000,000. I watched it happen, and I can vouch for the results. It did happen, and if it happened before, it can clearly happen again. Most of the stocks were clearly speculative, but it worked anyway. So a lot of ways can work, period.

*to give an illustration as to how this can work, imagine you put together a portfolio of 10 stocks with a 50% chance of losing all money and a 50% chance of going up 10x. If 1 works and the other 9 fail, you end up with a flat return. If two work, you end up with an even better return. What Saul seems to be doing is weighting the odds in his favor while at the same time showing a rather remarkable ability to focus on stocks that others get excited about. Plus, he seems to pay keen attention to the BS and also analyzes any move which could interrupt the growth rate. Finally, his substitution for cash flow vs. GAAP earnings is a way to get around that problem. In other words, if you are going to high returns, then you need stocks that can produce high returns - he is doing that with remarkable skill.

*that said, these stocks are going to get crushed sooner or later unless they are the new Amazon, able to find new and bigger fertile fields of growth. You just can’t sustain this sort of momentum, but then again if 10 year rates remain near 2% almost anything can work. That’s just my opinion though, and you should ignore everything I or anyone says in favor of your own due diligence, assuming that diligence is competent.

In short, I wouldn’t want to invest like Saul, but on the other hand I’d also like 25% ytd returns too and don’t have them!! If you are a small investor, esp. just starting, just be aware of the risks here - I’ve been doing this 25+ years and it is a super-charge aggressive way of investing that is contrary to everything I believe - but who cares what I believe. Just make money!

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Firstly,…given both of your under performance last year and now dramatic turn in performance, how much of this do you attribute to stockpicking using the saul method and how much is related to a sector rotation which though in your favor now could just as easily shift. I ask this as I tend to use a combination of investing approaches and although my returns are not as impressive as yours they definitely are a little more consistent from year to year.

My second question for you both relates to your specific portfolios as well as those still to post their portfolios. Of your current stock picks which three would you say almost attractive for new money. This is especially as so many of them have risen so dramatically.

Hi Craig,

First question: I think part of my under performance last year did come because of sector factors. The bottom came in oil and other commodity prices during the year. The associated stocks had been enormously beaten down and they started to rise, and the overall averages rose with them, but I don’t usually invest in oil or raw materials. Then after the election, all the beaten down coal and oil stocks took off even more. It was a “value stock market.” Growth stocks were temporarily, but definitely, out of favor. In fact tech growth stocks crashed early in the year and on Feb 11 last year (the bottom), my portfolio was at 80.5% (down 19.5%). So my portfolio actually gained 27.3% by the end of 2016 from that bottom (which isn’t bad) (102.5% divided by 80.5% equals 1.273). Yes, sectors definitely played a role, but I don’t try to time sectors either.

Second question: Most of our stocks will report earnings in the next two weeks. If I had new money to invest I’d wait and look at the quarterly reports before deciding. There are no obvious cheap stocks currently except LGIH, and I’d probably prefer to see their earnings and guidance too.

Hope that helps.

Saul

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Firstly, and nothing but the most respect for you both, but given both of your under performance last year and now dramatic turn in performance, how much of this do you attribute to stockpicking using the saul method and how much is related to a sector rotation which though in your favor now could just as easily shift.

I attribute most of it to being in the right place at the right time, which is due to both stock picking and sector “rotation.” The stocks are doing well because the companies are. But also because the market is increasingly realizing how well the companies are doing. Someone asked me what the catalyst was for Wix’s quadruple in the last year. Well, I really don’t know. The market woke up! That said, not EVERYTHING in the tech sector is doing well. Saul wisely exited SNCR, for instance.

Of your current stock picks which three would you say almost attractive for new money. This is especially as so many of them have risen so dramatically.

Attractive how? Obviously, I like them all. :slight_smile: If you are risk-averse, go with FB. If you want max potential, go with more volatile things like TTD or TWLO.

Good luck to all,
Bear

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Saul and Bear - Thanks and thanks to all of those that share their wisdom and their real time portfolios. I hope that one day I too will be able to do that as I transition my titanic portfolio into something a little more honed in.

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how much is related to a sector rotation

Good question. I find it too much to read of these short term returns as some kind of “stock-picking” revelation. Only weeks ago there was an extensive thread that showed that the longer term portfolio return here fell short of the SP500 over an extended period. Using that same “stock-picking” methodology has performed well in the short run, but its long-term merit is unproved (and history casts a long shadow)

Portfolio returns vary. Sectors cycle. To lay claim to personal wisdom/insight is a stretch.

My portfolio returns have out-paced the SP-500 for several months, but I attribute it to fortune… not to any keen understanding of the markets. While I delight in this season of strong returns, I’ll not let myself get puffed up thinking that this was all my doing.

Humility and thankfulness is all things is wise. Nothing more. Nothing less. There is no magic formula.

So let’s return to basic company analysis and let go of short-term return hoopla.

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In short, I wouldn’t want to invest like Saul

I looked your profile. It states you are a money manager and your website states your manage $56M. I assume a good chunk of it is others money.

So you have a different mandate, while superior returns are desirable but you need to preserve capital and cannot afford 30% or 50% drawdown. So by definition you cannot invest like Saul. The question is what are you doing in these boards?

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The question is what are you doing in these boards?

…well…

*for the ideas?
*to learn?
*to be exposed to different investment styles?
*to interact with nice people?

and

*cause I’ve enjoyed it for the last…what…17 years and counting?

So by definition you cannot invest like Saul.

I can’t? where did payc come from?

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interact with nice people?

On re-reading my post, my comment didn’t come properly. Sorry about that. I am sure you can draw inspiration, source ideas.

Your investment philosophy seems value oriented. So I guess, a growth oriented platform can give ideas that you may normally will not look is the point I was trying to make. In any case, good luck.

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Hi Craigdoc66

Neither Saul or Bear here and I cannot speak for them but as I do post my portfolio reviews then here’s where I’m at with regards to your questions…

Q1)
I would say for me it is a mix. It is a quite a bit a function of the improved market climate but in terms of my own situation I would say that:-
i) Better and more disciplined stock picking based on Saul Method fundamentals as well as clear cut high yield undervalued situations
ii) Increasing the concentration and weighting of my holdings in favour of both the better looking opportunities and ones that I have highest conviction in
iii) Adding to winners that are winning rather than trying to catch falling knives going in the opposite direction (read any one of Denny’s or B&W’s posts on that)
iv) Getting out of dead money situations and redeploying funds into positive situations
v) Cutting losses earlier
vi) Avoid chasing story stocks where plays have escaped from reality
vii) Trimming when valuations get really extreme

I would say the effort into preparing and posting my portfolio reviews forces me to be better disciplined at all of this and makes me feel far more in control of my investing and returns.

Q2)
Stocks that are accelerating revenues and earnings in industry sectors that have a 5-25 year runway and ideally with the best 1YPEG (or from a yield perspective - offering 5-10% yield and a long history of strongly rising dividends and rock solid businesses) AND have momentum from investor community endorsement, free from any tinge of scandal or question marks and offer investors the highest conviction sentiment opportunities.

Cheers
Ant

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Hi Ant:

Good post. I believe a lot more money can be accumulated by an investor, even if he makes less dollars----
1)if he can avoid losses-
2)if he can avoid creating taxable events that siphon money out of his portfolio and into the government’s pockets.
3)if he can position his portfolio to create growing income, especially if the growing income is in some way tax deferred.

I also believe that the “Drama” times in the market–(2000–2008/9- 20014) are the times when the most money can be made because most people are throwing away their best securities at ridiculously cheap prices.

Many times, many people are their own worst enemies.

b&w

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