As I had previously said, I am trying to follow in Saul, Bear and other’s lead of summarizing my results. I am hoping it gives me a little accountability and perhaps an insight or two that I wouldn’t have had otherwise, and I must admit, I now look forward to go through this process now that I have done it a few times. I find it interesting to see not only the overall performance but to see how the portfolio is changing, albeit slowly over time.
Total Equity Holdings (not including options)
End of First quarter: 65
End of Second quarter: 63
And my changes during the quarter:
**Buys: 3** SSNC(SS&C Technologies), SPLK (Splunk), AGN (Allergan)
**Sells: 5** POT(Potash), KMX (Karmax), CSCO (Cisco), BIDU (Baidu), TRIP (Trip Advisor)
**Adds: 7** UA(Under Armour), NRE(NorthStar Realty Europe), FB(Facebook), TFSL(Third Fed S&L), OTTW(Ottawa Bancorp), LGIH(LGI Homes), CELG(Celgene)
**Reduce:5** CTRE(Caretrust Reit), DIS(Disney), APPL(Apple), PRAA(PRA Associates), SEDG(Solar Edge Technologies)
I know this is not popular here on this board but I do like having a larger number of stocks for a couple of reasons. One, I don’t follow my companies as closely as some here. With a full time job, I buy for the long term and unlike some on this board (Saul!), my ability to zig before my companies zag is not very good. I tend to do exactly the opposite of what I should when I get too active. Secondly, most of my larger positions have gotten there because they started as a small position and the gains have driven their move up the list. I like this philosophy of letting the winners run and really allowing the company performance pick my winners. Having said that, my goal remains to get down to 50 positions or so and then stay there. I am continuing to work to reduce my number of positions, but I am at least headed in the right direction with an overall reduction while still adding new positions, which I do want to keep doing. In addition, a much smaller number of stocks make up the majority of the overall value. A large number of them are there because it forces me to keep my eye on them with the idea of adding to them as they grow (and show promise).
Overall, here is my performance for the last two quarters :
Performance Q1 Q2
Mine 5.9% 2.8%
S&P 4.9 2.6
R2000 1.2 1.8
Nasdaq 9.1 3.8
I would be happy with these results until I started reading some of the other portfolio reviews. My goal has always been to beat the S&P, which is what I would own if I indexed and I have done so this year so far. I haven’t exactly crushed the averages, but I don’t mind this too much as my portfolio is (I feel) lower risk, both because of the companies I own, how I manage it, and because the portfolio is a little more than 15% cash and short term bonds (I don’t own any long term bonds).
So here goes, I now have 11 stocks with more than 2% assets (1 up from last quarter) with LGIH being the new addition, partly due to price but also because I added about 20% during the quarter.
Ticker Q1-17 Q2-17 % Price Increase
AAPL 6.8% 7.4% 0.8% Apple
BRK.B 5.4 5.2 2.2 Berkshire Hathaway
ATVI 4.3 4.8 15.9 Activision Blizzard
CLNS 4.2 4.3 8.8 Colony NorthStar
TFSL 4.1 4.0 -6.7 Third Federal Savings and Loan
NFLX 3.7 3.5 2.1 Netflix
PRAA 3.1 2.7 15.0 Portfolio Recovery Associates
LGIH 1.7 2.3 15.3 LGI Homes
CGNX 2.1 2.0 0.4 Cognex
FII 2.0 2.0 7.5 Federated Investors Inc.
INBK 2.2 2.0 -4.8 Interactive Brokers
CTRE 2.3 1.0
In addition to the price changes, I did do a little reshuffling during the quarter. I added to both LGIH and TFSL and cut back on PRAA, AAPL, and CTRE (which fell off the list), Let me talk about each of these individually:
TFSL: I added here because, although not a Saul type stock, this is probably the safest stock in my list even though it took a hit again this quarter. TFSL is a small bank that is in the middle of converting from a mutual savings and loan. 80% of their shares are owned essentially by the bank (waiting for the second step conversion) and therefore the true book value per share outstanding is approx. $30 (stock at $16). They are buying stock back voraciously, about 15% of the outstanding shares a year and they have the cash to keep doing it as they are over capitalized. Last quarter, they only(!) bought back about 2% of the shares, now that the price is down I will be interested to see if that is ramping back up. In addition, they just upped the dividend to about 4%. They have requested approval to only pay the dividend on the shares outstanding, which they do every year at this time (otherwise I guess they would pay the dividend to themselves?). Approval should come in July and then the dividend will be 0.68 annual 4+%.
LGIH: Well known around here, I added after last earnings and a subdued stock price increase. This really does seem undervalued based on company sales projections. This is an example of me trying to add to my conviction stocks even when I own a bit. (I am working on getting a little more concentrated!).
PRAA: I cut back here again as I am losing faith in their turnaround. We had a bump in the price during the quarter, and I used that as an opportunity to reduce my position. The debt collection company has struggled due to the regulatory environment in the last few years. That should improve going forward, but still waiting for progress and I really didn’t need this to be in my top 3 anymore.
APPL: I cut back here only because it has grown to be such a large position in my portfolio that I didn’t think it needed to be, so I sold some and added to my Facebook holdings. I like them both and thought Facebook should be a bigger percentage. This felt like just a little reorganization to me and better balance. I probably should have, and may still move more in a similar manner.
CTRE: I sold about half of this as it has had a pretty good run since the election. It is a Health Care, Senior facilities REIT, and feels to be at close to full value here. A very safe stock and nice dividend but don’t know how much room it has to run so I sold off about half.
Other stocks of interest in the top group:
ATVI had another good quarter and continues to move up the list. I think this is a sea change type stock as gaming continues to grow. It is one of those companies that uses the ever increasing technology instead of having to create it. E-sports and Virtual reality are two areas that should lead to even more long term growth. They also now sell their games on-line and make huge margins on the games as well as monthly fees to play the on-line muti-player games. I don’t see myself selling this one anytime soon.
Berkshire Hathaway (Brk-B): is one I am always tempted to add to over time. I think if I decided I didn’t want to spend as much time on my portfolio, I would just buy a lot more of this. I think there could be a fall off if Warren Buffet passed, but I don’t think it would be long, it is so well run. This is probably as close to a buy and forget stock that there can be. Really just a well run mutual fund with no fees.
I don’t have much else to add on the rest of the top ten except that my financial stocks were hit again this quarter. INBK and TFSL both were my only two negatives. I don’t see myself changing much here though as I think banks will perform better if interest rate hikes are slow and steady (margins should increase) and I think both have bright futures for different reasons.
Next 9 ….(to 20 overall holdings)
Ticker Q2-17
GOOG 1.7% Alphabet, Long term holding, well known
AMZN 1.4 Amazon, Long term holding, well known,
KMI 1.4 Kinder Morgan, Oil and Gas transmission, rough couple years, but very high cash
flows. Hard not to see this as market overreaction.
PAYX 1.4 Paychex, payroll firm, long term growth, improves with interest rate increases
ULTA 1.3 Ulta Salon, very high growth in retail no less!
LUK 1.3 Leucadia, Called a baby Berkshire, but not quite delivering on results but long
term results have been good and making progress.
CELG 1.3 Celgene, Biotech, Well known
NRE 1.2 NorthStar Realty Europe, special situation, management contract with CLNS(I also own
in top list), asset value roughly 40% higher, strong potential for buy-out by CLNS
GPT 1.2 Grammercy Property Trust, well run REIT.
So overall that puts the top 20 holdings at 52.4% of the totals. When you add the approx. 15% cash and short term bonds, that puts the remainder of the portfolio (43 holdings) at about 1/3 of the overall value. I believe that portion acts as a well run (hopefully!!) mutual fund that allows me to follow a number of interesting stocks than I wouldn’t be able to otherwise if I didn’t own any shares. It might interesting to track how that portion of the portfolio does over time, but I will have to think about how to do that accurately… A simple calculation wouldn’t work because a stock that had a great quarter leaves the group, and stocks that do poorly from the top list enter it. A simple calculation would bias the answer down unfairly I believe.
Finally, I should add that I have a decent % of my assets tied to options (maybe 10-15% depending on how you calculate) . Mostly cash protected puts, covered calls, and Diagonals, which are a combination of long LEAP calls and short near term calls. Just to be clear, my quoted cash positions are over and above the cash covered puts, and I believe these options give my portfolio even more stability because they still make money if the market is flat or falls slowly. Overall they should be adding a reasonable return while dampening out volatility. At a high level, I am always looking for ways to diversify away risk while keeping as much upside as possible. Other examples are owning complimentary stocks that do well in a rising/falling interest rate market. Owning both types gives almost a hedge fund thought process since I don’t really know whether interest rates will rise more or less than the market expects.
It will be interesting to see how my overall portfolio does in more flat and down markets since I haven’t really done these type of quarterly comparisons before. I have tracked my portfolio in general but not to this depth. And for that, I appreciate the push this board has given me to do this. I think it is improving my thinking with real, hard numbers… And would recommend the process to anyone. It doesn’t really matter whether you do it monthly, quarterly, or even yearly. I believe that just depends on how often and how much your portfolio changes over time.
As always, I am interested in everyone’s thoughts/ advice / questions.
Randy
Owner of every stock mentioned in this post……( except the ones I sold off)….
