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 End of Third quarter: 59
And my changes during the quarter:
Buys: 6 SHOP (Shopify), HUBS (Hubspot), BL (Blackline), TRRSF (Trisura Group), ANET (Arista Networks), AIOCF (Avigilon),
Sells: 10 MTH (Meritage Homes), UA ( Under Armour), BL (Blackline), IBKR (Interactive Brokers), GNTX (Gentex), COH (coach), CTRE (Caretrust REIT), ILMN (Illumina), BJRI (BJ’s Restaurants), SEDG (Solar Edge Tech)
Adds: 7 GOOGL (Alphabet), BR (Broadridge), NRE (Northstar Realty Europe), MA (Mastercard), ULTA (Ulta Salons), EGO (Eldorado Gold), SPLK (Splunk),
Reduce: 3 NFLX (Netflix), ATVI (Activision Blizzard), INBK (first Internet Bancorp),
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 and I am heading in that direction as I dropped 4 overall this quarter while still adding 5 new buys, with one buy Blackline being added and dropped in the same quarter.
In addition, a much smaller number of stocks make up the majority of the overall value. A larger 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 three quarters :
Q1 Q2 Q3 YTD Mine 5.9% 2.8% 4.1% 13.3% S&P 4.9 2.6 3.1% 12.7% R2000 1.2 1.8 4.5% 10.0% Nasdaq 9.1 3.8 4.2% 20.9%
As has been true all year, I am happy with these results until I start reading some of the other portfolio reviews. My goal has always been to beat the S&P, which is what I would mostly own if I indexed and I have done so this year so far (not counting dividends). 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).
Looking at my top stocks I still have 11 stocks with more than 2% assets (same as last quarter) but with SHOP and GOOGL being new additions and INBK and PRAA falling off the list…
Ticker Q3-17 Q2-17 % Q3 Price Incr AAPL 6.9% 6.8% 7.0% BRK.B 5.4 5.2 8.2 TFSL 4.7 4.0 4.3 ATVI 4.4 4.8 12.1 CLNS 3.7 4.3 -10.9 NFLX 3.7 3.5 21.4 LGIH 2.6 2.3 15.3 SHOP 2.6 0. 33.9 CGNX 2.5 2.0 29.4 FII 2.0 2.0 4.9 GOOGL 2.0 1.7 5.8
So a short discussion on the top stocks…
APPL: Really can’t add much here that everyone doesn’t already know. I will repeat what Warren Buffet has said, that APPL is really a consumer products company and is still undervalued. Their services business continues to grow and they are expanding in all directions. The Iphone business is also likely to continue to grow. I will be interested to see how the Iphone X does when it comes out. The truth is with the cash on hand, etc., the present price is paying for little to no growth.
Brk-B: Nothing to say much here except your getting Warren Buffet as a money manager without having to pay for him. The company’s value is greater than the price at present and Warren is directing assets and I am not paying him any fees at all to do so. Very safe holding and if I owned only one stock. This would be it.
TFSL: Although not a Saul type stock, this is probably the safest stock in my list even though it didn’t do a lot 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) and the true P/E is about 10. They are buying stock back voraciously and they have the cash to keep doing it as they are over capitalized. Last quarter, they increased the dividend 30% and the latest communications sound like the increases will continue. The dividend is presently over 4%, add that to the buy backs and it is really hard to see the stock drop much from here.
ATVI: 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. Having said that, I did pull a little out this quarter. I want to own long term but think it may have gotten a little ahead of itself. I don’t see myself pulling out much more without some bad news or a much larger increase.
CLNS: Colony Northstar. This is a real estate trust which is the result of a merger of a couple REITS which were significantly undervalued to their management structures. It pays 8 plus percent dividend and I believe it to be undervalued.
NFLX: Another sea change event that I have bought at a small fraction of today’s price. I once again sold a little bit of this. It is very expensive but keeps growing and has a huge TAM. I can’t imagine buying at this price, but hard for me to sell it all as it continues to outperform on all fronts.
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!).
SHOP: Well known here. I started adding to this in when the price dropped after earnings and have accumulated a significant position for me in a pretty short time. The good news is I am paying attention here, the bad news is I probably caused the recent price drop.
CGNX: I have owned this for some time and it sells vision systems for industry. It is in a sweet spot and growing rapidly. It is growing so fast it is making me a little uncomfortable with it’s price but I hesitate to sell. My position is also in a taxable account and I really don’t like to trade there as I don’t think my trades are enough of an improvement to overcome the tax costs unless I am sure that the future is not good.
FII: This is a financial company that runs money market funds. They are cheap and pay a good dividend. Personally I believe that interest rates are rising and that means they have good growth ahead. There are few money market funds left after the financial crisis. I will also say that this is a good diversification play which counteracts many stocks which will be badly affected by interest rate increases.
GOOGL: I have slowly added to Alphabet over the years. And I added here last quarter. Google is a money machine and is a cornerstone stock of the digital /internet world we live in.
I won’t say much about the sells I made, most are because I have decided to cut back on the number of stocks I own and for one reason or another, I thought I could do better somewhere else. There is one stock Blackline that I both bought and sold in this last quarter. I read about it here on the board and when the quarterly earnings came out poorly I just decided that I didn’t understand the stock that well and I didn’t need to hang around. Yes, I agree, Saul is rubbing off on me a little bit…
Of my new stocks, all are well known here except TRRSF which is a Canadian insurance company which has only recently been spun off from BAM (Brookfield Asset Management). They are a specialty insurance company which has an enviable combined ratio of well less than 100% (depending on division) with much room to grow and the capital to do so now that they have been spun off.
Next 9 holdings all within 1-2%….(to 20 overall holdings)
PRAA Debt collector I have owned for years. I have reduced this a bit but actually may be turning a corner. Can’t convince myself to sell much more.
NRE European REIT, cheap relative to book value due to management structure. A potential target of Colony Northstar which I own
HASI REIT in renewable energy, growing and low taxable dividend
ULTA Ulta Salon, very high growth in retail no less!
PAYX Paychex, payroll firm, long term growth, improves with interest rate increases
AMZN Amazon, Long term holding, well known,
KMI Kinder Morgan, Oil and Gas transmission, rough couple years, but very high cash flows. Hard not to see this as market overreaction.
CELG Biotech with solid growth
INBK Internet banking, still growing well but sold some this quarter as the price to growth has gotten high.
So overall that puts the top 11 holdings at 47%, and the top 20 holdings at 60% of the totals, this is up from 47% from last quarter. When you add the approx. 15% cash and short term bonds, that puts the remainder of the portfolio (43 holdings) at about 25% 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.
Owner of every stock mentioned in this post……( except that ones I sold off)….