Randy's Quarterly Update

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)….


Hi Randy,
I was interested in TFSL and tried reading their last earnings report. I found myself lost in the gobbledegook of numbers and terms. Could you explain what this means:

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 what was all that stuff about them waiving receiving dividends?

And if the true book value is $30, how come the people who understand these things, like the bank officers, their friends and families, officers of other banks nearby who understand such things, and everyone else hasn’t been out there buying shares hand-over-foot to push the price up nearer to $30? That’s the biggest question I have.

Could you post a paragraph or two explaining what the whole thing is about in ordinary language?





Enjoyed your review. Congrats on getting down to 59 positions! And 60% concentration in your top 20. Idea: why don’t you calculate how much of your gains this year have come from your top 10 positions? I think that might encourage you to continue to concentrate your portfolio!

For your reviews, I think it would be interesting if you said a little about the stocks you added to. It was interesting to me that you added to Splunk – obviously you must have different feelings about them than Saul and I, who each sold our shares recently. I’d love to know your perspective.

Again, great review!



I’ve taken a long break from fool and I am just now beginning to read some of the forums again after being burned really bad with fool special ops service. TFSL was one of the few stocks that followed the thesis layed out and I have done well with this one.

Here is a link that will explain better than I can…


…But I’ll try anyway. This bank converted from private to public ownership. They sold the shares into a holding company and then the holding company kept back a lot of shares because they are already overcapitalized and don’t need to raise capital. (The CEO has said that’s a task for the next generation of owners. )

Meanwhile they are buying back hordes of shares because a while ago they were not allowed to buy them due to some regulator issues. (banking and mortgage meltdown and all that) They know the shares are undervalued and it has been their strategy to buy back shares for some time.



Curious on your reasons for selling SEDG (Solar Edge)?

I understand it does have the history of what has historically happened with solar-inverter companies. At the same time the last quarter seemed great and looks like great things are still to come and it’s great that they have so much cash on hand as well.

This is a stock that occupies about 5% of my holdings and I’m very optimistic about.

Hi Torquepeak and Saul,
I also followed Special Ops and did not seem to do as bad, but maybe I came in late. It seems like some of Jim Royals picks take a while to play out. One of his picks, BOBE, floundered for a while but has turned out quite nicely. In any event, if you want to follow him he has a public board in which they discuss many of his picks including TFSL.

Here is a link to his board, very different perspective to this one…


As for TFSL, I can understand the confusion Saul. Truthfully I believe this is a big part of why it is cheap relative to book. So I think I tried to explain this last quarter, but I will take another shot.

First you need to understand mutual conversion, in general. So it starts with mutual companies. So in the past, there have been private companies that were started by forming a mutual holding company. These are formed when a group of people get together who have a common need and pool some funds and form a mutual holding company. Common examples were insurance companies and savings and loans.

Maybe a group of business men get together and decide they need insurance or loans and can’t find an existing business to service their needs. So they meet and instead of paying insurance premiums to an existing company, they pool their money and self-insure. Over time (assuming they don’t go under!) they expand and grow into a significant mutual company. Most Credit Unions are mutual holding companies, you may recall Mutual of Ohmaha from the old Wild Kingdom TV show or even the old Baily Savings and Loan on “It’s a wonderful life!”. Ha,ha

In any event, these type of companies when formed are owned by the customers, i.e. Nobody really owns them. They have a board who directs activities, the profits are fed back into the company and they can do this forever. Over time there are quite a few companies like this that exist. Many small savings and loans are of this type. So now here is the twist. The board of one of these companies can decide that they need more capital to grow. They can’t sell stock because there isn’t any, so they decide to convert to a stock ownership company. They are allowed to do this and it is called a mutual conversion. To do this the board decides what the company is worth, creates the no. Of shares and share price that represents that value. Because the employees and customers in reality own the company, they are offered first chance at the stock. But the funny part is they have to buy the stock from the mutual holding company who owns the company. So now the holding company gets paid to give stock that represents the agreed upon value. So when that happens, and here is the magic, no matter what price they set, they end of with the price PLUS the company. There is no one to pay the stock cost to and there fore the value of the holding company just went up by the stock sale price.

Confused? I am not surprised. Let’s work through an example. The Randy Credit Union (RCU) was formed 100 years ago. They have grown slowly but today they are a $100m company. So they decide to convert. They set the price at $10/share and 10m shares. Seems reasonable and they sell all the shares to their employees and customers based on a number of factors. The cash from these share sales go to the mutual holding company and now not only do they have a $100m company but they also have $100m dollars in the bank. So… it is now worth $200m dollars and the employees and customers are all very happy as their stock has a book value of $20.

But the stock price starts at $10 and it usually takes a while for the price to climb to a more resonable value (somewhat over book which most banks sell at) because they are so small. And you don’t really know these banks will do the best thing with the flush cash they have suddenly gotten. In any event, there are a number of investors who look for these type of conversions and invest in them, it is a pretty nice strategy and I actually try to have a couple of these at any one time. One issue you can have is they are usually extremely small and can sometimes take a while for the value to show up. Many times they are one branch and trade only a couple hundred shares a day so you have to not overplay any one hand… I own two now, OTTW and WCFB. They are both small but selling below book value. Stillwell Value is a fund that invests in them. Joe Stillwell has turned this into a successful career.

So, we are almost there. Because they is so much cash coming in during a conversion and the holding company doesn’t need it, they are allowed to do a two step conversion if they want. This is where they only sell a fraction of the shares the company is valued in the first step And then they sell the rest in a second step, usually a year or two later. But there is no requirement on when the second step needs to be done.

So, now back to TFSL. They converted a while back, '07 or '08 I believe and they decided that they didn’t need to do the second step. Apparently, there is no time limit on the second step and they don’t need the capital and so TFSL has decided they don’t need to do it for “the foreseeable future”. Because of banking limits during the financial crisis, they have only recently (last few years) begun buying back stock, but they have a lot of cash left still in the holding company along with what is now 80% of the outstanding shares, which were never sold. So if you look at Yahoo, you see they have 281m shares outstanding and a PE of 50. In actuality, the holding company owns 230M of those shares and only 54m or so are outstanding. So if you calculate a P/E based on those shares it is around 10.

So finally, the dividend, because those shares are still owned in theory by the employees and customers, the status of those shares are represented by a group of selected customers and employees. So every year, they have to get approval to not accept the dividend. The request goes out to this group and they vote to give up the dividend. Remember, that if they accepted the dividend it would go right back to the holding company anyway because the shares are held by them. No real change. This year they voted at 97% to Not accept the dividend and have done so for the last few years it was requested.

So there you have it. I think the complicated nature is why this is so cheap. I imagine they could do a second step immediately and do okay. I think the CEO doesn’t see any reason to do so. They still have a couple hundred million of funds in the holding company and are making more money than the are paying in dividends so that cash would grow without the buybacks. Instead, they are buying back shares in big chucks. The current authorization (10million shares) still has 8 left or so, and this is the 8th authorization. The latest reports seem to suggest that they are now going to start boosting the dividend thinking that might drive the price up higher. So this summer they bumped the dividend from $0.12/qtr to 0.17/qtr. I guess I am good with that…

Anyway, very long winded answer, and I don’t really know how the value eventually gets resolved but, hey as long as they keep buying other people’s shares back and keep bumping my dividend, I think I will end up okay.

Long TFSL.


Hi Danamal,
Sedgwick might have been one of those that starts to take off when I sell. I bought this a couple years back, added to it when it dropped and eventually just kind of decided I didn’t know if their technology was going to hold up when their sales were stalling. I sold part of it during the extreme pessimism that Solar companies were seeing and then I sold the rest when I got what I thought was a nice bounce. I had lost confidence in the company and honestly it was not a company i followed enough to make it worth my while.

What I have been kind of trying to do is take my starter positions that I have owned for a while and decide if I want to add or sell. I have realized that I like buying a small amount to start but at some point I need to either add to it because I like how it is progressing or sell it because then it will never get to be important to my portfolio anyway. SEDG was one I sold to add to one I liked better…


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Hi Bear and thanks,
On Splunk, I can’t say that I had any great insights that you and Saul may have missed. I think that digital and big data is the future. I see it everyday in my business (engineering) and this stock SPLK, ended up on the opposite side of my conversation about SEDG. I had a small position in this and I decided that I would add to it. It is still a small position but I think big data and analytics are going to continue to grow and this seems like a good way to play it.

You may have noticed that because I don’t change positions nearly as fast as others on these boards, I spend much more time looking for great companies in growing and long term fields. Exact valuations are so difficult that I don’t know that I can do that any better than the analysts. I do think I can play a long term strategy that will work because I don’t worry about qtr to qtr variation where the analysts and mutual funds managers have to. If Splunk takes a hit, I would probably add a little more. Similar to other stocks that are mentioned on this board but which I can’t mention if I want to add to it soon :slight_smile:

Anyway, a very different philosophy which has served me well, even if it hasn’t given me the types of returns that Saul speaks. But I am always learning…



Thanks TorquePeak for the link to that very helpful article, and thanks Big Cat for the extended explanation. I finally understand TFSL (I think).