Saul's 10% rule

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Saul,

Some allocation questions for you. You had/have a 10% rule. You don’t put more than 10% in a single stock. I’ve noticed that over the past 13 months that you have been increasing the concentration of your positions in your portfolio. I think you now have 3-4 companies over 10% each. So my questions are the following:

  1. Is going over 10% more common for you now than it was during the period between 1992 and 2013? I guess I’m asking did you previously adhere to this rule more strictly? If yes, why?

  2. I own your top 4 companies (BOFI, SWKS, CELG, SKX) also so I’m very familiar with them and they are discussed here frequently.

2a) I believe that of these 4 companies SWKS and SKX offer the best 2-3 year risk adjusted return potential. The earnings growth, P/E, and 1-3 year outlook for growth in these companies products, and the outlook of management on the latest conference calls are just so incredible so I can see why someone would put a high allocation in them. However, the stock prices have gone up a bunch since Jan 1 and you had 14% and 10% in them then so your allocations are probably higher than that now. Are you planning on trimming? If not, why not? And as you look back over the years, do you think a younger Saul (between 1992 and 2013) would have been more likely to trim than now?

2b) CELG is a great company but the valuation is not cheap. Why do you think a 14% allocation is reasonable?

2c) Of your largest holdings, I think BOFI is the riskiest because it’s loans are concentrated in one region. Yet this one is your biggest holding. I wondering why you’ve allowed this one to go 4% over your 10% limit.

Thanks.

Chris

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Some allocation questions for you. You had/have a 10% rule. You don’t put more than 10% in a single stock. I’ve noticed that over the past 13 months that you have been increasing the concentration of your positions in your portfolio. I think you now have 3-4 companies over 10% each. So my questions are the following:

1) Is going over 10% more common for you now than it was during the period between 1992 and 2013? I guess I’m asking did you previously adhere to this rule more strictly? If yes, why?

Hi Chris, More recently I had had more positions (25-30) and I decided that it was too many for intelligent portfolio management. My normal was less. The higher number of positions had come about because I was managing more assets, and was finding it hard to get full positions in little illiquid companies. Now I’m down to roughly 15-16 positions andI feel better about it. With 15-16 positions the small, average, and big positions will all be greater proportions of my overall portfolio than when I had 28. Actually, in the past I usually had just 12 to 20 positions too. I can have the smaller number now by avoiding the little illiquid companies and sticking with companies I can get in and out of in a reasonable time (except for very small positions like AMAVF, for instance).

2) I own your top 4 companies (BOFI, SWKS, CELG, SKX) also so I’m very familiar with them and they are discussed here frequently.

2a) I believe that of these 4 companies SWKS and SKX offer the best 2-3 year risk adjusted return potential. The earnings growth, P/E, and 1-3 year outlook for growth in these companies products, and the outlook of management on the latest conference calls are just so incredible so I can see why someone would put a high allocation in them. However, the stock prices have gone up a bunch since Jan 1 and you had 14% and 10% in them then so your allocations are probably higher than that now. Are you planning on trimming? If not, why not? And as you look back over the years, do you think a younger Saul (between 1992 and 2013) would have been more likely to trim than now?

I did trim a little BOFI and SWKS this month when they got over 15%. I discuss this further in my end-of-the-month summary.

2b) CELG is a great company but the valuation is not cheap. Why do you think a 14% allocation is reasonable?

They are comfortable enough to give outlooks out to 2020. So I’m comfortable in holding 11.5% of my portfolio, which it is now. (I’ve trimmed small amounts four times in the past six months, to keep my allocation there, though.

2c) Of your largest holdings, I think BOFI is the riskiest because it’s loans are concentrated in one region. Yet this one is your biggest holding. I wondering why you’ve allowed this one to go 4% over your 10% limit.

They are diversifying out of Southern California. I guess I just have great faith in Fletch’s analysis. And I did trim twice this month when the allocation got too big.

Saul

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