Saul's Buying Policy

Investment Analysis Clubs Saul’s Investing Discussions
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Hi Saul,

I am curious. Do you have certain principles underlying your buying strategy? Do you buy in portions over time, and if so is it timing based or opportunity based (i.e. you buy when you think you get a deal or do you cost average over a predetermined time (such as once every month for 3 months).

Or

Do you typically buy a full position from the start?

I have been averaging it out over time whenever i save up enough new money, but I am tempted to just start waiting a bit longer and just buy a full position in a company I believe in and have been watching for a while when the right opportunity arrives.

Thank you for all your wisdom.

Bashaar

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I am curious. Do you have certain principles underlying your buying strategy? Do you buy in portions over time, and if so is it timing based or opportunity based (i.e. you buy when you think you get a deal or do you cost average over a predetermined time (such as once every month for 3 months). Or do you typically buy a full position from the start?

Hi Bashaar,

I actually don’t have a fixed policy. That means you can rule out cost averaging over a predetermined time. I never do that.

I hardly ever have enough cash around to take a full position at the start, as I’m usually close to 100% invested – unless I’ve just sold out of a position for other reasons which has freed up cash. Or if I really like a stock I might sell something else I don’t like as much or I decided was a mistake. But in general, I just take as much of a position as I have enough money for and hope to add later. (I might also sell a little from a position which I feel has gotten too large to help out with cash).

I can also rule out: I am tempted to just start waiting a bit longer and just buy a full position in a company I believe in and have been watching for a while when the right opportunity arrives If I like a stock enough to take a position, I will always take at least a starter position, and figure on adding later. I never wait for the “right opportunity” to take a starting position. I do add to a stock when it goes down for no reason on an opportunistic basis, but you can’t take that as a rule, as some of my most profitable deals ever I kept adding on the way up instead of on the way down. (If I start buying at $25, adding at $28 or $31 might seem expensive, but when it gets to $75 or $120 the difference between $25 and $31 will seem negligible. Also if it’s at $25 and I wait for $22, to buy at a “cheaper price”, I’ll really kick myself when it’s at $120 and I never got in because of waiting for a cheaper price.)

As you can see, there’s no clear rule, but I was able to rule out two approaches (buying thirds at predetermined times and waiting for a cheaper price to add.

Saul

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Thank you Saul.

Great stuff. We are really fortunate to be able to pick your brain. It is like getting 2 services for the price of one ;-). Hope TMF recognize you for that in some way.

Best
Bashaar

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As you can see, there’s no clear rule, but I was able to rule out two approaches (buying thirds at predetermined times and waiting for a cheaper price to add.

I couldn’t help but emphasize these two points. Waiting for a cheaper entry on something that I think is promising has cost me dearly. I 'm thinking about TSLA at $50 through to $70’s. Finally, I just got behind the story at high $80’s, but just see how the decision to wait can be a poor one (of course, with the benefit of hindsight). I have other examples - Amazon at $150’s, SCTY at $30’s, etc etc. I think the better strategy is to grab an initial position soon after deciding something is indeed a good addition to one 's portfolio.

The buying in thirds is widely used in Fool-dom but I don’t think there’s any standard definition for how it’s implemented. In its simplest form, one buys a third and then adds the remainder at pre-determined intervals. That’s too mechanical and I doubt it would work. Another version is to buy a third and add the remainder on news or improved understanding of the business.

I practice a modified version - call it buying over time based on news and business updates. So, I do buy over time but it’s mostly opportunistically (as Saul noted, for example, when a stock goes down with no specific news, or when the earnings/news show that the future looks good and there’s likely a lot of good news in the pipeline). I have added on new highs to CSTE, TSLA, and PSIX.

Anirban

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I never wait for the “right opportunity” to take a starting position.

Actually I got a good fast rule from this paragraph and it’s above. I usually hesitatne and hem and haw and then do something. Going forward I’m going to do a “SAUL”, viz., buy a little and then wait for my brain to make a decision for more.

Thanks for this little pearl…but when one is walking on a mine field and another suggests NOT TO STEP there, it is only a step but what a difference that one step makes.

Really, Saul, that is very helpful to me and I’m ever indebted.
Mykiemon

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I couldn’t help but emphasize these two points. Waiting for a cheaper entry on something that I think is promising has cost me dearly. I couldn’t help but emphasize these two points. Waiting for a cheaper entry on something that I think is promising has cost me dearly.

Anirban,

First and foremost, let me state clearly and loudly how valuable your posts are. You, Saul, Gaucho Chris, Mview, and several others add so much value here that…well, that’s why I’m here.

So I ask, isn’t it possible that that one that got away has more influence in your thinking? I know it does with me but I’m not sure, nor have i thought hard about it, whether passing on something is bad or good.

Certainly I have had bad experiences like you have and in some of the same stocks, CSTE as an example, but I think I ONLY remember those fish that got away, not all those that I caught or more importantly, that got away and I was glad they did.

I ask you, did you study this better than I did (I felt it, not studied it)? I’m sure I missed several opps but I am also sure, reasonably so, that many of those that I didn’t buy went no where. I only post you on this since I have wondered and wondered if I am helping or hurting myself by this seemingly propitious procrastination and I haven’t reached a conclusion yet. So if you have, share my brother.
Mykie

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I practice a modified version - call it buying over time based on news and business updates. So, I do buy over time but it’s mostly opportunistically (as Saul noted, for example, when a stock goes down with no specific news, or when the earnings/news show that the future looks good and there’s likely a lot of good news in the pipeline). I have added on new highs…

Anirban, Thanks for putting what I was trying to say into such understandable form. That captures it exactly.

Saul

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Actually I got a good fast rule from this paragraph and it’s above. I usually hesitate and hem and haw and then do something. Going forward I’m going to do a “SAUL”, viz., buy a little and then wait for my brain to make a decision for more.

Mykie, It works for me, and remember you’re not locked in. Not infrequently I decide my initial purchase was a mistake, I don’t really have faith in this stock, and I sell out at a small profit or loss. (SZYM, AFOP, HZNP, and others grew from small entry positions).

On the other hand, if I’m really excited about a stock I’ll take a substantial position right from the start. I’m more likely to do that with a MF recommendation (because there’s a board with other people following it that I can use for a resource) than with a little stock I found myself. But I occasionally change my mind on those too.

Note that, as Anirban so nicely described, I add even to substantial positions given the right circumstances.

Saul

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Hi Mykie,

Some quick comments:

First and foremost, let me state clearly and loudly how valuable your posts are. You, Saul, Gaucho Chris, Mview, and several others add so much value here that…well, that’s why I’m here.

I appreciate your kind words. Thank you very much!

But, let me just say that I 'm nowhere as accomplished an investor as Saul, Chris, and many others on this board. I just share how my thinking has evolved, and most of this is based on being on these boards and listening to more accomplished investors.

I ask you, did you study this better than I did (I felt it, not studied it)? I’m sure I missed several opps but I am also sure, reasonably so, that many of those that I didn’t buy went no where. I only post you on this since I have wondered and wondered if I am helping or hurting myself by this seemingly propitious procrastination and I haven’t reached a conclusion yet. So if you have, share my brother.

As far as studying this in detail is concerned, no I have not. But, I think Saul explained this nicely up-board. Let me walk through how I think about this. I subscribe to IV, SA, and RB. That’s about 5 recommendations per month. I also subscribe to MFO, which gets its ideas from all MF services. So, through MFO, I hear of stocks on other services such as II and HG. I also read a bunch of other stuff, so I possibly get other ideas, including from these boards. So, clearly there are way too many ideas and I don’t have money to invest in all of them. Further, with time, I have realised that I just like some ideas more than others. This is an individual thing - all of us get pulled towards ideas we like for one reason or another - and that’s a good thing because its easier to follow businesses we like compared to those we don’t. I 'm generally NOT finding a whole lot of ideas that excite me at first glance. So, when I come across an idea that I really like on first glance and my initial due diligence suggests that the idea is a great fit for my portfolio, I go ahead take a small initial position in it. The others that I pass on, I 'm usually not paying too much attention to because I just decided to pass on them. I 'm sure some of them did very well.

Now, I cannot really think of too many ideas that I have really liked the first time I looked at the recommendation. If I recall correctly, in recent times, they have been limited. As an illustration, off the top of my head, in the past 1.5 years or so the recommendations I have really liked at the get go were TSLA, CSTE, PSIX, TWTR, FIVE, and ISIS. I have positions in all of these except for ISIS.

Hope this clarifies what I was trying to get across.

Anirban

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