Saul's "Risky & Aggressive" Portfo

For those of you who have subscriptions to TMF Stock Advisor (SA) and Rule Breaker (RB) services, you know that some of the stocks followed on this board have become current recommendations in these TMF services. As a SA or RB recommendation, each company receives a risk rating on a scale of 0 to 25, based on the answers to the same 25 questions for each company. A rating of 0 is considered the most “safe” and 25 is the most “risky.” Currently, the most “risky” company in the overall SA and RB universes is a 17.

The SA and RB risk ratings of the companies followed on Saul’s board are nowhere near the high-risk, aggressive companies that some of the pundits and bears out there want to lead us to believe.

Out of respect for the intellectual property of Tom and David Gardner at TMF, I won’t get into the specific risk ratings of each stock. Seven of the ten companies (70%) in Saul’s portfolio as of his “end of month portfolio summary” from June have become active SA or RB recommendations. Also out of respect for TMF, the three companies that are not current SA or RB recommendations have not been identified in this post.

The average risk rating of these seven companies is less than 10.



There are a few ‘Saul board’ stocks in the ‘Pro’ portfolio as well. The Foolish leaders are very, very good. They also seem to be much more interested in diversification and lower volatility than the folks here. That’s a great approach for the less dedicated and faint of heart. All in all, many ways available to the intelligent individual investor to beat the averages. As always, YMMV.

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For additional context relative to the average risk and performance of all SA and RB companies recommended since the inception of each service:

The average risk rating of the 178 SA company recommendations since 04/12/2002 is 8.6. The average return of all RB Recommendations made by David Gardner since 12/18/2002 is 641.2%. The average return of all RB Recommendations made by Tom Gardner since 12/18/2002 is 170.5%.

The average risk rating of the 180 RB company recommendations since 12/18/2002 is 9.6. The average return of all RB Recommendations since 12/18/2002 is 162.1%.

The average risk of the seven (of the 10)stocks in Saul’s portfolio that are also currently either SA or RB recommendations as of his “end of month portfolio summary” from June is 9.75.
The average return of all companies in which Saul has invested (reading from Saul’s knowledgebase) “from 1989 to 2007 averaged about 32% per year compounded. This produced a rather amazing overall multiplication of my total portfolio. In fact, if you sit down with your calculator and multiply 1 by 1.32 (since I averaged a 32% gain) 19 times, you’ll be amazed too. (It’s the power of compounding). You’ll note that this was not a large multi-bagger on one stock, but on my entire portfolio, the whole works!”

For additional context to Saul’s achievement, for the most part Saul’s results were achieved prior to investing in the SaaS companies in which we are now fortunate to invest, with net dollar expansion rates of 156% with revenue and EPS growth of +40% to +60%. To quote Saul, “It really is different this time.” The magnitude of the opportunities in which we are currently investing is truly unprecedented.



To put it into mathematical format so anyone can calculate the compounded rate multiple what you do is take 1 + the the return each year (32% = .32) so you have 1.32 and raise that to the power of the number of years calculating.

Thus, with the numbers so gave, you take 1.32^18 = 148.

Meaning that $1 invested in 1989 that had a compounded rate of return of 32%, selling in 2007 (18 years) was then worth $148.02. $10,000 becomes $1.48 million.

Note the “risk factors” cited. one thing that is true in the world is that successful entrepreneurs take risks that many think are crazy but the entrepreneur sees the risk as much less than the average person considers it to be.

The same with stocks. Is it more risky to own Shopify than it is to own Proctor and Gamble? Even Proctor and Gamble has had at least 1 50% crashin the last 20 years, and think of the opportunity cost you let up by foregoing a market leading company in an exploding market with limited competition.

I believe those risk ratings are made to satisfy the average person, and not the entrepreneur who sees the investment opportunity such as David Gardner or Saul.



Tinker poses the rhetorical question ‘Is it more risky to own Shopify than Proctor & Gamble?’. The answer is an unqualified yes.

PG is a blue chip fallen on hard times and competition but maintains with many products a barrier to the entry of others. SHOP is a small tech. company.

SHOP cannot be valued in a disciplined way because some of the elements of valuation are absent. PG can, and in the greatest detail.

Fewer analysts inspect SHOP. PG has the maximum number of analysts (and hedge funds) crawling all over it.

You could say that everything is known about PG. In contrast, in a general way notice how often we find out with surprise (good and bad) a new fact or facts about the companies we discuss. It is an ongoing process; part of the useful remit of the board and with very good reason.

Multiples (of whatever) are not set in stone and are liable to contract after an artificial credit binge. Being greater, SHOP’s may be expected to contract much more than PG.

PG is mainly consumer staples, SHOP is software. One is much more vulnerable to recession than the other.

These are aspects of risk. I would much rather own SHOP than PG but I know which is the one with the most downside potential as a % of current price.


I think this post goes off topic again …

As i said in one of my previous posts, i expect that the UP-side far outweighs the DOWN-Side.

If i have a stock go up 500% and then drop 50% i’m still more ahead than up 10% and drop 2%.

All a consideration of math.