Schwabs take on my (MF) stocks

Investment Analysis Clubs Saul’s Investing Discussions
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I will try reposting this because I think it’s interesting and I’d like your thoughts:

Just for interest I looked at the ratings that SCHWAB gives my stocks. Of my 24 stocks that they had ratings for (most of which are MF RB or MF SA picks), they rated:

4 — C
13— D
7 — F

None got an A or a B. Even WAB, which is the only stock on any US exchange to be up in each of the 14 years of this century, and is at a very respectable PE, and pays a dividend, got a D. For the life of me I can’t imagine what they are looking at. I guess you have to be a huge company with no prospect of growth to get an A or a B.

Saul

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Saul,

In my account, there are two stocks with underperform ratings by my brokerage firm - NFLX and TSLA. They’re the best performing stocks in my portfolio. They also have had stocks like DE and KO that have been rated buys for 3 years and haven’t gone anywhere.

I don’t know what Schwab’s metrics are, but I’d take your advice over theirs any day. It’s just too bad that most individual investors rely on those ratings to make their decisions.

Jason

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I too go through Schwab. In addition to my own picks, I am in Supernova and invest in the almost all of the stocks both Odessey and Phoenix do so I have alot of stocks. My Schwab stock grades are as follows:
4 B
15 C
18 D
13 F
Last year my portfolio was up almost 57%. I do not give much weight to Schwab ratings.

Htownrich

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Hi Townrich, yes, I was up 51% last year too. I wonder what Schwab is thinking of???

Saul

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I was up 51% last year too. I wonder what Schwab is thinking of???

Saul,

I think one important reason why you have had such good returns is that you are able to ignore other people’s opinions and remain confident in your own judgments. In my experience, most people are unable to do this.

Chris

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Remember, too, that Wall Street is largely driven by career risk. If you go against the pack and are right, you don’t really get any more credit. But if you’re wrong, you get fired. Running with the herd is always the safe thing to do.

I’m sure you ran into this a lot as a physician, Saul. Stick to the widely accepted course of treatment – even if it’s less than optimal – and, if something goes wrong, well it’s what any physician would have done. But try something different and innovative, and there will be very serious consequences if something goes wrong. So chances are you’re going to stick to the suboptimal, but widely accepted, course of treatment regardless of what you really believe.

Companies and organizations in general tend to take a dim view of failure, even though it’s a vital part of pushing things forward. As individuals, we use mistakes as opportunities to learn and improve ourselves – a short-term setback can lead to huge long-term benefits as we advance our knowledge and build on our experience. But companies tend to focus on that short-term setback. It reminds me of Richard Feynman’s story of cutting string beans at a restaurant:

I used to cut vegetables in the kitchen. String beans had to be cut into one-inch pieces. The way you were supposed to do it was: You hold two beans in one hand, the knife in the other, and you press the knife against the beans and your thumb, almost cutting yourself. It was a slow process. So I put my mind to it, and I got a pretty good idea. I sat down at the wooden table outside the kitchen, put a bowl in my lap, and stuck a very sharp knife into the table at a forty-five-degree angle away from me. Then I put a pile of the string beans on each side, and I’d pick out a bean, one in each hand, and bring it towards me with enough speed that it would slice, and the pieces would slide into the bowl that was in my lap.

So I’m slicing beans one after the other – chig, chig, chig, chig, chig – and everybody’s giving me the beans, and I’m going like sixty when the boss comes by and says, “What are you doing?”

I say, “Look at the way I have of cutting beans!” – and just at that moment I put a finger through instead of a bean. Blood came out and went on the beans, and there was a big excitement: “Look at how many beans you spoiled! What a stupid way to do things!” and so on. So I was never able to make any improvement, which would have been easy – with a guard, or something – but no, there was no chance for improvement.

I’ve never had much tolerance for the “established” way of doing things. There’s always room for improvement, and sometimes that means pushing ahead with what you believe is best and not caring if you’re fired or not. But fortunately, I’m not in a job where I have to worry about malpractice lawsuits. :wink:

At the end of the day, I believe that as individuals we have an opportunity to become much better managers of our money than any professional would be. Your track record attests to that, Saul.

Neil

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For years I listened to the big houses ie the Merrill Lynchs of the world or even discount houses like Schwab, and never did that well return wise. Once I got into MF in 2011, my returns have been outstanding. I also read certain fools posts to learn more. Saul is one of the very best in my opinion. Traditional thinking makes the big houses money but not me. Thinking outside the box is where the playing field seems to level out.

Fool on,
Htownrich

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I think one important reason why you have had such good returns is that you are able to ignore other people’s opinions and remain confident in your own judgments.

Hi Chris,

The point I was trying to make was not about my returns but my puzzlement at what Schwab rates as good since 0 of my 24 mostly MF picks (which generally beat the market), and only 4 out of 50 of Townrich’s mostly MF picks, got rated above C, D, or F. What are they looking for? It’s clearly not good performance. Maybe it’s just safety.

I don’t see myself at all as ignoring other people’s opinions. I read most of the posts on 27 MF stock boards for information. I read other newsletters and lots of Seeking Alpha articles. I am an avid searcher for information and opinions. I admit that I do try to evaluate for myself and decide independently of what the crowd is saying. I do tend to buy when the market has fallen and all the talking heads are saying “Sell! Sell!”

I recognize that ignoring what others have said can hurt me badly. For example when I didn’t pay attention when Starrob warned against the little Chinese stocks, which subsequently turned out to be fraudulent.

I’ve also seen others get badly hurt by not listening to advice. For a classic example on the WPRT board, see below. If you’re not interested in WPRT one way or the other, it’s probably not worth reading.

Saul

Example: About 9 months ago, when WPRT was about $29.50, I pointed out that WPRT was losing so much money, that with the gross gross margins it has on its engines it would have to quintuple its revenue to even break even, much less make a profit. (It had $30 million in revenue for the quarter and lost $32 million, implying $62 million of expenses. Gross margins of 27%. Even giving them gross margins of 33%, a doubling of revenue, $30 million more, would only have eaten up $10 million of that $30 million loss, etc. And that’s not even allowing for increasing operating expenses to cover that doubling of revenue.)

I said that, in my opinion, there was no way they could make a profit in years. I suggested PSIX as an alternative that also made natural gas engines, and was rapidly growing.

A few people listened, but the vast majority were furious at me for pointing out how huge WPRT’s losses were compared to their revenue, and how, by simple arithmetic, they couldn’t make a profit in any reasonable time. Even one or two TMFers: “Wait until the 3rd quarter (of 2013)! You don’t understand that we here at MF are in it for the long term! If Tom and David recommended it I’m staying in it [and you are an idiot for criticizing it]! If Tom and David recommended it, it would be sacrilege for me to use my own brain to evaluate it! ,Etc”. I was accused of being snarky, a short (I’ve never had the courage to short anything), immoral, gloating, etc. I quit posting on the board.

No attempt was made by anyone to answer the above figures about the losses and the need to quintuple revenues to break even. Nine months later in a tremendously good market, the price has dropped to $16.30, down 45%!

Still big losses. Stopped production of their primary engine. Closed factories. Laid off workers. Diluted the shares. But the people on the board are still taking comfort in that MF SA still has it listed as a buy. Who knows? WPRT might be a buy at $16. But not for me.

By the way, PSIX is now up almost 130% in those nine months or so.

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Thanks for clarifying. Undoubtedly there are many people who will blny follow Schwab’s ratings or Tom’s and Dave’s recommendations. Some peoe, on the other hand, are better at critical thinking and have the confidence to follow what makes sense even if it contradicts an “authority” or a consensus belief.

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Saul- I was listening just not posting. I bought PSIX which I never would have heard of if it weren’t for you. Happy to be sharing in your success.
I well remember the snarky discussion you dealt with over on the WPRT board.
B

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Thanks Chris and BGM for your appreciations.

Saul

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Saul, while I didn’t get into PSIX until recently, I did reevaluate and ultimately exit WPRT after you posted. That’s also when I began following your posts more closely, and I’ve benefitted on both counts. So I hope you don’t feel like your WPRT thread was a waste of time or effort, despite the defensive responses you received from a few folks.

Neil

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Absolutely right, Neil.

The battle royal Saul waged with the WPRT supporters was probably the most educational and profitable exchange I’ve ever seen in my many years with MF. It took a lot of courage for Saul to stand up for his convictions… and he was outnumbered 10 to 1 easily. Would’t wisdom dictate giving dissenting views a great respect and appreciation?

The truth always has a certain ring to it. No one ever challenged Saul’s numbers. It was obvious to me that it was a case of blind faith in the MF buy and hold philosophy vs common sense. We need more analytical minds like Saul’s to challenge conventional MF wisdom. After all aren’t we all MOTLEY Fools? God help us if we all just robotically followed financial advice from any financial service or individual. The MF is without a doubt the best collection of financial wisdom in the marketplace. And I am very grateful for it. But it is not infallible.

Time has proven Saul to be correct for those of us who sold WPRT and purchased PSIX. And Saul’s remarkable long term investing results are stunning.

So yes, the WPRT thread was an eye opener for me as I began following Saul’s investment moves. And I pray for more to speak their minds with the same level of DD and intelligence Saul has modeled for all of us.

Jim

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Hi Townrich, yes, I was up 51% last year too. I wonder what Schwab is thinking of???

I have no idea no idea how Schwab categorizes a “good” investment (although, perhaps it would be useful to explore and understand their determinations) and basically ignore them.

I too, had a spectacular year, last year, percentage return-wise, (according to Schwab’s portfolio performance calculator, 65%). (My complimentary Schwab advisor even called me to comment on my returns telling me they were “fantastic,” and if I keep it up, investing could become my full time profession.) (Well, now, sure, would love to learn to keep it up… But that’s another issue!) Nevertheless, the majority of my stocks are rated by C, D, and F with zero A’s.

A: 0%
B: 21%
C: 29%
D: 30%
F: 5.2%
Other (mostly foreign), not rated: 14%

I used to have one A rated stock. Holx, which I bought in 2007 for $28, at a high, it swiftly falling 30%, and I holding until only months ago as it wavered for 6 years between 15 and 20, and with recent poor outlook, I finally sold at a loss, though for all that time, Schwab called it, one of my worst performing stocks, an A.

I can just imagine what my returns would be if I purchased based on their ratings. Maybe okay, but certainly, not great.

I ignore. Can’t understand their relevance. Although, as I said, if one studied their methodology, although that mightn’t be the lynchpin in purchase, it might give some other kind of understanding of the companies, simply by understanding what the criterium is upon which they are rating.

okapimoon

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investing could become my full time profession

…I haven’t heard that expression since 1999 around these parts… :slight_smile:

…congratulations on your yearly gains, just terrific!..

…continued good luck!..

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The point I was trying to make was not about my returns but my puzzlement at what Schwab rates as good since 0 of my 24 mostly MF picks (which generally beat the market), and only 4 out of 50 of Townrich’s mostly MF picks, got rated above C, D, or F. What are they looking for? It’s clearly not good performance. Maybe it’s just safety.

So, I own closer to 100 stocks. And, I had long since given up paying any attention to Schwabs ratings because, like you, my best performers had the worst ratings. But, this discussion got me to take a look. It appears that their high ratings are reserved for value stocks. I had a single A rated stock and a number of B rated stocks. They are all recommendations of MDP-Deep Value.

vicki

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Thanks Vicki, that clarifies it.

Saul