Selected excerpts from the Knowledgebase -6

Selected excerpts from the Knowledgebase -6

I’ve decided to do a daily small excerpt from the Knowledgebase as sort of a thought for the day. In many cases they will have extra thoughts of mine, or small updates. I hope you’ll find them interesting.


Here’s the sixth:

You can’t really keep track of more than 25 or so stocks, and that’s an absolute outer limit. With fifty you can find yourself looking at a stock symbol in your portfolio and thinking to yourself, “What’s the name of that company again? What does it do? Why did I invest in it?” That means you have too many stocks.

I greatly prefer a smaller number of stocks, as they are easier to keep track of. You need to read all the quarterly reports, and the transcripts of all the quarterly conference calls, which gives you a busy earning season. They often say a lot more on the conference calls than in the earnings press release. Reading the transcripts works much better than listening to recordings as it takes a quarter of the time, and you can skip the forward-looking statements messages, etc. Look at investor presentations too. And get a news-feed from your broker on each of your stocks.

I really like it better when I have fewer, but high conviction stocks. I’m more comfortable, and I can probably make more percentage gain for my portfolio with 12 positions than with 24. Fewer are easier to follow, and the chances of finding 12 that will average 25% gain (if you can find them), is MUCH better than the chances of finding 24 that will average 25% gain, and HUGELY better than your chances of finding 100 that will average 25% gain.
But maybe you’ve already figured that out!


For Knowledgebase for this board,
please go to Post #17774, 17775 and 17776.
We had to post it in three parts this time.

A link to the Knowledgebase is also at the top of the Announcements column
on the right side of every page on this board


You can’t really keep track of more than 25 or so stocks,

Agreed and I think I have a useful suggestion that I have put in practice for the past 18 months or so. I have a very concentrated portfolio with about a dozen stocks plus a wish list of between 50 and 60 companies that might make good additions to the portfolio should a stock need to be replaced.

For example, I really like the retailer The Buckle (BKE) but only at the right price and the right time. It’s comps have been falling because the economy us not as rosy as they want us to be believe and discount stores have been doing a lot better. But sooner or later BKE has to bottom out so it’s on my wish list. This first chart shows how BKE is totally out of favor at the moment


and this chart tells me more or less the buy signal

The thin blue line is the 200 day moving average. When the price crosses the 200 SMA (around 25 or 26) it will be time to take a closer look to make the buy decision.

Mid February I took a position in BKE ($31.30) and soon realized it was a mistake and sold in mid April ($28.95). I only lost 91 cents a share because I made up the difference with covered calls and the dividend.

The double list (portfolio and wish list) is a good way to direct lots of attention to the portfolio and less attention to the wish list candidates.

Denny Schlesinger