Should I REALLY care???

Should I really care?

A week ago there was a passionate debate declaring that one should rarely, if ever, sell a stock one had already purchased, because you never know which will be a 10 bagger. One member of the board was scolded for selling a few bum stocks. I took the point of view that I don’t care if a stock I sold for cash to reinvest does well, as long as the stocks I’m holding do well. Now seven of my stocks, representing 61% of the total value of my portfolio, have reported so far. Their average gain in adjusted earnings per share over the year before was 58.8% - (ranging from a low of 33.8% to a high of 88.1%). This certainly far outdistances the S&P, the NASDAQ, or even the MF. And, as far as risk undertaken to achieve this growth, at least five of the seven stocks have PE’s in the range of 20 times earnings plus or minus (FB and CELG being the exceptions, and neither being a particularly risky company). Should I REALLY care if some stock I have SOLD also does well? Would that mean I have made bad decisions by selling and reinvesting my cash? I mean, really???

Here are the seven stocks that have reported, the earnings for the quarter this year and last, and the percent increase.

BOFI – 126/91 = 38.5%
CELG – 101/75.5 = 33.8%
FB - ---- 54/31 = 74.2%
INBK - - 32/19 = 68.4%
POL - - - 36/26 = 38.5%
SWKS – 126/67 = 88.1%
SYNA – 146/86 = 69.8%

Average gain = 58.8%

Saul

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Well, selling INVN turned out to be a good decision. They reported a good quarter, now that the quarter had a full quarter of supply to Apple, but the guidance going forward leaves one thinking where is this company really headed. The are sequentially guiding for a decline (i.e., based on fewer iPhone sales next Q now that the launch euphoria of the iPhone 6 has subsided), and management really can’t explain how they will be looking to expand margins and revenue in the coming quarters. I really think this management is not up to the mark and not cut up for growing the business.

Personally, I had lingering doubts on INVN since the last conference call. I should have sold then and there. Why didn’t I sell? Because I didn’t want to miss out on any potential big gains INVN might make following the Apple deal, or the chance that someone might scoop INVN given it’s gaining market share. That was such silly thinking. That’s speculative investing, hoping that good things should come about, all the while looking at the poor execution and even realising the poor execution. The right thing would have been to cut losses at that point and move the funds to a higher conviction pick.

Finally, with the 10-bagger and what not theory, most 10-baggers don’t happen overnight. The business would have to execute well for years to get there, so if INVN or some other company that’s poorly executing now turns around and starts executing, one always has the opportunity to come back to it.

Anirban

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As a more novice investor, I’m going to throw out a view point for discussion. I am thinking that perhaps YOU might not care with you experience, but those with less experience might have different results. I 'm sure there have been earnings periods when you might have done the exact same evaluation and found that your sells might have out performed what you actually sold. But over time your experience has minimized that to the point where your success rate allows you to more easily focus on a small set of companies doing well. In short, you probably make less errors than the rest of us.

I only point that out simply because many of us are learning from you and others on this board may incorrectly be attempting to follow your investing style and the companies you are invested in. I’m just worried that new investors with less skill than you might focus too narrowly on a few companies where more diversification and patience with learning over time might be more prudent.

Not trying to brush past your point because I get it. Selling a company that does well does not hurt you if the one you are holding does better. I just have not gotten to the point in my learning to get the same success rate, so holding both increases my odds. A bit of a hedge that probably lowers overall performance, but does help me sleep at night by limiting the impact of bad decisions.

Anyway, thank you so much for this board since I am trying to learn from others and get to the point where I can contribute down the road. Just giving the perspective of someone who is learning and listening where holding more companies longer has its advantages.

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I 'm sure there have been earnings periods when you might have done the exact same evaluation and found that your sells might have out performed what you actually sold.

Hi tlynch,

I’m not saying my purchases always do better than the stocks I’ve sold because I thought they were mistakes. What I’m saying is that I do my best and use my judgement, and over time I expect that companies I think are going to do well will, on average, do better than companies I think will do poorly. (If not, I should just put it all in an index fund). If I sell a particular stock and it then outperforms the stock I reinvested the money in over the next quarter, so what? I’m not perfect. I’m just trying to do a good job. That’s how I think about it anyway

Saul

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Company A pays its CEO $1,000,000 in cash as salary. He turns around and invests that cash in the company, buying newly issued shares. The company ends up with the same $1,000,000 cash it started with and now has $1,000,000 worth of extra shares outstanding and a happy CEO. I assume there is no question at all that here the earnings should be reduced by $1,000,000 and the share count should reflect dilution by $1,000,000 worth of shares. I.e., the dreaded double hit to EPS occurs. And quite appropriately here, right? (The books should also reflect additional capital of $1,000,000.) I doubt that anyone would quarrel with this accounting treatment.

Hi Chance, You’ll notice that the company still ends up with the million dollars they made as a profit. It’s still in the bank. They are just calling it the result of a secondary distribution instead of profit. The money is still there. It hasn’t gone away because the CEO has a million dollars worth of stock.

It’s complicated to think around it…

Saul

one should rarely, if ever, sell a stock one had already purchased, because you never know which will be a 10 bagger

Isn’t this kind of like anchoring? To a possibility instead of a price.

http://discussion.fool.com/a-thought-that-i-had-on-investing-phi…
I like Sauls thoughts on multibaggers found in this early board post.

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I wholeheartedly agree with you tlynch99.

I am one who tried to follow Saul and did very poorly. My first investment was one he touted on RB before this board existed. That company lost 90% of it’s share price within a few months, and of course Saul escaped sooner than I did. I don’t think that stock is even listed on an exchange anymore.

I got in to AMAVF, PSIX, and PFIE shortly before Saul got out. He moves in and out of companies very quickly. I don’t have the time or aptitude to do so. Maybe by the time I retire, but certainly not now.

Don’t get me wrong. I have learned a ton from Saul and the lively discussion on this board. But I am going to weight any stock ideas I pick up from this board as high risk (for me) and allocate appropriately (unless also followed by one of the MF services I subscribe to: SA, RB, SN, II, IV).

I am now resolved to the methods of Anurag and TomE. I am buying tried and true recs, adding when they are BBN or when rec’d by multiple services . In light of Anurag’s recent comments I am allocating larger sums to companies with low risk ratings, or more accurately I am not over-allocating to the riskier ones. I used to swing for the fences. I had a couple big wins, but many more losses. I am also using DITM calls to jump-start sizable positions in the boring companies that I previously skipped over or thought I had missed the boat on, ie SBUX and AMZN.

I am only selling if I totally lose faith in a company.

I plan to hold 50-70 companies - I think I’m there already.

I will still read this board. But I’m going to try to get rich slowly…

-Brandon

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A week ago there was a passionate debate declaring that one should rarely, if ever, sell a stock one had already purchased, because you never know which will be a 10 bagger.

I like Philip Fisher’s advice which I convey as: “Give your stocks a chance.” What Fisher meant is that one should not sell on the first downdraft but only if the story does not work out which matches perfectly with the advice by Peter Lynch.

Profire is a case in point, Saul sold quickly but I’m holding because Profire’s story is intact, we just had lousy timing buying the stock.

Denny Schlesinger

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I like Philip Fisher’s advice which I convey as: “Give your stocks a chance.” What Fisher meant is that one should not sell on the first downdraft but only if the story does not work out which matches perfectly with the advice by Peter Lynch. Profire is a case in point, Saul sold quickly but I’m holding because Profire’s story is intact, we just had lousy timing buying the stock.

Denny, You are absolutely right.

  1. I chickened out on Profire.
  2. We had lousy timing as the oil market crashed right after we got in.
  3. Profire may do great from here and be a multi bagger. I’m not being ironic about that. I’m serious.

It’s just that there were so many uncertainties about the company and I was looking for something that I could be more sure about.

  1. Oil prices crashed. There was discussion about how much that would affect Profire, and some thought it wouldn’t, but I wasn’t really sure how much the oil crash changed the thesis.
  2. They had just hired a bunch more sales people, raising costs, and I could picture fresh rosy-cheeked sales people making cold calls on oil field companies in shell shock about the price drop, and trying to sell them a new product. I could see profits evaporate with the additional costs without much new revenue.
  3. It’s a rather illiquid stock.
  4. It’s a tiny company, with all that implies…
  5. There were stories about the CFO having been sued or disciplined in the past, and having been involved in some shady companies. Now that may have been an indiscretion of youth, and he may have turned over a new leaf, and it may be greatly exaggerated, but it added to the uncertainty for me.
  6. So I sold. As I said it may become a multi bagger from here, but if I had to do it all over again, I’d do the same thing.

By the way, when, for instance, BOFI fell from over $100 down to the $60 range, I just bought more - the thesis was intact, it was liquid, it was a much bigger company, the business was doing well, I had confidence in management, and Fletch was following it and explaining it in a way I could understand. Entirely different situation.

Saul

For FAQ’s and Knowledgebase
please go to Post #5584

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A few points from chsmrmt:

I am one who tried to follow Saul and did very poorly.

Don’t get me wrong. I have learned a ton from Saul and the lively discussion on this board.

I am now resolved to the methods of Anurag and TomE.

I am only selling if I totally lose faith in a company.

This does highlight a few of my feelings as well. Love this board and value the discussions and analysis. I also made the mistake of trying to follow Saul more explicitly on a few occasions both on this board and prior to it being established. And what I discovered (and what Saul would likely agree with as well) is do not attempt to follow his actions. He can move quickly at times in and out of stocks based on his analysis and that timing can matter if you get it wrong in a more concentrated portfolio. Even Saul gets it wrong sometimes and shares those experiences here. He just has more experience than many of us which allows his to make a better choice earlier and more often than others.

As for Anurag’s entry into this board, I welcome it, but know he can come across strong sometimes as I have seen on other boards as well. But to be fair, Saul came across very strong on the WPRT board a long time ago as well. Challenging a group with new/different ideas can be a very good thing. It is disruptive for sure, but this board was started based on a disruption as well. I have no problem with trying to analyze Saul’s highly concentrated and sometimes quick moving portfolio as it does go against many of the ideas prevalent in the TMF universe. You often see similar analysis of “never sell anything” or “forgot and did nothing” with great performance as well. I have no doubt of Saul’s performance myself based on what I have read here, but love the comparisons to other styles as that will help me with my own.

There are many ways to be successful in investing and Saul is a great example of one. Find your comfort zone, stick to it, and align your investment strategy to your short and long term goals. And then use inputs from TMF and contributors like Saul, Anurag, TMF1000, and the rest of the community to evolve and learn over time.

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Don’t get me wrong. I have learned a ton from Saul and the lively discussion on this board. But I am going to weight any stock ideas I pick up from this board as high risk (for me) and allocate appropriately (unless also followed by one of the MF services I subscribe to: SA, RB, SN, II, IV).

Hi Brandon,

You’ll be relieved to learn that all of my top three, and about 74% of my portfolio value is followed by paid MF newsletters.

Bofi
Skyworks
Celgene
Avigilon
Criteo
XPO
Wabtec
Facebook

But don’t be deceived. A MF recommendation, even continued Buy ratings, is no guarantee of success. They can be very wrong just like the rest of us. They say that over 40% of RuleBreaker Recommendations lose money. The idea is that a few of the winners will be so incredibly successful that they will overwhelm the losses on the losers (if you are lucky enough, or discerning enough to chose those wildly successful ones in advance).

Find a method that works for you, and that you are comfortable with.

Saul

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By the way, my smallest six positions are not followed, which is part of the reason they are smallest positions. But I was in a number of positions over the years, which were not followed, only to see them become MF recommendations several months later. (AMBA, INVN, CGNX, ELLI, and more I think).

Saul

By the way, my smallest six positions are not followed, which is part of the reason they are smallest positions. But I was in a number of positions over the years, which were not followed, only to see them become MF recommendations several months later. (AMBA, INVN, CGNX, ELLI, and more I think).

I should note I still hold a very small position in ELLI based on a Saul recommendation on a RB board along with comments from TMFBreakerRob I think. Saul offered great commentary then even though he moved on later for better opportunities. I am still considering my position in the company as well and will be watching the next report to see how they are doing. But alas, my analysis skills are certainly not as strong as many here, so boards like this are VERY valuable to me and cannot thank Saul and others enough for their time and contributions.

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I followed Saul as well and lost money investing in AIOCF, UBNT, AEYE, KRED, SZYM, and SYNA. It was my fault for blindly following him. I bought in positions well after Saul and did no investigation on my own. Saul is a great investor, IMO, who is much more experienced in knowing when to get in and out of stocks and how to value them. However, I have learned sooo much from Saul and this board. It has made me a much better investor than I was and for that I am extremely grateful.

Fool on,
Htownrich

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But don’t be deceived. A MF recommendation, even continued Buy ratings, is no guarantee of success. They can be very wrong just like the rest of us. They say that over 40% of RuleBreaker Recommendations lose money. The idea is that a few of the winners will be so incredibly successful that they will overwhelm the losses on the losers (if you are lucky enough, or discerning enough to chose those wildly successful ones in advance).

Just as an example, I just looked at the RB recommendations board, and currently, GPRO, which they recommended at the end of October is down over 38% !!!, and Arista, which they recommended at the end of November, and then made a Best Buy Now, is down over 21% in a little over two months, in a rising market. (We discussed Arista on this board and I decided against it because of the looming lawsuit from CSCO). The message is “Use MF recommendations for good ideas, but don’t buy them blindly. They are just regular people like you and me, and are not omniscient, and can be totally wrong at times, just as we can.”. I know that you can say wait five or ten years and GPRO and Arista will probably be up, but you could throw 10 darts at a list of NASDAQ stocks, and you could say the same thing about 8 of the stocks you’d hit. Doesn’t prove that they are good recommendations for right now. JMO

Saul

For FAQ’s and Knowledgebase
please go to Post #5584

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I have followed Saul since his dust-up on the WPRT boards and REALLY appreciate his approach and willingness to share. When he announced the start of this board I was thrilled. I also realized over the years that Saul (not unlike Anurag, whose opinion I also highly value) can come across as strident and even abrasive. Of course sometimes just posting a contrarian opinion can draw fire. But I think their posts merely reflect a difference in style from my more gentle (and way less certain) approach to posting and investing. Saul is confident for good reason from his years of successful investing. I am just beginning to feel more confident based on years of pre-TMF mediocre investing but for me it is good to be less certain. Overconfidence in the past has led to some poor investment decisions.

My top ten holdings are pretty boring (Apple, Nike, Costco, Starbux, Google, Chipotle, Disney, Whole Foods, ISRG, NFLX) and account for 35% of portfolio value and the next 10 (MIDD, Bofi, SAM, KO, HAS, PNRA, JNJ, Priceline, Microsoft, Mercado Libre) account for the next 16%. I spend little time tracking these top 20 and trust TMF for guidance. I do track xirr across most of my different portfolios and have made an average of 16-18% per year using my more conservative, somewhat plodding approach, primarily adding based on BB now, Tom E or others persuasive information. Not very exciting but fitting with my comfort level.

On the other hand I allow myself to “speculate” with small investment in Saul’s ideas, to hit the buy button way too quickly! These investments for the most part have been pretty successful, AFOP, JCOM were great, SYNA still is, UBNT, PFIE not so much! These individual stocks are never more than 1% and sometimes less than 1/2% of my portfolio. Either way these holdings don’t move the needle much but do allow me to experiment with a different approach. I also figure it would take me years of losing money on some of Saul choices to even approach the amount he saved me getting out of WPRT early (or earlier at least)!

For these reasons I am incredibly grateful to Saul and other posters on this board, but also to anyone who challenges me to think about how I invest and pushes me to explore some different investment styles. I encourage ALL who post on this board, even those who rile me up or make me cringe. I hope to keep learning and evolving my investment style as long as I still have the abilities to do so. Saul and this and other TMF boards are part of my daily cognitive training exercises!

D.

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