Thoughts on my current positions

Investment Analysis Clubs Saul’s Investing Discussions
#30

Mykie,

I wish I could recommend your post (#3278) multiple times. I have similar sentiments.

I’ve tried following various TMF services’ recommendations, with varying levels of fidelity. The problem was that I was mimicking, not learning. I’m too much of a self-directed tinkerer to just pick one of the services and mimic every trade; I end up picking and choosing. (Except Pro, which I’m pretty faithfully reproducing in a dedicated account. The difference is that there I am learning something about portfolio construction and integrating options with stocks in an overall portfolio.)

I’ve done a lot of learning thanks to this board.

When I first started reading this board, I picked up a few of the stocks that Saul and others were excited about. What I’ve come to learn is that I really value having dedicated TMF analysts doing much of the work to help me follow a stock (analyzing earnings reports and news, and expressing an opinion). I want stocks supported by analysts who are being paid to help guide me. (No offense to the folks who post here. But it’s not their job to keep me up to date.)

I’m probably unlikely to buy more stocks that aren’t an active TMF recommendation. I got out of HZNP with a loss. I’m sitting on an unrealized loss on AEYE, but want to hold it a while longer and learn more. I’m not upset about either. I own PFIE and SYNA, but because they aren’t TMF recommendations (that I know of), I’m probably more likely to exit my position if something negative happens and I can’t see a clear reason to continue holding. That’s also OK with me. I’ve learned.

I definitely still like people talking about their favorites here. If I don’t already own them, it’s a prod to make me take a closer look. Or a prod to reconsider my position size. Because of this board, I’ve bought several stocks that I previously ignored. I’ve increased the size of some pre-existing positions now that I have a better understanding. I have some that are perhaps more tame than what Saul might pick, but I have a more objective reason for owning them now, and I have discovered that my risk tolerance isn’t infinite.

Keep up the great discussions!

-Mark

2 Likes
#31

I own PFIE and SYNA, but because they aren’t TMF recommendations (that I know of), I’m probably more likely to exit my position if something negative happens and I can’t see a clear reason to continue holding.

Hi Mark, I understand well your desire to stick with MF picks. I also tend to select MF picks, not so much more the continued follow-up by the team, which is almost non-existent at times (they have hundreds of stocks that they have recommended and it’s impossible to follow them all), but because of the discussion on the boards. For example Fletch’s discussion on the BOFI board is worth the price of the subscription.

What you wrote above is a bit ironic though, as unfortunately the MF SA and MF RB analysts will only rarely ever recommend exiting a position once they’ve taken it, no matter how bad the news and how much the stocks tank(witness WPRT, SODA, MNTA, and many others). It’s a matter of philosophy. They believe in holding indefinitely, and you have to be aware of that. (On the other hand, if the news is truly bad, I am much more likely to get out of a stock than MF is).

Best,

Saul

9 Likes
#32

Mykie,

Post # 3283 was very good!

I agree with almost everything except one bit of conclusion. I don’t think you have enough of a time horizon to conclude that selling out of WFM and SODA at a substantial loss was the right decision. Let’s talk about that in a few years time. I don’t follow SODA closely but I consider WFM to be a very strong business. I am keeping track of my sell decisions and I plan to revisit them in a few years to see whether I would have been better off not selling. Historically, strong businesses have provided phenomenal returns over the long term.

Anirban.

1 Like
#33

“Let’s talk about that in a few years time.”

Great advice for most Fools, Anirban.

However some of us are seasoned citizens. We may not have the time frame left to hold forever. Both of my parents died very suddenly from massive strokes before their time. So for me, every day has become both a blessing and a bonus.

Time creeps up on us all awfully quickly!

Jim

A happy “seasoned” investor

#34

I plan to revisit them in a few years to see whether I would have been better off not selling.

Anirban,

But you have to remember that it’s not a question of whether what you sold is up from where you sold it, but the opportunity cost. For example, if you sold a stock now at $50, but in three years you found that it was at $53 or $55 that doesn’t mean that the decision to sell was wrong. Not at all. Because, being a smart investor, what you bought with the money three years previously is probably up 15% compounded three times (or more than 50%), and if you put it in a really good MF choice, in three years it might be up over 100%.

I always figure there’s a difference between stocks that are down for good reason (for example SODA with declining sales and earnings, or WPRT with continuing large losses), or stocks that were down without a really good reason, like BOFI, or like PFIE when it was at $3.60, or like UBNT when it dropped to $30.

Best,

Saul

5 Likes
#35

Saul,

Revisiting means looking at both the sell and the subsequent buy decision. I agree with that sentiment. I am not opposed to selling. Just saying that it’s worth evaluating and learning from what we do in terms of sells and buys.

Anirban.

1 Like
#36

Saul I think the worst thing about MF is their tendency to stick way over long with stocks. But that way they could (don’'t know if they do) advertise a great returns on positions exited. Easy if you never sell the losers. I wouldn’t be unhappy if they ignored the stock price (nobody can predict bear markets) as long as they said “sell” when fundamentals start deteriorating.

No stock can be held forever because all companies eventually are taken over, merged, or go broke. Though a surprising number of the DJ 30 from 1932 are still around. presumably at higher prices but there has been a lot of inflation since then

http://online.wsj.com/125/djia-components-history/

I subscribe to Stock Advisor and Rule Breakers but it is more for the boards than for the stock picks.

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#37

Saul I think the worst thing about MF is their tendency to stick way over long with stocks. But that way they could… advertise a great returns on positions exited. Easy if you never sell the losers. I wouldn’t be unhappy… as long as they said “sell” when fundamentals start deteriorating.

Hi Mauser, It’ll never happen. I’ve complained about it many times. I pointed out that I noticed a stock called Momenta (MNTA) and then discovered it had been a MF Rule Breaker pick in Aug 2006 (8 years ago). It was recommended at $15 something and it is now at $11 something!!! That’s eight years of missed opportunity, plus the loss, and it’s still listed as a Buy!!! It’s minus more than 107% vs the S&P. And lest you think this is an anomaly, the recommendation just above it on the list, Blue Nile, from Sept 2006, is down over 22% in the eight years, and down over 101% vs the S&P. It’s also still a “Buy”.

They really need to be able to admit they made a mistake and get out, instead of keeping faithful subscribers in dogs, but they won’t. It’s a philosophy of “Never (almost) admit a mistake”, disguised as “It’s better to hold forever.”

Saul

13 Likes
#38

This lack of selling has always been one of the most annoying things about MF recommendations. I’ve been a member of various MF services for probably over 10 years now, and to me, when something is lagging the market or down, and the boards and coverage (re-recs and articles) go quiet, the rec is now stale and it is probably more of a sell in my mind than a “hold”

Saul, I really do appreciate this board because one thing I’ve been working on is getting better at making sell decisions. Lots of companies are still great and have great potential (XONE, LULU, SODA), but it’s not always a great time to own them (jury out on LULU at current prices IMO) and that should be reviewed more frequently.
side note: I wish I sold XONE at 60% gains when you posted about it months ago… but now it looks like 3D printing is seeing a bit of an upswing again, and I think long term there is a lot of growth in that space. Probably better played with a basket of all the players

Sometimes even the earnings updates I read on MF are a little to PC and happy-feeling to help make an objective decision, which is why I like the no-nonsense approach you and many others on the boards take. It’s something I’m working on, but there is a lot to learn in these posts.

For me, valuation is one of the hardest reasons to pick a good selling point. For example, I sold AMCX and IMAX with small gains just because they seemed to be growing too slowly for my tastes and I don’t think they have enough of a runway to accelerate.
OTOH, I wrestling with trimming positions in BWLD, MNST, and UA due to recent gains and valuation. I still love the companies and think there is a lot of long term growth ahead, but I worry about the opportunity cost if they need to grow into that value for a while.

Just thinking out loud but any comments are welcome.
long XONE LULU BWLD MNST UA

6 Likes
#39

This lack of selling has always been one of the most annoying things about MF recommendations.

I’ll take a crack at answering this. I have been a member pretty much since MF was a fully free site in the mid 90’s. Their views have evolved somewhat but, my impression is that, over time, they have moved more and more into the rarely sell camp. The reasoning seems pretty simple and they base it on lots of good studies which show that 1 -Huge winners gained by selling rarely more than makes up for not selling losers to soon and 2 - Selling results in big capital gains tax bill that eats away in overall gains in a big way over time.

The first object of a well run portfolio is to take much greater care in finding great companies to invest in. That means finding great businesses with great leadership who hire and motivate great employees and ideally, a business that is less cyclical than most.

The idea of holding for a long time is premised on the fact that knowing when a stock is about to tank for reasons other than a poorly run business is very difficult even for the best of experts. Investors have been shown to leave far more money on the table by selling too soon than by holding too long. Sure, NILE has gone nowhere for a decade. You could argue that it should have been recognized as a speculative buy in the first place. But for each Blue Nile how many Teslas, Netflix, Starbucks, Mastercards are there? For each of these I have been mocked for hanging on. Take profits off the table! they yell. I do sell when individual stocks get to be more than 12% of my portfolio which is about my comfort level. But with time, a loser like Blue Nile represents an increasingly smaller share of your portfolio if you’d invested in it so it becomes an annoyance rather than a real factor in your cumulative earnings. OTOH, selling Starbucks or any of the other stocks I mentioned above too early would have cost you dearly.

When I was ill a couple of years ago I handed off my portfolio to a well reputed manager. He wanted me to sell my Netflix and yelled at me to sell half of my Mastercard too when it was 30% less than it is today. Instead, as Netflix dropped to the mid 50’s I insisted I bought some more in a different account. I haven’t sold my Mastercard either. I expect that Netflix and Mastercard will each fully fund at least a year or two of my retirement for what were some pretty small initial investments. I think of that adviser often.

I do rebalance my portfolio once a year in terms of the money I set aside for CD’s and bonds where I am mostly interested in protecting the principle. But I’ve learned not to sell my winners too soon. And since I usually can’t tell when that will be I mostly don’t sell very much - or pay capital gains taxes that eat away at my earnings. So are there some clunkers in my portfolio? Of course and I don’t hold them for a decade. But I do hold them for several years. I also stack them up against the winners and use the losers as learning tools.

36 Likes
#40

I do very much agree on holding long term, but sometimes the costs of getting out are worth it when the fundamentals of the business has changed.

In the case of NFLX, I remember looking at them 10 years ago or so, then the price doubled and I decided to stay away and forgot about them. About 4-5 years ago I started paying attention again but I felt the price was too high. As they started slipping in 2011, I followed more closely, and bought some once it looked like the business had started to turn around in early 2013. Staying invested from the 2011 peak until now, you basically matched the broader index return, so on the surface not much opportunity cost seems lost…

But, lets say you sold out of NFLX near the peak and waited until they broke $100 on the upswing. If you were in a tax free account, the amount you saved by not participating in the way down would increase the amount of your holding by 163%! Even if you paid 40% taxes as short term gains on your entire position in 2011 (which is unlikely given the time to get to the 2011 peak) you would still be better off by 58% by selling out and getting back in once things have turned around.

I’ve said this with UA and LULU. I sold about half of UA and put it into LULU a few years back mainly because UA was bigger than I wanted in my portfolio and I was not a happy consumer of the product at the time and I saw LULU apparel taking off with women everywhere. In retrospect, it was a great move at the time, but I didn’t give enough weight to the problems LULU started having. Ideally moved funds back to UA at the time would have let a lot more capital participate in the growth run UA has had, which would have been best case.
Since I didn’t do the the UA position is smaller than it could be and the LULU position is only a small gain.
In this case, staying the course on UA would have done better for me than staying in both until now, but getting out of LULU and back to UA or something else when problems started happening would have been best rather than watching the gains disappear as the problems were worse than I thought.

Since late 2010:
LULU +16%
SPY +61%
UA +355%
So by staying in UA, I would have had much better gains on it all than I do now, but had I sold LULU before the decline and gone back to UA, there would have been a lot more capital there to participate in the 200% growth UA has seen since it started catching up with LULU.
Lesson learned on this example.

To summarize my thinking
Good = staying the course with a good company
Better = changing allocations as the company fluctuates between more and less good
Even with taxes and transaction fees, the extra gains can be pretty significant, but it does take a lot more work.

I think that is the crux of what Saul is talking about when we see things in the business that have fundamentally changed… but it definitely takes a lot of work to learn how to get it right.

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#41

numbers for my NFLX example.

I assumed a $100k position as of June 2009 down 60% by Jan 2013
Had you sold in Jun 09 and reinvested the entire amount in Jan 13, you would have $477k vs $181k.

Even if you paid 40% taxes and had only 60% to put back in in Jan 13, that is still $286K today.

That is where I got the %s from. If you perfectly hit the bottom, the amounts almost double!

#42

Investors have been shown to leave far more money on the table by selling too soon than by holding too long. Sure, NILE has gone nowhere for a decade… But for each Blue Nile how many [winners] are there. Take profits off the table! they yell.

Alan,
I wasn’t talking about selling winners early, or taking profits off the table, which of course does have tax consequences, as you noted, as well as the risk of a winner going on and on, as winners tend to do.

I was talking about admitting evident losers may be going nowhere, and that maybe there are better choices for your subscriber’s money (like one of the Best Buys Now, or one of the most recent recommendations).

Those are two entirely different propositions.

Saul

3 Likes
#43

Tony:

Jumping into this thread late, but I just wanted to add my 2 cents.

As someone else who has a lot of people following my trades, particularly on the SA Options board, I don’t think it is reasonable to expect a private individual to pre-announce their trades or even feel a need to announce them at all. Saul has developed a following because he has a good track record, and it’s great that he’s willing to give back to the community as much as he does. We have no idea if the number of people posting here or even giving recs is just the tip of the iceberg. Particularly on small cap stocks, it doesn’t take a lot of investors to really start moving the price of a stock. In my case with options it’s an even more acute situation. There’s no way I’d announce in advance an options trade I was going to make. MF Pro and MF Options have this problem all the time - when they issue an options recommendation usually the price moves away from them very quickly because of people piling on (and not using limit orders.)

I’m quite happy to share my options trades almost in real time, but only after I’ve made my trade. Saul deserves the same freedom.

I also understand the issue which he pointed out, of not wanting to spend time explaining his reasons for buying or selling. He shouldn’t have to and doesn’t have to explain anything. What he chooses to share is up to him. I am grateful for what he does share and my portfolio thanks him.

I try to keep up with this board Saul, but had fallen behind due to summer travel, so I’ve been catching up a bit today.

I hope you don’t mind, but I am going to give it a shout out on SA Options. I know some of the people there follow you, but there’s probably a lot that don’t.

Keep on doing what you’re doing.

Thanks,

John

22 Likes
#44

Whoa!
What is the “Tesla” icon about?

-FrickNFool

#45

Tony,
I admire your courage to row upstream on this board, this is not easy. Also, I agree with your assessment that Saul’s portfolio is down as of his last update, he told us that himself. Also, questioning the hype of a penny stock is not unreasonable, especially if you are new to this board (or understand pump and dump in the real world). But having a moral obligation to answer is definitely where we part ways.

I would think most folks on this board use Saul’s portfolio as a recommendation list. If anyone is trying to mimic his every move, they are doing this at their own peril. Saul’s portfolio is concentrated and what I like are his top picks. If he is willing to put 50 plus percentage of his portfolio in few picks, those stocks are definitely worth my research time. Also, I believe he and his wife are both doctors and he is retired, so 50% of his portfolio should be a significant amount of money to risk.

I care less of his bottom 5-10%. Once they become less risky and join his top picks, I can join his bandwagon. I don’t need to make every percentage as Saul’s portfolio. I bought SYNA, CELG UNBT, AMBA and AFOP after studying Saul portfolio and I still own them all. I can assure you I am up on all except AFOP. Additionally, I added to my AFOP and bought a boat load of options on AFOP when it was around its low and believe it can recover further. Also, we are in this for the long term, so the race is still on. Let’s check back on these stocks in couple of years – including some of the penny ones.

All I can hope for is for Saul to continue to post his updates.

LegoAbs
Few of my >5% stocks
APPL, INFN, INVN, IPGP & (BTE, ROIC - for income)

5 Likes
#46

Wow - what did Tony say that got his post removed so quickly?

John

#47

Whoa!
What is the “Tesla” icon about?

It came about because of this post over on MF One:

http://discussion.fool.com/1255/i-was-happy-to-see-that-mf-one-d…

I’ll reproduce it here so that others can read it:

I was happy to see that MF One decided to arrange the August Member Event around Anna and my schedule. It’s amazing the lengths TMF will go to to make members happy! Thank you Meredith!

So we’ve juggled our schedule a bit, and will be at the SF Fool One August Member event on July 31/Aug 1, along with the Model S.

I think I need to ask Tom and David to create a charm for having the Model S that has been at the most Fool events. I’ve brought her to:

- The SuperNova event in NYC
- Newark, NJ NYC area Fool dinner
- Fool Fest in Alexandria, VA
- Edison, NJ NY/NJ/PA area Fool dinner
- TMFPencil’s Berea College Event, KY
- NYC area dinner in Manhattan, Tribeca Grill
To come:
- Fool One NJ Meetup - June 28th
- Fool One August Member Event in SF, CA

I mean, how many people do you know who are crazy enough to drive across country to attend a Fool One event?

It was of course a ‘tongue-in-cheek’ post, but Tom or somebody decided to act on it.

John

1 Like
#48

Saul,
I see that you dropped SWIR.
what was your reason?
I’m thinking of selling SWIR to add to my UBNT position.
BTW, what do you think of GILD?
Its been great last couple of months. peg still at .55

#49

Wow, how things change in a year’s time.

Although you aren’t a trader, your portfolio feels so different than a year ago.

1 Like