Thoughts on my current positions

Investment Analysis Clubs Saul’s Investing Discussions
21

>Think about what I said, was it so unreasonable? I never said it was his legal obligation, just moral.

I rarely jump into these kind of discussions, so today is an exception. I assert it’s inappropriate to say it’s anyone’s (Saul’s or otherwise) moral obligation, who is not getting paid to publish an opinion, to discuss in detail what stock action s/he takes either before or just after s/he takes it.

I am very grateful for Saul’s posts, particularly for the how and why, in addition to the what. But I’d never expect that he signal in advance what he’s doing.

At most, I’d agree that it is someone’s selfless choice to do what’s suggested. Moral obligation? That’s what I felt when posting this reply.

-FrickNFool

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22

I agree with others, Saul owes us zilch. If anything we owe him. Thanks Saul and everyone else who shares wisdom here.

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23

I don’t mean any disrespect, Saul. Judging from the traffic on this board and all the recs you get on posts, don’t you think you have a moral obligation to keep your followers up to date, maybe even tell them in advance before selling yourself?

Hi Miaom,

Early on this board someone asked if I could post all my trades as I did them. I explained that I couldn’t because

I don’t have the time and energy for that.

It would change the successful method of free decision-making that I’ve used for years if I had to justify each decision I made. I might then reflect before each trade how I would explain it and that would mess me up. I won’t do it. My primary responsibility is to myself and to my family as we live off my gains of my investing.

I try to advocate and teach a method of investing, but don’t expect people to follow my every trade, or agree with them.

I said I’d post my portfolio every 4 to 6 weeks for those who are interested. I pointed out that I make constant adjustments and that this is just a snapshot in time and not a running movie.

The reasons I got out of AFOP (which may have been a good or bad decision) wasn’t based on secret information. It was right there in the Press release and conference call for anyone to see. By coincidence, I’m also pretty sure I made the same observations about AFOP a month or so ago in a miscellaneous post on this board.

Best,

Saul

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Fools,

The greatest thing about Saul’s discussion board is that he, along with other Fools, primarily looks at the Motley Fool universe and chooses a few companies with a great business model or products and a long runway of growth.

As a Motley Fool One member (even as a SA, RB & HG member), the flow of new ideas is simply too much for me to handle. It seems that I’m always on the lookout for the next great pick and sometimes ignore the great picks already made by TMF. Instead of focusing on putting new money with great companies I already own, I tended to put new money into new companies and I probably missed a few of the new companies, because I focused only on the ones that piqued my interest and didn’t pursue the others.

I can vaguely recall the Ubiquity Networks recommendation, which I immediately discarded, because I was trying to stay away from investing in technology companies, especially the hardware tech companies (Juniper and Sycamore are horrible memories that are tattooed on my brain). Further, in my opinion, most public tech companies are in a race to the bottom, establishing business models that are fraught with quarterly goals, conflicts of interest and excessive greed, all of which usually cause very bad behavior.

After reading on this board about how Ubiquity Networks sells their products without a direct sales force, their almost fanatical customer base, founder with a huge personal stake and a potentially very long runway for growth, I made the decision myself to shift some money from a couple of old positions in other companies and use new money towards UBNT.

Somehow, I feel a bit abusive on this board, because I haven’t added much value (busy job and limited time to analyze companies). So I’m the last person that should have an opinion on whether or not Saul should give us advanced notice on his transactions.

Regardless, my primary goal is to learn from all of you and become a better investor a little bit every day. This board as well as the Fool boards is doing this for me. I greatly appreciate this and it’s the only thing I respectfully expect from Saul and the others.

DJ

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25

The reasons I got out of AFOP (which may have been a good or bad decision) wasn’t based on secret information. It was right there in the Press release and conference call for anyone to see. By coincidence, I’m also pretty sure I made the same observations about AFOP a month or so ago in a miscellaneous post on this board.

I agree Saul. I was sure that was the reason but just wanted to verify what you were thinking. Also I do remember a previous post were you said you had become less thrilled with the company. Also everyone needs to realize that we all can make money in the market by helping each other but lets not take it to the extreme. Its not possible to turn an aircraft carrier as fast as a speed boat. Invest accordingly.

Andy

26

Saul does not work for SA, RB, or TMF in general so there is no basis for an argument on morality. Why would there be? Because there are a lot of people that read his posts? OK, so what about the rest of the highly popular posters like JSergeant or BlazerMania or whoever else, should those people be 100% transparent in their trades as well? Of course not.

But morality aside, the main reason Saul doesn’t have to be 100% transparent is because actual TMF employees don’t even have that kind of requirement. As I understand it, the only thing a TMF’er has to avoid is posting about a stock that they have had a transaction with within a 2 day window on each side of their trade. If TMF1000 or whoever other highly popular TMF’er doesn’t have to post every single trade, why should Saul be held to a higher standard?

Furthermore, Saul is kind enough to actually post his allocations every month or so, which means we get to see his trades anyway, albeit potentially a month or so after he’s made them but still, he has no obligation to do that. Saul is very likely the most transparent poster on TMF.

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27

This is a very good board. There’s a lot of value here but blind following is not something that works here or anywhere else. I would go so far to say that this board is better for intermediate to highly experienced investors.

Thanks,

Anirban

Hi Anirban, Saul, et al,

I shall chime in here. Firstly, I was not an intermediate-to-highly experienced investor but if I wanted to be one, (and I did) this is the place to be. One of the first things I learned was on the MF One board. I thought, “Hell, this is going to be easy. Tom is up some 50-60% and I trust his research way better than mine, I paid my fees so I’ll just buy what his recommendations say, no more work needed.”

That was a mistake and cost me 50% drops in SODA and WFM, both of which I have happily exited…lesson learned. I don’t blame Tom any more than I would blame Saul for any stocks he has lost money on. What was particularly bad about those choices was I was against buying them from the beginning(but my muse was weak) but I went ahead in order to try and duplicate Tom’s earnings success. The easy way out but costly…no more of that.

That was a watershed experience for me as I was forced to realize no one was going to do this but me and whatever way I approached it, I would have to answer to only me for any errors…and successes. After all, the mantra for TMF is, “No one can manage your money better than you can.” I read that, heard that, but obviously didn’t believe that. After dumping 2 recommended stocks and having the wherewithal to do so using my own reasoning, I sort of took the mental training wheels off.

That’s when I found Saul’s board. Now, some 11 months later, here’s how I look at Saul’s board, Tom’s MF One and anywhere else I go for investment advice:

Feedback is a gift, whether negative or positive.

Now, Saul is really off the hook since I don’t pay him one red cent (though I’d love to buy him a glass of wine or 10 if he wants) but frankly, I learn more from Saul than I do from MF One since what I am trying to do is very much closer to what Saul is doing than what Tom is doing, the latter being, running a business while investing. Different dynamic completely.

In closing, let the newbies come here, let them make mistakes and learn from them. My guess is it would be a lesser mistake from copying Saul than if they did it on their own anyway, at least at this stage. But the ability to be on your bike with the training wheels off for the first time, following down a rough sidewalk, another honest, competent and generous rider in front of you, is Olympic size hand holding and really uplifting, even if he doesn’t shout back now and again, “Keep pedaling!”

Free at last!
Mykie
PS I don’t mean to be long winded and I apologize for the inelegant writing/expression of thoughts.

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28

Think about what I said, was it so unreasonable? I never said it was his legal obligation, just moral.

Moral obligations carry more weight for some than legal, at least for me, so to be more clear, no, I don’t think Saul has a moral obligation of any kind in showing us whatever part of his investment process he chooses to show or not show us. I like that he thinks of me as an equal (I’m not) and that I’m obviously capable of making my own decisions (I am). It adds to the confidence I need to become a better investor.

Mykie

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29

It would change the successful method of free decision-making that I’ve used for years if I had to justify each decision I made. I might then reflect before each trade how I would explain it and that would mess me up. I won’t do it.

Wow…here’s a great example of value that’s worth more than knowing when Saul is going to sell this or that.

I too make decisions after much intense, mental laboring. If I get interrupted before I act, I have to start all over again to reach that trigger point. I also have developed great confidence in my ability to digest lots of info, and then make a fresh decision. I developed this process unconsciously but worried that it was not viable. For me, knowing that someone as adept as Saul is doing something similar validates my behavior.

Thanks again, Saul.
Great board,
Mykie

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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

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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

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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.

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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

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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

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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.

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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

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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

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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.

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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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