Volatile Thoughts

Investment Analysis Clubs Saul’s Investing Discussions
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Greetings,

I’ve been spending my “free time” over the last couple of weeks studying the philosophies here. I won’t pretend to have a good handle on the nuances of what Saul is trying to do, but I’m pretty sure I get the main gist of things. I’ve always believed that it was hard to beat the market if you own the market, and I almost always have one or two “high-flyers” (I call them Wild Cards) in my ports. So I can’t disagree with the theme of the program here on a wholesale level … except, I’m sorry, but the risk, oh my, the risk.

Rather than digest what’s already been digested (and coughed up no doubt) I’d like to simply propose a port that uses half of “my” philosophy (although I don’t disagree with Saul and there is some overlap to be sure) and half of “Saul’s” philosophy (although he may not hate Google as much as one might guess.)

The reason is simple. Volatility. Volatility seems to be one of those words that CNBC wants us to hate, but after awhile one must realize that the volatility of the S&P 500 requires one to pretty much accept the RETURNS of the S&P 500, and I trust you wouldn’t be reading this on this particular board if achieving the results of the SPY was really your goal in investing. So without further adieu, here is my thought, tossed out for ridicule.

I’ll take 50% of the gains from my choices and 50% of Saul’s gains and see if that beats either of us and more to the point, to see what it does to the volatility. I would guess in a great year, Saul would come out ahead, but no guarantees. I mean one bad choice in 8-12 and “Oops”. Been there, done that. Only once. And in a bad year … I don’t know, maybe we’d both go and hide for awhile. :slight_smile: My whole point is that I don’t understand (but am willing go learn) why one shouldn’t/ wouldn’t / would-wish-he-did, take a few granite Gibralters and anchor even a wilder portfolio’s ride against a sudden and unexpected storm. (hmm, always unexpected - How silly is even the thought that one wouldn’t expect a storm in world economics?) Anyway, the port:

		
15%	GOOG	Google Inc 
10%	AAPL	Apple, Inc 
10%	FB	Facebook Inc 
5%	FAST	Fastenal Company 
5%	MIDD	Middleby Corp 
5%	UTX	United Technologies 
50%	"FLASH"	(Saul's Port Fund)
100%

Why these?

• Google Inc Love 'em or hate 'em (I do both, for example) these purveyors of data resulting in humans acting on every possible range of reason and emotion, have nailed the motherlode of data for sellers and advertisers of almost every type of product and behavior imaginable. To the victor goes the spoils. For proof, one need only look at their balance sheet over the last 10-year period. Privacy rights be damned, GOOG and the Pres say everything is not only legal, but justified. Profit is everything.

• Apple, Inc I’m not a fan of Apple products, but the company, oh my … a precision wealth builder if ever there was one. How big can it grow? That’s the question.

• Facebook Inc Speaking of not being a fan … I dislike the site, but I’m not the judge. I’m the observer looking at trends and their ramifications. “Like us on Facebook” is now the mantra of every other company in America. "Nuff said.

• Fastenal Company A mid-sized, well-run, small cyclical-products company that I trust to be profitable for the next 12 months no matter what The Orange One and/or Congress do to surprise us.

• Middleby Corp Another small manufacturer of the most boring equipment you can imagine, for an industry that is the king of cyclical (restaurants.) The important thing is that they do it better than anyone else and they do it for shareholders. Alas, they won’t double in price over the next 12 months.

• United Technologies One of the few large-ish companies that I both admire and that currently passes most of my value filters.*

• (Saul’s Port Fund) I don’t disagree with the philosophy of total balls to the wall, but my sense of fear of flying in my investments, I earned from experience. More than once:)

Not the best port in the world, you say? Maybe not. Probably not. Okay, definitely not. But that’s not the point. My point is that nothing in this port is not going to go to zero this year, no matter what. And my choices above, what’s so special about them you might understandably ask. Nothing special. Nothing at all. It’s just that I don’t have to watch them with a microscope 24/7. I don’t have to worry about them. And one signature on a form at the DEA can’t send me down the river. Guess I’d rather go on a trip with MrsRaptor than watch Cramer all day. So you guys watch ‘em, okay?

And watch SHOP too. I’ve owned SHOP for quite awhile and still enjoy the ride. Oh! And yes, see, I’m not the enemy, I bought a certain little pharma that I learned of here, looking for a quick ride and then I plan to jump off. So watch that little booger for me, will ya? Grab my 10-20% gains for me while you’re at the office next month.

So maybe I’m not 100% boring. But 99%, well, maybe … You know what? Maybe I’m just lazy. Maybe I’m a scaredy cat. But I retired at 46, so I don’t have a steady personal income and I don’t care to start a business or work for others again in this lifetime. And I didn’t get here by taking undue risk. Risk, yes, many times over, but undue? No, no, hell no. Plan for the best, hope for … well, frankly hope has no business being mentioned in the same paragraph as investing.

Good luck and good skills to everyone.

Dan

  • None of these companies do I consider remotely “cheap.”

ps: Saul, kudos to you, brother, for putting it on the line in this forum and for wanting to share with others. Methinks there aren’t many more rewarding endeavors. Well done.

pss: Did Shopify just go down a nickel!? What’s going on? Turn the channel to CNBC! Call my broker! Call the Times, find out what’s happening! Any word from the CEO of KITE?

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Raptor,

You will start out 50/50. Do you intend to rebalance to 50/50 at any time? Would cut your prospective gains when Flash is doing well, but could boost returns at times when sentiment/sector rotation knocked Flash down then raised it up.

KC

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My point is that nothing in this port is not going to go to zero this year, no matter what.

Nice stocks you list but the abundance of negatives in the above sentence is confusing. Are they all going to zero?

Denny Schlesinger

FAST has been slow these past five years.
http://softwaretimes.com/pics/fast-03-19-2017.gif

How’s the 'vette doing?

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Hi Dan (RaptorD2).

Please let me offer you a belated welcome to the board. I say “belated” because I never responded to your post about the sector weightings of my (unweighted) holdings. It was interesting to see. You won’t be surprised to learn that I actually DO track my sector weightings. I don’t target them religiously (I am quite overweight in technology and large-cap growth at present), but I do allow them to inform my decisions, at the margin.

In keeping with that general theme, I’d be worried that 70% of your non-FLASH portfolio is in tech (GOOG, AAPL, and FB), and I’m sure that there will be some additional tech in the FLASH portion. I mean no offense to those choices, as I own GOOG and FB, and respect AAPL. I’d just be worried about the concentration.

With FAST, you mention threats from the government and “Big Orange”. Frankly, I’d be more worried about “The Everything Store”, which is why I don’t own FAST or MSM. Do you see that concern as misguided?

Other than those thoughts about your portfolio, let me just reiterate that I’m glad you’re here and bringing your insight and humor with you.

Thanks and best wishes,
TMFDatabaseBob (long: AMZN, FB, GOOG, GOOGL, HD, MIDD)
See my holdings here: http://my.fool.com/profile/TMFDatabasebob/info.aspx
Peace on Earth

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… I actually DO track my sector weightings. I don’t target them religiously (I am quite overweight in technology and large-cap growth at present)…

No, I’m not surprised that you track them, Bob. One almost has to, or at least should I think. I don’t target mine religiously either (obvious from my picks), but try to remain aware what I * am * overweight in. I am not, in fact, strictly risk-adverse, or I wouldn’t bother to browse here, only UNDUE risk-adverse. In my ports, I get to define UNDUE. :slight_smile:

I’d be worried that 70% of your non-FLASH portfolio is in tech (GOOG, AAPL, and FB), and … there will be some additional tech in the FLASH portion. … I’d just be worried about the concentration.

Excellent observation and 100% valid. To explain, let me just say that while these “picks” are, indeed, all to be found in my current holdings, many of “full-position” size or more. They are not, however, the picks I would choose if this were a contest. It is not intended to be a contest in any way on my part, only some examples for the purposes of illustrating a concept of diversification (although unbalanced on the tech side, as you noticed.) So my picks (especially outside of tech) were chosen as things likely to be considered out of favor by high flying portfolio builders. Most probably never heard of MIDD or FAST, or don’t care if they did. They are boring, stodgy companies. None will go to anywhere near zero, but neither will any of them be likely to double this year.

As far as rebalancing as someone asked above (sorry, I can’t get to 2 posts easily while posting here) it doesn’t matter to much. In the real world, I’m always aware of what is likely to be influencing my investment values, but not necessarily on a day-to-day basis, except for wild things like KITE. More like on a monthly or even quarterly basis. I recently went 2 years without a glance at my ports as an experiment in “getting a life” outside of investing. Short version is it didn’t work. I had several oil giants that actually lost money over 24 months in spite of paying decent dividends, all while the price of oil skidded for an extended period. (Yes, I knew it was happening, but for the sake of the experiment … I have to be honest especially to myself when I make the rules, so I let them ride (read “fall.”)

On the tech side, speaking of such, I am somewhat surprised that anyone building wealth for the long term would not consider having FB and/or GOOG as port stabilizers after looking at their historical performance. Then again, there are a thousand reasons why someone might shy away from them. One might be technofobics, (e.g., WEB?) they may already have too much of the sector, or may hate GOOGs privacy intrusions, etc., etc., etc. I myself stayed away from Apple for years as I simply didn’t like their products and the way they kept every piece of software and hardware as closely-guarded, proprietary secrets to be milked like a golden goose. But for shareholders? Who can argue with their philosophy there? Not me. But there are many ways to skin a technical cat, and I eventually came to look at Apple something like (but not exactly) as Buffett recently did, as that of a supplier of products in demand by … someone … young people, artists, whomever, that were very loyal customers and unlikely to be persuaded by the corporate mainstream who largely chose to follow Microsoft, Google and (maybe) Verizon, instead of Apple, just for example. In fact, my “picks” were made to illustrate the many diverse choices that anyone could make, which should (/would?) bring about some measure of a stabilizing influence to a “wild” port but still add positive pressure to the port’s bottom line at the end of any year regardless of what happened in the wild side.

If it were a contest for CAGR for 12 months, I would not include some of those choices. But yes, GOOG, ASAPL & FB would remain, in spite of the fact that they are close neighbors on the sector spectrum (because I expect that to be the source of out-sized gains for several years. I could be wrong.)

Bottom line: I realize Saul needs no help. I love what he’s doing here. Do I worry about his economic future? Kinda, I guess, as much as anyone might who doesn’t really know the person. But not very much. But I feel better knowing that he realizes there are ways to have a rocket port without betting the farm on one mission to space.

Why do I care? Saul seems like a nice guy. For further analysis, ask the guys at SpaceX how much risk there is in betting the farm on a six-pack or so of space mission blast-off’s. Even that is colored by the fact that i’m 64 and will likely have 1 chance at most of attempting a mission to Mars. Or to build a port to live on for the rest of my life. But I’m having fun doing it.

To each his own, and may we all be successful and while we’re at it, may we share knowledge on how to improve on that success. And really, what else are we here for? So once again, thank you Saul and all.

My ONLY advice today: Don’t soak up tickers, mine or anyone’s. But methods … viewpoints … research … alternative ideas … etc., etc. … let’s be sponges!

Dan

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You will start out 50/50. Do you intend to rebalance to 50/50 at any time? Would cut your prospective gains when Flash is doing well, but could boost returns at times when sentiment/sector rotation knocked Flash down then raised it up.

Hi, KC.

Not my intention, no. I’ll let my choices stand, just as they do in my real portfolio. As explained earlier, my motive was not a proposal for any type of contest. That said, it would be interesting to see the results 12 months from now and to discuss results.

As for Saul’s portion? No again. I trust him to do what he thinks is best for re-balancing and adding new positions. He’ll make some mistakes and no move will be perfect, I understand. I do the same with my wild cards, but not so much with larger “anchor” positions, unless a change in circumstances requires such.

I hope to remember to come back in 12 months (not going anywhere anyway) and report results of the 50/50 proposition. I can’t remember if I have any appointments tomorrow even, but I’ll try to put in my calendar to follow up on 3/20/18. Fat chance, but possible. :slight_smile:

Dan

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Nice stocks you list but the abundance of negatives in the above sentence is confusing. Are they all going to zero?

lol, I do get in a hurry.

FAST has been slow these past five years.

Hey, I don’t want to bring in any ringers, I want to be fair. (Also, homebuilding is back in style. BUY, BUY, BUY!)

How’s the 'vette doing?

Since you pirate captains all live in Paradise, you forget it snows here in the midwestern U.S. The 'vette is my summer-only ride. Actually, it’s getting spring-like here now, so last night we were going out to meet friends and relatives for dinner, so I decided to take the 'vette for a change. As soon as I got in (keyless, senses entry) the lights came on and the stereo started blasting out rock’n’roll, but damn, it wouldn’t start. Must be what they mean when they say “use it or lose it” …

lol, You Southern Hemisphere Sailors have it made (no news there) and nothing to do but tease Yankees. By the way, have you decided to run for President yet? I’ll vote for ya. Two or three times if need be, just ask the Orange One. That oughta straighten out those thieves who are running Paradise today.

Dan

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xI recently went 2 years without a glance at my ports as an experiment in “getting a life” outside of investing. Short version is it didn’t work. I had several oil giants that actually lost money over 24 months in spite of paying decent dividends, all while the price of oil skidded for an extended period.

Dan, I wondered what had happened to you since you were not posting.

I don’t think two years is a valid timeframe for this experiment, it’s too short. If you take a look at Exxon-Mobil over the past 40 years it outperforms the S&P 500 by 50% which is quite fantastic

XOM: http://invest.kleinnet.com/bmw1/stats40/XOM.html
S&P 500: http://invest.kleinnet.com/bmw1/stats40/^GSPC.html

but over the past 24 months XOM underperforms the S&P 500

http://softwaretimes.com/pics/xom-03-20-2017.gif

because the oil industry is cyclical making the past two years a poor timeframe for the experiment. Books like Stocks for the Long Run use much longer cycles like 15 or 20 years but that is too long for individual investors to experiment with.

With the explosion of ETFs and sector indexes it is now possible to target better performing sectors like information technology or semiconductors using them to beat the market averages of the S&P 500. The best approach to these ETFs might well be a steady equal dollar buying approach, dollar cost averaging.

Saul’s approach might well beat this strategy but the object is not to win investing gold medals but to feather a comfortable retirement nest.

Denny Schlesinger!

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