What I've been doing this terrible week?

Investment Analysis Clubs Saul’s Investing Discussions
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I know that people will ask what I’ve been doing this week. Since it’s been such a terrible week, I feel some obligation to let you know:

As you know I’m retired with no external source of income, so I have to sell something in order to buy anything. Earlier in the week I needed to raise cash to buy some of the things that seemed unreasonably down. I sold about 20% of my medium-sized AMZN position and sold all of my tiny 0.2% position in FB. Why did I sell these? They were both very high PE’s and hadn’t fallen much as of yet. I sold AMZN at $630.20 and FB at $103.10. They closed today at $607.94 and $97.90.

With the money I bought some SWKS at $68.97, which was at a PE of 13.1, and some LGIH at $22.61 or a PE of 10.6(!). Why did I buy them? I had faith in David Aldrich, the CEO of SWKS, in what he said in the conference call, in their raising their outlook for earnings and margins, in what he said in the investors’ conference, and this week at the CES. As far as LGIH, they are growing like a weed and were down to such ridiculous levels due to a sector panic because the Fed raised interest rates by one quarter of one percent.

Now for today: I sold about 20% of my substantial CASY position at $117.60 (because it was hardly down at all), and about 6% of my small CYBR position at $41.90 (because of high PE, even though I really like the company). They closed today at $116.95 and $39.70.

With the money I bought some AMBA at $52.60 with a PE of 15.7, and a larger purchase at $49.90 with a PE of 14.9. Why did I buy it? Well they do a lot more than GPRO, they are at a ridiculously low price for a company that was growing trailing earnings at 115%, unless the whole company is going to crater, because David G just re-recommended it, and because I had only a small position in it.

I also bought a bunch more SWKS at $66.65, at a PE of 12.65 (!!!), for all the reasons I mentioned above, and a big bunch of LGIH at $21.60, or a PE of 10.1 (!!!). LGIH is growing trailing earnings at 50% per year.

After the close today, LGIH announced record home closings in the Dec month, the Dec quarter, and an all time record for any quarter. Forecast next year’s closings up by at least 17.5%. Since the average price goes up each year, that means revenue up even more. And they are probably low-balling with a number they feel they are sure to beat.

Please don’t try to just copy me unless it’s what you decide on your own to do, as I have no way to tell if these buys and sells will turn out well.

Well, that’s what I did this week. Hope it helps.

Saul

For Knowledgebase for this board
please go to Post #15056.

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

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Saul,

I must say, you are remarkably good at nailing the rotations between stocks as the market corrects up and down with your portfolio reallocations. I say this sincerely and not in any anti trading mindset (as I have no problem with trading things).

It’s keen eye for seeing which stocks haven’t moved with the current trend and which ones have, and how to reallocate from the relatively worse deals to the relatively better deals when spread between them gets stretched.

That’s probably one of the hardest parts of investing right there and there is a lot to learn from in your post. It’s smart reallocation among a small list of focus stocks, not short term trading or speculating (because I know someone will complain about that and miss the point).

Good stuff
Mike

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Thanks for your kind words Mike
Saul

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Thanks for the details Saul. I asked a few weeks ago how you sell when a better opportunity arises when you are always fully intested in the market. Your posting did clarify this process very well.
I have found over the last 5 painful months that having the time to monitor and react in realtime (ie. being retired) is a great advantage that most don’t have.
When you have only 10 to 15 stocks and you really like the portfolio and relative weightings, it is very difficult to decide which ones to sell. I personally moved out of SKX before Christmas at 30.44 (now at 27.94) bcause it was not going anywhere.
The plan was to go back to my preferred weighting of SKX a few weeks before the next earnings announcement when it will likely move which I understand could be down.
Does anyone else have methods of deciding how to pick the stocks to sell so you have funds to buy great new opportunities?

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Hey F1,

Been working on my own method, so I’ll post a rough draft here of where it currently stands. I give 3 main factors

  1. Fundamentals - business performance, continued growth/profitability, valuation, are there new red flags or potential upside catalysts, etc

  2. technical - pick your price levels or indicators around where the stock currently is, particularly where you may have mental buy or sell targets. These can be based on fair valuation or whatever you like if drawing on charts doesn’t interest you

  3. current trend - rising, falling, sideways, new highs, etc. Look at on different timeframes to see the big picture

Each of those categories gets a numberical rank that I can aggregate to rank the stocks that I think are strongest and weakest at the current time.

Still testing and evaluating since I only decided to formalize my process a bit more recently. Hope it helps. Open to feedback as well

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I know that people will ask what I’ve been doing this week. Since it’s been such a terrible week, I feel some obligation to let you know:
Yeh… this week I’ve been mostly drinking G&Ts.

In between I’ve been tempted to top up on my SWKS and enter LGIH.

What I had done was actually sell some Imperva and push into CYBR. Now that CYBR has gone up big time and Imperva down big time I might rotate back.

Tonight I might rotate it will be back to beer.
Ant

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Money management is Saul’s “Secret Sauce”. Make no doubt about it. The man “gets it”.

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Saul,

Thanks for sharing that. It definitely gives a very good idea of one way to reassess and rebalance. You are a true gem :slight_smile:

Chandra

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I agree with Rock. Money management is a big part of Saul’s success. If you read Saul’s post, it is easy to believe that the type of portfolio management he is describing there is easy. The post even lists a very common sense reason for each move he makes. The only difficulty with that assessment is I could list completely opposite common sense reasons to do very different things and they would also make sense. My guess is my moves wouldn’t end up as effective.

My opinion is that it is not just the “Saul type stocks”, it is not just the 1YPEG, it is not just the growth rates that makes a stock attractive to Saul. It is an experienced based gut feeling that it is time to move in or out, or partially reallocate that is at the true heart of Saul’s ability.

Example one, Saul buys into AMZN when it doesn’t really match his own described characteristics at all, but he does have a nice sounding common sense reason. Now after quite a nice short term run, he sells off a portion due to another nice common sense reason. Who knows maybe he buys back, or maybe he sells off the rest. Whatever he chooses to do, it will be followed by common sense, and more than likely it will turn out alright.

Example two, suppose his post had said, " I sold off a good bit of my SKX because of the increasing inventories. I am not sure if that will affect earnings or not due to the need for discount sales but I have too much of a position and decided to back off just a bit." It would sound completely logical and To be clear, Saul didn’t say or do that, but if he had it would sound perfectly reasonable. My point is almost any move can be justified with a logical explanation, but it is his gut and experience that would have told him to sell, not a very simple common sense reason or any single data point.

Just my opinion, but Saul’s success comes much more from a decades long career of paying attention very closely to the market and being able to separate himself from the market, pay attention to what has worked and get out (or in) whenever his gut tells him to get out (or in), and then act swiftly… No consternation, no regrets, just make the move and keep going.

No complaints here, this is not meant to be in any way disparaging. More accurately, it is being respectful and complementary to his impressive abilities. But this is also a warning to the uninitiated, if you think it all sounds simple… Try to do it on your own for a while and Good luck.

I repeat, nothing negative or mean spirited here (maybe a little jealous?!?) if it sounds that way. I am impressed though and I do love to be able to follow along, not because I am trying to track the moves, but I sure am paying attention to the methods…I believe i am learning a lot even if I never try to copy it.

Randy
Long SKX and AMZN. ( and I haven’t bought or sold any of either in a while, but now that I mention it, those inventories at SKX do seem to be climbing …)

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I think that is all quite true. Our host insists ‘in no way am I a short-term trader. When I buy a stock, it’s with the idea of holding it indefinitely… NEVER with… the idea of trying to make a few points.’

Absolutely true but Saul’s actions seem to me to make this remark a bit disingenuous. My impression is that, if it is necessary, he may trade actively, not to say vigorously, around a holding. Thus he may have a very large holding which events cause to become merely a residual holding but which may, if warranted by events, once again be increased. Wash, rinse and repeat.

I wholeheartedly support that! In fact I am quite sure it is his ‘secret sauce’. It has been wholly appropriate to market conditions and investment-subject events.

I am currently reviewing the number of times in the last calendar year I 'rode 'em up and rode ‘em down again’. I handled SWKS near perfectly but there were too many others where I watched a good profit erode to the point I sold to make only a small percentage after tax. (My gains are only ever expressed after tax.)

I too am a buy-to-hold investor but I am sure I am being less pro-active in locking in profit by partial sales than I should be.

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On that theme, so far I have come up with one or two ideas involving valuation (I use different ratios to those here but the principle is the same.)

I plan to act on a particular conjunction of two events: clear over-valuation plus more than one serious % director sale. Ignoring that has been expensive recently in two cases.

Secondly, I plan to institute a mental (desk-noted) trailing stop-loss on clear over-valuation. Again, that would have been a valuable trick in the last year.

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Hi Strenla,
I agree with almost everything you say except the use of the word disingenuous for Saul’s actions. I don’t find Saul to be misleading or anything less than genuine in his actions here. I do think that your definition of buy and hold is much different than Saul’s. I think that Saul’s definition is of only buying with the thought of holding forever or until something changes. It is probably very clear to him but may mean something different to others. The difference is that if (and when) the situation changes, Saul doesn’t have any issue with changing his position, and that includes RELATIVE to other stocks.

It seems that one of the major differences between Saul’s portfolio management and most other management advise is that he is a fundamentalist, ie wants to see revenue and earnings growth, not promises, but he appears to grade his investments on a relative scale. In other words, he wouldn’t buy a stock unless he believes it is going to do well in absolute terms, but, and this is the big difference, he is more than willing to sell a stock if he finds a better long term hold out there. And that relative value may be as simple as the price of one has come down a lot versus another and the fundamentals haven’t changed.

As a result, this can and apparently does lead to a lot of fine tuning. But the process itself is simple, and incredibly difficult to do well. It seems like I have tried to do this relative trading in the past and I have not been successful. Usually, for me, when I try to sell the stock that has held up well and buy the one that has been hurt, I get burned. Some would call this selling your winners and adding to your losers. Somehow Saul is able to distinguish from the stocks that are going down for good reason (he would sell these), ie the situation is changing, and the ones that are going down just due to the whims of the market(he would buy these). My hats off to you Saul. It is impressive.

I am paying attention, but for the life of me, I am not sure how you do it…

Two final points, these posts where I talk about Saul to others when I am on Saul’s board always feels funny. I hope you are okay with these types of conversations, Saul. They are an attempt to learn from someone much more skilled in the art than myself. And second, I find this portfolio management stuff fascinating and thus I am always a little concerned I am going on way too long here. But it is a great way to analyze my own investment techniques and biases.

Okay, doctor, can I get up from the couch now? :slight_smile:

Randy
Still long AMZN, SKX, and way too many others…

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Saul,

You are making my day. I doubled down yesterday on AMBA and got in for $45.63.

Gordon

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As a result, this can and apparently does lead to a lot of fine tuning. But the process itself is simple, and incredibly difficult to do well. It seems like I have tried to do this relative trading in the past and I have not been successful. Usually, for me, when I try to sell the stock that has held up well and buy the one that has been hurt, I get burned. Some would call this selling your winners and adding to your losers. Somehow Saul is able to distinguish from the stocks that are going down for good reason (he would sell these), ie the situation is changing, and the ones that are going down just due to the whims of the market(he would buy these). My hats off to you Saul. It is impressive.

Hi Big Cat
It doesn’t seem that hard. On other MF boards I see stocks which have disastrous results and the price drops, and people say, “Wow! Stock is down! Great time to back up the truck at a cheap price!” That’s not for me. On the other hand, SWKS is down with NO company specific bad news, with the CEO being very positive in several recent interviews in the past few days and weeks, and with a company that is raising estimates for margins(!) and earnings(!), for gosh sakes. I’ll buy that!

And take LGIH: They’ve been growing revenue and earnings at over 50%, and closings at almost 50%, and this is in Texas! in the oil patch! In an oil disaster time. If they can do that, what can they do in the rest of the country? And if oil eventually rises in price? And selling at a PE of 10! Ten!!! Heck, yes, I’ll buy that.

I may be wrong. These may crater next week or next quarter, but if you can’t buy stocks like that, what can you buy? And these weren’t total make-overs! It turns out that I added just about 10% of my previously existing positions to each of them. And given your SKX, you may be pleased to hear that on Friday I added a smaller amount to my SKX position too.

Saul

For Knowledgebase for this board
please go to Post #15056.

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

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