Your best performing stocks:
Currently have P/E ratios over 20
Currently have P/E ratios 20 or below
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my best investment has a PE of 46 and has increased by 6X since I bought it. It is also one of my largest holdingsSecond is PE of 29.8 and is more than double. I knew when I bought it that it was overvalued but went ahead.I have learned a lesson from these and from watching other overvalued stocks -- there is money to be made if you pick carefully and the company has a history of high growth and rare misses. But be ready for competition and reversion to lower PEs.I would add that I have also seen that picking undervalued temporarily out of favor big companies with long records of successful execution and high cash flow but low to no growth prospects and low PEs has worked even better.At present there is a lot of chatter across various Fool subscriptions about the power of the unfortunately named Spiffy Pop coined by David Gardner. It is a stock that in a short time increases 100% or more over your basis. The recent Spiffy Pop of Netflix has sent a wave of euphoria across Fooldom and there is endless speculation on how far it can run, how many times over its going to Spiffy Pop and what will the next newsletter pick be that Spiffy Pops. It's usually the high PE stocks that manage these big moves when the market finds a reason to love them. Amazon is another.It's gratifying to watch a high PE, highly followed momentum stock pop, but I am finding through managing several portfolios with different mandates that the boring, low PE stocks bought at an advantageous pull back and put together in a portfolio has outperformed the market in the past two years and has outperformed some TMF Rising Star portfolios containing Spiffy Pops but unfortunately put together with other underperforming high PE, high risk stocks. This is a lot like what happens at the newsletters themselves. They have a few big winners but overall performance is compromised by a risky recommendation of a high PE momentum stock that fails. Bottom line is I think the high PE stocks can do amazingly well but will be unable to help a portfolio of similarly priced stocks that don't perform. The market is quick to kill a disappointing high PE momentum stock. Apple is an example of a momentum stock bought at the wrong time and wrong multiple that has been a disappointment in a lot of portfolios. Better portfolios can be made from low PE, slow growth companies bought at bargains. They offer slow but predictable growth, dividends and lower volatility
Better portfolios can be made from low PE, slow growth companies bought at bargains. They offer slow but predictable growth, dividends and lower volatility.Possibly, LKKat, but...My best performing stocks have more than doubled in the last year. They have outrageous P/E ratios. But they also propelled my returns higher than the return of the most common indices. Isn't the real purpose of spiffy pops (ugh, I hate that name, it's embarrassing to even type it :) ), to goose the performance of the lower P/E stocks that form the backbone of a good port? Isn't that we all have the brash egos that demand that we pick our own stocks instead of buying an index, or a mutual fund? If you can't trust yourself to find another Whole Foods, a Netflix, a DDD, an Apple, a ... whatever, why take the risk of choosing individual stocks to begin with?Give me wildcards, or give me ... dividends! :)Dan
Made me look, and it's hard to say about PE's. You be the judge. I voted under.Best investments in order, last year with PE from TMF ("best" is based upon cost basis -- some drip):Sears BondBanco Santander (TMF doesn't give)Vanguard Emerging Markets (nope)Turkey ETF (nope)Good Performance owned a while at low basis:GEWalmartBerkshireNot sure that helps.bob
Spiffy pops might help boost your portfolio as long as they don't turn out to be spiffy plops. .... might be a little thread crossover here ...
Bottom line is I think the high PE stocks can do amazingly well but will be unable to help a portfolio of similarly priced stocks that don't perform. The market is quick to kill a disappointing high PE momentum stock. Apple is an example of a momentum stock bought at the wrong time and wrong multiple that has been a disappointment in a lot of portfolios. Better portfolios can be made from low PE, slow growth companies bought at bargains. They offer slow but predictable growth, dividends and lower volatilityHi KitKat,As I have stated in the past, I don't invest in the integrated large cap O&G producers ("Majors") because IMO, beyond their lower cost of capital (which is a huge advantage), it is a pretty easy case to make the argument that I can build my own virtual major using the typical metrics (reserves, production, growth & discovery potential)on my own for a whole lot less and with a lot more potential for gain.That's the good news, the bad news (potentially) is that this exposes me to a pretty much steady diet of the Spiffy Pop type issues you describe. With exploration/discovery potential, production decline issues (It's not always easy to delineate between flush production and more sustainable production with smaller companies with only the spoon fed and often limited information provided by companies), financing issues and simple execution risk both success and failure of your Spiffy Pop nature are common and the smaller the company the more prone they are to it. Having dealt with these issues for awhile and combining it with the similar experience I gained during the infamous Dot Com/Tech Bubble I have tried virtually everything in an attempt to outsmart the market with what can best be described as mixed results.Attempts at rigorous DD helped, until it didn't. Diversification helped, until it didn't.A basket approach helped, until it didn't.Focused or concentrated investing (best ideas) helped, until it didn't.TA helped, until it didn't.Following Gurus helped, until it didn't.Watering the flowers and pulling the weeds helped, until it didn't.Monitoring the macro, markets and sectors helped, until it didn't.Heck after the tech wreck I even tried the grown up stalwart approach which helped, until it didn't. (2008 anyone)Well you get my point I hope.A smarter or less stubborn guy might take the advice attributed to W.C. Fields.If at first you don't succeed, try, try again.Then quit.There's no point being a damn fool about it.I didn't. :<)What I have done is settle into investing strategy that attempts to incorporate some of the wisdom of my previous attempts but in essence can be reduced to three key elements.1. Be agnostic with my investments. What I mean by this is that no matter what I think might happen I should attempt to structure my portfolio in a way that I can benefit or at least mitigate the damage if, make that when, I am wrong. This doesn't preclude me leaning somewhat in a certain direction based on what I think I know, but rather never forgetting, or under-appreciating, just how wrong I can be and how certain it is that at some point I will be wrong. Understanding the type of risk each company represents and how the stock price might be expected to behave in various situations is imperative if I expect to survive and ultimately prosper when the unexpected happens. Of equal importance is to understand myself and my capacity to ride out both financially and emotionally the periods where Mr. Market may vehemently disagree with my thinking. Finally and this might deserve it's own entry into my "key elements" classification is to never forget just how relatively un-knowledgeable I am when it comes to all of the various subjects (finance, geology, engineering etc) that can have an impact on my investments. I like to tell myself (delude myself?) that this knowledge about how little I know in itself protects me from the onset of hubris, which may have some merit, but the reality remains that I am trying to compete in a realm where the competition, most of it anyway, has and will always have the upper hand when it comes to these skill sets. 2. Respect these investments for what they are; high risk/high reward investments, which are subject to extreme mis-pricing by the markets on a regular basis. My strategy in this regard is simply to constantly attempt to de-risk my portfolio by harvesting profits when I get them and for the most part at least, incorporate my "agnostic" approach even with my most cherished winners. I've had too many situations in the past where I deluded myself into thinking my winners had offset my losers only to have that winner "Pop" in the wrong direction as well. I am now at the point where if I have a sufficiently negative "Pop" in my portfolio from one stock I'll "punish" myself by selling a winner just to insure that I have better control of the risk that remains in my portfolio(s). Over time, this has resulted in a somewhat "water your winners and pull the weeds" situation where my emphasis on de-risking my positions has allowed my biggest winners to achieve overweight positions in my portfolio even after completely de-risking the position (negative effective cost basis)although at the price of recalling forlornly how many shares I once held and thinking about what might have been. At the same time this has made it easier for me to make the emotionally tough decision to admit I was wrong and pull the plug on my losers and move on. Importantly, although it is impossible to quantify, is the psychological edge (calming affect) it appears to give me in making decisions as I deal with the daily volatility and angst that comes from being in the market. 3. Cash is king! Obviously cash reduces the risk from being in the market and assuming I am successful in altering the high risk/high reward equation through my attempts at de-risking my positions then the remaining high reward portion can easily (in theory anyway) compensate me for the opportunity cost potentially lost through holding cash. This in turn opens up the opportunity to either capitalize on the extreme mis-pricing opportunities that may crop up in individual companies on any given day or in correction opportunities that arise along the lines of the "bird in the hand" thread Rich started. Unfortunately, cash isn't fool proof, for example my biggest loser last year came from my attempt to catch a falling knife and about all I can say is when I screw up deploying cash the next attempt involves a more stringent risk/reward hurdle before deploying more cash.I know none of this is rocket science and likely sounds somewhat touchy feely/amateurish vs. the Graham & Dodd approach practiced my most inhabitants of this board. I also know that "until it didn't" is always a possibility once again. But for the past several years it's served me extremely well, (although there have been moments) so unless proven otherwise I'm sticking with it. In a related vein, I did a little postmortem on the 2012 NPI portfolio, (which pretty much is a magnet for the “Spiffy Pop” prone picks) a while back which IMO backs up my conclusions pretty convincingly excepting perhaps the relatively small sample size. http://boards.fool.com/opportunity-costs-30422124.aspxJust my 2cents on a quiet Saturday morning,B
Hey Dancompletely agree that a double or a triple in a year does wonders for a portfolio and I have a few of those in large enough blocks to help overall returns What is even more important and I meant to emphasize it better, is the absence of huge losers and often it is the same high PE, high momentum/volatility that are the <ick I agree> spiffy pops and those that really ruin your portfolio. And so often it's hard to tell which way it's going to swing. Those that bought NFLX on the way down at $250, $200, $150 are either in the red or have some gains but no spiffy pop spiffy pop spiffy pop. Those that bought at $57 (me among them) saw better returns. But not because you can value Netflix or know from one minute to the next what's going to happen. Half of the gains were made because Icahn bot them and then they signed a deal with Disney. The other half came with earnings.It personifies the difficulty in finding high returns that will also not just as likely ruin your port. I lost NFLX on the Icahn news --calls were exercised about 6 weeks early. Icahn owes me $40K :)
In 2012, I monetized many of my top performers. SFL - PE under 10,KCG - negative PE (Stillhave small slices), and PPP - under 10. All three were picked for being "unfairly punished" ideas.Currently performing well: PGP - leveraged ETF, PE has no meaning & NNA - negative PE (another"unfairly punished" idea).DDD - On my watchlist
My top 4 performing out of 20 holdings are all over 20 p/e or negative right now. (ONVO PAC AIRM WETF). I believe AIRM and definitely PAC were below when I bought them however.
Two thoughts:* A high PE can be misleading when the E hovers near zero. Such a company may be transitioning toward a better future instead of just having a crazy PE. Ford in the 2009 timeframe would be an example. It got to a point of just barely making money instead of hemorrhaging it.... and had a high PE. Now, a low PE... and a lot different situation. Netflix? Is it transitioning to a better future? Got me! LOL It was a lot easier with Ford because I worked there and "saw the future". I don't often have that advantage.* One of my high PE companies is CTRX, originally recommended by Rule Breakers at a bit more than $5 (split adjusted) and now teetering on the edge of being a 10-bagger for me. The PE has always been uncomfortably high to me....now around 50(!), but the "story" was convincing (to me) and earnings have grown well. I figure a time of PE compression is coming (naturally).... and perhaps unrealistically hope that it occurs slowly as growth slows and the company is considered "mature".In my investing career, the best returns have been with turnarounds (F, ATPG) and fast growing companies (starting with Xerox in the 60s and continuing till now). With turnarounds, the PE is not the most relevant focus. With the fast growing companies..... it seems to be a bifurcated approach:* get out before the company reaches a blow-up* stay with it as it transitions into mature growthLots of examples of the blow-up case... no reason to dredge up bad memories for anyone, eh? ;)It appears that ISRG is my best example of the second approach. Nicely growing company with a strong business....PE gradually easing from the 70s down to the 20s currently.... and it seems like growth can continue for quite a while. Sometimes.... that high PE is truly an anticipation of that future growth... and in some cases it is actually paying off.Rob
my best investment has a PE of 46 and has increased by 6X since I bought it. It is also one of my largest holdingsWhoa, I missed the reference the first time through, MsKat. Me too!So in the spirit of this thread, what I would really like to know, is what it would take for you to sell it? What is your rule?Dan
hey DanI think it would take a few Qs of misses and slowing growth with evidence that management was being stupid. SO far the boyz running NEOG have done well making OK acquisitions and bringing in new tests and technologies. Stupid management tricks are a frequent reason for my getting rid of a stock. The other rule is loss of moat. I am struggling with deciding the fate of Idexx as Abaxis can now invade its turf and can sell to MWVI.bailed on Terex as they kept losing to CAT and Deere and bot CAT. I still like NEOG and am not selling on valuation. I rarely sell on valuation concerns even though I probably should.
Currently performing well: PGP - leveraged ETF, PE has no meaning & NNA - negative PE (another"unfairly punished" idea).Thanks for the idea on NNA and I'll be interested in looking into it. I see it is near it's 5 year low.Bill
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