Hypothetical No-tinker P/F with Saul's Jan 2

Everyone is looking for the $1 M stock. Many wouldn’t recognize it even if by chance it was sitting in their portfolio. As it started to grow it would overwhelm the rest of the portfolio and we all know the concensus of opinion of the “Experts” is to rebalance the portfolio because it is “Safer” So, in seeking safety, we sell the best we have, and keep the junk. After a while we may start to wonder why we aren’t making money, or we may not and keep on doing the same as before.

b&w

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I have seen that statement before and it is one I struggle to understand

It depends on what you want to achieve, make money while Saul is around or learn how to make money. I was making good money with Louis Navellier but I quit the newsletter because I was not learning how to invest.

Denny Schlesinger

The fact you seem to be able to recall everything you’ve read is nothing short of incredible.

I wish I had a photographic memory but I don’t. Philip Fisher has a dozen or so rules about something or other and I can’t remember a single one. I don’t read for the detail but for the philosophy: Why are successful investors successful? What’s the secret sauce? Can I incorporate it into my own style? Let me give just two examples.

Peter Lynch has a lot of lessons but I picked up just two or three of them:

  • In retail, find out what people are buying, they know more than analysts do.

  • Buy concepts after they have been successfully replicated across markets.

  • Sell when the story changes or you realize that you have make a mistake.

Warren Buffett also two or three of them:

  • Invest other peoples money (insurance float, subsidiaries excess working capital, don’t pay dividends).

  • Avoid regulations (operate as a corporation instead of as a fund).

  • Disclose only as much as you have to. Talk your book.

Denny Schlesinger

Is everything worthwhile learned from a book? I suspect not…

You’re right! I didn’t read a book to learn to ride a bicycle. I tried learning to ride one on flat ground and that was a flop, as soon as my feet were off the ground I’d lose my balance and fall. Frustrating as hell but I was not giving up. One day we went on vacation to a mountain resort with very steep roads. I borrowed a bike, found myself a terrific slope and headed downhill. If I made it I would have learned, if not I would probably be dead but I had no intention of going through life without riding bikes.

I gave up on bikes about a decade ago because my knees were hurting.

Learning to invest like I learned to ride a bike does not seem like a smart idea, throw all your money at the market to see if it works.

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The first thing that strikes me as inappropriate about the selling criteria is that you are only measuring the stock against itself without any consideration of the market.

In other words, over a given stretch of time if the market goes down, say 8% and I’m holding a stock that goes down 5.1% am I going to really sell it? Maybe, but probably not if I don’t see anything about my investment thesis that has changed.

But you can set any criteria you want for a thought experiment, so I guess given your parameters, your conclusions are valid. I just think your parameters are not broad enough to reveal anything of particular interest in the real world.

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In spite of the criticisms I intend to carry out an experiment of the proposed method with a hypothetical portfolio of good quality growth stocks over a period of one year from now. I have chosen the top eleven stocks Saul currently has in his portfolio since I cannot choose better ones myself. However, as the intention is not to mimic Saul’s portfolio I have assigned equal weight to these stocks. This is intended to be a LTBH portfolio except that a stop loss limit of 10% will be imposed on all the stocks to limit the downside. Additionally, if the ‘story changes’ substantially a stock will be liquidated no matter what the price is at the time. Hopefully such events will be few, if any, during the year. The proceeds of such liquidation will be divided equally between the three top performing stocks to buy additional shares.

At the end of the year the performance will be compared with that of S&P 500 Growth ETF, VOOG or IVW.

Cheers.
alpha


Ticker/ # of Shares/ Pur. price($)/ Tot. cost($)
AMZN/ 13/ 796.00/ 10,348
ANET/ 99/ 101.28/ 10,027
BOFI/ 347/ 28.85/ 10,011
HUBS/ 190/ 52.60/ 9,994
LGIH/ 337/ 29.63/ 9,985
PAYC/ 211/ 47.49/ 10,020
SBNY/ 66/ 150.50/ 9,933
SHOP/ 213/ 46.90/ 9,990
SPLK/ 178/ 56.17/ 9,998
SSNI/ 764/ 13.09/ 10,001
UBNT/ 174/ 57.37/ 9,982

Total 110,289

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In spite of the criticisms I intend to carry out an experiment of the proposed method with a hypothetical portfolio of good quality growth stocks over a period of one year from now.

Not me. I like what you are doing. Solid, data-driven, experimental research.

This is intended to be a LTBH portfolio except that a stop loss limit of 10% will be imposed on all the stocks to limit the downside.

This is an idea strongly promoted by IBD. I think they put the limit at 8%. If that really worked, the academic world would have discovered it long ago. They have data dating back 100 years and could run the models on it to confirm or deny. There is no lack of grad students and computing power.

At the end of the year the performance will be compared with that of S&P 500 Growth ETF, VOOG or IVW.

The best performing asset class of the last 100 years is the S&P 600 Small Cap Value index. Why not compare against the best?

#6

“In God we trust. Everybody else please bring data.”

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Greetings,

This is intended to be a LTBH portfolio except that a stop loss limit of 10% will be imposed on all the stocks to limit the downside.

My experience is that this is probably the surest way to peg your returns at minus 10%. That’s when you sell. I would spend my time drilling down into the businesses rather than trying some arbitrary sell criterion.

YMMV.

Regards,
Stan

19 Likes

This is an idea strongly promoted by IBD. I think they put the limit at 8%. If that really worked, the academic world would have discovered it long ago. They have data dating back 100 years and could run the models on it to confirm or deny. There is no lack of grad students and computing power.

IBD has been publishing their data and theories for about 30 or 40 years or more . with their 8% limit and it appears they still have to sell newspapers and books to make a living.

Back testing serves no purpose. Past results is no guaranty of future results. If if works in the research experiment and turns in super results, are you going to put your money on the system based on last year’s results and stick to the guidelines you yourself set? I truly question that because the times will be different, so the results WILL HAVE TO BE DIFFERENT

The only true system is to actually do the research and put your money on the table based on your goals --Something like what Saul does. The copy-cats hurt his performance because they don’t have the same temperament as Saul does and there is a tendency for .copy-cats to attempt to front run It is very difficult doing what Saul is doing with everyone breathing over his shoulder. That could be a reason why his results have not been as robust over the past 3 years since he went public with this public site.

My hat is off to you Saul, but I believe you picked a hard game to win.

Best of luck
b&w

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#6.
The portfolio is a growth stock portfolio, so the comparison is with an ETF of S&P 500 growth stocks.

B$W

I wonder if Saul feels that people are “breathing over his shoulder”

Did you ask him?

If you mean this to be helpful to Saul, I wonder why you didn’t contact him personally.

Maybe you did?

Frank.

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It is very difficult doing what Saul is doing with everyone breathing over his shoulder. That could be a reason why his results have not been as robust over the past 3 years since he went public with this public site.

Hi B&W, You are correct, posting what you are doing, and your results does, of course, add a layer of stress. As to whether it has affected my results, I don’t know, but I don’t think so. I’m pretty thick skinned and just go on with what I’m doing the best I can. I would probably attribute any change in my results to a couple of other factors.

First of all, the increased size of my portfolio makes it less nimble. Specifically, it is much harder to invest in really low cap stocks because they are less liquid and it’s more difficult (and it’s more dangerous), to take a significant percent position in one. But it’s simply harder for me to move around when necessary when positions are bigger, even with large cap stocks, not because they aren’t liquid, but because of psychological factors about taking or selling a large position.

Second, I think that the incredible availability of information, and mis-information, and unfounded rumors, on the internet has changed investing as well. Now, if a company misses guidance by 2 cents, all the world knows it instantly and half of them sell the stock at once, which makes things very labile, compared to the days when only a few analysts knew the guidance, and no one else found out anything until a few days after earnings were announced to the analysts, when they got around to writing up their recommendations and mailing them out. The public often wasn’t even allowed to listen to conference calls, and there were no transcripts. I don’t know if all that has affected my investing for the better or the worse, but it certainly is a different world.

Saul

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which makes things very labile,

Saul, thank you for adding a new word to my dictionary!

labile
liable to change; easily altered.

• of or characterized by emotions that are easily aroused or freely expressed, and that tend to alter quickly and spontaneously; emotionally unstable.

I think the mistake that is being made is thinking that results must be continually improving. JP Morgan said it best when asked what the market would do: “It will fluctuate.” I consider that to be The First Law of Markets!

The market is not the only place where variation upsets some people. Some people need to have a fixed salary to feel comfortable even if commissions, paid unevenly, would in the long run produce much higher income.

Denny Schlesinger

3 Likes

The copy-cats hurt his performance because they don’t have the same temperament as Saul does and there is a tendency for .copy-cats to attempt to front run It is very difficult doing what Saul is doing with everyone breathing over his shoulder. That could be a reason why his results have not been as robust over the past 3 years since he went public with this public site.

fwiw, unless you run very large sums of capital this is almost never true in my opinion - there isn’t enough money here on Fool to alter stock prices over any period longer than a few hours at most (the market is VERY big place), so the idea that lack of performance is due to Saul’s visibility is doubtful.

Course, on the other hand, posting results real-time with all decisions would be INSANELY stressful, and I can’t imagine doing it without it impacting something. Besides, a tweak here or a tweak there in any particular price can shift the returns in a heartbeat, so unless Saul declares DEFEAT and sells his picks at a loss there is no conclusion here, so the idea that ‘his results aren’t as robust’ is absolutely irrelevant for now.

Thanks for all you do Saul. And for heaven’s sake, be perfect…

:slight_smile:

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Anybody that traded in the 1990’s and kept meticulous records had their numbers boosted significantly by that greatest bull market ever. These lucky investors are able to show incredible average returns. It will take many years for those averages to erode back to reality.

The S&P 500 had an annual return of 18% in the period stretching from 1982 to 2000. Everybody was a genius back then.

#6

#6

if it matters, I get paid to do this.
I have meticulous records

Captools
http://www.captools.com/
I’ve owned it for almost 30 years now
I know every single stock’s return and can quote you gains on any stock in any period in the last 30 years. I can quote time weighted and dollar weighted ROIs over any period in the past 30 years. The vast majority of my data is downloaded directly from the custodian.

I have seen that statement before and it is one I struggle to understand. Can somebody please explain why I should not copy Saul’s every step?

Cause Saul might 1) die.
Cause he might get 2) sick
Cause he might have 3) an off-year (he has before; it happens)
Cause his style might not 4) match yours
Cause his 5) time horizon might be different
Cause he 6) might fail to post

What Saul is doing is an exercise.

The way to approach is to treat each idea as a tip and then do your own analysis and any idea that interests you. Period. If you like an idea, you ask questions to further your understanding, and you take 100% responsibility for your results.

just my take

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The way to approach it is to treat each idea as a tip.

Then do your own analysis on any idea that interests you. Period.

If you like an idea, you ask questions to further your understanding.

You take 100% responsibility for your investments and your results.

Thanks OneEyeBird, nicely put.
Saul

1 Like

Anybody that traded in the 1990’s and kept meticulous records had their numbers boosted significantly by that greatest bull market ever. These lucky investors are able to show incredible average returns. It will take many years for those averages to erode back to reality.

Not sure what the point is, but possibly a relevant snip from Saul’s KB:

“At this point I have a little reminiscing: I remember in 2010 there was a lot of talk in the media about the “Lost Decade” for the stock market, which apparently had finished roughly unchanged after 10 years. At this point I was up 570% in those same 10 years, in spite of 2008, so I was wondering what they were talking about.”

Just trying to keep it real.

Bear

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I have now back-tested the proposed portfolio management procedure on a mock equal-weight portfolio of 12 growth stocks supposed to have been created on January 6, 2015. The stocks were chosen on the basis of the proposals by Saul and other contributors in January 2015. The results are given below.

For 4 stocks, AIOCF, POL, WAB and XPO (marked *), the year end loss was more than 10%. As it is now difficult to work out manually how the sale proceeds would have been redeployed for adding to the then three top performing stocks as required by the procedure, I have assumed the sale proceeds were kept as cash. Although exact prediction is not possible, this assumption will provide a lower overall gain than with the full implementation of the proposed procedure.

The year end gain of this portfolio as a whole is 10.46% with about 36% of the original investment remaining in cash. Compared with a GAIN of 3.59% of the S&P 500 Growth ETF, IVW (108.81 → 112.72) and a LOSS of 7.03% the S&P 600 small cap value ETF, IJS (112.88 → 104.94) the performance was quite satisfactory.

Percent Gain (loss) of stocks as on January 6, 2016, which is one year after purchase:

AIOCF (Avigilon) (36.5)>(10)*
BOFI 6.02
CELG 5.61
CRTO (6.94)
EPAM 60.55
FB 35.22
POL (18.2)>(10)*
SKX 54.94
SWKS 0.00
WAB (20.8)>(10)*
XPO (34.5)>(10)*
SYNA 10.1

1 Like

For 4 stocks, AIOCF, POL, WAB and XPO (marked *), the year end loss was more than 10%.

Alpha, what you proposed was different! You are using a starting and ending price, but what you proposed was to sell any stock that HIT “down 10%” when it hit it!!! You would thus have to sell any stock that ever hit down 10% from the purchase price. As probably almost all of them did hit down 10% on or about Feb 11 last year, you would have been sold out of almost your entire portfolio at a 10% loss, and been all in cash on Feb 11, just in time to miss the 20% rise that took place in the next couple of weeks.

Just for example BOFI dropped to $13 something in Feb from $17 something in Jan. You’d certainly have been out of that. You bought SWKS at $66, but it fell to $56 in Feb, etc.

It’s more complicated than you think.

Saul

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Saul, many thanks for your interest.

My proposal is to sell if the price goes below 10% of the ‘purchase price’, not the then price. To the best of my reading of the charts the price of the stocks other than the four I mentioned did not fall below 10% of the ‘purchase price’ and were not therefore sold.

I will accept that there could be cases where a stock hits the proposed sale criterion in the middle of the year but at the end of the year shows positive gain. In such a case one has to sell it at that time. However, please note that the sale proceeds are to be immediately used to buy additional shares of the three best performing stocks at the time. It just happens that this situation did not arise for the stocks in the mock portfolio.

I should also add that I did acknowledge in my original post that the procedure may lead to a portfolio consisting of a much smaller number of stocks than at the beginning. Perhaps there should be a provision to add new stocks in the portfolio in the middle of the year if that happens, but it is difficult to foresee this.

Cheers.

1 Like