No. of Recommendations: 10
I hope this is not out of place.
Out of curiosity I created the following hypothetical portfolio with 13 of the 15 stocks Saul had in January 2016. I assumed the positions to have equal weight and were bought exactly one year ago. None of the stocks were sold.

The return works out to be 2.31% ignoring tiny dividends on SWKS, INBK and CASY. This is close to what Saul's actual p/f achieved.

For simplicity, let us assume we had a rule that when the price of a stock goes below 5% of the purchase price it would be sold. If this cash was not reinvested then assuming the loss as 5% for the three stocks marked with (*) the return works out to be 10.0%.

We could have done even better if we employed this cash (or part of it) for buying additional shares of, say, the then three top ranking stocks, although this would have reduced the number of positions in the portfolio.

I would be interested to have your comments, critical or otherwise.

Cheers.
alpha
.......
Ticker Symbol 1 yr Return (%) (1/6/17)
AMZN 25.82
LGIH 31.57
SKX -13.3*
SWKS 8.4
INFN -48.36*
INBK 8.66
CASY -0.85
SEDG -52.8*
CBM 28.95
CELG 2.51
CYBR 15.06
SNCR 25.82
AMBA -1.43

Eq Wt Return. (13 posn.) 2.31%
..................................
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Sorry, the subject was meant to read,"Hypothetical No-tinker P/F with Saul's Jan 2016 Stocks."
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Alphab,

I'm certainly not against analysis, but the following just seems completely unrealistic in almost any portfolio, let alone one geared toward growth and smaller cap companies.

For simplicity, let us assume we had a rule that when the price of a stock goes below 5% of the purchase price it would be sold.

I think the above criteria really hurts the analysis.

Regards,
A.J.
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Hi Alpha, that's an interesting thought piece and should provoke some discussion. Part of the trouble would be that it isn't so simple. For example, I would have been out of all of the big three winners before the year started (AMZN, LGIH, SNCR) because all of them had fallen more than 5% from when I actually bought them before they took off.

Saul
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Thanks.

I used 5% as an illustration. One may set it at 10% , 15% or some other figure if the nature of the stock so dictates. For this hypothetical portfolio setting it at 10% for all stocks will reduce the gain by about 1.2%. A 15% limit will make the gain about 7.7%.

This is obviously an approach which will limit one's losses when a stock eventually experiences a 'large' fall. In some situations (such as those mentioned by Saul) one may miss a subsequent gain in the stock price but if we can 'anticipate' this then there would no need to sell, that is, put the limit for this stock at a higher percentage. This is a case of balancing the risk with gain.

It seems to me the real advantage is that it may make management of even a growth stocks portfolio somewhat easier.

Cheers.
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I think the above criteria really hurts the analysis.

I was going to comment that the short and arbitrary time frame also made it largely irrelevant, but you make a good point that the nature of many of these companies means that one should expect significant price variation. In particular, it is very non-Saul to arbitrarily sell a company for such a small price decline if the business analysis itself still holds. Conversely, it is quite appropriate to sell a stock that is up, if the business thesis no longer holds.
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No. of Recommendations: 5
I hope this is not out of place.

It is if you consider Saul an investor. In the market there are investors and there are traders or speculators. I haven't got anything against either group. I do both at various times and with different securities. At five or ten or at any other number what you are talking about is a stop loss order which is a trader's tool, not an investor's tool.

Peter Lynch advises to sell when the story changes or when you realize that you made a mistake. Philip Fisher in Common Stocks and Uncommon Profits essentially says to give your stocks a chance to prove themselves, don't sell in a short term panic.

Denny Schlesinger



Common Stocks and Uncommon Profits and Other Writings 2nd Edition by Philip A. Fisher, Kenneth L. Fisher (Introduction)

https://www.amazon.com/Common-Stocks-Uncommon-Profits-Writin...
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Philip Fisher in Common Stocks and Uncommon Profits

Is everything worthwhile learned from a book? I suspect not, else there would be myriad folk astute enough to grasp most everything read and relate it to vast riches.

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

Take care,
A.J.
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What a sobering analysis of Saul who is probably one of the all time best stock pickers on here.
My index funds are doing well.
My three single stock accounts 2 are down 75% one is down 30% in the last two years
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Hi Alphab:

In the past few days you have made attempts to run Saul's and my portfolios, through a strict set of guidelines seeking a formula to how each works. I'm glad you didn't actually compare us because there is no doubt in my mind that Saul's portfolio is superior to mine both in performance and length of time it has performed. I believe portfolios are individual and the results are based on how we individually react to the market volatility at all times.

Maybe it might help if you set your portfolio up with similar standards and see how the numbers come out opposed to actually what your portfolio actually did. You might find ways to make your personal portfolio perform better for you by a little tweak here and there. You will be dealing with a collection of stocks that you are more familiar with, and you like them because you bought them in the first place

b&w
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No. of Recommendations: 19
Is everything worthwhile learned from a book?

You could teach yourself golf, pottery or snooker without ever referring to a book or seeking tuition.

But you would be working under a terrible handicap and your chances of success would be small.

Anyone hoping for success as an investor should at the very least be familiar with the ideas of Lynch, Fisher and Buffett.

Then If you decide upon a different approach, at least it is a concious decision made with knowledge.

Investing approaches that work have been studied and written about extensively. But time and time again I come across novice investors looking for 'get rich quick' ideas all over the place, without ever finding the time to study the basic, classic texts.

If you follow Saul's success with an understanding of Lynch et al, you will find resonances with many of their well-established methods.

This can be a great help in understanding the process.

Saul often explains that you should not copy what he does, but learn from his approach.

This is great advice. The more great investors that you study, the more informed that your process will be.

Ian
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Saul often explains that you should not copy what he does, but learn from his approach.


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?

Saul provides monthly detailed updates. A complete X-Ray of his holdings down to percentage of holdings. Sometimes he will even tell you about mid-month buy/sell as he did just this week (adding SQ and HDP). What else do you need to know?

Statistically speaking, you are only lagging him by two weeks on average. Since he is not a day-trader, your portfolio is going to match his pretty closely. His top 4 holdings have not changed in 6 months.

That two week lag could actually work to your advantage when Saul buys or sells too early. Your relative wins and losses (vs Saul) will cancel each other out.

So why don't you copy Saul 100%?

#6
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#6
Yes, obviously you are correct in your statements, but that isn't the point of this. By copying, you are lowering your goals from what you can obtain from a rich resource. Saul has said it himself. What are you going to do when he stops posting? If you just copy now I guarantee you are not learning by doing because you are not seeing how you react when you have to make the decisions. It's the age old adage, "Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime."

Maybe Saul should go back to only sharing monthly.
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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
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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
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No. of Recommendations: 6
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.
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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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No. of Recommendations: 10
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
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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....

:-)
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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
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#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
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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.

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
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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.
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As an alternative to bring the proposal more in line with reality--Why not use your personal portfolio. Using your own guidelines that you proposed you could easily see if the system you propose would have improved or hindered your portfolio performance in 2016, and if so, by how much.

Figures might have more meaning against a true portfolio and the averages for the year.

b&w
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It's more complicated than you think.

Saul


Suppose you have a $20 stock and you place a stop loss at $18.00, that does not guarantee that you get out at $18.00. At $18 the stop loss order becomes a market order and it goes into the sell queue. It could sell at $18, or $16, or $6.

To solve that problem there is the limit stop loss order. Say you set the stop at $18 and the limit at $17. If the stock goes to $16 them your order is not executed.

A wise old broker I used to have recommend "mental" stop loss orders but not real ones.

Denny Schlesinger
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My proposal is to sell if the price goes below 10% of the 'purchase price'

Doesn't that introduce the dreaded price anchoring thinking and behaviour into the equation - again something that Saul writes about in his strategy and approach?

Ant
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Thanks Ant for your comment.

As we all know there are a great many ideas for investment management and there are volumes of very well known books written by successful investors. In spite of all that we see experienced well paid fund managers delivering poor results time after time. Surely, they have all read these books from cover to cover, again and again!

Clearly, no single method has been established that an investor can follow at least with a high chance of success. Maybe, it cannot be done.

Having followed the discussions on this board almost from its inception and having seen the amount of effort involved in discarding bad stocks and adding new ones, not always with good outcome, I wanted to try a rather simplistic (even elementary) approach myself. In fact I have created a eleven stock growth portfolio and would be monitoring it closely and managing it using the rules I proposed. I am not sure selling a stock when the price is X% below the purchase price is 'price anchoring', but if it is then that can't be helped.

My intention is mainly to beat the S&P 500 growth index. Very much depends on the initial selection of stocks, and I will be heavily relying on the information and suggestions I get on this board. In future years I may look for suggestions from other sources as well.

I will discuss the results of my study at the end of the year.

Cheers.
alpha
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I think the point is, this is an experiment that has been conducted many times over in various themes and variations. There have been backtested against historical data and followed in both real money and virtual portfolios. Periodically, someone comes up with something that sounds good and backtests well for some periods and then falls apart completely over some other prior period. A contributing factor is fitting to historical data even though trends and patterns keep changing, so that which worked at some time in the past fails in the future.

Whatever you set up and whatever results you get over one year will tell you nothing about what will happen 5 or 10 years hence. In a way, the worst outcome will be that it does well this first year and so you dive deeply into it with real money and maybe it even works for a while then, so you begin to deeply believe in it ... only to have your faith and wealth shattered when it fails to work and you fail to act because you now believe in your "system".

Now, I know that you aren't talking that way now, so this might seem harsh, but I am being very blunt because even believing the experiment is worthwhile is starting down this path. The best thing to happen would be if your paper experiment failed miserably.
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Hi Alpha

Whilst I think it is great to have a real world experiment rather than back test with some mechanical rules in place and I certainly don't want to pour cold water on your enthusiasm and efforts; I can't help but think why.

Basically I worry you might be answering a question that no-one is asking and that doesn't survive.

First off - unless they cure ageing (which I guess is a possibility), not Saul or any of us are going to be around forever which means that you won't have his 13 stock starter holdings to work off.

Secondly - if you do find it beats the S&P, great - but we know Saul can beat that anyhow so again what's the point.

Thirdly - if you produce your results the one interesting comparison is whether it beats Saul. So you then have a rule based documented mechanical system with full trade transparency versus Saul's record which does not totally disclose intra month buys and sells, top ups or top slicing so you don't know what you are comparing against and where the delta arises.

I do think Saul has proved over and over a master at ruthlessly culling positions and choosing when to top slide and add to positions. I would be surprised if mechanics could beat that, on the other hand none of us are as good at Saul at this game so we could choose to learn from Saul, build a mechanical system that half captures this or just copy. Copying doesn't help anyone in the long run, however a mechanical system could be an interesting experiment if it was able to capture, codify and improve on key success factors of Saul's investment decisions.

To me the biggest investment decision success drivers that Saul has demonstrated that would be interesting to automate might be:
1) Which stocks to buy, why and when
2) Which stocks not to buy and why
3) When and whether to add to holdings
4) When to sell and why
Saul already has some other disciplines/rules on: always staying fully invested, avoiding Chinese stocks etc, what kind of instruments to own.

I'm not sure your mechanical system would help on those. I think the 1PEG metric is a start on the first and second
It seems to me that experience, psychology and judgment drive the rest which is hard to capture in a quant/mechanical system.

If you were to experiment with mechanical rules that helped with some of these questions it might be very interesting.

All the best.

Cheers
Ant
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Thanks all.

I don't mind being given blunt advice.

I don't expect to match Saul's results over a length of time nor is it the intention. Doing substantially better than the index is the objective. Anyway, I don't think anyone exactly knows that saul's method is. So, I will try my method and learn from experience.

I totally agree with the top items in Ant's list, namely, it is of utmost importance to choose the right stocks, to buy them at the right price and discard them when the story changes. These are the most difficult parts of any portfolio management.

I will certainly keep all these in mind.

Cheers. See you at the end of the year.
alpha
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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.

alpha - it sounds like you might be manually back-testing the data. Just thought I'd share for those who like to back-test - you may want to try PastStat.com.

It searches back for the last 4 years of market data and reports how the back-test did. I have no experience with it as it wants a login after 5 uses, but thought it might be useful to others.
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A long time back, I investigated a "Boiling Frog Syndrome" rule as way to avoid getting stuck in lousy stocks. My thesis at the time was that much of the time a bad stock will slowly decline in price without being noticed, and then all of a sudden that comfortable warm water is too hot.

This doesn't work in all cases. The question was (and I guess is), given a set of stocks that meet certain criteria in terms of financials and growth expectations, would it work enough of the time to be a winning strategy? Can we alert the frog to jump out with second degree burns before he's a culinary delicacy?

We all know that one of the key's to Saul's success is that he continuously evaluates the long term expectations for his stocks, and isn't afraid to reduce his allocation or get out completely if he feels the long term case is broken. Strikes me that what is going on here is trying to algorithm-itize that to dump you out of a stock before it gets even worse.

Back testing is probably the best way to see if this kind of logic has merit. The obvious problem is that if you set the limit too close, you'll sell out of stocks that are taking a breather before their next (big) rise. Look at NVIDIA's action late last year, for instance. But, not close enough and it's too late anyway.

I ended up getting distracted by other things and so never really followed through. I also couldn't find an easy way to back-test various theories of mine far enough back. So data and equation flexibility are needed.
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We all know that one of the key's to Saul's success is that he continuously evaluates the long term expectations for his stocks, and isn't afraid to reduce his allocation or get out completely if he feels the long term case is broken. Strikes me that what is going on here is trying to algorithm-itize that to dump you out of a stock before it gets even worse.

Smorg,

As another who is greatly interested in Saul's secret sauce, I have thought about the various determinants of his success a lot too. I think he's very good at selling before the bottom, but I think that's probably the least important of his many skills as an investor when it comes to actually driving returns.

I don't think what's going on here is any "algorithm-itizing" of selling before the bottom. As you said, when Saul closes a position it's usually based on a change he sees (often before others) in the long term thesis, not due to any reaction to price drop alone. In fact, price drops of the exact same magnitude can cause him to in some instances sell, and in others, buy more.

Rather, the main benefit of selling is that he can then use the proceeds toward a winning investment. These winners are the real secret sauce. Selling is just a bump along the way, and Saul's redirections are usually small. I'm sure Saul doesn't sweat selling out of MITK, TEAM, CYBR, PYPL, LOGM or any of his other tiny to small positions for one second. That's just part of finding good companies. Now, he can correct me if I'm wrong, if he cares to, but my guess would be that selling out of INFN or SWKS or SKX over a longer period of time actually feels like more of a defeat, because:

1) He had so much invested that could have been put to better use

2) He lost a lot with any drop because he had a lot invested

3) His confidence was high in these positions, so it was all the more frustrating when the theses changed

Obviously I'm not Saul, so I'm not really trying to speak for him. I'm just trying, as I said, to discover the real secret sauce that has worked so well for him. In the year or so that I've been examining my portfolio like he does, my experience is that selling is no big deal. Sure if Saul gets out earlier than most and saves a few bucks that's great. But that's not what supercharges his returns. If selling were the key, Saul would have had a crackerjack 2016, because he got out of many things that fell much further later (INFN and RUBI esp come to mind). No, the secret sauce is that over the years he's found excellent places to put his money. AND, then he allocates the most money to the stuff which he identifies as likely to win the most, and/or is likely to lose the least, etc. That should not be glossed over. An equal weight portfolio (as some have discussed) cannot compete with Saul's approach. This is why he can crush the indexes in "market up years" and still beat them (or even make money outright) in "market down years." My favorite days are not when the Russell is up 1% and I'm up 2%. They're when the Russell is down 1% and I'm up 1%. That's when you know you're doing something right.

In summary, it's not when you sell, but how you allocate your money moving forward that matters.

Bear
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Bear,

We're just going to have to disagree on almost everything, sorry.

For starters, this thread is about an algorithm for selling. See the post to which I responded, postulating a 5% or 10% threshold.

For enders, when you sell does matter, as it determines how much you have to redeploy.

And there's a whole bunch of other stuff in the middle as well, but I don't want to sidetrack this thread any more.
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As another who is greatly interested in Saul's secret sauce, I have thought about the various determinants of his success a lot too. I think he's very good at selling before the bottom, but I think that's probably the least important of his many skills as an investor when it comes to actually driving returns....


Thanks Bear, excellent analysis. I can't say that I strongly disagree with anything you wrote about what I do.

Best,

Saul
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Alpha,

As a new member to the board I can say thanks for stimulating such a knowledge filled interesting thread.
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Thank you Eyelise.

alpha
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