jmp8822

Also, don't forget if you have a pretax account, and the interest rate is say 6%, there is a tax disadvantage on the interest. The 6% you pay back is after tax money, which then if taxed again when you withdraw it later. This would be very expensive if you are in the top bracket, whereas other loans might have an interest deduction in the first place, rather than double taxation on the interest.

There is a lot of talk here of supply being reduced and oil rebounding, but wouldn't that just bring a bunch of supply back on line? Just because it is currently off the market doesn't mean that the excess supply doesn't exist. Wouldn't demand have to pick up drastically to raise the prices significantly for more than a short amount of time? Or is this a simplistic view? I'm not sure I understand the oil market all that well. Theoretically, the price should rise to the marginal cost of producing the last barrel of oil that the market demands. The price of producing that 93rd millionth barrel for that highest cost producer in my opinion is closer to $80 per barrel than $30 per barrel. The current price seems to be a medium-term side effect of oil that was $100+ per barrel. Drilling and investment from earlier price assumptions drove the oversupply, while today's prices might be pushing the market toward a deficit. The 'correct' price though should be the cost of that last barrel of oil.

There's no logical reason to waste energy via emotions on what should or should not be. I have my large position and will wait for the results, all the while sparing myself (as best as I can) from the emotional torture that most investors/traders willingly subject themselves to. I'm trying to be stoic as well. It's been hard not to increase my position with the new flow of information and the massive drop in price, but I was probably already over-allocated given the risk and will still make out handsomely if we're right so I just sit and wait.... Could someone give me a one paragraph explanation of what is going on with the lawsuit? I haven't been following at all and was hoping to get a short summary of the investment opportunity vs. risks. I.e. the court will decide if the preferred will be made whole or not in the next few months/years? For example, what Berkowitz owns might be worth $25+ soon instead of $3, or likely $0 if the court decides against ? Thanks for being patient with me.

Do you think today's price is sustainable long-term? If not, what do you think is the marginal cost of the last million barrels of oil in today's dollars? Wasn't sure if you were suggesting today's price is "correct" or just throwing this out as a random data point.

Cardboard - Thanks for your posts in this thread. I find them informative.

That is a very interesting question. Of all stocks in the universe, I think I would rather own a portfolio of only top investors' holdings, defined by their historical results, rather than a portfolio of all the stocks in the universe, excluding all top investor's holdings. In other words, I would rather own the average of the best, rather than the average of what they chose not to buy. The bias of being driven to top investors picks, I would guess, should improve your average results, not decrease your average return. The well-documented behavioral biases of being disconnected or distant from why you are buying the stock could potentially become a big issue. It seems like the better you are behaviorally, the better the cloning strategy should work. But, if you don't have a solid understanding of the value of the business, how would you decide when to buy and sell? Valuation work and behavior are what produces great long-term results - top investors can lead us to the fish in a very large pond. Your skills will drive the rest.

You fool yourself when you think that way. See it as 50% of your net-worth in call options and then ask yourself if this is a prudent thing to do. 2 full losses after one another will wipe out 75%, after 3 you start from 12.5% of your net-worth again. According to Kelly formula you can be sure to over-bet in most scenarios with this allocation. When you do it with 25% you are closer to the optimal bet, but i am pretty sure that these 100% returns are not achievable that way. 10 stocks diversified over different countries and truly different businesses is safer, because what counts is the permanent loss of your money not the volatility. Would you invest 50% of your net worth in call options? I think we can both agree that a deep in the money call options are much different than out of the money call options. That is a misleading question, a scare-tactic type of question, aimed at people who don't easily understand how options work. That said, would I consider it? I would consider any position in relation to the estimated risk of loss. It sounds like you think a 50% loss is too much - no problem - I agree that is a lot to lose (although everyone who owns stocks un-hedged is currently taking that risk). How about you buy the put strike at a 30% loss? 20% loss? The idea is simple - if you have lots of great ideas and can keep the running estimated value, certainly buy all of them. You likely would have a great result. If you don't have lots of great ideas, in relation to each other, it might be cheaper and less risk to the future value of your portfolio to own just one idea, with a put option that protects the amount you are willing to lose. This conversation isn't for the person trying to make 15% per year. That person might find lots of stocks with 30% estimated upside, buy the basket, and do well over time. Or you might find one or two stocks with 100% estimated upside (50% discount), while all the others now appear much more expensive with 30% estimated upside. Why would you take on the opportunity cost of buying all the other stocks with 30% upside, when you could certainly be wrong on those as well, and they are the riskier stocks? We can choose to hold cash, buy puts, and diversify. Opportunity cost is real - just as real as the money I can lose in worst case scenarios. "Just like a young man coming in for a quickie.... You must feel proud and good. Strong enough to beat the world." - Teddy KGB Great movie - which part do you disagree with most?

Gave them earlier I believe: AIG, BAC, GNW, IDT correct jmp? That's correct.

Warren Buffet eat your heart out... This thread reminds me of the childrens story the tortoise and the hare, clearly the hare is jmp8822, but we all know the tortoise (value investing, patience and long term results) wins eventually. But you can't tell the hare that, he's going to fast. Like those guys on the Sears thread who put the majority of their wealth into that stock I truly get concerned about investors who are so confident in their own abilities that they risk blowing up. I'm not against concentrating, I strongly believe in it when one has the ability to influence the outcome. Putting 100% of your wealth, or 200% of your wealth into your own business is alright in my book. Putting 100% or even 80% of your portfolio into a company that you have no control over is foolish. Some learn from the mistakes of others, some need to learn from their own mistakes. Forgive me for upsetting you - I was hoping we could have a conversation without the attacks. I've been around here long enough to see a number of posters similar to yourself come and go. People will come on and claim they have this incredible market beating strategy and they're so much smarter than everyone else. Then suddenly they disappear to never be heard from again. When I read your posts they sound very similar to that pattern. Maybe you're different, I have no idea. But if it quacks like a duck, walks like a duck, and looks like a duck... Sorry if I gave you the vibe I thought I was smarter than you - I've read your blog before and have respect for your work.

Warren Buffet eat your heart out... This thread reminds me of the childrens story the tortoise and the hare, clearly the hare is jmp8822, but we all know the tortoise (value investing, patience and long term results) wins eventually. But you can't tell the hare that, he's going to fast. Like those guys on the Sears thread who put the majority of their wealth into that stock I truly get concerned about investors who are so confident in their own abilities that they risk blowing up. I'm not against concentrating, I strongly believe in it when one has the ability to influence the outcome. Putting 100% of your wealth, or 200% of your wealth into your own business is alright in my book. Putting 100% or even 80% of your portfolio into a company that you have no control over is foolish. Some learn from the mistakes of others, some need to learn from their own mistakes. Forgive me for upsetting you - I was hoping we could have a conversation without the attacks.

I agree 15% is a great result - if I actually believed I would make 15% compounded over time, I would not invest myself. I would send my money to a value investor that I thought could achieve that.

20s - 8x annual income.

You fool yourself when you think that way. See it as 50% of your net-worth in call options and then ask yourself if this is a prudent thing to do. 2 full losses after one another will wipe out 75%, after 3 you start from 12.5% of your net-worth again. According to Kelly formula you can be sure to over-bet in most scenarios with this allocation. When you do it with 25% you are closer to the optimal bet, but i am pretty sure that these 100% returns are not achievable that way. 10 stocks diversified over different countries and truly different businesses is safer, because what counts is the permanent loss of your money not the volatility. Would you invest 50% of your net worth in call options? I think we can both agree that a deep in the money call options are much different than out of the money call options. That is a misleading question, a scare-tactic type of question, aimed at people who don't easily understand how options work. That said, would I consider it? I would consider any position in relation to the estimated risk of loss. It sounds like you think a 50% loss is too much - no problem - I agree that is a lot to lose (although everyone who owns stocks un-hedged is currently taking that risk). How about you buy the put strike at a 30% loss? 20% loss? The idea is simple - if you have lots of great ideas and can keep the running estimated value, certainly buy all of them. You likely would have a great result. If you don't have lots of great ideas, in relation to each other, it might be cheaper and less risk to the future value of your portfolio to own just one idea, with a put option that protects the amount you are willing to lose. This conversation isn't for the person trying to make 15% per year. That person might find lots of stocks with 30% estimated upside, buy the basket, and do well over time. Or you might find one or two stocks with 100% estimated upside (50% discount), while all the others now appear much more expensive with 30% estimated upside. Why would you take on the opportunity cost of buying all the other stocks with 30% upside, when you could certainly be wrong on those as well, and they are the riskier stocks? We can choose to hold cash, buy puts, and diversify. Opportunity cost is real - just as real as the money I can lose in worst case scenarios.

Following-up with the mrholty post (thanks for sharing your story) and discussion following hopefully for everyone's benefit: I am a concentrated investor and plan to continue to be in the future, whether that means 1-2 positions with options protection, or 5-plus positions, perhaps with less options protection. I would not be concentrated (or pick stocks myself at all) if I didn't think I could pick stocks that will generate high absolute compounded rates of return. Diversification is a great friend to the average stock picker for clearly defined reasons - one in particular - diversification randomizes errors. In contrast, the better you are at estimating company values, the better your long-term compounded results should be. I would prefer to own 10-plus stocks with a similar upside expectation, but in practice I haven't been able to do that. Unfortunately, all of us can easily be fooled by our true stock picking ability. Defining the amount of skill versus luck in results is difficult. Hopefully to clear the air somewhat - this is a spectrum - you have the power in advance to play through worst-case scenarios in your head, define what the risks of concentration look like, and then act to protect them if you wish. You can ask yourself, do I want to buy one stock with no put option? For most of us, our next thought would be, "no because my net worth could be wiped out due to accounting fraud, etc.". That's a good thought to have. My next thought would be, what are my alternatives to holding one stock with no put option? I can buy a put option to control my losses at a given strike price if I would like to, I can hold cash, or I can diversify. Sometimes put options are prohibitively expensive or unavailable - depending on how convicted you were about the thesis, you could skip that idea or size it smaller due to the absolute downside risk of having no put protection. Can one stock with a put be less risky than owing 10 stocks? I would answer definitely yes. The more stocks you add, if you are a good stock picker, the more opportunity cost you add to your portfolio. The 5% it costs you to buy a put on your one-two-three best ideas might be much cheaper than the 20% hypothetical opportunity cost of adding your next seven to nine best ideas to your portfolio. You must be okay being wrong from time to time, always keeping in mind what is your absolute dollar-value downside risk, assessing whether or not you are okay with your exposure.

I definitely agree - I would much rather be diversified across four stocks if I was indifferent to the estimated upside/downside risk for some of the reasons you are mentioning. It depends how rare you consider your good ideas, and the discrepancy between the estimated upside versus the cost of the put. The greater the estimated upside discrepancy between your best ideas, the more likely you might be to skip the next best idea and buy a put on the single stock instead. At that point you are trying to limit the expected opportunity cost, which may be more expensive than the put (or maybe not, as you accurately suggested, if you have four somewhat equal ideas).

Whats your current pick? I am about 90% in cash right now - 10% in PWE. I wouldn't use the 50% put strategy with PWE due to an estimated higher than average possibility of permanent capital loss (commodity risk plus debt). Some far out of the money LEAP calls could be interesting on PWE. I am 90% in cash for personal reasons for the next month or so (unrelated to the market, although it has been tough to find ideas), but might buy a to be determined O&G services stock once I am fully invested again. I don't have a great idea right now.

I agree that there are vast uncertainties with individual stocks - black swans, etc. That's why you would try to protect against these through a combination of diversification and/or put protection. If I were to be very diversified it would be at the expense of upside just to gain some sense of downside security, while I might not even be doing a good job of protecting against losses. The question I would ask back is how much are you willing to lose? Buy a put to protect the amount below that. Did it cost something? Absolutely - but it is easy to see the cost of the put - it is hard to see the opportunity cost. But they are both worth a dollar, whether you can see it today or not. You eliminated some major risks by buying the put, namely a good portion of individual stock risk to protect against the black swan and some amount of market risk (the market risk could also be the black swan) at the same time. I used to think about buying puts on the S&P 500, but I have never done it because I would much rather pay a higher premium and actually protect what I own. I could own puts on the S&P 500 and still get hammered just because I picked the wrong stock, while the market didn't go down. Someone in this thread said that you are in effect just owing a LEAP call on the stock, for example 50% in a deep in the money call and 50% in cash. That is precisely the point. You have the protection of a cash-like cushion by owning the stock+put (because it is the same mathematically as owing the call+cash at the same strike). If you are a basket stock picker, i.e. 50 low P/E stocks, etc., this of course doesn't apply. But if you are trying to value businesses, you must be making implied upside/downside estimates of some kind, otherwise you haven't come up with a valuation in the first place. I can't even imagine being indifferent between 20 stock ideas - that would tell me I had no idea how to value a stock or needed to keep looking for better ideas. But, if you are relatively indifferent between four stock ideas, by all means, buy all four to reduce your individual stock risk. But if you had two ideas, one with 80% estimated upside, and another with 20% estimated upside, I would absolutely rather own 100% of the estimated 80% upside stock, with put protection on that position. This is where the opportunity cost becomes the most clear - the opportunity cost if I was right on both ideas is 30% minus the cost of the put (owning the two stocks at 50/50 give me a 50% net return instead of 80% minus put costs). Will the 80% idea always work? Of course not - but I would rather own the put and give myself a chance to make the 80%. I would estimate that the put is much cheaper than the opportunity cost, on average, if there is wide variation between the estimated upside of your ideas. If you have 5-10 great ideas at a time - go for all of them - you are likely taking less risk by owning all of them. I just struggle to find 5-10 great ideas that I am comfortable with.

Congratulations on your spectacular returns, and thanks for taking the time to outline your thinking in detail, which, to a wide diversifier like me I find quite fascinating and original. Does the Kelly Criterion fit at all in your thinking? Take the simple-minded form x = [P x upside - (1 - P)]/upside, where x is percentage of portfolio. If I were a concentrator, I'd be conservative and take P = .5. If I found a stock that I thought could double in a year (upside = 2), the Kelly formula would allocate no more than 25% to this stock. If I were more confident, say P = .6, this single stock would still be no more than 40% of my portfolio. Is it the put option that gives you the confidence to think 100% probability of success to your single pick, in addition to your application of valuation principles? I'm also interested in knowing whether these Kelly ideas were in your thinking 7 years ago, or whether it figured not at all in your process. Either way, it's fascinating. I don't use the Kelly Formula, but do like the direction it points. To someone who owns 50 stocks, I would ask, what is the downside risk of your portfolio in a market crash? 40% or 50% or more? Being diversified did not save you from a dramatic portfolio loss, while your estimated upside becomes much more average due to the diversification. The more stocks I add to my portfolio, the lower the average conviction of my portfolio becomes. In other words, if I bought my 8th favorite idea, by definition I don't feel as good about my 8th best idea as my 7th. Thus I lowered estimated portfolio return because I was trying to lower individual stock risk, but I did not reduce market risk. Also, I expect my highest conviction (1st) idea would actually have a worse average return because I would be thinking about the other ideas all the time as well. I believe this would distract my thoughts enough that I would make more mistakes. The more focused my thinking, the less likely I become to sell a loser just because it went down, or buy some of my 6th best idea just because it went up. I would quickly lose track of when I was actually wrong versus the market just disagreeing with me. I only have so much emotional capital, and being wrong once is much easier than being wrong six out of eight times. The two winners out of eight would not be much consolation to me. The put option key. I would own one or two stocks with catastrophic put protection in-place in order to take less total risk than owning 50 stocks, not more. I define risk as having less money five or ten years later than I should have had based on the risk of opportunity cost, market risk, and individual stock risk. For almost everyone, I would expect a put at a 50% loss strike price, or somewhere in that range, would be a necessity if you only own one stock. To be clear, you can control your losses with the put, which prevents you from "blowing-up" as people like to say. But again, if you own 50 stocks you could lose 50% in a market crash anyway. Owning one stock, if you picked a good one, might also lose less than the market as a whole, for example 30%, whereas 50 stocks would likely be within a few percent of the 50% loss of the index. If I have valued a business properly and only own that one stock, I very well could being taking less net risk on average after factoring in the opportunity cost. The put prevents the "blow-up", while still allowing your best ideas to compound your capital.

1) I think of position sizing in relation to the opportunity cost of the diversification. If I have two stock ideas that have similar return profiles, estimated 50% upside over 12 months, for example, buying those two stocks would be better than just one. I gain the diversifying nature of two stocks instead of one, but I haven't added any opportunity cost. If I had two different stock ideas, the first had an estimated 80% upside over 12 months, the second had an estimated 20% upside over 12 months, my net is a 50% gain if I'm right on both ideas. If I'm right on both stocks my realized opportunity cost is the difference between a 50% average gain (half of portfolio +20%, half of portfolio +80%) and an 80% gain if I had bought just the stock that gained 80%. This cost is very real - starting with $100k 12 months ago, I now have $150k instead of $180k. In other words, I would have physically lost $30k by not allocating the whole portfolio toward the stock that increased 80%. But what about the added risk? The riskier stock is the one I expect to go up 20%, not the one I expect to rise 80%. The reason is because I am buying the 20% returning stock at a 17% discount (the inverse of 1+20%) and the 80% returning stock at a 45% discount (the inverse of 1+80%). You can buy a put for catastrophic individual stock risk, and avoid the extraordinary unseen risk of the opportunity cost. You can physically lose the $30k in our example and overlook it because your account statements never reflect what you should have had. When you lose money you already have, you will notice. However, one dollar of opportunity cost is worth the same amount as a dollar currently sitting in your brokerage account. I think of trimming positions in relation to any new ideas and the taxes as well. When a stock gets near fair value I get nervous because that means I have more to lose with no expected gains remaining. If I was a couple months from long-term gains I would likely wait, but if a stock was near estimated fair value within say four months after I bought it, I would likely sell it and absorb the short-term tax. Lost potential gains on your next best undervalued idea factor into the discussion, and how large you estimate the discrepancy to be. Another way to think of it is how long, on average, will it take me to make up the forfeited capital due to the tax. 2) I look for a catalyst yes, but somewhat indirectly, meaning I first focus on estimated compounded return, which forces you to estimate a time frame. For example, an 80% total return over two years, (which is obviously a great nominal result) is a dramatically worse long-term compounded result than 60% per year. The shorter time frame catalysts are desirable for a few reasons. First, I wouldn't call myself good at figuring out what great businesses looks like. The longer I have to hold a stock, the more risk I am taking that a business will deteriorate without recognizing the probability up-front. The so-called catalysts I have had the most success with were financial statement related. People hate companies that are losing money or doing poorly, uncertainty, etc. I'm trying to buy something where the value/earnings are already there, but hazy for the moment. A company spinning off a money-losing business would be a 'hard catalyst', but management closing the segment would have the same effect after the losses were gone. Catalysts are almost a necessity for me because without one, I would have lots of trouble estimating a compounded return. They come in different forms though. 3) Yes - paying a couple percent or so for a year of 50% downside protection could be reasonable if you had one idea you liked much more than your other ideas. The key to the put being relatively cheap is demanding that the stock has lots of upside, otherwise 2-3% is quite expensive. Meaning your results after buying a bunch of stocks that you thought would rise 15% all with a 3% put premium at a 50% loss strike would probably ruin your results without eliminating much risk. But buying a stock you think will rise 80% in one year can make up for the cost of the put, and allow you to feel okay about taking on the individual stock risk to offset the risk of opportunity cost. How much to pay and which strike price to buy is far from an exact science, at least from my standpoint. For instance if it is January 2009 I wouldn't be that interested in paying the high volatility premiums, but today you might find a cheap put even though multiples are somewhat high. 4) I have not become more diversified because of the discussion regarding opportunity cost - I expect to become more diversified when I cannot buy as much of a stock as I would like. 5) I owned IDT in early 2008 at $5/share and held it to an 80% loss. As that was happening, I sold some other stocks at a smaller loss and averaged down to a $2.75/share cost and sold it after a two-year holding period for $14. That was the only stock I held during the crash. The first stock I owned was before that, from late 2007 to early 2008 that I sold for a 60% gain - it was a biotech. I consider buying that stock a mistake. Thankfully the result was good. I moved into financials about a year or so after I sold IDT in 2010. I bought a few spinoffs in the middle. 6) Anything with 10x potential upside is intriguing. Short of a market crash environment, I would question the probabilities involved. Meaning 10x in five years is interesting of course, but I would probably whiff. 10x in one or two years I would definitely buy if I could find reasonably priced options to own. I think I am much more likely to be wrong about one five-year prediction instead of the average of five one-year predictions/valuations. The farther out my analysis goes, the more wrong I become. This goes back to why I attempt to minimize any business projections, instead buying a stock that appears to be undervalued based on a multiple of today's earnings, or a conservative estimate of next year's less-hazy earnings, rather than a 20-year net present value or something like that. The catalyst being what will make the earnings more blatantly obvious, which ideally would force the market to revalue the stock.

Buy a put to protect the downside - the put to protect against a greater than 50% loss is relatively cheap. You will never be trying to compund money from scratch in that scenario. If a 50% loss is too much, buy the put closer to today's stock price. The relative nature of the currently available ideas you have matters. I would very rarely be indifferent between ideas. As in, XYZ has an estimated 80% upside in 12 months, ABC has 40% upside estimated. Spend the money to buy the put and gain an extra ~20% net after put cost. That one stock+put portfolio might also decline less than the market itself in a market crash. Potentially lower downside and more concentrated upside. Only risk the amount you are willing to watch go to zero, but don't forget that a put can be very useful against protecting individual stock risk and market risk at the same time. You can have effectively have approximately 95% of the upside of one stock that you strongly expect to rise, with a maximum loss of 50% by using the put. I expect I would have better results doing that, rather than buying another stock without any puts, just to diversify my risk. I would not feel safe owning 20 stocks - I would feel a sense of no control over the upside, with a market crash still hammering my results.

I am not trying to make an extra 20% per year necessarily, I aim for about 60%-plus annual returns as an arbitrary target. The only way I know of to make that much is to be concentrated (and in the money puts on one stock can be less volatility and provide more downside protection than owning the S&P 500 unhedged in some market environments). Not making 60% when you should is extremely expensive - the money you should have based on your results is just as real as the money you lose when your portfolio declines in value. Having very high return expectations is my way of defining margin of safety - I use an inverted version in my head. If my arbitrary target was 100%, that suggests I need to buy something at 50-cents on the dollar. In other words, the more money I think I will make, that suggests I am taking less risk, not more. Expecting the return in 12 months is the catalyst, versus just buying something cheap and hoping it goes up. Don't buy BAC if that's not your stock, pick the one you are most confident will go up soon. But I try to think in a very focused manner rather than spreading money over 30 stocks with 20% implied upside. It feels safer to me.

I think you could call it partly differences in risk tolerance, but I've run very concentrated for about 7.5 years at 65%. But for instance this year I was a -10% vote. The way I look at it, if I'm not willing to put 50 or 100% of my money in a position I shouldn't be buying it anyway. You can buy a put to protect your downside while avoiding potentially devastating opportunity cost of not being concentrated - again becomes a risk tolerance question. Adding another 10 stocks would certainly not help my total performance and probably add some terrible emotional mistakes, and analysis oversights. Having read your some of your ideas, you could probably buy the best 3 or 4 a year with great long-term results if you don't mind being one of the poor votes on the poll every once and awhile. Wait, you had a 65% CAGR over 7.5 years? Curious how you achieved that. Yes - first stock I ever bought was mid 2007. Looking back, some of the most successful return-wise stocks were sum of the parts valuation discrepancies with a catalyst. Concentrated - generally one or two stocks at a time, averaging about a one-year holding period. Perhaps a bit cliché, but I have bought things that looked cheap and were doing something that made it more obvious to the market. A few more recent examples: Genworth mortgage insurance book improving, which made the consolidated financials look better last year - that was a double. Bank of America financials naturally improving after losses subsided. IDT improving after/during the crash - they were closing unprofitable business segments - made about 5x over two years my average cost. 65% a year for the past 7.5 years is crazy. If you started with anything more than $20k you're well into the millions now, a rare feat indeed. Nice job, you've had quite a run. Do you think the strategy scales at size? I guess it depends on the definition of size - up to $50+ million I think it would still work, with diminishing results afterward. Most of the companies that drove those results were not that small. Bank of America, Genworth, AIG, etc. In fact, my worst single result was from a lower liquidity microcap.

I think you could call it partly differences in risk tolerance, but I've run very concentrated for about 7.5 years at 65%. But for instance this year I was a -10% vote. The way I look at it, if I'm not willing to put 50 or 100% of my money in a position I shouldn't be buying it anyway. You can buy a put to protect your downside while avoiding potentially devastating opportunity cost of not being concentrated - again becomes a risk tolerance question. Adding another 10 stocks would certainly not help my total performance and probably add some terrible emotional mistakes, and analysis oversights. Having read your some of your ideas, you could probably buy the best 3 or 4 a year with great long-term results if you don't mind being one of the poor votes on the poll every once and awhile. Wait, you had a 65% CAGR over 7.5 years? Curious how you achieved that. Yes - first stock I ever bought was mid 2007. Looking back, some of the most successful return-wise stocks were sum of the parts valuation discrepancies with a catalyst. Concentrated - generally one or two stocks at a time, averaging about a one-year holding period. Perhaps a bit cliché, but I have bought things that looked cheap and were doing something that made it more obvious to the market. A few more recent examples: Genworth mortgage insurance book improving, which made the consolidated financials look better last year - that was a double. Bank of America financials naturally improving after losses subsided. IDT improving after/during the crash - they were closing unprofitable business segments - made about 5x over two years my average cost.

I think you could call it partly differences in risk tolerance, but I've run very concentrated for about 7.5 years at 65%. But for instance this year I was a -10% vote. The way I look at it, if I'm not willing to put 50 or 100% of my money in a position I shouldn't be buying it anyway. You can buy a put to protect your downside while avoiding potentially devastating opportunity cost of not being concentrated - again becomes a risk tolerance question. Adding another 10 stocks would certainly not help my total performance and probably add some terrible emotional mistakes, and analysis oversights. Having read your some of your ideas, you could probably buy the best 3 or 4 a year with great long-term results if you don't mind being one of the poor votes on the poll every once and awhile.

Not too familiar with this one, but I see a fund that turns over its portfolio >3x a year and has pretty high expenses. Can you talk a little about this? The fund actively rebalances based on Joel Greenblatt's "Magic Formula". See 'The Little Book that Beats the Market' for reference on how the strategy works. Basically they are long low P/E high return on capital stocks, and short high P/E, low return on capital stocks. The expense ratio is a bit high, but seems worth it given the fact an individual investor has almost no capacity to get the required diversification for this type of long/short strategy at a reasonable cost. This is one of the few strategies that works well, despite the diversification. (and again less diversified in this case could blow up easier due to the shorts). The fund is 170% long and 70% short, equaling about 100% long on average. The 70% short 70% long portion is added market neutral return, while there is the additional 100% long portion, so you can make money in two ways, also helping cover the higher expense ratio. Intuitively the strategy is extraordinary in my opinion. Would you rather own expensive stocks with poor returns on capital, or cheap stocks with high returns on capital? If you are hands off, this strategy should work very well over time (and has already worked per the results).