Your 2014 portfolio return

[thepupil]

Roth IRA: +17.9% (100% invested, long only, 3-5 stocks at a time)

 

IRA        : +20.3% (100% invested, long only, 3-5 stocks at a time)

 

Taxable : +0.12% (50-80% net exposure long/short, substantial options & lottery tickets component)

 

Reasons for disappointing year in taxable: short UVE (-430 bps), short XBI (-540 bps); these two shorts took me to the woodshed. Also had significant options/lotto ticket burn of 400 or so bps. Longs did fine.  At least all the stuff on which I lost money was in my taxable account.

 

[sys]

thepupil, are you still short the russell 2000?  just curious.

 

 

[thepupil]

yes, but not in nearly the same size because  a lot was considered to be shorting against Berkshire, which went from a  40% position to  a 5% position on valuation (in retrospect this one trade idea, long Berkshire short russell, would have been enough lol).

 

in general i'm trying to be a little more professional about sizing, portfolio management, take a few less lotto ticket bets, and contain my desire to sit on lit rockets (the short selling equivalent of catching falling knives).

 

[Laxputs]

-25% loss.

 

Town Sports was permanent capital loss given I sold out of the position (near the 52 week low btw).

 

My portfolio suffered the negative effects of the O&G sell-off where I have 30% allocation. However I believe my holdings are very cheap and safe and the losses are just on paper (Emeco, Enterprise Group, Macro Enterprises).

 

Future Bright sold off due to a gambling crack-down/slow-down in Macau but I think it will trade for multiples above where it is today and am excited to own it and have been adding.

 

I had a strong year last year. At the midpoint of 2014 I started doing things very differently and took 45 days off my normal work to study full-time investing and look more in-depth at certain companies. I think I've come very far from where I was a year ago and the paper losses are indicative of variance rather than lack of aptitude--but we'll see over the next few years.

 

Hopefully in 2015 there aren't any significant Black Swan events and the 9 companies I hold and my 98% invested portfolio can trade closer to a reasonable multiple of earnings.

 

This forum is indispensable for what I'm trying to do. Many thanks to the thoughtful and helpful posts.

 

 

 

[innerscorecard]

I would feel pretty confident in saying at least one person (and probably more) swung for the fences and whiffed, and I would be pretty confident (though slightly less so than the previous statement) that envy stoked by last year's results thread played a part in that person's performance.

 

I think my one takeaway from all this is you gotta concentrate for average-beating returns...... I am going to be more gutsy starting today.

 

;D

[crastogi]

Here are my returns.

 

Taxable Portfolio 1 - 11.98%

Taxable Portfolio 2 - 45.6%

 

Tax deferred portfolio mine - 44.95%

Tax deferred spouse portfolio - 22.63%

 

I have a total of 29 positions spread across these 4 portfolios.  about 10% of the total is in BRK.B

[Rainforesthiker]

I am up a little over 20% this year.

 

My largest positions are in BRK, AIG and AIG warrants, and BAC.

I also have a good size position in DIS as a holdover from 2009; DIS surprisingly was up around 25% ytd.

I also have decent sized positions in GM B warrants, BP, EZPW, MKL, LUK, C, JPM warrants, ZINC, MA and V.  Of these BP and LUK have been a drag on performance, but I was able to lower my average price a good bit on each of these later this year when the market went irrational.

 

I am generally fully invested and use margin to enter positions when I see some clear irrationality going on in the market or a particular stock, and when I believe the company is dramatically mispriced as a result of this irrationality.  Through the course of this year the amount of margin in my account has increased to close to 25% of my portfolio as I built large positions in GM B warrants, EZPW, and BP, as well as C, MA and V. For most of these I entered at very attractive prices.  I entered BP with a smallish position and too soon, and I have averaged down to around $42 per share, down 8% ytd and my worst performer.  My goal next year is to reduce margin . . .

 

My investment philosophy is centered on what I call the "inefficient rationale", my reasoned understanding of exactly why the market is mispricing a stock.  In other words, in addition to my fundamental analysis, I need to see some clear irrationality in the market, or other kinds of behavior that would cause forced or emotional selling, as evidence that a stock is mispriced.  I see many people on this forum trying to identify bargain stocks where there is no clear irrationality that you could point to as the cause of the mispricing (e.g., Altius, Fortress Paper, SHLD, PWE, etc.)  Although this can be done, I have found for me that trying to outsmart the market when it is behaving rationally is very difficult.  My favorite approach, where possible, is to wait for clear, identifiable irrationality to occur (and convince myself the underlying business is sound) and then create a sizable position.  The other aspect to my portfolio is to buy and hold compounders, mainly BRK, MKL, MA, V and LUK (although LUK has been treading water).

 

I found the following quote from Goodhaven Capital as perhaps most similar to my own mindset:

"There are two rules of thought on Wall Street about the future. The one most people follow is to try to decide what the world is going to look like going forward and on that basis make judgments on the industries and companies they buy. The other school of thought, which we follow, says you respond opportunistically to what actually happens. It’s not that we ignore the earnings power of a business or its competitive dynamics over time, but we’re more interested in reacting to turmoil in the market that can cause forced selling."

VII Oct 31

 

I have given a bit of thought to the notion of "efficient markets" and what causes the occasional large mispricings in the market.

 

Efficient Market Theory is based largely on the concept of crowd wisdom – that a large group of people casting their collective votes in the stock market produces correct stock prices and hence an “efficient market.” However, from experience it is clear that the stock market is not entirely efficient, and sometimes produces wildly incorrect prices. In thinking about it, various criteria are required for crowd wisdom to manifest in a financial marketplace, an important one of these being that the crowd is acting in a rational manner when it determines the price.  Hence I look for an “inefficient rationale” – my articulated understanding, based on my knowledge of crowd wisdom and the criteria necessary for it to be present, to make sure I understand exactly WHY the market is mispricing a particular stock. I also use some cloning strategies to help inform my decisions, which I view as "true" wisdom from a select value investing crowd.  This cloning strategy is used to both identify and help confirm good investment opportunities.

 

There was a prior discussion on this thread about concentration /number of positions.  In general, my highest conviction ideas occur when the following 3 factors exist:  1) my own fundamental analysis leads me to believe it is cheap (my variant perception) and I believe the underlying business franchise is sound; 2) I see demonstrable irrationality that indicates a bargain price (think BAC and AIG during the financial crisis, GM during the recalls, oil stocks today, etc.); and 3) I see some type of wise crowd behavior from respected value investors (cloning). 

 

My philosophy is best captured here:

http://www.amazon.com/Inefficient-Market-Theory-Investment-Foolishness-ebook/dp/B00MMV5V3Q

 

 

 

 

 

[no_free_lunch]

On the topic of concentration, I run a mini-portfolio in 1 account where I restrict myself to 6 positions.  I use it as a test case to see if concentration outperforms when used with real money.  I did about 21% this year in this account excluding currency gains (about 30% with currency gain), vs about 4% in my portfolio at large (or 10% with currency gains).  Last year it was 46% in the concentrated versus I think 40 or 41% in the total portfolio.  This next year I will probably be only investing in stocks in the "concentrated" part and mainly just hold ETF's in the other accounts as it seems I don't have the ability to find more than 5 or 6 good investments at a time.

 

So not trying to deflect my poor performance with these numbers, I really did only do 4% and that's on me, but nevertheless this is just one more bit of evidence in favor of concentration.

[oddballstocks]

On the topic of concentration, I run a mini-portfolio in 1 account where I restrict myself to 6 positions.  I use it as a test case to see if concentration outperforms when used with real money.  I did about 21% this year in this account excluding currency gains (about 30% with currency gain), vs about 4% in my portfolio at large (or 10% with currency gains).  Last year it was 46% in the concentrated versus I think 40 or 41% in the total portfolio.  This next year I will probably be only investing in stocks in the "concentrated" part and mainly just hold ETF's in the other accounts as it seems I don't have the ability to find more than 5 or 6 good investments at a time.

 

So not trying to deflect my poor performance with these numbers, I really did only do 4% and that's on me, but nevertheless this is just one more bit of evidence in favor of concentration.

 

Is it concentrating or just thinking more about your investments?  I ask because I hold about 50 positions, but I have noticed that many times my foreign stocks do better than domestic (although not always).  So I asked myself why this might be.  It's harder to buy a foreign stock, commissions are higher and there are currency movements.  So my approach is more cautious.  I have taken fliers on American stocks because it's so cheap and I figure "why not?"  I've taken fliers on story stocks in the past (never again) but not foreign story stocks.

 

In short I am much more cautious with my foreign holdings because of the friction costs.  And because of that my foreign results are better.  It's easy to draw the wrong conclusions about things.  Instead of saying "well I only have about 15-20 foreign stocks so clearly I should concentrate" my conclusion was different, it was that I should be applying the same process to domestic companies that I am to foreign companies.  So that's the approach I've taken.

 

I ask this rhetorically, if you have two stocks that have the same expected outcome or 200 stocks with the same expected outcome would the portfolio return be any different?  It wouldn't, and the 200 stock portfolio could potentially be higher if those two stocks don't appreciate quickly.  My thinking is as follows, I have a return I'm shooting for, about 10-15% over the long term.  If I can find companies that fit that criteria solidly then how am I diluting returns by adding additional companies?  If they all truly have the exact same return characteristics I'm not.  Now granted everyone on here is looking to triple their money in two years, I'm not looking for that.  But to everyone looking to triple your money I'd ask how are you doing finding those stocks?  If you expect to have a portfolio of six stocks that go up 2-3x every two years has that been true?  Because if that's your expected return, and you're looking for that and fail to find it then you're underperforming your expectation.

 

I'm not looking for eye-popping returns, rather I'd like to earn 10-15% over decades, not 500% in six years.  So for me finding a company that will appreciate 15% a year for a decade is easier than finding one that will appreciate 50% a year.  With a lower hurdle I've been more successful, and I have more stocks to select from.  To me this is a marathon, or an ultra-marathon, not a mile sprint.

 

Sometimes I think the 2-3x mantra in two years really means something else.  It means that people are looking to hit it out of the ballpark, but tactically admit to themselves they feel it's unlikely.  But at least if they swing for the fences they have a chance of hitting a 20-30% return. It's a gamble, and over the last few years of the bull market it's worked out.  I prize consistency myself.  I'd rather eat at a restaurant that's consistently good verses one that's either the best meal ever or unedible.  Investors love to roll the dice so I can see the attraction to the high returns.

 

In summary my guess is that when people concentrate they focus more on their investments as they need to.  If you applied that focused process I don't think it matters how many stocks you have as long as they all meet your return criteria, and your return criteria is obtainable.  The perceived ding against someone who diversifies is that they're viewed as an investor taking fliers on any and all stocks without regard to quality or safety.  In this case I agree, it's better to own six things you've spent time on verses 100 things you are clueless about.  But that's gross generalization that I don't believe applies.

[no_free_lunch]

Oddballstocks,

 

Personally it is just that I am more cautious with my concentrated account but I think that is all concentration is.  With concentration you can take the time to really focus down to the best bets.

 

I think we have very similar investment expectations in general, I am certainly not looking for a double in the next couple of years.  Honestly if I could get even 6% real return for the next 7 or 8 years I could probably retire so that is where I am at.

 

If I could get market beating returns investing in a large non-concentrated set of investments I would do that, hands down.  I just don't really have much luck with it.  Maybe I am a slower reader, maybe I don't put as much time in, I don't know, but I just find that when the market is fairly value I have a hard time finding many good investments and with a larger portfolio I end up compromising.

[Ham Hockers]

To all the people who are super-concentrated: good luck. Over the long run, half of you will probably do gangbusters and half will go bust.

[mvalue]

Great point that always bothered me - people who talk about only buying 2-3x'ers are obviously "wrong" on most investments vs. their stated expectation, and frankly I think when they're successful it's not due to any great insights or handicapping abilities.... Totally agree that however you describe that kind of investing, it's something other than seeking and successfully buying 2-3x'ers.

 

Some people with decent returns using that construct would probably say it doesn't matter if they still produce solid returns. True if the returns last for the very long run I guess, but still not sure that 2-3x investment criteria is a high quality mental filter if it proves so incorrect/misguided for most investments. There is probably a better way to define what one is seeking that would also more accurately gauge success vs. expectations for each investment.

 

 

Sometimes I think the 2-3x mantra in two years really means something else.  It means that people are looking to hit it out of the ballpark, but tactically admit to themselves they feel it's unlikely.  But at least if they swing for the fences they have a chance of hitting a 20-30% return. It's a gamble, and over the last few years of the bull market it's worked out.  I prize consistency myself.  I'd rather eat at a restaurant that's consistently good verses one that's either the best meal ever or unedible.  Investors love to roll the dice so I can see the attraction to the high returns.

 

[frommi]

In the first chapter of "You can be a stock market genius" Greenblatt told the reader to concentrate on 5-10 stocks and gives the math to that. Perhaps its a good idea to reread that chapter.

 

But in the end everybody has to find what works for him and do this over and over again.

[yadayada]

Great point that always bothered me - people who talk about only buying 2-3x'ers are obviously "wrong" on most investments vs. their stated expectation, and frankly I think when they're successful it's not due to any great insights or handicapping abilities.... Totally agree that however you describe that kind of investing, it's something other than seeking and successfully buying 2-3x'ers.

 

Some people with decent returns using that construct would probably say it doesn't matter if they still produce solid returns. True if the returns last for the very long run I guess, but still not sure that 2-3x investment criteria is a high quality mental filter if it proves so incorrect/misguided for most investments. There is probably a better way to define what one is seeking that would also more accurately gauge success vs. expectations for each investment.

 

 

Sometimes I think the 2-3x mantra in two years really means something else.  It means that people are looking to hit it out of the ballpark, but tactically admit to themselves they feel it's unlikely.  But at least if they swing for the fences they have a chance of hitting a 20-30% return. It's a gamble, and over the last few years of the bull market it's worked out.  I prize consistency myself.  I'd rather eat at a restaurant that's consistently good verses one that's either the best meal ever or unedible.  Investors love to roll the dice so I can see the attraction to the high returns.

 

 

All the difference lies in what assumptions you use on the 2-3x estimate. If it is 'well if they can grow FCF by 2017 by 40%, and you give it a 18x multiple like it's peers it will be worth 150% more by then'. Which is obviously stupid as that is more a best case scenario.

[thepupil]

I have personally never identified a stock I thought was worth 3X its current price.

 

Part of it is my tendency to gravitate to SOTP stories, real estate, banks, holdco's and stubs, Berkshire/Leucadia type of companies,  and other things where I think you can create 20-40% discounts.

 

I've bought options and made multiple x's a couple times on a large move in stock price (-100% and 100+%) but I simply must not be looking at the right stocks to create a portfolio of "easy doubles".

 

I concentrate not because I want to make 100% / year or something ungodly, but simply because If I find a a decently diversified company with a good balance sheet and some catalysts, I'm completely comfy putting 10-20% in it or if it's berkshire circa 2011-mid 2014, 30-40%.

 

Not to get too personal, but I'm 26, gainfully employed and my IRA's are very low six figures and I'm saving about $20K+/ year, worst comes to worst if i have a big blow up on a stock (which i've never had on a core unhedged long but I'm sure it will happen one day) I lose one year's savings.

 

as long as I'm unlevered, a net saver, have an emergency stash of dough, concentration is not scary. If I could find 100 companies that fit what I like, I'd do that, but I can't. Anyone who can buy 50 stocks, do well, and not have his/her return start to hug the relevant benchmark over time is impressive.

 

I do, however, think puttin it all in 1 or 2 is nucking futs, even if you hedge with OTM puts. A permanent 50+% idiosyncratic drawdown (in other words not accompanied by the market going down which would give you many different ways of making it back) is hard to stomach and even harder to make back. that wouldn't work for me.*

 

*although to contradict this, my IRA's have been built with a few very good initial bets and were 1 stock at a time when they were smaller

[oddballstocks]

I have personally never identified a stock I thought was worth 3X its current price.

 

Part of it is my tendency to gravitate to SOTP stories, real estate, banks, holdco's and stubs, Berkshire/Leucadia type of companies,  and other things where I think you can create 20-40% discounts.

 

I've bought options and made multiple x's a couple times on a large move in stock price (-100% and 100+%) but I simply must not be looking at the right stocks to create a portfolio of "easy doubles".

 

I concentrate not because I want to make 100% / year or something ungodly, but simply because If I find a a decently diversified company with a good balance sheet and some catalysts, I'm completely comfy putting 10-20% in it or if it's berkshire circa 2011-mid 2014, 30-40%.

 

Not to get too personal, but I'm 26, gainfully employed and my IRA's are very low six figures and I'm saving about $20K+/ year, worst comes to worst if i have a big blow up on a stock (which i've never had on a core unhedged long but I'm sure it will happen one day) I lose one year's savings.

 

as long as I'm unlevered, a net saver, have an emergency stash of dough, concentration is not scary. If I could find 100 companies that fit what I like, I'd do that, but I can't. Anyone who can buy 50 stocks, do well, and not have his/her return start to hug the relevant benchmark over time is impressive.

 

I do, however, think puttin it all in 1 or 2 is nucking futs, even if you hedge with OTM puts. A permanent 50+% idiosyncratic drawdown (in other words not accompanied by the market going down which would give you many different ways of making it back) is hard to stomach and even harder to make back. that wouldn't work for me.*

 

*although to contradict this, my IRA's have been built with a few very good initial bets and were 1 stock at a time when they were smaller

 

No disagreement.  When I was 25 I had my entire portfolio in five stocks, yup five.  I did 60%+ in 2006 when the market returned 15%, I crushed it.  I felt like I was king of the world, a genius.  During the winter I spent some time looking at what I held and thinking about the future.  I realized I was lucky, purely lucky and in the right place at the right time and I really had no way to replicate my success.  I sold down and added new positions over the course of 2007.  It was because of that change that I survived the crash. 

 

I think concentrating becomes harder as you age as Uccmal noted.  I can no longer 'fix' a down year with savings, my portfolio has grown too large.  A few serious down years and the opportunity could be too large to overcome.

 

When you're young there is nothing like rocket fuel to a portfolio like a few positions that appreciate multiples.

 

I have two parting thoughts on this.  I have owned a 100-bagger, and recently a 10-bagger.  Neither were identified as such when purchasing.  For most of the holding period they only appeared moderately undervalued, but both companies grew substantially.  The 100-bagger was a stock my grandfather purchased and passed onto me.  It was originally purchased in 1984 and reached 100-fold in 2006.  So when people talk about stocks appreciating significantly it took 22 years or so of holding to realize that.  How many of you expect to hold your companies 20+ years?  That's a really long time.  I think about it some, it means a stock I buy today I might sell when my oldest kid (who is in preschool) is 27.  He was born when I was 28, so conceivable this could be a stock I purchase and sell when I'm a grandparent if he has kids at a similar age to me...that's a lot of life during a holding period!

 

While I hold 50 names I do allocate larger positions to ones I think are cheaper or have more growth potential.  I think this is how any major value investor works.  I don't do something mechanical where every holding is an equal weight.

[intothebreach]

 

I think my one takeaway from all this is you gotta concentrate for average-beating returns...... I am going to be more gutsy starting today.

 

I realize the above quote may have been in jest. But if it may help anyone regarding the concentration discussion, here's how I personally came to gravitate toward increased concentration (I can be anywhere between 5 and 15 stocks, so not extreme by any measure).

 

After under-performing my benchmark for a few years (S&P500), I did a fairly thorough analysis of what had worked well for me and what had really not. I came away with 3 conclusions:

1. my option plays were lousy because I was aiming for the fences (in most cases the common would have done much, much better);

2. I was losing money on what I'll call marginal positions (as in bordering, not leverage) because I did not research them well enough (both to justify the initial buy, but also to have enough conviction to stay the course when they ran against me); and

3. I was underinvesting in my best ideas, those I understood really well but failed to commit sufficient capital to really offset the first 2 categories.

 

Simply put, I was trading too much instead of investing (but I sure learned a lot as this was in 2007-2008).

 

So, at least for me, I believe that concentration actually decreases my overall risk as I need to feel a very good understanding of a situation, as well as an explanation for the dislocation between the price and value to invest a sizeable portion. I've also grown comfortable with low activity in my portfolios (which suits me better as my schedule itself tends to be very lumpy). A few examples come to mind: BRK in late 2008 when the notion that Buffett had invested in derivatives created a panic, JEF after the MF Global disaster and Egan-Jones botched analysis, AAPL in late 2008 and again in late 2012/early 2013.

 

I quoted the above to add that in my case, concentration is more about discipline than guts, especially the discipline to do nothing if my criteria are not met. In this I (now) fully subscribe to Buffett's admonition to look at the downside first. I agree with Oddballstocks that it is more correlation than causality: at the end it comes from stock selection, concentration just magnifies the returns, good or bad.

 

Your mileage may certainly vary, but I hope this may prove useful to some.

[aws]

I just did an estimate for the year and came up with a 2% gain.  I calculated it with a back of the envelop method where I just added all my realized gains for the year plus my unrealized change, and compared that to my ending balance.  On a CAGR method it would probably be much higher, because my portfolio tripled in size in the past six months due to much more investable cash becoming available.  I also didn't take into account some small dividends that may have added another .5% or so.

 

My results are bad and I would have been much better off if I did nothing but by BRK, but I'm still somewhat happy because before I just did the math I would have thought I was down 4 or 5% for the year.  I'm holding a lot of stocks in the red at the moment and that's been getting me down a bit.  The new cash has allowed me to average down so hopefully that works in my favor in the new year.

[yadayada]

I have personally never identified a stock I thought was worth 3X its current price.

read greenblatts book, you will at least know they exist then.

[oddballstocks]

I have personally never identified a stock I thought was worth 3X its current price.

read greenblatts book, you will at least know they exist then.

 

Not even Greenblatt's book, just look at a number of names, you'll eventually hit one.  Conduril comes off the top of my head as a name I knew was worth 4x as much, it's up 3x so far.  It hit 4x at one point although I didn't sell.  Since the purchase the company has improved and it might end up being worth 5-6x my initial purchase price.  Problem was it was extremely illiquid (only traded twice in 2010) and there was no certainty that IV would ever be realized.

 

I've owned a few others that I knew were worth multiples, but often these things languish for years.  The problem for me isn't finding absurd valuations, it's knowing when IV will be reached.  You can run a screen right now for stocks trading for 25% of book value...ok, just did this, 2,956 stocks worldwide qualify.  I'm sure a few in that pile are truly worth book value, 4x the current price.  Just need to go through the hard work sifting through that pile.

[merkhet]

I suspect that the number of people for whom concentration can consistently work is significantly lower than the number of people who think that they can make make concentration consistently work. (For a combination of reasons including deeper knowledge, gastrointestinal fortitude, etc.)

 

There are a number of posters here that have said something along the lines of how they have "underinvested" in their "best ideas." However, the mind plays tricks on you. (Read Leonard Mlodinow's "Subliminal" for an excellent treatment on how this is the case.) In hindsight, your best ideas always seem to be your best ideas, but can you confidently state that those were your best ideas at the time? Or are they merely your best ideas because they have worked out the best so far? Unless you keep a written record somewhere, it becomes increasingly difficult to sort out whether your best ideas were truly your best ideas a priori.

 

And this is, again, coming from someone who feels the most comfortable investing in four to eight names at a time. Essentially, you have to figure out your "hit rate" and conform your style accordingly. And, as another poster (Zenaida) once said to me in person, you always want to make sure your hit rate is really a good hit rate given the current environment. (We are, after all, in a pretty strong bull market.)

[Liberty]

I suspect that the number of people for whom concentration can consistently work is significantly lower than the number of people who think that they can make make concentration consistently work. (For a combination of reasons including deeper knowledge, gastrointestinal fortitude, etc.)

 

There are a number of posters here that have said something along the lines of how they have "underinvested" in their "best ideas." However, the mind plays tricks on you. (Read Leonard Mlodinow's "Subliminal" for an excellent treatment on how this is the case.) In hindsight, your best ideas always seem to be your best ideas, but can you confidently state that those were your best ideas at the time? Or are they merely your best ideas because they have worked out the best so far? Unless you keep a written record somewhere, it becomes increasingly difficult to sort out whether your best ideas were truly your best ideas a priori.

 

And this is, again, coming from someone who feels the most comfortable investing in four to eight names at a time. Essentially, you have to figure out your "hit rate" and conform your style accordingly. And, as another poster (Zenaida) once said to me in person, you always want to make sure your hit rate is really a good hit rate given the current environment. (We are, after all, in a pretty strong bull market.)

 

That's why keeping an investment journal where you write down exactly what you're thinking before doing anything is so valuable. Memory plays tricks on us, and this is a good way to mitigate that.

[Kraven]

I suspect that the number of people for whom concentration can consistently work is significantly lower than the number of people who think that they can make make concentration consistently work. (For a combination of reasons including deeper knowledge, gastrointestinal fortitude, etc.)

 

There are a number of posters here that have said something along the lines of how they have "underinvested" in their "best ideas." However, the mind plays tricks on you. (Read Leonard Mlodinow's "Subliminal" for an excellent treatment on how this is the case.) In hindsight, your best ideas always seem to be your best ideas, but can you confidently state that those were your best ideas at the time? Or are they merely your best ideas because they have worked out the best so far? Unless you keep a written record somewhere, it becomes increasingly difficult to sort out whether your best ideas were truly your best ideas a priori.

 

And this is, again, coming from someone who feels the most comfortable investing in four to eight names at a time. Essentially, you have to figure out your "hit rate" and conform your style accordingly. And, as another poster (Zenaida) once said to me in person, you always want to make sure your hit rate is really a good hit rate given the current environment. (We are, after all, in a pretty strong bull market.)

 

This was a good post.

[KCLarkin]

Essentially, you have to figure out your "hit rate" and conform your style accordingly. And, as another poster (Zenaida) once said to me in person, you always want to make sure your hit rate is really a good hit rate given the current environment. (We are, after all, in a pretty strong bull market.)

 

You also need to be aware of hidden correlations. You might have a high hit rate because you own a diversified group of high debt companies that are all benefiting from low interest rates. Or tech stocks in the tech bubble. Or finance companies in a credit bubble.

 

If you aren't a bad investor betting on 50 companies isn't likely to improve things much. If you are picking stocks, concentrate. If you are diversifying, buy an index fund (or use a quant screen).

[thepupil]

I have personally never identified a stock I thought was worth 3X its current price.

read greenblatts book, you will at least know they exist then.

 

Not even Greenblatt's book, just look at a number of names, you'll eventually hit one.  Conduril comes off the top of my head as a name I knew was worth 4x as much, it's up 3x so far.  It hit 4x at one point although I didn't sell.  Since the purchase the company has improved and it might end up being worth 5-6x my initial purchase price.  Problem was it was extremely illiquid (only traded twice in 2010) and there was no certainty that IV would ever be realized.

 

I've owned a few others that I knew were worth multiples, but often these things languish for years.  The problem for me isn't finding absurd valuations, it's knowing when IV will be reached.  You can run a screen right now for stocks trading for 25% of book value...ok, just did this, 2,956 stocks worldwide qualify.  I'm sure a few in that pile are truly worth book value, 4x the current price.  Just need to go through the hard work sifting through that pile.

 

I've read the book; I know they exist; yadayada the last time you told me to read something and implied I was ignorant, it was AAMC's financials; I had read them. I apologize for the rudeness but I find your posts to be a bit know-it-all and condescending to others at times. Maybe it's just me though.

 

I'm just saying, I've never been able to assemble a portfolio of 3X's with a high hit rate and at what I deemed low risk when evaluating the situation. I knew my 20.00 SWY calls (which were a 20 bagger but I stupidly sold too early for a 3X) were worth 0 or many X's, but I knew the downside was 100% so I put 2% in them.

 

I've never found something that I could comfortably put 20% in that was a 3X. I have put 10% in BFCF over the past few weeks, but that's not exactly without risk or hair. I could see it being a 3X, but I could also see the timeshare business coming under regulatory scrutiny or suffering in a downturn.

 

I just don't think this game is as easy as "I only buy 3-4X's and concentrate in those" implies.  If it was easy for me, my name would be themaster and not thepupil.