Your 2014 portfolio return

[jmp8822]

As expected a few 30%+ returns and the obligatory 70-80%+ returns.  I know it's great to be on top but just watch, someone is going to roll in here with a 100%+ return.  It never fails, this thread always makes me envious, I'd love to compound at 40-70% a year, but I also realize it's unlikely to be sustainable (for me at least).  I'm not even sure what I'd have to do to double my portfolio in a year, maybe trade options or something.

 

For those of you at 70% or 80% did you use leverage?  If not was your portfolio completely concentrated in one lucky stock, or two lucky stocks for the year?  How repeatable do you think the results are?

 

Some people talk on here as if they know the outcome of their investments.  I don't know if this is some weird overconfidence, hubris, or if people really can tell that something will do well.  I know from experience that buying very cheap things works, but I never have any idea when or how, that's the mystery and part of the excitement.  I guess to get to 50% plus a year you'd somehow have to 'know' that a stock was going to work in a year.

 

Anyways great returns, congrats.  A few more years like that and there'll be a "Ask whomever" thread with new posters worshiping at your feet.

 

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.

[yadayada]

I wouldn't put all my money in stocks like BAC. there is always some possibility it goes wrong. especially if you made serious bank. Why risk losing your big bankroll on some black swan event, just to get 20% extra per year?

[Uccmal]

Size becomes an anchor to risk taking pretty rapidly.  When a week of stock moves can move my portfolio size by my former salary, I take notice.  When a crash in a single stock wipes out what I used to make in a year I start to think more about safety, reliable dividends and things. 

 

Roughly -3% pre tax return this year.  Probably BE after tax.  Will post my ten year results next week.  I am guessing about 22% + after tax CAGR over ten years.  Note: Mutual fund results are always pre tax. 

 

I got whipped at the end of this year by oil: PWT/PWE.  Should recover quickly in the next few weeks, or not.  If not a few weeks then certainly before my 2017 Leaps expire. 

[Ross812]

I'm up about 7% for the year. Asps knocked me down about 3% in the past few weeks and BP hasn't done great. All in all though I can't complain. I dodged a few bullets, it just sucks to under perform the S&P.

[enoch01]

I wouldn't put all my money in stocks like BAC. there is always some possibility it goes wrong. especially if you made serious bank. Why risk losing your big bankroll on some black swan event, just to get 20% extra per year?

 

There is always a possibility something goes wrong with any stock.

[yadayada]

yea but if you put 50-100% in one stock, you really need some sick conviction. It basicly needs to be a slam dunk that can't go wrong. I wouldn't want to have even a 0.5% chance to blow up my entire portfolio.

[Palantir]

As of now, 17.53%....will probably be in the 15-18% range.

[ZenaidaMacroura]

+26.9% as of now, but I've had one day swings of 7% (both ways) so I'm not holding my breath.

 

At one point in November I just touched 40% Ytd.  But then it came tumbling down.

 

http://i.imgur.com/QhsGXMf.jpg

[ZenaidaMacroura]

Size becomes an anchor to risk taking pretty rapidly.  When a week of stock moves can move my portfolio size by my former salary, I take notice.  When a crash in a single stock wipes out what I used to make in a year I start to think more about safety, reliable dividends and things. 

I soooo relate to this...

[Guest glavacem]

42.4%

 

I had a good year, with a few stocks moving up more then I thought possible. I do have some smaller holdings that I believe could take a nasty hit in a good correction. Surprisingly my names have held up during the downturn(so far).

 

I don't expect a year like this next year. I would be extremely happy to do 10% next year.

[meiroy]

 

ZenaidaMacroura, Would it be correct to guess that you have/had like 40% in call options with negligible short positions?

 

 

My random number for the year is about 41%.  At the beginning of the year, seeing where the US economy is going I hoped it would be significantly higher. Next year we're going to have, hopefully, good economic environment + volatility = awesomeness. Looking forward to that.

 

 

 

[giofranchi]

I was one of the 100%+ people last year, and now I'm down 20%.

 

...

 

So basically, I didn't have anything from (1) to help mask the effect of (2), (3) and (4). This is, of course, the problem of having a concentrated portfolio of around six holdings, there is a certain amount of volatility (I call it the vomit comet) that one needs to be willing to endure.

 

Thank you very much for the detailed explanation!

 

I am sure this year will prove to be the exception, while last year the rule! ;)

 

Cheers,

 

Gio

 

[NewbieD]

+39.9% this year. Very happy. About 25% average leverage (margin, no derivatives) during the year, which is now gone. About 80% of the portfolio has been spread over 20 small cap stocks in Sweden, rest in Berkshire+Google.

 

Last year +71.0%. Portfolio is <1 million.

 

No idea what my turnover/fees are, but will check it out to be able to compare to you guys who calculated it.

[merkhet]

I was one of the 100%+ people last year, and now I'm down 20%.

 

...

 

So basically, I didn't have anything from (1) to help mask the effect of (2), (3) and (4). This is, of course, the problem of having a concentrated portfolio of around six holdings, there is a certain amount of volatility (I call it the vomit comet) that one needs to be willing to endure.

 

Thank you very much for the detailed explanation!

 

I am sure this year will prove to be the exception, while last year the rule! ;)

 

Cheers,

 

Gio

 

Haha, one can only hope. :)

[ZenaidaMacroura]

 

ZenaidaMacroura, Would it be correct to guess that you have/had like 40% in call options with negligible short positions?

 

 

My random number for the year is about 41%.  At the beginning of the year, seeing where the US economy is going I hoped it would be significantly higher. Next year we're going to have, hopefully, good economic environment + volatility = awesomeness. Looking forward to that.

There is a combination of BAC, JPM and GM Leaps/warrants in the mix.

[jmp8822]

I wouldn't put all my money in stocks like BAC. there is always some possibility it goes wrong. especially if you made serious bank. Why risk losing your big bankroll on some black swan event, just to get 20% extra per year?

 

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.

[yadayada]

I agree with your premise, I also try to aim for that return. That way your worst case scenario is always still outperforming.

 

But putting all your money in a stock that could in theory go to zero seems a bit much? At some point, even if it goes right 499 times out of 500, I dont want to end up broke in that 1/500 times. I can see making it a 20% position, maybe even 30%. But anything more seems excessive risk taking.

[BG2008]

jmp8822,

 

I have tried different things in my retirement accounts in the past few years.  As I get older, I have come to realize that backing the truck up on your best ideas tends to be the easiest and safest way to compound your money at rates that are eye popping (above 25% CAGR).  I have out performed in the last 2 years mostly because I have simply concentrated in my best ideas.  In addition to owning something cheap, both of us seems to share a commonality in that we look for a catalyst or some sort of event that will unfold and reveal to the market that a specific name is cheap.  I would love to hear your thoughts about some questions that I have. 

 

1) How do you think about initial size of an investment?  How do you add/trim position as they grow larger?  Does taxes and the associated short/long term rate play into the equation?

 

2) Do you actively look for a hard catalyst? 

 

3) Do you actively buy puts to hedge out catastrophe risk?  If you do, how do you think about what strike price and % premium that justifies the price? 

 

4) As your assets have grown, have you grown more diversified?  I've had a conversation recently with someone who mentioned that he sized positions much larger earlier on because the absolute dollar amounts were smaller.  As the absolute dollar amounts have grown bigger, he did start to diversify more. 

 

5) Since you were 100% invested, how were you positioned going into and coming out of 2008/2009? 

 

6) Do you own "probabilistic names", intelligent speculation, or whatever you want to call it?  10x upside, 0 downside type of names?  If you do, how do you think about proper sizing within the portfolio? 

 

Would love to hear your thoughts on this. 

 

BG2008

 

I wouldn't put all my money in stocks like BAC. there is always some possibility it goes wrong. especially if you made serious bank. Why risk losing your big bankroll on some black swan event, just to get 20% extra per year?

 

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.

[jmp8822]

I agree with your premise, I also try to aim for that return. That way your worst case scenario is always still outperforming.

 

But putting all your money in a stock that could in theory go to zero seems a bit much? At some point, even if it goes right 499 times out of 500, I dont want to end up broke in that 1/500 times. I can see making it a 20% position, maybe even 30%. But anything more seems excessive risk taking.

 

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.

[jay21]

I used to get pretty jealous when reading this and the net worth threads when I started investing a few years ago, but this year I am not. Like oddball said, I don't even know what to do to shoot for a 60% return. If everything went right, I could see scenarios where my portfolio did that in a year but not year in and out.

 

I am just trying to focus on the basics:

 

1. Increase my salary and further my career

2. Take full advantage of tax advantaged accounts, and use my 401k to dollar cost average into equity indexes

3. Take selective bets outside of my 401k

 

I think everything will work out financially if I do the above.

[frommi]

I am happy when i find that 1 out of 10 stocks in my portfolio does >60% in any given year. How can i know which one will do it next year?

 

[BG2008]

38% so far this year in retirement accounts

 

Basic strategy was to concentrate on best ideas.  Most of the ideas had catalysts.  The returns were largely driven by 2 top ideas that were sized rather large.  Had more than 50% of assets stuck in a legacy workout/special situation that didn't generate much return but significantly lowered my cash available for investment earlier during the year.     

[frommi]

38% so far this year in retirement accounts

 

Basic strategy was to concentrate on best ideas.  Most of the ideas had catalysts.  The returns were largely driven by 2 top ideas that were sized rather large.  Had more than 50% of assets stuck in a legacy workout/special situation that didn't generate much return but significantly lowered my cash available for investment earlier during the year.   

 

What were the catalysts in these cases?

[jmp8822]

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.

 

jmp8822,

 

I have tried different things in my retirement accounts in the past few years.  As I get older, I have come to realize that backing the truck up on your best ideas tends to be the easiest and safest way to compound your money at rates that are eye popping (above 25% CAGR).  I have out performed in the last 2 years mostly because I have simply concentrated in my best ideas.  In addition to owning something cheap, both of us seems to share a commonality in that we look for a catalyst or some sort of event that will unfold and reveal to the market that a specific name is cheap.  I would love to hear your thoughts about some questions that I have. 

 

1) How do you think about initial size of an investment?  How do you add/trim position as they grow larger?  Does taxes and the associated short/long term rate play into the equation?

 

2) Do you actively look for a hard catalyst? 

 

3) Do you actively buy puts to hedge out catastrophe risk?  If you do, how do you think about what strike price and % premium that justifies the price? 

 

4) As your assets have grown, have you grown more diversified?  I've had a conversation recently with someone who mentioned that he sized positions much larger earlier on because the absolute dollar amounts were smaller.  As the absolute dollar amounts have grown bigger, he did start to diversify more. 

 

5) Since you were 100% invested, how were you positioned going into and coming out of 2008/2009? 

 

6) Do you own "probabilistic names", intelligent speculation, or whatever you want to call it?  10x upside, 0 downside type of names?  If you do, how do you think about proper sizing within the portfolio?  I am always looking for a LEAP on my favorite ideas that might provide a 10X upside 0 downside return.  Sizing on that could be 5-10% depending on the stock and cost of the option.

 

Would love to hear your thoughts on this. 

 

BG2008

[DanielGMask]

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.

 

jmp8822,

 

I have tried different things in my retirement accounts in the past few years.  As I get older, I have come to realize that backing the truck up on your best ideas tends to be the easiest and safest way to compound your money at rates that are eye popping (above 25% CAGR).  I have out performed in the last 2 years mostly because I have simply concentrated in my best ideas.  In addition to owning something cheap, both of us seems to share a commonality in that we look for a catalyst or some sort of event that will unfold and reveal to the market that a specific name is cheap.  I would love to hear your thoughts about some questions that I have. 

 

1) How do you think about initial size of an investment?  How do you add/trim position as they grow larger?  Does taxes and the associated short/long term rate play into the equation?

 

2) Do you actively look for a hard catalyst? 

 

3) Do you actively buy puts to hedge out catastrophe risk?  If you do, how do you think about what strike price and % premium that justifies the price? 

 

4) As your assets have grown, have you grown more diversified?  I've had a conversation recently with someone who mentioned that he sized positions much larger earlier on because the absolute dollar amounts were smaller.  As the absolute dollar amounts have grown bigger, he did start to diversify more. 

 

5) Since you were 100% invested, how were you positioned going into and coming out of 2008/2009? 

 

6) Do you own "probabilistic names", intelligent speculation, or whatever you want to call it?  10x upside, 0 downside type of names?  If you do, how do you think about proper sizing within the portfolio?  I am always looking for a LEAP on my favorite ideas that might provide a 10X upside 0 downside return.  Sizing on that could be 5-10% depending on the stock and cost of the option.

 

Would love to hear your thoughts on this. 

 

BG2008

 

On point number 1, someone like Buffett will tell you to load the truck on the 80% upside potential idea and forget about the 20% one, and a quantitive analyst qill tell you to invest 80% of funds available on the 80% idea and 20% on the 20% idea. Under Buffett's premise you are running an opportunity cost and on the other one you are not, but If your analysis is correct you shouldn't invest time nor money on a 20% idea if you have an 80% option available!