Water the flowers, cut the weeds

[Charlie]

I have find it useful that periodically you look at your portfolio and like Jack Welch did it with people (10-20% of the people)

you kick the weakest companies out of your portfolio and invest it in better companies.

 

Anybody else doing something like this?

[Longnose]

my garden is so narrow that as soon as a weed starts growing it needs to be pruned quickly. (i run too concentrated.) 

[Gregmal]

Yea I started inadvertently doing this, and now my top 5 is > 100% lol

[Paarslaars]

Thanks for the reminder, I have been doing the opposite with options as diversification.

[Red Lion]

I do this on a regular basis, but have really stepped it up this year as I put a lot of money to work in the markets around this time last year, but started pulling money out to make a series of real estate acquisitions. I’ve been selling my losers, and my lesser winners with an emphasis on letting my winners ride. 
 

Overall I’ve found this to improve returns, an improve tax efficiency of the portfolio as well. Most of the returns come from holding the handling of superior stocks, so watering the flowed and pulling the weeds tends to provide more opportunity to own these stocks. 

[Xerxes]

One could argue that Berkshire “water the flowers but keeps the weeds to”. 
 

Besides the big 5-6 equity names there is a whole bunch of tracking stocks. And this predates the inception of T & T mini portfolios. 

[Spekulatius]

14 hours ago, Xerxes said:

One could argue that Berkshire “water the flowers but keeps the weeds to”. 
 

Besides the big 5-6 equity names there is a whole bunch of tracking stocks. And this predates the inception of T & T mini portfolios. 

Weeds are flowers too, it’s just a matter of perspective.

[Gmthebeau]

15 hours ago, Xerxes said:

One could argue that Berkshire “water the flowers but keeps the weeds to”. 
 

Besides the big 5-6 equity names there is a whole bunch of tracking stocks. And this predates the inception of T & T mini portfolios. 

 

This is definitely Buffetts preferred approach especially if he owns the entire company.  He never spins off or sells something despite owning some real losers.  He has constant cash flow though will allows him to use this approach.  If you dont have constant cash flow you will need to cut the losers.

[jks327]

49 minutes ago, Spekulatius said:

Weeds are flowers too, it’s just a matter of perspective.

They also keep the soil from eroding!  (Delving into Chauncey Gardiner territory)

Edited December 20, 2023 by jks327

[Saluki]

22 minutes ago, Gmthebeau said:

 

This is definitely Buffetts preferred approach especially if he owns the entire company.  He never spins off or sells something despite owning some real losers.  He has constant cash flow though will allows him to use this approach.  If you dont have constant cash flow you will need to cut the losers.

 

Yes, they have the opposite problem, too much cash.  That Coke position was dead money for a decade but he held it and now it doesn't make sense to sell it because the basis is so low that it would be a big tax hit, and he would need to buy something else a LOT better to make up for it. Since he's got $150bln that he can't deploy, this would probably just be short term treasuries, which are paying about what the KO dividends are, but don't grow. 

 

I think the problem is also that we all have stories of trimming something and looking back later and regretting it. Bill Miller held onto Amazon and he's a billionaire.  Lots of people bought it when it crashed to $1 and patted themselves on the back when they sold at $3 and missed the next $1000. 

 

When I first tried Greenblatt's spinoff strategy, I bought one that went up about 40% in a few months and sold it.  It went nowhere for a couple of years then went 10x over the next couple of years. 

 

When Todd (or Ted?) bought that position in Dillards, it was a 10x, but it also went nowhere for a few years.  It's hard to figure out which are the flowers and which are the weeds when you are just looking at some small  green shoots coming out of the ground. 

[Gmthebeau]

8 minutes ago, Saluki said:

 

Yes, they have the opposite problem, too much cash.  That Coke position was dead money for a decade but he held it and now it doesn't make sense to sell it because the basis is so low that it would be a big tax hit, and he would need to buy something else a LOT better to make up for it. Since he's got $150bln that he can't deploy, this would probably just be short term treasuries, which are paying about what the KO dividends are, but don't grow. 

 

I think the problem is also that we all have stories of trimming something and looking back later and regretting it. Bill Miller held onto Amazon and he's a billionaire.  Lots of people bought it when it crashed to $1 and patted themselves on the back when they sold at $3 and missed the next $1000. 

 

When I first tried Greenblatt's spinoff strategy, I bought one that went up about 40% in a few months and sold it.  It went nowhere for a couple of years then went 10x over the next couple of years. 

 

When Todd (or Ted?) bought that position in Dillards, it was a 10x, but it also went nowhere for a few years.  It's hard to figure out which are the flowers and which are the weeds when you are just looking at some small  green shoots coming out of the ground. 

 

Yes, most people sell the winners way too quickly.  I owned NVDA a couple of times at much lower prices and should have just kept it obviously. 

[Eng12345]

One of the things I really struggle with is actually adding to the winners. 

 

Say JOE for example - initial position at low ~$40 and never really substantially add to it because I'm always looking for the drop versus just biting the bullet. 

 

I have no problem selling losers, but often times I find myself with too much cash sitting around undeployed and not adding to the winners. 

Edited December 20, 2023 by Eng12345

[Xerxes]

I should say that in October I did the unthinkable (buying on top of the chart) by adding to my FFH position at $1084 CAD raising that average cost from $500 CAD. 
 

 

[Libs]

46 minutes ago, Xerxes said:

I should say that in October I did the unthinkable (buying on top of the chart) by adding to my FFH position at $1084 CAD raising that average cost from $500 CAD. 
 

 

I did this too, and it was uncomfortable. But it's a skill that needs to be developed. 

[BG2008]

A little bit of a market rally and now we're talking about watering flowers and cutting weeds

 

I thought we are value investors! 

 

Just kidding, yes, this strategy has a lot of merit. But then some of my left for dead positions are the biggest winners 

[ValueArb]

3 hours ago, Gmthebeau said:

 

This is definitely Buffetts preferred approach especially if he owns the entire company.  He never spins off or sells something despite owning some real losers.  He has constant cash flow though will allows him to use this approach.  If you dont have constant cash flow you will need to cut the losers.

 

Buffett owns 915M shares of Apple. At 10% of the average trading volume it will take him nearly 8 months to unload all of those shares, and even at that pace it's likely to slowly push down the stock price. He's stuck and has no place to go.

 

And at $40 basis per share he'd owe roughly $33 per share in taxes at current prices. So while he might think Apple's current 32 PE is a bit spendy, he might also be fine owning AAPL at the net cash PE of 27 instead of cashing out only to hold that cash for a long while until he can find something better. 

Edited December 20, 2023 by ValueArb
clarify last sentence

[Xerxes]

18 minutes ago, ValueArb said:

 

Buffett owns 915M shares of Apple. At 10% of the average trading volume it will take him nearly 8 months to unload all of those shares, and even at that pace it's likely to slowly push down the stock price. He's stuck and has no place to go.

 

And at $40 basis per share he'd owe roughly $33 per share in taxes at current prices. So while he might think Apple's current 32 PE is a bit spendy, he might also be fine owning AAPL at the net cash PE of 27 instead of cashing out only to hold that cash for a long while until he can find something better. 

 

Folks need to revisit 2020 letter, where Buffett painstakingly describes the four pillars of Berkshire, some which are fully/majority owned while some are partial non-controlling ownership. 
 

These four pillars are: Apple, BSNF, BHE and the insurance outfits with its equity portfolio. 
 

With that in mind why is Apple even being discussed here, in the context of stock investment. The only difference in Buffett mind between Apple and other three entities is that there is a very liquid secondary market for shares of Apple. And none exists for the other three. 

[lnofeisone]

4 hours ago, Eng12345 said:

One of the things I really struggle with is actually adding to the winners. 

 

Say JOE for example - initial position at low ~$40 and never really substantially add to it because I'm always looking for the drop versus just biting the bullet. 

 

I have no problem selling losers, but often times I find myself with too much cash sitting around undeployed and not adding to the winners. 

I, too, find myself with this problem a lot. I find it helpful to sell puts, and if the company dips into my desired range, I take the assignment. This way the cash is earning something while sitting there idly and waiting. 

[fareastwarriors]

I'm still watering and fertilizing my weeds unfortunately. 

[ValueArb]

7 hours ago, Xerxes said:

 

Folks need to revisit 2020 letter, where Buffett painstakingly describes the four pillars of Berkshire, some which are fully/majority owned while some are partial non-controlling ownership. 
 

These four pillars are: Apple, BSNF, BHE and the insurance outfits with its equity portfolio. 
 

With that in mind why is Apple even being discussed here, in the context of stock investment. The only difference in Buffett mind between Apple and other three entities is that there is a very liquid secondary market for shares of Apple. And none exists for the other three. 

 

Still no upvote feature.

[bargainman]

Getting that 3K yearly loss vs income tax!

[dpetrescu]

Similar to the flowering waters analogy. You could also think of relationships. Maybe it’s best to go from polygamists to monogamists…or as close as possible.

 

About a year ago I sold everything except 2 companies - 2 making up 95%. (Technically I still kept a few other investments as out of the money options for that last 5%.

 

Ive never felt more confident. Even when one of the positions fell 30%, I just kept adding more. Took me 15 or more years to learn this lesson - but I guess no amount of convincing would have changed my mind 15 years ago.

Edited December 28, 2023 by dpetrescu

[Paarslaars]

Surely you also did not possess the same competence to achieve that conviction 15 years ago? I've not once had that conviction in any stock other than UBS this year and BRK <1.3 BV.

Edited December 28, 2023 by Paarslaars