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Roam Free From the Value Investing Herd

Although allegedly a value investor, my own portfolio is usually idiosyncratic in two respects:

1.       The position sizes I take (right now they’re 50% / 28% / 15% / 7%) are not the position sizes well-known value investors use.

2.       The stocks I own are not owned by well-known value investors.

A lot of readers comment on point #1 (my level of portfolio concentration is by far the topic I get the most emails about). No one ever comments on point #2.

To prove to you that almost none of the stocks I own are owned by well-known value investors, I’ll use Dataroma.

Dataroma tracks the portfolios of about 60 investors. I would call most of them “value investors” and some of them “famous” in the sense that the sort of folks who read this blog would have heard of them.

Here’s my portfolio’s popularity according to Dataroma:

·         Undisclosed Position (50%): One of the investors tracked at Dataroma owns this stock. He has less than 1% of his portfolio in it.

·         Frost (28%): No investor tracked at Dataroma owns this stock.

·         BWX Technologies (15%): No investor tracked at Dataroma owns this stock.

·         Natoco (7%): This is a Japanese stock that Dataroma doesn’t track.

Basically, no famous value investor has a meaningful amount of his portfolio in any stock I own.

This is very different from almost all the stocks I get emails about. People want to talk to me about stocks that a lot of value investors own. They want to talk about stocks that you can find in portfolios over at Dataroma or GuruFocus and that you can read threads about on Corner of Berkshire and Fairfax or read write-ups about at Value Investors Club.

My favorite investing book is Joel Greenblatt’s “You Can Be a Stock Market Genius”. If I can cheat a bit, I’d say my second favorite investing book is the section of “The Snowball” that details Warren Buffett’s career from about 1950-1970.

Both books teach you the importance of doing your own work. In fact, my favorite Ben Graham quote is:

“You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”

The key word here is “your” data and “your” reasoning. At some point, you have to go into a room alone with just the 10-K. And when you come out of that room you need an appraisal value for that stock that’s yours and yours alone.

I would say that 90% of the investors I talk to never get this far. They pick their own stocks. But, they don’t do their own work.

Nothing is going to make you a better investor faster than just picking the 10-K of a stock that’s not well-covered and coming up with an appraisal value for that stock on your own. Repeat this every week. And you’ll be a better investor in no time.

To get you started, here are …

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My 4 Favorite Blogs

I get asked a lot what my favorite blogs are. I started blogging in 2005. Most of my favorite blogs are no longer active.

However, the four blogs I’d recommend right now are:

1.       Anything by Richard Beddard

2.       Value and Opportunity

3.       Clark Street Value

4.       Kenkyo Investing

You can also follow some of these authors on Twitter (but, you shouldn’t). I’m on Twitter. But, again, you shouldn’t be on Twitter.

Why?

I just wrote a post about how you need to go into a room alone with just a 10-K and sit still there for several hours.

You’re not going to do that if you can check your Twitter feed instead.

So, I have three pieces of advice about learning from bloggers:

1.       Read: Richard Beddard, Value and Opportunity, Clark Street Value, and Kenkyo Investing.

2.       Don’t follow any bloggers on Twitter (because you should delete your Twitter account if you’re serious about investing).

3.       Whenever you come across a potentially interesting blog post, print that post out and put it in a folder somewhere that you read all the way through like once a week. Don’t “browse” from one post to another and one blog to another. The way to get a lot out of any reading material is to focus on it and read it closely (like with a pen and calculator). Don’t skim.…

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The Dangers of Holding on to Great Stocks

Someone emailed me a question about Activision (ATVI), a stock I put 100% of my portfolio into a little over 16 years ago (the stock went on to return 22% a year – but, of course, I didn’t hold on to it these last 16 years):

“Would it be fair to say that your returns would have been much better had you just put all your money into Activision at the time you initially bought it… and just sat on your butt until now? Let’s assume that this is a fair assessment for now.

So if we brought ourselves back to the year you bought it, early 2000s was it? If we looked at it with the models you currently possess but likely did not possess back then, could you have made a better allocation based on those models alone?”

The only “model” I can think of that would have improved my performance is not letting myself make any conscious sell decisions. In other words, just selling pieces of all the stocks I own in proportionately equal amounts to fund new purchases, never selling just to hold cash, etc.

I wrote an article discussing some of this. Overall, my sell decisions haven’t added much (if any) value to my investing record. My investment results are primarily a result of taking larger than normal positions in some stocks and then secondarily in picking the right stocks more often than I pick the wrong stocks.

With hindsight, I would have done as good or better while doing far less work if I’d just stuck with a stock like Activision that I once (16 years ago) had the conviction to put 100% of my net worth into it.

However, I think there is both: 1) A valuable truth and 2) A dangerous falsehood in this kind of thinking. Basically, what you’ve uncovered here is a good idea. But, a good idea can be taken to a bad extreme. And, I think the combination of 1) abusing hindsight and 2) going off the stock performance rather than the business performance can skew just how good and certain an idea Activision really was in September of 2001 (when I allocated 100% of my portfolio to it).

I couldn’t have foreseen that Activision would return something like 20% to 25% a year for the next 15-20 years. At the time, I thought I was able to foresee Activision could return 10% to 15% a year for the next 10-15 years though. Now, it’s true I thought this thought with enough “certainty” that I was willing to put 100% of my portfolio into the stock. But, I didn’t go “all in” on Activision believing I could make 20% to 25% a year. I did it believing I could make 10% to 15% a year (with greater confidence than I had in any other stocks).

Since 2001, Activision’s capital allocation has turned out to very good, or very lucky – or some combination of the two. Should …

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Bought a New Stock: 50% Position

I bought a new stock today. This is the first buy order I’ve placed in about 2 years.

As of this moment, the new stock is just under 50% of my portfolio.

To fund this purchase, I had to:

·         Use my 30% cash balance

·         Sell one-third of my position in Frost (CFR)

·         Sell one-third of my position in BWX Technologies (BWXT).

I’ll reveal the name of this new position on the blog sometime within the next 30 days.…

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My Portfolio as of October 2nd, 2017

Stock I Bought Today: 50%

Frost (CFR): 28%

BWX Technologies (BWXT): 15%

Natoco: 7%

 

Yes, I am now 100% invested.…

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