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Keurig (KDP) has been on my radar for over a decade. By the time I learned how amazing Keurig was in 2012, their patent was expiring on the K-Cups. I wasn’t interested in the razor sale of the Keurig machine, I wanted the blades (the K-Cups), so I never bought the stock. Fast forward to 2020 and now Keurig owns so many blades they give Freddy Krueger nightmares. Not only that, Keurig has fixed the three major problems I have had with the company in the past:

  • Who’s selling the blades now that the patent expired? They are. A lot of them (see below). A decade later, their Green Mountain brand (Keurig’s brand) is #2 in the K-Cup business, only behind Starbucks. This is incredible. Plus, they own a dozen more brands that dominate the shelves.
  • Only single serve coffee? Not anymore. With their successful K-Duo, you can brew fresh carafe with coffee grounds or use a single serve.
  • Bad for the environment? K-Kups are now moving to a 100% recyclable material. Combine this with K-Duo and this really improves the environment impact.

Now KDP is drowning in blade sales since they control so many brands:

  • COFFEE BRANDS! They make money from their K-Cups on the following brands: Green Mountain, Donut Shop, Laughing Man, Peet’s Coffee, Caribou Coffee, Van Houtte, REVV, Tully’s Coffee, Krispy Crème, Newman’s Own Organics, Barista Bros, Barista Prima Coffee House, Bruleire Mont Royal, Café Escapes, Café Punt del Cielo, Cinnabon, Coffee People, Diedrich Coffee, Donut House, Emeril, Gloria Jen’s, Holly’s Coffee, Kahlua, Laura Second, Orient Express, Timothy’s, Panera Bread, High Brew, Gila Café, FOrto, Adagio.
  • SODA BRANDS! Talk about blades. They own the following soda brands: Dr. Pepper, 7-Up, A&W, Canada Dry, Schweppes, Sunkist, Crush, Sun Drop, IBC, Diet Rite, Squirt, Vernors, RC Cola, Hires, Stewarts, Big Red, C-Plus, Cactus Cooler, Nehi Cola, Tahitian Treat Fruit Punch.
  • TEAS & WATER BRANDS: Bai, Canada Dry, Dejua Blue, Penafiel, Schweppes, Snapple, Straight Up Tea, Evian, Neuro, Vita Coco, Core, Limitless
  • Clamato, Hawaiian Punch, Margaritaville, Mott’s, Mr & Mrs. T, Nantucket Nectras, ReaLemon, ReaLIme, Rose’s, Swiss Miss, Venom Energy, Yoo Hoo, Sunny D, XYience Energy, Hydrive Energy Water, Mistic.

Not only is their brand power heroic, in 2020 they are doing fantastic.

  • They are the best performing, non-alchoholic, beverage company in the past few months. Take that Coke and Pepsi!
  • More than 10% of their sales are coming from ecommerce.
  • They are expanding distribution for the family owned Polar Seltzer. Polar is the #1 unsweetened flavored sparkling water in the 1/3rd of the country they are currently distributing to. There’s a good chance they can take this same position in the other 2/3rds of the country.
  • The soda Dr. Pepper has grown 17 straight quarters in sales! I thought this soda peaked in the ‘80s.
  • The Canada Dry (ginger ale, club soda, tonic water, and sparkling seltzer water) has grown for 13 consecutive years!

Keurig Dr. Pepper has an arsenal of brands that will make them an unstoppable competitor for decades to come. They are only 20% the size of Coke and Pepsi and yet are in 3rd place in the beverage wars. This means massive amounts of upside in the future during the battle of the best drink.

Monty

 

Stat KDP
Price (Market Cap) 43 Billion
Cash And Equivalents 149 Million
Long Term Debt 15 Billion
FPE 23.81
PEG 2.08
Dividend 1.92%
And Yield
Price/Cash
Flow
18.69
Price/Book 16.29
ROE 5.08%
Motley Fool
Caps Rating
3 stars
Size of Position In Portfolio 5%

 

 

In the past week, Square (SQ) has dropped 30%! Dragged down by the Nasdaq due to interest rate increases by the Fed this October 2018, and the CFO (since 2012), Sarah Friar, leaving to follow her dream of starting her own company Nextdoor. Nextdoor is a social network but tied to neighborhoods. That’s a great reason to leave a company. I’m not worried.

More businesses than ever are taking credit cards now, and what are they using? Square. It took 71 years for my favorite Drive-in, Motor-vu to start taking credit cards but they finally did.  Even the homeless has moved away from cash donations and are using Square.

Things are going great for Square. Just look at this data from May 2018:

  • Revenue grew 51%
  • Gross payment volume (GPV) was up 31% to $18 billion
  • Adjusted revenue from sellers with retail sales of at least $300,000 per year was up 60%
  • Square acquired website-building business Weebly for $365

The war on cash continues and with a market cap of just 30 billion dollars, Square will mint money.

Monty

Stat SQ
Price (Market Cap) 30 Billion
Cash And Equivalents 725 Million
Long Term Debt 358 Million
FPE 94.60
PEG 2.80
Dividend N/A
And Yield N/A
Price/Cash
Flow
288.70
Price/Book 29.14
ROE -6.91
Motley Fool
Caps Rating
4 stars
Size of Position In Portfolio 5%

DocBrownShades

I have a problem with nostalgia. I adore video games from the 80s/90s along with all the wonderful pop culture that surrounded the era. Movies, food, and toys from decades ago? Excellent! Accepting modern day realities has been a challenge, and it’s even affected my investing.  In Utah, I was raised in the arcades, music and video stores in the Layton Hills, Crossroads, Trolley Square, and Cottonwood malls. All these stores are gone now. Live by the technological sword, die by the sword. Bogus! But, my super shopper sister bought clothing. Quicksilver, Aeropostale, DC, Roxy, Delias, Pacsun.  People won’t ever stop going to malls to buy clothing, right? Wrong! 3 years ago I bought a “mall basket” of the great companies of yesteryear. I thought diversification in the clothing business would save me from quickly moving fashion trends and at least one would survive. But no, father time killed them. All of them. They *all* went bankrupt! Fast forward to today and JC Penny, Macy’s, Payless ShoeSource, Sears, K-Mart, Walmart, Office Depot, Ralph Lauren, HHGregg, Gordmans, Sports Authority, Gander Mountain, Bebe, Rue21, etc. are all drastically downsizing or going out of business. No retailer is safe from Amazon’s wrath! But, people are still buying clothing. How about sport clothing?

“You ought to think about the future.”
“Retail’s got no future Jack!”
“Better be sure.” (Batman, 1989)

Each month we save $100 for each of our children in a Coverdell ESA. About every four months, we buy stock for them. Since the investment horizon is 18 years, we rarely sell, and the stocks are primarily focused on their generation. The performance has been incredible. Netflix? 11 bagger. Tesla? 10 bagger. Electronic Arts? 6 bagger. Disney? 3 bagger. Now, I grew up with EA and Disney. But, they are not just nostalgia plays, they are also defining my children’s generation. It’s been stunningly clear that our family’s biggest winners, haven’t been turnarounds, but companies defining the present and the future. I’m going to take of my rose colored glasses, and don some Doc Brown silver future glasses.

Under Armour (UAA)

When I was growing up, if you played sports you wore Nike. It was impossible to walk onto the playing field without seeing the Nike logo everywhere. Nike, Nike, Nike! Now, when I go to my kids’ basketball, soccer, or baseball games, it’s all Under Amour. Under Amour (UAA) is currently trading at half the price to where it was a year ago, and a whopping *six* times less than it was in 2014. A 60 billion dollar company is now a 10 billion dollar company just three years later. Now, this is because of recent sluggish sales, and a massive investment in wearable tech that has added a whopping 1.6 billion of debt to their balance sheet. However, I think these investments are going to pay off over the decades and their brand is stronger than ever. Nike is currently a 90 billion dollar company. UAA is absolutely an easy double from today’s prices.

Take Two (TTWO)

Mafia, BioShock, Grand Theft Auto, Max Payne, L.A. Noire, Bully, Red Dead. Get off my lawn with your violent trash!!

Go Diego, Go! Dora The Explorer, Civilization, Carnival Games, Wonder Pets, Bubble Guppies, NBA2K, NHL2K, NFL2K, ahhh, that’s better!

Take Two has made all of these games. Though I don’t usually play games that aren’t at least drinking age, I have heard of all of these. Everywhere. Take Two is only a 6 billion dollar company and it looks and sounds a lot like the Activision (40 billion) and EA (30 billion) I grew up with. Can TTWO double and hit 12 billion? Absolutely. Their games are selling like hotcakes along with an incredibly strong performance in mobile games, with sales growing 30% over the past three with massive hits like Dragon City and Monster Legends. This is definitely a video game company that’s going back to the future!

Monty

Stat UAA TTWO
Price (Market Cap) 9 Billion 6.38 Billion
Cash And Equivalents 250 Million 800 Million
Long Term Debt 1.61 Billion 2 Billion
FPE 41.44 22.61
PEG 2.54 2.12
Dividend N/A N/A
And Yield N/A N/A
Price/Cash
Flow
18.74  14.85
Price/Book 4.26 6.62
ROE 13.86 21.74
Motley Fool
Caps Rating
4 stars 4 stars
Size of Position In Portfolio 5% 5%

P.S.

Also added Amazon proof Dunkin’ Donuts to our 18 year experiment. Not only is it our kids’ favorite treat, it’s time to put that 2.34% dividend to work for our daughter. I’m front loading her portfolio with dividend payers so they can do the heavy lifting for me over the decades.

collegeischeaperthancable

American student debt has just hit a frightening new record of $1.3 trillion, with the average borrower (44.2 million Americans) leaving college with about $38,000 in debt. Add in another $10,000 of payments on interest alone over the next decade and it’s easy to see why graduates are living paycheck to paycheck.

Parents are also strapped for cash, and think saving for college is almost impossible. However, if you start early, I think you can pay for college simply by slashing (Jason Voorhees style), your cable bill.

In 2016, the average American cable bill is a freakish $125/month. One of the leading providers of cable TV is Comcast (CMCSA). By switching to Comcast’s lowest cost internet only plan (currently the Performance Starter for 10mbps) for $30/month, and investing the difference of $100/month (rounding up) into low cost Vanguard Index Funds, over 18 years, you can take a major slice out of the cost of college.  $100/month should grow into about $42,000 (going with an average return of the stock market, about 7%, which the market returned from 1950 to 2009).

This is what we will be doing for my 7 month old daughter, and I thought it would be fun to become Dr. Frankenstein on Halloween night and start the experiment.

For the next 18 years, until 2034, I will be updating this blog post (so set your Bookmarks!) with our progress of rolling our old cable bill into my daughter’s Coverdell ESA. What’s a Coverdell ESA you say?

Now, Dr. Frankenstein didn’t exactly follow the medical community when he practiced, and we aren’t going to either. Rather than use the scientifically proven index fund method, we are going to be using bolts of lightning, buying individual stocks instead.  There is more risk involved, yes, but the upside is much larger. Also, buying index funds is boring. I’m going to be involving my daughter in this process, picking out specific companies, which is a much better learning tool. She will not only see her money grow, she will know exactly what companies the money is in. She will learn some basic business knowledge along the way, and get a better understanding of how this crazy world works. If she doesn’t want to go to college, this money is hers. She can take it out and use it for whatever she wants (as long as she pays a penalty to the government).

Throw …..the third switch!

Our first investment is going to be a part of my family’s Halloween tradition. She is 7 months old now, so we have saved $700 to buy her first stock in graveyard and cremation company StoneMor Partners. There’s a duopoly in the death business, and when we drive by a graveyard, it’s very likely StoneMor will be the owner. “Did you know honey you own part of that graveyard? Give my creation…..life!!!!!”

We usually invest every $400-$800. Dividends are *always* automatically reinvested. So, this score card will be updated every four to eight months.

Happy Halloween!

Monty

 

18 Year Score Card (2016-2034)

 

Date Buy/Sell Company Original Amount Invested Current Value (Updated 10/23/2019)
10/31/2016 Buy StoneMor Partners (STON) $730 $87
4/28/2017 Buy Dunkin Brands Group Inc (DNKN) $390 $550
8/9/2017 Buy Under Amour (UAA) $405 $1,124
4/6/2018 Buy Under Armour (UAA) $590
8/8/2018 Buy ETSY $387 $509
10/12/2018 Buy Square (SQ) $438 $355
2/21/2019 Buy Mattel (MAT) $402 $285
8/7/2019 Buy National Beverage Corp (FIZZ) $368 $399
10/23/2019 Buy Hasbro (HAS) $300 $300
Total College Fund $4,010 $3,609

 

SolarCity

I’m a long term (30 year) bull on SolarCity (SCTY) and recently wanted to start a position for my youngest son last month to take advantage of the fears generated by low oil prices and ending tax credits. However, the tax credits were extended before I bought his position and the stock doubled in a month in the winter of 2015. I have been waiting for it to cool off and that day is today, it’s trading around it’s 52 week low due to weak guidance. Long term this story still looks great! Why? Q4 installations up by 54% from a year ago. I’m buying a small position (2% of portfolio) for my family today as it’s only a 1.86 billion company. Elon Musk is on the board and it’s a Tesla partner. Buy, hold, ignore and in 2046 you may just own one of the largest energy companies in America.

Jason Hall covers the details of this quarter and why it’s given a Fool an excellent opportunity today:

http://www.fool.com/investing/general/2016/02/10/beyond-revenue-and-profits-the-most-important-thin.aspx

Monty

Stratasys (SSYS) and 3D Systems (DDD)

Three years ago, in 2012 I wrote how I was going to sextuple my Netflix investment by 2016. To my surprise, it became an eight bagger in less than two years. So, I sold half my shares, paid off our two family cars, and paid cash for the birth of my second son. (Tip: If you pay cash for health care in America you usually can get a discount between 30%-50%! Great for those of us with High Deductible Health Plans who never hit the deductible). This is why everyone should own at least a dozen individual stocks to go with their index funds in their 401k, it literally can change lives.

*Begin Rant* I vow to never have car payments in our family again, and this promise is a major factor for my wife being able to stay home with our kids. Netflix directly changed my kids’ lives (they are also addicted to it, but that’s a problem I won’t go in to). The average American is broke, has no savings, even while living on two incomes per family. Cars are ridiculously expensive and are a major factor as to why we are slaves to our jobs. Add up your family’s monthly car payments, multiply by twelve. That’s what you are spending per year (not even including gas, taxes, maintenance, etc.). Now, multiply that amount by eight as if you had invested that money in a stock like Netflix back in 2012. That’s some serious money, and that’s just one year’s worth of investment capital! I have learned (and have to constantly remind myself) that money isn’t the fruit, it’s the seed. Once you look at your paycheck as seeds instead of fruit, monthly expenses start to look incredibly expensive. *End Rant*

Fast forward to 2015, and Netflix is now up 12 times since 2012! This is why I always remind myself to avoid arrogance, and remember that calling stock tops and bottoms is impossible. Always plan to be wrong. Make being wrong part of your investing formula. This is why you should never sell an entire position, only trim it. Think of your stocks as trees that get overgrown, and every few years, you should trim them back a bit. You don’t need a perfect lawn, let them get overgrown a bit. The less attention you pay to your portfolio, the better. Though I follow stock news daily, I only look at my portfolio a few times a year. It’s amazing what can happen when you buy a stock, forget about it, and visit it three years later. Now, Netflix is the only stock in my portfolio with dozens of other holdings that has become a twelve bagger. Why Netflix?

Companies defining the future that are hated at the present will be your best investments.

It’s really just another variation of my favorite Warren Buffett quote with a focus on “growth stocks.” Now, Netflix has two other major advantages that makes it extra special: One, every person on earth is a potential customer. Two, monthly subscriptions are the best business models in the world. Netflix doesn’t just launch an incredible product that everyone wants. Netflix launches an incredible product that everyone buys every month. How many of your investments can you say have that quality? For me, it’s only the food, beverage, and energy companies that have these qualities. These companies are usually valued in the tens of billions of dollars and are much harder to quickly grow simply because of their size. I typically use food/energy companies as my dividend paying investments. Dividends make up half of investing returns in the market so you definitely want half of your portfolio in great dividend payers. Netflix was only 3 billion dollars back in 2012, and you have to be small if you are going to increase 12 fold. Babies grow to be adults but adults don’t grow to become senior citizens. You get paid for every inch your children grow.

Though 3D Printing is not the next Netflix, as the market is much smaller, 3D Printing is the future and is currently hated with extreme passion. That’s enough to get me pounding the table. If you aren’t familiar with 3D printing, spend 10 minutes on Stratasys.com and 3DSystems.com and tell me that isn’t the future. The Coke and Pepsi of the 3D Printing world, Stratasys (SSYS) and 3D Systems (DDD) are down almost 75% from their 52 week highs. Past performance can absolutely predict future results, and I am betting that these two 3D titans will eventually hit their 52 week high again. Netflix dropped and recovered, and I think these will too. When that happens, four bagger! Is 3D Printing over? Of course not, it’s just getting started! The reason why 3D printing is so hated is because sales aren’t growing as fast as people would like and there is ever increasing competition. If these investments don’t work, it will most likely be because the competition kills them. What if Google, Apple, Amazon, Microsoft, or HP start making 3D printers? Or, what if another startup dominates? That’s always a possibility that could make these shares losers. This is why you should always own at least a dozen stocks, place many small bets, and just try to be right once. If these two investments are losers, so what? With a portfolio of losers and moderate winners, you only need one 12 bagger to beat the market for years. Plant a lot of seeds ($400 a seed, the cost of one SUV car payment, is all that is needed!), watch them grow/die over the years, and only trim every few years.

Monty

Stat DDD SSYS
Price (Market Cap) 2.46 Billion 1.90 Billion
Cash And Equivalents 284 Million (179 million in 2011) 442 Million (It was only 20 million in 2011!)
Long Term Debt 0 (Was 131 million in 2011!) 0
FPE 25.05 19.93
PEG 2.06 -11.84
Dividend
And Yield
N/A N/A
Price/Cash
Flow
44.30 -9.40
Price/Book 1.96 .82
ROE N/A N/A
Motley Fool
Caps Rating
4 stars 4 stars
Size of Position In Portfolio Increased from 2.5% to 5% Increased from 2.5% to 5%

Buying Dead People. My New Money-Doubling Halloween Tradition

Halloween is my favorite Holiday of the year. The fall air, colors, and bike rides through golden leaf sidewalks. The 31 days of watching and playing The Great Pumpkin, Garfield’s Halloween Special, Ghostbusters, Young Frankenstein, Castlevania, Ghosts ‘N Goblins, and Splatterhouse. Festivals, Halloween themed amusement parks (Frightmares at Lagoon!), buying and making costumes, etc. In the Singleton family, it’s easily the busiest month of the year as the list of fun is endless.  This year, we added a new activity to our Halloween tradition:

Buying Dead People.

Yes, we are literally buying dead people in the Singleton household for each family member every October starting …now! Roths for the adults and ESAs for the children. By doing so, our investment will double every seven years. How is this possible?

Witchcraft? Selling our soul to the Devil? Human sacrifice, dogs and cats living together… mass hysteria? No.

Graveyards. That’s right, Graveyards. You can invest in Graveyards! I had no idea. Credit for this wonderful idea goes to the most conservative and analysis driven investor I follow, James Early. He recommended it in the Motley Fool Income Investor in December 2011. I missed his first recommendation, but then I heard him recommend it again this year on Motley Fool’s daily radio Podcast, Market Foolery.

He keeps talking about this incredible idea because it pays a massive yield of almost 10%. That means the investment will double every 7 years (Rule of 72s. Take 72 and divide it by the yield. Thanks Dad!). My children will see their annual Halloween investment almost be an eight bagger by the time they reach college, through dividends alone! The power of Dividend Reinvestment (DRIP) compounding.

By owning over 300 cemeteries in 25 states, more than 90 funeral homes, with more than a total of 400 locations, StoneMor Partners (STON) has a Warren Buffett style, body-filled moat through massive land ownership (enough space for at least 260 years of bodies) and guaranteed repeat customer business. Low tech and simple. Just try to disrupt this business Amazon! 100% of people die and if StoneMor doesn’t get their money through a burial plot, tombstone, or coffin, it will on cremation. StoneMor is an MLP, which means StoneMor does not incur income taxes, and pays the vast majority of earnings to their partners (you buy a share, you become a partner) which is why their dividend is so high. Very similar to REITs which I also love. Now, because of this, special rules may apply (depending on the amount invested) when it comes to holding MLPs in an IRA or ESA. So talk to your accountant to find the latest on the rules.  Or, just buy and DRIP these shares in your regular non-tax deferred account.

Happy Halloween!

Monty

How I’m Going To Double My Money By Buying A Bankrupt Mall   Investing just $500 in Pier 1 Imports (PIR) in March 2009 would now be worth $50,000. A hundred bagger. Investing $500 in K-Mart in June 2003 turned into $2500 in February 2005.  A five bagger. Why does the world need Pier 1? Why would anyone go to K-Mart? The world doesn’t. These businesses could have disappeared and nobody would have noticed, yet these were incredible investments. Why? Walking Dead Valuation.  Pier 1 had a market cap of 10 million in 2009, and K-Mart about 1.5 billion in 2003. Pier 1 was on the brink of bankruptcy after 17 consecutive quarters of declining sales. K-Mart went bankrupt, and re-emerged in 2003 with the smaller market cap. Those that bought K-Mart before bankruptcy lost their investment, those that bought after, a five bagger. This is why I spend a few minutes every day scanning the 52 week low lists, because you only need to find one zombie that comes back to life, and it can add a powerful secret sauce to your core portfolio of index funds and blue chips.  Even if you do invest in a company that goes bankrupt, at least you are paying attention to the story. If it ever re-emerges, like K-Mart, you can buy back in and make your money back as it returns to profitability. Why It Only Takes One Predicting the future is impossible. However, by buying a basket, math is one your side. Imagine a basket in your portfolio as one very small investment, let’s call this the Bankrupt Mall Basket. It’s holding a bunch of failing companies instead of eggs. In this basket is four companies, $1,000 invested in each. If three go bankrupt, and only one turns around and becomes a 7 bagger, that $4,000 original investment becomes $7,000. That’s a 75% failure rate, and yet you still almost doubled your money.

Mall Basket Original Investment Future Value
Pacific Sunwear $1,000 $0 (Bankrupt!)
Quicksilver $1,000 $0 (Bankrupt!)
Aeropostale $1,000 $7,000 (Turnaround!)
Radioshack $1,000 $0 (Bankrupt!)
Total $4,000 $7,000

Now, I think this basket will do a little better than a 75% failure rate.  That’s why over the next 5-10 years I think this mall basket will at least double. This has been my most successful investing strategy (thanks Buffett!). It worked in the past on AIG, Bank Of America, BP, Netflix, Ford, First Solar, Supervalu.  My failures, like Blockbuster and GM, don’t matter because of how math works. Your losers can only lose 100%, but your winners? The upside is infinite. Through diversification of many small bets combined with time (at least 5 years), your basket will eventually be filled with golden eggs. Finding The One I don’t use traditional valuation strategies when investing in turnarounds. I have found these key factors are most important to success

  • Strong consumer brand. Does your non-investing co-worker and family member know the brand? If the answer is yes, congratulations! You have found yourself a strong consumer brand.
  • Everyone hates it. The media is writing about yet another bad quarter. Your friends no longer buy their products. Everyone predicts the brand is dead. Stores are closing. You are laughed at when you tell someone you bought shares of the company.
  • Low market cap. The lower the better, typically 1 billion or less.
  • 52 week low to 52 week high spread. The greater the distance between the 52 week low price and the 52 week high price, the better.
  • Buying at or near 52 week low. The best time to buy these companies are when they show up on the 52 week low list.
  • The more investments you can make the greater your chances of buying the one.
  • Small bets. The smaller the bets, the more diversification you can have. Remember that with Pier 1, $500 became $50,000. A small bet can turn from a seed to a massive sequoia tree. Do not keep buying more shares of a company that’s on its way to bankruptcy. Make a small bet, and let it ride. If you keep buying more shares of a company that keeps falling, and eventually goes bankrupt, those shares are worthless and you have ruined your diversification.
  • Nerves of steal. It’s impossible to call a bottom. So, be prepared for many of these investments to drop more than 50% before they rebound. Just watch and don’t take action. Or, don’t watch! If you can place your bets and check back five years later, even better.

The Bankrupt Mall Basket Once again let me stress that small bets, diversification, and time are absolutely key here. If you don’t have those three things, don’t touch any of these companies. dELIaS (DLIA)  *New addition to basket on 8/20/2014* Burning through cash. Had 28 million in 2011 and now only 3 million. Had zero debt in 2011, now has 14 million. This company is getting killed, which is why it only has a market cap of 31 million. Their CFO, David Dick just left. Launched in 1993 by two Yale graduates, but then quickly sold a decade later to Alloy Inc. for 50 million. It resonated with the Gen Y teenage girls. Can it ever come back? Throw pocket change at this one because of their terrible balance sheet. But, if it ever gets back to it’s 52 week high, it’s a 3 bagger. *DEC 7 2014 UPDATE*, DELiaS declares bankruptcy. Pacific Sunwear (PSUN).  California-themed clothing titan founded in 1980. 7 Utah locations, 645 total locations. 137 million market cap. A 2 bagger if it hit’s it’s 52 week high. 27 million in cash and 86 million in long term debt. California-themed clothing is currently out of style. But, it was in style in the 80s, came back again in the 2000s, and it will come back again. Quiksilver, Inc. (ZQK). You may know them as Quicksilver, Roxy, and DC. These three brands are all owned by the same company. 829 retail stores globally and their products are for sale almost everywhere.  Founded in 1969 Australia. 495 million market cap. A 3 bagger if it reaches it’s 52 week high. 57 million in cash, but almost a billion in debt.  That’s a massive amount of debt.  It has a previously strong action-sports brand with clothes, shoes, and accessories.  Will it come back in fashion? 6/23/2015 update. Down 72% for the basket almost a year later, so I’m doubling down. If it doesn’t go bankrupt, major upside as it will be a 5 bagger if it gets back to it’s current 52 week high. But, lots of debt makes this a high risk.  Aeropostale (ARO). Casual teenage clothing giant since 1973. 992 US stores, and over a hundred global stores. 252 million market cap. A 5 bagger if it reaches it’s 52 week high. 106 million in cash, and ZERO debt. Yes, that’s right, zero debt. This is incredibly important. If I was going to go a little heavier in an investment, it will always be the company with the least amount of debt. How long before Aeropostale becomes fashion forward again? They have the balance sheet to weather the storm. RadioShack (RSH) is dead.  Founded in 1921. Only 61 million in cash, and 600 million in debt. Things are so bad, I can’t think of a way their business will turn around. I did hear a Motley Fool analyst mention that RadioShack basically selling Kickstarter-like projects, inventions from individuals, might work. It definitely ties in with their hobbyist brand. However, my first thought was “Wouldn’t people just buy these from Kickstarter or other Internet websites?”  RadioShack does meet my criteria of brand recognition at bankruptcy prices.  It’s trading for 61 million, which is trading for the cash on its sheet. But, because of it’s massive amount of debt, I’m making a very small bet here. SMALL.  If a miracle happens and it gets back to it’s 52 week high, a 7 bagger. But, the investment is probably going to zero. Throw pocket change at this one just in case it’s the next Pier One. However, selling consumer tech is much harder than furniture. Furniture doesn’t become obsolete.*FEB 5 2015 UPDATE* Radioshack declares bankruptcy.  I’ll be updating this article over the years and putting more eggs in my basket as mall brands hit the 52 week low list with a nice 52 week high/low spread. Monty

NFLXGOLD

Everyone should own some individual stocks for one reason: They will give you freedom.

My goal is to get my expenses down to the poverty level. Most people spend more the more they make. I am on a path to do just the opposite. I want freedom. I want the freedom to pursue a career where passion is the only deciding factor, not a paycheck. I want my wife to have the freedom to continue to stay home with our kids and then pursue her passions as they grow older. I want our kids to have the freedom to follow their passion (my 3 year old son already has 6 months of college paid for thanks in part to his Netflix shares). Thankfully in America, money will give me this freedom. How do I know this? Because every step I take fighting against my consumerism, every day I’m a little more free. Ironically, my strategy to fight consumerism is to invest in it. But, this is much better than being a slave to it. A small $2,000 investment in Netflix two years ago is now worth $16,000. Turning a knife into a massive sword to slice those expenses into pieces. Is that $2,000 TV really worth the $16,000 it could turn into? When you start thinking of money as a seed to grow a tree, it really changes how you value a dollar. Everybody has the money to invest. I’ve watched my family members turn a measly $50 a month into massive gains over the years.

Two years ago I wrote How I’m Going To Sextuple My Money By 2016. Thankfully, my remaining investment in Netflix (NFLX) has octupled two years ahead of schedule. 2013 was a record year and Netflix has incredible content deal followed by incredible content deal. Though my timeline is different, my strategy stays the same.  When Netflix was on fire, I got greedy. Warren Buffett’s strategy of buying great brands when everyone hates them has by far been my most successful strategy leading to this eight-bagger. However, his wisdom of being fearful when others are greedy is even more important. Over the past year, I have been trimming my Netflix position as it continues to grow. I have paid off two cars, paid off a cash birth, and spent an incredible week in Disneyland. Markets and companies boom and bust, and the only way to truly lock in gains, is to do something with them that can never be taken away. I had a week with my family I will never forget in the Magic Kingdom. By permanently saying goodbye to our car payments (only cash car purchases from here), we are one step closer to freedom.

I’ve been waiting for a huge surge in Netflix to write this article. When friends and family would ask me my opinion on Netflix, I would say anything above 15 billion (market cap) is time to sell half. We are now at 23 billion thanks to incredible subscriber growth.

My strategy is to sell half of a position when I think it’s almost impossible to double. Then, because I know predicting the future is impossible, let the other half run forever.

I think it’s going to be incredibly difficult for Netflix to reach 46 billion dollars unless it drastically evolves into something different.  Here’s  a few valuations I am using (Using the most under rated, market cap):

  • Blockbuster’s valuation peaked in 2002 at 5 billion. We are 4 times that when Blockbuster owned the world (and charged a massive premium on movie rentals)
  • Time Warner (TWX) is valued at 58 billion. Time Warner is over a hundred years old and owns content Netflix only dreams of.
  • You know how Netflix wants to become the next HBO? Well, HBO is 20% Of Time Warner. So, that values HBO at 11.6 billion. Time Warner also owns TNT, TBS, and CNN, Fortune, People, TIME, Warner Bros.  If Netflix doubles from here, can it become all those things that took Time Warner over a hundred years to become?

I think it’s highly unlikely. Which, is why I’m suggesting selling half to those of you who haven’t trimmed. However, if Netflix mutates into something more, like how Amazon mutated from a simple book seller to a company making tablets and drones.  How Apple became a phone maker and music seller, you want to let those other shares run forever.

That’s my second favorite investment wisdom from Warren Buffet. How long do you hold a stock? Forever. This removes the arrogance and impossible task of market timing. But remember, Mr. Buffett constantly trims his “forever” positions as well. Holding forever means always holding a core position, but also taking advantage of greed and fear.

Monty

PROJECTMAYHEM

After calculating last year’s investing returns, including re-invested dividends, I am into year five of an average annual return of 17.7% (Here are my active investments and my total moves). Destroying what that money would have done if invested in an index fund by a whopping 4.4% per year. If I can keep up this performance, our total assets will double every five and a half years. Out of my 52 holdings, almost 90% of them are in positive territory.  Peter Lynch says all you need is 60% make money. In 2012 I had:

Two triple baggers: Netflix (NFLX) (as I write this, it’s now almost a quadruple from when I doubled down), First Solar (FSLR, doubled down here too)

Four double baggers: eBay (EBAY), Euro-trash Lloyd’s Group (LYG), Cedar Fair (FUN),   Bank Of America (BAC)

I haven’t invested this well since 1999 where I sold a tech-heavy portfolio in February of 2000 to raise capital to become self-employed. The following dot bomb would have erased my portfolio if it wasn’t for dumb luck. Since the best investors in the world only hit in the low twenties annually, I have been awoken in a cold sweat at midnight with thoughts of:

I am Jack’s investing genius.

I am Jack’s complete lack of fear, with no worries in the world.

Tyler Durden is starting to take over with his over-confidence and this scares me. Everyone looks like a genius when stocks only go up. Individuals are coming back to the market, which means everybody is talking about Fight Club now. The amount of gains don’t worry me, it’s the speed of the gains. Tyler says “The market has been flat for a decade and not to worry, we are just making up for lost time. There’s always a bull market somewhere.” The narrator says “We have a recession every five years on average and I have just had an incredible five years. We are at all-time highs.”  What to do? I’m going to kill Tyler Durden and trim my portfolio by half. I’m going to be almost 100% playing with the houses money which means I can’t lose (Thanks Jim Cramer!).  If I was anyone else, I wouldn’t be so aggressive, and make sure I had 30% in cash to prepare for the next crash. Maybe its next month, maybe it’s in 2017? It’s impossible to know but disaster is always just around the corner.  Now that the low-hanging stock fruit has been picked my focus this year is to become 100% debt free so we can buy a house in 2015. I think I can get larger returns by reducing my monthly expenses. This is also the first time I have trimmed everything, and the reason I’m doing this is because I like the size of my allocations and I like all of my 52 investments. I want the same portfolio, it’s just going to be half the size.

I’ve been trying to find something to worry about for weeks that’s going send the market lower, and I can’t think of anything. !!! That terrifies me. I told myself in 2009 that if we get back to the 2007 highs, I wouldn’t get greedy. So, as Warren Buffett says, ”Get fearful” and kill Tyler Durden before he blows up our portfolio with Project Mayhem.

Monty

P.S. Scroll down below to see what I’ve been up to since my last article (My Facebook updates)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2/15/2013

After verifying a report I heard that said one thousand invested in tobacco maker Phillip Morris would turn into 3.5 million dollars over 40 years (primarily due to massive reinvested dividends of a hated stock) I wanted to find a similar investment that doesn’t prey on children and poor people. I turn to alcohol for a simple, high margin business model that’s consumed daily worldwide that I’m a big fan of.  About a year ago BEAM was spun off from Fortune Brands to be a pure-play spirits company. That means I get focus, strong brands (Jim Beam, Skinny Girl, Courvoisier, Pucker, Maker’s Mark, Pinnacle, etc.) a small market cap (9.8 billion), with a 1.46% dividend that I believe will be constantly raised throughout the decades as the company grows and compounds. PEG 2. Starting with 1.3% of portfolio.

http://www.beamglobal.com/brands/view-all-brands

2/8/2013

Everywhere I go I see rave reviews of Tesla’s Model S. Normally I avoid the auto-industry as an investment because it’s cyclical, but TSLA is only a 4.5 billion company. Ford? 50 billion. Now, this is because TSLA currently bleeds money, has a huge amount of debt, and only makes one (mainstream) car. However, Elon Musk is the closest CEO I can find to a young Steve Jobs. People that invested in everything Steve Jobs eventually made money. I want to be an Elon Musk investor before he turns TSLA into a 10 billion+ company. I expect massive future temporary declines so I’m starting with a small position, 1.1% of portfolio. But, I’m tired of watching this incredible story unfold without me.

Dunkin Donuts has no public stores in California. This is incredible. It’s just starting it’s west expansion, with plans to open over 300 new stores this year. DNKN K-Kups just saw a 30% increase in sales comps. They also own Baskin Robbins which I love. Nigel Travis, the CEO since 2009, also announced a dividend increase of 27%, so it now yields 2.1%. At only 3.9 billion (Starbucks is 42 billion, which I also own), PEG 1.55, and a brand everyone knows, I’m ready to start 1.1% position. I also want to tell my son he owns shares of Baskin Robbins when we start going there, so I trimmed 20% of his NFLX position in his ESA and bought DNKN with it so he can ride that re-invested dividend for 16 years.

1/29/2013

Computer hardware (Intel, AMD, Nvidia, Seagate, WD, etc.) is being killed by virtualization, and the current titan is VMware. VMW lowered projections and announced layoffs of 900 people today. I’ve been waiting for bad news to hit this company for years, and I’m taking advantage of a 22% one day drop as this stock hits a new 52 week low and started ¼ of a position to make up 1.6% of the portfolio @ 33 billion. PEG 1.40. Hopefully this knife will continue to fall so I can buy more.

1/24/2013

Most people have a hard time of figuring out when to sell. Today is a great example of how I make my sell decisions.

A cash birth at St. Mark’s is 65% less than an insured birth. However, if we pay the entire balance within 2 days of birth they give us another 30% off. We decided this deal was too good to pass up so I trimmed 20% off of our top 12 holdings to raise cash to buy a baby. Also, I have had so many major winners recently this could be thought of as rebalancing. Though, even after trimming 20% Netflix still represents 16.9% and is my largest position and I’m not going to take the chain saw to it until the company hits above 16 billion (double from here). Here is how trimming 20% affects the weight of each of my positions. The positions are still large enough they can continue to add massive gains to the portfolio.

NFLX @ 8 billion (from 18.1% to 16.9%), DWA @ 1.5 billion (from 5.7% to 5.2%), DDD @ 3.97 billion (from 5.2% to 4.8%), ARCO @ 2.9 billion (from 3.5% to 3.1%), LULU @ 9.7 billion (from 3.3% to 2.9%), SAM @ 1.87 billion (from 3.2% to 3.1%), CHK @ 12.6 billion (from 2.9% to 2.5%), BNNY @ 625 million (from 2.6% to 2.2%), SVU @ 753 million (from 2.5% to 2.2%), UA 4.81 billion (from 2.5% to 2.2%), NOK @ 15.75 billion (from 2.2% to 1.6%), MAKO 505 million (from 2.6% to 1.9%).

I also started a position of Konami (KNM) to be 1.3% of the portfolio at 2.6 billion. Though the video game industry is in a weak phase, Konami was one of my favorite companies growing up and I’ve wanted to add it to my portfolio for a long time. Though it may not end up being a great investment, I couldn’t resist as it hit a 52 week low yesterday.

1/8/2013

MAKO hit a new 52 week low yesterday, a 10% drop from just two weeks ago, so I increased position from 1.9% of portfolio to 2.4% @ 478 million. MAKOplasty procedures are up 29% from a year ago, which is the number I’m interested in, but only hit guidance in RIO sales which is why it dropped. More info here http://www.fool.com/investing/general/2013/01/07/why-mako-surgical-shares-dipped-then-rebounded.aspx.

1/2/2013

Why is Zipcar up 50% today? Avis just bought them. Didn’t see that one coming at all! I’m selling the entire position at 490 million as I’m not interested in owning Avis and the stock is trading at the purchase price. Though this locks in a total 12% gain for me on the investment, I would have much rather preferred ZIP to stay independent and rack in multi-bagger returns over the decades. If I didn’t buy when ZIP shares were at their 52 week low I wouldn’t have a gain at all. Oh well, hard to be too upset with a huge one day pop.

12/31/2012

Following billionaire T. Boone Picken’s lead and starting 1/4th a position (1.4% of total portfolio) in gas titan DVN. Devon just hit a 52 week low @ 20.8 billion and hasn’t been this cheap since 2009 thanks to greatly increased production which lowers gas prices.  The fourth largest natural gas producer in in America, 29% of their current production is oil, 19% is NGLs, and 52% is natural gas.  I’m a 30 year long term bull on fossil fuels, and have been wanting to add DVN to my energy basket for 3 years now.  1.50% yield, PEG 4.87. High PEG because of low earnings. Decreased my position in BP @ 131 billion from 2.9% to 1.4% to raise cash for the purchase.

12/27/2012

I believe that a surgeon controlling a robot doing hip and knee replacement surgery is far superior to just a surgeon. So, I’m taking advantage of MAKO being near its 52 week low (1/4th of its 52 week high price!!) and adding another ¼ position @ 526 million. After doubling down, it now represents 2.1% of my portfolio (up from 0.8%). Turned a -34.4% loss into -16.% loss. Decreased my position in BAC @ 123 billion from 2.6% to 1.4% to raise cash for the purchase.

12/20/2012

Starting with ¼ position (1.4% of total portfolio) in Stratasys (SSYS) as I believe this is 3D Printing’s Pepsi to DDD’s Coke. 3D printing I believe is going to be the biggest game changer over the next 20 years and I want to own the top players as it’s impossible to know who the winner will be in 2022. SSYS is right at its 52 week high and it was on my watch list all the way up. No more watching. Since it’s only 1.73 billion company however the high price won’t matter in decade, it will just look like a minor blip on the chart. PEG 2.53 which is normally too high for me, but that’s why I’m only buying 1/4th.

12/17/2012

Sold my entire position in RIMM @ 7.3 billion for a 97% gain in 4 months. Ironically this beat my Apple investment  by a percentage point.  I’ll only be buying back RIMM shares if Blackberry 10 lights the world on fire but I think the Mayan calendar has a better chance.

12/10/2012

Preparing to cash in on my dead cat bounce of Blackberry maker RIMM before earnings are announced December 20th and everyone remembers how bad things are again and the stock has to claw its way back on Blackberry 10 hype in Jan.

RIMM is up 67% for me and this is a trade so I will be selling the entire position. I’m using stop loss, which I don’t use to prevent losses, but to sell a stock while squeezing out a bit more profit. It may run until earnings so if it does my order won’t trigger unless it hits $10.50 (the lowest it’s been in 3 weeks). If it doesn’t trigger, I’ll be selling with a market order on December 19th because stop losses don’t help if a stock opens down huge. I use stop losses when a stock is running as it’s already too late when a stock falls off a cliff.

12/10/2012

Adding another quarter position to Annie’s (BNNY) turning a 12% loss into a 6% loss. Annie’s is growing sales aggressively but margins are falling. The company hasn’t even been public a year, is valued at a mere 625 million, so it’s still a baby learning how to walk. I believe the organic trend will eventually become mainstream so the upside is huge here. They currently offer over 125 products in over 35,000 grocery stores. PEG 1.97, increased position from 1.4% of portfolio to 3.0%.