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Archive for the ‘Buy Buy Buy!!!’ Category

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.

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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 Current Value
10/31/2016 Buy StoneMor Partners (STON) $730 $706
4/28/2017 Buy Dunkin Brands Group Inc (DNKN) $390 $390
Total College Fund   $1096

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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

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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%

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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

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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

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How I Won 1st Place In Wall Street Survivor In 5 Easy Steps

How I Won 1st Place In Wall Street Survivor In 5 Easy Steps

On Election Day, I won 1st Place in the Beehive game of Wall Street Survivor set up by my friend and fellow stock-geek Mark Poncelet.  I virtually booked a 14.26% total portfolio gain in 3 months which ranks as one of my best runs ever. That’s almost quadruple of the S&P’s return of 3.79% from August 01 to November 6th 2012. Before I joined the game, I told Mark I would either come in first place or last place with my aggressive, turnaround heavy portfolio.  In Stockland, the seasons aren’t predictable. It’s impossible to know if the seeds you have planted will blossom or if it’s another decade of winter. That’s why I never invest money I need within 5 years, I invest for decades. Thankfully, spring surprisingly arrived early.

Here are the 5 strategies I used in WSS followed by my results and why they did/didn’t work.

1. Diversify, diversify, diversify! Think of yourself as a super-hero baseball player and the universe is the stadium. To win the game, you only need to hit one home run (1,000%+ gainer).  But, it takes 30 years for the intergalactic ball to move from home plate to outside the stadium, so you won’t know the results until you have hit all your balls and wait for them to land. How many swings would you like before you started playing? If someone told you they only wanted one or two swings wouldn’t you think they were crazy? Yet, the #1 problem in real life and in the Beehive competition was people did not diversify. People constantly circled me with gigantic gains because of going all in on one idea followed by gigantic losses. In the end, it was a losing strategy for them.  Remember, if you buy stocks you are in the business of predicting the future. Plan on being wrong frequently.

2. Valuation.

  • Expectations. Stocks move on expectations more than anything else. So, the majority of my picks were so hated that any good news would move them significantly.
  • 52 week low to 52 to week high ratio. I started with a screener to find companies I liked that were trading near their 52 week low.  Then, the further they were from their 52 week high the better.  Netflix being at $57 with a 52 week high of $265 and First Solar being at $18 with a 52 week high of $118 are perfect examples of this. Sometimes those old sellers return as buyers when they feel the water is safe again. Low prices can also attract big sharks. Carl Icahn bought 10% of Netflix and Softbank bought 70% of Sprint during the game because the blood these companies shed was in the water.
  • Market Cap.  I also picked stocks with a market cap below 10 billion. Like a baby doubling in size every year, it’s easy to go from 2 billion to 4 billion.  However, like a tiger growing to the size of a dinosaur, it’s been impossible to go from 500 billion to 1 trillion. Since the Philadelphia Stock Exchange started trading in 1790 there has never been a 1 trillion dollar company. Yet, Google and Apple were very popular picks in the game. If your mega-cap doubled in price how much would it be worth?

3. Turnaround or growth thesis?  I love dividends, but not if I was going to die in 3 months. Since that was the life of the game I only focused on two types of stocks, turnarounds or growth. How are they going to turn around? Do you see a future that nobody else sees? Turnarounds give you big gains if anything good happens to them. “What goes down must come up!” (Popeye). Growth stocks give you big gains if they continue to define a future that’s not in focus yet (“What do you mean people aren’t going to listen to music on CDs?). Figure out where the puck is going before everyone else (Thank’s Gretsky!).

4. Buy and hold. Invest in slow motion. Do not short, use stop loss, or buy on margin. My 2nd largest winner was First Solar. During the game, many ideas were borrowed since players can see other people’s trades. Players that traded First Solar missed the big gains. Netflix, Sprint, and Supervalu’s gains all came in one day. Statistically, there’s only one day a year (on average) where a stock gets the majority of its gains. Predicting the future is hard enough, pinning the exact day is impossible. This is why trading fails. I practice trimming. Buy more when your stocks hit a 52 week low and sell less when they hit a 52 week high.  I sold half of my position at Sprint after Softbank invested in Sprint and pushed it to a new 52 week high, since the game is short. Plant the seed, sit back and wait for it to grow.  Aim for 1000% gains made over decades, not 20% gains made over months.

5. Diversify not Diworsify (Thanks Lynch!).  There were 13 stocks in my Beehive portfolio, and my best 10 ideas took up about 10% each of the portfolio. Study after study has shown that if you want to beat the market, having a somewhat diversified yet concentrated portfolio is the most important. Invest the heaviest in your best ideas. Warren Buffet invested 1/3rd of his entire portfolio into American Express in 1964 when everyone was selling because of a fraud scandal. Since I don’t have Warren Buffet super-powers, the largest I’ll ever go is 1/10th. Still focused enough to add huge gains if I’m right, but won’t kill me if I’m wrong. If you are diworsified and have too many stocks, you will probably end up just mirroring the market. Ironically Peter Lynch who coined this phrase and brought in 30% annual returns owned hundreds of stocks in his portfolio. But, that’s because it’s the weight of the holding that’s important, not the number of stocks. In the game, Netflix started out as 10% of the portfolio and Knight Capital started out as 1%.

 

Monty’s Beehive WSS Portfolio   August 1st-November 6th 2012
Company Gain/Loss Why it did/didn’t work Starting Weight
Netflix (NFLX) 33% Worked.  Hated in August but then loved at Value Investing Congress 2012Netflixed   book is out in October and thinks Netflix will see Amazon like recovery.   Suddenly, Carl Icahn buys 10% of the company. 10%
First Solar (FSLR) 32% Worked. Everyone thought   solar meant Solyndra but then  First   Solar kills estimates in the 2nd quarter with a 45% earnings beat. 10%
Sprint (S) 30% Worked. Jim Cramer points   out Sprint is cheap and unloved and suddenly Softbank buys 70% of Sprint. 10%
Supervalu (SVU) 25% Worked. The nation’s 3rd   largest grocery chain hasn’t been this cheap since the 70s due to poor sales   and shrinking margins. Suddenly there’s a rumor a private party is in talks   with JP Morgan Chase for a 5 billion loan to buy the chains and the stock   pops. 10%
Electronic Arts (EA) 21% Worked. Nothing major   happened. A minor earnings beat and lowered guidance in October. This stock   was just too hated when I bought it that just OK news moved the stock up. 10%
Dreamworks (DWA) 19% Worked. Madagascar 3   grossed 734 million worldwide which lead to nice beat and raise on November 1st. 10%
Hain Celestial (HAIN) 7% Worked. Beat and raise in   August and they announced they are buying several brands from British company   Premier Foods. Did you know Hain sells over 2,000 products in Whole   Foods? 5%
JC Penny (JCP) 5% Worked, but just barely.   This stock moved as high as 30% in the game based off of free haircuts. I’m   not joking.  I thought this was stupid and   was going to ride this out before earnings but it gave up most of its gains   before the game ended (a day before earnings which were terrible).  I won’t really buy JCP until a good quarter   arrives. 10%
Yahoo (YHOO) 4% Worked. Everyone is   excited about how well the new ex-Google CEO Marissa Mayer is doing. 5%
Chesapeake Energy (CHK) -1% Didn’t work. US’s largest   Natural Gas producer had a GAAP loss of 2.1 billion on Q3 earnings but this   stock is already left for dead so it only dropped a percent. 10%
Chipotle (CMG) -7% Didn’t work. Had almost   20% revenue growth from the year prior but didn’t meet expectations.  When a growth stock doesn’t blow away   expectations, the stock price falls. 5%
Knight Capital (KCG) -17% Didn’t work. After losing   80% in one day due to a trading algorithm which lost 440 million in a half   hour I was hoping for a dead cat bounce.    Didn’t get one. But, it was only 1% of the portfolio so no big deal. I   threw a joker into the deck.

11/28/2012 update. Only a few weeks later and KCG received a buy-out offer from Getco and jumped 35% in one week. Timing is everything.

1%
Arcos Dorados (ARCO) -19% Didn’t work. The Latin   America McDonalds is doing great but suffering from a Brazilian Real currency   that’s depreciated 23% against the dollar. 4%
Total 3 Month Return (Compared   to S&P 3.79%) 14.26% 100%

You might be laughing that I’m blogging about my performance in a game.  But, I didn’t play the game like it was a game. I played it like it was real to see how my strategies would fair against competitors who were playing with fake money ($10,000). In fact, my best investments actually ended up mirroring my real-life investments. I personally own all of these stocks except Sprint, JC Penny, and Night Capital.

Monty

P.S. Scroll down if you want to see what I’ve been buying and selling since my last post.

11/14/2012

McDonalds Latin America (ARCO) hit a 52 week low yesterday so I doubled-down @ 2.3 billion and turned a -26.8% loss into a -15.3% loss. This was caused by currency problems that reduced earnings. However, same store sales were up 6.5%, organic revenue up 11.6%, and 103 new stores opened in 2012. Those are the real important numbers. Increased position from 1.7% to 3.3%.   PEG 1.34, 2.17% yield.

Decreased BP position @ 128 billion from 4.3% to 3.1% to raise cash. PEG 4.90, 5.33% yield

11/09/2012

I hate, HATE buying a stock (ZIP) after it has a one day pop of 28% but this is what I get for not sticking to my discipline and not buying more of my stocks when it showed up on the 52 week low list two days ago. I said “I’ll wait until January and add it to my fear basket.” Zipcar increased EPS 5 fold, a massive beat and raise with today’s report. Details here: http://www.fool.com/investing/general/2012/11/09/zipcar-beats-on-both-top-and-bottom-lines.aspx . Since the fundamentals have greatly improved and the stock still trades 50% below its 52 week high, is only a 484 million dollar company, I’m acting now. I believe it’s going to run since the facts have changed and the market cap is so small. Increased my position from 1.0% to 2.3% in portfolio. Here’s my original article I wrote as to why I like Zipcar and I still believe in this thesis. https://greedywhenfearful.com/2011/08/19/my-bet-america%e2%80%99s-love-affair-with-the-automobile-died-in-the-20th-century-zip/

Decreased Nucor (NUE) from 2.5 to 1.2% to raise cash for my ZIP purchase. Children have slowed down our aggressive saving (but I’m trying to change that).  I chose to lighten up on Nucor as I decided I really don’t want my dividend stocks to be cyclical, I want them to be secular. Rock solid companies that grow money every month no matter what the country is facing.

10/05/2012

Jim Cramer went over a Goldman Sachs report on 10/1/2012 that made a good case stating that Yahoo’s core business is trading for only 1/7th of its value. This is a nice margin of safety for a potential turnaround with a new CEO (Marissa Mayer of Google fame). Placing a small bet (Only 1% of portfolio) on YHOO to see if this 19 billion company can actually turn. Peg 1.33.

9/14/2012

This market is ON FIRE! It’s INCREDIBLE! DOW and S&P near all-time highs. So…getting fearful now that people are greedy with both US and Europe printing endless amounts of money.

Way too many of my positions are near their all-time highs and 52 week highs it’s making me uncomfortable. Raising cash by reducing the following positions by an average of 20% in the portfolio:

CIT, KORS, FDX, MSFT, INTC, LULU, UA, GOOG, EBAY

9/12/2012

Sold 30% of JPM shares @ 151 billion to lock in gain of 14.6% on those shares and raise cash. Reduced total position from 3.5% to 2.0%.

Used cash to buy 3D –Systems (DDD) @ 2.10 billion to buy another ¼ position as it’s decreased 10% since my original purchase. Now makes instead 3.2% of portfolio instead of 1.7%. PEG 2.53.

9/11/2012

Starting position in Kimberly-Clark (KMB) @ 32.58 billion to make up 1.5% of portfolio. My wife’s pick to ride what we believe to be the next baby boom (KMB makes Kleenex, Scott, Huggies, Pull-Ups). I like the 3.6% yield and 1.8 PEG rate.

8/28/2012

http://cubify.com/ is the future and I’m tired of watching these gains pass me by. Started position in DDD @ 2.35 billion to make up 2% of the portfolio. Reduced ATVI by 50% to raise cash, now makes up to 2.1% of portfolio. PEG 2.57.

Do tech patents actually mean something now? Does RIMM have any mobile patents worth anything?

With 1.8 billion in cash and a patent portfolio estimated at 1.8 billion that equals 3.6 billion. Current market cap: 3.8 billion. At this price I’m betting (Vegas style gambling) on a patent buy-out, so making a 1.6% position in portfolio.

8/27/2012

Sold 30% of BAC shares to lock in loss of 28% on those shares. Reduced total position from 6.3% to 4.6%. Main reason to raise cash and BAC was one of my biggest holdings. Now, I can purchase NOK to make up 1.8% of portfolio at 12 billion.  Apple winning a major patent victory against Android (Samsung is largest Android reseller) is enough catalyst for me to dip my toe into the Microsoft Windows Phone 8 world. Maybe scared vendors will start pushing Microsoft? Balance sheet is pretty ugly though and hardware tech is hard so this will be a Vegas-style trade for me.

8/8/2012

Starting position in Arcos Dorados (ARCO) to make up 2.2% of portfolio @ 3 billion. ARCO is the exclusive franchise of McDonalds in Latin America. Double the population of the US yet McDonalds only has .0003% locations per person there. McDonalds has .005% locations per person in the US. Will it be just as addicting in Latin America?

Sold 20% of FUN shares to lock in gain of 45% on those shares. Reduced total position from 4% to 3%.

Sold 20% of FDX shares to lock in gain of 25% on those shares. Reduced total position from 3.5% to 2.4%.

8/6/2012

Starting position in Hain Celestial (HAIN) to make up 2% of portfolio @ 2.50 billion to pair with Annie’s. Whole Foods Market stocks more than 2,000 products made by Hain.  Why buy the WFM middleman when you can ride the organic wave at EVERY grocery store? Hain sells wherever organic groceries are sold. PEG 2.05.

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