Your 2014 portfolio return

[polangevin]

Having all your nest egg in only one stock is deeply ignoring the chance factor in stock market. If you are conscious about the luck/unluck factor in investment, you have to diversify at least a bit to overcome black swan events that could happen to a particular company.

[enoch01]

Frommi,

 

I think the 50% put protection is a wise idea. It's all about protecting tail risk.  Tail risk by definition is often unknown and unpredictable, rigs blowing up, medical devices resulting in death etc. 

 

By definition, if you're putting 50-100% in 1 idea, most likely it is a 3X or a 2x with a clear catalyst.  Either the deep undervaluation itself is a catalyst or there is some sort of corp event that will re-rate the stock.  Personally, I wouldn't mind paying 10% cost of ATM put to hedge a 100% position.  I would also argue that the optimal put protection is likely somewhere between the ATM strike and 50% lower.  The rationale being that the upside is so large relative to downside that it should take care of itself over time.  Why buy the put and own the stock?  I think it gives you an undistorted view of your exposure.  Also, it's often much easier to enter/exit the common shares when needed.  Getting in and out of LEAPs can be tough in size.   

 

 

Academic studies have shown that there is no benefit of owning more than 20 stocks and you get the most benefits of diversification already with 5-8 stocks. I think Pabrai and Mecham do it this way,so thats probably not a bad idea. Mecham had at one point 50% in BRK, but he argued that BRK in itself is already diversified so that makes sense to me.

 

Everybody talks about Schloss as the most diversified investor of the past, but i found no evidence that he was not concentrated in some stocks. In one interview he mentioned: "Generally, we are happy with a 5% holding but we can go up to 10-12% if we really like it.". Yes he told the interviewer that he is in 100 stocks, but does it really matter when most of the positions are just to follow the stocks and get annual reports? In current times i don`t see a reason for these toehold positions anymore.

 

Putting 100% in one stock and securing it with a put option at 50% loss looks like a smart idea, but when you look at it its just a barbell strategy of holding 50% cash and 50% in a LEAP call option. Any way you turn it, you have to pay the cost of leverage which is bad when the stock goes sideways for a long time. So you have to have a pretty sick confidence that your catalyst will play out.

 

@jmp8822 You wrote that you had more than one stock going into 2008 and you averaged down into one stock, but have you realized that that was only possible because you were diversified before? Imagine your only 5$ position would have gone down from 5$ to 0.5$, you networth would have tanked by 90%. I can`t imagine how depressed i would have been at that point, losing savings of more than 15 years of hard work.

 

From what i learned from other investors is that a maximum limit of 10-15% for normal businesses and 25-40% for diversified businesses or funds is a good compromise between diversification and outperformance and that is what i am using for the future. But i don`t regret being very diversified when i started because that has given me a lot of opportunities to learn and at the same time reduced the magnitude of my mistakes.

 

My biggest argument against concentrated investing is why not go all the way.  If you have three ideas why dilute your best with your second or third best?  So here we have it, someone is finally doing that, and amazingly this concept seems to be gaining traction.  Buy one stock and buy a put.  Sounds perfectly foolproof, nothing can go wrong, losses are protected and gains are ensured. As long as we can all pick the stock that will go up the most each year this strategy is foolproof.

 

Do you use a max position size?  If so, what is it and why?  Sorry if you've talked about it before and I missed it.

[frommi]

Frommi,

 

I think the 50% put protection is a wise idea. It's all about protecting tail risk.  Tail risk by definition is often unknown and unpredictable, rigs blowing up, medical devices resulting in death etc. 

 

By definition, if you're putting 50-100% in 1 idea, most likely it is a 3X or a 2x with a clear catalyst.  Either the deep undervaluation itself is a catalyst or there is some sort of corp event that will re-rate the stock.  Personally, I wouldn't mind paying 10% cost of ATM put to hedge a 100% position.  I would also argue that the optimal put protection is likely somewhere between the ATM strike and 50% lower.  The rationale being that the upside is so large relative to downside that it should take care of itself over time.  Why buy the put and own the stock?  I think it gives you an undistorted view of your exposure.  Also, it's often much easier to enter/exit the common shares when needed.  Getting in and out of LEAPs can be tough in size.   

 

 

I am always open to learn something new, so what is the stock that matches your criteria for that at the moment?

[yadayada]

I think that was not a good candidate for really concentrated positions in the first place. I would not be comfortable enoguh with regulatory risk, no matter how good the company is. Condition for a very concentrated position

 

-rock solid demand for product, or trading under NCAV (so probably no O&G, tech)

-no regulatory risk

-a solid moat

-management that is aligned and not incompetent.

 

I dont think ASPS/OCN ticks all the boxes. If you put 50% of your money in something, it really needs to tick all those boxes.

 

IIRC the most often cited positions for this type of concentration were BAC, AIG, GM, which tick none of those boxes (well maybe the first). In hindsight they all looks like no-brainers, but that's hindsight. I read all of the blogs and research on ASPS/OCN before it tanked, and it was very compelling. I can understand why people invested in it, and it's very unfortunate what's happened.

 

Someone said earlier that it's all about style and preference. HEAVY concentration isn't for me, and I think it'd be a tough one for anyone with a family or investors.

 

Also, don't listen to me. At the moment, I suck at this  ::)

Yeah i wouldnt want a lot in those stocks either. So I agree with you there. Ill give you some examples that seem candidates in hindsight, feel free to disagree:

 

Quilmes: arginetine beer stock. Almost monopoly, lot's of untapped pricing power. Unlikely to get screwed. And people always drink beer, and very very cheap. I think possible upside was like 2-300% with pretty much no downside risk. And you couldnt get screwed as minority holders.

 

Conrad industries: Maybe not the greatest business, rock solid balance sheet at 10$ at the end of 2010. You got the business for almost  free basicly. Management was aligned, and the business had some sort of moat and some possible tailwinds. I think for 60m$ you would get 10m$ in earnings, about 20m in net cash, and about 50m in net current assets. It paid out almost half its market cap at the time in dividends since then.

 

Picanol at 10 euro's: 150m in net cash, market cap of 200m. Manager that had proven himself already. Earnings of 50m (year after earnings were actually 75m). seemed really hard to lose with this one, and worth at least double. Business had a decent moat, and manager seemed v smart judging by results.

 

Google at 10x earnings in 2011 I think? Net cash position of almost 1/3 market cap I think. Huge moat and still growing fast.

 

Schuff: Net tang equity of 80m. Market cap of 40m at 10$ (even better when it was at 7$). trading at almost 1x peak cyclical earnings. Little debt, and it hadn't made any serious losses even in down cycles. High inside ownership.

 

In those cases you were usually protected by some combination of competenent aligned management, a moat and a rock solid balance sheet and cheapness. It seems some hong kong stocks meet these criteria, allthough there you have to be double sure about management. Which you cannot be in most of those cases.

 

 

[HJ]

My biggest argument against concentrated investing is why not go all the way.  If you have three ideas why dilute your best with your second or third best?  So here we have it, someone is finally doing that, and amazingly this concept seems to be gaining traction.  Buy one stock and buy a put.  Sounds perfectly foolproof, nothing can go wrong, losses are protected and gains are ensured. As long as we can all pick the stock that will go up the most each year this strategy is foolproof.

 

I kind of did exactly that this past year with one of my PA accounts.  I didn't buy a put and bought warrants and options to a 2x leverage.  It is not even on an underlying that I believe will necessarily have the best stock market return.  The thing with leverage is that even if the underlying deliver something like 10%+ return, a 2x leveraged position will get you high teens to 20's in today's environment, and that's just fine.  It's a little bit of an experiment for me, and 1 year out, so far so good. 

 

I basically have leaps and warrants on 2 stocks, COF and DFS.  More or less in the same line of business, which I like quite a bit.  Not that I am necessarily convinced the stocks will be 2-3 baggers within the near future, simply that I believe they will deliver solid ROE's over the foreseeable future, and compared with today's valuation, the stocks should do just fine.  Will I get the best return every year?  No.  But will returns be satisfactory if held over long term?  I believe so.  What if they don't?  Well, that's the thing.  It's just like someone deciding to start a business.  How does one know if it's going to work going into it?  Is this necessarily worse than say, me buying into some Hong Kong conglomerate believing in their P/NAV story and that the management won't screw minority investors?  To have a real good answer to that, one also really need to understand the real estate holdings that they have on mainland, which are subject to all sorts of whimsicals of the Chinese government, both central and local.  And they don't own the land, but 50 year leases, which renewal is also potentially subject to them having the connection to the right politician.  How does one handicap that?  I don't know, but I kind of don't care.  And to the families who are the controlling shareholder, they just do the best that they can with whatever hands they will be dealt with down the road, just like I will need to do with my 2 positions. 

 

People in the institutional money management business need to be bound by "fiduciary duty".  Behavior as this would be considered reckless.  But it's an institutional imperative that has some how infested into people's thinking when investing their own money.  I think leverage being applied to good businesses is exactly the right formula.  The question is not just what percent of time are you right, but also (perhaps even more so) that when you are right, how much did you have on the line.  Think Fairfax making 10's of billions on subprime CDS, or putting on 10's of billion CPI puts, or George Soros putting on billions of notional to break the GBP/USD cross in 1990, or Ackman starting a fund with only call options on Target.  Are those reckless behavior when positions were put on?  You just deal with it, whether it works or not.  So you don't "beat the market" over 5 years, there are worse things in life that can happen to you.

 

One thing about this extreme concentration that I noticed is that it make it easier for me to buy on dips.  So when the whole market was trading down 4Q because of oil, I noticed that I was much more inclined to buy than before, because I know the fundamentals of the only business that I am focused on may get a bit of hick up when the oil companies pull back in the oil/gas producing states, but also ought to get a boost further out when the population in the non-oil producing states feel the benefit.  The decision was simply surrounding how much cash would I prefer to have in that account. 

 

When one pulls up a chart of COF from its IPO, there are probably only 3-4 instances over the past 20 yrs that you should sell (assuming, say a 5 year holding period), and that's the question that I try to figure out diligently.  For now I like them, but when and what should I watch out for to walk away.  Buffett sold Freddie way before the crisis, noticing that they owned some Italian bonds.  That's the trade I hope that I have it in me to make with these two positions.

[jmp8822]

Having all your nest egg in only one stock is deeply ignoring the chance factor in stock market. If you are conscious about the luck/unluck factor in investment, you have to diversify at least a bit to overcome black swan events that could happen to a particular company.

 

I agree that there are vast uncertainties with individual stocks - black swans, etc.  That's why you would try to protect against these through a combination of diversification and/or put protection. If I were to be very diversified it would be at the expense of upside just to gain some sense of downside security, while I might not even be doing a good job of protecting against losses. The question I would ask back is how much are you willing to lose?  Buy a put to protect the amount below that. Did it cost something? Absolutely - but it is easy to see the cost of the put - it is hard to see the opportunity cost.  But they are both worth a dollar, whether you can see it today or not. You eliminated some major risks by buying the put, namely a good portion of individual stock risk to protect against the black swan and some amount of market risk (the market risk could also be the black swan) at the same time.  I used to think about buying puts on the S&P 500, but I have never done it because I would much rather pay a higher premium and actually protect what I own.  I could own puts on the S&P 500 and still get hammered just because I picked the wrong stock, while the market didn't go down. 

 

Someone in this thread said that you are in effect just owing a LEAP call on the stock, for example 50% in a deep in the money call and 50% in cash.  That is precisely the point.  You have the protection of a cash-like cushion by owning the stock+put (because it is the same mathematically as owing the call+cash at the same strike).  If you are a basket stock picker, i.e. 50 low P/E stocks, etc., this of course doesn't apply.  But if you are trying to value businesses, you must be making implied upside/downside estimates of some kind, otherwise you haven't come up with a valuation in the first place.  I can't even imagine being indifferent between 20 stock ideas - that would tell me I had no idea how to value a stock or needed to keep looking for better ideas.  But, if you are relatively indifferent between four stock ideas, by all means, buy all four to reduce your individual stock risk. But if you had two ideas, one with 80% estimated upside, and another with 20% estimated upside, I would absolutely rather own 100% of the estimated 80% upside stock, with put protection on that position.  This is where the opportunity cost becomes the most clear -  the opportunity cost if I was right on both ideas is 30% minus the cost of the put (owning the two stocks at 50/50 give me a 50% net return instead of 80% minus put costs).  Will the 80% idea always work? Of course not - but I would rather own the put and give myself a chance to make the 80%.  I would estimate that the put is much cheaper than the opportunity cost, on average, if there is wide variation between the estimated upside of your ideas. If you have 5-10 great ideas at a time - go for all of them - you are likely taking less risk by owning all of them. I just struggle to find 5-10 great ideas that I am comfortable with.

[intothebreach]

This is a very enjoyable thread and for me has also been useful as I've picked up a few things along the way (it also has none of the back and forth we see on some threads with 100+ pages).

 

I personally have gravitated to be increasingly concentrated but I think we can all agree that different approaches can work provided that the underlying process is sound. With that spirit I'd like to suggest that since measuring returns, while the definitive metric, is by definition a lagging measurement that may or may not adequately capture the process side of the equation that it needs to be complemented by other metrics to provide a fuller picture.

 

One thing I've started doing is measuring my "batting average" in terms of the proportion of buy decisions I've made in a year that closed with positive return, and also my average positive and negative returns. This is far from perfect as in some cases it is even more lagging, but I find it helps me question my process. There might be other useful measures, but so far they elude me...

 

Happy Holidays to all, and many happy returns, in investing and in life!

[frommi]

I just struggle to find 5-10 great ideas that I am comfortable with.

 

Whats your current pick?

[yadayada]

Also note that having a few other ideas giving potential upside is basicly a hedge against downside risk in your other positions. So having 50% cash and 50% in one stock could be riskier then investing the other half in a few stocks. So if you have 4 stocks that are worth 3x more, and you put 25% each in them. If only one takes off, your downside risk is hedged. That seems like a better idea then buying puts to me. By spreading it out over 4 high conviction picks, you suddenly cut your risk down by a huge amount. Without really cutting that much in your upside.

[oddballstocks]

Frommi,

 

I think the 50% put protection is a wise idea. It's all about protecting tail risk.  Tail risk by definition is often unknown and unpredictable, rigs blowing up, medical devices resulting in death etc. 

 

By definition, if you're putting 50-100% in 1 idea, most likely it is a 3X or a 2x with a clear catalyst.  Either the deep undervaluation itself is a catalyst or there is some sort of corp event that will re-rate the stock.  Personally, I wouldn't mind paying 10% cost of ATM put to hedge a 100% position.  I would also argue that the optimal put protection is likely somewhere between the ATM strike and 50% lower.  The rationale being that the upside is so large relative to downside that it should take care of itself over time.  Why buy the put and own the stock?  I think it gives you an undistorted view of your exposure.  Also, it's often much easier to enter/exit the common shares when needed.  Getting in and out of LEAPs can be tough in size.   

 

 

Academic studies have shown that there is no benefit of owning more than 20 stocks and you get the most benefits of diversification already with 5-8 stocks. I think Pabrai and Mecham do it this way,so thats probably not a bad idea. Mecham had at one point 50% in BRK, but he argued that BRK in itself is already diversified so that makes sense to me.

 

Everybody talks about Schloss as the most diversified investor of the past, but i found no evidence that he was not concentrated in some stocks. In one interview he mentioned: "Generally, we are happy with a 5% holding but we can go up to 10-12% if we really like it.". Yes he told the interviewer that he is in 100 stocks, but does it really matter when most of the positions are just to follow the stocks and get annual reports? In current times i don`t see a reason for these toehold positions anymore.

 

Putting 100% in one stock and securing it with a put option at 50% loss looks like a smart idea, but when you look at it its just a barbell strategy of holding 50% cash and 50% in a LEAP call option. Any way you turn it, you have to pay the cost of leverage which is bad when the stock goes sideways for a long time. So you have to have a pretty sick confidence that your catalyst will play out.

 

@jmp8822 You wrote that you had more than one stock going into 2008 and you averaged down into one stock, but have you realized that that was only possible because you were diversified before? Imagine your only 5$ position would have gone down from 5$ to 0.5$, you networth would have tanked by 90%. I can`t imagine how depressed i would have been at that point, losing savings of more than 15 years of hard work.

 

From what i learned from other investors is that a maximum limit of 10-15% for normal businesses and 25-40% for diversified businesses or funds is a good compromise between diversification and outperformance and that is what i am using for the future. But i don`t regret being very diversified when i started because that has given me a lot of opportunities to learn and at the same time reduced the magnitude of my mistakes.

 

My biggest argument against concentrated investing is why not go all the way.  If you have three ideas why dilute your best with your second or third best?  So here we have it, someone is finally doing that, and amazingly this concept seems to be gaining traction.  Buy one stock and buy a put.  Sounds perfectly foolproof, nothing can go wrong, losses are protected and gains are ensured. As long as we can all pick the stock that will go up the most each year this strategy is foolproof.

 

Do you use a max position size?  If so, what is it and why?  Sorry if you've talked about it before and I missed it.

 

Nope, if something grows and keeps growing I let it go. My biggest position is MA at 17%. It started out much smaller and grew like a weed. I've sold down part of it for other ideas, but still have a large slug in it.

 

If I am buying something as part of a group trade I buy tiny pieces maybe .25%-.50% depending on liquidity. Other stocks I like better I buy more of. I buy cheap banks as part of a group trade, but I have other bank positions that are much larger because I like the bank, it isn't a group trade stock.

 

If I can't muster the faith to buy 1% of something I will pass. Ideas I like I might buy up to a 5% position over time. If something gets to 5% or higher it has to earn it's way there. If I held 10% of my portfolio in something it's due to appreciation, the stock earned it's place. Stocks that can grow into valuations and keep growing have earned their keep.

[jmp8822]

I just struggle to find 5-10 great ideas that I am comfortable with.

 

Whats your current pick?

 

I am about 90% in cash right now - 10% in PWE. I wouldn't use the 50% put strategy with PWE due to an estimated higher than average possibility of permanent capital loss (commodity risk plus debt). Some far out of the money LEAP calls could be interesting on PWE.  I am 90% in cash for personal reasons for the next month or so (unrelated to the market, although it has been tough to find ideas), but might buy a to be determined O&G services stock once I am fully invested again.  I don't have a great idea right now.

[alwaysinvert]

I don't have anything to add to the discussion at the moment, but to yadayada: it's basically. You use the word very often and it feels like a knife in my eye every time it pops up, which is a shame since it, at least for me, detracts from your otherwise very useful posts.

[jmp8822]

Also note that having a few other ideas giving potential upside is basicly a hedge against downside risk in your other positions. So having 50% cash and 50% in one stock could be riskier then investing the other half in a few stocks. So if you have 4 stocks that are worth 3x more, and you put 25% each in them. If only one takes off, your downside risk is hedged. That seems like a better idea then buying puts to me. By spreading it out over 4 high conviction picks, you suddenly cut your risk down by a huge amount. Without really cutting that much in your upside.

 

I definitely agree - I would much rather be diversified across four stocks if I was indifferent to the estimated upside/downside risk for some of the reasons you are mentioning.  It depends how rare you consider your good ideas, and the discrepancy between the estimated upside versus the cost of the put.  The greater the estimated upside discrepancy between your best ideas, the more likely you might be to skip the next best idea and buy a put on the single stock instead.  At that point you are trying to limit the expected opportunity cost, which may be more expensive than the put (or maybe not, as you accurately suggested, if you have four somewhat equal ideas).

[cobafdek]

I don't have anything to add to the discussion at the moment, but to yadayada: it's basically. You use the word very often and it feels like a knife in my eye every time it pops up, which is a shame since it, at least for me, detracts from your otherwise very useful posts.

 

Hear, Hear!  And Packer's "there" for "their."  But I'll gladly slack off from correct spelling if it will improve my returns.  Might be better than options.

[yadayada]

hehe ill take note of it. glad you find my rambling usefull :D

[tombgrt]

 

My biggest argument against concentrated investing is why not go all the way.  If you have three ideas why dilute your best with your second or third best?  So here we have it, someone is finally doing that, and amazingly this concept seems to be gaining traction.  Buy one stock and buy a put.  Sounds perfectly foolproof, nothing can go wrong, losses are protected and gains are ensured. As long as we can all pick the stock that will go up the most each year this strategy is foolproof.

 

 

Two main reasons imo:

 

- You can't always easily buy put options on certain stocks;

- Getting a one stock portfolio while you have identified other - but slightly less attractive - cheap stocks, basically means you are timing specific stock movement. You are saying that your best idea will realize IV before your second best idea.

 

It's because of this second point that medium concentration (5-12 stocks) can be so powerful. Timing isn't such an issue (as it's likely at least 1-2 stocks will reach IV per year) and the redistribution of proceeds of winners to older ideas (that haven't worked out yet) has the tendency to improve the compounding effect. That is assuming you are a decent stock picker.

 

So not enough stocks: Timing is too hard and likely a disadvantage over the long run. (This is less of an issue if your company is both very cheap and growing strongly.)

Too many: Weaker ideas get too much of the cake thus lower returns. Timing isn't an issue but also can't give you much of an advantage because your winnings get spread over too many mediocre ideas.

 

Does that make sense? I feel strongly there has to be a sweet spot for this reason.

 

Edit: In the end you also have to look at what you can handle. I'm perfectly fine seeing "stock pick 6", that I don't own, take off for a double if I only hold my best 5 ideas. Others might freak out when "number 31" in there list (just kidding: their!) doubles when they hold their best 30 ideas.

[cobafdek]

in there list (just kidding: their!)

 

Good one!

 

Too many: Weaker ideas get too much of the cake thus lower returns. Timing isn't an issue but also can't give you much of an advantage because your winnings get spread over too many mediocre ideas.

 

Does that make sense? I feel strongly there has to be a sweet spot for this reason.

 

How would you assess a portfolio of, say, 100 stocks, built up no faster than 20/year, held for average 5+ years so turnover rate 20%?

[tombgrt]

in there list (just kidding: their!)

 

Good one!

 

Too many: Weaker ideas get too much of the cake thus lower returns. Timing isn't an issue but also can't give you much of an advantage because your winnings get spread over too many mediocre ideas.

 

Does that make sense? I feel strongly there has to be a sweet spot for this reason.

 

How would you assess a portfolio of, say, 100 stocks, built up no faster than 20/year, held for average 5+ years so turnover rate 20%?

 

I'd say it depends on your strategy and the time you can devote but most of the time I guess it's doable for some. It's also dependable of the general market situation. I could fine 50 ideas in early 2009 that were cheap enough but I can hardly find 10 now.

 

Generally I think it makes sense to change your concentration according to general market levels. Not on purpose but because you will see it is the sensible thing to do when picking your stocks. In other words, less concentration when stocks in general are cheap and more when markets are expensive.

In a cheap market you don't sacrifice as much return when diversifying because cheapness won't differ as much between picks. So you get slightly lower return but much lower concentration risk which makes it worth it. In more expensive markets you can see a bigger divergence in cheapness in a specific market you are looking at (often this is because particular stocks are misunderstood, hated for the wrong reasons or have some hair on them) which makes it more attractive to take on the extra concentration risk for a higher return.

 

That's my view on diversification but I haven't lived through enough cycles to see if that theory is worth anything in practice. I'm sure some more intelligent, experienced and older members have a satisfying vision that they can share! :)

[cobafdek]

I'd say it depends on your strategy and the time you can devote but most of the time I guess it's doable for some. It's also dependable of the general market situation. I could fine 50 ideas in early 2009 that were cheap enough but I can hardly find 10 now.

 

Generally I think it makes sense to change your concentration according to general market levels. Not on purpose but because you will see it is the sensible thing to do when picking your stocks. In other words, less concentration when stocks in general are cheap and more when markets are expensive.

In a cheap market you don't sacrifice as much return when diversifying because cheapness won't differ as much between picks. So you get slightly lower return but much lower concentration risk which makes it worth it. In more expensive markets you can see a bigger divergence in cheapness in a specific market you are looking at (often this is because particular stocks are misunderstood, hated for the wrong reasons or have some hair on them) which makes it more attractive to take on the extra concentration risk for a higher return.

 

Very sensible.  Great points.

 

Although for me, I've found that I let cash levels build up if I had a paucity of ideas.  So keeping generally the same small position sizes, I've been closer to 40-50 stocks when general market levels seem high, but closer to 80+ stocks and closer to fully invested after major market drawdowns.

 

More generally, I've found Cundill's phrase "there's always something to do" rings true.  The global screener on ft.com lists nearly 38,000 stocks.  If I had a maximum of 100 stocks, that means picking 1 out of 380.  Or on an annual basis, looking for 10-20 stocks over the course of a year means picking 1 out of 1900-3800 stocks.  From this perspective, it strains credulity to be able to rank order higher vs. lower conviction ideas.

[Picasso]

https://www.youtube.com/watch?v=8V7aA0RHK-Q&spfreload=10

 

I think of that video when the topic of diversification pops up.  I also run a non-diversified strategy and it showed this year being up 57%.

 

But I spent some time looking at all positions I held with over 10% of my capital in (roughly 40 positions since 2006) and only one of them lost over 95% of its value.  The stock was ANV.  There were several that lost half their value and the rest either recovered or did quite well.  Looking back at what went wrong with ANV kept me out of some oil drillers that got hammered earlier in the year, and the only thing that saved my in ANV was picking a price where I forced myself to get out.

 

Running a concentrated book means selling your high conviction position when the market moves against you because you can always find another good investment.  It's no longer about being right or making the most on that single position.  It brings you back to rules number one which is survival.

 

You can't really apply the same rules as a diversified strategy with a "the market will eventually come to its senses" mentality.  Like that poor guys face in the poker match, you sometimes never see it coming and you're suddenly wiped out.

[txlaw]

Approximately 12%.

 

O&G has been a pretty big drag on the portfolio this year, what with the premature accumulation and all.

[rkbabang]

I'm up 9.68% YTD, but I'm actually down 7.4% from my high water mark in April.

[Guest Schwab711]

32%, give or take a few hours of the markets. I've been between 30% and 40% for 3 straight years now.

 

Important statistics in my mind (I went 19 months without a single buy/sell):

- 5 transactions this year (12 if you count each individual purchase for an OTC stock I bought)

- ~25 transactions (buy and sells) over 3 years

- 75% of my portfolio is in 3 very long-term ideas

- 0 transactions in 2014 I want to take back (I may regret selling some BRKB to fund more of the OTC stock but we'll see)

 

See you all at the BRK annual meeting!

 

Edit: My tax-free account is +2.5% in 5 months of managing with none of the same positions and my 32% includes a spike in the OTC stock from $0.90 to $1.05. Return could just have easily have been 29% or so.

[Guest longinvestor]

32%, give or take a few hours of the markets. I've been between 30% and 40% for 3 straight years now.

 

Important statistics in my mind (I went 19 months without a single buy/sell):

- 5 transactions this year (12 if you count each individual purchase for an OTC stock I bought)

- ~25 transactions (buy and sells) over 3 years

- 75% of my portfolio is in 3 very long-term ideas

- 0 transactions in 2014 I want to take back (I may regret selling some BRKB to fund more of the OTC stock but we'll see)

 

See you all at the BRK annual meeting!

 

Way to go! I'm waiting for January 10th to post with my returns.

 

PM me, would love to meet up in Omaha, May 2015.

[randomep]

 

Thanks all for sharing your results and your secrets.

 

I think my one takeaway from all this is you gotta concentrate for average-beating returns...... I am going to be more gutsy starting today.