Patmo Posted January 16, 2015 Share Posted January 16, 2015 Finished building a 10% position in AIQ. 2015 will be my concentration test year, i have now 50% in 3 stocks and 80% in 6. I am still under the impression that i am sufficient diversified. Let's see how you react when 2 of your 3 positions go down 50-75% in price. Are you ready to stand such volatility? Link to comment Share on other sites More sharing options...
frommi Posted January 16, 2015 Share Posted January 16, 2015 I can't find any new ideas. Would you mind sharing the names. I will like to do my due diligence. Regards. FFH (27%) OUTR (10% Common + 5% LEAPs) AIQ (10%) SEC.TO (10%) Intralot (10%) PKX (10%) NRW.AX (5%) 9628.JP (5%) 5965.JP (3%) 7292.JP (3%) Let's see how you react when 2 of your 3 positions go down 50-75% in price. Are you ready to stand such volatility? I think its a lot easier when you know what you own and have stress tested this beforehand. Most of my businesses are recession prove and SEC and FFH are diversified in itself. Overall i think that the correlation between these businesses is really small. I am pretty sure that i will not be happy if i get those drawdowns, but i don`t think that more diversification is helping me to achieve my goals. Link to comment Share on other sites More sharing options...
benbuffett Posted January 16, 2015 Share Posted January 16, 2015 Finished building a 10% position in AIQ. 2015 will be my concentration test year, i have now 50% in 3 stocks and 80% in 6. I am still under the impression that i am sufficient diversified. Hi Frommi, Thats a concentrated portfolio you have. What percentage of cash do you hold in the portfolio? Like Patmo mentioned. How would you react to a large draw down on 2 or 3 of your holdings? What works for Michael Bury, Mohnish Pabrai, or even Warren Buffetts early partnership days might not work as well for an individual. Link to comment Share on other sites More sharing options...
frommi Posted January 16, 2015 Share Posted January 16, 2015 Hi Frommi, Thats a concentrated portfolio you have. What percentage of cash do you hold in the portfolio? Like Patmo mentioned. How would you react to a large draw down on 2 or 3 of your holdings? 1% cash, i am still working so i don`t see a reason to hold a larger cash stake (but the yearly contributions are smaller than 10% now). In case of a drawdown i do nothing as long as the businesses progress as i expect them to, what else should i do? Sell? :) What works for Michael Bury, Mohnish Pabrai, or even Warren Buffetts early partnership days might not work as well for an individual. I am a cloner and i clone everything that works. The math says more diversification doesn`t reduce risk significantly but reduces returns. There are so many threads in this forum where you can find evidence for this. Most people talk about diversification and the 100 businesses they have in their portfolio but then overlook that most of these are correlated anyway. In the end everybody has to do what works for them and since i noticed that 70-80% of the stocks i buy go up 2-4 weeks after i bought, i thought i can reduce the number of my holdings. Thats the advantage of being a good market timer, though its of course not necessary to be one when you are a good value investor. Link to comment Share on other sites More sharing options...
randomep Posted January 17, 2015 Share Posted January 17, 2015 BAC Link to comment Share on other sites More sharing options...
vinod1 Posted January 18, 2015 Share Posted January 18, 2015 I think its a lot easier when you know what you own and have stress tested this beforehand. Most of my businesses are recession prove and SEC and FFH are diversified in itself. Overall i think that the correlation between these businesses is really small. I am pretty sure that i will not be happy if i get those drawdowns, but i don`t think that more diversification is helping me to achieve my goals. Most of the concentrated investors had portfolios consisting of nearly iron clad moats or hard asset values. FFH should be fine, but I have no idea of the moatiness of the rest of your portfolio. Do you think the rest have solid moats? Vinod Link to comment Share on other sites More sharing options...
frommi Posted January 18, 2015 Share Posted January 18, 2015 Most of the concentrated investors had portfolios consisting of nearly iron clad moats or hard asset values. FFH should be fine, but I have no idea of the moatiness of the rest of your portfolio. Do you think the rest have solid moats? Vinod You can look up all my holdings in the Investment Idea section. NRW.AX and the japanese stocks are mainly asset plays (thats the reason that these stocks are all smaller holdings), the rest have something in place that protects the cashflows for the next years. PKX is the lowest cost steel producer (though i am not sure if the currency wars deteriorate that one). Link to comment Share on other sites More sharing options...
writser Posted January 18, 2015 Share Posted January 18, 2015 I've researched most of the names you hold and I own a couple of them too. That said, I think your portfolio is extremely risky and unless you are as great an investor as Packer there is a non-trivial chance of permanent loss of capital "experimenting with a concentrated portfolio". If you are retired I would say this is a horrible strategy but I assume you are young and do not depend on your portfolio for income. In that case it it just, well, risky ☺. Just my 2 cents, please don't feel offended. Link to comment Share on other sites More sharing options...
frommi Posted January 18, 2015 Share Posted January 18, 2015 I've researched most of the names you hold and I own a couple of them too. That said, I think your portfolio is extremely risky and unless you are as great an investor as Packer there is a non-trivial chance of permanent loss of capital "experimenting with a concentrated portfolio". If you are retired I would say this is a horrible strategy but I assume you are young and do not depend on your portfolio for income. In that case it it just, well, risky ☺. Just my 2 cents, please don't feel offended. Thanks for your honest words, but how exactly do you quantify risky? From my point of view there is no single risk that i know of that is able to erase more than 25% of my portfolio in one fellow swipe. I mean look at Monish Pabrais portfolio of BAC,C,GM,FIAT,PKX. Thats cars, steel and banking. All are heavily correlated to the US/world economy, i would call this at least double to triple as risky as my portfolio. Link to comment Share on other sites More sharing options...
writser Posted January 18, 2015 Share Posted January 18, 2015 A 2008 style crisis can erase 25% from ANY portfolio. Charlie Munger once said you should expect a 50% drawdown at some point in your career (and he experienced it too if I'm not mistaken). Just to give some bad scenarios: Senvest (which I hold too) is basically a leveraged bet on the stockmarket. In a downturn both its portfolio will decline quickly and clients withdraw assets. Their fund holds quite a few speculative positions. In 2013 Senvest was up 100%, I think it could easily go down 50% or more in a bad year. In such a year your OUTR options would expire worthlessly as well. I own a couple of your Japan holdings too. I think they are good bets but let's be honest, we invest in these companies from our couch in Europe and we don't know anything about them. Fujimak etc could easily decline 50% for some reason we don't know yet. If they are cooking the books, how could we ever know? Most of your holdings are smallcaps and I don't know enough about them but you can't rule out anything bad happening in these - they are no Berkshires or Exxons. And god forbid something terrible happens at Fairfax. Or suppose the euro crisis is over and the euro appreciates by 40% in a year - you'll underperform by roughly that percentage. Also, the point of diversification is not only to be protected from the risks you "know" but also that your portfolio can withstand the risks you "don't know". If something "unknown" happens with Fairfax you are down 25% instantly. Link to comment Share on other sites More sharing options...
vinod1 Posted January 18, 2015 Share Posted January 18, 2015 Most of the concentrated investors had portfolios consisting of nearly iron clad moats or hard asset values. FFH should be fine, but I have no idea of the moatiness of the rest of your portfolio. Do you think the rest have solid moats? Vinod You can look up all my holdings in the Investment Idea section. NRW.AX and the japanese stocks are mainly asset plays (thats the reason that these stocks are all smaller holdings), the rest have something in place that protects the cashflows for the next years. PKX is the lowest cost steel producer (though i am not sure if the currency wars deteriorate that one). When Buffett is doing concentrated investing he is finding deep values with a very large margin of safety: 1. Western Insurance - it earned $22 and $29 the previous two years and he is buying at something like $3 to $13 per share. 2. National American Fire Insurance - Good capital allocator at the helm, with book value of $135 and earning $29 and he is buying in the stock in the $30s. That is margin of safety. Or he is buying Coke and Amex with near impregnable moats. In either case margin of safety is pretty high. That is when he concentrates his portfolio. This kind of concentrated portfolio does not work if applied to marginal businesses. Being recession resistant is not really the key, as there are many ways to lose, it is not just to economic cycle. Again, just a note of friendly caution to a fellow board member. Vinod Link to comment Share on other sites More sharing options...
randomep Posted January 18, 2015 Share Posted January 18, 2015 What about Soros and the Quantum fund, doesn't that one have hundreds of holdings and an extraordinary record? Link to comment Share on other sites More sharing options...
Liberty Posted January 18, 2015 Share Posted January 18, 2015 What about Soros and the Quantum fund, doesn't that one have hundreds of holdings and an extraordinary record? Isn't that a macro fund, though? Kind of like Dalio's fund. Different approach. He mostly buys asset classes rather than businesses, afaik. Link to comment Share on other sites More sharing options...
frommi Posted January 18, 2015 Share Posted January 18, 2015 A 2008 style crisis can erase 25% from ANY portfolio. Charlie Munger once said you should expect a 50% drawdown at some point in your career (and he experienced it too if I'm not mistaken). Just to give some bad scenarios: Senvest (which I hold too) is basically a leveraged bet on the stockmarket. In a downturn both its portfolio will decline quickly and clients withdraw assets. Their fund holds quite a few speculative positions. In 2013 Senvest was up 100%, I think it could easily go down 50% or more in a bad year. In such a year your OUTR options would expire worthlessly as well. I own a couple of your Japan holdings too. I think they are good bets but let's be honest, we invest in these companies from our couch in Europe and we don't know anything about them. Fujimak etc could easily decline 50% for some reason we don't know yet. If they are cooking the books, how could we ever know? Most of your holdings are smallcaps and I don't know enough about them but you can't rule out anything bad happening in these - they are no Berkshires or Exxons. And god forbid something terrible happens at Fairfax. Or suppose the euro crisis is over and the euro appreciates by 40% in a year - you'll underperform by roughly that percentage. Also, the point of diversification is not only to be protected from the risks you "know" but also that your portfolio can withstand the risks you "don't know". If something "unknown" happens with Fairfax you are down 25% instantly. Ok i agree with you, i have a risky portfolio. Please don`t copy me, looks like i will probably blow up next year because at the same time we get earthquakes all over the country wiping out Toronto and New York, the stock market will decline by 50% and the euro will appreciate by 40%. Steel is now worthless because everything is build of aluminium and japan will get nuked by china erasing the country from the map. Oh and there is a wonder drug against cancer, nobody watches rental DVDs anymore and online gaming/lotteries are prohibited worldwide. All in one year! ( Just kidding :) ) Link to comment Share on other sites More sharing options...
writser Posted January 20, 2015 Share Posted January 20, 2015 Ok i agree with you, i have a risky portfolio. Please don`t copy me, looks like i will probably blow up next year because at the same time we get earthquakes all over the country wiping out Toronto and New York, the stock market will decline by 50% and the euro will appreciate by 40%. Steel is now worthless because everything is build of aluminium and japan will get nuked by china erasing the country from the map. Oh and there is a wonder drug against cancer, nobody watches rental DVDs anymore and online gaming/lotteries are prohibited worldwide. All in one year! ( Just kidding :) ) Mr. Market does not like your jokes apparently. Link to comment Share on other sites More sharing options...
frommi Posted January 21, 2015 Share Posted January 21, 2015 Ok i agree with you, i have a risky portfolio. Please don`t copy me, looks like i will probably blow up next year because at the same time we get earthquakes all over the country wiping out Toronto and New York, the stock market will decline by 50% and the euro will appreciate by 40%. Steel is now worthless because everything is build of aluminium and japan will get nuked by china erasing the country from the map. Oh and there is a wonder drug against cancer, nobody watches rental DVDs anymore and online gaming/lotteries are prohibited worldwide. All in one year! ( Just kidding :) ) Mr. Market does not like your jokes apparently. Yes it has this brutal way of telling me that i am a fool. :) But aside from that i still don`t know if nobody watches rental DVDs anymore is now true or not. Link to comment Share on other sites More sharing options...
Guest 50centdollars Posted January 21, 2015 Share Posted January 21, 2015 Ok i agree with you, i have a risky portfolio. Please don`t copy me, looks like i will probably blow up next year because at the same time we get earthquakes all over the country wiping out Toronto and New York, the stock market will decline by 50% and the euro will appreciate by 40%. Steel is now worthless because everything is build of aluminium and japan will get nuked by china erasing the country from the map. Oh and there is a wonder drug against cancer, nobody watches rental DVDs anymore and online gaming/lotteries are prohibited worldwide. All in one year! ( Just kidding :) ) Mr. Market does not like your jokes apparently. Yes it has this brutal way of telling me that i am a fool. :) But aside from that i still don`t know if nobody watches rental DVDs anymore is now true or not. You can still rent DVDs? lol Link to comment Share on other sites More sharing options...
tede02 Posted January 21, 2015 Share Posted January 21, 2015 Bought some IBM. Link to comment Share on other sites More sharing options...
frommi Posted January 27, 2015 Share Posted January 27, 2015 Bought some more NWH.AX. Link to comment Share on other sites More sharing options...
Ross812 Posted January 27, 2015 Share Posted January 27, 2015 More GILD Link to comment Share on other sites More sharing options...
Lance Posted January 27, 2015 Share Posted January 27, 2015 MBT Thanks, Lance Link to comment Share on other sites More sharing options...
kfh227 Posted January 28, 2015 Share Posted January 28, 2015 Ok i agree with you, i have a risky portfolio. Please don`t copy me, looks like i will probably blow up next year because at the same time we get earthquakes all over the country wiping out Toronto and New York, the stock market will decline by 50% and the euro will appreciate by 40%. Steel is now worthless because everything is build of aluminium and japan will get nuked by china erasing the country from the map. Oh and there is a wonder drug against cancer, nobody watches rental DVDs anymore and online gaming/lotteries are prohibited worldwide. All in one year! ( Just kidding :) ) Mr. Market does not like your jokes apparently. Yes it has this brutal way of telling me that i am a fool. :) But aside from that i still don`t know if nobody watches rental DVDs anymore is now true or not. People that say that tend to live in bubbles. I'm sure that there are areas of hte country where people can't afford broadband and Netflix and whatnot. They probably do DVD rentals. Link to comment Share on other sites More sharing options...
Lance Posted January 28, 2015 Share Posted January 28, 2015 GREK Thanks, Lance Link to comment Share on other sites More sharing options...
tede02 Posted January 28, 2015 Share Posted January 28, 2015 MAT Link to comment Share on other sites More sharing options...
berkshire101 Posted January 29, 2015 Share Posted January 29, 2015 CLB and RAVN Link to comment Share on other sites More sharing options...
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