Selling out - Howard Marks

[Scooterd]

Finally was able to set some time aside to read Howard's latest memo Jan 13, 2022 "Selling out" - Howards memos are required reading for me in my house. others may enjoy also.


Excerpt -
"I described the discussions that took place while Andrew and his family lived with Nancy and me in 2020 in Something of Value. That experience truly was of great value – an unexpected silver lining to the pandemic. That memo evoked the strongest reaction from readers of any of my memos to date".

Virtually all investors – even the best – diversify their portfolios. We may have a sense for which holding is the absolute best, but I’ve never heard of an investor with a one-asset portfolio. They may overweight favorites to take advantage of what they think they know, but they still diversify to protect against what they don’t know. THAT means they sub-optimize, potentially trading off some of their chance at a maximal return to increase the likelihood of a merely excellent one.

Here’s a related question from my reconstructed conversation with Andrew:

H: You run a concentrated portfolio. XYZ was a big position when you invested, and it’s even bigger today, given the appreciation. Intelligent investors concentrate portfolios and hold on to take advantage of what they know, but they diversify holdings and sell as things rise to limit the potential damage from what they don’t know. Hasn’t the growth in this position put our portfolio out of whack in that regard?

A: Perhaps that’s true, depending on your goals. "BUT TRIMMING would mean selling something I feel immense comfort with based on my bottom-up assessment and moving into something I feel less good about or know less well (or cash). To me, it’s far better to own a small number of things about which I feel strongly. I’ll only have a few good insights over my lifetime, so I have to maximize the few I have".

All professional investors want good investment performance for their clients, but they also want financial success for themselves. And amateurs have to invest within the limits of their risk tolerance. For these reasons, most investors – and certainly most investment managers’ clients – aren’t immune to apprehension regarding portfolio concentration and thus susceptibility to untoward developments. These considerations introduce valid reasons for limiting the size of individual asset purchases and trimming positions as they appreciate" - Excerpt from Howard's latest memo. Full memo here - https://www.oaktreecapital.com/insights/...elling-out

>

The older I got, the more I realized, I would rather have 4 Shiny Quarters, than 100 dull pennies.
Opinions vary (This one's mine)
- Scoot

“Most investors think diversification consists of holding many different things, few understand that diversification is effective only if portfolio holdings can be counted on to respond differently to a given development in the environment”- Howard Marks

"Is a relatively concentrated strategy really more risky for the investor? There’s no doubt that the concentrated portfolio will exhibit more volatility on average than a highly diversified one, but volatility isn’t a very useful descriptor of risk. If we think that risk is roughly equivalent to the probability of losing money on an investment, then perhaps we should ask, “are you more likely to lose money owning a concentrated portfolio or a highly diversified portfolio?”

The common sense answer is that it depends on what’s in each portfolio! - Howard Marks

[fenders53]

Such an important subject that can't be fully appreciated until you endure full market cycles. I am still refining 30 years later. I have lot's of opinions.

-A five stock portfolio is crazy, you are probably arrogant to believe you are that good at stock picking.
-A 50+ stock portfolio accomplishes nothing if it contains 10 stocks with fleas you stubbornly refuse to part ways with. It will underperform when the bulls is running and offer no downside protection when the market is dumping ballast.

For me it's know what you own, and make sure most of it is very high quality. If you don't have time for thorough research before you build a large position, and reasonable follow up monitoring, then you probably own too many stocks. You should put some of your assets in an ETF. I enjoy swing trading stocks. That should never be allocated in a manner where it can devastate my entire portfolio.

What say anybody else?

[crimsonghost747]

I think we can all agree that diversification is necessary. All the theories saying "only own a thing or two that you truly know and believe in" are amazing, in theory. They often forget to mention that no matter what amount of time, effort, research etc. we put in, we still have zero knowledge about the future of a certain company. We have an educated guess, that is all it is. And then we are betting that this educated guess is better than the educated guess of other investors.

As scoot said, it's better to have 4 Shiny Quarters, than 100 dull pennies.
The real question is, how confident are we about those quarters being truly shiny and that they will stay that way?

[fenders53]

Figure of speech of course and I don't think Scoot is implying one should own only four equities. Our personal risk tolerance is a starting point. If you spread your port across 10 stocks, one extreme failure or success is meaningful. Stocks do 10X or go BK. At this time I choose to own about 20 tickers. I have ETFs as well so my risk is mitigated some. My chance of significantly over or underperforming the market is small.

Having said that. FB is well under 2% of my port. Responsible for over 30% of my port decline yesterday after a rough market day. Record setting loss of market Cap for one day. I only own a few speculative stocks and they hit me several weeks last month. I clearly don't have 20 shiny quarters, at least in the short term.

[rnsmth]

(02-03-2022, 07:30 PM)fenders53 Wrote: Such an important subject that can't be fully appreciated until you endure full market cycles.  I am still refining 30 years later.  I have lot's of opinions.

-A five stock portfolio is crazy, you are probably arrogant to believe you are that good at stock picking.
-A 50+ stock portfolio accomplishes nothing if it contains 10 stocks with fleas you stubbornly refuse to part ways with.  It will underperform when the bulls is running and offer no downside protection when the market is dumping ballast.  

For me it's know what you own, and make sure most of it is very high quality.  If you don't have time for thorough research before you build a large position, and reasonable follow up monitoring, then you probably own too many stocks.  You should put some of your assets in an ETF.  I enjoy swing trading stocks.  That should never be allocated in a manner where it can devastate my entire portfolio.  

What say anybody else?

It is a sympton of a share price focus on the markets, something that seems pandemic here despite the name of the forum.

Dividend and dividend growth, high quality companies with very safe dividends and don't worry so freaking much about share prices.   

That is my view.  I have been surprised at the amount of the discussion here that has to do with share prices and non-dividend paying so-called growth companies like Facebook.

[fenders53]

(02-04-2022, 10:05 AM)rnsmth Wrote:

(02-03-2022, 07:30 PM)fenders53 Wrote: Such an important subject that can't be fully appreciated until you endure full market cycles.  I am still refining 30 years later.  I have lot's of opinions.

-A five stock portfolio is crazy, you are probably arrogant to believe you are that good at stock picking.
-A 50+ stock portfolio accomplishes nothing if it contains 10 stocks with fleas you stubbornly refuse to part ways with.  It will underperform when the bulls is running and offer no downside protection when the market is dumping ballast.  

For me it's know what you own, and make sure most of it is very high quality.  If you don't have time for thorough research before you build a large position, and reasonable follow up monitoring, then you probably own too many stocks.  You should put some of your assets in an ETF.  I enjoy swing trading stocks.  That should never be allocated in a manner where it can devastate my entire portfolio.  

What say anybody else?

It is a sympton of a share price focus on the markets, something that seems pandemic here despite the name of the forum.

Dividend and dividend growth, high quality companies with very safe dividends and don't worry so freaking much about share prices.   

That is my view.  I have been surprised at the amount of the discussion here that has to do with share prices and non-dividend paying so-called growth companies like Facebook.

It's OK to hold onto your beliefs.  I do as well.  We all carve our own path.  Had you bought FB ten years ago you would likely be very happy with your 1,000% gain, but it doesn't matter that you didn't.  Most of us do own a DGI port. Very few respond to those threads because it's like watching paint dry, just as it is intended to be as a long game. 1/3rd of my port is dedicated to selling put options for monthly income, mostly to gamblers.  It provides 3X a DGI stock dividend so it's what I do.  After 5 years I am confident enough it works consistently.  Nobody here has to approve but it funded years of my cash needs in advance before I even retire.  I don't have enough assets to do that with DGI stocks.  I wish I did.

Bottomline is don't worry much about our desire for total return. We can spend that the same as you can spend a dividend.

[rnsmth]

(02-04-2022, 11:28 AM)fenders53 Wrote:

(02-04-2022, 10:05 AM)rnsmth Wrote:

(02-03-2022, 07:30 PM)fenders53 Wrote: Such an important subject that can't be fully appreciated until you endure full market cycles.  I am still refining 30 years later.  I have lot's of opinions.

-A five stock portfolio is crazy, you are probably arrogant to believe you are that good at stock picking.
-A 50+ stock portfolio accomplishes nothing if it contains 10 stocks with fleas you stubbornly refuse to part ways with.  It will underperform when the bulls is running and offer no downside protection when the market is dumping ballast.  

For me it's know what you own, and make sure most of it is very high quality.  If you don't have time for thorough research before you build a large position, and reasonable follow up monitoring, then you probably own too many stocks.  You should put some of your assets in an ETF.  I enjoy swing trading stocks.  That should never be allocated in a manner where it can devastate my entire portfolio.  

What say anybody else?

It is a sympton of a share price focus on the markets, something that seems pandemic here despite the name of the forum.

Dividend and dividend growth, high quality companies with very safe dividends and don't worry so freaking much about share prices.   

That is my view.  I have been surprised at the amount of the discussion here that has to do with share prices and non-dividend paying so-called growth companies like Facebook.

It's OK to hold onto your beliefs.  I do as well.  We all carve our own path.  Had you bought FB ten years ago you would likely be very happy with your 1,000% gain, but it doesn't matter that you didn't.  Most of us do own a DGI port. Very few respond to those threads because it's like watching paint dry, just as it is intended to be as a long game. 1/3rd of my port is dedicated to selling put options for monthly income, mostly to gamblers.  It provides 3X a DGI stock dividend so it's what I do.  After 5 years I am confident enough it works consistently.  Nobody here has to approve but it funded years of my cash needs in advance before I even retire.  I don't have enough assets to do that with DGI stocks.  I wish I did.

Bottomline is don't worry much about our desire for total return. We can spend that the same as you can spend a dividend.

It is not a matter of beliefs.  I have plenty of total returns.  It seems odd that so much of the traffic on a Dividend Growth Forum has to do with non-dividend paying growth stocks.

[Scooterd]

(02-04-2022, 10:05 AM)rnsmth Wrote: It is a sympton of a share price focus on the markets, something that seems pandemic here despite the name of the forum.

Dividend and dividend growth, high quality companies with very safe dividends and don't worry so freaking much about share prices. 

That is my view.  I have been surprised at the amount of the discussion here that has to do with share prices and non-dividend paying so-called growth companies like Facebook.

With regards to Total Return/Dividends -
That's the wonderful thing about viewpoints. Each have their own.
Where you and I differ "greatly" is Total Return and Dividend Growth Both played key roles throughout my investment career. Dividend reinvestment is a wonderful thing, Concentrating on Increasing share count in quality companies (that also continue to provide an increase in Total Return is also a wonderful thing)...and when all come together in a little thing we call a portfolio  -  Magic.!!!.

• Where as you are in your later years (as myself), place more emphasis on dividends with slightly higher yields so they may provide us consistent income.
  

• Younger folks may place more emphasis on Total Return (yet may also understand the value of a dividend perhaps at lower or even no Yield).
  

• I'm of the mind set -  Investors with long-term horizons who plan on holding individual investments over along period of time, it makes complete sense to exploit both. 
  

In "My" View - it is not a binary decision. To exclude one, for the sake of the other is just sheer nonsense (to me). It's the combination of both - An investment that provides positive total returns, and a growing dividend is the best of both worlds and creates the magic (That's my view)  

With regards to price -
In "My" View There are Two (or three) instances when price matters (whether that be with the stock market, or anything else in life) When you purchase, when you sell, and with regards to investments  - when you want to opportunistically increase share count .

Ben Graham and John Bogle state it best for me.
"Price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies".- Benjamin Graham, The Intelligent Investor

"Don’t pay too much heed to the daily ebb and flow of the markets. In the short run, people get excited and stocks get way overpriced. Then a sell-off happens, the stock price goes down, and that sends [price-earnings ratios] lower. The long-term investor should pay no attention to that. The stock market is a distraction to the business of investing".- John Bogle

Enjoy your day Ron.

[fenders53]

(02-04-2022, 11:30 AM)rnsmth Wrote:

(02-04-2022, 11:28 AM)fenders53 Wrote:

(02-04-2022, 10:05 AM)rnsmth Wrote:

(02-03-2022, 07:30 PM)fenders53 Wrote: Such an important subject that can't be fully appreciated until you endure full market cycles.  I am still refining 30 years later.  I have lot's of opinions.

-A five stock portfolio is crazy, you are probably arrogant to believe you are that good at stock picking.
-A 50+ stock portfolio accomplishes nothing if it contains 10 stocks with fleas you stubbornly refuse to part ways with.  It will underperform when the bulls is running and offer no downside protection when the market is dumping ballast.  

For me it's know what you own, and make sure most of it is very high quality.  If you don't have time for thorough research before you build a large position, and reasonable follow up monitoring, then you probably own too many stocks.  You should put some of your assets in an ETF.  I enjoy swing trading stocks.  That should never be allocated in a manner where it can devastate my entire portfolio.  

What say anybody else?

It is a sympton of a share price focus on the markets, something that seems pandemic here despite the name of the forum.

Dividend and dividend growth, high quality companies with very safe dividends and don't worry so freaking much about share prices.   

That is my view.  I have been surprised at the amount of the discussion here that has to do with share prices and non-dividend paying so-called growth companies like Facebook.

It's OK to hold onto your beliefs.  I do as well.  We all carve our own path.  Had you bought FB ten years ago you would likely be very happy with your 1,000% gain, but it doesn't matter that you didn't.  Most of us do own a DGI port. Very few respond to those threads because it's like watching paint dry, just as it is intended to be as a long game. 1/3rd of my port is dedicated to selling put options for monthly income, mostly to gamblers.  It provides 3X a DGI stock dividend so it's what I do.  After 5 years I am confident enough it works consistently.  Nobody here has to approve but it funded years of my cash needs in advance before I even retire.  I don't have enough assets to do that with DGI stocks.  I wish I did.

Bottomline is don't worry much about our desire for total return. We can spend that the same as you can spend a dividend.

It is not a matter of beliefs.  I have plenty of total returns.  It seems odd that so much of the traffic on a Dividend Growth Forum has to do with non-dividend paying growth stocks.

The DGI threads get little traffic the past few years.  Have you noticed there are VERY few DGI forums that get daily traffic?   This place would die without some daily chatter a few threads we have "socialized" provide.  For some of us it's a fun place to check in and we will keep it alive if we can.  The forum owner chooses to keep things inclusive.  There are many threads and sub forums where you can post DGI.  Actually it's not dis-allowed anywhere here, and of course it shouldn't be.

[Scooterd]

(02-04-2022, 11:57 AM)fenders53 Wrote: Actually it's not dis-allowed anywhere here, and of course it shouldn't be.

 On the SA DGI chit chat (which Cemanuel now moderates) some have recently pushed for limited discussions regarding "non-dividend payers" like facebook, CEF's, Football, etc ... But apparently Salmon still appears to remain an ok subject to discuss.  -  I just shake my head and move on.

I'm sure eventually Cemanuel will find a proper balance to strike to appease all parties commenting there so they don't need to use a keyboard scroll function to scroll past comments some are less interested in reading.

- Scoot

“Don't underestimate the value of Doing Nothing, of just going along, listening to all the things you can't hear, and not bothering.”― A.A. Milne

[fenders53]

(02-04-2022, 12:35 PM)Scooterd Wrote:

(02-04-2022, 11:57 AM)fenders53 Wrote: Actually it's not dis-allowed anywhere here, and of course it shouldn't be.

 On the SA DGI chit chat (which Cemanuel now moderates) some have recently pushed for limited discussions regarding non-dividend payers , CEF's, Football, etc ... But talk of Salmon still appears to be an ok subject.  -  I just shake my head and move on.

I'm sure eventually Cemanuel will find a proper balance to appease all those commenting there.

- Scoot

“Don't underestimate the value of Doing Nothing, of just going along, listening to all the things you can't hear, and not bothering.”― A.A. Milne

That's a little too upright for me.  

Because of our small size, we have some freedom to "run wild, but keep it under control".   About the only rule here is be nice, and don't make comments that will surely cause a brawl.  (Like too much politics not directly related to a specific investment issue).  OK, I meant a "real brawl".   We razz each other constantly, especially over bad short-term investment calls.  It's in jest.  We can count on each other for the best advice they have to offer given their experience.    

It's an investment forum so we have to be a little cautious, but I know the marital status of the frequent posters, whether they have children or not and approximately what age.  We know some/most of the hobbies our friends enjoy.  When they hope to retire.  Approximately where they live and what they do for a living.  

We'll chat any kind of investing from DGI to the more risky stuff.  I feel no obligation to do anything I am not comfortable with.  It causes me no harm to read about it or scroll on by.  We'll also chat some MLB, NFL, fishing golf or whatever else on an off topic thread. We get considerable joy in that. When does baseball finally start lol?   

Pretty sure I just described what friends do, whether "real" or e-friends.  I see no problem with this.

I know you are reading this Ron and I sure wouldn't want to run you off. Half the folks here are half your age. They are finding their investment path, but to my knowledge all the regulars have a DGI port. Even the ones you see posting daily trades that are likely short-term. They understand the importance of some core DGI.

[Scooterd]

That's a little too upright for me....Because of our small size, we have some freedom to "run wild, but keep it under control"..... fenders53
>
Wayyyyy to uptight for me.

The funny thing is those same folks complaining on that SA thread are the same ones breaching the conduct. There should always be room for discussions of any type of asset security, Facebook, football, CEF's  ETF's, Bonds, mutual funds, and yes... even Salmon. We all approach investing differently, find what works for us individually, that's what makes a market. The value of this website for me is to learn from others, and bounce ideas off each other, and effectively listen (read) all the counterpoints, and remain flexible... have you thought of this? have you considered? 

- Scoot

"I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail." - Abraham Maslow

“Faced with the choice between changing one’s mind and proving that there is no need to do so, almost everyone gets busy on the proof.” — John Kenneth Galbraith