On Concentration and Finding Your Style

What you wish you could do may not be what you should do.

First and foremost, to my many subscribers: I apologize for the time in between posts. Likely, it was the shame and embarrassment that my only real original idea turned out to be spectacularly mediocre that has kept me away from the keyboard. Borrowing ideas from Twitter clearly appears to be the way to go so I shall just keep doing that.

 Since I started this journey of more actively managing my portfolio I’ve thought a lot about position sizing. I’ve come to admire those who are running super concentrated portfolios (hat tip to the lumber baron) - where in many cases 5 or less names make up 80+ percent of the portfolio. I think someday I hope to gravitate toward that approach, but at present don’t feel confident enough in my skills to not totally whiff on a huge bet. I also know myself well enough that when the new hotness comes across my Twitter feed I want to be able to participate.

 Given that, I find myself usually not putting more than 5% into a given position. Certainly some grow to be a bigger percentage, and when that happens my general philosophy is to let them run and not feel the need to trim in order to bring the percentage back down. That’s not to mean #neversell, but only sell if there is a specific reason - not just based on any sort of hard and day percent of portfolio rule.

The other thing that I’ve decided is that I will allow this portfolio to have inflows. When I started, my idea was to just keep the original $200K invested and work with that. My fear with that approach is it likely could lead to too much turnover as I’d necessarily have to sell something in order to add something new. With inflows (assuming I keep my job and have some after-tax money every now and then to invest) I will be able to add positions while allowing myself to maintain a longer-term vision on the portfolio. Doesn’t hurt that I’ve been outperforming and with the alternative place for these funds being $SPY I shall continue to endeavor to beat that benchmark.

In my third post I put together what my target allocation was at the time. That has shifted a bit in the subsequent ~6 months. Given a lot has changed, I am going to spend this post talking about the themes I’m currently invested in. Subsequent posts will dive deeper into each of the positions in each theme. 

Cannabis

As I’ve mentioned in the past I used to consider myself a staunch Boglehead. I still generally believe this, but also think outperformance can be realized making bets where the large sophisticated money can’t. Cannabis, specifically US MSOS and single state operators, to me, epitomize this opportunity. There has been growing awareness on Twitter around the opportunity of late with Aaron Value and Andrew Walker doing a podcast (worth a listen!) + spaces. Bill Brewster has noted it’s a small part of his portfolio as he plays the funds flow thesis. Here is a link to his podcast with Aaron, pretty sure he has one with Jason Wild in the queue that I’m looking forward to as well.

Metals and Mining

At present, this is a tad higher than I’d like given the boom or bust nature of miners, but the cost basis is tiny and I do believe in letting winner run. Some gains on $OCO turn long term in June so I may decide to trim a bit - but I generally believe copper is going to keep climbing and I like taking some shots on goal with the miners. 

Biotech

After $BMYRT went south (though there are signs of life in the gray market!) my biotech allocation was pretty weak. That said, though I am a complete tourist - biotech twitter is full of super smart people that can help me navigate the waters. I am a bit on an island on $HGEN these days after my biotech sherpa (the Sheep) walked back his $HGEN take. Been a brutal ~3 months for most of biotech, but hopefully we have reached a bottom and can get some good news in the coming weeks to get things reversed.

Unloved energy

Still think oil and gas names are going to be in for a good couple years as everyone looks to renewables yet we keep consuming oil and gas both domestically and abroad. I need to spend more time on where I should allocate here, but feel solid about the current holdings. Of any of the themes, this is the one where you can get the most divergence of opinions on twitter, but I generally think most of the arguments are just on specific names. Though certainly picking them best ones would be best, I am generally of the belief a rising tide will lift all boats. 

Crypto 

This likely represents the biggest shift since my previous postings. I recently sold all my Bitcoin and Ethereum for quite healthy gains. Decided it was time to sell when I kept waking up in the middle of the night and immediately checking prices. At 20% of the portfolio with no fundamental backdrop to fall back on from a valuation standpoint I would have been pretty annoyed with myself giving back all the gains when I don’t actually hold a very strong view. Kuppy’s tweets on the great divergence also pushed me toward selling. I still hold some crypto exposure but it’s < 5% of the portfolio which is a number I’m comfortable with.

Other

I want to give myself lots of freedom to play tourist in different industries and special situations. I am finding that special situations with a catalyst might suit my style well, but aren’t always easy to come by. Overall, this is the most eclectic mix of stocks and in some ways I think the most interesting. I also have been peppering in some small bets via call spreads in this “category”. Thus far, I’ve kept them super small, but think I might need a better “actual” strategy here - something for me to explore in the future.

Portfolio Update

The portfolio ended May up about 5.5% which is great considering I was down about 9% midway though the month.

This week in #Fintwit - things I found interesting

This is a new section and something I might try to do each week. Can be considered a view of my Twitter bookmarks from the last week. Over time, might add commentary, but for now consider it things I think are interesting if one may have missed them over the course of the week.