Introducing The Tech-Focused Home Run Fund

By | October 28, 2015

Scalper1 News

This is a new portfolio project I’m working on targeting high-growth names in areas of the market I don’t typically invest in. Capital gains are the goal here, as opposed to my usual pursuit of income. I’m using this project to expand my investing horizons. This project started last Friday. Since then I’ve made 7 purchases worth roughly 21% of the fund’s starting value. I am pleased to introduce a new project I’ve started working on, a model portfolio that I’m in the process of building that I’ll call The Home Run Fund . This “fund” is a hypothetical portfolio that I manage and update in real-time focused around “owning” more high risk/high reward, speculative, momentum-driven, exciting companies in search of Alpha with a more short-term, trader-oriented mindset. I wonder sometimes how many other more traditional, conservative, buy and hold type dividend growth investors frequent other areas of this site – window shopping? I’m talking about technology, entertainment, media, biotech and the like that offer much higher growth potential than the typical blue chip, dividend aristocrat type companies that DGI portfolios are usually comprised of. These sections of Seeking Alpha are ones that I frequent as a reader, but don’t often contribute to as a writer. With the creation of this model portfolio series, I hope to change this. In my personal portfolios, I’m very satisfied chocking up on the bat, shortening my stroke, and hitting for average (and collecting those dividends). However, in this portfolio project I will be swinging for the fences. If you can’t tell, I’m a baseball fan. So, there we have it: The Home Run Fund . If you already follow me here , by now you have a pretty good idea about my investment philosophies and stock picking strategy. For those of you who aren’t as familiar with my work on Seeking Alpha, in the most basic sense, I would describe myself as a conservative dividend growth investor with a mind to buy and hold because of my very long-term investment horizon. I have exposure to some of these generally more risky sectors and industries in my personal portfolios; however, for the most part this exposure comes in the form of mature, mega/large cap “legacy” type companies. I focus on wide moats. I focus on strong, reliable cash flows and balance sheet health. More than anything, I am risk averse with capital preservation existing right at the top of my priority list alongside dividend growth. This sort of investing strategy has led to success for me, though I admit it can be lacking in the excitement department. Now obviously, excitement isn’t the name of the game when it comes to investing, making money is. However, I don’t think the two have to be mutually exclusive. This series will allow me to delve into a more risk-laden area of the market, a journey I am pleased to embark on because oftentimes, when it comes to the portfolio guidelines I’ve laid out for myself with regard to capital preservation and a conservative focus on value rather than growth, I find myself having to suppress urges to join in on the fun, exposing myself to some of the popular market darling stocks and their highly speculative valuations. I am not a professional in the financial industry. I manage a vineyard and work as a real estate agent. Portfolio management is a passion of mine; it’s rare that I make it through a day now without wishing that I had studied finance at the university level rather than English and Studio Art. Don’t get me wrong, I loved my time at the University of Virginia and the liberal arts education that I pursued. However, the degrees that I earned don’t qualify me to work in the industry that I currently love – it wasn’t until after graduation that I discovered the stock market and began managing money seriously. I say all of this for several reasons. First, to tamper down any unrealistic expectations. Although I plan on making more speculative bets that will lead to exorbitant gains in this portfolio comprised of hypothetical money, no one should be following my advice here as I admit wholeheartedly that I am a newbie when it comes to investing in high growth/non-dividend paying names. Taking this notion a step forward, no one should ever blindly follow me into or out of any trade; feel free to critique me, laugh at me, or learn with me, but don’t follow my lead without doing your own due diligence. This leads me to the second reason I highlighted my amateur status: to really highlight the point of this series and The Home Run Fund , which is, of course, education. Everything that I write related to finance is for educational purposes. Organizing my thoughts and putting them down onto paper forces me to look for weak spots in my ideas, for holes in my arguments. And once an article in completed, any comments that the piece inspires go on to further magnify my convictions and concerns, allowing me (and hopefully others as well) to take a step back and really digest the information, erasing doubts, and strengthening beliefs about stock picks and the evaluation process. I was recently at a real estate conference and something that a speaker said really stuck with me. The man, talking about being intentional as a salesman said, “If you aren’t uncomfortable, you probably aren’t making real money.” Obviously portfolio management is a bit different than building spheres of influence and making strong sales pitches; however, I do think that it is important for all investors, regardless of management philosophy, to be willing to push his or her boundaries, to make his or her self uncomfortable, all in pursuit of broadened experience and increased knowledge. Like I said before, I sometimes consider making investments in the more speculative names that I will be focusing on in this series in my actual portfolios, though I resist temptation knowing that I don’t likely have the intestinal fortitude required to cope with inherent volatility that comes along with these sorts of investments. Many of the more popular, growth-oriented, momentum-fueled stocks that I plan on targeting within The Home Run Fund have been on my wish list for years. Because of the discipline that I maintain in my personal portfolios and my prioritization of capital preservation, I simply don’t allow myself to invest in these stocks due to rich valuations no matter how much I respect, and even love, the companies themselves. However, looking back I have often regretted this conservative mindset when in hindsight I see that my target prices would have been attractive entry points, eventually leading to big-time gains. I wouldn’t exactly call my reflections on these missed opportunities regret, because I know very well why I didn’t invest in those companies in the first place (they simply didn’t fit into my portfolio’s plan); however, I do think that if I can prove a positive trend with regard to my ability to target attractive entries in less predictable, more volatile names, I would be more willing to put my capital at risk in the markets knowing that my system has proven to be successful in real time and warrants investment attention. To me, experiential knowledge is the best kind. The emotional responses to success and failure leave a much bigger impact and stick with me much longer than most academic study. In other words, “feeling” a loss or gain is much more tangible than simply reading about one or the other. This project will enable me to experience these feelings to a certain extent without putting my capital at risk in the markets. The real-time nature of this portfolio project will help me dial in my evaluation system in areas of the market that are rather foreign to me. Doing it this way should be more effective than simply back testing ideas. Although this “Fund” will be hypothetical, you can rest assured that I will be performing the same level of due diligence when making selections for this portfolio as I do my own. I am too competitive and (shamefully) prideful not to. I want positive results here; I want to prove to myself that I am just as capable of management success in a more speculative environment as I am when really crunching the numbers and patiently waiting for safety margins to widen in the blue chip dividend names. I hope that you all will take this ride with me; with any luck, it’ll be an enjoyable experience for all involved. As always, I look forward to your feedback (probably more so now than ever, because I’ll be dealing with trades in this portfolio that are undoubtedly out of my comfort zone). So, without further adieu, let me introduce the basic ground rules and strategic guidelines for this project: I will be giving myself $100,000 hypothetical dollars to build this portfolio. There will be no new cash added throughout the process. The primary goal of this portfolio is capital appreciation. Unlike my actual portfolios, income will not play a large role in stock selection. All income generated within the portfolio will be pooled in with the cash reserves fund and put to work when making future purchases. I will be comparing this portfolio to all relevant benchmarks in pursuit of Alpha. Unlike my personal portfolios, here I will be focusing more on small/mid cap companies. I will be “buying”, “selling”, and “short-selling” individual stocks or bonds. I will not be using option strategies in this portfolio. I will also not own mutual funds, index funds, close ended funds, exchange traded notes, or the like. I will give myself 30 free trades a month for this fund (the same deal I get at my brokerage); although I doubt I will ever exceed that amount, any trades above the 30 trade threshold will cost $7.99. I say I don’t plan on exceeding that number of trades because I plan on this portfolio being much more highly concentrated than my own. I don’t have set in stone targets with regard to number of holdings or asset allocation. I would like to maintain between 10 and 15 holdings (much less than the 50+ I own in my actual portfolio), though this is subject to change depending on price action and opportunities that arise in the markets. There will be no weighting or section allocation targets within the fund. Being a value investor at heart, I will be looking to capitalize on contrarian moves, more willing to take risks and attempt to catch falling knives here than I am within my actual portfolios. Similar to the portfolios I currently manage I will be looking to own companies with wide competitive moats. However, in The Home Run Fund I will also happily expose myself to companies with very narrow moats assuming that they offer a product or service that I deem to be by and large the best in breed in their industry. I will also be looking to give myself exposure to long-term trends that I believe strongly in. I do this in my actual portfolios as well, though value plays a bigger role than my belief in a trend. In this portfolio I will look past valuations when I truly believe in a movement, especially if it’s expected to play out in the short-term. And lastly, and probably most importantly for this project, I will do my best to check my fear of failure at the door when entering the confines of The Home Run Fund . This fear and reluctance to put my capital at risk has caused me to lose out on potentially lucrative opportunities in the past. I already manage a relatively conservative portfolio, that isn’t the point with this one. I began making purchases for The Home Run Fund last Friday during regular market hours. Just as I did with these purchases, I will be posting stock talks here at SA focused on each purchase/sale. This allows for transparency when it comes to my entry and exit prices. It also allows anyone interested to keep track of moves made by the “fund” in real time giving me time to write and publish detailed trade summaries. Here are the trades I’ve made thus far and a quick snapshot of the portfolio as it sits today. I will briefly describe my reasoning for each selection in this piece, but for the sake of word count, I will be posting primary ticker pieces on each trade made as well, covering my thought process involved in much greater detail later. Starting out the Fund purchasing shares of Alphabet (NASDAQ: GOOGL ) (NASDAQ: GOOG ) and Amazon (NASDAQ: AMZN ) was a relatively easy choice. It’s too bad that I waited until after their recent stellar earnings reports to begin this project. If I had started this a week ago I would have saved a nice chunk of change on these two trades. However, I couldn’t deny myself exposure to these two transformative companies. I think that any portfolio focused on growth should seriously consider holding these two names. Both companies have expanded their business operations to the point that they have their fingers in a myriad of potentially highly profitable cookie jars. I’ve been following both Google and Amazon for some time now and never allowed myself to pull the trigger due to their valuations and lack of dividend payments. Well, even though I’d obviously love to pick up shares here on dips, I decided it was best to simply bite the bullet and initiate positions regardless of current valuations because of the massive growth prospects both companies offer. (click to enlarge) Biogen (NASDAQ: BIIB ) is a company that caught my eye due to recent weakness in the biotech space. Unlike many of its brethren in the Nasdaq Biotech ETF (NASDAQ: IBB ), Biogen is a highly profitable company. Sure, recent question marks have arose that are company specific, but for the most part I think this company has traded down because of industry wide fears sparked in part by politicians posturing on price gouging and drug prices. Even if recent events in the space lead to a restructuring of the pricing models, I simply don’t believe that any changes will be impactful enough to justify the sort of selloff that BIIB has experienced as of late. Also, I am interested in the massive potential that BIIB’s pipeline could have in store, namely in the treatment Alzheimer’s disease, something that has been very difficult and elusive for biotechs thus far. Whole Foods Market (NASDAQ: WFM ) is a company that I own in my personal portfolio. I actually increased my own position by 15% at this $30.75 share price. I love what this company represents. I think the health foods movement is a long-term trend, not a fad. I think science is increasingly pointing towards the fact that humans should be consuming more natural, less processed foods. And, not only this, but I love the experience that WFM stores offer. Shopping there is a pleasure (albeit a relatively more expensive one). I understand that comps are slowing, but I think that store count growth will offset this. I also think that after recent weakness in the health food-focused grocer industry, M&A activity will pick up in the space and WFM could benefit from this, as either an acquirer or an aquiree. I like Blue Buffalo Pet Products (NASDAQ: BUFF ) for many of the same reasons that I like WFM. Just as I think the health foods movement is real and will be long lasting, I think the humanization trend with people and their pets is real as well. I think wholesome, natural pet food products will continue to gain market share within the pet food industry and BUFF is best situated to benefit from this. I like BUFF as a pure play in the space rather than the other larger conglomerate type companies that offer wholesome natural pet foods as a very small part of their overall operations. This company has fallen hard since its unfortunately timed IPO in late July. Shares initiated trading in the $27 range and now $10 cheaper, I find the value much more attractive. GoPro (GRPO) and Ambarella (NASDAQ: AMBA ) trades were announced together because I view both positions in a similar light. First, looking at GoPro I see a company with a best in breed type product that comes with a lot of fanfare. The cameras that this company makes are top notch and I don’t see it losing its spot at the top of the wearable camera space anytime soon. I also wouldn’t be surprised to see GoPro transition into the media space with some of the unique content that its hardware can create. It already has relationships with many of the biggest media and entertainment companies. Original content seems to be all the rage these days and I think as GoPro matures (if it isn’t bought out before then), it will head in this direction. AMBA makes chips for GoPro, though I see this as a more general play on this industry, as well at the drone space, which AMBA has made strides in. With the holiday season coming up, I think we may be in for another GoPro Christmas. Also, I wouldn’t be surprised if drones are one of the more popular presents purchased this year (and in subsequent years as well). Both companies have experienced major weakness over the last several months, bringing their valuations down to much more attractive levels. I know that I’m attempting to catch falling knives here but I think over the long-term I will be rewarded. Here is a snap shot of what the portfolio looks like currently. (click to enlarge) Like I said before, I hope that we’re all able to take something away from this project and put it to use in our own portfolio management practices. I hope you enjoyed this introduction and look forward to all of The Home Run Fund pieces on the way. Please feel free to leave advice, recommendations, or critiques in the comment sections as we move forward. Best of luck all! Scalper1 News

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