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The V20 portfolio is an actively managed portfolio that seeks to achieve an annualized return of 20% over the long term. If you are a long-term investor, this portfolio may be for you. You can read more about how the portfolio works, and the associated risks, here . Always do your own research before making an investment. Read the most recent update here . Note: Current allocation and planned transactions are only available to premium subscribers . It was a good week for the markets and a great one for the V20 Portfolio. Over the past week, the V20 Portfolio appreciated by 7.1% while the S&P 500 (NYSEARCA: SPY ) rose by 2.5%. It would appear that the fear in the market has subsided. With oil trending higher and job numbers remaining stable, investors have eased their apprehension about the future. The V20 Portfolio’s holdings recovered along with the market. After a little over two months, the V20 Portfolio is now up slightly for the year (+0.9%). The S&P 500 is still down by roughly 2%. Portfolio Commentary As our top holdings have rallied recently, it creates a new “problem.” Given the concentration of our top two stocks, the portfolio certainly looks “risky.” From a volatility standpoint I completely agree. A highly concentrated portfolio can experience wild swings from day to day. However, the solution to the problem can be found at the very founding philosophy of the portfolio: that price volatility does not equate to risk. One thing we do know is that if price increases faster than intrinsic value, then the stock becomes more risky over time, holding all other factors constant. For example, paying 10x earnings for 8% growth is more risky than paying 8x for the same grow rate, all else being equal. Given the recent rally, it is fair to suggest that the portfolio has become more risky (even from a value investing perspective), and I must concur. However, it is important to understand that risk is relative. When compared to the S&P 500, I firmly believe that the V20 Portfolio is still miles ahead. How can we control this risk? By selling. As price goes up, it is prudent to take some money off the table. Is next week the time to do so? Let’s take a look at one of our biggest positions, Conn’s (NASDAQ: CONN ). Since our last transaction, shares have rallied by 39%. Unfortunately, company is not growing at such a rapid pace, so it would appear that one should take some money off the table. However, I believe that now is not the time to do so, because the relationship between price and earnings yield is not linear. For example, for a stock yielding 30% to trade at 20% (a 1,000-point difference), the shares must increase by 50% (5,000 points) . Applying this principal to Conn’s, a 39% increase in price does not imply that the stock has become unattractive, only less attractive. That being said, the recent rally does imply that the theoretical future return should be lower. However, given the way the market works, very rarely will we see it unfold in the short-term exactly according to our expectation. Performance Since Inception Click to enlarge Disclosure: I am/we are long CONN, I, ACCO, DXMM, SAVE, CALL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Scalper1 News
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