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2015 Year in Review

My winning streaks (of both positive returns and beating the averages) came to an end in 2015. I was down 34% in 2015, compared to the S&P 500 which was down around 2%.  Yet I feel better about the risk/reward of my portfolio going forward than I ever have.

I entered 2015 with positions in AA, GTIM, SFM, HABT and YELP, with around 12.5% cash.

My first move of 2015 was to sell YELP in mid January for around a 7% loss. I had just bought YELP near the very end of 2014, but was starting to become nervous about the overall markets and wanted to raise cash, and YELP was my smallest and lowest conviction idea.


In mid February I sold my entire position in AA, largely because I thought other ideas had better risk/reward. I made around 35% on AA. I put some of the proceeds into more GTIM and raised my cash position some more as I continued to grow concerned about the overall markets.


In early May I sold my entire position in SFM. SFM had been a core position for awhile, but by the time I sold I had become convinced that the story had fundamentally changed for the worse. I put some of the proceeds into RAVE, and raised my cash levels yet again.


At the end of May I sold my entire position in HABT, and I added another new position, BSQR. Despite adding a few new positions which I thought had attractive risk/reward, I was still worried about the overall markets and so wanted to maintain alot of cash. So that led to my opting to sell HABT. I made around 15% on HABT.


Near the end of July I sold my entire positions in RAVE and BSQR. I continued to grow concerned about the overall markets and wanted to pare back to my highest conviction ideas. I lost around 7% on BSQR and 4% on RAVE. This also marked the high point for my cash levels on the year at around 40%.



In August I bought and sold a position in GM-B warrants. Despite my concern about the overall markets I thought the risk/reward warranted a position, but I shortly afterwards had a few ideas I liked better, so I sold. I lost around 5% on the GM-B warrants.


Near the end of August I established a position in a new stock, NEWM, and in early September I bought an unnamed nano-cap stock. By mid September concern about overall markets caused me to want to pare back to my highest conviction ideas again so I sold both positions. I broke even on NEWM and lost 5% on the unnamed nano-cap.


At the beginning of October I bought positions in BABA, BIDU, and HABT. Despite my concerns about overall market conditions, I felt the long term prospects of these companies were sound and their sell-offs were overdone. I sold all three positions a few weeks later for 10-20% gains.




The only stock I never sold was GTIM. In fact I added to it as I was selling my other positions. I added to GTIM in July, August, and November. GTIM is my only current position.


2015 was largely about managing the portfolio to weather growing concerns I had about overall market conditions while still trying to find ideas I felt had attractive risk/reward profiles. So I tried a few new positions while selling off others. Ultimately I could not gain enough conviction in those ideas and my market concerns caused me to concentrate in the only idea I did have strong conviction in – GTIM.

Overall I think I had the right idea, but my execution was slightly off. I feel if I had I executed slightly better it would have made a significant impact on my performance for the year. I feel good about closing out the positions I entered the year with when I did. YELP, AA, SFM, and HABT were all significantly lower after I sold them. Likewise I was happy closing out most of my new ideas when I did. In some cases the fundamental stories had deteriorated or were not as strong as I originally thought, and in other cases they were not the types of holdings I wanted going into what I thought would be worsening market conditions. All the positions I sold saved me from significant losses.

GTIM, the one position I held on to, was the major negative contributor to my performance for the year. I maintained my GTIM position, and even added to it, because I felt the long term risk/reward was very attractive. Even at $10, I thought GTIM could still be a 5-10 bagger in the long run, and the downside risk was limited to perhaps 50% at worst. Although I was prepared for GTIM to decline 50%, I wasn’t really expecting it to drop that far, which is partially why I did not sell any at $10. Attempting to avoid a potential 20% decline did not seem worth taking the tax hit. And when GTIM did fall 20% from its high, I only saw downside risk of about another 20%, not an additional 50%. So selling again did not seem worth it for tax reasons. Instead I decided to start adding to my position, as the long term risk/reward had only gotten better.  I saw the worsening technicals but thought fundamentals would win out. If I had it to do over, I would have paid more heed to the technicals. I probably still would have started adding too early, but I would have added more shares around the $4 level when GTIM had started to base.

Besides making my average cost on GTIM more attractive, another benefit would have been having more cash available for the few trades I did have strong conviction – my purchases of BABA, BIDU and HABT in October. Not only could I have made those positions larger, but with larger positions I might have held at least a portion of them longer into their rallies, both of which would have significantly improved my performance for the year.

As it stands, I was down 34% for 2015, compared to the S&P 500 which was down about 2%. The main lesson I take from 2015 is respecting technicals, no matter my level of fundamental conviction in an idea. Had I done that my performance for the year would have been much closer to the S&P 500, and my upside would be that much greater.

As I stated at the beginning of this post, I feel as good about the risk/reward of my portfolio as I ever have, and am comfortable holding just GTIM going into 2016. I will review my current thinking on GTIM and what else I have on my radar in another post.

2014 Year in Review

I started 2014 with holdings in  several bank warrants (BAC-WS-B, STI-WS-B, ASBCW, VLYWW), old school tech stocks (IBM, INTC, CSCO), a Chinese online game publisher (KONG), and a couple of Vanguard ETFs (VXF and VXUS). By the end of 2014 my portfolio was completely turned over with none of those holdings remaining.

My first move of 2014 was to go long Alcoa in mid January. I added some more AA afterwards but the bulk of my holdings were bought in this first purchase. I thought AA would be a good balance to the rest of my portfolio and could become a core holding.  Thus far it is proving to be.

In February I began initiating small positions in several small to mid-cap growth stocks (SFM, YELP and BNNY). My intent was to average into the stocks I grew most confident in over time. I also bought some calls on KongZhong, expecting the stock would benefit from the release of Guild Wars 2 in China.

Near the end of February I sold my large cap tech stocks (IBM, INTC, and CSCO), to raise cash. I was pretty much break even on all three. I added Zillow (Z) to my collection of mid-cap growth stocks.




In March I sold two of my bank warrants (BAC-WS-B and VLYWW). I just broke even on both. I wanted to raise more cash and position my portfolio more conservatively.



Near the end of March I added a couple more high growth mid-cap stocks to my holdings with DATA and FEYE.

Near the end of April I bought a couple large cap growth stocks – AMZN and CMG.

By early May growth stocks had been beaten down so low that I thought it best to focus on my best ideas in that space and significantly accelerate my averaging into those names. So I sold BNNY, FEYE, AMZN, and CMG. I was down varying percentages on them when I sold, but they had not become meaningful portions of my portfolio so it was not really material to my overall return for the year. I also sold my KongZhong shares and calls. Those were more meaningful positions, and I made around 10% on both the shares and calls. I used the cash I raised to buy a lot more of the stocks I thought were my best ideas – SFM, DATA, YELP, and Z.






In the second half of May I added some large cap growth stocks back to my portfolio, buying back AMZN, and adding BIDU, LNKD, and also VIPS.

In early June I decided to dedicate a portion of my portfolio to buying stocks with insider buying. I added DKS, TFM, and MTDR.

In the first half of July I made several more moves. I sold my remaining bank warrants (STI-WS-B and ASBCW). Those were big positions which I made 50% on each. I also sold my insider buying stocks (DKS, TFM, and MTDR) because I wanted to increase my focus even more. I was near break even on all three and again none of them were big enough positions to make a difference to my overall returns. In July I also added yet two more high growth stocks to my portfolio (ZU and TWTR).






At the end of July I sold Z. I had intended Z to be a long term holding but it ran up so fast I decided to sell. I ended up catching the top almost exactly, locking in big gains and avoiding giving them back.


To start August I added another growth stock, SGEN.

In early August I also started building a position in a micro-cap stock, GTIM, which I continue to hold.

In the second half of August I unloaded most of my growth stocks. I sold AMZN, TWTR, LNKD, BIDU, VIPS, YELP, and SGEN. Like Z I had intended them to be longer term holdings but they ran up so much in so short a period of time that I couldn’t resist locking in profits. I made between 10% and 50% on these trades, with most of them between 30% and 50%. At the same time I added to my SFM, DATA, ZU and GTIM positions, and established a new position in AWCMY.








In mid September I sold DATA, same story of too fast a move up as my other growth stocks I sold.

I didn’t make many moves after that until November, when I sold AWCMY, after deciding the falling Australian dollar was too strong a headwind to battle. I was near break even on this trade. I also added a little to some of my existing positions.


Towards the end of November I bought some shares in The Habit, a new IPO. I had an order in on the IPO day but the stock opened above it so it was not filled. However when the stock came down several days later I began building a position.

Near the end of November I sold ZU, taking a small loss but deciding to focus on my very best ideas.

In December I bought a little Lending Club (LC) and an unnamed micro-cap stock, both of which I sold a week later. Neither was meaningful to my returns. And near the very end of the year I went long YELP again.

I also sold VXF and VXUS in stages throughout the year. I had intended for them to be a core and growing part of my portfolio over time, but as I found more opportunities I liked in specific stocks I sold off these two ETFs. I made a small percentage on both of them but they weren’t significant to my overall returns.

2014 was a year with a lot of turnover in my portfolio. I could have timed some of my entries and exits slightly better, but overall I am happy with all the moves I made. I think it was the right decision to exit all the positions I started the year with in favor of the new opportunities throughout the year. Overall I think I did a good job of buying when I thought the risk/reward was favorable and selling when it had become much less so.  And I think I am positioned well at year end with all the positions I am holding going into 2015 having favorable risk/reward profiles. AA and GTIM are both around 25% of my portfolio, SFM and HABT are both around 15%, YELP is around 7.5%, and I have around 12.5% in cash.






In my past year in review posts I ended with some statistics about my trades. This year I went ahead and calculated my returns for this and prior years.  I have a few accounts in which I do my investing, some retirement and some taxable, and I had to account for contributions and withdrawals, so it took awhile to accurately figure out.

I calculated that my return in 2014 was roughly 44%. Here are my returns since I started this blog, and a comparison to the S&P 500 with dividends reinvested.

Year / TSAnalysis / S&P 500 / delta

2011 / +171% / +2% / +169 points

2012 / +22% / +16% / +6 points

2013 / +63% / +32% / +31 points

2014 / +44% / +14% / +30 points

In 2011 I had the majority of my portfolio in a stock which I got a triple on in a couple of months (COOL), which was the main driver behind my phenomenal return that year.

In 2012 I again had a trade which I got a triple on (warrants on UBSFY), however it was not as large a portion of my portfolio this time. I had a major position (KONG) I held for 7 months which I ended up just breaking even on. Still, I ended up beating the S&P 500 return by 6 points so I can’t complain.

In 2013 I had quite a bit of turnover, much of which didn’t contribute to my returns. However I had another significant position which I ended up getting a triple on (ROICW), which was the main driver of my strong return in 2013.

I am perhaps most proud of my performance in 2014. Unlike 2011 through 2013, most of my potential home-run plays in 2014 (such as my bank warrants, KONG options, and AWCMY) didn’t work out as well as planned yet I still managed to handily beat the S&P 500. My 2014 return was driven by strong gains in GTIM and AA, and well timed trades in several growth stocks.

My goal for the years ahead will remain to maximize after tax returns while minimizing risk. However I do not expect to continue to beat the S&P 500 by as much as I have the past four years, especially as I continue to increase my emphasis on after tax returns and minimizing risk.

Long YELP again

I went long YELP again today. As you may recall I bought YELP back in May around $55 and sold in late August around $80 when I felt most growth stocks had run up too far too fast. I have discussed before why I like YELP and nothing has changed in that regard. So with the price back down below $55 I felt that the time was right to go long again. I established half of my target position, at around 5% of my portfolio. I may add the other half before too long. Technically, YELP appears to have pretty strong support at $50.

I had actually been contemplating adding YELP the last several days but was waiting to see if it would drift back down to $50 heading into the end of the year. Instead a positive analyst note came out today which pushed it up a bit, so I decided to go long with a partial position instead of risk letting it get away from me.

Portfolio Update

I made a lot of moves this week. I bought some more SFM, DATA, and ZU. I also bought more of the micro-cap stock I mentioned in the previous post and I started a new position in Alumina Limited. I sold AMZN, TWTR, LNKD, BIDU, VIPS, YELP, and SGEN. I know that is a lot of changes and must seem like a drastic departure from the long term strategy I have outlined many times in the past year. So let me explain my reasoning.

I bought more SFM when it dropped below $30 on the share offering by Apollo and some other shareholders. Like I mentioned before, anytime SFM drops below $30 it is almost like an automatic buy for me.

I also bought some more DATA and ZU. Like SFM, both DATA and ZU are about a year past their IPOs and are trading near 52 week, post-IPO lows. That made them attractive to me here given their strong growth. Incidentally, research I have read has said that around a year after an IPO is often the best time to buy into new issues.

I accumulated more shares of the micro-cap stock but I still have more to go so I won’t be writing about it just yet.

Lastly I started a position in Alumina Limited (ticker AWC on the Australian stock exchange, AWCMY for the ADRs on the Nasdaq OTC, which is what I bought). Alumina is basically a pure play on Alcoa’s upstream businesses (bauxite mining and alumina refining). Alumina’s sole interest is a 40% stake in AWAC (Alcoa World Alumina and Chemicals). Alcoa owns the other 60%.

While I like Alcoa for its transformation into more of a light metals value added component supplier to the aerospace and automotive industries, I also think that the mining and refining businesses are due for a rebound and AWCMY provides a more leveraged play on that.

I not only depleted my cash on all those buys I also went a little bit on margin. So I had to do some selling. The first stock I sold was AMZN. AMZN was my largest market cap holding and the one I probably expected the lowest return from, so I always knew it would be the first to go if I found better opportunities.

But what about the other stocks I sold? In the case of TWTR, LNKD, BIDU, VIPS, YELP and SGEN I felt that perhaps they had simply moved up too far too fast, particularly the larger cap names. I accumulated the bulk of my positions in those stocks near their May lows. Since then they have gone up between 20% and 50% in two or three months. That is 100% to 200% annualized returns.

I asked myself, what if I didn’t sell any of them and just held them for around 10 years? What sort of gain would I expect? Google has been in the news recently because of the 10 year anniversary of its IPO, and over 10x increase since then. Could my stocks become 10 baggers in 10 years like Google, I wondered? That seemed unlikely because of the already larger market caps of most of them. BIDU would be a $700 billion market cap company. TWTR and LNKD would have $270 billion market caps. YELP and SGEN would have market caps of over $50 billion. As much as I like TWTR and LNKD, I don’t think they are the next Google, and as much as I like YELP I don’t think it is the next Priceline. A 5 bagger in 10 years seemed like a more reasonable expectation.

So then I worked backwards, calculating what annual return was required for a 5 bagger in 10 years. It is 17.5%, compounded. A 10 bagger would require a 26% annual return compounded over 10 years. The 100-200% annualized return I had gotten in the stocks I sold was just so far beyond that that it tipped me over to deciding to sell, even taking taxes into consideration. Also, some of my holdings are in retirement accounts so holding period was not a consideration there.

Another way I looked at it was, how many 50% gains would be needed to result in a 5 bagger? The answer is four. A 50% gain, compounded four times, would result in a 5 bagger. 6 times would result in a 10 bagger. Say I could make two 50% trades a year (it wouldn’t necessarily have to be in the same stock). In two years I would have a 5 bagger. That seemed far better than what I could expect from a strict buy and hold strategy.

Now if I didn’t see any opportunities for more 50% trades then perhaps I might have decided that sticking to a buy and hold strategy was preferable. However there were several opportunities in names I was already familiar with, like SFM, DATA, ZU, AWCMY, and the microcap as I already mentioned. So I would say that it was the combination of those opportunities I wanted to take advantage of along with the rapid gains in some of my existing holdings which made me decide on the course of action I did.

I ended up making about 10% on AMZN, 20% on SGEN, 30% on TWTR and VIPS, 40% on BIDU, and 50% on LNKD and YELP.  After all of my activity I am about 90% invested and 10% cash. However I like the risk/reward of my overall portfolio more now with the changes I made.

Additions and Subtractions

I added a couple new positions this week and sold some positions as well. As I mentioned in my mid year review, I want to be alert to ‘diworsification’ and avoid my portfolio becoming too index fund like, with index fund like returns. So as I evaluate potential new positions I also consider my existing holdings and whether any should be sold to maintain the focus of my portfolio on my best ideas. I’ll start with the positions I sold.

I sold both of my remaining bank warrants, ASBCW and STI-WTB. Both had recently reached the 1 year holding period. I had gains in both so I wanted to wait until they qualified for those long term capital gains before I considered selling them.

The main reasons I sold them both now is because I saw better risk/reward potential elsewhere, and I wanted to eliminate the possibility of a zero outcome. From current levels I estimated upside on the warrants to be around 400% and downside was 100% (if the warrants expired worthless), for a reward/risk ratio of around 4:1. In some of the small/mid caps I am tracking I saw similar upside, but downside risk of only 25-50%, resulting in much higher reward/risk ratios.

It was the possibility of a zero outcome which really sealed my decision. If I were to hold the warrants for another year and the underlying stocks moved sideways and the warrants lost 25% of their value, I would not want to average down because the chances of a zero outcome only increased. With the small/mid cap stocks however I could average down as long as I believed the fundamentals remained intact.

I had originally thought that I would average out of the warrants over the course of 12 months or so, but after weighing everything I decided to sell my entire positions now. I made around 50% on both ASBCW and STI-WTB, so I have no complaints.

The other positions I sold were my insider buying stocks – DKS, TFM and MTDR. I decided the idea of dedicating a portion of my portfolio to following insiders was not worth it. The positions were too small to make a big difference and were diluting my focus. I made about 4% on MTDR, 2% on DKS, and lost about 4% on TFM.

Now on to the additions. I added Zulily (ZU) and Twitter (TWTR). Both stocks had their IPOs less than a year ago, shot up, and have since fallen well off their highs to near post-IPO lows. I think both have strong growth prospects for many years and their corrections provided compelling entry points.

Zulily appears to have broken through in the flash sales space. I kind of view Zulily as an online QVC. I think sometimes even online shoppers prefer being presented a curated selection of items at a steep discount. I think there is a chance for Zulily to thrive there in a niche not in direct competition with Amazon. There are some concerns about Zulily’s slow shipping but I think ZU will work on that. They won’t be as fast as other online retailers with their model, but I don’t think they have to be.

As for Twitter, while concerns about user growth and monetization, especially in comparison to Facebook, have driven shares down post IPO, I consider those opportunities. I think TWTR has better engagement and is more inherently a commerce/advertising platform than FB. I expect that to ultimately lead to better share performance for TWTR.

I didn’t use all the cash from my sales on these additions so my cash position has increased to 20%.

Mid Year Review Part II

In this second part of my mid year review I am going to review the stocks I am holding going into the second half – both the new positions I opened in 2014 as well as the positions I carried into 2014 which I have held on to.

I feel good about my portfolio makeup at this point and think that I will be holding on to most of these positions for the long term. My overriding goal remains maximizing gains after taxes. That means an increased focus on positions which I think will be good multi-year holdings. If I come across any shorter term trades which appear too good to pass up, I will make those in tax deferred/tax free accounts.

I’ll start with the positions I carried into 2014 which I am still holding. First off are the two ETFs I am long, VXF and VXUS. Together these currently account for around 5% of my portfolio. My long term goal is to have these two ETFs account for around 50% of my portfolio, but for now I am finding too many attractive opportunities in individual stocks to add to these. However over time I do expect to grow these two ETFs as a percentage of my overall portfolio.

Next are STI-WS-B and ASBCW, the two bank warrants which are the only other positions I started 2014 with which I am still holding. Together they account for roughly 12% of my portfolio. I once held warrants on more bank stocks, but over time I sold them off until only these two remained.  I think these warrants have the best chances of making big moves. I feel my original thesis on the bank warrants may finally be close to playing out with the macro picture continuing to improve and the end of the taper and the beginning of rate increases now within sight. If the underlying stocks make moves of around 25% higher that would be enough for the warrants to double just from their intrinsic value since they are only slightly out of the money. However I am watching these positions closely because if the underlying stocks were to trade sideways (or up or down slightly) for a long period of time that could result in the warrants steadily losing value (both from the loss of time value as well as the decreased volatility). I would like to be completely out of these positions well before two years prior to when they expire. Time value could really start to decline rapidly at that point, and one never knows what a given stock may do over a one or two year period, so I feel holding these warrants with less than two years to expiration is very risky. Right now I am up slightly on both STI-WS-B and ASBCW, and they have just about reached the one year holding period, qualifying for long term capital gains. My plan is to average out over the course of the next twelve months or so.

Now on to the new positions I added in 2014, the largest of which is AA. Alcoa is also my single largest position at around 24% of my portfolio. I have a high level of conviction that AA will be a great multi-year holding. I think that the adoption of full Aluminum body vehicles is a huge trend which will play out for a decade and which Alcoa will be a prime beneficiary of. Alcoa is moving more towards its value added businesses and away from its commodity businesses. But even there I think things are improving with Alcoa moving down the cost curve in its smelting operations and global supply/demand finally coming into balance. So I think Alcoa is both a cyclical play as well as a turnaround/transformation play. I feel AA also balances the rest of my portfolio which is heavy on tech and consumer names. For all those reasons I am comfortable making AA my single largest position, a core holding.

Next are four stocks I group together as my small/mid cap high growth stocks – DATA, SFM, YELP and Z. Each is about 7% of my portfolio. Each of these stocks has around a $4-$5 billion market cap, and I think all of them are leaders in their niche and have many years of strong growth ahead. My cost basis on these four names is close to their May lows and I think they will make great long term holdings. For each I just wanted to mention a few points which I felt demonstrates their leadership positions.

DATA – Of all the smallish market cap big data stocks I looked at, Tableau seemed the best, in terms of growth, profitability and balance sheet. Tableau was named a leader in Gartner’s most recent Magic Quadrant for Business Intelligence and Analytics Platforms report. I think Tableau’s product has a large, diverse addressable market which can fuel growth for years to come.

SFM – I think Sprouts Farmers Market is the best play in the healthy/organic food space. Sprouts recently ranked among the top supermarkets in Consumer Reports Ratings. Sprouts’ publicly traded peers such as Whole Foods and The Fresh Market did not fare as well. Sprouts’ same store sales have been coming in much stronger than its peers as well, nearly 13% in the most recent quarter compared to 5% for Whole Foods and 2.5% for The Fresh Market. Compared to Whole Foods, Sprouts has cheaper prices and I feel a better, less intimidating layout both of which give it wider appeal. Sprouts only has around 170 stores still, with potential for around 1,200 according to their projections. And in contrast to The Fresh Market, Sprouts has been successful in expanding into new markets whereas The Fresh Market is retreating from some of the new markets it expanded into.

YELP – To me Yelp is the modern day equivalent of the yellow pages and the clear leader in local search. Additionally I love the moat provided by their user generated content and scale. I think a key trend is specialized apps gaining market share in mobile search. eMarketer recently singled out Yelp as one of the players emerging from the pack in mobile search. I also think Yelp has many avenues for potential expansion. For example I think Yelp could more easily move into OpenTable or GrubHub’s businesses than they could move into Yelp’s.

Z – Zillow is the clear leader among real estate sites. I like Zillow’s business model with the agent subscriptions and that they are not dependent on just advertising. Z appears to be pulling away from the competition with more than double the traffic of the number two player Trulia, according to recent comScore data.

Next are four stocks I group together as my large cap growth stocks – AMZN, LNKD, BIDU and VIPS. Each of these is about 4% of my portfolio. And while they are larger cap I think they have many years of strong growth ahead.

AMZN – Amazon has the largest market cap of all my holdings. Despite being a $150 billion market cap company I think it is still early days for Amazon’s growth story. E-Commerce still has plenty of room to grow. And I think Amazon Web Services, Prime streaming video, Amazon Fresh, Amazon Pantry, Amazon Supply are all exciting opportunities. I also think Amazon has an interesting search angle with all of its data on customers shopping history. Top it all off with the leadership of Bezos, Amazon’s customer satisfaction ratings, and Amazon’s wide moat, and I think AMZN makes a great long term holding. The stock’s pullback to $300 gave me the opportunity I wanted to go long.

LNKD – LinkedIn has an enviable moat as the leading social network for professionals. And again I like that it has diversified revenue streams and is not dependent solely on advertising. LNKD’s company and CEO ratings on Glassdoor are superb. I bought most of my position around the May lows of around $150.

BIDU – I wanted some exposure to the China internet space and Baidu was a natural choice. BIDU has shown in its recent results that it is handling the transition to mobile successfully. With a dominant position, strong multi-year growth potential and a reasonable valuation, I thought BIDU was a great choice for a long term Chinese holding.

VIPS – I wanted a little exposure to another mega Chinese growth trend – e-commerce. VIPS has unbelievable growth and is profitable. I thought that VIPS had an interesting model combining flash sales and discount outlets.

Lastly are my most recent additions, my insider buying stocks – DKS, TFM and MTDR. Each of these is around 1.5% of my portfolio.  I also have around 10% cash currently.

One thing I had worried about was with my move away from having only a few concentrated positions, was I ‘diworsifying’ my portfolio down to where I would end up with index like performance? I do not think that is the case. My portfolio is still pretty focused with only around a dozen core positions, each of them a ‘best idea’ for me. I didn’t add any of them simply for the sake of diversification (not counting my two ETFs). Furthermore I feel all of them have significant upside potential. AA is a cyclical/turnaround play which can typically make explosive moves on the upswing. STI-WS-B and ASBCW have multi-bagger potential. DATA, SFM, YELP and Z are young growth companies. AMZN, LNKD, BIDU and VIPS are larger companies but still with plenty of growth ahead. My insider buying stocks and cash are aimed at targets of opportunity.

Overall I am up only slightly so far in 2014, but I feel all the changes I have made position my portfolio well for the long run.

Portfolio Changes

I made some changes to my portfolio this week.  The drop in small cap/momentum stocks has significantly improved their risk/reward profiles in my opinion.  With most of them already having reported Q1 earnings, I sorted through which ones I thought were really the best long term plays.

I settled on four which I felt most confident about – Sprouts Farmers Market (SFM), Tableau Software (DATA), Yelp (YELP), and Zillow (Z).  All four reported great earnings which validated my original investment thesis on them.  I think Sprouts will be a long term winner in organic foods – I think Whole Foods is still too expensive and the older traditional supermarkets and Walmart will have trouble gaining significant mindshare in organics.  I think Tableau has a nice niche and clear lead in data visualization which I think is a large market but not as crowded as some other software/cloud spaces.  And I think both Yelp and Zillow are increasing their leads in their respective spaces and both have long runways still and many avenues for expansion. I wanted to increase my exposure to those stocks while still maintaining the same or greater cash position I had.

So I sold Annie’s Homegrown (BNNY), Fireeye (FEYE), Amazon (AMZN), and Chipotle (CMG).  I also sold KongZhong (KONG) – both the shares and Sep $10 calls I had bought.  Annie’s hadn’t reported earnings yet, but I wasn’t as confident in their ability to successfully expand their product line and I thought Sprouts was a safer play on organic foods. Fireeye was a tough decision to sell.  It was down so much I felt there was little downside left, and I really felt the Mandiant acquisition was great.  In the end however I decided their product being so expensive might lead to a longer sales cycle giving competitors time to catch up. There was nothing really wrong in my mind with either AMZN or CMG, just being more mature and not having dropped as much recently, I felt they wouldn’t bounce back as much on the upside either.

As for KONG, my plan had always been to hold the shares until around GW2’s release and then sell for hopefully around $15, for around a 50% gain.  With the drop in the small cap/momentum stocks I mentioned I felt those now had more upside potential (around 50% in the short to medium term and even more in the longer term) and thus had more attractive risk/reward profiles. Now it may well turn out that when KONG reports earnings in a couple weeks the stock takes off, but I will be OK if that happens.

On the KONG calls, I could have had more than a double on them had I sold them when KONG reached $12 recently.  However at that time I felt that KONG would continue to steadily increase to $15 leading up to Guild War 2’s official launch.  That turned out not to be and I don’t like holding options with only a few months remaining until expiration so I decided to just sell them for a small profit.

I ended up losing about 40% on FEYE, losing 10% an BNNY, breaking even on AMZN and CMG, and gaining around 10% on both my KONG shares and options.

So I used some of the proceeds from those sales to increase my pace of averaging into DATA, SFM, YELP, and Z. I suppose that kind of defeats the purpose of dollar cost averaging, but I really felt that current levels for those stocks were quite attractive here.  I also bought a little more Alcoa (AA).  I also saved a lot of cash, bringing my cash position up to around 35%.  I will continue to average into my small cap holdings over several months, perhaps until the end of this year, and will also continue to maintain some cash for any other opportunities which may arise.

Initiated positions in AMZN and CMG

Today I initiated long positions in Amazon and Chipotle.  Like with my other recent additions these are small initial positions which I plan to dollar cost average into over time.  Both recently fell after earnings on concerns which I don’t think will affect their long term growth prospects.  And while CMG and especially AMZN are larger market cap than I am usually interested in, I think both still have significant growth potential.

In Amazon’s case I think there is still significant room for growth in online shopping, and I like the prospects of all the other areas AMZN is into from Kindle, FireTV, video streaming, Amazon Web Services, Amazon Fresh, Amazon Pantry, etc.  I have a lot of confidence in Jeff Bezos long term thinking for the company.

In the case of Chipotle, there is still room for the number of Chipotle units to almost triple, and I think new concepts Shophouse and Pizzeria Locale can provide significant additional growth.  I can see both of those being successful and Chipotle becoming a successful conglomerate of brands, kind of like Yum Brands, except in the fast casual restaurant space,where the growth is.  I looked at several smaller cap companies, many of which completed IPOs in the last year or so, which were positioning to be ‘the next Chipotle’ but none of them looked like it to me so after Chipotle’s recent correction I decided the original was the best play.

I think both AMZN and CMG could as much as triple eventually, and downside is probably around 50% or so from current levels, so I like the long term risk/reward ratios for both.

As growth/momentum stocks have continued to correct recently I have also continued to dollar cost average into my other recent additions – SFM, BNNY, YELP, Z, DATA and FEYE.  I don’t know how low these stocks will get before the correction is over, but most of these stocks are already down 40-50% from their peaks and I think further downside risk is maybe another 50% from current levels whereas over the long term I think these stocks could become 3, 5, or even 10 baggers.  So again I like the long term risk/reward ratios here and will stick with them for the long term as long as I think their fundamentals remain strong.