Some Big Winners and Big Losers in My Portfolio

I’ve had some spectacular winners and equally spectacular losers in my personal portfolio this year as we wrap up the final couple of weeks of 2014.  Among my big winners were restaurant stocks such as BJ’s Restaurants (BJRI) and Texas Roadhouse (TXRH).  Intel (INTC) and Norwegian Cruise Lines (NCLH) also did very well.  Finally, a long-term holding of mine, Home Depot, has done very well over the last few years, rising from the mid-thirties to almost $100 per share at this point.  My losers, including Oasis Petroleum (OAS), Enesco (ESV), and Greenbrier (GBX), have been weak mainly due to the recent weakness in the oil industry.

I’ve always liked restaurants stocks because they fit with my strategy of buying stock in companies that grow and expand.  It is easy to tell how much room for growth a restaurant has.  You just see where they are in the country or in the world.  If they are already on every corner, you know their growth prospects are limited and it is probably time to sell (unless you are just holding for steady income).  If they are only in about half of the country like BJ’s is (I’ve never actually been able to go to one of their restaurants because there are none around here), you know they have room to expand.  Likewise, while there are a lot of Texas Roadhouse Restaurants in some parts of the country, they aren’t everywhere.  Good restaurant stocks will see earnings grow years after year as they add restaurants and improve quality and service, such that more people go to existing restaurants.  You can look at the earnings growth rate to get an idea of the sort of return you can get since normally, over long periods of time, the stock price will roughly follow the earnings growth rate (as they will for any stocks).

I’d worried about buying Intel since it once was once the only real player in the processor market, but then AMD and others were able to move into that market successfully and take market share.  People are also moving away from computers into tablets and smartphones, which were not Intel’s original markets and it wasn’t clear if they would be able sucessfully enter these markets and have a place in this post-PC world.   There is always a danger of buying into a leader in a market that is vanishing – just ask those invested in buggy whip makers.  Value Line, a publication I use a lot in my stock picking, however, gave them good marks for Timeliness(TM) and earnings growth, so I went ahead and bought in.  They have done very well so far, up about 47% since I bought them about a year ago, so they are obviously becoming a player in the new mobile computing world.  Sometimes a great new growth stock is an old household name that just reinvent itself.

Norwegian Cruise Lines is a newer addition that I bought also as a Value Line recommendation.  They have been on fire over the last few months and my position is up over 25% in less than a year.  It appears that people are having some more money to spend since things like cruise lines, hotels, and restaurants are doing well.  I look at the long-term, however, and plan to hold on through future good and bad economies so long as the fundamentals of the companies remain the same and they have prospects to grow.  With a cruise line, that means adding more ships and more ports and cruises.  Norwegian is doing just this and looks like they can become a bigger entity in the cruise ship market.  Perhaps the large number of people currently retiring will also be a new source of revenue.  It is always been a good idea to buy what the babby Boomers are needing.

Oil has not been kind to me, but that is really my fault.  I still have a profit on Greenbrier, which makes rail cars and has benefitted greatly by the oil boom since one of their main products is tanker cars.  I actually still have a small profit there since I bought back before the big move up was completed, but that profit has declined mightily as the stock has fallen from near $80 per share to near $50.  Enesco rents deep water oil drilling rigs.  I have about a 45% loss on that position, reminding me of the losses I took the last time I invested in drilling rigs with Diamond Offshore.  That was right before Transocean and BP put a big hole in the bottom of the ocean and caused an oil leak that lasted for months, devastating the gulf coats tourist industry for a period.  Oasis petroleum, a more direct oil producer, has also done poorly, dropping to the point where I thought they couldn’t drop anyore when they were in the high $20’s, and then falling into the mid-teens last week.  That is why trying to buy a stock on the decline, called “catching a falling knife,” is so difficult.  Things go a lot lower than you think they will.  That position is down about 70% for me since I bought whent hey qwere up in the $50’s.

With all of my losers, I think I’ll probably stay invested after reevaluating the fundamentals of the companies.  There is no reason to sell just because a stock has declined in price – that’s closing the barn door after the horses have been stolen.  I also think that on a long-term basis oil will do well since there is no way to replace it for making plastics and a lot of other important products, not to mention it being the only available compact source of energy that can be easily used in passenger cars and trucks.  Plugging in may seem nice when you commute 10 miles to work and back each day and are then able to plug ion again, but there is nothing like gasoline or diesel when you need to drive all day or are travelling to a remote area where you can’t find a wall outlet.  (Note also that you actually use more energy per mile driven using an electric car than a gas car if you include all of the losses in making the electricity, transporting it to your house, and getting it into the car battery.)  The lesson here, however, is to be careful of buying into an industry after they have already had a few years of great growth.  Every industry gets overbought and needs to contract as some point even if long-term there is ample room for growth.  I’m not a fan of market timing, but still there are times when things are really overbought or oversold where you should just stay on the sidelines for a while and wait for a better entry point.  This was one of those times.

Overall it has been a good year because my winning stock have far outpaced my losing stocks.  That is the beauty of investing in individual stocks – your gains are limitless, while your losses are limited to 100%, so a couple of big winners can make up for several big losers.  It takes time, however, for really big gains (e.g., gains of 1000% or more) to be made.  I’ve held Home Depot stock for over 20 years, including during a period when the stock went nowhere for more than a decade.  I bought in at various points between $40 and $30 per share, so I’ve now made about a 250% gain.  Over 20 years, that is an annualized return of about 10%, but most of that gain came in the last few years.  This is why long-term investing is more effective than moving in and out stocks – you reduce your risk by allowing a long time for things to happen.  It is easier to spot companies that will do well over a long period of time than find stocks whose price will increase over a short period of time.  You can judge the long-term prospects by looking at the fundamentals of the business, while the short-term price movements are due to all sorts of seemingly random factors.  Investing is long-term.  Gambling is short-term.
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Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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