I’m an investor…big deal…right…who isn’t. My investment ‘group’ is a little different than many however. There is no ‘group’ it is just me and my personal money. This is how I invest every penny I have on this planet…while also keeping myself, my wife, and our four kids alive in the process. Over the years I have read a ton and put a great deal of time and energy (and work) into my investing and investing process. I’ve invested in individual stocks in the past but to be honest to do it is very time consuming so I haven’t always and instead held low cost index funds for years. Until now! My goal is to beat the stock market (many have tried, most have failed). I publish all my holdings and all my trades. I do this because I hope maybe someone might be able to find some value in what I share, to learn/interact with others, and to hold me accountable to my process (I have to explain if/when I break my investing methodology rules). Life is hard…investing is hard…but both are also very rewarding…which is why I love doing this. Hopefully you find some value in it (and if not I at least gain a lot of value from gathering my thoughts in this way).
I’m active on Twitter (@mymoneytrainer). In addition to these types of updates where I talk about particular trades I post monthly updates (to my website and YouTube channel). I show my holdings, talk about transactions I’ve made (and why), and most importantly track my returns. That’s the goal track…and beat a great long term indicator for wealth creation…the stock market.
Also: None of this is investment advice…just what I’m doing. I’ll probably wind up under a bridge somewhere…so…
Sold: ESIO – Electro Scientific
Bought: MU – Micron Technology
Thinking: One of my investing rules is that I don’t add to positions after I buy them initially. That said I have been working on my investment analysis tools. I’ve actually been working on it quite a lot as a matter of fact (incorporating things I’ve learned over the past year). So when I was done I wanted to revisit this position for several reasons. I just ran everything back through my new tool and liked what I saw very much which gave me the justification I needed to add further to this position (and break my investment methodology rule)
When I bought this stock back in Feb 2018 this was my investment thesis:
MU – Micron Technology – The Micron story is DRAM (meh) and SSD (not meh). I actually get most excited about the SSD side of things as I think there will be a huge conversion cycle into these types of drives over the coming years. The stock is a cyclical stock and you generally don’t want to be buying cyclical stocks at peaks in the cycle (which everyone believes is where we are with this stock…and we very well might be). But a few really smart guys that I follow on my ‘guru’ list are holders (David Einhorn, Joel Greenblatt, Tobias Carlisle, Ray Dalio) so that makes me one too. I initially reviewed this stock back in late 2017 and passed due to the debt. I’ve read up more on Tobias Carlisle and his Acquirers Multiple and it nudged me into taking a position in this after I looked it over again. He was actually on The Investor’s Podcast in the Q1 2018 Mastermind discussion and this was his pick. I think this stock is going to grow and grow and grow some more. So, if I’m wrong and we are at the top of a cycle then it is currently priced fairly for the coming low part of a cycle. If I’m right and we are NOT at the top of the cycle (or we are but it just doesn’t matter to MU who will continue to grow) then it is absurdly cheap. I’ll take those odds. The other issue with this cyclical stock is they have debt (which is never a good thing)…but they don’t have a ton of debt (34% debt to equity)…and their debt levels are way down (down from 76% in 2016 and 53% in 2017)…and they have a plan to continue lowering it ($2B down in current quarter and have a debt reduction plan). Their share count has varied and has increased over the past decade but they have done several acquisitions in 2016-16. I’m adding this stock with a 70% certainty rating.
Micron is a seemingly hated cyclical stock with an absurdly low PE, clean balance sheet, and in an industry that should grow like gangbusters over the coming decade. I’m not an expert but I think SSDs are in a big conversion. I also think all the AI, blockchain crunching, and autonomous cars/robotic stuff will drive huge demand too. I think both will be for a long time. I know they are a cyclical company but I also think we ‘might’ not be at top of cycle. If we are top of cycle I think they should weather any coming cycle just fine (or at least better than competitors)! I’ll explain why.
I know that some of the recent year’s numbers are potentially peak cycle and higher than they will run at going forward. That said, I have no idea why this company is so much cheaper than the other 65 companies in the industry. I’m not sure what I’m missing here…must be something really big…that I just can’t find. Weird. I believe that if we are indeed peak cycle that the other semi companies have a lot further to fall to become fairly valued than Micron does.
Part of my analysis is chopping what I already view as pretty justifiable/borderline conservative estimates in half. When I do this Micron still looks like it will wind up being a good investment and annualize well ahead of the overall stock market. Then if I just average the last 10 years earnings it also still produces a decent return (again outpacing what I believe the overall market will return). Micron is a completely different company than it has been over the past 10 years (not even close). I think the combination of all this provides a good margin of safety for this investment.
They’ve increased shares outstanding during their growth and acquisitions…sure…but they are 8% off their peak and they have a $10 billion buyback plan (for 2019) that will take down 23% of share at current prices.
They also had debt during their growth and acquisitions…sure…but they are off recent highs of 76% debt to equity in 2015. Even since I bought it initially it is down from 34% to 12% TTM. This is the lowest debt level this company has had in the past 10 years. That is the kind of peak cycle I like to see! Sitting at 12% debt to equity and increasing revenue from $5 billionish in ‘08 to $30 billionish TTM is pretty staggering growth.
They are currently spending about 29% of sales on Capex (which might not be wise at peak cycle) but they are doing it while also decreasing debt (and buying back shares).
I’m not sure of the exact definition of wise capital allocation but their debt, buybacks and reinvestment look very good to me. Their current industry beating (over a long period of time by the way) Return on Assets and Return on Equity should remain intact going forward.
On the management front, they have a newly named CEO, but he has been with the company (through acquisition) for some time. No concerns. They seem to be/are setting the business up to weather a storm (which I like it) but also staying focused on growing (if a storm doesn’t come).
The company is in a ‘commodity type business’. I tend to believe that Micron’s size and expertise gives it a bit more moat on that front than it is given credit for. New advances/products don’t just appear they are
developed…and I think Micron is a (and potentially ‘the’) leader in this discipline. So I give it a bit more moat than traditionally associated with companies like this. I think demand for their products (and products they can develop) will outstrip their ability to develop it over time.
Finally a long long time ago I didn’t buy $MO (when all the tobacco lawsuits killed that stock). I’ve always regretted it (because I’d be retired now if I had). So maybe another similarly ‘tickered’ stock $MU can make up for it! They both start with an M and are two letter stocks!?! Ha! Now that is heavy duty analysis!
I’m adding to this position due to my reanalysis producing a 103% certainty rating. This is the highest rating I have ever calced for a stock I’ve analyzed and much higher than when I reviewed it initially (mainly because my analysis has upgraded and I look at more things). The higher certainty rating means I can allocate more capital to the position than I currently have allocated to it…so that is what I will do. I sold off my $ESIO position (which has been bought out) and reinvested part of it into Micron to round out this position. I hope and plan to hold this position for a long, long time!
For my full analysis of $MU download this ^^^ PDF.
Sold: ESIO – Electro Scientific
Bought: SIVR – Aberdeen Standard Physical Silver Shares ETF
Thinking: So over the past few months I have been buying precious metals. I’ve also been tilting my overall portfolio towards commodity related exposures. I’ll have more on why about that in future updates but it is basically 1) I believe stocks (and real estate) are extremely overvalued, 2) commodities in relation to stocks are undervalued (and have been underperforming other classes for a good while), 3) if inflation comes it will be bad for stocks at least initially (and probably good for commodities), and 4) if deflation comes nothing will do well (stocks or commodities). Oh…and I believe the world is a mess…did I mention that. Everyone is in debt up to the hilt and we are in the final stretch of a worldwide global debt super cycle. No one knows when that will end but we are definitely in near unprecedented times in how we are dealing with things (lots of money being printed to keep things afloat in my opinion). I think holding something that has more or less held its own for thousands of years with some part of my portfolio makes sense. I’m not a negative person, I’m not a permabear, I’m not a gold bug…but I am a realist. Like the Cub Scouts taught me growing up…Be Prepared (for anything).
I had a pretty even 50/50 split on my gold and silver holdings. As I’ve added to this position I’ve been adding to the silver side of it. I own physical gold and silver in a vault. But I’ve also been buying some silver coins recently (rounds and most recently 90% junk silver coins).
So why silver? And why silver versus gold? Why precious metals versus stocks (since I’m trying to beat the stock market)?
I listened to a very interesting podcast recently. I listen to many all the time but this one really struck a chord. The Investor’s Podcast episode 213 with guest David McAlvany. So much going on in that episode. Ways to play silver against gold to create income…ways to play asset classes against each other. I put this with so much I’d already been reading on the subject previously and it really has me thinking that precious metals deserve a spot in my overall portfolio.
The reason I’m focusing on precious metals right now (versus stocks) is mainly due to the Gold to Stock ratio is at a low (stocks are expensive) and gold is less expensive compared to stocks than in the past. This ratio is at all time highs (only higher once in past 90ish years). I believe stocks are overvalued right now (as they are expensive on almost all traditional metrics). I believe this will mean revert (as it always does). I don’t want to have all my money tied up in an asset that is coming back to earth…while it is coming back to earth.
The reason I’m focusing on silver versus gold right now is because the Gold to Silver Ratio is 80+ (silver is cheap in relation to gold). Also the majority of silver miners can’t pull it out of the earth for less than current price.
I also saw a chart in the past couple of weeks where commodities in general where at a low compared to the stock market. I can’t find that at the moment but I have on my research list to find it (and others like it) to further my research on this topic (again more to come in future posts).
So I believe silver is a buy. Of course commodities are extremely cyclical…and extremely prone to boom/bust cycles. So I could be on the exact wrong side of this investment for a long time. Many argue that gold is coming off a blow off top and has much further to fall. Many argue it is a relic of the past that has no value whatsoever. Many smart minds on both sides of the argument. That is fine I plan to hold all this for a long, long time. It’ll be around long after I’m gone. Of course if the cycles that I anticipate play out I’ll likely rotate in/out a few times in my remaining time on this rock. We’ll see, regardless not a short-term play I’m making here.
In my research I found these options to own precious metals:
- BEST: Physical metals in a vault (like GoldSilver, Goldmoney, Sprott, Schiff Gold) or physical metals for your personal safe (from someone like SD Bullion and JM Bullion).
- NEXT BEST: ETFs with physical backing $SGOL $SIVR $GLD $IAU $SLV
- WORST: ETFs with no physical backing (“paper” metals)
So with the remaining money I had left over from my $ESIO – Electro Scientific sale I decided to buy one of the physically backed silver ETFs ($SIVR – Aberdeen Standard Physical Silver Shares ETF). This is not the most optimal way to own it in my opinion. It has counterparty risks, the silver is not actually mine, and the expense ratio is higher than holding it in a vault. Regardless, this portion of the portfolio is likely a more short term position that if something better comes along I’ll sell it and move to that. Time will tell!
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