Risky Business in My Portfolio

Risky Business

I got tired of reading Alibaba’s analyst report after seeing that Charlie Munger is buying in. I decided do something more exciting by looking for businesses to add to my “Risky Business” portion of my portfolio. I wanted to start with recent IPO’s. I just googled “all recent IPOs” and I found the Stock Analysis website. It has all the IPO’s of 2021, 2020 & 2019. I went through the list in reverse order from most recent IPO to the first IPO of January 2019.

My 1st Filter

For my first filter, I searched the “symbol” on Datorama. If a “Superinvestor” that I follow didn’t own it, I moved on to the next IPO until I found a company that is owned by a Superinvestor. I also didn’t want one that was being sold the previous quarter. Once I found one, I took note of how many gurus owned it, the “Reported Price” each Superinvestor paid, the “% of portfolio” of each Superinvestor and what quarter/year they were buying. Then I added the current price.

There are so many good ideas around. You don’t need to create your own ideas – you can clone them

Mohnish Pabrai

I created an Excel document and called it “Research List to keep track of my findings. I also created a “Watch List” document for companies I want to buy after performing further research on each company.

I know there has to be a better way of doing this instead of going through every IPO in 2-1/4 years. I found what could possibly be a great screener on Gurufocus, but I’m not prepared to spend $500+ at this moment. I will a little later on. I believe it’s worth it.

Once I have a proven track record and start managing money as a profession/lifestyle, I’ll have all the subscriptions to make life easier. Until then, I’ll just have to put in the hard work. Looking through 1,163 IPOs took some time. Especially to only have 22 possible companies that will go on to my next filter.

What I Look For in A Guru’s Portfolio

All the Superinvestors on Dataroma are…well, Super. I do not follow all of them though. I’m personally not smart enough to keep up with 100+ companies. The investment style that makes the most sense to me is Buffett/Munger style. You can learn more about this in my post “This is An Overview of My Investment Style“.

I like to see that a “Guru” or “Superinvestor” isn’t afraid to put most of their eggs in the one or a few “right” baskets. I like to see gurus with less than 100 companies in their portfolio or 60% of their portfolio in the top 10 companies. Unless you’re Warren Buffett with a $270 billion portfolio.

As a result of overdiversification, their (active managers) returns get watered down. Diversification covers up ignorance. Active managers haven’t done enough research into any of their companies. If managers have 200 positions, do you think they know what’s going on at any one of those companies at this moment?

Bill Ackman

His portfolio says it consists of 47 companies as I’m writing this, but I know from research that he owns over 100 companies, public & private. That being said, 85% of his public portfolio is in his top 10 holdings.

My 2nd Filter

For my second filter, I checked each company on the Rule 1 Toolbox to view the complete history of Book Value Per Share, Earnings Per Share, Sales Per Share, Operating Cash Flow Per Share, Return on Equity, Return on Invested Capital and the Long Term Debt to Earnings ratio. I checked it on the toolbox instead of using my Excel Calculator so that I didn’t have to plug in all the numbers myself.

If the numbers were all negative, I immediately passed on that company. I’m not good enough yet to value a company operating in the negative as short as its history is. This filter left me with 13 possible companies.

All of the companies were not available on the toolbox. The companies that have not yet been added to the toolbox, possibly because it has barely been 1 quarter since IPO on some, were put on my “Research List” along with the companies that passed this filter. I will have to use my excel calculator for these companies. This was to remember to find the information from the financial statements in my TD Ameritrade account.

Ways To Help

I’m not perfect and there are probably flaws in the calculator that I haven’t found yet. I’m also not an expert in Microsoft Excel. I literally had to research how to create everything in the calculator and it took up no less than 20 hours of my weekend. You are welcome use this calculator if you’d like. If you find it beneficial, feel free to make a donation and support me on my path.

If you don’t already have a TD Ameritrade account and you’d like for me to receive $50 for referring you, shoot me an email with your first name, last name and email address, and we can do the “Refer A Friend” program. The qualifications are: you must be of legal age in your state of residence and you must fund your account with at least $3,000 within 90 days. If you don’t/can’t meet the qualifications or you just don’t want to help me out, then just click this TD Ameritrade link.

My 3rd Filter

For my third filter, I checked where each company is headquartered. I only want companies headquartered in the United States. If it is headquartered in another country, it gets taken off the list.

I have nothing against investing in companies outside the United States, but I am wary. They aren’t required to follow the same SEC regulations as American companies and it can be a headache trying to find some information. Personally, I might not even be comfortable investing a large percentage (+10%) of my portfolio into a foreign company that has been public for more than 10 years. I’m especially uncomfortable investing in a foreign company that’s less than 2 years old. I will eventually learn more about foreign markets to ease my comfort level.

This left me with 8 companies. Yeah, 8 possible companies out of 1,163. There was definitely a better way of doing this.

These are just the companies that passed my first 3 filters. I haven’t put them through my investment checklist, nor have I researched any into these companies yet. They just look good on the surface to me. They don’t have the track record to prove they have a durable competitive advantage.

The “Possible” List

This is the list I came up with. The order I am going to start researching these companies in is based on the highest number of guru holdings, highest percentage of their portfolios and the ones currently selling below the guru purchase price. The order in which I plan to research these companies will probably go like this:

SymbolCompany# of Gurus% of PortfoliosPurchase ActivityPurchase PriceCurrent Price
DASHDoorDash Inc.51.17 – 0.22%Q4 2020$143$137.37
AVTRAvantor Inc.32.39 – 0.42% Q4 2020 $29$31.17
UPSTUpstart Holdings Inc.14.01% Q4 2020 $39$153.85
FUBOfuboTV Inc.12.08% Q4 2020 $28$20.29
LESLLeslie’s Inc.10.96% Q4 2020 $28$28.22
WPFFoley Trasimene Acquisition Corp.10.58% Q4 2020 $16$10.39
WISHContextLogic Inc.10.52% Q4 2020 $18$9.32
MNRLBrigham Minerals Inc.10.31% Q3 2020 $11$17.87

I know these are not the exact prices that gurus purchased the companies at, but it is pretty much impossible to know the exact price. This is not a recommendation or investment advice in any way. This is just how I went about finding recent IPO’s with the resources available to me at this moment.

Follow Others, But Think For Yourself

The companies I choose after deep research into each one will go into my “Risky Business” portion of my portfolio. The risky business portion of my portfolio will consist of no more than 10% of my total portfolio. There will also be no more than 10 companies in my risky business portfolio.

We have to have a price that makes sense and gives a margin of safety considering the normal vicissitudes of life

Charlie Munger

I guarantee my ideas and ways of doing things will change. My main focus is on established companies that have been public for at least 10 years. 10 years is enough time for a company to face the “vicissitudes of life” as Charlie says and to “find out if they were swimming naked when the tide went out” as Warren Buffett says.

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