Stepleman: Living Dangerously Portfolio underperforms – News – Sarasota Herald-Tribune

Many investors were rewarded with unusually high returns for the first half of 2019. However, even with its significant risk, my “Living Dangerously Portfolio” underperformed less risky major indexes, demonstrating that at least for six months, high-risk is not synonymous with high return.

Every equity investor must cope with normal volatility, but they don’t have to deal with high volatility and a high probability that a speculative stock’s price will collapse. Of course, like the lottery, even speculative stocks will have a few big winners. However, few investors have the skill to find these “needles in the haystack,” and the discipline to stick with them. 

A problem with low-quality speculative stocks is that their share prices are often based on the possibility of outstanding far future earnings, not the reality of their near future ones. I label these stocks as “dangerous.” Since these stocks’ prices are based on hoped for far future earnings, they are literally “priced for perfection” and perfection is rarely if ever achieved.

I’ve warned readers about dozens of dangerous stocks. From time-to-time, I construct from them a Living Dangerously Portfolio and report on it quarterly. In 2015, I started a new portfolio with all the dangerous stocks reviewed here from 2013-2015. I assumed a $10,000 investment in each stock at the price in the column when it was reviewed.

The portfolio closed 2018 at $141,303; it closed first half 2019 at $153,219, for a gain of 8.4%. For comparison, the NASDAQ index was up 20.7% and total stock market indexes were up about 18.7%. Since inception, the portfolio’s return was about the same as the total US market even though it had significantly higher risk. Also, consider that since inception two of these stocks fell significantly in price. Owning a large position in several stocks like these could wreck a portfolio.

Let’s review the stocks.

In March 2013, Selectica, symbol, “SLTC” was reviewed; its price was $9.75. It’s now “DTRM” and its closing first-half price was $0.18. It develops contract lifecycle management software.

In August 2013, Tesla Motors, symbol, “TSLA” was reviewed; its price was $138. Its closing first-half price was $223.46. It manufactures and sells high-end electric vehicles.

In March 2014, Yelp, symbol, “YELP” was reviewed; its price was $96. Its closing first-half price was $34.18. It operates an online city guide.

In July 2014, Cheniere Energy, symbol, “LNG” was reviewed; its price was $69. Its closing first-half price was $68.45. It’s in businesses related to liquefied natural gas.

In October 2014, Palo Alto Networks, symbol, “PANW” was reviewed; its price was $98. Its closing first-half price was $203.76. It’s in the computer security business.

In March 2015, Abiomed, symbol, “ABMD” was reviewed; its price was $61. Its closing first-half price was $260.49. It’s in the businesses of medical devices.

In September 2015, Paycom Software, symbol, “PAYC” was reviewed; its price was $38. Its closing first-half price was $226.72. It’s in the business of cloud-based human resources software.

All data and forecasts are for illustrative purposes only and not an inducement to buy or sell any security. Past performance is not indicative of future results. If you have a financial issue that you would like to see discussed in this column or have other comments or questions, Robert Stepleman can be reached c/o Dow Wealth Management, 8205 Nature’s Way, Lakewood Ranch, FL 34202 or at rsstepl@tampabay.rr.com. He offers advisory services through Bolton Global Asset Management, an SEC-registered investment adviser and is associated Dow Wealth Management, LLC.

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