In 2017, Nvidia gained 74% contributing to Wayne Himelsein's Logica Focus Fund’s 51% composite return last year. But Wayne’s algorithm now says AMD is more attractive. The algorithm doesn’t always sell big gainers. Netflix, which gained 53% last year is still in the portfolio. The key to Wayne’s success is to make these difficult decisions without emotion.
Wayne Himelsein earns a star for generating a 51% composite
return for our clients last year. Shutterstock
One of the most difficult things investors have to learn is how to control their emotions. When a stock gains 74% in a year, there are 2 kinds of emotional responses that can trip you up.
First, there are those who won’t sell because, after all, they made a lot of money on it. Frequently they won’t buy more of the stock either because that would mean paying a higher price than their original purchase price.
Second, there are those who want to sell before their luck runs out. The reality is that those who believe their gains are due to luck would most likely have sold when they were up a much smaller amount. Few people who believe in luck would have held long enough to see a 74% gain.
Wayne’s quantitative model avoids these mistakes by constantly asking the same question; Are these the the best possible stocks I can invest in? Whether a position is profitable is only one factor in this equation and not even the most important one.
Quantitative algorithms are not good at explaining why one stock is selected over another. But the proof of the algorithm’s efficacy is in the long-term track record. Here is Wayne’s 17+ year track record.
To get more “color” about a stock, I find it useful to see what the successful value investors have to say.
In July of 2015, Nate Pile was buying Nvidia for less than $23. Mike Durzan bought it in May of 2012 when it was under $13. Wayne Himelsein started buying it in October of 2007 at $36. Today it’s trading north of $230. Rex Jacobsen, another Marketocracy manager has a target price of $310.
It’s rare to find a stock that 4 top managers with different investment styles can agree on. As recently as June, 2017, when negative opinions published by Citron, Instinet, and Pacific Crest caused a series of large one-day drops, Mike Durzan told us why he was buying on the pullback in the $100 to $110 range to make it his single largest position.
As much as we might like Nvidia’s fundamentals, there is no escaping the fact that there are lots of people betting against the stock. Even great stocks, like Apple, did not go up in a straight line. When stocks are expected to grow at high rates, there are bound to be setbacks when the short-sellers have their day and both quantitative and value investors have a chance to buy at a lower price.
After shorting the stock in the $100 to $110 range, those who followed the advice of Citron, Instinet, and Pacific Crest are way underwater now. Yet these analysts will be quick to reiterate their recommendations on any sign of a setback. This could be all that Wayne’s algorithm is picking up from the stock’s trading.
Advanced Micro Devices
In October, 2017, Tony Mitchell told us he was buying AMD after the stock lost 11% in after beating earnings and revenue estimates. AMD was trading at $11 and change. Today it trades at $12 and change so the big move up hasn’t happened yet.
Since then, it has come to light that Intel cpus are subject to a vulnerability that could be exploited by hackers to obtain private information such as passwords.
Intel has spun the news to make people think that AMD cpus share the same vulnerability. AMD has said that the risk of their cpus being vulnerable is remote.
Every major operating system has rolled out patches to close the vulnerability. But, the patches reduce cpu performance by up to 25% depending on the workload.
This loss of performance may be minor for most computer users, but for companies running data centers, the loss of even 5% performance is enough to give AMD its best opportunity in decades to take market share away from Intel.
Netflix was up 53% last year, just a little better than average for Wayne’s portfolio last year. Can it do it again this year? Wayne’s algorithm seems to think so as it is holding onto this position.
Wayne started his Logica Focus Fund at Marketocracy in September of 2000. Over the past 17+ years, his returns have averaged 13.32%, which compares nicely to the S&P 500’s 6.02% return over the same period. His returns would rank in the top quartile of all U.S. Equity fund managers for the past 10, 5, and 1 year periods. For the past 3 years, Wayne Himelsein outperformed all U.S. equity mutual fund managers.
Wayne's Logica Focus Fund is not a mutual fund. It is an investment option for clients of our separately managed account program. For information about investing with Wayne, click here.
I believe people should have to prove themselves before they can manage other people's money and the best evidence of investment skill is a track record. For more information contact me.
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