BSMF Investment Philosophy

The BSMF investment philosophy is simple, really: make money. Toward that end investments will include many companies from many different industries and sectors – large cap, mid cap, and small cap.

Trading is not a big part of most days for BSMF. If there is a need to balance the assets or unload a loser, there will be some buying and selling. For instance MJNA was a recent sell. Bought when it looked like there was a lot of excitement surrounding the up-and-coming cannabis industry, MJNA has shown no ability to generate any interest in their stock, nor has their been any indication that they’ve figured out how to monetize their ideas successfully. This has been rather a constant, so far, in the fledgling cannabis industry. Selling cannabis semi-legally has not yet created any breakout stocks.

Stocks in the portfolio are all considered to be companies whose shares will increase the value of the portfolio over a long term, either by growth or by dividends. Sometimes, luck occurs, and we get a company like Apple that starts out as a growth buy and turns into a dividend producer while continuing to grow. The hardest part of having Apple in the fund is having to sell shares to keep it from taking over. That’s gotten to be a problem with Nvidia and Tesla recently. As problems go, though, it’s not a bad one.

While the bull market is raging in the first year of the Trump administration, we’re trying very hard not to get caught up in the party. Warren Buffett once said, “Only when the tide goes out do you find out who’s been swimming naked.” The best way to avoid being naked is to have solid companies producing solid profits at the foundation of the investments. It’s also good to have growth companies that have good prospects for continued growth. All that requires staying on top of the news.

Market news, quarterly reports, industry reports, company correspondence and blogs are all lovely things – good information. What’s going on in the rest of the world, and how does everything fit together – including companies in the portfolio – is vital.

When the street declares a stock “hot” and all the hotshot mutual fund managers hop on board to drive the price up is a great time to sell a little of it to buy something that pays regular dividends. That works best if you bought it when they were all calling it a loser. That trick is accomplished by study of what’s happening and who’s doing it – digging through the internet for hours and hours to find out what company is supplying a particular widget to the industry being researched – who their competitors are – and whether, in high tech anyway, it’s going to be one company’s hardware and software or multiple companies involved in hardware and software for the same solution. It’s how Nvidia ended up in BSMF at less than $20, and Tesla at less than $30.

The last and most important piece of the BSMF philosophy is: Analysis are mostly very smart about money things. They have learned to speak the language of Wall Street, brokers, bankers, traders. They are not, necessarily, experts in the industries they cover. Time is necessary to become expert at something and we only have so much time. Analysts don’t have any more time than anyone else. Reading and listening to what they have to say has some value, but it cannot substitute for in-depth study of the whole picture. Analysts views must not substitute for critical thinking.

 

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April 1st Update

Well, I haven’t posted here in quite a while. April 1 seems like a good day for an update. This is after all the official anniversary of the birth of Apple Computer (now Apple, Inc.), which has been the bulwark of BSMF since its inception. AAPL is still the largest individual holding by percentage of the fund, and it’s reaching new highs again after being kind of stagnant for a while.

We’ve been pretty slothful at BSMF for a while. Most of the activity over the past year has been moving dividend income into growth stocks. We’ve put our dividend returns into NVDA and TSLA.

Nvidia (NVDA) is the technology company largely behind autonomous cars – a rapidly growing technology. Almost all of the “driver assist” technology in new cars can be traced back to NVDA. Uber has self-driving cars in their fleet, now. This is only going to get bigger.

Tesla (TSLA) receives some negative press because of the car business. The cars aren’t coming out quickly enough, aren’t powerful/sexy/fast enough. All of those are subjective arguments with varying degree of truth to them. Tesla, though, is not just a car company. The BSMF investment in TSLA is more focused on the larger scope – which is the founder, Elon Musk. Solar City is now a Tesla company, and SpaceX, while not officially under the Tesla umbrella, is still and Elon Musk conjuration. Elon Musk still has a lot of ideas that he is pursuing.

SpaceX, which is not yet publicly traded as I write this, has achieved the holy grail of space flight. It has reused a first rocket stage (main engine) to achieve orbit. The first rocket stage is the single most expensive part of a space launch – by a lot – and until now they have been discarded after one use. The ability to reuse the main engine multiple times will make space exploration affordable – even cheap.

In short, the investment in TSLA is an investment in Elon Musk, who is still young with a lot of room for upside as he continues to push forward with new technologies.

BSMF will continue to hold TSLA, AAPL, and NVDA. We are also actively looking for companies on the leading edge of technology, while keeping our feet firmly planted in companies that pay regular dividends – industrial, energy, and consumer companies whose relatively stable stock prices minimize the effects of downward market fluctuations.

The biggest move we’ve made in the past year was made when we recently sold a few shares of AAPL to increase our holding in NVDA. Also we have to keep any single company from becoming too much of the overall portfolio, and AAPL was getting there with their recent big run up.

I’ll try to update this a little more often, going forward.

SMG and GBLX

This morning we’re going to add Scott – Miracle Gro and Growblox to the the portfolio. GBLX is a solutions company for cannabis companies and Scott-Miracle Gro has been expanding into hydroponics supplies for cannabis growers.

GBLX is a penny stock – a lottery ticket, if you will. Given that the stock price is under a dollar a share, and the potential upside is huge, it seems like a reasonable bet. The legalization of cannabis, at least for medical use, seems to be gaining steam.

The most likely scenario, based on history, is that the more successful startups will be acquired by established corporations at some point. In the meantime it looks like an opportunity for taking advantage of the “Wild Wild West” cannabis business environment while everyone figures out what the new rules are going to be.

Scott is a well established company that pays a regular dividend, and has in the past year begun targeting the cannabis industry. Their stock is up from the mid-60s to the mid-90s per share in the last year, and they pay a regular dividend. The only possible downside to this one is that the stock price could go back down if political winds shift and put the kibosh on cannabis.

Note: I use the term “cannabis” because it’s the most inclusive term for the genus. Marijuana and hemp are less favored. Marijuana has a negative connotation, and hemp is a subspecies. Cannabis, according to purists, is the most correct term for the whole genus. It covers all the different uses for the plant, of which recreational use is a small but important part.

And no, I don’t smoke it.

SCTY and FSLR

These two stocks are going to represent a larger and larger piece of BSMF moving forward.

I expect both of these companies to grow quickly and substantially in the coming months and years. This is because they are both pushing toward solar power as a main energy resource. They are not trying to supplement combustion as an energy source; they are aiming to supplant it.

Both companies are just starting to garner attention from investors. BSMF has been investing in them for over a year on a small (less than 3%) basis. BSMF will begin to transition to solar over oil going forward.

First Solar (FSLR) focuses on large scale solar plants for industrial and commercial applications, while Solar City (SCTY) is more focused on small-scale home energy supply. That’s a bit of an oversimplification, but it captures the two different business models’ essence.

Tesla (TSLA) is also a player in this market, building a home battery for solar energy collection that will allow homes to be off grid even when the sun isn’t shining. Elon Musk – the CEO of Tesla – is on the board of directors of Solar City. BSMF will also maintain a position in TSLA, as well.

AMT

This is an easy one. AMT is American Tower. They build, own, and lease out communication towers used by cell phone providers. They’re among the largest of such companies in the world.

As cellular providers spend to increase coverage, AMT gains. The company has provided solid, if not stunning, gains since it was added to BSMF. It has gained 17%, and is just less than 3% of the fund.

TSLA

The decision to purchase Tesla and add it to BSMF was based on “it seemed like a good idea at the time.” The analysis was not what you’d call traditional.

I love the concept of electric vehicles. Ever since I was a teenager, it has seemed to me that it would be better to generate power without burning stuff if you could. Electric cars just seem so much more sensible to me than driving around with a container full of highly flammable liquids.

I’m also much enamored of things that are well made. Fit and finish is important to me. So many products manufactured in the last forty or fifty years are flimsy crap, built to be useful for a few weeks after the warranty expires. Most of the stuff I have bought from Apple over the years is still useful and functional – obsolete because computer technology keeps moving forward – but still capable of doing what it once did. Part of my research of TSLA was finding out if their product is worth my interest.

Steve, my son-in-law, and I were in a mall, where a Tesla sedan was being displayed. It was beautiful. Naturally, it was beautiful in the superficial way that a car on display always is. Nobody puts anything on display without ensuring it’s pretty to look at. The Tesla was beautiful in ways that you just can’t fix in the showroom. There were no loose threads sticking out from the upholstery. There were no uneven gaps where the dashboard met the firewall and windshield. The details you don’t even consciously notice unless you’re specifically looking for them were clean and right.

Steve asked the attendant technical questions. The attendant was an attractive young woman. I don’t think it’s at all cynical to expect that an attractive young woman at a car display will be nothing more than window dressing. She was polite, professional, confident, and knowledgeable about the product. These are details that a lot of companies don’t get right.

In further research, I have listened to and read Elon Musk talking about his view of the future. This is a guy who has already made a few billion dollars, so I assume he’ll be saying something useful. He can talk intelligently about Tesla, Solar City (another stock I’ll blather about later), Space-X, and the Hyper Loop, among other things. Elon Musk is our current leading futurist. I have sought out his writing and speaking wherever I can find it.

All of that taken together encapsulates the reason I have invested in TSLA. The products are well made in ways that seem extravagant to traditional car makers. The company takes care of details that other companies ignore. The leader of the company is looking beyond the next quarter’s profits. He’s looking to fundamentally advance transportation and energy.

Since purchasing TSLA for BSMF, it has posted total gains of over 67%. It represents about 7% of the fund.

 

AAPL

AAPL is the among the first stocks purchased for BSMF. It has always been one of the largest holdings by percentage in the BSMF portfolio. It’s also one of the first stocks I bought for my personal portfolio.

Apple Computer, Inc. was the company’s name when I bought in initially. It was 1999 when I bought it for my personal account. In 1999, you had to be an idiot to buy stock in Apple. Even on tech-geek sites where they loved the products, nobody was recommending AAPL as an investment.

I don’t remember the date, but I remember the moment I decided to invest in Apple. I had been watching the stock for months. I was just learning about the stock market. I had a few shares of various companies that are long gone and forgotten, now. Apple had been on the verge of bankruptcy. I was only really interested in the company because I’ve been using their products since 1987. I bought a Macintosh SE computer, and have never owned any other brand since then.

In 1999 the stock was sitting at 62.50 per share when the company did a quarterly conference call. Profit missed analysts predictions by one cent per share. Overnight the stock price dropped by more than half. It quickly dropped to 25.00. I started reading everything I could find to figure out why the stock dropped as much as it did.

Here’s the thing. Profit had gone up quarter to quarter and compared to the same quarter the previous year. The company was making money. The company was making more money. It was selling stuff at a good clip. It missed analysts predictions by one penny and the stock price nosedived.

I went to as many places as I could find to explain to me exactly why such a report would drive stock prices down so much. I couldn’t find anything that parsed logical reasoning to give me that result. I could only surmise that it was a purely emotional response.

I bought a few shares. I still own some of those original shares. The split-adjusted price of the shares I still hold from that initial purchase is less than a dollar a share. It was over a year later that I started BSMF. AAPL has been approximately 20% of BSMF for several years.

This is one of the first lessons I learned about investing. If the mainstream is certain that something is a bad idea, it is almost certainly a good idea. And vice versa.

AAPL is maintained between 20% and 25% of the value of BSMF. Since inception it has 165% growth.