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I came across the following quote on Twitter yesterday that really resonated with me (h/t Ted Seides):
“My biggest investment pet peeve is analysis paralysis. You can do analysis forever, and by the time it becomes obvious, the opportunity is gone. You have to figure out a way to get involved in a risk-responsible way that you can scale up or down depending on what you learn.”
– Dmitry Balyasny, Managing Partner and CIO of Balyasny Asset Management
This observation resonated with me because I have been impacted by analysis paralysis in the past (particularly coming out of the bear market of 2008-2009) and I still find that sometimes the companies I add to my watch list but don’t end up buying tend to perform very well.
My current process involves using several event-driven strategies to build an internal watchlist. I add the date I discovered the potential opportunity and a short blurb about why I like the company. I track these through a Google spreadsheet that automatically updates to reflect the gain or loss since I added the idea to my watch list. Over time I pick some companies from this watch list to feature as spotlight ideas in our monthly Special Situations Newsletters and add them to our model portfolio or to our public watch list.
Three examples from my internal watch list are given below:
1. Align Technology (ALGN) $283.94
I added this dental aligner company to the watch list on November 4, 2022 and the price at that time was $180.93. The short note I included was:
“CEO bought in May and bought once again with two directors. His sales at $700 were very well timed.”
As the note indicates, I came across the company when reviewing insider transactions. The timing of the CEO’s sales and subsequent purchase were both excellent as the stock is up more than 50% from his purchase price.
2. United Rentals (URI) $437.14
I added this industrial equipment renter to my internal watch list on October 31, 2022 when the stock was trading at $309.59. The stock is up more than 41% since then and the short blurb I added to my watch list almost a year ago was:
“Stock is cheap, Got 15 EPS up revisions, good margins, double digit forward revenue growth. A lot of goodwill (growth through acquisitions?) and a lot of debt (beyond what can be expected in a rental business). Good long-term growth compared to UHAL. Similar net margins.”
I came across United Rentals after the company announced a $1.25 billion buyback representing 6% of the market cap at announcement.
3. Horizon Therapeutics (HZNP)
This was a potential deal, which we like to call “deal in the works” (DITW) and track on our Deals in the Works Tool. I added it to my internal watch list on December 4, 2022 and wrote the following:
“Potential DITW. Amgen, Sanofi and JNJ as bidders. JNJ decided to walk away. Great revenue and FCF last two years. Multiple approved (sic) drugs, 2 in phase 3, multiple in phase 2.”
The rumors turned out to be true and Amgen eventually struck a deal to acquire the company. The deal was consummated last week.
Not every company in my watch list went on to perform well and there were plenty of duds (17 out of 46) including BRT Apartments (BRT), which is down nearly 13% from the time I added to the watch list and Iovance Biotherapeutics (IOVA), which is down 33% since I added it last month. I added Iovance following an insider purchase by a famous biotech billionaire who was once referred to as a truffle pig.
Instead of tracking this internal watch list on a Google spreadsheet, I had hoped that one day I would be able to maintain such a watch list on InsideArbitrage. After several weeks of effort, we are pleased to announce the launch of My Portfolio that will allow any subscriber (free or paid) to build watch lists or portfolios on InsideArbitrage.
As you come across ideas on the website, whether it is our list of insider purchases, from our new free screener that we discussed in the article The Triple Tens Formula or a custom premium screen like the Double Dipper, you can now start adding them to your own watch list or portfolio by clicking on the little red star next to the stock symbol as seen below.
You can also create a new portfolio by clicking on the “My Portfolio” button above the navigation menu at the top right of the website or from your “My Account” page. You can add stocks, include notes for each stock and even create multiple lots with different purchase prices for the same stock. The portfolios can handle both long and short positions. You can see a simple watch list I created in action below:
I hope you enjoy using this new feature. As always, feel free to reach out if you have any suggestions on how we can improve your experience.