I haven’t updated the blog in a long time. I have been busy searching for new ideas, as the market seems to have dried out. I’m not finding much in the current market, but there are some interesting opportunities that I’m researching. Here are some recent updates to the holdings:
I sold out of Yukon-Nevada Gold, Goldgroup Mining, and Dolan Company. I wanted to get concentrated on certain positions that I believe would have better returns than these 3 holdings. So I sold these holdings to buy up the following positions.
I bought a new position in Scientific Learning and Chesapeake Energy. Both of these are small positions, as the stock price took off before I could buy all the shares I wanted to. I also bought more shares of MBIA, making it my biggest position. I bought the shares before the recent settlement. I still think there is plenty more upside to MBIA shares as it gets back to writing new business.
- The growing up of Brian Moynihan: Great piece on his missteps at BoA
- Daily Journal Meeting Notes: Great stuff for Charlie Munger fans
- The Big Short War: Story on Ackman’s strong confidence and arrogance
Today Sun Pharma and Taro announced the termination of the buyout pursuit. This is great news for Taro holders. I always left a small chance that Taro could stay as a public company, similar to what happened with Caraco. The biggest reason for this is the valuation for Taro Pharma has moved up very rapidly. Sun initially bought its stake in Taro at $6 something. If it wants to acquire the rest of Taro, it is likely going to have to pay over $60. That is a 10x the initial valuation, a steep price for someone that is very price conscious.
So what happens next? I think we will slowly see Taro’s share price adjust to its fair valuation, which I think is around $80+. Investors will initially be skeptical as there is still a chance that Sun Pharma might make another offer to buy out rest of Taro. With time that fear should recede.
The question for Taro is what happens with their cash hoard. The company has $480M of cash, with little debt. The company is making around $80-100M of cash per quarter. So the cash position will keep increasing, with no real need for the capital. I would love to see Taro using the cash for buybacks (low chance) or acquisitions. I think acquisitions is more likely. If Taro stays public, it could easily double in 2013.
- Graham and Doddsville Winter 2013: Always a good read
- Kase Capital letter to investors: Whitney Tilson’s new fund
- What’s Inside America’s Banks: Great read
- Investing in Worldly Wisdom: Good article on Charlie Munger
- The Insourcing Boom: The resurgence of manufacturing in US
- Graham’s Foolproof Method of Systematic Investing: Great stuff
- Transcript from Pabrai Fund’s 2012 Annual Meeting: Always a treasure trove to read Pabrai’s thoughts
- Bridge with Buffett: Great read on the math of Bridge
In 2012, we returned 11.7%. This is less than what S&P500 returned, 16%. Any underperformance is not to taken lightly. Although my performance was negatively impacted by one big holding.
In early 2012, I loaded up on Yukon-Nevada Gold. I expected certain catalyst to play out in the year, which would have moved the stock price dramatically. Although as the year unfolded the catalyst didn’t pan out as expected. I had built a huge position in YNG at the start of the year. At the end of the year I exited most of my holding. The exit price was the same as the entry point. So there was no realized loss. The biggest loss, and the big negative impact, was the opportunity cost. This one holding had a 0% for 2012 (for the position I bought and sold in 2012, the position that I still hold is under water). This had a big negative drag on what was an otherwise good 2012.
Although 2012 returns were hurt by the heavy concentration, I haven’t shied away from big bets. I ended 2012 with 3 positions accounting for over 60% of my portfolio. I would consider buying more of these 3 positions if they get cheaper. One of my take away from 2012 is to be more concentrated, given my small asset base to begin with.
Quick thoughts on my holdings:
Bank of America: The company has turned the corner and has put a majority of its legacy issues behind it. 2013 will be the year when the company increases its dividend and potentially has a buyback of shares. 2012 was great for the stock and warrants, up over 100%. I expect 2013 to be great also, but not similar to 2012.
Kingsway Financial: The company has 2 major investors pushing for change. The management team has been making good decisions in fixing the company. I like the moves they have made and expect 2013 to have significant impact on their operational numbers.
MBIA: We bought this position in late 2012. The play here is clear, BAC & MBIA will settle for substantial amount for MBIA. MBIA will be able to get back to writing its traditional business. Once this occurs the stock is worth multiple of current price.
Veris Gold: The company has finally turned the corner. The new plant is up and running , company is cash flow positive, and production is growing. Once they get the toll milling agreement, the company will be generating substantial cash flow. We will wait patiently until the cash starts coming and the market realizes the value.
Dolan Company: This hasn’t worked out as I had expected. The company’s acquisition of the foreclosure business looks like a bad bet. Although I like the eDiscovery business. We will wait to see the quarterly numbers to decide what to do next.
Goldgroup Mining: It is amazing to see the amount of insider buying. Per my calculation, voer 2% of the company has been bought back by insiders in the last few months. I have a hard time understanding who is selling these shares to insiders. This is a position that has a specific catalyst. I expect the stock to move in early 2013.
Taro Pharma: We are just patiently waiting for Sun to make its next offer. We believe Sun is going to take Taro private. The longer it waits the more expensive it can get.