Portfolio update

February 18, 2014 Leave a comment

2014 has been an amazing year so far. The over-heated market from last year is struggling to break into positive territory. When I did a review of my 2013 performance, I was shocked at how well the general market did in 2013. It is amazing what a bull run can do to the market and people’s psychology. Although I expected strong market returns for the next few years, I didn’t expect people to go that crazy, that fast.

2014 has been good for us so far. We are up over 13% for the year. What is interesting is that most of this is due to little change in fundamentals for our holdings. Infact, I think the market change will come in the coming months (BAC: when the stress test and capital return results are made public; XPEL: when Q4 numbers come out; CHK: when Q4 #s and the increase in NatGas prices reflect into earnings; MBI: when the imminent rating upgrade happens).

Most recently, I sold out of my holdings in the GSE preferred and commons. I like both of these securities and the current prices are still very cheap. Infact I might get back into these securities if, in a few months, they are still lingering at these prices. I bought other positions that I think are even cheaper.

Aurcana (AUNFF): I bought this stock in Feb. The stock has jumped over 100% in 2014. Although I think this is just the beginning. The company recently made a comment that they are looking at a strategic change. This mining stock has been beaten up due to the entire sector has been oversold and financing concerns. I think the strategic change will be huge value creator for shareholders. The 52-week high for this stock is over $6, and the company was trading at $1 when we bought the shares. So any news on the strategic change can create huge returns.

Goldgroup Mining (GGAZF): Goldgroup is another mining stock that was thrown into the sewer in 2013. The company was quietly executing on its operational change but the market didn’t care. The company recently put into production an asset that should do 700-1,000 oz of gold each month. At a low cost of $400-500, this company is going to be making good cash flow, compared to the market cap. Plus there are potential home-run events if they are able to settle a legal dispute, get permit for another asset, or do another small accretive acquisition. At the prices we were buying, we didn’t need much to go right. Just one thing goes our way and we could have a multi-bagger.

Categories: Updates

2013 Performance

February 14, 2014 Leave a comment

In 2013, we returned 19.46%. This is much less than what S&P500 returned, 31.90%. I’m definitely not happy with the large underperformance. Albeit, it is the long term track record that matters.

Year Performance S&P 500
2009  128.75%  26.46%
2010  8.85%  15.05%
2011 (20.57%)  2.1%
2012 11.7%  16.0%
2013 19.46% 31.90%
Cumulative 163.91% 127.28%
Annualized 21.42% 17.85%

What is the lesson learned from 2013? A quote from Allan Mecham, “I think if investors adopted an ethos of not fooling themselves, and focused on reducing unforced errors as opposed to hitting the next home run, returns would improve dramatically.”

In an environment where the market is up 25%, making money is easy. For me to under perform in this market, the reason was our unforced errors. It was the positions where we tried to have huge hits in a short term but ended up realizing a loss. These positions added up to substantially weigh down on the good performance from our best picks. For example, we took a trading position in a company. The rationale was that a specific event was likely to happen and the my take was the market would react pleasantly with the event. The event came and went but the market didn’t budge. I closed this position two months later, taking a big hit. This one position had a negative 1% impact on our 2013 performance. These are unforced errors where I could have avoided them by not trading based on what the market would do.

Lesson learned: In each case I was enamored by the potential gain that I didn’t even focus on what would occur if the market didn’t act as I expected. In most of these cases, greed tends to make the mind act fast. As Richard Thaler would say, the Automatic System becomes too strong that the Reflective System doesn’t get a chance to think. Interestingly, it is in these special situations where I expected huge returns in a short period that I tend to make these mistakes. When looking at investments that you expect to pan out over years, the Reflective System has the ability to think through the decision.

The other thing that I had a negative impact on our performance was poor picks from 1-2 years ago that we closed in 2013. Dolan Media was a stupid mistake that we should have closed long time ago. Instead we waiting until Q1 ’13 to close the position. The stock was down almost 50% in the first quarter. Similarly, Yukon-Nevada was another mistake that we finally closed in 2013.

As I look at my current holdings, I’m very happy with what we own. I can see myself owning these shares for multiple years, as there is huge upside for these positions. I expect the portfolio to out perform the market.

Categories: Performance

Weekend reading

January 17, 2014 2 comments

- Berkowitz’s hedge fund returns: Amazing returns for a hedge fund that uses no-hedge

- Pabrai lecture: Great lecture and Q&A with Pabrai. He talks about some of this previous investments and how he looked at the key mistakes he made (Delta Financial) or how he sees the key investment theme (DirectTV)

- Lou Simpson Profile: A dated 1987 profile of Lou Simpson.

Categories: Reading

XPEL: Investor presentation

January 15, 2014 Leave a comment

XPEL’s 2nd investor presentation is now available. Ryan Pape, CEO, did a great job talking about the company’s product, the industry, and how the company is growing. This is the first time I’ve heard the CEO speak, I thought he is very strategic about his business and keeps his card close to him. He didn’t reveal much about how the company is going to grow but it sounded like he wasn’t much concerned. I think the presentation is a good overview for people that are new to the company.

Categories: Updates

Weekend reading

January 10, 2014 Leave a comment

- What Alan Greenspan has learned since 2008: Interview with Greenspan on how his thinking has evolved

- Contrarian: A documentary on John Templeton

Categories: Reading

XPEL: Upcoming investor presentation

January 7, 2014 Leave a comment

XPEL typically doesn’t do much investor communication. This has been one of the reasons why the company is not that well known to investors. The company did its first investor presentation in Dec ’13. On Jan 15th the company will be doing a presentation for the MicroCapClub Invitational. The good thing about this presentation is that it will be public and accessible online. It will be interesting to see what the CEO has to share about where the company is focused on growth.

I expect 2014 to be the year that the company makes its story more public. The CEO has mentioned to investors that the company expects to do investor conference calls and get the stock listed on a US stock market, instead of this grey market they are currently in.

Categories: Reading

Update

December 21, 2013 Leave a comment

Last few weeks I’ve been tweaking my portfolio. I sold one position and bought another. Also, I’ve been allocated capital towards positions that I think will have higher upside then others.

I sold out of Hollywood Media. HOLL was a trading position for me. It was a play that the settlement would create increased cash and upside value for its interests in Movietickets.com. I was able to buy the stock at prices right before the settlement became public. Although the settlement created increased equity value in MT.com, the value in MT.com has actually diminished over the years due to the AMC moving to Fandango. So MT.com has been losing value and that is likely one reason AMC was willing to give up its equity position to HOLL. Also, the settlement doesn’t seem to have created any increased cash for HOLL. For me, the HOLL trade was a trading position which I expected to get out of in a few weeks to month. Although it didn’t work out as well as I expected. There is still potential upside on HOLL based on what they do with MT.com. But I decided to sell HOLL as it is unclear what the last secret piece of the settlement is and I never saw holding this company’s stock for too long.

I bought a position in Horsehead Holdings (ZINC). ZINC is Pabrai’s core holding. He owns over 11% of the company and has been buying the shares at anything below $14. It was his recent buying that peaked my interest in the company. The play on ZINC is public knowledge. There are many articles written on what is happening here. The company’s new plant, that should be operational in Q1 ’14 will dramatically change the fundamentals for the company. The company should become one of the lowest cost producers and that will be a huge moat. Based on potential cash flow from this new plant, the stock is extremely cheap. Also there is huge upside based on what could happen to zinc prices. The supply for zinc is suppose to slow down in the next couple of years, due to closures of mines. This should put an increasing pressure on the zinc prices. If prices increase, then the lowest cost producers are some of the biggest winners. So there is a good upside just from the new plant being in production, and a much bigger win if the zinc prices move up. The downside is delay in bringing the plant to production, which can cause cash crunch. We saw the company do a small capital raise by selling equity at $12. So if there are any major problems w/ the new plant, you run a risk of where the company comes up with cash.

Categories: Updates
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