Archive

Archive for February, 2014

Portfolio update

February 18, 2014 1 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