I’ve made a couple of portfolio changes in the last couple of days. My holdings in JD Sports (LSE:JD) and Kentz (LSE:KENZ) are trading at around my estimate of fair value so I decided to significantly reduce the positions, by about 60%.
Barnes & Noble is making big losses on paper and looks pretty worthless at first glance, but headline numbers are masking two very profitable segments worth more than the current market cap. The company also has a 26% shareholder as its chairman and completely separate management teams for different segments, which suggests a separation of the businesses is a very real possibility.
In the second half the portfolio returned 29.8% beating both the S&P 500 at 15.4% and FTSE All share at 11% (both including dividends). I am pleased with the performance this year, which has totalled 49.4%. I wouldnt have expected to beat the market by such a margin in what has been quite a frothy year, with a lot of companies selling at full or over-valuations. I am also reluctant to give myself a pat on the back as there are many companies I didn’t pick that also did well, it was a good year to be a small cap investor.
It is time to look at some of the stocks that I considered, rejected, and that didn’t do well. I don’t tend to write many posts about companies which I am not interested in so it is hard to track my past thinking without resorting to my (poor) memory. I think I will make more of an effort to write up bad stocks next year, they can still offer good learning points.
It’s that time of year; everything seems to be winding down, everyone is looking forward to a well deserved break over Christmas and time becomes scarce as free moments are taken up with shopping for gifts, writing cards to relatives you haven’t spoke to all year, and of course, eating all those cakes and mince pies. It is a great time to look back over the year and contemplate the good times and the bad times, to hopefully learn some new lessons for next year.
For the purposes of this article, I’m going to focus on some of the companies I’ve followed this year, who’s stock prices have rocketed. Unfortunately for me, I have either sold too soon, or not bought at all. I’ve tried to hold back the tears while writing this.
Almost all investors assess their performance against ‘the market’. The premise is that if you are spending time actively managing funds then to make it worthwhile you should at least beat a simple tracker fund which would take no effort whatsoever.
But just how easy is it to beat the market? Looking at the performance of most mutual fund managers you could be forgiven for thinking that it isn’t easy at all! The fact is a lot of managers fail to beat the market, while the ones that do, like Warren Buffett, are catapulted to stardom as heroes of the industry. But I would argue it is easier than people think
As a value investor, you are likely to come across many struggling companies when doing research. These tend to be the ones trading at low Price/Earnings ratios due to pessimism about the future, so will frequently appear in stock screens. Some will inevitably have the attention of an activist investor who believes they can turn the business around, and in the process produce outsized returns for shareholders. It is easy, as an individual, to believe their assertions and they will often have a good track record to back them up too. But it doesn’t always go to plan as was the case with JCPenney (JCP), and it is an interesting case study to review so that hopefully investors don’t get caught out in this same trap in future.
Collectors Universe has an Enterprise Value of $110m, and the companies free cash flow has averaged $10m over the last 4 years. It also boasts a 10% dividend yield. But what is most interesting about this investment is its competitive advantage. In a niche industry it is already a dominant player, with significant barriers to entry. The industry is likely to last for decades and will not become obsolete. Going forward the company is expanding internationally and potentially more than doubled its market by opening an office in China.
I haven’t had a lot of time to look at stocks recently, so with the markets hitting all time highs I thought I’d do a post about some of the ludicrous valuations in the market today, and cap it off with one extraordinary story I read in the news.
Anyone that keeps tracking of whats going on in the market will know there is currently a lot of hype around social networking websites that reminds one of the dotcom IPO’s back in the 90s. Facebook for one was offered last year for a whopping 100x earnings. Any value investor will have avoided that one, and the subsequent 50% drop that happened in the next few days. It’s strange how the market can go from loving a stock, to hysterical paranoia about mobile revenue and completely change its mind. Early investors can breathe a sigh of relief now however, Facebook is now back over its IPO price.
Ithaca Energy is a stock I looked at quite a while ago. I wrote the following article and was about to buy shares, but in an extreme case of bad luck, just before I could initiate a position the shares rallied 30%. I haven’t since initiated a position but think the shares are still compelling so thought I would post the write up. They have just reported Q3 2013 results which showed record cash flow, putting them at a EV / Annualised Cash flow multiple of just 3.5.