1Q17 Portfolio Update – Sizing Up While Slimming Down

Doubt is not a pleasant condition, but certainty is absurd. – Voltaire

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so. – Mark Twain

I generally don’t like to measure performance by quarter as it leads to short-termism, but this quarter has been a good one. Facebook, WLDN, Dell, Charter, and CSAL/UNIT have all had strong 3 month rallies of >15%, but I’ve still had too much cash sitting on the sidelines, between 5-15%. So, I’ve decided to ignore the macro for the most part, and focus on deeply undervalued names. This portfolio is meant to compose of my most compelling investments. It’s not supposed to have a macro view and I can always pull more cash from savings into the account if a real market crisis/opportunity emerges. This doesn’t mean I won’t hold cash, but from here on out, I plan to keep it within the 3-5% range. While valuations *could* be high right now, I find little certainty in macro opinions.

end-of-1q17-portfolio-compsition

Slowly rotating from passive to active has been a challenge. Owning part of a going concern entails hours of research, but I’m getting more comfortable with the names I own. As I started researching new stocks initially, I spread my bets with several small positions in names like LVLT, TSL, RAD, RDCM, GSAT, Dish, ESOA, T-Mobile, Dell, and RSYS. Some panned out (LVLT, ESOA, DVMT) and some have not (RAD, GSAT, VG). Thankfully, by keeping my riskiest allocations small, and selling after being down 10-20%, I’ve generally been able to limit losses, while sizing up the names I am more comfortable with like AOBC, HUM, CSAL/UNIT, DISH, and TMUS. My one big mistake recently was Rite Aid, a reminder that valuation is everything.

This activity has entailed a lot more trading than I can sustain over the long-term, and I’ve been focused on buying fewer small positions and getting more buy and hold value names into the portfolio.

As such, I recently added SBFG and CKFC, two community banks with low loan-to-asset ratios and price to tangible book values which should help them benefit in the event that interest rates rise. My hope is that I won’t really have to touch them for the next year.

I also added a shipping spin-off, INSW which appears to be at least 20% undervalued on a NAV basis (thesis here), and the ADR tracker for Actelion in the hopes of receiving shares in a biotech R&D spin-off for free (good summary here). Shipping in general I find to be a pretty “meh” industry. Biotech and pharma I do not fully understand, but I am seeing a lot of names pop up in my screens, and it seems like there are a lot of babies being thrown out with the bath water.

My goal is to run a portfolio of no more than 20-25 names at a time, which should enable me to stay focused and to avoid tracking the market.

 

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Author: secondhandstocks

The genesis for this blog stems from a Marine buddy and I came back from Afghanistan with more money than knowledge, and heedlessly tossed our hats into the stock market ring. A few months later, I remember discovering the classic book The Intelligent Investor by Graham and Dodd, and ravenously devouring my first introduction to value investing. That framework - with some generous additions by Seth Klarman, and Joel Greenblatt among others - guides my investment philosophy. I spent five years working in the intelligence field, both in the Marine Corps and then for a government agency after that. I speak Arabic and Pashto, have programming and analysis experience, and enjoy investing in technology companies as a hobby. I also spent a year on Wall Street working on a #1 Ranked Institutional Investor team, before deciding that that the Sell-Side was not for me.

2 thoughts on “1Q17 Portfolio Update – Sizing Up While Slimming Down”

  1. I bought JPM during the London Whale crisis, AIG and ACE (now CHUBB) back in the 2011 dip, but yeah I tend to stay light on Financials… I have no special expertise in studying/covering financials and given the recent rally it’s been hard for me to get excited about much in the sector. Interest rates and deregulation would be great I’m sure, but it’s primarily a commodity industry.

    As noted above I did recently buy SBFG and CKFC, listed above. They are both rust-belt community banks with high Net Interest Margins and low loan-to-asset value ratios. Hopefully they would benefit disproportionately from rising rates.

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