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1,143% Outperformance, Tons of Stock Ideas and the Charity Challenge Update...Q1 Wrap-up

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March 31, 2013 – Comments (11) | RELATED TICKERS: DANOY , RIG , SD

CAPS calculates points totals for players by looking at "the total percentage return of all his picks subtracting out the S&P."  At the beginning of the first quarter of 2013 I decided to begin tracking my quarterly performance here in CAPS and to donate a quarter to charity for every percentage point that I outperform the S&P 500 by.  On January 4th, my CAPS points total stood at 5,200.  At the close of the quarter on Thursday I had 6,343 points.  According to my complex calculations, that means that my CAPS portfolio outperformed the S&P by 1,143 percentage points during Q1.  Let's say that I maintained an average of 195 or so active picks during the quarter, this means that on average each stock I went long (I don't short) beat the S&P over the past three months by an average of 5.86%.  Not too shabby, considering I did this with none of the usual CAPS tricks and trinkets like shorting ultra-leveraged ETFs or scams.

Doing some more higher math, I calculate that 1,143 points x $0.25 = $285.75 for charity.  The only question is which one?  Most of my donations recently have been geared towards underprivileged children in foreign countries.  My wife mentioned that she would like to do something for deserving children here in the United States.  Does anyone have any suggestions?  I've done Make a Wish before, but I think that she was thinking more along the lines of hunger.

At the end of every month, I post a compilation of the various stock picks and pitches that I have made here in CAPS over the past 30 or so days.  Here's March's:

Groupe Danone (DANOY) - Activist investor Nelson Peltz is attempting to unlock value in Danone by encouraging management to cut costs and avoid dilutive acquisitions. Peltz believes that the stock could yield a return of nearly 50% including dividends by the end of 2014. 

Transocean, Inc. (RIG) - This is a bet that RIG establishes an MLP, much like Seadrill did when Transocean's new CFO was there. Such a move should serve as a catalyst for the stock. 

Crimson Wine (CWGL) - This is an interesting spinoff of Leucadia. While it doesn't really make any money, trades OTC and is valued fairly close to its stated book value, much of Crimson's land was acquired as long as 20 years ago. This is a bet that the company's book value significantly understates its real value.  If Crimson were to actually run its vineyards properly and actually make money, that would be gravy.

Loral Space & Communications Ltd. (LORL) - Loral recently solid off its Space Systems satellite manufacturing business to MacDonald, Dettwiler and Associates. In conjunction with this sale, LORL paid out a distribution of $29/share to shareholders. That explains the huge drop in LORL a couple of months ago when you look at its stock chart.  The sale of the manufacturing business leaves LORL with one main remaining asset, a significant stake in Telesat. One of my favorite investors, Chris DeMuth Jr. estimates that the value of this stake is worth in excess of $60 to $65/share. Compare that to a current share price of just over $58 for LORL and you have the makings of an interesting investment.

MICROS Systems, Inc. (MCRS) - Following ValueAct Capital MCRS after it was announced today that it has purchased a 7.5% stake in the company. Good things usually result when this activist shakes things up.

MFC Industrial (MIL) - As I have mentioned, I am becoming increasingly interested in jockey investing...the following of individuals who have proven themselves to be efficient investors of shareholder value in the past. I'm not under any illusion that I'm going to find the next Warren Buffett, but someone who's half as good will still be a successful investment.  Over on the TMF message boards, turb0kat, just reminded me about Michael Smith and his impressive history of generating solid returns.  For some reason I have never invested alongside him, despite the fact that he is a favorite in some circles. He certainly uses lots of tricks and trinkets with his companies, along the lines of a John Malone type figure after drinking Red Bull.  I certainly cannot profess to know a whole lot more about Michael Smith than that, but I plan on tracking his investment vehicle here in CAPS and to do more research on him in the near future.

Sandridge Energy Inc. (SD) - The change of control at Sandridge that was recently forced by the activist investor TPG-Axon is likely a good thing for the company going forward.

NovaCopper (NCQ) - Direct exposure to miners and commodity prices are usually big No Nos in my investment strategy, but NovaCopper has been so beaten down since its spinoff from NovaGold that I am inclined to take a CAPS flier on it at this level.   Seth Klarman's large stake in the company, small for him but nearly 10% of NCQ, is a major plus as well. 

Northwest Bancorp, Inc. (NWBI)  - This former demutualization's takeover waiting period just expired. It's ripe for a takeout at a premium to today's price.

Capital Southwest Corp (CSWC) - I'm going back to the well with Capital Southwest. It appears to be trading at too large a discount to the value of its various holdings, perhaps as much as 60% to 70% less. I don't think that this gap will completely disappear, but it should narrow.   Combine that with modest growth in book value, say 8% or so annually and CSWC should outperform.

Reading International, Inc. (RDI) -  I know that I've been long RDI in the past. Well, I'm back. One of my favorite bloggers, Whopper Investments, believes that this movie theater / real estate company is trading at a 40% discount to a conservative valuation of the sum of its parts.  

Now this should by no means represent a real-life buy list for anyone, but it would probably serve as an excellent starting point for someone to do their own research on a company as a potential attractive investment.  I sure read and sifted through a ton of stuff to come up with these ideas.  I personally have not put any real money into any of the March stocks yet.  During the month I increased the size of many of my existing holdings.  I also did start one new position at the end of the month in a stock that I went long in CAPS in February, SPX Corp (SPW).  Hopefully I will have time to expound on why I made that investment later in April.

I also plan on writing a recap of my real-world performance during the quarter.  The bonds and preferred stock that I hold in my accounts continue to hold back my returns in this massive bull market.  Having said that, I am very happy with the results.  I haven't dug into it deeply yet, but it looks like I underperformed the S&P by less than 1% while holding around 30% fixed income and 10% cash in my portfolio during the quarter.  That beats a ton of famous hedge fund managers without even having to pay 2 and 20, so I'll take that any day.  If one looks at that on a risk-adjusted basis versus some of my broker's model portfolios I absolutely crushed it.  Of course, in the end I really don't care how other benchmarks do all tht much as long as I continue to generate real money that I can use to put my kids through college, retire, build a safety net and help others.  I should have more detailed information once my broker puts together some quarterly reports.

Thanks for reading everyone.  As always, I love stock ideas so if anyone out there has any interesting ones, please post them in the comments.  Have a great evening.

Jason 

11 Comments – Post Your Own

#1) On March 31, 2013 at 10:56 PM, rd80 (98.14) wrote:

beat the S&P over the past three months by an average of 5.86%

Wow!

How about St. Jude Children's Research Hospital for the charity?

Just stumbled across Graphic Packaging (GPK).  It recently issued new junk to redeem old junk and should save enough in debt service to move the earnings needle.   Not even enough conviction to make a CAPS call yet, but expect to be doing a little more digging.

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#2) On March 31, 2013 at 10:59 PM, skypilot2005 (< 20) wrote:

Jason.

Good luck with the bonds.  With the current and projected Federal Budget deficits, you must know something I don’t.  I wish only the best for you & yours.

I am currently accumulating:  Sand, STTYF, BRD, PTQMF, AXU, ISVLF, LGCUF, PLGTF, MMRGF. 

Not recommendations, just some ideas for you.  If, you want some D. D. on any of them let me know.  I’ll throw some on your blog.

I am a “buy & hold” type of investor.

Fool On.

Sky

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#3) On March 31, 2013 at 11:42 PM, jiltin (28.12) wrote:

I am a newbie for stocks, but not a novice. I am not comfortable playing options, looking for growth stocks holding long term.


I do invest in lending club (lendingclub.com and prosper.com) that provides me 12% to 15% year over year return. Two risks are associated with it, liquidity and default especially at economic downturn.


Hence, I am trying to start my stocks investment, long term growth perspective here. I do not like to play day trading and option trading as my risk is higher. My real picks are from mycaps pick except aapl and goog. For every stock I invested, I do have one or two pages of pick & hold analysis based on four or five days research.


Many books say stock returns - over a long period - is 20% max.  I understand we can get 200% some cases and lose 200% in another case. Caps contest top 10 range is 45% to 200%


Here is the question. Based on your real experience - over many years - what is the likely yearly return percentage (10%-20% or 20%-30% or 30%-40%) an average stock player can make? 


This question is not only to the TMFDeej, but for others too so that It helps me gain more confidence to invest further.


I would like  to generate  money so that I can use to retire, build a safety net. Stocks will be 40% of my overall port folio. I can count 15 to 20 years more.


Thanks

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#4) On April 01, 2013 at 12:10 PM, TMFDeej (99.27) wrote:

Thanks Sky.  The only reason why I hold such a large position in bonds is that I picked up as many amazing high-yield bonds as I could during the financial crisis several years ago.  These aren't treasuries, but investment grade (for the most part) paper yielding 8%, 9%, 10%.  I like the security that they add to my portfolio.  I kept them fairly short so most of them are scheduled to roll off the books by 2018.  I actually have a decent chunk that is scheduled to mature later this year.  Some of the debt is callable, like AIG's so that was snatched away from me already.  I haven't been able to find any bonds that are worth buying in years, though I did add a little preferred stock.

I absolutely welsome different opinions like yours, particularly because you're so civil and nice.  They're great and keep everyone thinking.

Thanks for the list of stocks.  I'll definitely take a look at them, though work is going to be really busy this week.

Take care.

Jason

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#5) On April 01, 2013 at 12:12 PM, TMFDeej (99.27) wrote:

Thanks for the charity idea, RD80.  After all, I think that it was you who inspired the idea in the first place :).  That is a good one.  I'll run it by the family.

Companies that are lowering their interest expense by refinancing expensive debt is definitely my type of catalyst.  I'll definitely peek at GPK when I have the time.

Good thing the quarter ended last week, I'm getting thumped today ;).  Mr. Market doesn't like small caps today.

See you around.

Jason

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#6) On April 01, 2013 at 12:14 PM, Option1307 (29.99) wrote:

Deej,

Great recap on the quarter, nice performance!

jiltin,

I've seen you ask similar questions on other blogs around the Fool. If you simply Google "average long term yearly stock market gains" you will see that the average gain for the last 100 or so years has been ~10% annually. This is incredible if you think about it. At 10% compounded annually you will double your money roughly ever 7 years...That should make anybody happy.

I may be wrong but it seems like you are looking for and assuming the stock market will provide gains far above these averages. I think that is incorrect and a dangerous assumption. 

Yes some investors can consistently beat the general market for several years or have several above average returns. That is certainly possible. But the idea that any investor is going achieve above market returns, say >20%, on a yearly basis for a prolonged period of time is in my opinion not realistic.  

Look at any famous investor, none of them have achieved 30% annual returns for a consistent period of time. Think about it logically, that would mean doubling your money every 3 years. How many investors claim to be able to do that? If that was easy wouldn't every one be doing that??

I don't mean this to come off as rude or discouraging, but just be aware of the reality of stock investing. It's hard and most people will NOT beat the general market.

However with careful investing I think you can achieve 10-15% annual returns for a prolonged period of time. That is what you or anyone should be shooting for.

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#7) On April 01, 2013 at 12:26 PM, TMFDeej (99.27) wrote:

Hi jiltin.  I'd love to hear more about your experience with Prosper if you check back.  I've always found it interesting.  You're right, things there would probably do well when the economy does well but implode in a recession. 

Your question is an excellent one.  My goal in investing, and probably the goal of many investors, is to try to generate as much "alpha" as possible, meaning to decouple one's returns from the average market returns as a whole.  I probably need to run a more concentrated portfolio to generate real alpha and I'm not really willing to do that yet.

So the answer to your question from my perspective is as the market goes, so will the returns of most investors.  Since 1990, the S&P 500 has produced an average annual return of around from 8.5% to 10% depending upon how you calculate it.  Having said that, there were streches where it was significantly negative and periods where it was up huge.  If you can keep pace with or beat this you're doing great.

Take your time and ease into it.  The simplest way to play the stock market is to dollar cost average into an S&P 500 index fund over time, meaning to deposit an equal amount in every month going forward.  You may find that a mid-cap index or some other index instrument performs slightly better over time.  As you become more confortable investing in individual stocks you can take some of that money or new money and buy stocks with it.

I'm not an investment advisor or an official representative of TMF, this is just what I would do if I was starting out in investing in stocks.

I hope that this helps you out.

Jason

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#8) On April 01, 2013 at 10:29 PM, skypilot2005 (< 20) wrote:

#4) On April 01, 2013 at 12:10 PM, TMFDeej (99.51) wrote:

 

"Thanks Sky.  The only reason why I hold such a large position in bonds is that I picked up as many amazing high-yield bonds as I could during the financial crisis several years ago."

Interesting.  I’ve stayed away from that asset class because of macroeconomic conditions. 

Once I retire, I will probably have some bonds depending on yield and inflation.  I also, stay abreast of SDY. 

I will always own stocks.  Even there, I only invest in a limited number of industries because it takes a lot of time to stay informed.  One I like now is Precious Metals Miners.  They are out of “favor” and are a hedge against inflation.

It can be profitable taking a contrarian position.

 Sky 

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#9) On April 11, 2013 at 11:07 PM, jiltin (28.12) wrote:

 

Option1307 ,


Thank you for the reply.  It gives me some idea for me. 

I am sorry for my delayed response as my catch with blogs are slow.

I am still learning a lot from CAPS.


Jason,


Regarding prosper and lending club, I opened both the accounts.

Prosper does not have good navigation or tools. I find it difficult to work with.

There are lot of blogs writing about their user interface experience.


However, their returns are better as their default rate is low.

They have 1 year, 3 year and 5 year lending. Average returns are 12% while interest rate goes up to 26%


Lending club has good user interface. 

I choose 3 years note and choose $50 per person.

The lending is many to many relations with max loan is 35k.


If a person asks 5000 as loan, 200 investor can fund with each $25.

I invested $1000 in 3 year lending with 15 people.

we need spread the amount with various loan to reduce default rate.


If I invest 600 one person , 400 another person and both files bankruptcy, my money is gone.

Hence, we need spread as much as possible. 


Initially, I invested on two persons 600 and 400 thinking that they are good.

Later on learned the trick and sold it with their trading site.


We have two big risks, 1 default 2.Locked for 3 years and liquidity is only by sale of notes.

Above all, when money is locked for 3 years and economy falls (who knows when FED will pull trigger), no buyers of notes and default rate will be high.


Hence, I left the $1000 as such, for my experience purpose, next three years.


Both sites claim returns are 12%. Default rates are little high (appx 6%) at lending club compared to prosper. (appx 5%)

However, Lendingclub issued appx 1.5B loans while prosper is 400M loan.


Overall, I prefer stocks better than those as liquidity is easy.


 

 

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#10) On April 12, 2013 at 12:00 AM, jiltin (28.12) wrote:

Both sites claim returns are 12% after defaults. If the investments are spread across 20 people, one person likely default. Normally,note rates are ranging between 12% to 26%. Both sites claim that 12% to 13% return after taking default rates.

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#11) On May 18, 2013 at 1:14 PM, Mega (99.98) wrote:

Congrats on your Q1 Deej. My score has been going in the other direction recently.

You might like this new dividend paying IPO:
http://seekingalpha.com/article/1431941-ipo-preview-tallgrass-energy-partners-lp
http://caps.fool.com/Ticker/TEP.aspx

ING US also looks promising, around 0.6x book value.
http://seekingalpha.com/article/1392821-ipo-preview-ing-u-s 
http://caps.fool.com/Ticker/VOYA.aspx 

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