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JohnCLeven (75.92)

2013 Performance Review

Recs

12

January 02, 2014 – Comments (11)

Greetings Fools,

As my multi-year investing journey/experiment continues into 2014, I thought I’d take this opportunity to go over my 2013 performance, both to share with the community, also and to have a record I can come back to later.

My basic objective with CAPS is simply to determine whether or not I should invest on my own – or simply go with a low-cost index fund. I started this journey/experiment around 2012, and will continue it through about 2017. I will then examine my performance, and make a rational decision about my investment future. I’m a young, broke grad student, so this seems to be the perfect time to experiment with investing, before I actually have the opportunity to invest a lot of my own money in real life.

I primarily use two CAPs accounts, plus a newer virtual fund at Marketocracy.com to monitor my performance. Here are the results thus far:

My main CAPs page, JohnCLeven (this page), ended 2013 with an average score per pick of+2.98, and an accuracy of 67.09%, on 49 active picks, 37 ended, and 86 total picks. This is since inception, since I stupidly forgot to take down the performance numbers at the end of 2012. As a result of this post, I won’t be making that mistake again in 2014.

My other page, 20punches, didn’t have such a good year.  The average score per pick was -0.51, and the accuracy was 33.33%, on 9 active picks, 0 ended, and 9 total picks. Despite, the underperformance, I’m pretty confident in the long-term future of this CAPs page.

I judge my two main CAPs pages on: 1) increase/decrease in average score per outperform pick, and 2) accuracy…not player rating.

Now onto my virtual fund:

2013 was a partial year for the virtual fund, located at marketocracy.com. From March 2nd, 2013 inception through then end of 2013, Teego Capital returned 24.07% (29.45% annualized) while the S&P 500 returned 23.89% (29.23% annualized) Total virtual net assets grew from $1,000,000 to $1,240,705.72.

I essentially matched the S&P 500.

Given the unusually large advance of the market in 2013, I am pleased with the fund’s performance. Due to the fund’s value approach, I generally expect to match or underperform in raging bull markets, while I expect to significantly outperform sideways or declining markets. Therefore, I consider the fund’s razor thin outperformance in the past 9 euphoric months as a win. (Though perhaps an insignificant win, since 9 months nowhere near long enough to pass judgment)

Additionally, the portfolio was 7%-10% cash during the year, so the actual stocks picked performed a little better than the overall performance would suggest.

We realized significant gains from sale of AAP and BBBY, as well by trimming positions in both LUK and DTV. We used those gains to add to BRK.B, IBM, MKL, ORCL, and MSFT.

The fund begins 2014 with two highly concentrated positions BRK.B and IBM (roughly 48% of portfolio combined), as well as smaller, but also important positions in ORCL, MSFT, DTV, MKL, COH, and LUK (45% of portfolio combined). The 8 companies we currently own have 3 important things in common 1) They have histories of creating significant shareholder value, 2) I believe they have a very high probability of creating more value in the future, and 3) I believe they were all purchased at attractive prices. These factors in combination should cause the fund will do quite well vs the S&P 500 over the long-term. Additionally, we held 7% of virtual assets in cash at years end.

New Buys: BRK.B, MKL

Added: IBM, ORCL, MSFT

Reduced: LUK, DTV

Sold Out: AAP, CHRW, NOV

Unchanged: COH

TEEGO CAPITAL is a long term value-oriented virtual fund that seeks to deliver market-beating returns by buying a small number of very high quality businesses at fair-to-cheap prices. We believe excessive diversification is madness, and try to be as concentrated as possible on our very best ideas 

So ends the 2013 performance update, thanks for reading!

In a few weeks, I’ll be posting my 2014 updated Return on Equity Achievers list.

It will be the successor to this original post: http://caps.fool.com/Blogs/a-fortune-article-from-1988-is/824762 

Until then, best of luck!

-John

11 Comments – Post Your Own

#1) On January 02, 2014 at 11:18 AM, JohnCLeven (75.92) wrote:

Oh, and before anyone asks, I do have a real life portfolio, sort of, but it is basically inactive. I'm plowing all my money into grad school, and slowly dismantling my real-life portfolio.

But if your curious, the remaining holdings are allocated as follows: 32% IBM, 30% BRK.B, 15% COH, 13% MCD, and 10% LUK.

But again, i'm currently selling off this portfolio over the course of the next few months, so its performance isn't really that relevant.

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#2) On January 02, 2014 at 11:33 AM, Mega (99.97) wrote:

Have you wrote anything about reducing DTV, LUK and CHRW? I continue to hold those and would be interested to hear your reasoning.

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#3) On January 02, 2014 at 11:54 AM, JohnCLeven (75.92) wrote:

@Mega

Havent wrote much about DTV, or CHRW. I'll give you the simplist summaries for why I like those two.

DTV: Duopoly, pretty high barriers to entry, the past decade of earnings/cash flow growth, future prospects for growth in Latin America and the U.S.,the MASSIVE buybacks over the pastd ecade, the fact that Combs/Weschler love DTV, and the  attractive price.

CHRW: Dominant position in a critical industry. Great 10 year record of ROE and ROIC, and growth in earnings/cash flows, fundamentals keep improving, solid long term prospects, pretty decent price.

Nothing extraordinary about DTV or CHRW, just 2  simple, dominant, wide moat businesses, with mouthwatering economics, bright future prospects, and fair-to-cheap prices. Seems like a good recipie for long-term outperformance, IMO.

For LUK, i've copied my pitch from my 20 punches page:

http://my.fool.com/profile/20Punches/activity.aspx?source=iersitlnk0000002

This quarter was a tough one: IBM, CHRW, and PM all probably would have made excellent long-term picks... but they were not quite worthy of the 8th punch.

For punch #8 (Q3 2013), I’ve selected a diverse holding company, with an incredible 30+ year history of value creation.

Leucadia National Corp. (LUK) has grown its per-share book value at a compounded annual growth rate of about 18% annually over the past 32 years.

Leucadia operates in a variety of industries including banking, mining, plastics, timber, telecom, healthcare, real estate, gaming, and even wineries. Leucadia also has a joint venture with Berkshire Hathaway (BRK.B) called Berkadia.

Leucadia is known for having some of the best management in business. There has been some shake-up of leadership with Leucadia over the past year or so, but their core culture seems to still be intact, and should remain intact for the foreseeable future.

Leucadia has been beaten down, and been underperforming the S&P for years. In fact, LUK is down about 18% in just the past 2 months. However, at 0.95x book value, I think LUK is a compelling long-term value opportunity, with an exceptionally low risk of experiencing a permanent loss of capital.

It is rare that a business of this quality sells below book value. If historical P/BV ratios are any indication, LUK is probably worth around 1.3x book value. LUK’s price would need to increase about a 36% from current levels to reach 1.3x book, which is about $36.

I can easily see LUK being worth about $58 in 5 years, which would be a 17% annualized return, and a little more than a 2 bagger. But forget about that prediction, it’s not important.

What is important is that this diverse, high quality company is selling a 0.95x book value.

Leucadia may not have made many headlines over the past 33 years, but they sure did make a lot of money, and they will continue to do so. I think this great company is cheap, and will significantly outperform the S&P 500 over the long term.

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#4) On January 02, 2014 at 11:58 AM, JohnCLeven (75.92) wrote:

About the reductions, I reduced LUK from a huge position size, and replaced it with BRK.B, mostly because I am way more familiar with BRK.B. Reduced CHRW because of price appreciation, and to funnel money at what I thought were better ideas. and Reduced DTV bc I thought IBM ws a better idea for the 2nd "high conviction spot".

Still like all those companies alot though.

Also, i'm not really an expert, just trying to learn and experiment, so don't read too much into those. At then end of the day, I simply feel better about havuing BRK.B/ and IBM as the 2 conviction picks, than LUK and DTV. At current prices, at least.

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#5) On January 02, 2014 at 2:24 PM, Mega (99.97) wrote:

What are you going to school for?

I need to get my MArch to continue in the architecture field, but I've been thinking about pursuing an MS Finance.

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#6) On January 02, 2014 at 3:02 PM, JohnCLeven (75.92) wrote:

MBA.

Hoping to undue some of the self inflicted "damage" that going to school for a B.A in History did to my career. lol. Graduated in 2011. I'm 24 now, hoping to have the MBA finished in Dec 2015. I'll be 26 then.

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#7) On January 02, 2014 at 3:09 PM, JohnCLeven (75.92) wrote:

My current job in sales, is paying the bills, but it's not fulfilling.

Ole' Warren says it's crazy to work in a job that dosen't "turn you on."

Over the past few years i've realized that thinking about investing, wide moats, and business in general really "turns me on." I think Buffett is 100% correct. You need to be doing something that you at least somewhat enjoy, to be happy in the long run.

Not exactly sure where an MBA will take me, but if it gets me closer to being paid to spend my days thinking about those previously mentioned businessey things that turn me on, then it will be well worth it.

A higher salary would just be icing on the cake.

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#8) On January 02, 2014 at 7:50 PM, awallejr (77.23) wrote:

It is too bad you are selling off your portfolio when you really should be adding to it at your age.  You have the biggest advantage now, youth.  You should take more risks too on new "technology" plays and add higher yield plays to generate an income stream to then reinvest.

You really shouldn't discount that income stream because it will grow your portfolio more than you think over time.  Plus when your portfolio does swing down, it is nice to have it supported with that income.

A couple affordable plays like AINV, NCT, FIG all under $10 with high yields and growing.

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#9) On January 02, 2014 at 8:42 PM, JohnCLeven (75.92) wrote:

Thanks for the advice.

I've run the "numbers" and I think the probability is good that the ROI i'll get on my education will be equal to or greater than the ROI i'd get from buying stocks. Education is safer too.

It's just a 2-3 year break from stocks, and I'll still have many many years to compound ahead of me. I'd rather sacrifice a couple years performance to be able to sleep at night.

As far as alternatives go, despite low rates, i'm NOT gonna take on even more debt, and I DON'T want to put off school so I can buy more stocks. The only solution is to allocate my excess capital to education, and sell some stocks when my bank account eventually gets too low. PLUS, I get a couple more years to really fine tune my investing approach before the real investing gets rolling.

Also, I simply don't like losing money. So going with high risk technology just dosen't appeal to me.  I'm just not wired that way.

If it works for others, that's great, and I wish the new teach people much luck, but it's just not for me.

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#10) On January 03, 2014 at 11:32 AM, Teacherman1 (29.02) wrote:

Here is a link to the CAPS page I created to post a "watch list" for 111 stocks that John came up with based on the historic 10 year ROE.

They are all as of mid May.

Overall not a bad return.

http://caps.fool.com/player/teacherman333.aspx

This was posted for anyone who wants to keep an eye on them.

Have a great 2014.

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#11) On January 03, 2014 at 3:03 PM, awallejr (77.23) wrote:

Well I didn't view it as an "either/or" situation.  I don't view leverage as a bad thing.  In fact if used carefully it can do wonders.  But there is always a danger when using it in that things can turn "sour" fast (2008/09 crash for example).

One regret I had was not borrowing everything I could back when student loans were only 3 1/2 %.  I could have simply put the money into a money market account and received 15%.

Don't misunderstand me, I am not telling you to borrow up to the hilt.  I suppose you could march to the tune of "no guts no glory" or "better safe than sorry."  I urge youth to the former.

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