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May 2014

Recs

23

Learning to trust yourself. A story about one portfolio outperformed all others.

May 28, 2014 – Comments (12) | RELATED TICKERS: OIS , SUNE , EXETF

Professional athletes put in hundreds of hours of practice to hone their skills. Sure there are some who are just born with so much talent that they can get away without practicing, but the truly great ones...from Michael Jordan to LeBron James achieved their greatness through putting in hours and hours of hard work.

This can be said for lots of things in life, including investing. I have been reading about investing for several hours per day (with the exception of a short break in 2013) for a number of years now. I can honestly say that all of that work, it's tough to call it work when you enjoy it, has made me a better investor. The key is to believe it.

Without belief in yourself, you won't generate the sort of returns that you would have otherwise. Why? Well, you won't take trust yourself enough to buy into the good investment ideas that you've found OR you won't trust yourself to allocate enough resources to these great ideas. This is a problem that I've run into over the years. Well, habits are made to be broken and I am breaking this one. I have slowly been buying more and more of my good ideas and increasing the position sizes of the ones that I believe have near-term catalysts that present the best upside.

Portfolio allocation like this might seem logical and some might say "No duh" but I've found that trusting one's self is easier said than done. My revelation on this subject came to me not long ago when I was looking at my broker's performance reports of my various accounts. Yes I actually have eight active and one inactive investment accounts. Don't get me started on that, I would like to consolidate some of them but haven't looked into it yet. Let's see, there's my IRA, a roll-over IRA, a regular account, my children's college funds, a self-employment IRA aka SEP IRA, an international trading account... you get the idea.

Of those accounts, one stood head and shoulders above the rest in terms of the returns that it has provided...my personal IRA. When seeing the outperformance, I wondered to myself, what caused it? The answer is actually quite simple. That account is around 90% equities and 10% cash. Most of my other accounts have either a larger percentage of cash or some preferred stock / bonds mixed in. Those preferred stocks and bonds have huge yields for what they are, many of them 8%+, but they can't hold a candle to the equities that I hold in my good old IRA.

Another potential reason for the outperformance is that account appears first on the list of accounts after I log in. Perhaps I just automatically gravitate to throwing my best ideas into the first account that pops up on the list.

If you've gotten this far, you might ask what have your returns been like on this account and what stocks do you have in it? Even if you didn't ask that, I'm going to tell you :)

Account, Annualized returns for 3 mo., YTD, 1 yr., 3 yr., 5 yr.
Jason's IRA: 5.21%, 10.21%, 29.85%, 30.35%, 22.46%
S&P 500: 3.60%, 4.3%, 18.36%, 15.29%, 18.92%

My current holdings in this account are:

AerCap Holdings (AER): 14.85%
Extendicare (EXETF): 18.49%
Investors Bancorp (ISBC): 6.85%
Northeast Community Bankcorp (NECB): 8.95%
Oil States International (OIS): 25.99%
SunEdison (SUNE): 15.59%
Cash (CASH) 9.27%

So what have my biggest winners been? (my account only lets me go back to 2012 without doing a ton of digging):

EnergySolutions (bought out) [Thanks Special Ops]: +124.59%
Crosstex Energy (bought out): +88.66%
Retail Opportunities Investment Corp. (ROIC) [Thanks Special Ops]: +63.5%
Williams Companies (WMB): +61.55%
Suncoke Energy LP (SXCP): +38.12%
AER +19.33% (in only a little over a month)
Harvard Bioscience (HBIO): +19.23%

OK, it's great to talk about the victories, but we aren't going to learn as much as we could have without talking about the losses. So what are the losers in this portfolio? I think that this again is a key takeaway...there really hasn't been any. Avoiding significant losses boosts overall portfolio performance significantly.

Ambassadors Group (EPAX): -11.93%
WPX Energy (WPX) -2.51%

My position in AER is a perfect example of how I have adjusted my investing style lately. The money that I used to purchase that position was freed up when I liquidated my position in another stock Air Lease (AL). My thesis for AL was a jockey play, following Steven Udvar-Hazy who had successfully built ILFC into an industry giant previously into what should be a great time for airlines and companies in the sector. I am normally somewhat hesitant to sell positions that haven't fully played out, but when I read about the great deal that AER got when it purchased the ILFC portfolio from AIG and the advantages that the future delivery spots that it affords them will provide I decided to pull the plug on AL and buy AER. Time will tell how that decision plays out, but AER has outperformed AL by double digit percentage points in the month since I made the switch. The idea to reallocate money from one decent investment to what is perceived to be a better one comes from the portfolio management skills that I have learned from watching hedge funds make moves and from the great team at The Motley Fool's Special Ops service.

I realize that any account that has been almost fully invested in equities in the midst of a massive bull market will outperform, but I truly believe that the strategy of buying more of my good ideas and allocating more resources to the great ones would outperform in any sort of market. We'll see.

My purpose in writing this post was not to toot my own horn about the performance of this particular account, I wish that they were all rocking like this. Rather I think that an introspective look at one's performance can help them improve themselves both as a person and an investor. I just need to learn to have confidence and to trust myself more.

Jason  [more]

Recs

16

Follow super-investors to get great ideas

May 27, 2014 – Comments (1) | RELATED TICKERS: HSH , PPC

I've put together a list of investors who I like to listen to and follow for ideas.  It's funny that sometimes you see talking heads who are critical of fund managers or investors for "talking their book."  My opinion on that is, please do.  The more investment ideas I come across, the better.  I'll worry about sifting through all of the ideas to determine whether the person who is talking their book is looking at the idea through rose colored glasses or trying to unload something.  I love sharing and reading others' ideas.

One of the investors that I follow is Mario Gabelli.  The best place to find ideas from him is Barron's semi-annual investing roundtable.  He has been on the panel there for many years.  I've gotten a number of good ideas from him in the past.

You want to talk about nailing an investment, take a look at what Gabelli had to say about Hillshire Brands (HSH) a while ago.  I picked up shares of it in CAPS, but I'm not sure why I never did so in the real world.  Well, HSH is up over 22% today after news broke that it is going to be bought out by Pilgrim's Pride (PPC).  Since I bought HSH in CAPS in January 2013 it has outperformed the S&P 500 53% to 29%.  Here's the pitch:

"Mario Gabelli's first recommendation of the 2013 Barron's Roundtable is Hillshire Brands (HSH).

What I like about this stock:

- It's a spinoff (from Sara Lee), of course.

- It's a potential takeover target, as many spunoff companies ultimately are. Per Gabelli "Three or four companies were looking to buy Hillshire from Sara Lee before it was spun off.

- HSH is using its solid cash flow to rapidly pay down its $694 million in debt.

- Gabelli's Bottom Line, "The stock trades for $29 and change, and could be $35 to $50 a share two years out...It will be bought by someone. Meanwhile, management is doing a terrific job of getting back to basics."

- "The sausage market is growing by about 5% a year in the U.S." I really don't care about this statistic, but I found it funny for some reason :)

I doubt that I am going to put real money behind this idea, but I do believe that it will out-perform the S&P 500 going forward and I will add it to my CAPS portfolio."

Hmmmm, I shouldn't have doubted.  I'm looking forward to the ideas presented by Gabelli and the other (probably only other) worthwhile member of the Barron's Roundtable panel Meryl Witmer have to say when the next one happens likely some time next month.  [more]

Recs

9

Oil States International: A Key Catalyst Approaches

May 19, 2014 – Comments (1) | RELATED TICKERS: OIS

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Recs

14

Adding My First Caps Shorts + Class Warfare

May 16, 2014 – Comments (4) | RELATED TICKERS: IWM , LBTYA , LBTYK

I normally don't short things, I can't stand to root for companies and people to fail, however shorting an index is an entirely different matter.  Doing so might serve as some nice insurance in case we see a sell-off in a particular sector.  A lot of smart money is short the Russell 2000 right now.  [more]

Recs

9

Growing Dividends Draw Investors Like Flies

May 12, 2014 – Comments (0) | RELATED TICKERS: CLMT

In today's zero interest rate, yield-hungry world investors often gobble up stocks that pay large distributions.  I like investing in companies that are likely to grow their dividends significantly in the near future. I'm not talking about the proverbial dividend growth stocks, those are fine, but I personally want specific tangible events that will cause the dividend to increase or the market to all of a sudden realize what a huge dividend a company is paying (yes I realize that some of the payouts are distributions and technically not dividends). I've had tremendous success with situations like these, dividend-paying IPOs that don't show up to yield-seekers right away in screens or on sites, MLP and REIT conversions, etc... I think that Calumet Specialty Products Partners (CLMT) qualifies as one of these investments. No I don't foresee its distribution rising significantly any time soon, but...everyone and their mother thinks that its 9% yield is going to be cut and I don't.   [more]

Recs

9

Limitless Paper in a Paperless World

May 12, 2014 – Comments (5) | RELATED TICKERS: RYN

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Recs

8

Two more attractive spinoff situations

May 09, 2014 – Comments (0) | RELATED TICKERS: MUSA , HTZ

Vito Racanelli wrote up two spinoff situations in his column in Barron's last week.  One on Murphy USA (MUSA) and the other on Hertz (HTZ).  I wrote a short post on MUSA here a couple off weeks ago A recent spinoff that's cheap and growing   [more]

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