Tuesday, December 24, 2013

Looking back at 2013, how did my 13 picks do?

Last year about this time I suggested 13 stocks for 2013.  The stocks I picked were a subset of my overall portfolio, stocks that I felt at the time were still attractively priced.  The stocks typified the types of companies I like to invest in, somewhat dull, but often attractive on an asset basis.  Some of them are cheap earners, but first and foremost all had a margin of safety.

Here are the results:


I want to note that the performance isn't exact, I made the mistake last year of not recording the prices when I did my post.  It was hard to find historical prices for the foreign holdings, I used what appeared on my brokerage statement, or what FT.com had for the end of last year for many of the holdings.  I also didn't account for dividends, some stocks such as Argo paid significant dividends meaning the overall performance is understated maybe 1-3% or possibly more.

The picks did exceptionally well for a bunch of companies the market didn't have much faith in.  Many were priced below book value, and a few were net-nets.  For many of the companies their earnings didn't change dramatically in the past year, what changed was the market realized these companies were mis-priced and acted accordingly.

If you look at my post from last year you'll notice I excluded the category Japanese net-nets from my list above.  This is because I didn't specifically name any net-nets, and it's hard to find a way to track that pick.  I did a post on the performance of my Japanese net-nets at one point in the year that should give a good reference for how some of the category performed.

As of the post last year I held all of the stocks I had mentioned, throughout the year I ended up selling some of the positions.  I sold my stakes in Argo, Bank of the James, and Nexeya.

I don't advocate holding stocks for arbitrary time periods, rather I prefer to sell when they hit what I consider fair value whether that's in three months or three years.  An active investor in the above portfolio would have been able to do better if they sold throughout the year rather than holding onto the stocks.  At one point FRMO raced into the $8s, and Installux hit €200, both would have been sells at those points.

A question I'm sure to get in the comments if I don't answer here is "how did your personal portfolio do?"  As I mentioned above I owned all 13 stocks coming into 2013, but I also owned about 40 other stocks not mentioned in the post.  Overall my personal portfolio was up about 39%, which is something I'm very satisfied with.  The difference between the performance of my personal portfolio, and the 13 stocks in this post is that I hold a number of other companies in various stages of value creation that while I'm happy to hold I didn't consider them attractively enough priced to post on them.  Almost every stock I own in my portfolio has appeared on the blog at some point.

Here's to hoping 2014's returns are as great as 2013's!

Disclosure: Long GAV, CDU, CNRD, GWOX, HNFSB, STAL, PREC, SODI.

38 comments:

  1. well done, looking forward to 2014 picks!

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  2. Nice work Nate. Looking forward to 2014 picks.

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    1. Thanks, the 2014 picks will be much harder to come up with, this is a tough market.

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  3. Congratulations Nate!
    A question regarding GAV...
    Are the shares listed on the Swiss exchange the only the registered shares... How does one go about getting a hold of the bearer shares?
    Happy holidays!

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    1. Yes, the shares trade in Switzerland, the registered shares are the only ones that trade. The bearer shares are owned by the Gavazzi family. Their share ownership is one of the reasons they pay a high dividend, the family only pays themselves out of profits.

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  4. Very nice - wish I'd been in on FRMO. Too expensive to buy now.

    I'll post performance in early January.

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  5. Excellent results. Thanks for maintaining such a rich blog.

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  6. Your returns are great, but they are inflated by demand from writing on this site. Given most are thinly traded, the demand from your readers after pubishing creates faster realization of value. You would still have great returns, but less than if the publicity on this site did not exist.

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    1. I don't think you can call Nate's returns inflated. Yes, this site highlights the value of certain obscure companies and this might help the realization of value. This did not happen overnight though. You can't just start a blog and create this wonderful catalyst for all your stocks.

      Nate has been writing this blog for a few years and over the years people have discovered that he often offers very good ideas that perform well over time. As a result, people have started coattailing him and perhaps stock prices sometimes go up faster because of this. In the end the returns are still the result of good investment ideas. If prices overshoot, because people are coattailing blindly, the prices will end up regressing to the mean over time.

      It's funny: early on people sometimes complained here that these sleepy companies don't have catalysts and value won't be realized. Now the site has become the 'catalyst' and returns are 'inflated'. Times have changed.

      I have a blog and I don't really see this 'blog as a catalyst' phenomenon there. The most important reason is probably that my investment ideas are not as good, because I'm simply not as talented as some of the writers I admire (Nate, AlphaVulture, OTCAdventures and Whopper Investments come to mind). I'm fine with that. As long as I'm having fun investing on my own, learning over time and ending up with a decent result, I'm happy. It would be silly for me to expect similar results to the more talented and hardworking investors or to call their returns 'inflated', because their better investment ideas end up getting more attention. It would be even sillier for people to blindly coattail my ideas. Readers are aware of this and I think that's why my blog has not had a direct impact on the market prices of illiquid stocks.

      In the long run you simply get the result you deserve. Good ideas will get attention and a reputation for good ideas might become a catalyst. This is nothing new. Check out these articles about Buffett's investment in Bell Industries in 1999 and 2000:
      * http://articles.latimes.com/1999/dec/14/business/fi-43809
      * http://articles.latimes.com/2000/jan/18/business/fi-55214
      * http://articles.latimes.com/2000/nov/09/business/fi-49227
      (I also posted these links in a comment on AlphaVulture, but they seem relevant here as well)

      Merry Christmas all!

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    2. As thinly traded stocks get posted on the blog, take a look at what happens to the bid. Even with the overshoot, it is an advantage if you sell on that, so demand does come into play even with reversion to the mean, especially if it reverts after selling on the overshoot. Take a look at Versailles Financial; written about on 12/15, then it starts trading on 12/16, first time since 6/14 and $1 higher on the prior day's $14 bid (12/15). So now the stock is up to $15.76 on the bid, and it's highly likely this is a result of this blog. Be interesting to see if the trades since 12/15 were by folks reacting to this blog. It's one real example and there is no arguing the blog propels the demand and price, leading to higher rates of return. Folks need to recognize that. Be interesting to see an analysis of the 13 stocks verus the 27 in the overall portfolio to determine if the value opportunity was higher in the 13 or if the higher performance is blog-related.

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    3. It's worth noting that almost all of the 13 stocks are fairly liquid. If you look at their price history you'd see that for all of them you would have had a chance to buy them cheaper than when I had posted throughout the year. Many we're flat for months then started to move. It's unlikely that price action six months after this post is somehow related to it.

      I agree some stocks do get attention once I highlight them. Some of the most illiquid ones do move. I don't post then sell, I'm not in the business of pumping and dumping. There is something I've seen that's even stranger. I believe there are others taking advantage of my posting. I have seen in a few cases a stock that's illiquid with no ask suddenly get a sizable ask once I post. Others are using my posts to liquidate their positions.

      There are always buyers of stocks when they're mentioned anywhere, this blog, Barrons, WSJ, Seeking Alpha, newsletters. That's what makes a market. I don't recommend anyone blindly follow me into any trade.

      And since you asked I have a number of stocks that are similar to what I've posted about that have moved up more than what's in this list without any attention. I've also had stocks that appeared on this blog that have been flat all year, and a few illiquid ones I posted about that have fallen.

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    4. One other comment, I think you over estimate the actual interest in many of the small stocks I write about. I have a lot of readers but from what I've gathered in talking to many of them is that while they enjoy reading about some of the illiquid stuff not many actually invest in it.

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  7. Thanks for your excellent blog Nate. I wish I had found out about it earlier. Can you tell me which broker you use? mind wont allow me to trade most shares on the pink sheets.

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    1. Thanks, I use Fidelity as my broker for overseas trades and the pink sheet trades.

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    2. Nate, assuming each of the 40 stocks in your portfolio are equally weighted, the remaining 27 stocks, not writen about here, had a return of 30% vs 58% for the 13 written about here. If that assumption is correct, how do you explaain the difference? If incorrect, what % of your portfolio was represented by the 13 written about here (so an appropriate calculation can be done)? That's a big difference. When Walkers Manual was written about in Barron's in the mid-90's, there was a big jump in the stock prices on the OTC market for those companies in the manual, same goes for when the micro-cap manual and bank manual came out. History does seem to lend creedence to the conclusion that once the value is exposed, like on this web site or in the papers, prices react up more than otherwise. Regardless of what is known about people who use your site, let's look at the data and try to explain any big differences, that's what value investors do, use the data.

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    3. The equal weighting isn't a safe assumption. I think a lot of the performance difference is found in the fact that my portfolio has about 30% in cash, verses this one that doesn't. I also initiated a few bank positions this year that have been flat since opening them. Lastly there were a few net-nets (MPAD, OPST) that appreciated last year and are close to where I'd sell but haven't, they have been flat as well.

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  8. Well done, Nate. That is extremely impressive. You had so many well chosen and well explained investments this year.

    Warren Buffett said, "If I was running $1 million today, or $10 million for that matter, I'd be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I've ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It's a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that." (http://www.businessweek.com/1999/99_27/b3636006.htm).

    Your ideas are what he was talking about.

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    1. He was talking about the fact that your investment universe spectacularly increases when you are managing small amounts of money since you can basically invest in anything. Buffett's universe is probably in the order of less than 1 thousand companies. Nate's universe is 60000. Additionally when your universe is large you don't ever have to be in cash because somewhere out there there is a mis-priced security. With a universe of less than 1000 you will have to be in cash if you can't find any opportunities

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  9. What made you sell Argo Group, Nate?

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    1. I sold when the Cyprus stuff was going on. I had a 25% gain and the company was very closed about their exposure. I decided that while the upside was still attractive I couldn't quantify the downside and I wanted to protect my capital. I took the gain and moved on.

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  10. Completely random -- do you still own CECO and do you have any thoughts on it atm? thx.

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    1. I do not, I sold. I did look again recently, it does look cheap still and things appear to be improving.

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  11. Very well done on the 13 picks (both overall performance and not a single bad apple!).

    On your portfolio as a whole, what do you benchmark against? Personally my degree of contentment depends not on absolute numbers but on me doing better than the ETF that is the best substitute for a given (sub)portfolio and that I could buy instead of individual stocks. Stock picking is fun, but I wouldn't want the hobby to actually cost me money.

    39% is the 12 months return of VB (Vanguard US Small Cap, source: etfreplay.com) which may be an OK benchmark. Is this a case of perfect markets at work, or do we need a more appropriate benchmark capturing your international exposure?

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    1. Great question, my portfolio is 50% international and 50% US. Maybe something like the Vanguard Fund you mention and the WisdomTree International Small Cap (DLS) might be appropriate. In that sense the "benchmark" did 31.5% for the year, against my portfolio which did 39%. It's also worth considering that I've had between 15% (beginning of the year) to 30% (recently) in cash. I know that skews performance, although I'm not exactly sure of the math on how to quantify that.

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  12. Nate-

    Curious how you get comfort w/ bargain issues when the financials / press releases are not in english.

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    1. I look for either an extreme undervaluation that gives me a margin of safety, or I translate them the best I can.

      I can read English and French financials. I have found most smaller European countries report in English as well.

      The key is getting a bigger margin of safety with something that needs to be translated.

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  13. Well done!

    Idan, Israel

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  14. Forgive me for this rather general question; I am new to this blog. What initially sets your sights on these companies? Do you use some sort of screen? Since these companies are unlisted, there current balance sheet and other financial data are not often readily available. Essentially, I am asking where you find the general information which encourages further investigation. Thank you.

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    1. For many unlisted stocks I will buy a single share sight unseen and then email the company asking for further information. I have a few dozen one share holdings in my portfolio, some send them, others don't.

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  15. Impressive Nate, I'm curious though, what's your long-run annual compound gain over the years? That 58% gain stomps my 33% return and I'm wondering if I need to change my strategy from Buffett picks to Nate picks

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    1. Josh,

      I did 39% on my personal portfolio, the 58% was only a portion of my portfolio. I'm not exactly sure what my actual compound rate of return is, that's the reason for this post, I want to get better at tracking. My target is 15% a year, I know I've exceeded that since 2008, but I'm not sure by how much.

      The key is investing with an approach that you feel comfortable with.

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  16. Hi Nate,
    Thanks for maintaining this wonderful blog. I'm just curious- where is the starting point for your research when it comes to these stocks?
    Thanks in advance!

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    1. I don't have one starting place to find stocks, I generally stumble on them from a variety of sources. I will run general screens, or march through lists of stocks A-Z.

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  17. Starting a blog of my own! Would appreciate if you would check it out!

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    1. Very interesting first post, I'll bookmark your site. Need to look at REX further.

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  18. Hi Nate,
    I had forgotten that I purchased FRMO based on your initial blog post. I think I owe you a beer next time we meet in person!
    Regards,
    Devin

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