2014 And 2015 Portfolio Reviews – Still Kicking Mr. Market’s Ass

2014 and 2015 Portfolio Reviews

Still Kicking Mr. Markets Ass

The above quote from Benjamin Graham is one of my favorites.

It means in the short-term the market is driven by emotion and psychology more than anything.  But in the long-term the market – and individual stocks – get judged on how well they’ve operated and grown over time.

This is great news for us long-term oriented value investors.

If we can find a few great companies at cheap to fair prices and hold them for the long-term, we’ll have great returns over time.  Why?  Because…

“Time is the friend of the wonderful company, the enemy of the mediocre.”  Warren Buffett

With this as a backdrop, below are the 2014 and 2015 portfolio reviews for all companies I’ve recommended.

For links to 20122013, and 2013 updated numbers portfolio reviews go to previous links…  Cumulative gains below combine 2012, 2013, 2014, and 2015 results together.

2014

I realized when doing my 2015 portfolio review that I didn’t do a review of 2014.  So I’ve included both 2014 and 2015 portfolio reviews in this post.

I didn’t do much in 2014 because I started a business at the beginning of the year.  Didn’t buy or sell anything for almost a full year.  And got hired by the investment newsletter in September 2014.

These are why I didn’t write a portfolio review for 2014 here.

Below are 2014 portfolio results.

  • CMT gained 2% in 2014.
  • VIVHY gained 3% in 2014 before I sold my position on June 4th 2014 for a total gain of 50% in less than two years.
  • BOBS lost 15.4% during 2014 before getting bought on May 2015 for a total 129% gain.  I’ll get back to this in the 2015 section.
  • PARF lost 21.7% in 2014.
  • Cash earned 0% in 2014.  And this was my biggest position after selling and getting bought out in several positions.

Average gain in 2014 was 3% after including 50% realized gain from sold Vivendi position.

For context on the following numbers please read the 2012 and 2013 portfolio reviews linked above.

Cumulative average gain for my stock picks at the end of three years is 101.1%.  Or an average gain of 33.7% each year. (Not a compounded gain).

Cumulative average three-year portfolio gain equals 64.9%.  Or 22.6% each year over the last three years after accounting for cash position.  Cash made up more than 50% of portfolio for most of 2013 and 2014 after selling several positions.

Not a great year by earlier years standards but I expected a drop in results after huge years in 2012 and 2013.  I’ll explain why at the end of this post.

For now let’s got to 2015.

2015

I included two picks I made while working at the investment newsletter in 2015’s results.  The spreadsheet is below.

2015-VIJ-and-POR-Performance-Review

I’ve blocked out the names of the picks above for non Press On Research subscribers.  If you’re a Press On Research subscriber I’m sending an unedited version of the spreadsheet your way.

If you’d like to know what the companies are you need to subscribe to Press On Research.  And remember Value Investing Journey free subscribers get a 50% discount on a Press On Research subscription.

Press On Research picks gained on average 5% as of the end of 2015.

Like in 2014, 2015 wasn’t a great year for my picks either.  Even with this down year we still beat most investors.   Almost 70% of investors lost money in 2015.  And unlike the investors who lost money we continued to grow our money.

As noted above I sold out of BOBS after it got bought out in May 2015 for a total gain of 129%.

Cumulative average stock gains for my stock picks at the end of four years are 168.1%.  (Not a compounded gain)  Or an average gain every year for four years of 42%.

Cumulative average four-year portfolio gain equals 109.6% after accounting for cash position.  Or an average gain every year for four years of 27.4%.  (Not a compounded gain)

Cash made up more than 50% of portfolios for most of 2013, 2014, and 2015 after multiple sales of companies.

What does this mean?  That we’ve kicked Mr. Market’s ass over the last four years.

What’s Mr. Market Done Since 2012?

From the beginning of 2012 to the end of 2015 the Russell 3000 index gained 38%.  Or an average gain of 12.7% every year.  This index includes the 3,000 largest companies listed on US stock markets.  This is the closest thing to a micro cap index.

This means my stock picks have crushed the market by 130.1 total percentage points.  And the whole portfolio beat the market by 71.6 total percentage points since the beginning of 2012.  Even when over the last three plus years the portfolios I manage had more than 50% cash positions earning zero.

How big of a difference is this over time?

Let’s say you invested $100,000 in my stock picks at the beginning of 2012 until December 31st 2015.  At the end of four years – with no new additions in money – your money would have grown from $100,000 to $406,587.

If you followed the same above, but instead invested 50%+ of your portfolio in cash like I did, your $100,000 would turn into $263,438 at the end of the last four years.

The Russell 3000 index would have turned your $100,000 into $161,323 after the last four years.

I could have made you $102,115 and $245,264 in excess of what the market would have.

I started posting my results publicly in 2012 because this is when I began doing “real”, in-depth, investment research and analysis instead of speculating.

Results have been great thus far…  Better than I expected… But there’s still a lot of work and improvement to do as seen from the last two years subpar results.

Conclusion Thoughts

As expected my average gain per year over the last two years dropped a lot.

With the market’s continued rise I’ve sold or gotten bought out of most positions.  At one point the portfolios I managed held only two companies.  And until late 2014 I wasn’t able to deploy any of the cash towards better use.

At its height after multiple sales of companies cash in the portfolios I manage was 85% of the portfolios.  This of course means lower returns.

I also knew I wasn’t going to repeat the huge gains earned in 2013 due to the markets ever rising valuations.  This made it harder to find great and cheap companies.  In 2012 and 2013 the market was still fairly to a bit overvalued making it easier to find cheap companies then.

No matter what the market continues to do, over time I’m confident we’ll continue to beat the market by a wide margin.  And continue to compound our wealth over time.

But this isn’t all we’ve done in the last few years…

Since Value Investing Journey started on a free WordPress site until now on a paid WordPress site there have been more than 200,000 total views on the joint sites.

And after coming back from the investment newsletter at the beginning of 2015 there have been a lot of changes and improvements on the blog.

The major change being the blog is now dedicated towards helping others instead of myself.

Some other highlights from 2015 are below.

Here’s looking forward to an even bigger and better 2016.

Thanks so much for everyone who’s been a part of this journey so far.  And please let me know how I can continue to improve things going forward in the comments below.

Jason Rivera

P.S.  And remember if you want access to my exclusive stock picks that are crushing the market over the last four years you need to subscribe to Press On Research.  And free Value Investing Journey subscribers get a 50% discount on a year-long Press On Research subscription.

I Want To Start Investing In Stocks, But I’m Afraid Of Losing Money. Would Penny Stocks Be The Best Place To Start?

I Want To Start Investing In Stocks, But I’m Afraid Of Losing Money. Would Penny Stocks Be The Best Place To Start?

Below is a question I answered on Quora that I wanted to share with everyone.

I Want To Start Investing In Stocks, But I’m Afraid Of Losing Money. Would Penny Stocks Be The Best Place To Start?

Penny stocks – also known as small, micro, and nano caps – is the worst place a new investor can start. Especially if you’re afraid of losing money.

Yes, investing in smaller companies can make you more money over time if you know what you’re doing. But if you don’t know what you’re doing the likelihood of losing money is almost 100%.

Why?

Because smaller companies are small for a reason.

Most of the time they’re newer companies. Companies in niche industries. Companies that don’t have competitive advantages. And many are even unprofitable and terrible businesses.

And I say this as a micro cap loving investor.

I know this because after I gained confidence as an analyst and investor I now concentrate almost exclusively on smaller companies.

After going through several thousand companies I analyzed my data and found I invested in fewer than 0.2% of the companies I came across. Or fewer than 1 out of every 500 companies I research.

This was more than two years ago…

As I’ve continued to improve as an analyst and investor. And continued to improve my investment processes and checklists this number’s gotten lower.

I haven’t analyzed my data since then but I would guess that I now invest in fewer than 1 out of every 1,000 companies I research.

Why so few?

Because of my ultra strict criteria I require before I will even consider investing in a company. I’m an ultra conservative value investor who requires safety from losing money as my number one criteria.

Another reason is a combination of the things I mentioned above… Most small companies are newer businesses. Many of which are terrible companies that shouldn’t be public.

If you don’t know how to spot these things you shouldn’t invest in smaller companies. Are even bigger companies for that matter.

If you’re a new investor and analyst start evaluating and investing in bigger companies first. As you learn, gain knowledge, and improve your processes and analysis you should start dipping into some of the smaller companies. But again, only if you know what you’re doing. And are confident in your abilities.

Did I miss anything in my answer to this new investor?  Let me know in the comments below.

To make sure you don’t miss any great content subscribe to Value Investing Journey for free here.Once subscribed you’ll also get entered to win prizes.  Get a 50% discount on a One Year Press On Research subscription.  And get three gifts.

Which Points Could Be The Sign Of Overvalued Inventory?

Which Points Could Be The Sign Of Overvalued Inventory?

Below is a question I answered on Quora yesterday that I thought would be valuable to share here.  The below answer is unedited except I added some links and pictures for further clarification.

At first glance this seems like it would be something hard to figure out.  But it’s not once you know how interpret three ratios and numbers from the companies financials.

First, go to a site like Morningstar – Independent Investment Research and pull up the balance sheet and key ratios tabs in separate pages.

Go to the key ratios tab.  From here scroll down until you see key ratios and click on the efficiency ratios tab.  Look at the cash conversion cycle over a several years.

If the CCC it rising over the years this could mean the company is having issues selling inventory.  And if they’re having trouble selling inventory it could mean the inventory will need to be written down at some point.  And is overvalued.

To continue your search for overvalued inventory now go to the balance sheet tab you have open.  Look at two things here: Inventory and accounts receivable and the relation in these numbers over time.

As an example, if accounts receivable rises 5% year over year but inventory rises at 15+% year over year this could mean the company is having issues selling inventory i that time.

This scenario is almost always bad news for the company and shareholders unless the company can correct the issues going forward.

Why?  Because this may mean it will have to write some of the inventory down (or off altogether) at some point.  Again, meaning the inventory is overvalued on the balance sheet.

Watching the three above things won’t catch everything.  But its a good start in figuring out if inventory may be overvalued.  And have to be written down or off the balance sheet at some point.

Remembering this one simple rule will help a lot when evaluating companies as well… Accounts receivable and inventory should rise or fall at about the same amount over time.  If they don’t you need to find out why because there could be some serious issues.

What are your thoughts on overvalued inventory and using the cash conversion cycle?  And did I miss anything? Please let me know in the comments below.

To make sure you don’t miss any more great content subscribe to Value Investing Journey for free here.Once subscribed you’ll also get entered to win prizes.  Get a 50% discount on a One Year Press On Research subscription.  And get three gifts.

Value Investing Journey 10 Most Popular Posts Of 2015

Value Investing Journey 10 Most Popular Posts Of 2015

The following list is the Value Investing Journey 10 Most popular Posts of 2015.

If you missed any when they were first posted make sure to check them out below now.  Here’s looking forward to an even better 2016.

10. Car Wash Psychology, Mental Models, And The Power Of Habit

9. Searching For Case Studies – Turning $2 Million Into $2 Trillion

8. My Answer To How Do You Find Stock Opportunities?

7. Armanino Foods Case Study Part 1 – Preliminary Analysis

6. On Failure

5. The 15 Steps I Took To Become An Excellent Value Investor

isaac newton

4. 17 Things That Changed My Life – Some Saved It

3. Why The P/E Ratio Is Useless – And How To Calculate EV

2. Lionel Messi Is A Failure

And the number one most viewed post on this site in 2015 was…

1. Warren Buffett And Charlie Munger Are Failures

File:Charlie Munger.jpgFile:Warren Buffett KU Visit.jpg

From the views it looks like you’re interested in a variety of topics.

Valuation, case studies, Buffett and Munger, failure, psychology, habit, mental models, and personal improvement were major themes of the above list.

According to Munger reading a wide variety of things means we all improved as investors and thinkers in 2015.

Remember, no matter how fast you improve or learn as long as you continue to learn and improve this will compound over time and lead us closer to our goals.

Bonus – Most Viewed Page Of The Year

The number one viewed page on the blog – besides the home page – was the Recommended Reading And Viewing Page.  This one page got almost 8,000 unique views last year by itself.

If you’ve never visited this page you should.  It holds links to all the best resources I’ve learned from over the years.  And gets updated regularly.

Is there anything I haven’t written about yet that you want me to in 2016?  Did your favorite post make the list? If so which one was your favorite?  If not which post was your favorite that didn’t make it?  Let me know in the comments below.

And to make sure you don’t miss any more great content subscribe to Value Investing Journey for free here.

Once subscribed you’ll also get entered to win prizes.  Get a 50% discount on a One Year Press On Research subscription.  And get three gifts.