2013 Portfolio Review Updated

Yesterday I posted my 2013 portfolio review and stated that the portfolios I manage had gained 98.13% cumulatively over the last two years.

Last night I received an email saying that I actually didn’t add things correctly since I didn’t discount cash so here are the updated, actual numbers.

  • 2012 is still the same 26.20% gain since I was fully invested nearly the entire year.
  • 2013 INVESTED portion of the portfolio still gained 98.13% this year.
  • 2013 entire portfolio return this year, with cash earning 0, and before taxes was 35.67%.
  • That means that the cumulative two-year gain for the entire portfolio was 61.87% (not compounded).
  • The cumulative two-year gain for the stock picks that I have bought is 98.13% (not compounded).

Sorry about the numbers I reported yesterday.  I didn’t know that technically I was supposed to discount the cash portion of the account if I was going to call it a total portfolio return.

 

2013 Portfolio Review: Cumulative Two Year Gain of 98.13%!

“Investing is where you find a few great companies and then sit on your ass.” Charlie Munger

Last year I did an entire write-up on my 2012 portfolio review going over how well or poorly all the companies I wrote articles on did after I wrote those articles.  I wrote 15 total articles last year and the companies I bought led the portfolios I manage to a gain of 26.20% last year. I thought it was a pretty good first year after truly dedicating myself to value investing but I knew I could do better after eliminating some of the many mistakes I made in that year and purging the few remaining companies I still owned in those portfolios from when I bought into them when I didn’t know what I was doing.

With the help of the rising market, eliminating some of my mistakes, doing a lot of other stuff instead of investing, and getting some tips from other value investors on companies to buy, the portfolios that I manage have gained 71.93% this year as of today.

% Gain YTD
Core Molding Technologies (CMT) 88.67%
Vivendi (VIVHY) 12.39%
Paradise Inc (PARF) 42.86%
Calloway Nursery (CLWY) 100%
Brazil Fast Food Company (BOBS) 112.63%
Strattec Security (STRT) 75%
Average Gain 71.93%

 

Core Molding Technologies – I bought into this company too early last year when I gave into my impatience after months of not being able to find a company to buy into.  At the end of last year I as sitting on an 8% point loss on my investment.  With the rising market and good continued developments at the company this year it gained 88.67%  I still own CMT.

Vivendi – At year’s end last year I was sitting on a 27% gain.  This year with all the spin offs/sales at the company YTD it has gained another 12.39%.  I still plan to hold onto this company while it continues its transition to a purely media driven company.

Paradise Inc – I bought this company in March (one of only two companies I bought this year) and in that time it has had almost no news either positive or negative so I guess this companies gains of 42.86% are chalked up to the overall rise in the market.  I still own Paradise Inc.

Calloway Nursery – The other company I bought in the calendar year of 2013.  Originally I saw other value investors like OTC Adventures writing about the company and paid no mind to it.  Luckily after talking with Jeff from the Ragnar is a Pirate blog, DTEJD1997,  them sharing some information about how much the companies properties were worth, and doing my own research into the company, I decided to buy into them and I am glad that I finally paid attention to these other investors.  I have sold out of most of my position in this company at an exact double of 100%.  So far it has taken me four months to sell out of that position and it will likely take another two to sell out of the rest of it.  I still like this company and if the price goes back down substantially, all else remaining the same, I may buy back into it again.

Brazil Fast Food Company – I bought into this company last December after Red from the Red Corner Blog recommend that I take a look into them.  Again, I am thankful that Red mentioned them to me.  After a year where the company was gaining a lot after continued good results, the companies owners wanted to take it private at a ridiculous offer, which was then voted down, and the company has continued to rise after that.  The company YTD has gained 112.63%, I still own them, and plan to hold them for the long-term.

Strattec Security Corp – Another company I bought into last December.  This company had very good continued results, had some new positive developments, the stock went up very quickly and I sold out of the entire position up 75% in May.  Since then the company’s stock price has hovered around where I sold it.  Like Calloway, if STRT drops substantially, all else remaining the same, I will buy back into them because I think they are an excellent company.

Last years 26.20% gain + this years 71.93% gain means that the portfolios that I manage have cumulatively gained 98.13% (49.06% on an annual basisin two years since I started to take this seriously.  The portfolios I manage were in 40%-55% cash the entire year and are at the higher end of that range now.  Frankly I was shocked when I saw this years gain and the two-year cumulative gain since I only do an entire portfolio review once a year.

What Does The Above Mean To Me?

Not much honestly.  A two-year track record doesn’t mean much to me since I am a long-term investor.  I was also helped a lot by two recommended companies from other value investors and the overall rise in the market.  Am I glad and excited about this great start yes, but I still have a lot of work to do and at this point I think that I am only an average to above average stock picker as I have a lot of room to improve and was helped a lot by short term luck of the stock market rising a lot.

Some of the Lessons Learned This Year

  1. My extreme patience and discipline gained from dealing with my health issues helps greatly as a long-term, very strict value investor.  I did a lot of stuff not directly related to investing this year because I could only find two companies that I could buy into all year.
  2. You need to keep a record of what you do.  This was such a long year filled with great and not so great things for me that I have recently been telling everyone I only bought one company this year.  I completely forgot about the PARF and BABB articles I wrote at the beginning of this year and that I actually bought into PARF back in March along with CLWY.  Memories are not always what they seem to be.
  3. Sometimes it pays to “steal” investing ideas from others, but you still must do your own research into the company.
  4. Turn over as many rocks as possible.  While I only invested in two companies this year I have researched hundreds if not thousands of other companies and have built up a watch list of around 20 companies.  When those companies stock prices go down I will be ready to potentially buy some of them with the cash I have built up and the knowledge I have gained of those companies.
  5. Starting a business is very hard.  This is my biggest failure of the year by far and one that I hope to rectify at some point in the future.  The business my brother and I started was a complete failure from the point of gaining customers and revenue.  At this point we are not doing anything at all with the company as we overestimated the demand in our area for our product.  We learned a lot of lessons from this and we hope to start a successful business in the future.
  6. Writing a book is very hard.  Most of my year (the better part of 10 months) was spent writing, editing, researching, etc for the book.  It was well worth it as it has provided some for my family, for two needy families Christmas presents, I learned an enormous amount, and it has hopefully helped newer investors learn this craft faster.
  7. It obviously pays to buy into a few great companies and then sit on your ass and be patient.

Goals For This Year

  1. Continue to learn something every day.
  2. Improve in some way every day.
  3. Turn over more rocks.
  4. Read more.
  5. Write more.

I hope you all had a great year, thank you all so much for all the conversations, reading this blog, buying my book, and I look forward to talking with you all more and getting back to writing more articles for the blog in this coming new year.

 

How To Value Invest Epilogue Excerpt: How Far I Have Come In Less Than Two Years Time of True Dedication To The Craft of Value Investing

Epilogue

“Rule number one: never lose money. Rule number two: never forget rule number one.”  Warren Buffett

I hope you have been able to see the progress that can be made in a short period of time because you can make the same progress if you follow the lessons of this book.  When I started to dedicate myself to getting better I tried to learn and implement as many new things as possible into every article as you probably noticed in the huge chapter on Altria.  After doing this for a while and getting a bit overwhelmed I decided it would probably be better just concentrating on adding or learning one new thing for each article written   I found that this was a much better way for me to do things as I improved much faster than when trying to learn many new things at once.  Going by this process I also noticed that my analysis was still concentrated, I was improving more, and the actual analysis articles got much better because I understood what I was doing better than when trying to learn multiple things at once.

The exact process of becoming a better investor is tough and when you first start, you will probably be doing a lot of things and concentrating in areas that you later will have no interest in.  Treat every company you research as a potential learning experience, try new things, and continue to constantly push for improvement.  Your investing journey will change drastically over time and it is a good thing if it does because it means you are pushing yourself to keep learning and improving.

As an example of how far you can come using the principles and techniques outlined in this book I want to show you how much I was able to improve in just one year once I dedicated myself to becoming an excellent value investor.  The following is my first ever stock “analysis” write up.  The information is completely unedited other than change of the font, size of font, some of the formatting, and a few typos.

Vodafone Group PLC, ADR, (VOD) info

All information taken from Morningstar.com, Vodafone’s website, fool.com, or Vodafone’s most recent annual financial report.

Overview:

With 343 million proportional customers (total customers multiplied by its ownership interest), including its 45% stake in Verizon Wireless, Vodafone is the second-largest wireless phone company in the world behind China Mobile. It is also the largest carrier in terms of the number of countries served. Vodafone has majority or joint control in 22 countries and minority or partnership interests in more than 150 total countries. The firm’s objective is to be the communications leader across a connected world.  They have four major markets that they break their financials into: Europe, Africa Middle East and Asia Pacific or AMAP, India, and the United States through a partnership with Verizon.

Pros:

  • Huge company operating in more than 150 countries making them more diversified and able to withstand drops in revenues and profits coming from a single region or country.
  • Generates huge free cash flows of at least $8.25 Billion in each of the last 8 financial years.  Free cash flow or FCF is basically the money that’s left over after expenses, dividends, payments, etc that the Vodafone can use as it pleases.  Generally VOD uses their FCF to increase their dividends, buyback their own stock, acquire other companies, or pay down debt.
  • Current dividend yield of 6.97%, the average company in the S&P 500 has a yield of around 2%.  Pays a semiannual dividend in June and November of each year.  Also receiving a special dividend from Verizon, $1 billion of which will go to paying down Vodafone debt, $3.5 Billion will go to pay a special dividend to Vodafone shareholders in January or February of 2012.
  • FCF/Sales ratio over 16% each year since the 2002 financial year.  Anything over 5% means they are generating huge amounts of cash.
  • Interest coverage ratio of 23.4, anything over 1.5 is good. Interest coverage ratio is how many times they can cover the payments of interest on their debt.
  • Payout ratio of around 50% for the dividend meaning the dividend should be safe for the foreseeable future.
  • Raising their dividend an average of 7% per year for the next 3 years.
  • Lower debt/equity than their industry competitors.
  • Growing a lot in Asia, Middle East, India, and parts of Africa.  Also still a lot of room to grow in those areas as they are relatively new to them, especially India.
  • Paying down debt with FCF.
  • Gross margin, net margin, and EBT margin all over 17% which is very good.
  • Still a lot of room to grow their revenue through people upgrading to smart phones and paying for data packages which they make more money off of then regular phones.
  • Executive pay is linked to how well the company does, and they encourage their executives and directors to own company stock.

Cons:

1. Still a lot of debt even though they are paying it down, around $40 Billion

2.  Most of Western Europe except Germany is having huge economic problems which have led to lower sales and profits in those areas.

3.  The fear or actuality of another global recession would hurt their sales and profits.

4.  Problems at Verizon which VOD owns 45% of would hurt future payments from Verizon to VOD.

5.  Most of their revenue is generated in Europe where as above, there are big financial problems.

6.  Since they are in so many countries they have to deal with many regulations and sometimes even lawsuits from other governments or companies in those countries.

Final Thoughts:

Overall I feel very good about Vodafone’s prospects to be a great investment for the long-term.  We are buying them when they are valued at a very good price, especially compared to their competitors. They have huge growth potential in India, a country that has over 1.3 billion people, as they have only penetrated that market by around 10%.  They are paying down debt, upping their dividends and receiving a special dividend from Verizon.  Even if their share price doesn’t go up over the next few years, which I believe it will by quite a bit, then we are still covered by the near 7% dividend that they are going to keep growing at least 7% a year for the next 3 years.  Also, with their huge FCF they can maybe pay down debt faster, acquire other companies to keep growing, pay more dividends, or buyback their stock.

As always if there are any questions let me know.  I believe we will all do well with this stock in our portfolios over the long-term.

Jason Rivera

Go back and compare this to any of the chapters in the book and the difference is shocking.  Shocking in how inadequate my thinking still was at this point where I was investing real money as most of the above you can tell was taken directly from financial sites and the companies own website, not exactly in-depth independent analysis on my part.  The reason I put my first ever write-up in this book is to illustrate how much better you can get in a very short time frame by using the principles and techniques outlined in this book and dedicating yourself to constantly improving.

If you do love value investing, have followed what has been shown to you in this book, have read from some of the sources that I have talked about and listed on my blog, and have the drive to continually improve yourself and get better, I guarantee that you will now be better at evaluating whether a company is a potentially fantastic investment better than most MBA’s and professional level investors without having to spend tens or hundreds of thousands of dollars at a big time university and saving years of time having to research all of this information for yourself.

Thank you so much for buying this book, good luck, and continue to work constantly at getting better and improving your processes.

I shared my first ever “analysis write up” last year during my year-end performance review and wanted to share it again to illustrate how far you can come by truly dedicating yourself to the value investing craft and continually learning and improving in a short amount of time.  With the things I teach in the book I hope the process will become even faster for you if you choose to go down this road.

Next week I will release the 2013 year-end review for my personal portfolio and the portfolios I manage.  The results were shocking to me since I only do a full performance review usually once a year.

If you have enjoyed this and other portions of the book I have released thus far please visit this page to buy the book and to see the now four reviews, all of which are 5 stars, that the book has received thus far.

If you would like to read other excerpts from How To Value Invest that I have released please view this page.

Year End Report On The Companies I Wrote Articles On And An Illustration Of How Far I Have Come Since February

Year To Date Performance

Below is a chart on the performance of the companies I have written articles on this year and how they have done since I published my original articles on them.

Article Tilt Date Published Price At Time Of Article Price Now % Gain or Loss
Original Dole Article Bullish 13-Jun $8.96 $11.22 20%
Original Alexander and Baldwin Bullish 15-Jun $24.04 Equivalent after Spin $28.41 15%
Vivendi Bullish 19-Jun $16.50 $22.55 27%
Chiquita Bearish 22-Jun $4.84 $8.12 40%
Fresh Del Monte Bullish 25-Jun $22.66 $26.07 13%
L.B. Foster Bullish 12-Jul $28.94 $42.36 32%
Kirkland’s Bullish 24-Jul $10.70 $10.47 -2%
Altria Bullish 2-Aug ~ $34.00 $31.32 -8%
Aceto Bearish 10-Aug $9.09 $9.77 7%
Core Molding Technologies Bullish 30-Aug $7.35 $6.79 -8%
Jack in the Box Bearish 1-Oct ~ $28.00 $28.63 2%
Stanley Furniture Bearish 18-Oct $4.32 $4.42 2%
Wendy’s Bearish 28-Nov $4.65 $4.70 1%
Strattec Security Bullish 12-Dec $24.00 $24.30 2%
Brazil Fast Food Company Bullish 26-Dec $8.00 $7.95 <-1%

I still trust my analysis of all the companies I have evaluated this year but at least in the short term it looks like I was very wrong about Chiquita as it has gained 40% since I published my article on them.  For the long term perspective I am still very bearish about them unless they have massively eliminated debt.  I generally do not keep tabs on the companies I wrote bearish articles on so Chiquita may have improved its operations since that time.

Also in the short term, it looks like I let the fear of the unknown about L.B. Fosters potential liability claim problems steer me away from a good investment as it has gained 32% since I wrote my bullish article about them.

Bullish and bearish results ended up being pretty comparable due to Chiquita’s big gain.  Excluding Chiquita from the bearish results and they performed much worse than my bullish articles.

Results below are excluding STRT and BOBS since I just bought both of them.  All results in this post are after fees.

122712_0426_2012YearToD1.png

Overall the companies I bought for the portfolios I manage have done very well as I was up 26.20%, including the 66% portion of Dole that I sold to lock in gains in the summer, and excluding Strattec and Brazil Fast Food since I just opened those positions.  The bullish results are only including gains from the time I published my articles to yesterday, which obviously does not include the big spike in Dole during the summer.

For my personal portfolio I only gained approximately 12% in 2012 because of my foolish past buys which I have documented many times on this blog before.  Because of the previous companies I owned, I missed out completely on Dole until after the company had already dropped back to Earth from its previous highs.

Lesson here kids is to know more than what you think you need to know before buying stock in companies so you don’t have the last two years of average results that I have had due to my lack of knowledge.  I would not change buying any of those companies because it helped me learn much faster than I would have by just continuing to read books, but instead of prematurely jumping into buying stock in companies after reading a couple books, I would have set up a portfolio online with fake money to track and learn from my performance.

After getting rid of the last trash companies that I probably should have never bought, and companies that I would have not bought into with what I know now, my personal portfolio whose current structure can be seen here, is up 16.19% still excluding STRT and BOBS.  Quite a bit worse than the other portfolios I manage due to missing out on Dole’s big gains.  Most of that 16.19% gain is from Main Street Capital which is the only company I still own from before doing the amount of research I am doing now and which is up 52.57% since I bought into them.

Going into the new year, now that I have my personal portfolio without any trash companies in it, I think that as I continue to gain knowledge and refine my craft that I will be able to perform as well in 2013, as I did in 2012 with the portfolios I managed to a gain of 26.20%.

An Illustration of How Far I Have Come Since February

Below is my first unedited attempt at an analysis write up that I did in either March or April after truly dedicating myself to becoming a value investor in February.

Vodafone Group PLC, ADR, (VOD) info

All information taken from Morningstar.com, Vodafone’s website, fool.com, or Vodafone’s most recent annual financial report.

Overview:

With 343 million proportional customers (total customers multiplied by its ownership interest), including its 45% stake in Verizon Wireless, Vodafone is the second-largest wireless phone company in the world behind China Mobile. It is also the largest carrier in terms of the number of countries served. Vodafone has majority or joint control in 22 countries and minority or partnership interests in more than 150 total countries. The firm’s objective is to be the communications leader across a connected world. They have four major markets that they break their financials into: Europe, Africa Middle East and Asia Pacific or AMAP, India, and the United States through a partnership with Verizon.

Pros:

  1. Huge company operating in more than 150 countries making them more diversified and able to withstand drops in revenues and profits coming from a single region or country.
  2. Generates huge free cash flows of at least $8.25 Billion in each of the last 8 financial years. Free cach flow or FCF is basically the money thats left over after expenses, dividends, payments, etc that the Vodafone can use as it pleases. Generally VOD uses their FCF to increase their dividends, buyback their own stock, acquire other companies, or pay down debt.
  3. Current dividend yield of 6.97%, the average company in the S&P 500 has a yield of around 2%. Pays a semiannual dividend in June and November of each year. Also receiving a special dividend from Verizon, $1 billion of which will go to paying down Vodafone debt, $3.5 Billion will go to pay a special dividend to Vodafone shareholders in January or February of 2012.
  4. FCF/Sales ratio over 16% each year since the 2002 financial year. Anything over 5% means they are generating huge amounts of cash.
  5. Interest coverage ratio of 23.4, anything over 1.5 is good. Interest coverage ratio is how many times they can cover the payments of interest on their debt.
  6. Payout ratio of around 50% for the dividend meaning the dividend should be safe for the foreseeable future.
  7. Raising their dividend an average of 7% per year for the next 3 years.
  8. Lower debt/equity than their industy competitors.
  9. Growing a lot in Asia, Middle East, India, and parts of Africa. Also still a lot of room to grow in those areas as they are relatively new to them, especially India.
  10. Paying down debt with FCF.
  11. Gross margin, net margin, and EBT margin all over 17% which is very good.
  12. Still a lot of room to grow their revenue through people upgrading to smartphones and paying for data packages which they make more money off of then regular phones.
  13. Executive pay is linked to how well the company does, and they encourage their executives and directors to own company stock.

Cons:

1. Still a lot of debt even though they are paying it down, around $40 Billion

2. Most of Western Europe except Germany, are having huge economic problems which has led to lower sales an profits in those areas.

3. The fear or actuality of another global recession would hurt their sales and profits.

4. Problems at Verizon which VOD owns 45% of would hurt future payments from Verizon to VOD.

5. Most of their revenue is generated in Europe where as above, there are big financial problems.

6. Since they are in so many countries they have to deal with many regulations and sometimes even lawsuits from other goverments or companies in those countries.

Final Thoughts:

Overall I feel very good about Vodafone’s prospects to be a great investment for the long term. We are buying them when they are valued at a very good price, especially compared to their competitors. They have huge growth potential in India, a country that has over 1.3 billion people, as they have only penetrated that market by around 10%. They are paying down debt, upping their dividends and receiving a special dividend from Verizon. Even if their share price doesn’t go up over the next few years, which I believe it will by quite a bit, then we are still covered by the near 7% dividend that they are going to keep growing at least 7% a year for the next 3 years. Also, with their huge FCF they can maybe pay down debt faster, acquire other companies to keep growing, pay more dividends, or buyback their stock.

 As always if there are any questions let me know. I believe we will all do well with this stock in our portfolios over the long term.

Here is the link to my most recent article on BOBS.  The contrast is kind of startling and exciting at the same time.  I had not looked at this Vodafone write up until recently probably since I wrote it and was very excited to see how far I have come in only 10 months and I cannot wait to see how much better I will get with years more of practice and learning.

Portfolio Review

The last company I researched has turned out to be a pretty good company with high margins, ROIC over 20%, but it currently does not reach my minimum 30% margin of safety to my estimate of intrinsic value, so I am going to hold off writing about it at this time.  I am going to continue to research the company and its competitors and if the company gets closer to my required margin of safety I will update you and start writing the article at that time.

In the mean time, I have decided over the weekend to reassess the rest of the companies I own stock in that I bought before doing any valuations, or anywhere near the amount of research I am doing now.  After researching and analyzing all of the remaining companies I own from that time, I will assess whether to sell my position or buy more of the company.

I will at the very least show you the valuations and tell you the decisions I have made after doing said valuations and research.  If any of them turn out to be massively under or overvalued I will probably write full fledged articles.

As always, I will also be looking for new companies to research and analyze.

I will hopefully have the first valuations up within a couple days.