Friday, March 22, 2013

McRae Reports Solid Earnings, Bruce Fund Update

My small cap portfolio is at five stocks, McRae Industriies (MRINA) is my largest. The company reported earnings of $1.26 and $2.13 per share for the second quarter and first half year. The current first half year earnings are a 69% improvement over the first half last year. The stock jumped 10% on the news. This confirms to me that even small pink sheet stocks will move with earnings.

The chart summarizes McRae's financials. The earnings are based on the projection of the last two quarters.

McRae is the first of my five small caps. See this earlier post for the list. My small caps stocks have a few key common themes:
  • they are geographically diversified
  • their country of origin is a leader in their industry; e.g., Greece is well-known for its shipping industry
  • they are all either trading at net-net or, in the case of Globus Maritime, the stock trades at a small fraction of book value
  • they have consistently been profitable in at least the last five years

I am a conservative investor and this is a very conservative portfolio. Some blogs I have read contain stocks that are losing or barely making money. I avoid them. This selection criteria has turned out well (for the most part) in the short time I've owned these stocks. Of course, as luck would have it, Globus Maritime had its first two losing quarters just after I invested. Nonetheless, I have added to my position after a 33% drop.

I do wonder, however, if this blog has any short term influence on the prices of my stocks. If it does it is definitely not intentional. Firstly, I would tell any listener that if he or she wants to invest, the only way is to do his or her own research. Don't rely on second hand information (like this blog), especially for small cap low volume stocks which can be easily manipulated. Secondly, I am a long term investor. My holding time is typically 3 to 5 years. So any short term effect from this blog would fade by the time I want to sell.

On a final note, I just got the semi-annual report from The Bruce Fund. This is the only mutual fund that I own. As I mentioned earlier, I feel owning it adds something of value to my portfolio.

I admire the father and son team that run the fund. They charged $1mil (in a half year) for managing a $300mil fund. I feel that is a small change to collect for performing in the top 1% of their category for the last decade. Partly because of this, they aren't influenced by their investors and the whim of the markets. They stick to their guns.  In the last half year the fund's results lag the market, 4.72% vs 5.95%.

I pay attention to what they say. They now have the fund in a very defensive position with less than 50% common stock. They anticipate "equity deflation" and are only finding value in large caps, stocks with dividends and special situations. I am thinking I agree with them, that's why I am patiently waiting on my CSCO, MSFT and Intel to go up.

This post initially had incorrect data and was corrected.

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