Tuesday, September 2, 2014

My 3rd Annual Schedule of Investments

I have written my blog for two years (!!) and once a year I list my largest holdings. So the following are my largest 13 holdings. Because I run a relatively concentrated portfolio, these stocks form the vast majority of my portfolio value. As a comparison, my last year holdings are here.

Position Category Business
Wellpoint (WLP) US Large capHealth insurance
McRea Industries (MCRAA) US MicrocapFootwear
Tachibana Eletech (TSE:8159) Japanese Small capElectronic Distributor
Seaboard Corp (SEB) US Mid capFood Conglomerate
Installux SA French microcapManufacturing
AIG (AIG) US Large capInsurance
Investor Title Insurance Company (ITIC) US Small capTitle insurance
Petsmart (PETM) US Large capPet retailer
Bruce Fund (BRUFX) Mutual fundMid-cap value
PutpropSouth African MicrocapReal estate
New Century Hong Kong (HK:0234) Hong Kong Small capHotel, cruise line
Hanover Foods (HNFSA) US Small capProcessed food
Philip Morris International (PM) US Large capTobacco

My largest positions are little changed. But I did trim my WLP and SEB positions, and I added to Tachibana during a dip.  In the last year, I continued my shift from large caps to small and microcaps. My new positions include Hanover Foods, ITIC, New Century HK and Putprop. Since I started moving from large caps to small caps two years ago, I have probably done more trades than the previous decade. I think I have a good mix now and I will trade a lot less in the coming year.

I am sure any reader is curious about my rate of return. My answer has always been: I don't know. Money flows into my accounts from paychecks and dividends. Money flows out for expenses and taxes. I can't keep track of it all. But I am not unhappy with anything on my list. If I was unhappy I would have sold it. And I did sell OiBr. I last sold it around $2 and it is $0.60 today! Whew, that was a close call. But still, OiBr is my biggest mistake of the last six years.

I first bought OiBr 8 years ago and loved the 10% dividends as well as the stock appreciation. But three years ago I failed to follow the stock closely and didn't even notice the drop. It isn't trivial tracking a stock that merges multiple times, pay a 10% dividend and is denominated in Raeis. I also failed to notice the deteriorating economic situation in Brazil and BRIC's in general. Most importantly, I feel now that OiBr has inadequate corporate governance, but I didn't see that early on. This lack of care cost me. Since then, I have identified and corrected my errors in judgment with OiBr.  My investments of the past year reflect this.

I built up this list over many years. The stocks in the list appear to be an eclectic bunch from all corners of the globe. But there is a method to the madness. I focus mainly on profitable companies with great balance sheets; in other words, the best cigar butts. A reader would notice that my company writeups do not emphasize the company's operations or area of business. I purposely do this because I learned my lessons when bought stocks in the tech companies where I used to work. I found that the knowledge I gain about a business' products can easily make me overconfident about the company's future. So I don't spend my time reading too much into it anymore.

My research on a company focuses on the balance sheet and income statement. I use the simplest and most common accounting measurements. I am an engineer by profession, and in my work I always keep in mind a fundamental principle for any task: Keep It Simple and Stupid (KISS). You'd be amazed at how many practitioners in engineering and finance forget that. When an investor reads too much into some trend or data, he can easily put too much weight in conclusions based on information of little or no value.

It is for this reason that my investments and analysis may appear somewhat superficial. For example I compare companies mostly by the PE ratio. I feel no single metric gives so much information for lightly levered companies. And after the OiBr experience I will avoid capital intensive and highly levered companies. Leverage is simply too risky and too complex for me.

The lifetime of my blog has coincided with a raging bull market. But my investing approach isn't all about bull markets. When the next market correction comes, and it will, I think this blog will make even more interesting reading. But of course, I hope for the best, and I ask the market gods to give me another year like the last two!

No comments:

Post a Comment