Tag Archives: services

The V20 Portfolio Week #1: Market Tailwind

Summary The V20 portfolio climbed 6% vs. 3% for the index. Poor news hit a major holding, causing a selloff. Discussion about volatility. The V20 portfolio is an actively managed portfolio that seeks to achieve annualized return of 20% over the long-term. If you are a long-term investor then this portfolio may be for you. You can read more about how the portfolio works and the associated risks here . Always do your own research before making an investment. Week In Review It was a great week for the U.S. market, in fact it was the best week this year . With averages up around 3%, it shouldn’t be surprising that the V20 portfolio had a great time as well. You can see from my first article that almost all of the funds in the V20 portfolio was committed, except a 6% cash stake. With a net long exposure of 94%, the V20 portfolio was able to achieve a return of 6.09% over the past week. Not too shabby if I say so myself. This level of performance was achieved despite some “negative” news coming from one of the major holdings, Conn’s (NASDAQ: CONN ). On October 8th, the company released September sales and delinquency data. The sales performance was satisfactory with comparable sales increasing by a modest 1.8%. The “negative” news mainly involved the delinquency rate, which has troubled the company for a while now. After investors learned of the increasing delinquency rate, a selloff began. After the press release, the stock declined 8% from $26.60 to $24.48 where it closed on Friday. Should we be worried? Absolutely not. You can read a bit more about the mechanics behind the delinquency rate here . Its impact is a lot less than you think. Another thing that solidified my confidence in Conn’s is the CEO’s stock transaction. After Norman Miller took over as CEO, he bought half a million dollars worth of stock at an average price of $24.89 per share. Not too often do you see a CEO sink that much money voluntarily right after he or she takes over the helm. Portfolio Beta I touched on the idea of volatility in the introduction. Today I would like to go a bit into the details. I’ve compiled the data since the beginning of the year, and the beta of the portfolio against the S&P 500 thus far is 1.06. In other words, conventional wisdom would suggest that this portfolio should fluctuate roughly in line with the index. Of course, the actual result was very different. The actual performance of the portfolio significantly deviated from the expected return. I posted this chart during the introduction but I’ll use it here again to point out some of the anomalies. (click to enlarge) From January 15th to February 5th, the V20 portfolio suffered a loss of 11% while the index rose by 3%. But from April 30th to May 15th, the V20 portfolio increased by 26% while the index grew a measly 2%. As you can see, the actual volatility of the portfolio was much much higher than what was predicted by the portfolio beta. What does this mean? If you’ve been diligently tweaking your portfolio according to the beta of your individual holdings, do not add this portfolio for its “low” beta! As I mentioned in the previous article, the portfolio may be highly volatile, always keep that in mind when you invest. The Week Ahead There isn’t any scheduled announcements from any of the holdings. However there are a couple of things that I would pay attention to. On Wednesday, the Department of Commerce will release retail sales for September. While we know how Conn’s fared in September, poor industry data could foreshadow problems in the future. Another thing that I would look out for is any announcement coming from Dex Media (NASDAQ: DXM ). Since the company stopped paying interest two weeks ago, shareholders have been left in the dark as to the progress of the ongoing negotiation. The reorganization will significantly influence the future of the equity holders. If maturities are extended, then I think the equity holders will get a lot of value since bankruptcy can be delayed as the CEO tries to turn the company around.

Price And Return Study On Class I Railroads

Summary In our ongoing efforts to point out the value of buying the least expensive stock, we have reviewed the price performance of the Class I railroads over fifteen years. We found that the most expensive stock outperforms about 50% of the time. The more relevant finding, though, is the powerful relative performance of the “cheap group” versus the “expensive group.” We offer this (non-scientific) study as the basis for discussion. We thought we’d take a break from talking about operating yields, the value of avoiding optimism and the fact that most expensive stocks disappoint over time to talk about the value of cheap investing as it relates to railroad investing. Although this short study was in the aid of our railroad obsession, we believe the findings are relevant to many sectors and stocks. We decided to review the price performance of the six Class I railroads for which we have data available for the period 2000-2014. We looked at which company was the least and most expensive on a PE basis at the beginning of each year from 2000 to 2014 inclusive. We then calculated the subsequent yearly returns for the cheapest and the most expensive railroads. The results are interesting (to us, anyway….we know…get a hobby). Results We found that “buying expensive” in some sense beat “buying cheap.” Specifically, buying the most expensive railroad at the beginning of the year was as likely as not to generate higher returns than the cheapest railroad over that year. Before concluding that there’s no value in buying cheap, though, consider that the mean return for cheap was much greater than buying expensive. Over the past fifteen years, on average, buying the cheapest railroad has produced a return of 23.56%, while the return for buying the most expensive railroad generated only an 18.25% return on average. We include the raw data at the end of this document. Source: Gurufocus Although buying expensive may beat buying cheap in any given year, over time, buying cheap has crushed the returns of the positive railroads. In our view, there was less risk associated with these cheaper stock returns also. We acknowledge that this is not a scientifically sound study. We will expand the study to include total returns from dividends. In future, we’ll review the tax consequences of this approach relative to a buy and hold approach. We will compare these returns to a benchmark (perhaps the transportation index). Before that, though, we believe that something need not be scientifically robust to be true. Although we’ll refine the work, this is sufficient evidence that buying cheaper railroads produces higher returns at lower risk than the alternative. Conclusion Although this short study looked only at the Class I railroads, we believe there’s a wider lesson here. Although expensively priced stocks may outperform in a given year, they will perform less well over time. Given that they’re coming from a much less expensive base, cheaper stocks almost inevitably outperform over time. (click to enlarge) Source: Gurufocus Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Stay Out Of Shipping Stocks; Bankruptcies Loom

Despite the Baltic Dry Index popping briefly, shipping rates are falling once again. Dry shipping is a tough sector to be in, fraught with dilution. If rates stay this low and the global economy slows, we will see M&A and bankruptcies. “We expect a marginal improvement in earnings from the third quarter but this will be too small to have any noticeable effect on industry income. We anticipate a recovery from 2017 driven by rising demand from developing Asian economies,” – Rahul Sharan, Drewry’s lead analyst for dry bulk By Parke Shall The Baltic Dry Index continues to drop with Chinese markets correcting, the global economy in question, and federal interest rate rises on the horizon. U.S. markets have led global markets in shaky trading over the last couple of weeks and many, including us, are speculating that this could be the beginning of a global slowdown in growth. The Baltic Dry Index has never seen a global recession with rates as low as they are now, and with nowhere lower to go and with oil on the rise, we think the stage could be set for some bankruptcies and dilutive offerings in the sector. It’s for this reason we suggest avoiding dry shipping altogether. Here’s the BDI over the last month, after it’s quick pop up over 1,000. (click to enlarge) It was just weeks ago when the Baltic dry Index had popped over 1,000; we came out and said not to get used to it, and that rates will continue lower again as many global economies continue to churn a little bit slower. You could see this with China’s PMI out about two or three days ago, which came in between 47 and 49. Those that follow drybulk carriers and drybulk shipping know the BDI very well. Elsewhere in the financial world, it is a semi-unknown indicator. To those that follow drybulk shipping and commodities transport (especially import/export commodities from Asia and Africa) know that the BDI is one of the key indicators as to the world’s economic view on shipping via the oceans. The index is based out of London. The simple reasoning? When there’s more demand for cross-ocean shipping of goods, rates go up. Therefore, when the price rises, productivity globally is thought to be increasing. The same goes for when rates drop, which usually signals too many carriers without enough goods to ship. Export/import shipping declines, generally seen as a signal that the global economy could once again be slowing. Our thesis now is that the BDI doesn’t have much lower it can go and the economy is shaping up to slow, not grow. With contracting demand for oil and coal and oil prices on the rise, we could be setting the stage for disaster. Look at these recent sentiments from Hellenic Shipping News , The dry bulk shipping market will remain in recession due to contracting demand for iron ore and coal, and any recovery is not expected until 2017, according to the Dry Bulk Forecaster report published by global shipping consultancy Drewry. Falling demand and oversupply has severely impacted commodity values, with iron ore and coal prices in virtual free fall. The dry bulk shipping sector has been a casualty of these developments with resultant impacts on vessel earnings. However, there is some optimism for small vessel employment, as the onset of El Nino weather conditions will increase demand in the long-haul grain trade. The depressed state of the dry bulk sector has led to doubts about the future of many shipowners and their ability to withstand prevailing market conditions. Drewry believes that the future of a number of yards and owners are at risk and further details of this analysis are available in the report. (click to enlarge) Again, we don’t feel that oil is going to head back to or under its lows again and with oil being a major expense for many dry bulk carriers, we’re wary of the effect this will have on the already dilapidated industry. It’s very difficult to recommend dry shipping stocks after the last few years that they’ve had, the questions about dilution for all of them, and the way that the global shipping market sits. We think there is a real risk of the global economy slowing down here and not only taking some you know oil and energy stocks out of their misery, but also some dry shipping carriers either being forced to merge at horrible terms, dilute heavily or go under altogether. We think investors should stay out of shipping stocks, as there’s only more bad news ahead. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.