How to invest

Old School Value Stock Portfolio Performance

Portfolio Movers

• YNGFF up 15%
• MMPIQ up 36%
• HHC up 17%
• SUNH up 18%

After a big drop last month, YNGFF has recovered somewhat. Recall that I said that the drop last month was not due to any fundamental reason. With mining stocks, many speculators and traders are involved and without news during the winter when operations have frozen over, these same speculators are the ones that continue to sell causing prices to drop.

I was never a gold bug, but from what I am seeing, gold prices will remain at these levels for quite some time, making the potential cash flow of YNGFF very attractive and undervalued at the moment.

MMPIQ was also up early in the month. Not sure what the reason for the run up was but with the fair value around $0.90, it is not time to sell yet. Thanks to Planmaestro for the work he has put into this distressed security.

HHC has been one of the best performing spinoffs, up over 65% since the spinoff. SUNH also has been doing well after the spinoff. Although investing in spin offs has become more well known, the returns are still favorable as the institutions who hold spinning off companies must adhere to their rules of selling tiny sized positions.

Overall, everything was up along with the markets in Feb.

February Transactions

Bought ARO

The decision to buy ARO was something I was sitting on for a while.

As I already briefly outlined in the best mid cap stocks article, ARO was one of the three that made it based on current valuation and fundamentals. ANF and AEO may be premium brands compared with ARO, but there is no premium over ARO in terms of operations.

The price should meet intrinsic value as the economy continues to improve.

Bought ITI

A microcap traffic management company that has been on my watchlist for a while thanks to a great write up by Value Uncovered (full analysis here).

With the 3rd quarter earnings report, ITI took a goodwill impairment which reduced EPS, but not cash. I took the chance to buy a small position on the drop. I am expecting the intrinsic value to be slightly above $2.

Sold CCME for 15% loss

Finally, the big news for Feb. I sold out of my CCME position completely.

The problem I find with CCME is that there is far too much noise. There is good work being done by individual investors, but the majority is noise, so I stopped listening to everything and stopped checking prices even on the day I sold. Luckily my sell trigger was met on the very next day when Global Hunter released their latest report.

Somebody told me that the probabilities of winning this CCME bet was too good to pass by, but that’s exactly why I sold. I do not agree with or like those probabilities.

Buffett’s 2010 annual letter also hit home the lesson.

It’s easy to identify many investment managers with great recent records. But past results, though important, do not suffice when prospective performance is being judged. How the record has been achieved is crucial, as is the manager’s understanding of – and sensitivity to – risk (which in no way should be measured by beta, the choice of too many academics).

The risk with CCME is the possibility of losing everything. The longs are saying that is not possible, but the truth is, it is possible with every investment. CCME has it worse in my opinion.

If you hold CCME, don’t let me influence your decision. That’s the last thing I want to do.

Great News

On a lighter note, my wife and I introduced a 5th child into our lives by sponsorship. Bladimir is a 5 yr old boy from Bolivia.

I will have to put Bolivia on the list of countries I need to visit. If you come from or live in Bolivia, let me know. I’ve got lots of questions to ask you

Oh if you joined recently and do not understand why I’m suddenly talking about children, read our movement page.

Facebook

Don’t forget to visit the Old School Value facebook page.

Disclosure

Long all except sold positions.

Old School Value Stock Portfolio Performance

Big events occurred in January which brought the final monthly performance down to 1.85%. Also, as you can see from the images above, I’m changing the way my performance will be presented.

Portfolio Movers

• GRVY up 20%
• BOLT up 8%
• YNGFF down 22%
• MMPIQ up 32% (now up 107% for the year)
• HHC down 8%
• CCME was up 44%, then ended Jan at 13% and now at -13%.
• TREVF up 33%
• ORVMF up 15%

January was good to many of my picks but the two big positions that make up my portfolio, YNGFF and CCME, gave up a lot of its gains from December.

New positions in TREVF and ORVMF are off to a good start.

Transactions in January

Bought YNGFF

YNGFF has taken a tumble recently as gold prices has gone down and I took the opportunity to add a little more. With winter hitting the United States, especially in Jerritt Canyon, production has essentially stopped with the machinery freezing up. Non working machinery = no new developments = no news = flat or decline in stock price.

Just short term temporary stuff.

The company has just offered warrant holders an 18% discount to the exercise price in order to raise funding for their 2011 capital budget. Here is what YNGFF proposes to do with the raised cash.

The Company requires immediate working capital to fund its business plan. Primary use of proceeds will be towards (but not limited to):

• Construction of new lined tailings storage facility as well as a secondary water storage facility to be completed before winter 2011/12,
• Upgrade to Digital Control Facility Monitoring System to improve plant operating efficiencies by replacing the current pneumatic system,
• Installation of additional quench tank and related items during the 2-week scheduled annual maintenance shutdown in May 2011,
• Complete winterization of the plant including construction of a containment building and installation of new ore drying equipment that should be protected from climatic extremes,
• Completion of remaining environmental obligations as outlined in the Consent Decree with the Nevada Division of Environmental Protection to keep our current compliance in good standing,
• Obtain underground equipment necessary to commence operations at the SSX/Steer underground gold mine and continue development of the Starvation Canyon mine.

With all this expenditure expected to occur in 2011, it may take a while longer before this investment is realized.

Sold ADBE for 20.4% gain

A simple opportunity that I managed to pull the trigger on.

I bought ADBE when the price fell 20% after management provided weak guidance. I love it when this happens because although the company and the product is rock solid, the shares collapse due to the focus on EPS and “what ifs” by Wall Street.

I calculated ADBE to be fairly valued at $32 – $33 and it’s nice to see it play out so well.

Bought TREVF

After having bought a position in YNGFF last year, I’ve been on the lookout for quality miners as I see commodities going higher.

I was alerted of such a company in the likes of a Canadian zinc junior miner called TREVF. The company has strong short term catalysts, plenty of cash, good mineral grades in the mine and low share dilution.

More details in the forum where the idea was first brought up by a regular poster.

Sold RDI

Sold half the position as I do not see this going anywhere for a long time. Felt I could use the money elsewhere.

Sold GGP

With GGP growing well over 30% of my portfolio, it was time to sell. I wanted to keep it for the fat dividend I would be entitled to, but I am not much of a dividend guy, especially with so much cash being allocated to GGP.

GGP is now 10% of the portfolio.

Bought OVRMF

ORVMF is Canadian gold miner with cash flow generation in place. With the properties they own and expansion taking place with a 3rd mine, ORVMF has great potential based on the future cash flow. The company also held more than $100m in cash at one point but has been steadily using it up for the 3rd mine and machinery.

Gravity (GRVY) News

GRVY has been going strong and is trading at NCAV value now but still very undervalued.

GRVY has just completed their close beta testing for the Ragnarok II game with positive feedback and results. Reading through the forums by gamers, it seems like the game has improved drastically and people are finding it very enjoyable to play. I personally hope that it gets to the addictive level.

Now that the closed beta testing is complete, GRVY should be addressing some more things with the game and will most likely start the Open Beta Testing around March. The Open Beta Testing will be open to everyone and this is where the servers and stability will be tested.

The first Ragnarok II never made it to this stage so this is a huge step forward.

If the schedule goes accordingly, we should see GRVY being launched mid year.

To be conservative, I expect GRVY to at least double from here.

Bolt Technology (BOLT) News

Q2 results released by BOLT showed that demand is slowly picking up again but analyzing the raw materials under inventories, demand is fairly similar to 2010.

Regarding fundamentals, I may sound like a robot whenever I talk about BOLT, but the fundamentals are superb. Transparent, clean, strong and healthy financial statement.

The big news with BOLT is that they finally announced an acquisition that I have been expecting. I am very glad to see that it looks like a very smart choice. No full details are available yet, but the acquired company targets another set niche.

Price tag of $15 reflects the current value of the company properly but with such strong fundamentals and a new acquisition, I am adjusting my valuation back to the $18 – $20 range.

Disclosure

Long all positions except ADBE.

2010 results are in and you could say I am proud to be in the same crowd as Jeremy Grantham, Bill Miller and Legg Mason for my 2010 performance… by underperforming 99% of the funds out there. It isn’t easy to get in the 1% percentile

The numbers you see are all total returns. My portfolio returns also include fees.

Thanks to the bull’s rush the last couple of months, I did achieve positive returns but was unable to beat the index this time around.

Unfortunately December ended lukewarm while the market kept its upward movement.

December Portfolio News

The new Sun Healthcare after the spinoff went on a tear before giving me the chance the add more. There have been several posts from fool.com arguing that SUNH is overvalued, which I do not agree with at all. SUNH now only makes up 2.45% of my portfolio. Hopefully there will be a chance to add more.

My top 3 holdings, GGP, GRVY and HHC were all flat in December which added to the flat results. These 3 positions alone make up 47.4% of my portfolio.

With GGP set to start distributing dividends this month, it makes holding my position worthwhile as my cost basis ensures I receive a dividend yield on cost equating to just above 11%.

GRVY will continue to be my big bet this year. The sequel to its first successful game was once again delayed throughout 2010, but 2011 looks to be the big year.

ADBE was probably the highest mover in December as the company reported quarterly revenue exceeding $1b for the first time since 1982. Again, ADBE has shown that there is nothing to be worried about Apple discriminating against flash or the threat supposed to come from HTML5.

MHH moved up considerably on news of share buybacks but I had sold out a couple of days earlier.

December Transactions

Sold INSM for a -34% loss.

A disappointing end to INSM for my portfolio. INSM ended up purchasing another small bio-pharmaceutical company by diluting itself. It brought the NNWC down from the 90c range to about 60c if I remember correctly. One of the cardinal rules of selling is when your thesis changes. Not only did the thesis change, management lost my trust. Peter Lynch was right.

“Go for a business that any idiot can run – because sooner or later, any idiot probably is going to run it.”

Sold MHH for a -15% loss.

Although MHH is a great company, my initial thesis also didn’t play out as well. I was expecting the unemployment rate to recover, even slowly, but that wasn’t to be and it does not look like the picture is getting any better.

With that I sold my position and assigned the money to other opportunities. I was unlucky that MHH announced a share buyback program a couple of days after I sold. I guess they just needed to see my sell transaction

Bought CCME.

I’ve taken a big position in  CCME. 4th largest position. I still need to write about this but there is enough information for you to learn about it if you can’t wait. Jump over to the CCME forum where there is a discussion and some links to good analysis.

2010 Overview, Reflections and Lessons Coming Soon

I spent one heck of a time updating and getting the latest 2011 stock valuation spreadsheets out and I’m sort of writing this in a daze so I’ll end it here for now. You can view a live demo of the latest spreadsheets by downloading the demo stock valuation spreadsheet directly.

I will be providing a fuller overview of 2010 and reflecting on how my investment ideas played out and what I learnt throughout the year.

Disclosure

Long all stocks except sold positions.

As catalysts played out with my positions, my portfolio  performed well in November.

Up 11.3% compared to 0.04% for the SPY fund that tracks the S&P500.

I broke back into positive territory in November and hopefully it can stay that way.

2010 performance won’t be anything impressive but I’ve taken away so many key lessons in 2010. Probably the most I ever have in a single year. I’ll post what they are when the year ends.

What Happened in November

No transactions took place in November but lots of things did happen.

General Growth Properties (GGP) and Howard Hughes Corp (HHC)

GGP finally emerged from bankruptcy and then spun off Howard Hughes Corp (HHC) which is being picked up by institutions. The main catalyst was that many funds were unable to hold GGP during bankruptcy stages. Upon emergence, analysts are back to recommending the company and the exposure throughout the bankruptcy process has helped the share price to increase.

Sun Healthcare Group (SUNH) and Sabra Healthcare REIT (SBRA)

Another completed spinoff from November. Funny thing is that the spun off child (SBRA) is much bigger than the parent (SUNH) which brings the potential for both to be good investments.

Now that SUNH is a pure healthcare play, there is the risk of medicare, but the drops in price make it a very interesting and cheap company.

I purchased SUNH before the spin off, but with the 13% drop from the spin off completion, it looks like Greenblatt was right once again about buying companies after it has been spun off. I’ll be looking to add.

Gravity (GRVY)

As expected, GRVY has announced another delay to the release of their game RO2.

From the video conference they held in October, this is what I expect the timeline to be.

• 1st Round CBT complete
• 2nd Round CBT estimated start: Dec/Jan 2011
• 2nd Round CBT estimated end: Jan/Feb 2011
• Implement and fix things from 2nd CBT
• OBT estimated start: Feb/Mar 2011
• OBT estimated end: Mar/April 2011
• add in X factors
• My estimated launch date for RO2: Mid way through 2011. About 7-8 months from now.

What I really like is the fact that a delay was announced but the stock price did not move. A sign that all the pessimism has already been built into the stock price.

With all these delays, you would expect the company to be burning cash, but not so. GRVY has been buying the rights to several games and releasing them to the US market. The latest being Dragon Saga and Freestyle.

On a personal note, I used to play Freestyle myself back in 2004-2005.

Extremely addictive with the multi-player aspect. I was disappointed when I couldn’t play it in the US but now that it is here, it looks like it becoming popular rapidly.

Retail Holdings (RHDGF)

Not long after I purchased RHDGF, the company announced that it will be selling a majority stake of its Bangladesh subsidiary which prompted a 30% jump in price.

Still worth about $25 though. Plenty of upside remaining. I’m happy to just wait.

Bolt Technology (BOLT)

Bolt has come a long way since the Gulf oil mess. Up about 53% since then and has recovered much quicker than I thought.

Fundamentals are still great and there hasn’t been any news for the price increases but if the price is right around my intrinsic value of $15ish so I will be looking to sell soon.

Disclosure

Long GGP, HHC, SUNH, SBRA, GRVY, RHDGF, BOLT

The past two months makes me want to believe that the economic recovery is looking good. Markets have consistently been rising, and so has my portfolio so I am not complaining.

I’ve put a lot of cash to work over the past 2 months. Cash made up about 35% at one point of the year, but that has been drastically reduced down to 8% by the end of October.

My Portfolio YTD and Monthly Performance Stats

The portfolio certainly has come a long way from the bottom of -20% mid way through the year.

I’m aiming to break even. It doesn’t matter whether or not I beat the market every year, as long as I don’t lose money because I know that in the long run, I will beat the market.

Transactions in Sept & Oct

Bought ADBE

Couldn’t resist buying ADBE when it dropped 20% following earnings. ADBE stock valuation and reasoning here.

Bought YNGFF

I first came across this valuable idea from Pakiya Funds. Sat on my bum taking my time while the stock was at $0.37. Now it is over $0.80 already.

I’m not an expert on precious metal producers but after reading as much as I can on the company, YNGFF is clearly cheap on a cash flow basis. Next year should be exceptional with the anticipation of production hitting estimated targets.

To learn about YNGFF begin by reading the following links.

• Drew Clark: Adding Value Through Growth
• Yukon Nevada Gold Byron Capital research report
• Yukon Nevada Gold Hallgarten Research Report
• Yukon Nevada Gold presentation

Above Average Odds has come great material as well.

• Yukon Nevada Gold (YNGFF.PK) – Still Stunningly Cheap
• Investment Analysis: Yukon Nevada Gold (YNGFF.PK)

There is also more learning material in the forum on precious metal miners.

• ORVMF Orvana Minerals

Sold BOLT

Reduced the position slightly to free up some cash. No other reason.

Bought MMPIQ

I thought I was finished with bankrupt stocks but MMPIQ looks to be a very good prospect. A very small portion of the portfolio with a floor around 25c and upside much higher.

A quick read up can be found on the MMPIQ stock analysis by AQ Value. More info on MMPIQ can be found at AQ Value.

Bought SUNH

SUNH will soon be completing its spinoff. Spinoffs are always good opportunities but I am especially eager about the spun off child Sabra. Sabra will become a standalone healthcare REIT.

Read these links (Thanks to Stock Spinoff Blog)

• Sun Healthcare Real Estate Spinoff Nears
• SUNH Spinoff press release
• SUNH Spinoff presentation
• SUNH investment presentation on Valuehuntr

Bought RDI

An investment with a catalyst.

Reading International operates movie theaters as well as own land. The company has a presence in Australia, New Zealand and USA.

Having lived in Australia for most of my life, and having been to many of Reading Cinema’s and knowing the land location of a few of its properties, RDI looks to have a big margin of safety.

Fund manager Andrew Shapiro has been following RDI for years and has plenty to say about the company on his Seeking Alpha page.

This is an opportunity based on discount to assets. People against the idea have been arguing that cinemas will die but that point is completely off track from the investment thesis.

Sold INSM

Simply needed to free up cash. INSM was one of my biggest positions but I cut it down as better ideas came along.

Bought RHDGF

Most definitely my favorite investment of the year.

Cheap on a sum of the parts valuation. Huge margin of safety. Clearly plenty of upside potential with low risk.

Read about it before Wall Street catches on.

Looks like somebody else has written about RHDGF. Good article but very similar to the linked pdf.

Sold APNC

My growth expectations were incorrect. Made a mistake and selling at a loss of about -23%.

What I’m Reading

Made to Stick: Why Some Ideas Survive and Others Die

Fantastic book on how to package your ideas in order to make it stick in the minds of people. Useful in everyday life as well as investing.

Go read it.

The link is an Amazon affiliate link. I’ll receive 50c or so for referring you. If you can’t stand the idea of me receiving 50c, still make sure you purchase it by searching the title yourself.

Disclosure

Long all positions except APNC.

Old School Value Stock Portfolio Performance

Time sure does fly. August ends with the Old School Value portfolio down -0.56% and down -14% for the year. The large cash position of 30% cushioned the fall in August while the S&P dropped -4.5%. When including cash, the equivalent performance for the S&P500 is -3.12% at the end of August 31, 2010.

August Transactions

The only transaction during August was the successful tender offer for FIS.

I originally bought 99 shares of FIS @ $27.94 which was successfully tendered at $29. The price of $29 was the low end of the possible scenarios but it still netted a gain of $101 or 3.67% over a 3 week period. Not bad for about 30 minutes of work.

No other transactions took place in August.

Gravity Co (GRVY)

The 2nd quarter results announced by GRVY on Aug 19 was nothing to get excited about. There was only a slight increase in royalties and licensing compared to the 1st quarter. Compared to the previous year, the royalties as well as subscription revenue is down with the trend looking to continue as gamers decay out of the Ragnarok cycle.

The balance statement still remains strong with plenty of cash. Although the top line shows declines in business, cash is being managed well. You tend to see lots of cash burn in micro cap companies with slowing businesses but GRVY looks to be in good hands.

Also, in case you missed the news, GRVY has just started its closed beta testing on August 31 for RO2: Legend of the Second (RO2:LotS). Remember this is where the original RO2 failed due to the horrible gameplay and server issues.

It has taken over 3 years for the company to completely redesign the game and to get back to where it is.

From this point, the closed beta tests will determine the outcome of RO2 and my decision to keep GRVY as an investment.

Here is a good interview with the CTO of Gravity on RO2:LotS and this link is of a Ragnarok blog posting feedback, gameplay and general discussions of the game itself.

Looking at valuation, GRVY is currently valued for no growth with a bleak outcome. With over 3 years of delays, I don’t blame the market for being pessimistic. However, based upon different outcomes of RO2, these are my valuations.

• Game failure: $1.20 (market wont care that GRVY NCAV is closer to $2)
• Mild success: $3-4
• Above average success: $4-5
• Huge success: $7-10

The valuation range is quite large but keep in mind that this is just a quick estimate. I’m not going to try and predict cents here. What I do know is that if GRVY even surprises by a little bit, expect liftoff.

Insmed (INSM)

INSM sure likes to take its time with taking the company forward. $125m in cash with the market cap at $93m, no debt, no operations. Still no word on the outcome for a strategic review. Makes you wonder whether there ever will be. With all the cash on hand, NNWC is $0.94. From the current price of $0.71, there is a 24% upside to reach liquidation value.

Mastech Holdings (MHH)

Worst performer YTD. Down -32.98% this year. Although the stock price has been dropping, there is still nothing that adversely changes the thesis of the investment. I still see a well managed company worth at least $6 based on 0% growth, 15% discount rate and low ball FCF figures.

What is interesting is that MHH tends to stay still while the rest of the staffing industry rise dramatically on good economic news. TBI and VOLT may be worth another look to play the employment sector.

Disclosure

Long GRVY, INSM, MHH