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December and Full Year 2010 Performance


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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 tools 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.

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21 responses to “December and Full Year 2010 Performance”

  1. Mirit says:

    Hi
    Every Investor should reach a conclusiion at some point is he should just buy basket of indexses as he cant beat the market (Like 90% of the people).
    What is the time fram you give yourself to give up?

  2. Zehua Zhou says:

    Now INSM’s NNWC is 60c? I think it is 50c as shareholders now only have 54% of ownership to this company.
    However I think it might still be worth tracking. You can buy think company at nearly the NNWC now, and get the future potential for free, if there is any future potential at all. I am not familiar with bio-pharma industry, so can anyone give a perspective on their new drugs that they just acquired?

  3. jock says:

    Jae Jun – I am fascinated with your approach, but was surprised to see your level of portfolio concentration, with 3 positions comprising 47.5% of your portfolio. With CCME as 4th largest position, what % do the top four total, if I may ask? Isn’t it risky to be so concentrated?

    Jock

  4. Jae Jun says:

    @ Mirit,
    ummm… seeing as how this is the first time I didn’t beat the index and on a compounded growth basis I am thrashing the market (i’ll detail previous performance as well) I think I still have some time left. Thanks for the concern though.

    @ Zehua,
    Yes it may be 50c. I wasn’t bothering to refer to my notes now that I’ve completely sold out. No one knows the details of the drug and what the future prospect is at the moment. More like a guessing and hoping game. All I know is that it was a horrible waste. If the company knew its shares were cheap, then why would you pay another company in shares?? Just goes to show how little they care about shareholder returns.

    @ jock,
    I won’t disclose exact position sizes but GGP is my biggest. It has grown to an enormous amount. The question for me is whether I want to sell or collect that enormous dividend. For now, I am willing to collect the dividend unless something breathtaking comes along. GRVY and HHC make up 10%. CCME is just under 10%.

  5. Zehua Zhou says:

    I don’t know how your insider buy screen comes up with ROIAK, but this one seems to be all insider sells.

  6. Zehua Zhou says:

    Well, if you are the CEO of INSM, then what would you do? If I were their CEO, I would do the same thing. Their drug is not commercialized yet, so they still need cash to support it all the way till success. If they use cash to buy that company, then they would burn out before their drug can pass phase III.

  7. Jae Jun says:

    If I was a CEO, I certainly would not pay for another company with stock if the company was trading below NNWC. I would have just used cash since that private company wasn’t that expensive.

  8. Graeme D says:

    But on the plus side, it’s named GRVY. Gravy train baby!

  9. jsarasin says:

    Gravy train baby!! Word on the street is CBT2 starts end of this month.

    http://ro2.game.gnjoy.com/news/Newboard_view.asp?seqNo=73

    I guess the above website explains it but unable to read Korean.

  10. Gil Meriken says:

    Hi Jae,

    I don’t know if you have any better access to the makers of RobotDough.

    I like their screens because they include a free cash flow parameter, but after a few uses, I notice that Free Cash Flow for the Trailing Twelve Months (TTM) is a sum of the Free Cash Flow dollars reported on each of the last four quarters’ quarterly statements!

    The problem with this is that the Cash Flow amounts reported each quarterly statement are almost always reported as a Year-to-Date amount. So if a company reports $100, $200, $300, then $400 on the 1Q, 2Q, 3Q, and 4Q Cash Flow statement for Net operating activities, RobotDough will calculate Net operating activities (TTM) as $1000. But the 4Q number is actually their YTD amount, so the correct number should be $400.

    I posted this on their blog, but comments are in moderation, and I have seen no response. I also write to you so that you are aware of this, if you are using them for any screening.

  11. Gil Meriken says:

    Oh, and additionally, as in my example if the net operating cash numbers are $100, $200, $300, $400 are for say Q2, Q3 Q4 and then Q1 of the next year, the standard way to calculate net operating cash (TTM) is to take Q1 + (q4 – Q1 of the last year), so that you have a full year’s worth.

    If its Q32010, Q42010, Q12011, Q22011, then you do Q22011 + (Q42010-Q22010)

    Again, this is because Q2, Q3, Q4, are all Year to date amounts.

  12. Zehua Zhou says:

    Well, if you pay cash, then you won’t have enough cash left to support the drug till commerciallization. Then what would you do?

  13. Jae Jun says:

    INSM was sitting on a huge pile of cash for over a year without doing anything. From the looks of it, their strategic alternative wasn’t even effective. Looks like they just paid a bunch of lawyers money to sit around.

    There was plenty of opportunity to sell itself once or look for another buyer willing to buy their current IP on Iplex, but they haven’t done anything with it and it looks like it will just be wasted.

  14. Graeme D says:

    @jsarasin There’s got to be an index that tracks humorously named ticker symbols. A portfolio of those guys would probably do just as well as your average dump-and-chase mutual fund manager! 🙂

  15. jsarasin says:

    @Graeme D

    Very well said on the dump-and-chase mutual fund managers!

  16. Jason says:

    @Mirit
    Investing is a life time venture and performance vs the indexes (or indices) should thus be measured over significant intervals of time. To say nothing of the fact that Jae’s performance annualized is well above that of the S&P500. It is rather foolish to conclude that the best way to invest is to buy the basket index (e.g. S&P500 ETFs) when clearly there are better deals out there. Perhaps when the entire index “trades” at a Shiller 10-year adjusted P/E of <15 (I would prefer <10) value investors may see the opportunity in buying the index.
    Furthermore when one invests in a large index he is actually making a bet on the macroeconomic factors surrounding the market. In fact, this leads the index investor to make either one of two choices: 1) time the market in order to enter at favourable prices (remember entry price dictates future returns!) or 2) buy continuously at a regular interval regardless of market levels. I guarantee you that the individual investor will fail at #1 and thus underperform the very indices he is trying to time. As for #2, this guarantees that the long-term performance of the investor will match that of the index closely (minus fees/taxes). Given that over long time periods, the return on the S&P500 compounded is ~10% (as per Vitaliy's research in the Active Value Investor), I am sure value investors will be able to "beat the market" so long as they are disciplined and experienced.
    Lastly, we should not overlook the fact that indices badly lag any form of informed investing in range-bound markets as identified by Vitaliy. In fact, the value investor's ability to spot irrational exuberance and unjustified gloom in the market during cyclical market periods allows them to handily beat the indices. Usually at the end of these range-bound markets, the PE ratios are contracted to more palatable levels, allowing value investors to buy in and ride the PE expansion upward in a secular bull market.
    Remember that value investing is about pricing the stock, not timing the market. We do not see the market as some giant piggy bank ready to reward us our retirement, nor a bank account one regularly puts money into. To us stocks are like agreements with the issuing company, an agreement that states that for our participation in funding their business endeavors they will pay us in return with earnings and dividends.
    I believe Mirit's views are ill-informed and reflect the off-the-cuff attitude the general public has towards investors and stocks in general. They believe anything but stashing money towards regular purchases of indices to be a waste of time and money. However, they do not realize that a passive – i.e. no thought required – approach to buying securities is in effect riskier ("markets always go up", "there's no bad time to buy" were the mantras of the tech and housing bubbles). Then again perhaps this approach is rather suited for someone who misspells "conclusion", "frame" and "indexes".

    Rant finished.

  17. Gil Meriken says:

    @Jason – Agreed. It’s hard to convince people that the market is not “gambling” and it’s not random – there are businesses behind those stocks. The most cynical think that the only way to make a buck is to have insider information. Sure, in the short term, there may be a psychological element moving the markets, but in the long run, it’s always about the fundamental financial success of the company. And you can sometimes see a real variance between the market value and what you calculate as the true value of a company, and that’s where you can take advantage of the markets. They are not always perfectly priced.

    The newest irritating concept is that “real estate will go up sometime, even if it takes 10 years”. Really? Who’s to say it won’t stay flat for the next 20 years? You need a crystal ball to predict that sort of thing. But for an individual company, all you need is their financial statement to get a rough idea of how much they’re worth.

  18. Graeme D says:

    @Jason, I more or less agree with you and I think @mirit’s comment is at best snarky (and at worst, totally missing the forest for the trees. Jae is, as we know from following him, thrashing the market overall) but I think Ben Graham would disagree with you. He devotes an entire chapter in Intelligent Investor to what he calls “defensive” investors which are analogous to guys monthly putting money into index funds. And he also says that this is a perfectly ok alternative if you don’t have a lot of time to do it right (which, I assume, if we are here and reading this stuff we do. And especially with the tools we have these days, it’s super easy.)

    Do you think Ben Graham would now say that there is no excuse to do index funds anymore? That all of the info you need to be a good Value Investor is so readily available and that the “no time” argument is no longer valid?

  19. Jason says:

    @ Graeme D

    You’re right Graham did say that, and I don’t disagree with his premise – those who don’t wish to spend much time on investing activities should not be picking stocks for himself. Though I believe that due to the information now available to the individual investor it has become easier for him to take the role of the active or “adventurous” investor as Graham put it.
    My comment was in no way meant to deride those who simply do not have the time to analyze companies – or those who choose to spend their time in other ways.
    I don’t think Graham would say there’s no longer a point in investing into index funds. Indeed no matter how good tools become, one must still take the time to learn how to use them effectively in order to experience their benefits. Thus if one simply wishes to have the market as a very long term savings tool (with a multi-decade time frame) then I believe it is more than adequate to regularly buy index funds – certainly beats the heck out of keeping it in a savings account!

  20. jock says:

    jae jun –

    GGP is huge in your portfolio, but doesn’t seem dangerous to continue to hold from a chart perspective. (I know you’re not a believer!) It has been largely flat (in a well-defined trading range) for the last 10 months.

    After such consolidation, it could well challenge previous highs: initially 17, then 24.5. If fundamentals are strengthening, perhaps yet more reason to believe that a breakout to highs is more likely than a breakdown.

    FWIW. – BTW, sounds as if something around 10% is your normal “large position” and I think if they’re stocks you know and follow closely from a fundamental perspective, that’s pretty safe.

  21. Jae Jun says:

    @ Gil,
    Forgot to answer your comment. Sorry!
    I do appreciate you mentioning how screeners tend to sum up the past 4 quaters in cash flow because you are right. It isn’t correct.
    I made the same mistake in my own spreadsheets and am trying to find a way to get around it. It’s very hard to fix for automated systems.

    @ Graeme, Jason
    All I can say is that I’m skeptical of the market at the moment. I’m not sitting out just yet because there are still opportunities that exist.
    It’s times like this where I’m trying to expand my circle of competence to areas where people are afraid of.

    I’ve stopped diving into bankrupt stocks at the moment. Just don’t have the time to learn everything, but what I am trying to learn in more detail is related to mining stocks.

    Not many people know how to analyze it and better yet, a majority of mining stock companies exist outside of USA which makes it even harder for the regular layman to analyze.

    @jock,
    Yes you are right that GGP was huge in my portfolio but I JUST sold more than 1/2 of it yesterday. I slept perfectly well with such a big position and although I wanted that juicy dividend, the upside potential was limited. I’m also happy to sit in cash in this current market and just wait.

    My problem last year was that I was trying too hard. That wont be happening anymore.

    And yes, my big positions are 10%. Then if I’m right, I can let it grow to 30% 🙂
    But these are companies where I view the downside is so limited that only direction left is up.

    Very keen eye you’ve got.

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