Portfolio Update Sep 2009


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Old School Value Stock Portfolio Performance

osv-performance-2009sep

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Portfolio Performance

Another successful month. The Old School Value portfolio was up 13.67% compared to the market’s 3.57%.

September 27 also marks the 2 year anniversary of this portfolio since its inception in Sep 27, 2007. Considering that the portfolio was started at the peak of the market, I’m happy with the absolute return of 30.49% over the 2 year period. But the numbers are misleading at the moment because the first year I was down 30% while this year, up 140% YTD.

An annualized absolute return rate of 15% per annum is what I originally aimed for but as I moved into smaller and micro stocks this year, I’m expecting my new goal to be higher than the 15%.

Portfolio Movers

So let me review what zigged and zagged.

Since I don’t really understand the process of analyzing commodities, Atwood Oceanics (ATW) is the closest I’ll get to the oil industry. Moved up nicely in September as oil prices start to slowly climb. I’m hoping to sell when it reaches close to my intrinsic target of $40.

ATW was also one of the first companies I bought so I’m still negative 10% of so and it’s a shame I never doubled down on ATW or most of the first stocks I purchased.

K-Tron (KTII) also makes up a healthy part of my portfolio and it too went up nicely. Planning to sell if it reaches around $110. The company is still great and the fundamentals remain excellent.

iGo Inc (IGOI) jumped up dramatically this month after announcing their plans to sell netbook chargers in Verizon wireless stores. As an owner of a netbook, I know how popular these little computers are. Ken from Compounding Life wrote some good thoughts on why he sold though.

The current price is much higher than the liquidation value and my intrinsic value estimate is set at $1.50 but considering all things, I think selling would be the wise choice. I’ve got my sell order in, but we’ll see whether it gets filled this month.

GGWPQ has risen to this highest levels since Ch 11 and I still hold knowing that the value of assets will be there, the company will not be liquidated and they should be getting out of bankruptcy faster than initially thought.

My mix of radio stocks continue to do extremely well. SALM went down a fair amount but I am still up 85%. ETM is slowly and steadily rising at 52% while ROIAK has been on a tear all the way up to 186%. Comments on radio stocks are in the forum.

I still see lots of ugly, cheap media stocks abused by Wall Street and contemplating whether to increase positions or buy new positions.

So overall, I don’t see what the fuss is all about regarding the “month of September”.

OCTOBER: This is one of the peculiarly dangerous months to speculate in stocks in. The other are July, January, September, April, November, May, March, June, December, August, and February. – Mark Twain

Specific Commentary for VVTV

VVTV is always a wildly volatile one. I’ve been watching A LOT of home shopping in the evenings and weekends to see how the product mix, presentation, customer feedback etc are improving. While I definitely see improvements compared to a few months back, the company still falls behind HSN (HSNI) and QVC (LINTA).

If there is one mistake I made, it’s not having bought HSN since the spinoff from Interactive Corp. I kept watching it drop drop and drop and tried to time my entry point and before I knew it, I kept missing out and my bias had me waiting until it dropped again, which never happened.

The reason why I mention this is because I’ve been watching all 3 different channels, and even watched several skin care products presented on HSN sell out one after the after. In particular a new product to HSN sold over 10,000 products within an hour and sold 103,000 in 4 days.

Just a couple of days ago, this type of news reaches an analyst and he/she upgraded HSN. So the Peter Lynch style of scuttlebutt does wonders and you can know it before the market does.

Bringing it back to   VVTV, some people are extremely blinded with optimism. Even I find some of the stuff people are saying about VVTV ridiculous. But in the grand scheme of things, when I see VVTV on TV, it is business as usual. They won’t be going bankrupt anytime soon and with the introduction of new products, vendors and hosts, my feeling is that they should do well in the coming quarter. (A good interview from HSN CEO)

That said, I still plan to sell if it breaks $4. Missed my chance in September trying to time the top.. Something I try to do far too often.

Portfolio Trades

Didn’t have much time for stock analysis this month. Too busy with stock spreadsheet updates and other endeavors, but still several trades occurred.

1. Bought Insmed (INSM) @ $0.86

I wrote about it previously because INSM is a cheap value stock and also a pure Benjamin Graham net net stock after running it through the spreadsheet.

2. Sold Zareba Systems (ZRBA) @ $4.00 for a 1.32% gain

I wrote about this where I went over going private transactions. Although things looked good, management decided to cancel the going private deal. Funny thing was the stock didn’t drop but jumped up on the news. With all previous deals I’ve seen, the obvious path was a drop in the stock price, but prices went up as speculation about a new and better deal rose.

Don’t mind so much that I missed out on an easy 30% as I stuck to my discipline in this area.

3. Bought Servotronics (SVT) @ $7.60

A reader requested what I thought about SVT and on first glance it looked cheap and ok, but after some more reading and checking the numbers it turns out that the finished goods in inventory have been dropped by a good rate while there has been an increase in raw materials and works in progress.

So the inventory analysis showed that the company is either

  1. getting ready to ship out a large order
  2. has products are in demand
  3. or stocking up on raw materials while commodities are cheap

My analysis shows it to be 1 or 2 which explains why the market was surprised at its recent rise in profits.

With a big dependence on one customer, there is a risk that their revenues could plummet but read the reports and go through some numbers and it doesn’t seem like the risk is that high.

Cash position has increased to 24%.

What Else?

The latest version of the stock value calculator spreadsheet has been sent out to all premium buyers. That was a major project but well worth the effort as it now models the Earnings Power Value valuation method.

I also hope to start some fundamental analysis and accounting series based off Quality of Earnings. A splendid book on analyzing the income statement. I’ve always focused on the balance sheet and cash flow statement but a thorough analysis of the income statement reveals some very interesting things. The book contains some real eye openers.

Disclosure

I hold all stocks mentioned except sold positions.

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21 responses to “Portfolio Update Sep 2009”

  1. George says:

    Nice! Thank you for sharing your experience with your portfolio. I wish more value bloggers would do the same.
    .-= George´s last blog ..Special Situations Real Money Portfolio September 2009 Update =-.

  2. advalorem says:

    Jae, thanks. Great results.

  3. mark feldman says:

    two things:

    1) congrats — you are doing super work here — and sharing it on the web is just such a fantastic thing. I’m learning a lot. I really enjoy being a value investor… I just don’t have the skills yet but reading/following along with you has been educational

    2) It’s more impressive that you were down -30% at one point in March… I was wondering how you were feeling at that point… were you concerned? It’s tough to hold through corrections, especially for less experienced investors. It’s such a testament to value investing to live through such negative times and come out so far ahead — trading so much less than the average ‘daytrader’ and beating the pants off the market.

    Thanks for sharing.

  4. Jae Jun says:

    @ George,
    I noticed that these monthly updates allow me to review my process, decisions and ways to improve. I first thought it would just be focusing on results but I think its good to put it all out there.

    @ advalorem,
    Thanks

    @ mark feldman,
    1. Thanks. Value investing is seriously the most exciting and fulfilling type of investing I believe. It feels good when you see all the hard work you put in pay off.

    2. That -30% early in the year sure stung but it didn’t bother me too much. This was after the first year loss of -30% as well so all up, I was down quite a bit.
    But at that point in time, I was just so busy going through company after company that I wasn’t aware of being down 30%. Turned out to be a good thing because I kept buying and buying until I was 100% invested. Then the market turned and things worked out even better.

    1 step back, 10 steps forward 🙂

  5. Ken says:

    With regards to VVTV, I don’t have cable so I don’t get to watch it all that often. But when I am at a hotel or someone’s house where cable is available I try to check in on the programming. From what I have seen VVTV is almost depressing in comparison to the other channels 🙂 I still hold the stock though. One thing that stuck out in my mind is the few times I watched I have never heard a customer call in for a testimonial or to talk about the products. Which seems to happen a bit more often on the channels.
    .-= Ken´s last blog ..IGOI: Should I stay or should IGO? =-.

  6. Jae Jun says:

    Yea VVTV don’t get as many on air testimonials compared to HSN or QVC. I think it’s partly due to their target audience. I don’t think the “upper class” will spend as much time gushing over how pleased they are on air compared to the average joe.

  7. Mark says:

    Nice work. Seems like you have a good framework going. I hope it keeps going well for you.

    Do you have any strict exit criteria for making sure you sell into an overvalued market? -nevermind i saw you have a target on KTII

    A lot of newspaper media companies look like a value trap to me. Partly the bad balance sheets but more so the industry loosing to free internet. It’s really a shame though because if media can’t pay quality reporters the quality of reporting will go down and all we will be left with is blogger opinions. I guess unless they put in effort.
    .-= Mark´s last blog ..Chinese Agriculture Stocks & More =-.

  8. Mark says:

    “My mix of radio stocks continue to do extremely well. SALM went down a fair amount but I am still up 85%. ETM is slowly and steadily rising at 52% while ROIAK has been on a tear all the way up to 186%. ”

    Why not take a nice gain in SALM? Move capital into more undervalued positions? Especially if 2010 is negative there will be few big gainers to be had and the ones your up in will fall. I think ETM and ROIAK will have more run.
    .-= Mark´s last blog ..Chinese Agriculture Stocks & More =-.

  9. Jason says:

    Nice results Jae. Currently, IGOI (9%) is receiving a nice bump from a post made by Todd Sullivan at valueplays.net.

    My question would be how big is one of your positions relative to the overall portfolio? I know stocks like INSM only are 2% of your profile since you’re using it as a learning experience, but are your other positions more concentrated? ( i.e. 5% – 10% of the total portfolio?)

  10. Jae Jun says:

    Only reason for not taking gains is because I know it’s still too cheap to sell. Not worried by fluctuations. Prefer to sell when it reaches my intrinsic value rather than sell out early.

  11. Vince P says:

    Check out ROIAK today, Mark I’m impressed your prediction happened so quickly haha.

  12. Mark says:

    @ Vince

    my magic 8 ball is working pretty well I guess. ; ) I’m not that great. SALM popped 12% today so i could end up being wrong that it will be hard for it to break over 3.50.
    .-= Mark´s last blog ..Follow Up On Stock List =-.

  13. Mark says:

    I’d actually maybe go with Jae’s price target over that resistance on SALM. Jae is really good at this stuff. Jae just gets better and better at seeing the same things deep value money managers are seeing.
    .-= Mark´s last blog ..Follow Up On Stock List =-.

  14. Jae Jun says:

    @ Jason,

    Thanks.

    I actually sold IGOI today. I don’t think it’s worth more than $1.50 and I believe Todd may be a little too late for the game.
    IGOI has to get some real good numbers and show a turnaround for the price to move from current levels I believe.

    Even with net net’s I usually start with 4-5% if possible and build my way up to 10% depending on how I see the potential of the investment.

    With my 3 radio stocks, I put a total of 10% for the 3 stocks. I couldn’t make up my mind but I knew all of them were cheap so I plunked down 10%. It’s grown over 20% now but I’m perfectly fine with that.

    MHH I bought about 5% then increased it to 7% and it’s gone up to about 12-14%.

    So yes, my major picks are more concentrated. VVTV alone still makes up 20%.

  15. Jae Jun says:

    @ Mark

    I think your prediction made ROIAK the top mover today 🙂
    I wouldn’t mind more of that.

  16. valueplay says:

    New to your site….like what i see. Do you have a breakdown of current holdings available and do you post moves as you make them or just at the end of the month as an update.
    thanks

  17. MG says:

    Any comments on MHH?

  18. Jae Jun says:

    @valueplay
    Welcome. We’ve got a bright community with plenty of ideas feeding eachother.
    My current holdings you can view off covestor. I just don’t list it here or inform everyone every single move I make.
    If you know where I’m at, I’ve made it easy to see but otherwise, I won’t publicly announce everything.
    http://www.covestor.com/mbr/jjun0366

  19. Jae Jun says:

    @MG
    You mean just in general?
    Nothing new with MHH. The unexpected rise in unemployment hasn’t really changed the game on MHH. They should still be surviving and going about their business as usual.

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