2013 – A Game of Two Halves

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AIM stocks, Alternative Asset Opportunities, Asta Funding, benchmarking, correlation, fear and greed, hedge funds, home bias investing, KWG Kommunale Wohnen, Petroneft Resources, portfolio allocation, portfolio performance, Richland Resources, Saga Furs, Tetragon Financial Group, Titanium Asset Management, US Oil & Gas

Yup, it’s that time of year again… [For reference, here’s my mid-year 2013 performance report, plus my FY-2012 report]. Right off the bat, I have to admit assessing annual performance isn’t my most favourite of activities (as I’ll explain). It also reminds me how easily our (personal) fear & greed equation can magically transform itself as we finish an old year & head into a new one. While most traders tend to start a new year cautiously, investors often set out brimming with over-confidence – which can prove pretty hazardous…

The UK’s AIM market, for example, has enjoyed significantly positive returns in 14 of its last 18 Januaries. This annual love-fest is even more remarkable when you realize the AIM index has declined 17% since its 1995 inception. [Growth and value investors, take note!] My favourite muppets provide a more ludicrous example: Shareholders of US Oil & Gas (USOP:G4) (I’m presuming no new suckers are buying at this point) hailed the new year by immediately buying/running up the price 60% from its yr-end close! Sure, hope springs eternal…but with most USOP investors having lost 95%+ of their investment to date, this kind of new year exuberance is wildly irrational.

Thinking about & tracking your stocks (& portfolio) on some kind of calendar basis is yet another fixated version of tracking individual stock gains/losses. And that’s how fear & greed grabs hold & encourages you to play the ‘if…‘ game. I’ve already recommended you Forget Your Purchase Price – now I recommend forgetting your Year-to-Date Gains. Free yourself of those deadly anchors, and you’ll be forced instead to look afresh at your holdings every single day. For each stock, that’s an exercise in assessing upside potential (i.e. current share price vs. your latest estimate of intrinsic value), and then weighing that reward against the level & range of risk(s) involved. Which boils down to one simple question for each of your portfolio holdings:  Should I buy, sell or hold this stock today? And your cumulative or calendar gains/losses on a stock are irrelevant to that question – no matter how small, large or goddamn painful they might be…

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Hitting The Century (X – Distressed)

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asset allocation, Asta Funding, ATM fees, Colony Financial, corporate-media-retail complex, correlation, credit card debt, debt collectors, distressed assets, distressed consumers, distressed investing, Fortress Investment Group, hire purchase, pawn stores, payday loans, pre-paid debit cards, Rent-A-Center, rent-to-own, Sex and the City, student loans, stupidity, Tetragon Financial Group, unbanked, vice stocks

Continued from here.

Remember this series? Yep, I’m spending an unconscionable amount of time getting through it. FFS, I started last June, promising a closer look at my portfolio construction, allocation & metrics. [‘Hitting The Century‘ as it was my 100th post. And ‘Pretty Panties‘ because I was so bemused by the prior response to the phrase]. Instead, you get a bloody epic – like The Hobbit. Oh well, blog rules…how ’bout I try finish by next June?! 🙂

Honestly, I expected it to turn out like this. But I’m delighted at the great reader response – I guess I’ve been trying (ad nauseam) to pound the message home that portfolio construction/asset allocation is just as important as stock-picking. [Studies suggesting asset allocation accounts for 90% of returns have been debunked, but more recent studies certainly confirm an average/minimum 50% of returns are derived from this source]. Unfortunately, this is forgotten/ignored by a lot of investors, even great stock-pickers… Admittedly, they may (occasionally) practice some kind of ex-post allocation – better than nothing, but an ex-ante approach is vital if you really want to end up with a safer, more diversified & higher return portfolio.

OK, let’s trot on – here’s a familiar pie-chart as a quick reminder (sure, it’s a little out of date – but have you noticed my portfolio turnover?!):

Heading Into 2013…

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Alternative Asset Opportunities, Argo Group, Asta Funding, Avangardco, correlation, EIIB, FBD Holdings, Fortress Investment Group, JPMorgan Russian Securities, KWG Kommunale Wohnen, Livermore Investments, Margin of Safety, Petroneft Resources, portfolio allocation, portfolio performance, Richland Resources, shareholder activism, Sirius Real Estate, Total Produce, Trinity Biotech, Universe Group, Vietnam Opportunity Fund

There was a gratifyingly large surge of page views yesterday checking in on my 2012 Portfolio Performance! I’m suitably humbled by the attention – gulp, makes me wonder what challenges 2013 will throw up?! Hopefully the blog’s sparked a few decent ideas & stock picks for you in the last year or so, and you’re pleased with the progress of your own portfolio in 2012. It’s certainly been rewarding for me – most obviously in terms of improving my investment focus & analysis, but also in terms of the constant stream of questions, challenges, feedback, gossip, ideas, etc. from blog readers.

As a result, I now feel somewhat honour-bound to cough up some kind of 2013 Portfolio. I should immediately flag that some of you may find this a bit of a cop-out… 😦 But, in my defence, let me say:

– The start of a new year really means little to me, I don’t suddenly discover I have whole new batches of stocks to buy & sell!

– I rarely write about stocks I don’t own. This is pretty deliberate – my intention was never to simply fill up blank space with an idea each day/each week. I think people can really only judge your level of analysis & conviction against whether you actually own a stock – and, of course, by how much stock you own!

– I also don’t write about stocks I track, or discard, very much. First, mostly because they’re far too numerous! Second, I’m not sure I’d always manage a proper (in-depth) write-up about such stock(s). And third, I’ve sometimes tracked stocks every single day for literally years on end before buying – how often do you want to hear about them?!

Xmas Trimmings, etc.

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ASFI, Asta Funding, BIW, CLNY, Colony Financial, Conwert, correlation, CWI, distressed assets, FIG, financial crisis, Fortress Investment Group, intrinsic value, Karl Ehlerding, KWG Kommunale Wohnen, Leverage, majority control, Merry Xmas, Price/Book, Stavros Efremidis, TRIB, Trinity Biotech

Asta Funding (ASFI:US) $9.37:   I’ve marginally trimmed my stake from 3.8% to 3.6% – consider this to be purely risk ‘house-keeping‘. This realizes a +22% gain vs. my write-up price on this small slice, and a +31% gain vs. my actual net entry price (which inc. the impact of dividends). I never got around to an Asta follow-up, as the share price (& NAV) just steadily chugged higher. Despite the rising share price, I’ve been bemused (even encouraged) by the general air of neglect still attached to this stock. Even ASFI shareholders have expressed a distinct lack of enthusiasm for the company’s progress in the past year! This is particularly in reaction to the company’s diversification into personal injury & divorce financing. Which puzzles me…

I’d counter this distaste in a number of ways: i) This new direction was prompted by Asta’s reluctance to pay up to acquire new distressed consumer receivable portfolios*. Personally, I’m delighted – how often do you see management take an absolute, rather than a relative, approach to value? [Picking up distressed debt at 9 cts on the dollar, while everybody else pays 10 cts, doesn’t mean you’ve bagged an actual bargain!] And to resist pissing away idle cash burning a hole in their pockets is quite admirable too. Of course, returning capital (via share buybacks) is a great alternative – Asta’s pursued this to a limited degree during the year. However, considering current metrics, I consider the short term return/attraction of a buyback is fairly even balanced against the potentially higher returns on offer from a (gradual) investment of their cash into distressed assets.

Correlation…Schmorrelation!

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activist investors, agri-business, Asta Funding, beta, catalyst, Colony Financial, correlation, distressed assets, Europe, Event Driven, favourite stock, Fortress Investment Group, litigation funding, Margin of Safety, reading, Risk Arbitrage, risk management, stock ideas, umbrellas & ice cream, value investing, wind-down

Monday, I re-posted my appeal for your fave stock ideas, which was originally prompted by the dog days of summer. Those months when trading volume & news slows down, and you’re off for a relaxing holiday, are a perfect time to open your mind & embrace new ideas. Take along some good books for their historical perspective, magazines to dip into the current market/economy buzz, and (most importantly) stacks & stacks of annual reports. And just read, read, read..!

Personally, my focus over the summer’s been on correlation. Some investors are great at stock-picking, risk management & portfolio construction, while others are abysmal..! But, all too often, there’s precious little difference in respective performance. Because we’re all terribly correlated with the market, and with the economy – yep, we’re all making pretty much the same big bet! A preference for discounted assets, special situations & stocks with specific catalysts is my attempt to escape this correlation risk. Medium-longer term, I think this approach offers a genuine ‘edge‘ via lower beta stocks. Trouble is, shorter term, market correlation (especially in market setbacks) can simply trounce all other factors…

Happy New Year! – A (Baker’s) Dozen for 2012

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Argo Group, Asta Funding, Avangardco, Colony Financial, Cresud, Dhir India, EIIB, FBD Holdings, Livermore Investments, pdosullivan, Petroneft Resources, Sirius Real Estate, Total Produce, Trinity Biotech, Vietnam Opportunity Fund

Philip O’Sullivan kicked us all off here with his list of picks for 2012, and so far I’ve seen John Kingham and Mark Carter join in with their contributions here. Note John can only win half of the (non-existent!) prize since he came up with 2 lists…

I struggled with the idea a little myself – I’d far prefer to write 1,200 words about 1 stock than to write 1 list, haha! I also dread seeing shoot-for-the-moon lists (congrats so far, chaps) stuffed full of triple leverage ETFs and penny dreadfuls – not much use to any of us in the real world.

2011 Stock Recommendations & Performance

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Argo Group, Asta Funding, Colony Financial, Cresud, Dhir India, EIIB, Fair Value, portfolio performance, purchasing power, Sirius Real Estate, Total Produce, Trinity Biotech

I’m sure you’ve noticed I’m not shy about setting Fair Value Price Targets for recommended stocks. I don’t see a lot of people out there doing this – pretty obvious why…I’m sure someone will be sure to point out how precisely wrong I’ve been when I come up with a few duds! Ouch!

But, in an ideal world, the best way I’d evaluate any recommendation from a website or blog is to know the writer’s price target and portfolio stake. Ownership demonstrates their conviction, the size of their stake confirms the strength of this conviction, and their price target allows the reader to perform their own risk/reward evaluation. What are your own thoughts? Do you agree whole-heartedly, partially, or do you think this approach is a danger or a hindrance in some way?

Asta Funding – Buying Debt for Cents on the Dollar

Tags

Asset Acceptance Capital, Asta Funding, distressed assets, Encore Capital, Ex-Cash Ratios, Margin of Safety, Owner-Operator, Portfolio Recovery Associates, value investing

Asta Funding, Inc. (ASFI:US)

• Mkt Price:  $7.65
• Mkt Cap:  $112.0 mio
• P/E:  10.8
• P/C:  1.02
• P/B:   0.65   

Asta Funding’s a NJ based company which purchases, services and collects on charged-off, semi-performing and performing consumer receivables. This strategy offers attractive growth prospects, driven by increasing levels of consumer debt, defaults and use of third party collection agencies. As they say: ‘Never count out the American consumer’. Of course, one can also count on the US consumer to rack up and default on ever increasing amounts of debt! I was shocked to see, especially in the current environment, that Black Friday was the largest ever. But then again, the US savings rate is collapsing again, after a brief recession-induced spike to 8% in 2008. Longer term, this puny savings rate doesn’t bode well for the US. Globally, most countries have a savings rate that’s a multiple of the US rate…