Mid-Year 2013 – Performance Update

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Alternative Asset Opportunities, Avangardco, checklists, CLOs, correlation, European Islamic Investment Bank, FBD Holdings, Fortress Investment Group, German property, home bias investing, KWG Kommunale Wohnen, Petroneft Resources, portfolio allocation, portfolio performance, quantitative easing, Richland Resources, risk aversion, Sirius Real Estate, Tetragon Financial Group

I remain (somewhat) uncomfortable with performance reviews. Inevitably, they produce a pretty meaningless snapshot…but we just can’t help ourselves, eh? 😉 [I covered this whole topic in greater depth here, in my 2012 Performance Review, so that may be worth another look]. OK, once more unto the breach, dear friends, once more…

Let’s first check how the indices performed in H1-2013:

The performance of Ireland & the UK nicely supports my theory that the northern periphery (inc. Scandinavia – lots of interesting stocks there right now) offers some of the best (& lower-risk) plays on Europe. Then we have the US, which continues to demonstrate how much further along it is (vs. Europe) in the cycle – as Bernanke reminded the market recently, to its (feigned?) consternation! [And to the genuine consternation of the ECB & BoE – oh boy, there’s going to be plenty of playing chicken, on all sides, in the months & year to come]. I’m profoundly suspicious of the US market now – it’s not that rising bond yields can cause much damage, they’ll obviously remain low in absolute terms for a v long time. But the market’s a discounting machine – when buying stocks gets easy & the economic outlook starts to look rosy for the average investor, that’s when things turn dangerous: Because how much of that’s already been priced in? Too many times, this scenario leaves you at break-even for a couple of years (if you’re lucky), or much worse…

And if you think this time is different – well, I actually agree, but not in a good way! There’s no free lunch – you can’t just print your way to prosperity & expect to escape scot-free, there are always (unpredictable) consequences. So, has that been priced in also..?

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Catalysts – A Summary (Part II of II)

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activist investors, Argo Group, Avangardco, binary outcomes, Carl Icahn, catalyst, Daniel Loeb, Expected Value, government regulation, Herbalife, IRR, junk bonds, litigation, major sale, NAV discount, Risk Arbitrage, Robert Chapman, share buyback, shareholder activism

Continued from here.

iv) Activist Investors are my next catalyst. Obviously, there’s no specific timetable here, but since most activists are performance-driven hedge funds, a 6 mth to 2 yr timeline is reasonable. Activists in the UK usually target asset discounts & realizations (so investment trusts/companies are ideal), while European/US activists are perhaps more biased towards operational change (which may require a longer investment horizon).

Most activists prefer to agitate for change behind the scenes, but some prefer to be more public: Carl Icahn (I read King Icahn at least once a year) is the king of the activists – he’s 77 now, but is more of top of his game today than he was 30 yrs ago! Other notorious activists (& 13D filers) are Dan Loeb of Third Point (and here, though he claims he’s mellowed now!) & Robert Chapman, who (presumably!?) introduced the first ‘fuck‘ in an SEC filing. More in-depth reading material includes ‘Risk Arbitrage‘ by Wyser-Pratte, ‘Extreme Value Hedging‘ by Orol, and certain chapters of ‘Free Capital‘ by Guy Thomas.

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?!

2012 – Aaah, How Was It For You..?

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alternative assets, Argentina, Argo Group, Avangardco, Baker's Dozen, diversification, dividend yield, EIIB, frontier markets, hedge funds, home bias investing, Irish shares, JPMorgan Russian Securities, NAV discount, Petroneft Resources, portfolio allocation, portfolio performance, Renaissance Russia Infrastructure Equities, Richland Resources, Russia, Sirius Real Estate

[Here’s my last performance report, for reference].

OK, just in time, my performance analysis got a bit more sophisticated. It now includes dividends, and is calculated on a weighted average gain basis, so now the impact of larger & smaller portfolio stakes is recognized. I think I’ve tracked any increase/decrease in portfolio holdings pretty well during the year, via Twitter (so plse sign up as a follower!) & blog comments. [No point in having interested readers if I don’t post such relevant info on a timely basis]. This allowed me to calculate an average portfolio stake for each holding, which I think is the best metric to use.

I did, however, stick with my original yr-end 2011 or 2012 write-up prices as a cost base – I didn’t want to drive myself crazy calculating average net purchase prices! However, I know I’ve subsequently added to portfolio holdings at higher & lower prices, so I think that pretty much cancels itself out. It also means I’ve omitted partial profits harvested on certain holdings, so my total return may be marginally understated.

Overall, eyeballing my respective analyses, dividends & portfolio weightings have in total (on a pretty even split) added about 2-3% to my annual return. The pretty low contribution from dividends may surprise you, but don’t forget I’m none too enamoured with them… See here, here & here. As far as I’m concerned, if you’re impressed enough with a stock’s valuation & prospects to actually buy it, surely you’d prefer to see it compound its earnings?! Only a third of my holdings pay a dividend.

Hitting The Century (VIII – Agriculture)

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agri-business, agriculture, Aqua Bounty Technologies, aquaculture, Asian Citrus Holdings, Avangardco, Black Earth Farming, Cal-Maine Foods, Canada, chickens, Cresud, eggs, ETFs, farmland, fish, forestry, free cash flow, inflation, livestock, plantations, portfolio allocation, real assets, Russia, timber, Ukraine

Continued from here. This series fell by the wayside since September, as I focused on a flurry of posts covering performance, a little shareholder activism, and some pretty exciting new stock buys/write-ups. Oh, and some bubble bursting..! 😉 As a reminder: i) Asset allocation plays a far greater role in returns than perhaps we like to think – in this series I thought I’d try illuminate some of the logic behind my own portfolio allocation & stock selection, rather than individual stock picks, and ii) this portfolio allocation pie-chart might prove handy:

The prior Century post & Inflation post are v relevant too: They highlight why I believe inflation won’t prove an issue in the near/medium term, and how to prioritize the choice of real assets (property, natural resources, agri) as inflation pure plays. My expectation of delayed inflation, despite QE Infinity, has choked back my real asset allocation. Also, I consider many of my real asset holdings more special situations, than inflation plays.

A Letter to Avangardco (AVGR:LN)

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accretion, activist investors, Avangardco, Cal-Maine Foods, corporate governance, eggs, enhanced EPS/NAV, free cash flow, intrinsic value, Iryna Marchenko, lowest cost producer, M&A, majority control, minorities, Nataliya Vasylyuk, Oleg Bakhmatyuk, P/E ratio, P/S Ratio, Return on Equity, risk aversion, share buyback, technical analysis, Ukraine, Ukrlandfarming

Here’s a copy of a recent letter to the CEO & CFO of Avangardco.

Note I’ve updated all figures, as appropriate, to reflect today’s $10.50 closing price – otherwise, the text remains unchanged. For reference, I’ll also include Word copies of the original below. The letter speaks for itself, and is also a great reminder to readers of AVGR‘s extraordinarily cheap valuation! So, without further ado:

‘November 05, 2012

FAO:

Nataliya Vasylyuk, CEO, &

Iryna Marchenko, CFO

Avangardco IPL

121 V Prospect Peremohy

Kyiv, 03115

Ukraine

Dear Nataliya & Iryna,

How About Another Catalyst? (Part X)

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Adrian Williams, Alphameric, alternative assets, Argo Group, asset managers, Avangardco, Bear Stearns, binary outcomes, capital expenditure, catalyst, delisting risk, DM plc, Dresden, emerging markets, Expected Value, Fair Value, Fortress Investment Group, Gagfah, government regulation, intrinsic value, IRR, Joe Lewis, litigation, major sale, Net LTV, P/E ratio, P/S Ratio, risk aversion, risk management, share buyback, share repurchase, takeover offers, Timeweave

Continued from here, & here’s the first post in the series.

vi) Litigation/Regulation is the final catalyst on my list. It’s also, without a doubt, the most difficult to exploit & to write about (note I’ve tackled this series in reverse order)! In fact, if it doesn’t (immediately) appeal to you, I might perhaps discourage you from ever bothering with this catalyst? To some extent it suffers from the same issues/perceptions I highlighted with v) the Major Sale catalyst.

First, most litigation/regulation risk/events are simply part & parcel of normal corporate operating activity. For example, certain sectors are almost permanently marked down due to their increased risk level (perhaps something politicians like to mouth off about?!). These risks usually aren’t of any fresh/major significance to a company’s business model or valuation, and/or they’re routinely priced in anyway – they are not catalysts.

But occasionally a real game changer comes along… A lawsuit, or a regulatory change/threat/action/approval, that could prompt a major change in a company’s future intrinsic value. It may also cause a rapid/significant adjustment in the company’s current market cap. So how exactly do we separate out & identify such a catalyst vs. the merely hum-drum? A similar approach, like v), seems sensible – something like:

Hitting The Century (III)

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Argo Group, Avangardco, dividend coverage, dividend yield, EIIB, Ex-Cash Ratios, FBD Holdings, Net LTV, P/E ratio, Petroneft Resources, portfolio allocation, portfolio performance, Price/Book, Price/Sales, TGISVP, Total Produce, Trinity Biotech, Wordpress

Damn WordPress! If you viewed/received a similar Century (Part III) post (since deleted), please ignore it – it was just a draft & I’ve updated/revised figures across the board since. Not quite sure how WordPress managed to publish it for me..!

Right, continued from here. In my last post I promised: ‘OK, next I’ll take you through each of my investment allocations – and try to give a flavour of my thinking, and some underlying stocks/funds, in each instance‘. However, I’ve just completed a detailed quarter-end portfolio update/review, so let’s flip things ’round – perhaps you’d be interested in a timely look at some portfolio metrics¹, and we’ll return to investment allocations in my next post?

Yes, really? So you like the pretty panties, but you still want to know the damn cost..?! Sigh, value investors..! OK:

H1 2012 Performance!

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Argo Group, Avangardco, Baker's Dozen, Irish Stock Exchange, Irish value investing, natural resource stocks, Petroneft Resources, portfolio allocation, portfolio performance, Richland Resources, Russia, The Office

OK, it’s performance time. For reference, here’s a link back to my Q1 2012 review.

If I told you European markets were actually positive in the first half of 2012, would you believe me?! Actually, it’s true. Wow, doesn’t feel like it, eh..? Hmm, I think we all know that’s just the tip of the iceberg in terms of the tricks the media & your own mind/emotions play on you. Say what you like about Microsoft & Excel, spreadsheets are your only hope of separating fact from fiction, and analysis from emotion (as for Powerpoint, sigh…).

Some notes first: For simplicity, an equal weighting is assumed for all stocks. No attempt’s made to calculate any FX gains/losses either – which would depend on your base currency anyway. If a stock wasn’t held/written-up as of year-end 2011, the price noted at the time of my investment writeup is used instead. Similarly, if a stock was sold (marked**) before end-June, the price noted when I reported the sale (via blog post, comment and/or tweet) is used. Right, so how did we do in H1 2012?

Avangardco Eggcelerating!

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agri-business, Angry Birds, Avangardco, Chuckie Egg, eggs, IPO, Oleg Bakhmatyuk, platformers, trading update, Ukraine, Ukrlandfarming, US ADR program

Please see my recent Avangardco (AVGR:LN) post here. Since then, it’s been interesting to see Bakhmatyuk engaging more actively with the media, for example here and here. Definitely seems to be part of a gradual ramp-up to an IPO for Ukrlandfarming (Ukr) – looks like further news may even come as early as end-May. We still don’t have any real hard info, though, but I’m encouraged by positive noises to date from the company & Bakhmatyuk, and by his explicit pairing of Avangardco & Ukr (eggs & grain) in recent comments/interviews.

However, it’s obvious a significant number of shareholders (potential, or actual) will continue to view this as a stock negative until there’s a specific transaction & terms on the table to evaluate. Ironically, a counterweight to this might well be a potential Ukr transaction itself! The buzz & analyst/media blitz ahead of an IPO would be sure to generate plenty of good publicity/attention for Avangardco also. As I’ve mentioned before, fair/preferential treatment of Avangardco shareholders in a potential Ukr transaction is essential, and would provide valuable support to Bakhmatyuk in pursuit of his longer-term ambitions. Continued maintenance of a foreign listing‘s essential also (in London, obviously, but adding a US ADR program might be attractive eventually).