Time to be fearful?

The best time to be fearful is when others are greedy, and with that in mind I reduced my Sears Holdings position yet again.  Specifically, I sold my 10 SHLD Jan 2015 62.50 contracts for $11.30 (for total proceeds of $11,288).  You'll recall I purchased these back in July at $3.65 per contract (here's the post: http://mevsemt.blogspot.com/2013/07/more-sears.html), so it was a very profitable 4 months!

Questions?  Comments?  Email mevsemt@gmail.com.

Out with the old, in with the new...

Today I traded out my shares of SD for a new position in CNQ.  Specifically, I sold all 4000 shares of SD at $6.46 (for proceeds of $25,835), which isn't bad considering I just bought them in April at $4.93.  I then purchased 850 shares of CNQ at $31.36 (for a total outlay of $26,661).  Unfortunately I don't have time for a full write up, but here's the elevator pitch...

Management is extremely talented and well aligned with shareholders.  If you have spare time read about Chairman Murray Edwards, he's the real deal.  Furthermore, I think CNQ is a high quality company (at least compared to other E&P's) and is selling at a compelling valuation.  In other words, at current prices I think CNQ is a much better risk-reward bet than SD.  Anyway, that's it for now, wish me luck!

Questions?  Comments?  Email mevsemt@gmail.com

Q3 Discussion

Well folks, looks like it's time for my Q3 discussion and analysis.  And while I hate to count my chickens before they're hatched, it looks like my portfolio has finally awakened from it's slumber.

More specifically, an unsustainable short interest in Sears coupled with a bullish report from Baker Street Capital caused the stock to shoot up in September.  I responded by trimming my position and locking in some gains.  However, as you'll see in the exhibits below, Sears is still very much a core holding.  

So what else is going on?  Well frankly, I'm as nervous as ever about valuations in the market, and as a result I'm holding a lot of cash (37.4% of portfolio).  Furthermore, although I continue to search for new opportunities, I repeatedly come up empty handed.  In fact, these days the market reminds me a little of 2005-07.  Maybe this makes me the investing equivalent of Chicken Little, but at least I sleep well at night.

Anyway, here's the summary:

• I came into the year with $213,090 and ended the quarter with $268,074.  I didn't deposit or withdraw any money, so this increase is straight appreciation.
• My portfolio has increased about 25.8% YTD (35.6% IRR), whereas the Hypothetical S&P has increased about 19.7% YTD (27.2% IRR). 

And here are the exhibits (7+ year performance summary, waterfall graphs, holdings summary, and quarter-to-quarter bridge, click to enlarge):

Questions?  Comments?  Email mevsemt@gmail.com.

Easy Come, Easy Go...

Well folks, this is going to be short and sweet...

Similar to my previous post, SHLD has continued its steady march upward.  So today I trimmed my position yet again.  Specifically, I sold 10 SHLD Jan 2015 $60 contracts at $11.70 (for a total proceeds of $11,688).  Given that I bought these contracts less than a month ago at $2.95 (http://mevsemt.blogspot.com/2013/08/call-me-crazy.html) this was a nice little gain!

Questions? Comments? Email mevsemt@gmail.com

Know when to hold'em?

For those of you keeping track, you know I've recently been buying a lot of SHLD LEAPS.  Then, much to my surprise and delight, SHLD went on a tear starting in late August.  Today it went up over 12%... on no news whatsoever!

Now I know SHLD is ripe for a short squeeze, and it seems like we're in the middle of one right now (~90 MM shares are held by long-term owners and index funds, ~16 MM are shorted, and there are only ~106 MM shares outstanding, hmmm...).  However, the truth is I have no idea how to trade around this type of thing, and with the run-up SHLD has become a significant % of my portfolio.  So today I let prudence take over, and sold both my SHLD Jan 2015 $72.50 and $85.00 LEAPS, for proceeds of $3,438 and $4,681, respectively.

Now it's not like I'm bailing on SHLD, after all I still hold the common, as well as the Jan 2015 $60.00 and $62.50 LEAPS.  Rather, today's transactions were more about managing my portfolio's composition, keeping an eye on risk, and holding my temperament in check.

Questions? Comments? Email mevsemt@gmail.com.

Call Me Crazy...

You know, it isn't easy being a value investor, and this is especially true when you blog about your picks in real time.  After all, just about anything I buy has significant "headline risk," and is likely in the midst of some sort of turmoil.  In other words, I have to be willing to look dumb now with the hope of being right later.

So what's new?  Well, I'm not just waxing philosophical on a Monday afternoon.  In fact, this post is to alert my readers that I bought more SHLD options today.  Specifically, I bought 20 SHLD Jan 2015 $60 contracts for $2.95 (for a total outlay of $5,919).

Now I can almost hear the collective groan through my screen, "oh geez mevsemt, not more Sears!"  But here's the thing, SHLD has a decent margin of safety.  I'm mean they've got real estate, brands, Lands' End, 51% of Sears Canada, owned inventory, etc.  Of course they also have things on the other side of the balance sheet (like that pesky pension), but suffice it to say I think the assets far outweigh the liabilities.

There's also another interesting dynamic that could be going on here (warning: the following is idle speculation).  First, Eddie has been selling/trimming everything in his hedge fund except Sears, and I think he personally owns somewhere around +30 MM shares.  Concurrently, Bruce Berkowitz (a long time supporter of Eddie), has recently been accumulating Sears, and is now up to roughly 20 MM shares.  Hmmm... 50% of SHLD in friendly hands... could Eddie be winding down his hedge fund?

And ultimately, even if Eddie has no intention of quitting the hedge fund business, SHLD still represents an opportunity to invest alongside an incredibly talented investor and businessman at a reasonable price, and these situations don't happen everyday...

Questions? Comments? Email mevsemt@gmail.com

More Sears...

It seems like Sears can't catch a break.  And, while everything else has been rallying this week, SHLD proves to be the problem child yet again, and is actually down.  So what do I do?  Well, I buy more of course!

Since I've talked about SHLD ad nauseum, I'm not going to rehash my whole investment thesis here.  Rather, this is just a courtesy post to disclose a new purchase in real time.  Specifically, I bought 10 SHLD Jan 2015 62.50 contracts for $3.65 (for a total outlay of $3,662).  Wish me luck!

Questions?  Comments?  Email mevsemt@gmail.com

Nothing to see here...

Looks like we're over the hump folks, and with the year half over I guess it's time for another quarterly update...

Frankly, I wish I had better news to report, but after a very strong 2012, my portfolio has trailed the S&P in 2013.  So what's going on here?  Well, for one I've had a large % of my portfolio in cash, which has obviously been an anchor on performance.  I also haven't had any real winners this year.  Instead, my holdings seem to be just floating along.  Oh well, my returns have always been lumpy, so I'm not going to get too worked up...

Anyway, here's the summary:

• I came into the year with $213,090 and ended the quarter with $230,183.  I didn't deposit or withdraw any money, so this increase is straight appreciation.
• My portfolio has increased about 8.0% YTD (16.8% IRR), whereas the Hypothetical S&P has increased about 13.7% (29.7% IRR).  

As always, see below for the following exhibits: 7+ year performance summary, waterfall graph, holdings summary, and quarter-to-quarter bridge (values as-of 6/30/2013, click to enlarge).

So what's next?  Well, I'm still worried the market is a little too frothy and I'm not finding many new bargains, so for now my plan is to just sit tight.  Of course if anything changes I'll let you know!

Questions?  Comments?  Email mevsemt@gmail.com

Buy Mortimer, Buy?

Well, this may look kinda silly given my previous post, but today I bought 10 SHLD Jan 2015 72.50 contracts at $4.14 (for a total outlay of $4,152).  Here's why...

First, Sears dropped significantly after releasing earnings, and as a result the price of these contracts also fell quite a bit.  Additionally, compared to the SHLD options I recently sold, these new options have much more time until expiration.  They also make up a smaller % of my portfolio, which means there's less portfolio risk overall.  And lastly, as I mentioned previously, I'm still very optimistic about SHLD's future.  Wish me luck!

Questions? Comments? Email mevsemt@gmail.com 

Sell Mortimer, Sell!!

Today, with a loud sigh and heavy heart, I sold my 20 SHLD Jun 2014 65.42 contracts at $4.45, for total proceeds of $8,881 (basically at breakeven).

Now, I imagine you're all thinking the same thing, which is "WTF mevsemt?!  Sears, isn't that your baby?"  So here's the thing, although I'm still very optimistic about SHLD's future, I also viewed these options as the single most risky part of my portfolio.  For one, they expired in roughly a year.  Additionally, they were still pretty far OTM.  So, regardless of what I think about Sears, with any kind of broad market pullback or economic downturn, the value of these options could quickly evaporate.

Furthermore, with the market hitting new highs on pretty much a daily basis, it seems like just about everyone is reaching for return.  Personally, I think it might be a good time to be fearful...

Questions?  Comments?  Email mevsemt@gmail.com

What Just Happened?

After 18 months and barely a rumble, have I got a treat for you!

First, it was time for some spring cleaning, so yesterday I completely sold my shares in Crimson Wine and Sears Canada.  Both these positions originated from spin-offs (Leucadia and Sears Holdings), and as a result were just a small fraction of my portfolio.  In fact, the combined proceeds were just over $2K.

My next move was to trim LUK - I sold 917 shares at $30.67 for total proceeds of $28,119 (this leaves me with 1,250 remaining shares).  Most of my LUK shares were purchased via JEF (and their subsequent merger with LUK).  However, my original LUK purchases actually predate this blog (late 2008 and early 2009).  Anyway, for those keeping score, my average purchase price is $13.68, so yesterday's transaction locked in a substantial gain.

Now this next move may surprise you... but before I tell you what it is, I'm going to tell you how it came about.

A few months back I read "The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success" (which was fantastic).  Basically, the book is a series of case studies outlining how smart capital allocation by the folks in charge can lead to truly extraordinary returns.  In many cases, this was accomplished through aggressive share buybacks.  

So, a couple of weekends ago with this book fresh in mind, I found myself looking for new stock ideas on a Saturday morning.  But rather than try to find "cheap" companies, I figured I'd try to find talented "jockeys" first, and only then look at the companies they were running.  One thing I looked at was the historical winners of Morningstar's "CEO of the Year" award.  I also looked for aggressive share buybacks.

And this brings us to my newest purchase - Strayer Education (STRA).  Specifically, yesterday I purchased 525 shares at $45.04, for a total outlay of $23,651.

Now, it's no secret that the for-profit education industry is in shambles.  In fact, it reminds me a little of the real estate bubble.  Basically, a bunch of unscrupulous folks fan the debt-fueled flame, the industry collapses under its own largess, government intervention/regulation ensues, and then finally the dust settles and opportunities emerge... (remember this? http://mevsemt.blogspot.com/2010/04/transaction-alert-sold-usg.html)

In the case of Strayer, I'd argue that Robert Silberman (Chairman and former CEO) never allowed the company to go down the dodgy path being blazed by his competitors.  In fact, in Morningstar's 2007 CEO of the Year write-up (http://news.morningstar.com/articlenet/article.aspx?id=221469), they describe in great detail the "culture of quality" that Silberman built.  So, after reading their write-up, I quickly skimmed Silberman's most recent annual letter, then I re-read it in detail, and then I read his previous letters all the way back to 2001 (so much for my Saturday morning!).  Anyway, here's my takeaway...

This guy gets it.  He understands that providing value for the customers creates value for the company.  He also gets capital allocation - in the last five months he's repurchased almost 10% of the company's shares!  By the way, if you look at the BoD, you'll see overlap with Liberty and ESL companies, both of which are notorious for smart share buybacks.  And finally, he's built a deep leadership bench.  So, although he recently stepped down as CEO (but will remain as Chairman), I have nothing but confidence in the newly appointed CEO (Karl McDonnell).

Oh yeah, and the company is cheap cheap cheap... (at least I think so).

Questions? Comments? Email mevsemt@gmail.com

Better Late than Never - Q1 Update

Well, here we are at the end of April, and I'm just now getting around to posting my Q1 results, sorry folks.  Frankly, there's nothing too exciting to talk about here - I tweaked my SHLD position and LUK merged with JEF, so nothing earth-shattering.  Anyway, here's a quick summary (keep in mind that my returns & portfolio are as-of 3/31/2013, so they won't include Sandridge, which I bought in April):

• I came into the year with $213,090 and ended the quarter with $233,138.  I didn't deposit or withdraw any money, so this increase was straight appreciation.
• My portfolio increased about 9.4% for the quarter (44.0% IRR), whereas the Hypothetical S&P increased about 10.5% (49.9% IRR).  

Below are the following exhibits: 7+ year performance summary, waterfall graph, holdings summary, and quarter-to-quarter bridge (all values & holdings are as-of 3/31/2013, click to enlarge).

As always, please don't hesitate to drop me a line if you have questions, comments, or stock ideas (especially that last one!).  In the meantime, good luck out there! 

Email mevsemt@gmail.com

Hello Again Old Friend

Well there’s nothing quite as boring as a stock-picking blog that never picks new stocks!  However, I have some good news faithful readers – for the first time since 2011 I actually bought a new company!  But, before I tell you what it is, let me give you some hints to pique your interest…

First, what would you say if I told you there’s a company where the founder and CEO is dumping his shares hand-over-fist as the stock plummets to its 52-week low (which it hit Friday)?  Further, what if I told you this company has undergone massive shareholder dilution due to ill-advised acquisitions and consistently negative free cash flow?  And finally, what if I mentioned that significant company resources have been squandered on lavish C-level perks and eyebrow raising related-party transactions?

Now, I know you’re all probably thinking the same thing, which is “where can I get me some of that!?”  So, without further adieu, our mystery company is none other than Sandridge Energy (SD), and on Friday I bought 4000 shares at $4.93 for a total outlay of $19,725.

So what the heck am I thinking?  Well, despite my less-than-stellar opinion of management, they actually have assembled an attractive set of assets with real and substantial value (I think).  More importantly (and ultimately the impetus to my purchase), managements’ poor stewardship has finally pissed off some large and powerful shareholders, who just last month won a proxy fight to gain control of the Board.  As a result, the CEO should be gone by the summer (hence the reason he’s selling), and going forward the company will actually be run to maximize value for shareholders (what a novel idea!).

So how’s this all going to play out?  Well, I suppose the company could be sold outright, however I don’t view this as particularly likely.  Rather, I think the new leadership is going to drastically reduce capex and focus on cash flow.  I also think they’ll sell some non-core assets to build cash and pay down debt.  As a result, I think the company is going to be much less focused on wheeling-and-dealing, and much more focused on plain vanilla oil and gas E&P.

Of course that’s not to say this purchase is without risks.  In fact, due to Sandridge’s high degree of both operational and financial leverage, there is a huge amount of uncertainty here.  Nonetheless, I think the assets help insulate me against the downside, and with a little luck this stock could easily be a double.

Questions?  Comments?  Email mevsemt@gmail.com

Just Some Minor Tweaks...

Well folks, this post will be short and sweet.  As always, I post anytime I buy or sell a stock, so this is just to keep my readers in the loop on the transactions I made Friday.  

Specifically, I sold my SHLD Jan 2014 55 (50.42 post adjustment) and Jan 2014 85 (80.42) call options, for proceeds of $16,621 and $1,158, respectively (my cost basis for these were $4,012 and $4,362).  In conjunction with this sale, I purchased 20 SHLD Jun 2014 65.42 contracts for a total outlay of $8,819.

So what's the logic here?  Well, I always get nervous when options are within a year of expiration, and the transactions I made Friday effectively "rolled" the expiration date 5 months forward.  Additionally, these transactions increased my cash position by roughly $9K, bringing my portfolio to 42% cash.  By the way, at the risk of sounding like a broken record, this is exactly what I want with the market bumping up against new highs.  

So what's next?  Well, it occurs to me that I haven't bought a "new" company since 2011.  Essentially, over the last 15 months I've basically just been "harvesting" gains or tweaking existing positions.  Admittedly, this is pretty boring stuff, but someone's got to do it ;).  

In the meantime, I'll keep looking for new opportunities.  If you know of any, I'm all ears!

Questions?  Comments?  Email mevsemt@gmail.com 

2012 Returns

Well, it looks like we've got another year under our belts.  And while 2012 was not particularly exciting in terms of activity/trading, it was absolutely thrilling in terms of performance.  In fact, relative to the S&P, 2012 was my single best year!

So how'd this happen?  Well, if I had to guess, I'd say it was some combination of luck and temperament (with luck getting the lion's share of the credit).  As you'll recall, I came into 2012 with just 5 companies (AIG, BAC, JEF, LUK, and SHLD).  During the year I completely sold AIG, and from time to time tweaked my SHLD position.  Otherwise, I basically just sat on my ass for 12 months.

In terms of what drove performance, AIG and BAC (both TARP warrants) were the major contributors.  Between 12/31/2011 and when I sold in April, AIG/WS went from $5.51 to $12.65 (not bad for 5 months!).  BAC/WS, which I still hold, started the year at $2.02 and finished at $5.42.

As for 2013, it should be another interesting year.  LUK and JEF are scheduled to merge in Q1, which will leave me with only 3 companies (excluding spin offs, which are not a meaningful % of my portfolio).  In terms of position sizing, this is easily the most concentrated I've ever been.  However, with 42% of my portfolio in cash, I think I can handle a little company-specific risk.  Also, I get pretty nervous with the market trading around multi-year highs, and cash helps me sleep better at night!

Lastly, my expectations are still high for Sears.  I think Eddie taking over as CEO is interesting, and my hope is we'll see more asset sales and/or corporate transactions as a result.  Who knows, if Sears really does become the next Berkshire, maybe more people will start reading my blog!

Anyway, here's a quick summary of 2012:

• I started the year with $138,179, and in June I withdrew $10K from my account.  I ended the year with $213,090.  That's $84.9K of straight appreciation.
• My IRR for 2012 was 63.3% vs. 15.2% for the S&P (assumes dividends reinvested and $10K had been withdrawn from my "Hypothetical S&P" portfolio, thus keeping the comparison to be apples-to-apples).

Below are the following: 7 year performance summary, waterfall graph, holdings summary, and quarter-to-quarter bridge (all values are as-of 12/31/2012, click to enlarge).

Questions?  Comments?  Email mevsemt@gmail.com