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

Here we go again...

I'll tell you what - owning Sears Holdings is not for the faint of heart.  

In the last year, we've seen the spinoff of Orchard Supply, a rights offering for Sears Hometown, and the partial spinoff of Sears Canada.  A small handful of stores/lease-rights were sold (for almost half a billion dollars), and a number of other stores have been closed down.  Sears's Chairman, Eddie Lampert, has purchased roughly 7 million shares for his personal account (representing 6-7% of the company).  Yet, at the same time, we've seen the core retail operations continue to flounder, with no turnaround in sight.  

Recently, in an interview with Fortune, Bruce Berkowitz (one of my favorite investors and the largest owner of Sears behind Eddie) said "the value of Sears would be over $160 a share if the land on its books was fully valued."  He then went on to say "I think Eddie Lampert will end up being one of a few unbelievable case studies on what it means to be a long-term investor."  Here's the link to the full interview: http://finance.fortune.cnn.com/2012/11/26/bruce-berkowitz-fairholme/?source=yahoo_quote.

Anyway, I continue to be optimistic about Sears (depending on your perspective, feel free to replace the word "optimistic" with stubborn, foolhardy, etc.).  So, on Friday I took advantage of the stock's recent decline and bought 20 contracts of the Jan 2015 $85 LEAPS at $1.87.  Including commissions, this cost me a total of $3,759.  Wish me luck!

Questions?  Comments?  Email mevsemt@gmail.com

All man's miseries... (Q3 D&A)

So, it occurs to me that my blog is becoming pretty damn boring.  In fact, in terms of trading, I'd say my 2012 portfolio activity is slightly less exciting than watching paint dry.  How come?

Well, maybe you've heard the saying, "All man's miseries derive from not being able to sit in a quiet room alone" (Pascal).  Or, if you're a value investing groupie like me, maybe you remember Pabrai saying "The correct way to set [the investment business] up is to have gentlemen of leisure, who go about their leisurely tasks, and when the world is severely fearful is when they put their leisurely tasks aside and go to work."

So where's the fear?  Sure, we hear about our growing debt/deficit, our political system is a mess, and global tensions continue to rise.  But the market continues to hit new highs!  Meanwhile, I continue to pare back investments and raise cash.  So are investors, collectively speaking, whistling past the graveyard?  Or am I the investing equivalent of chicken little?

Anyway, going back to Pascal and Pabrai, I think this is the perfect time to sit on your ass and do nothing.  Remember, when it comes to investing, temperament is half the battle, and being comfortable with inactivity (and a high % of cash) can really come in handy.

Anyway, now that I've put in my 2 cents, let's talk performance.

• I came into the year with $138,179, and in June I withdrew $10K from my account.  I finished Q3 with $209,194.
• My annualized rate of return for 2012 is 86.9% vs. 21.1% 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 exhibits: 6+ year performance summary, waterfall graph, holdings summary, and quarter-to-quarter bridge (all values are as-of 9/30/2012, click to enlarge).

Questions?  Comments?  Email mevsemt@gmail.com

Sears Rights Offering...

For those of you following Sears Holdings, you know they distributed rights to purchase shares in their upcoming spin off - Sears Hometown and Outlet Stores (will be traded under SHOS when listed in October).  Specifically, for every regular share of Sears I own (excluding options), I received one SHOS right (traded under SHOSR).  Each right entitled me to buy roughly .22 shares of SHOS at $15.  Given that I own 400 shares of SHLD, I could've used these rights to pick up 87 shares of SHOS for about $1,305 (note: this excludes any impact of the SHOSR over-subscription privilege).

Now, this has special-situation written all over it, and at $15 a share I think SHOS could be a good value.  Nonetheless, I sold SHOSR yesterday at $2.60 per right, for total proceeds of $1,035 (after fees & commissions).  Here's why...

Had I exercised my rights, I would've foregone the sale proceeds of $1,035.  So, the real economic cost for me to participate in the spin off would've actually been $1,305 + $1,035 (cost of shares plus foregone proceeds), which equates to almost $27 per share for SHOS.

Questions? Comments? Email mevsemt@gmail.com.

Q2 Review and Commentary

Before I get into a review of my holdings and performance, let's do a little housekeeping.  On June 25th, I withdrew $10,000 from my account.  This is shown on the "My Returns So Far" page (link to the right) and is also reflected in all the quarter-end exhibits further down.

Additionally, as I'm typing, it occurs to me that I haven't written a new post since April (when I sold my AIG warrants), so I apologize for the lack of activity.  It's not that I haven't been thinking about investing, it's just that I haven't had anything especially insightful to say or do.  It's also worth mentioning that the AIG transaction took me to roughly 45% cash, and given the recent market decline, the timing couldn't have been better.  In fact, in my April post I lamented, "with the overall market close to it's 52-week high, I thought now may be a good time to raise some cash for the next rainy day."

Alright, now let's get to the good stuff.  

• I came into the year with $138,179.  At the end of Q1 I had $246,569, and I finished Q2 with $206,988.  Had I not withdrawn the $10K, I would've finished the quarter with $216,988.
• Although I went backward in Q2, the good news is I'm still way ahead of the S&P for the year.  In fact, for the first six months I'm up roughly 57%, whereas the S&P is only up 9%.

Below are the following exhibits: 6+ year performance summary, waterfall graph, holdings summary, and quarter-to-quarter bridge (all values are as-of 6/30/2012, click to enlarge).  

I remain as comfortable as ever with my current holdings (BAC, JEF, LUK, and SHLD).  In fact, given the market's recent pullback, I think all of them represent pretty compelling values.  Even more importantly, they're all run by fantastic leaders who are focused on building shareholder value.

BAC continues to strengthen their balance sheet and has made significant progress with their back-to-basics business transformation.  In the not-to-distant future, they should be allowed to start returning cash to shareholders via dividends and buybacks.  In Moynihan we trust!

As CEO Handler says about JEF, "We are the nicest property in a devastated neighborhood."  Well I guess that's one way to put it!  The fact is JEF operates in what could be a pretty attractive industry.  Unlike their peers (Goldman Sachs, Morgan Stanley, etc.), JEF has used the recent economic turmoil to hire talent and make acquisitions on the cheap.  Over the next few years, I think we'll see significant earnings growth as these investments start to pay off.

I don't have a whole lot to say about LUK.  I'm not thrilled that their Chairman, Ian Cumming, has indicated that he doesn't plan on renewing his employment contract in 2015.  However, I am confident that LUK leadership will continue to faithfully build wealth for their shareholders, and I'm curious see what Justin Wheeler (the new COO) can accomplish in his expanded role.

And of course there's SHLD.  I've written about this one ad nauseum, so I'm going to keep it short.  However, to even the passive observer, it's clear the transformation has begun.  So, even if you're not a shareholder I'd keep an eye on this one, things could get interesting.

And finally, let's talk about what's next.  Given my high cash %, I'm looking to put some money to work.  However, I find myself struggling to actually pull the trigger (which is nothing new).  Part of it's the hope that stocks will get cheaper.  The other issue is that I've found a handful of opportunities that are pretty compelling, but I'm having trouble deciding which 1 or 2 to buy.  Here's what I'm looking at most closely: CNQ, VRX, JCP, SCHW, EXPD, SD, XCO, and AIG.  Interestingly enough, I've previously owned JCP, SD, and AIG. If anyone has researched any of these companies, feel free to share!

Questions?  Comments?  Email mevsemt@gmail.com

It's so hard to say good-bye...

Today I sold my position in AIG TARP warrants for proceeds of $37,944 (3,000 warrants at $12.65).  Thanks to the Herculean efforts of CEO Benmosche and Chairman Miller, this investment has turned out extremely well for me.  And because of my confidence in these executives, and the solid franchise of AIG's core operating businesses, it's with a heavy heart that I decided to sell.  Nonetheless, anytime a stock is bumping up against its 52-week high I start to get nervous.  Besides, with the overall market close to it's 52-week high, I thought now may be a good time to raise some cash for the next rainy day.

For those of you keeping track, I first purchased 2,000 warrants in August 2011 at $6.94, for an initial outlay of $13,885.  In November 2011, I added 1,000 more at $5.37 for $5,375.  All-in-all, my total cost basis was $19,260, which means I made a profit of $18,684 on this position... not too shabby!

Questions?  Comments?  Email mevsemt@gmail.com.

Quick Update

This post is just a quick update on a transaction I made today.

As you'll recall, I trimmed my Sears position (by selling Jan 2013 $95 calls) earlier this year.  However, the last month or so has not been kind to the stock (it's fallen from the mid-80's to the high 50's), and I figured I'd use this pullback as an opportunity to add to my position.  Specifically, I purchased 10 Jan 2014 $85 LEAPS at $4.35 per contract, for a total outlay of $4,362.

Questions?  Comments?  Email mevsemt@gmail.com

Returns as of Q1 2012

Well I'll just come out and say it... this was a great quarter!  As you may recall, after a rough 2011, I entered 2012 with a very concentrated portfolio of just 5 companies.  Interestingly enough, two of these companies (BAC and SHLD) had been major contributors to last year's poor performance.  Here's a quote from my year end write-up (http://mevsemt.blogspot.com/2012/01/2011-returns.html):

So what went wrong in 2011?  Three things: SHLD, BAC, and JOE.  And I'm not sure whether to call it stubbornness or arrogance, but I've effectively doubled down on Sears and re-initiated a significant position in BAC.  My hope is 2012 will prove to be a better year for these struggling companies, and with Sears's assets and BAC's core business, they both have a ton of potential. 

So far it looks like my stubbornness has paid off, as both companies have rallied quite a bit.  Here's a quick summary of where I stand overall:

• I came into the year with $138,179.  As of 3/31/2012, my portfolio had appreciated to $246,569, for a total gain of $108,390.  Since I didn't deposit/withdraw any money, this increase was straight appreciation.  
• My portfolio is up 78% YTD, while the S&P is up 12%.

On a cumulative basis, my returns for the last 6 years and 3 months are summarized below vs. the S&P (click all pictures to enlarge).  I also updated the "My Returns So Far..." page to the right.

Here's a waterfall graph that shows a little more detail.   The blue bars are the beginning and ending balances, the green bars show appreciation/depreciation, and the red bars represent deposits.

Below are my current holdings, along with their current value, cost basis, and any unrealized gain/loss.

I also added a new display - a bridge between 12/31/2011 and 3/31/2012.  As you can see, I exited one position during the quarter (SHLD Jan 2013 calls for $18.2K), which is reflected in the increased cash balance.

As for closing remarks, I'd like to stress that with a portfolio as concentrated as mine, sometimes the stars will align and things will work out for no other reason than dumb luck.  Going forward, I don't expect to ever have another quarter like this one, nor do I expect to continue beating the S&P by the almost 20% per annum I've done historically.  However, my hope is I'll continue to beat the market by a reasonable amount, after all the name of my blog is "Me vs. Efficient Market Theory."

As always, I'm happy to answer questions and I appreciate comments.  Feel free to email me at mevsemt@gmail.com.

He who rides a tiger is afraid to dismount...

That Chinese proverb just about sums up my feelings on Sears Holdings, which has been on an absolute tear in 2012.  Nonetheless, after much deliberation (and honestly, angst), I decided to trim my position once again.  Specifically, on Friday I sold my remaining 25 contracts for the Jan 2013 $95 options at $6.80, generating proceeds of $16,986 (I'd sold the other 10 contracts in February 2012 for proceeds of $1,239).

For those of you following my blog, you know I first bought these particular options all the way back in November 2010.  Between then and August 2011, I added to my position 3 more times (click on the "zz Sears" label to the right to read about all my Sears transactions).  When all was said and done, I'd invested $14,592.  Then came December 2011, which was not kind to Sears investors.  In fact, as of 12/31/2011, my 35 contracts were worth $210 (that's no typo, my $14.6K investment had shrunk to two hundred bucks!).  Now, less than 3 months later, those same 35 contracts have been sold for total proceeds of $18.2K!

But why sell now, after all things are just getting interesting?  Well remember, I'm not selling out of Sears, but rather just trimming my position.  In fact, back in December when things were looking really bleak, I bought $18,329 of stock plus an additional $4,012 of Jan 2014 $55 options.  So, given my significant exposure to Sears from these purchases, I could no longer justify holding options that were both 1) out-of-the-money and 2) had less than a year until expiration.

Questions?  Comments?  Email mevsemt@gmail.com