Transaction Alert: Sold USG

Knowing when to sell is definitely more tricky than knowing when to buy, and selling can be especially difficult if the stock has been on a run. Nonetheless, today I sold my 800 shares of USG at $21.83 (I purchased the shares in March of 2009 at an average price of $4.91). This position resulted in a return of approximately 345% in just over 13 months.

Transaction Alert: Bought Sandridge (SD)

Today I purchased 1700 shares of SD at $7.06. I've previously discussed my interest in this stock on my blog and on Gurufocus at http://www.gurufocus.com/news.php?id=89642.

In conjunction with this trade I'll probably also sell GMXR. I will discuss my rationale as time permits...

Updated Returns

I last posted about my portfolio returns at the end of Q1, but due to the recent runup I thought I'd recalculate (see "My Returns So Far..." to the right). Over the past 4 years and 3+ months my annual rate of return is 21.4%. Over this same time period the "S&P parallel portfolio" would've returned 3.5%.

I realize that 4+ years is not long enough to know if my results are simply dumb luck, so I'm keeping my fingers crossed and hoping the streek continues!

Feeling Fearful

It's been quite a ride over the last year! I remember in March 2009 the fear in the market was almost palpable. Now, 13 months later, all the major indexes continue to soar, seemingly defying gravity. IMO the market, in aggregate, has turned greedy - so is it time for the individual investor to turn fearful? I think so...

These days I find myself asking, "Where is the opportunity, where is the value, and most importantly where is the risk?" I've been struggling to find individual stocks that offer an acceptable margin of safety and potential return. Additionally, several portfolio holdings of mine are approaching my guess of their intrinsic value. As a result, my portfolio's cash position has grown to about 30% and I'm very seriously considering selling several more holdings. Specifically, these are USG, WTM, and COV. However, this is only half the story. I have found a small handful of stocks that seem attractively priced. Among these are GENZ, EXC, SD, MON, ISCA, APOL, and FNF.

My sense of it is that a lot of investors spend a great deal of time picking stocks at the expense of portfolio management. David Swensen is the master of this - in his excellent book, "Unconventional Success," he lays out a fairly simple but powerful plan based primarily on portfolio management. Additionally, I'd argue that one of the main reasons the Magic Formula works so well is because there is a defined, rigorous plan around portfolio management (although everyone seems to focus on the stock picking aspect).

I have to admit, holding on to USG is tempting because it has the potential to be my first 10-bagger. And it was difficult for me to sell SHLD because I kept thinking it might be the next Berkshire. But the fact of the matter is "hope" isn't an investment strategy. SHLD hit my estimate of its intrinsic value and USG is quickly approaching it. IF I can find stocks that are priced at a greater discount to my estimate of their intrinsic value then, by definition, they have a better margin of safety and better potential return. Of course I could turn out to be wrong for any given stocks I buy/sell, but I think the process I've laid out is right.

As always I'll post about any stocks I buy or sell.

Opportunity in Natural Gas?

I wrote an article for the awesome website http://www.gurufocus.com/ called "EMT, 'Ick' Investing, and Natural Gas." Readers can access the article here: http://www.gurufocus.com/news.php?id=89642#89677

This article basically outlines my thoughts on efficient market theory, why I'd be considered a "contrarian" investor, and why I think there are currently opportunities in natural gas exploration and production companies.

I specifically discussed SandRidge, which is one of the top stocks on my watch list. Other stocks high on my watch list that weren't discussed are MIR and EXC, and obviously I already own GMXR. I'll keep you posted if I decide to make any purchases...

My Returns as of Q1 2010

At the end of every quarter I will write a quick post that details my returns. I started 2010 with $107,514 in my portfolio and finished the quarter with $114,624. I didn't make any deposits or withdrawls, so the increase in value is straight appreciation.

• On an absolute basis, my portfolio appreciated 6.6% during the quarter. Annualized, this rate of return is 29.7% (this is slightly better than the S&P).
• I've been tracking my returns for 4 years and 3 months, during which time my annual rate of return is 19.4%. Over the same period the S&P returned 2.3% annually.

Following are my portfolio details and a summary of transactions for the year:

• I started my blog in the beginning of March 2010. Between then and now I've sold my stakes in SHLD and MDZ.
• Prior to starting my blog but during fiscal 2010 I sold my stakes in PFE and WSC.
• The only new position I've initiated during 2010 is GMXR.
• Currently I only own 6 stocks and about 30% of my portfolio is in cash, as shown in the picture below (and on the "My Current Holdings" link to the right).

Transaction Alert: Sold MDS, Inc. (MDZ)

I'm getting very aggressive (and hopefully opportunistic) with my MDS, Inc. trades as I just sold my remaining 1100 shares for $8.23. Here's my rationale:

It was reported today that the old reactor is going to take longer to repair than originally anticipated (thus leaving MDS without their primary supply of isotopes). While this is a problem in and of itself, the real concern is that the Canadian government may abandon their nuclear program altogether. Afterall, they build a new reactor but can't get it to work and their old reactor is literally falling apart. If you go to my original post, http://mevsemt.blogspot.com/2010/03/special-situation-in-canada-hey_21.html, this is the first outcome I listed and would be a worst case scenario.

However, and here's where it gets interesting, MDS is only down 3% today because IMO the Reverse Dutch Auction has essentially created an artificial price floor. The auction ends Monday, March 29th (thus removing the price floor), and after the results are publicized I think there could be significant selling pressure. I discussed this selling pressure in my previous post, http://mevsemt.blogspot.com/2010/03/transaction-alert-trimming-mds-inc.html, but now I think it has an increased liklihood of happening and my guess is it will be greater in magnitude.

If the price falls enough I may reinitiate a position in MDS. If you go back to my first post I outlined 4 possible outcomes. Based on the news today outcome #2 became less likely and outcomes #1, #3, and #4 all became more likely, so this could still be a highly profitable investment. If I'm wrong and the selling pressure doesn't materialize, then at least I've locked in my gains and I'll sleep well at night.

Transaction Alert: Adding to GMXR

Today I bought an additional 400 shares of GMXR, bringing my total share count to 1400. This stock looked cheap when I originally bought it on 2/5/2010 for $9.94. Assuming I'm right, at $8.65 it's even more of a bargain!

Additionally, I wanted to bring the position back up to around 10% of my portfolio (10% is a pretty standard bogey for any one stock). Lastly, I have a very large cash stake (about 26K of my 117K portofio is cash after today's purchase), so I'm looking for attractive opportunities to deploy it.

Transaction Alert: Trimming MDS, Inc.

Today I sold 400 shares (leaving me with 1,100) of MDS, Inc. (MDZ) at a price of $8.50. I bought this stock on November 13th and December 24th for an average price of $7.65, so my IRR is pretty decent. My rationale for this transaction is discussed below.

MDS, Inc. has gone up over the last few days, probably as a result of arbitrageurs buying up the stock in hopes of a quick gain (an opportunity created by the mechanics of a Reverse Dutch Auction). As a result, this one position accounted for around 11% of my portfolio before today's sale.

As you can see from my previous post (here's the link: http://mevsemt.blogspot.com/2010/03/special-situation-in-canada-hey_21.html) there are a number of potential outcomes for MDS, not all of them good. I also emphasized MDS is one of my first special situation investments, so there's a chance my thesis could simply be wrong. Therefore, having such a large % of my portfolio allocated to this one position made me a little nervous, and my thought was it would be prudent to sell a portion of my shares.

On a side note, if the arbs currently buying up the shares are unable to tender them via the Reverse Dutch Auction, they will probably scramble to sell. This in turn could pull the stock down, creating a second buying opportunity. I have absolutely no idea whether this will happen or not, but it's something I'm going to watch for and if the stock falls far enough I may buy more.

Transaction Alert: Sold Sears (SHLD)

Today I sold all my shares of Sears Holdings (SHLD) for $106.73. I initially purchased SHLD in February 2008 and continued buying sporadically until February 2009. My average price per share was $61.36. Overall I'm quite happy with the way this investment turned out. I'll write another post in the next couple of days outlining my rationale behind this transaction.