Tag Archives: investing

The V20 Portfolio Week #24: A Change Of Heart

The V20 portfolio is an actively managed portfolio that seeks to achieve an annualized return of 20% over the long term. If you are a long-term investor, then this portfolio may be for you. You can read more about how the portfolio works and the associated risks here . Always do your own research before making an investment. Read the last update here . Note: Current allocation and planned transactions are only available to premium subscribers . Existing holdings: CONN , SAVE , I , CALL , OTCPK:DXMM , ACCO While volatility is not something to which we should pay too much attention, it is nevertheless a possible indicator of material fundamental changes in our holdings. Over the past week, the V20 Portfolio declined by 0.9% while SPY (NYSEARCA: SPY ) rose by 0.8%. Conn’s (NASDAQ: CONN ) will be reporting earnings in a little under two weeks, meaning that the portfolio will likely experience higher than normal volatility. As investors, we look forward to earnings for guidance, to verify if our initial assumptions are correct. For Conn’s, much of the market’s concern revolves around the company’s credit operation. Despite a sound retail division, the market is still quite apprehensive about lending money to Conn’s. While improvements in the credit division has been foreshadowed by falling delinquency rates, earnings will shed more light on the details, hopefully providing more assurance to the market. Over the long term, whether the market recognizes the company’s value today or tomorrow is irrelevant, assuming that the management allocates capital correctly (i.e., seize growth opportunities, repurchase shares when conditions are favorable, etc.). Thus far, the management has been committed to their plan by buying back shares and expanding the store count. More on MagicJack Ultimately management’s actions will directly influence the company’s financial results. In MagicJack’s (NASDAQ: CALL ) case, capital allocation policy took a drastic turn (see my premium article here ). The gist of it is that the management decided to use half of the $80 million cash pile to acquire a company at 8-10x cash flow, when MagicJack itself was only trading at 2x cash flow. In previous quarters, the management did the right thing and created a lot of value by buying back these discounted shares. Unfortunately, as this acquisition has shown, the management has failed to choose the optimal method of capital allocation. Because the original investment thesis depended very much so on what the management has chosen to do with the cash (in a sense all investment thesis revolves around cash, but in this case it is particularly important as much of the value is tied to the cash at hand), it is unfortunate that things turned out the way it did. While the company itself is still extremely cheap, it is critical that we identify material fundamental changes in our holdings (such as changes in capital allocation policies) and evaluate them accordingly. As John Maynard Keynes is rumored to have said: “When the facts change, I change my mind. What do you do, sir?” As with anything in life, there is a certain degree of risk in investing. Financial results will fluctuate, but people’s thought process changes as well. While one can make an effort to understand the financials, there is no foolproof way to understand human psychology. This is why Buffett values a good management team so highly. As outsiders, the best way to analyze the quality of the management is by looking at their past actions, not their words. But as MagicJack has demonstrated, even that may not be enough. Many investors tend to focus on the result, not the process, of an investment decision. Unfortunately (and sometimes fortunately), the right decision can lead to a bad outcome, just as how a bad decision can lead to a good outcome, simply as the result of luck. Nothing frustrates a poker player more than a bad beat, yet professional players recognize that it is just a part of the game, and it is the initial decision that matters. Performance Since Inception Click to enlarge Disclosure: I am/we are long CONN, CALL, SAVE, ACCO, I, DXMM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Learn Why Traders Love Utilities ETFs

By Jonathan Jones and Tom Lydon The Utilities Select Sector SPDR (NYSEArca: XLU ) , the largest utilities exchange traded fund, is up nearly 14% year-to-date, by far the best performance among the sector SPDR ETFs, and more upside could be coming for utilities stocks and ETFs, reports ETF Trends . Utilities sector fundamentals remain strong. However, utilities have been underforming due to the sector’s inverse relationship to rising interest rates – when rates rise or investors fear higher rates, utilities typically underpeform, and vice versa. Most investors view utilities as a reliable, income-generating asset that exhibit some bond-like characteristics. As interest rates declined, the sector appealed to many income investors for its relatively higher yields. ETFs like XLU got a boost this week when the Federal Reserve opted to not raise interest rates. Further buoying interest rate-sensitive sectors such as utilities is the notion that the Fed will only be able to raise rates twice this year. “Big utility stocks trade at an average of 17 to 18 times projected 2016 earnings, which isn’t cheap considering annual industry earnings growth is generally in the low- to mid-single-digit range. The sector now trades at a premium to the S&P 500, which fetches about 16 times estimated 2016 operating earnings. The utilities ETF (TICKER: ) yields 3.8%, compared with 2.2% for the S&P,” according to Barron’s . Some investors see opportunity with rate-sensitive assets such as XLU and real estate ETFs, noting that 10-year yields are overbought and sentiment against the likes of XLU is at bearish extremes, which could create opportunity from the long side with the utilities sector. Looking at XLU’s chart “you can see that the horizontal trendline near $45 has acted as a very influential level of support and resistance over the past 1.5 years. The breakout (shown by the blue circle) and the subsequent retest of the trendline and its 50-day moving average are technical signals that suggest that the bulls are in control of the momentum and that prices could be headed higher. Most active traders will likely look to enter a position as close to the trendline as possible to maximize the risk/reward of the trade. From a risk management perspective, technical traders will likely set their stop-loss orders below the horizontal trendline or the 200-day moving average ($43.23) depending on risk tolerance,” according to Investopedia . Defensive sectors, such as consumer staples, telecom and utilities, often trade at multiples that are richer than the broader market. That is the price to pay to play defense. Utilities Select Sector SPDR Click to enlarge Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Eurekahedge: From Latin America To Middle Earth

The latest report from Eurekahedge tells us that hedge funds worldwide are down year-to-date through February, -1.27 percent. Dividing the industry by geographic mandates, Latin America is the only region to post YTD gains, +1.9%, due to a rally in oil and commodities. Table 1, adapted from the report below, gives a more detailed breakdown by region in February specifically. In that month Latin America was flat in performance-based growth, but that still looks favorable compared to negative numbers everywhere else. Slicing the data, instead, by strategy, CTA/managed futures are the best performers and long/short equity hedge funds are the worst, which is very different from the state of their respective fortunes in 2015. Click to enlarge On a YTD basis, CTA/managed futures funds recorded a net inflow of $0.5 billion, posting impressive performance-based gains: $6.8 billion. Such funds were assisted by the fact that gold was a profitable trade in February. The shiny stuff, a traditional safe-harbor, benefited from jitters on the global economic outlook. Sovereign bonds, likewise, benefited from a safe-harbor effect in February, “as the anticipation that Mario Draghi will deliver a stronger stimulus come March mounted.” Stepping outside the four corners of the Eurekahedge report for a moment, I can’t help but observe that Draghi did deliver something in March, but the market was underwhelmed. Getting back into those four corners: Slicing the data now by fund size, Eurekahedge finds that the first two months of 2016 make the case for the proposition that the bigger they are, the harder they fall. The largest funds have the largest negative number regarding performance-based growth. They also have the largest net outflows and accordingly are 1.09% smaller in assets under management than they were at the beginning of the year. Click to enlarge The report mentions that “indications of an oil production freeze provided some brief support for oil prices during the month [of February],” helping to account for the relatively good Latin American numbers mentioned above, but “talks were ineffective as OPEC members remain largely unwilling for the plan to fall through.” Middle Earthen Tongues Latin America also led the fixed-income table, with gains of 2.06% in February, “while all other regional mandates languished into negative territory during the month.” YTD, Latin America’s fixed income managers have gains of 2.57%, which contrasts with their cousins to the North, who posted a 2.93% decline during the same period. Meanwhile, in the macro world, hedge funds that were long the pound lost, as talks on the British exit from the European Union, the “Brexit,” lead the pound downward against the US dollar. Tense talks on this subject in mid-February ended on a positive note, with EU leaders’ agreeing to special status for Britain in return for its continued presence amongst them. But Prime Minister Cameron made some concessions in the course of those talks that are controversial with his countrymen, such as an agreement that Britain would pay safety net benefits to migrant workers from other EU countries. The outcome of the referendum scheduled for June 23 is not at all predictable. The politics of it is so fraught that the tweets of members of the European Parliament regarding the Brexit show they’ve been arguing with each other on the subject in languages invented by fantasy author J.R.R. Tolkien. Let those who understand elvish interpret this sample tweet: “Ne minuial toll u ir tirich er-il delair awarthannen.” In this climate, European macro managers did particularly poorly in February.