Tag Archives: the-traveling-investor

The V20 Portfolio: Week #29

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 . Over the past week, the V20 Portfolio climbed by 7.9% while the SPDR S&P 500 ETF (NYSEARCA: SPY ) rose slightly by 0.5%. Portfolio Update This week we saw significant volatility in our smallest holding, Dex Media (OTCMKT: OTCPK:DXMM ). Last week speculators drove up the price by more than 100% to a high of $0.28. After Wall Street Journal reported rumor of a planned bankruptcy, shares fell to where they traded prior to the run-up. Of course, the reason the V20 Portfolio holds the stock is not to trade these unpredictable swings. Ultimately the value of the equity will be dependent on the outcome of the negotiation. Prior to the management electing to miss an interest payment, the company still had enough liquidity to keep operations going. Intelsat (NYSE: I ) rallied as the high yield market recovered. Over the past month, shares climbed by almost 50%. As is the case with Dex Media, the company will be facing liquidity issues if it cannot refinance, which is why it is so dependent on the high yield market. The difference is that the company still has a good business that is growing. I believe that the discount arising from this issue will eventually disappear as the company deleverages. We also saw revised Q1 guidance from Spirit Airlines (NASDAQ: SAVE ) this week. Operating margin was increased from 19-20.5% to 21.5%. While it is still lower than what was achieved in Q1 2015, it is still a good sign given the intense competition in the market. Because Spirit Airlines mainly competes on price, I believe that exchanging a temporary dip in profitability for market share is a sound strategy. Our recent stake in an insurance company has not moved much since our purchase, though the company has most certainly continued to collect sizable premiums in the first quarter. I believe that one of the main reasons is the expectation that 2016’s hurricane season will be one of the worst in recent years . As the hurricane season approaches, the market may become increasingly nervous about Florida P&C insurers in general. It is important to remember that we were not betting on the occurrence (or rather absence) of a catastrophic hurricane when we purchased a stake in the company, we were buying its long-term profits. Our biggest position, Conn’s (NASDAQ: CONN ), continued to climb this week, rising 24%. While there were no company specific news, I believe that the stock may have benefited from the recent rally in the energy sector. Due to the company’s concentration in Texas, it is possible that the market perceives the commodity rally as a sign that the job market will improve, leading to more sales and lower delinquencies at Conn’s. Performance Since Inception Click to enlarge Disclosure: I am/we are long DXMM, CONN, I, SAVE. 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. 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.

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.

The V20 Portfolio Week #17: It’s Difficult To Be Different

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 last week’s update here ! Current Allocation *Only available to Premium Subscribers Planned Transactions *Only available to Premium Subscribers ————- In the first weekly update of 2015, I stated that history may be repeating itself. Now that a month has gone by, it is evident that the V20 Portfolio is again experiencing the pain it had to endure in January 2015. Over the past week, the V20 Portfolio declined by 5.2% while the S&P 500 appreciated by 1.7%. Year to date, the V20 Portfolio declined by 16.3% and the S&P 500 declined by 5.0%. This compares to a 15.5% loss and 1.3% decline in January 2015 for the V20 Portfolio and the S&P 500, respectively. Portfolio Commentary Despite the ongoing volatility in the portfolio and the broader market, our holdings (for the most part) have been incredibly boring. There were no surprise developments or unexpected setbacks (at least on a company level). Last week I talked about how the meltdown in the junk bond market affected Intelsat (NYSE: I ), these things are completely out of our hands, but unfortunately, we must live with the short-term consequences. Despite the lack of excitement, the V20 Portfolio dramatically underperformed in the first month of 2016. While I am not very concerned, I am sure some of the readers may not feel the same way. While investing in the most undervalued companies will deliver the best return over the long-term, investors will inevitably face periods like the one we are experiencing today. Despite their transitory nature, there is no easy way to deal with short-term losses. It may be disheartening to see your holdings decline in value after spending so much effort doing research, but when you come to terms with the fact that the market can be irrational (and stay that way), the “losses” become more digestible. As I’ve mentioned in the introduction to the V20 Portfolio, the portfolio seeks to achieve long-term gains . Whether a stock goes up or down in a particular month, day, or even a year, is irrelevant to us. Most of the time, undervalued companies eventually converge to their fair value as temporary negative sentiment fades away. Unfortunately, there is no set timeline for this convergence. Ultimately the valuation of the business is not impacted by the stock price. If a business is well-run, it will continue to create value even when the stock price is declining (cyclicality aside), meaning that the discount will grow larger, making it more attractive. There is no telling where the market will trend in the coming months. But irrespective of the result, the V20 Portfolio will continue to have an unwavering focus on the fundamentals. Performance Since Inception Click to enlarge