Portfolio
Click here to view the spreadsheet containing all disclosures for my complete equity portfolio, including initial entry points, YTD returns, total returns, etc.
THE ENLIGHTENED-AMERICAN PORTFOLIO SPREADSHEET
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June 2008 update — Heavy weighting in commodities and precious metals powered the portfolio to a winning June and a 18.4% gain for the 1st half of 2008, compared to losses of -12.8% for the S&P 500 and -14.4% for the DJIA. My non-commodity positions (foreign telcos, GE, ACAS) have suffered along with the broader market but those are meant to be long-term, high-yield positions (each yielding at least 5%) so patience will be required for those picks (or perhaps they can be harvested for tax-loss purposes later in the year).
I completely exited my Agnico-Eagle (AEM) position in June. While I’m almost certain that AEM will rise ever further in the near future, I just couldn’t justify holding on a valuation basis. Unlike Chesapeake Energy (CHK), Agnico-Eagle has not added substantially to its reserves since I opened the position and so the only driver for increasing NAV is higher gold prices. I follow a value-based philosophy and selling discipline is one of the hardest areas of investing. Value investors are often cursed with the problem of buying/selling too soon — I may as well get used to it. That position logged over 100% gains in little more than a year and qualifies for favorable tax treatment.
Going forward, navigating these markets will be tougher. While I believe in the long-term strength of the commodities story, there is little opportunity at these levels to find bargains in those sectors. I am still waiting for a good-sized pullback to add to positions in oil, gold, agriculture, etc. but it is highly possible that the train has left the station. In time, the oil story will be viewed as one of the easiest no-brainer investment opportunities of this decade but as a value investor, I cannot lose my head and chase the story.
As such, I am finding interesting prospects coming into my range in other out-of-favor sectors like big pharma, consumer durables and the like. These sectors don’t have the massive tailwind of peak oil to boost returns and cover any mistakes so I’m treading cautiously for now. As the saying goes, it will be a stock-picker’s market — margin of safety always. As of now, I have a 35% cash weighting.
In his old partnership letters, Warren Buffett continually emphasized that his main objective was to outperform during down-markets. Buffett much preferred years where he was down -5% compared to the market’s -10% rather than years where he was +10% to the market’s +5%. Bear markets are where investors really show their mettle. He also stated that you need 3 years minimum to begin judging someone’s track record and preferably closer to 10 or more years.
While I am obviously pleased that the portfolio has escaped the market carnage so far, at 1.5 years track record, I remain cognizant of the distinct possibility (likelihood even, if you believe EMT/MPT) that the results are more attributable to luck or a fortuitous call on commodities than any superior skill or analysis on my part (however, I will take credit for my rather prescient calls on the recently completed Euro 2008 tournament, picking all 8 quarterfinalists as well as picking the tourney winner). As such, I am endeavoring to double my vigilance and research for the back half of 2008 and the potentially treacherous markets ahead.
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May 2008 Results –Through the end of May 2008, our portfolio is up 16.6% compared to losses ranging from -2.3% for the Russell 2000 to -4.9% for the NASDAQ. The story for the year continues to be commodity-based stocks. While still bullish over the long term, I sold part of our positions in Penn West Energy Trust (PWE) and Agnico-Eagle (AEM) for gains for 34% and 100% respectively. PWE, for reasons outlined elsewhere, and AEM, due to valuation. Both stocks had been held long enough for favorable capital gains treatment. Our put-selling operations have also gone well this year, with no position showing a loss and the American Capital Strategies position purposely opened at an effective price of $29.50 (note the transaction(s) are listed separately to reflect more accurately the returns for the position).I continue to build up cash while waiting for the market to commit to one direction or another. Common sense tells me that the Goldilocks II storyline (brief slowdown followed by a ramp-up) is rather improbable but who can know for sure? I also wouldn’t be surprised by any sharp pullbacks in the commodity space but would view any such event as a buying opportunity.
