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Performance Overview
For Q1 2021, the portfolio is up 11.09%. The Q1 starting balance was $113,027.88, and finished the quarter at $132,799.55. Contributions to the portfolio during the quarter amount to $6,866.
No stocks were bought this quarter, however a few positions were sold. Paul Mueller Co, Friedman Industries, and Surge Components were all sold for a gain.
The current allocation of the portfolio is shown in the chart below. Currently, the portfolio consists of discretionary value stocks, oil tankers, deep value, 401k stocks, precious metals, and cash. It can be seen that 64.2% of the portfolio is in stocks, while 35.8% is in cash and safe haven assets.
During the quarter I received $230.67 total in dividends, which is broken down in the table below.
| Ticker | Quarterly Dividend |
| FF | 8.28 |
| STNG | 6.80 |
| FE | 48.75 |
| DHT | 10.75 |
| RELL | 24.30 |
| FRD | 7.06 |
| EMR | 42.93 |
| COF | 22.00 |
| SPG | 59.80 |
| Total | 230.67 |
My Thoughts
I don’t have much thoughts this quarter, except to say that the r/wallstreetbets and GameStop ordeal is dumb.
Discretionary Summary
Discretionary value is the label I’m giving to the positions that are fairly large (~5% of the portfolio) I believe are undervalued and may have the following characteristics: quality business, competitive advantage, misunderstood by the market, or a good company in a heavily sold off industry. The current discretionary value stocks I own consist of Capital One Financial (COF), Emerson Electric (EMR), Simon Property Group (SPG), and FirstEnergy (FE). The table below shows the cost basis, current value, and gains/losses for these positions.
The only bit of news with these stocks is that Emerson’s long time CEO David Farr retired, replaced by Lal Karsanbhai. A long tenured, quality CEO is a consideration when looking for quality companies. I will have to keep an eye on the new management to see how their capital allocation stacks up.
| Avg Price | Cost Basis | Current Value | Current Gain (Loss) | |
| COF | 63.25 | 3,478.75 | 6,997.65 | 101.15% |
| EMR | 41.00 | 3,485.00 | 7,668.70 | 120.05% |
| SPG | 74.50 | 3,427.00 | 5,233.42 | 52.71% |
| FE | 28.00 | 3,500.00 | 4,336.25 | 23.89% |
Tanker Stocks
Tankers have slightly improved this quarter, but are still a sore point in my portfolio. I wouldn’t be opposed to selling these stocks. However, I don’t have any better ideas, I already have a large cash position, and there is some hope they will work out in the medium term.
| Avg Price | Cost Basis | Current Value | Current Gain (Loss) | |
| DHT | 8.17 | 1,755.90 | 1,274.95 | -27.39% |
| FRO | 10.66 | 1,738.29 | 1,165.45 | -32.95% |
| STNG | 26.63 | 1,742.67 | 1,255.28 | -38.82% |
| TNK | 23.86 | 1,765.88 | 1,028.6 | -41.75% |
Deep Value
Deep value is a sub-strategy I’m employing in my portfolio. This a quantitative strategy that buys a basket of statistically cheap stocks. The metric I use is EV/EBIT, based on the wonderful book The Acquirers Multiple. Historically, this strategy has provided excellent returns, although it has not kept up with the S&P 500 the past few years. Additionally, I am making an effort to apply this strategy to microcap companies. Microcaps are classified as having a market capitalization between $50M-300M. These small companies are more volatile, but have the potential for attractive returns.
My position sizing is smaller than the discretionary side of my portfolio because I want to own a basket of about 20 stocks. Since this is a quantitative strategy, I do not spend much time analyzing these businesses. The main idea is that these companies are trading at very cheap valuations, and the winners will (hopefully) outnumber the losers.
| Avg Price | Cost Basis | Current Value | Current Gain (Loss) | |
| BBSI | 50.50 | 1,767.50 | 2,410.10 | 36.34% |
| FF | 13.00 | 1,794.00 | 2,005.14 | 11.77% |
| HXL | 36.80 | 1,803.20 | 2,744.00 | 52.17% |
| RELL | 4.45 | 1,802.25 | 2,579.85 | 43.14% |
| RSKIA | 8.25 | 1,740.75 | 2,795.77 | 60.61% |
This quarter I sold off three of these deep value positions. Paul Mueller Co was sold for a 102.5% gain, Friedman Industries for a 65.67% gain, and Surge Components for a 120.77% gain. With this quantitative strategy, I would typically hold the stocks for one year, then rebalance into a fresh set of undervalued stocks. I sold MUEL and SPRS early because they have run up massively lately. It would be expected that some of these microcaps will shoot up in price randomly. But over the past few months, it seems like all of these small deep value companies are rapidly rising. Maybe I’ll regret selling too early, but it seems hard to regret taking a 120% gain. As for FRD, it was a net-net when I bought it. The price reverted back to its net current asset value, so I made my exit.
| Cost Basis | Sale Proceeds | Realized Gain (Loss) | |
| MUEL | 1,768.00 | 3,580.18 | 102.5% |
| FRD | 1,800.10 | 2,982.13 | 65.67% |
| SPRS | 1,819.30 | 4,016.47 | 120.77% |
401k and Precious Metals
My 401k is through my current employer and actively receives contributions. The 401k consists of a Blackrock Target Date Fund (which is no longer being funded), and the Oakmark Fund. The Oakmark Fund is a large cap value fund. Since I am actively contributing to my 401k, it will naturally have a growing influence on my portfolio.
I also have a decent allocation to precious metals that are used as a bond substitute, recession and inflation hedge. The table below shows the YTD performance for the precious metals and 401k, which includes the effects of contributions.
| 12/31/20 | 3/31/21 | YTD Gain (Loss) | YTD Contributions | |
| Precious Metals | 9,964.00 | 9,281.20 | -6.85% | |
| 401k | 32,252.43 | 43,020.27 | 10.93% | 6,866.00 |
Books I’m Reading
The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success was a book that I kept hearing people talk about, so I finally read it. The CEOs covered in this book include Warren Buffett, John Malone, Catherine Graham, Tom Murphy, Henry Singleton, Bill Anders, Bill Stiritz, and Dick Smith. Obviously I’m familiar with Buffett, and knew a little about some of these CEOs. However, it was nice to read about these capital allocators at General Dynamics, Ralston Purina, General Film, that I never heard of. The book emphasizes how these CEOs outperformed Jack Welch of GE, the poster boy of a successful CEO. Each of these CEOs focused on going against the herd, and expertly allocating capital instead of doing dumb acquisitions, or focusing on quarterly results. This book was a quick read, and very much enjoyable.
The second book I read this quarter was Skyscraper Dreams: The Great Real Estate Dynasties of New York. Dynasties is a good word to describe these New York real estate players since many of these are multi-generational family businesses, which I found fascinating. The book starts with Manhattan back when it was mostly fields, and progresses towards the early 1900’s where skyscrapers appear onto the scene. As the 20th century unfolds, you learn about the skyscraper boom leading up to the Depression, the post-war boom, the changing of the guard in the 1960’s, and New York’s financial woes in the 1970’s. I wasn’t too familiar with NYC history, let alone the stories of the people who built it. If you’re interested in a financial history book that’s a bit different than stock investing or business, I recommend this one.
For more value investing fundamentals check out:
The Many Flavors of Value Investing