Performance Overview
For Q2 2021, the portfolio is up 6.37%, and up 18% YTD. The Q2 starting balance was $132,799.55, and finished the quarter at $144,722.98. Contributions to the portfolio during the quarter amount to $3,386.
A few new positions were added this quarter in the deep value category. These include Biogen, MSG Networks, Investors Title Co, Quidel, and B2Gold. Additionally, Richardson Electronics was 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 72.1% of the portfolio is in stocks, while 27.9% is in cash and safe haven assets.
During the quarter I received $587.72 total in dividends, which is broken down in the table below. It should be noted that FutureFuel paid a special dividend in addition to their normal dividend, which amounted to $345.
| Ticker | Quarterly Dividend |
| FF | 353.28 |
| STNG | 6.80 |
| FE | 48.75 |
| DHT | 8.60 |
| BTG | 19.04 |
| ITIC | 5.52 |
| BBSI | 21.00 |
| EMR | 42.93 |
| COF | 22.00 |
| SPG | 59.80 |
| Total | 587.72 |
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.
Recently, FirstEnergy announced a deferred prosecution agreement with the DOJ. This will probably result in a fine, and hopefully the scandal will be put to rest. The Fed released the results of their latest bank stress test. Capital One was one of the strongest performers in the stress test, meaning. COF has plenty of excess capital to weather a storm. Or since it appears things are returning to normal, hopefully Capital One can return some of this cash to shareholders.
| Avg Price | Cost Basis | Current Value | Current Gain (Loss) | |
| COF | 63.25 | 3,478.75 | 8,507.95 | 144.57% |
| EMR | 41.00 | 3,485.00 | 8,180.40 | 134.73% |
| SPG | 74.50 | 3,427.00 | 6,002.08 | 75.14% |
| FE | 28.00 | 3,500.00 | 4,651.25 | 32.89% |
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 | 1,395.35 | -20.53% |
| FRO | 10.66 | 1,738.29 | 1,467.00 | -15.60% |
| STNG | 26.63 | 1,742.67 | 1,499.40 | -13.96% |
| TNK | 23.86 | 1,765.88 | 1,067.08 | -39.57% |
Deep Value
Deep value is a sub-strategy I’m employing in my portfolio. This is 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) | |
| BIIB | 275.00 | 2,475.00 | 3,116.43 | 25.91% |
| BTG | 5.25 | 2,499.00 | 2,003.96 | -19.81 |
| FF | 13.00 | 1,794.00 | 1,324.80 | -26.15% |
| HXL | 36.80 | 1,803.20 | 3,057.60 | 69.56% |
| ITIC | 164.54 | 1,974.48 | 2,095.56 | 6.13% |
| MSGN | 16.00 | 2,000.00 | 1,822.50 | -8.88 |
| QDEL | 120.00 | 2,520.00 | 2,690.52 | 6.77% |
| RSKIA | 8.25 | 1,740.75 | 2,743.00 | 57.57% |
Since I sold some deep value stocks last quarter, I used the proceeds to buy a few new companies this quarter. The new additions are Biogen (BIIB), B2Gold (BTG), Investors Title Co (ITIC), MSG Networks (MSGN), and Quidel (QDEL). Some of the remaining deep value picks, such as FF and RKIA, are coming to their one year anniversary so they will probably be sold next quarter. Finally, Richardson Electronics was sold this quarter for a nice gain.
| Cost Basis | Sale Proceeds | Realized Gain (Loss) | |
| RELL | 1,802.25 | 2,997.32 | 66.31% |
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 | 6/30/21 | YTD Gain (Loss) | YTD Contributions | |
| Precious Metals | 9,964.00 | 9,682.04 | -2.83% | |
| 401k | 32,252.43 | 49,930.84 | 19.68% | 10,252.00 |
Books I’m Reading
One of my recent reads was “The Go-Go Years: The Drama and Crashing Finale of Wall Street’s Bullish 60’s”. I was looking for a market history book that covered the 1960’s market boom, then the stagflation bear market of the 70’s. A part of me feels like history is repeating, so I was interested in learning more about this time period and I’ve heard this book mentioned before. Unfortunately, Go-Go Years does not cover the high inflation of the 1970’s. It is mostly focused on the 60’s and ends with the recession in 1970. Despite this, the book was still quite interesting because I was not aware of all the stock market drama going on in the 1960’s.
The book starts off early in the decade, painting the picture of a market moved by individuals instead of institutions. Then the growth mutual funds pioneered by George Tsai, and copied by many, took advantage of the technology companies of the day. Conglomerates became a new phenomenon with Textron, Litton Industries, Gulf+Western and the like. Financial engineering and shoddy accounting was spreading throughout corporate America. Go-Go Years culminated with the 1970 recession that crushed the overleveraged stock brokerage industry. This era does not get mentioned as much as 1929 or 2008, but if you enjoy market history, Go-Go Years is a good read.
The second book I read this quarter was the personal finance classic “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy”. I thought I knew the gist of the book, “live below your means and invest”, but Millionaire Next Door presented some interesting information that made it an enjoyable read. Many of the millionaires profiled in the book come from humble, or even poor beginnings, yet they build a small company, save, and invest. The example millionaires were frugal, but to my surprise, they didn’t drive 15 year old Honda Civics. The authors’ surveys found that many of the self made millionaires bought newer cars, they just bought Cadillac’s and Ford Explorers instead of high end BMW’s. A big theme of the book was that you can have a high income, but if you spend it all on status items you can look rich but actually have little net worth. Now whenever I think about making a big purchase, I’ll ask myself “What would a millionaire next door do?”.
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