Performance Overview
For Q3 2022, the multi-asset portfolio was down 5%, and down 18% YTD. The Q3 starting balance was $162,469.10, and finished the quarter at $160,358.87. Contributions to the portfolio during the quarter amounted to $6,546.
As I mentioned last quarter, I want to also report the returns of my stock picking portion of the portfolio. The Q3 starting balance was $72,164.80, with an ending balance of $77,297.12. For the return calculation, I add the proceeds from stock sales to an “internal cash” balance. Dividends received are also debited to this cash balance. Purchases of stocks are subtracted from the internal cash, unless the internal cash is depleted. This triggers a cash flow into the portfolio. Therefore the cash flow for Q3 was $10,604. Putting all of this together means the stock-only portfolio was down 6.7% for Q3, and is down 14.5% YTD.
September saw a flurry of new stock purchases: Intel (INTC), Charter Communications (CHTR), Six Flags Entertainment (SIX), Semtech Corp (SMTC), USANA Health Sciences (USNA), Fossil Group (FOSL). Stocks that were sold this quarter include Frontline (FRO), Scorpio Tankers (STNG), First Energy (FE), and Investors Title Company (ITIC). The rolling over of tail hedge put options continued.
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 87.3% of the portfolio is in stocks, while 12.7% is in cash and safe haven assets.
During the quarter I received $401.28 total in dividends, which is broken down in the table below.
| Ticker | Quarterly Dividend |
| FE | 48.75 |
| BTI | 124.55 |
| GTN | 10.80 |
| BCC | 6.60 |
| DHT | 8.60 |
| EMR | 43.78 |
| COF | 33.00 |
| SPG | 80.5 |
| WSM | 35.10 |
| KOP | 4.70 |
| HXL | 4.90 |
| Total | 401.28 |
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), British American Tobacco (BTI), Qurate Retail (QRTEA), and Warner Bros Discovery (WBD). The table below shows the cost basis, current value, and gains/losses for these positions.
| Avg Price | Cost Basis | Current Value | Current Gain (Loss) | |
| COF | 63.25 | 3,478.75 | 5,069.35 | 45.72% |
| EMR | 41.00 | 3,485.00 | 6,223.70 | 78.59% |
| SPG | 74.50 | 3,427.00 | 4,128.50 | 20.47% |
| BTI | 37.45 | 7,114.91 | 6,745.00 | -5.20% |
| QRTEA | 7.60 | 5,700.00 | 1,507.50 | -73.55% |
| WBD | 24.50 | 4,957.00 | 2,530.00 | -48.96% |
| COF | 63.25 | 3,478.75 | 5,069.35 | 45.72% |
This quarter I sold my position in First Energy. The stock has reverted to fair value now that the company is moving past its bribery scandal. I considered holding FE for the long term for its dividends, however I changed my mind. The first factor is that the company is planning large amounts of capex over the next several years, and part of that is planned to be funded by equity issuance. As a long term stockholder, I do not like to see my position diluted by issuing new stock. Secondly, I believe that utilities can pass on higher costs to users, however it is a regulated process that may take a while or not keep up with inflation. If inflation persists, then the lack of pricing power would sour the benefits of owning the stock.
| Cost Basis | Sale Proceeds | Realized Gain/Loss | |
| FE | 3,500.00 | 5,124.86 | 46.4% |
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.
The new additions to this part of the portfolio were Intel (INTC), Charter Communications (CHTR), Six Flags Entertainment (SIX), Semtech Corp (SMTC), USANA Health Sciences (USNA), and Fossil Group (FOSL).
| Avg Price | Cost Basis | Current Value | Current Gain/Loss | |
| BCC | 55.00 | 3,025.00 | 3,270.30 | 8.11% |
| GTN | 23.00 | 3,105.00 | 1,933.20 | -37.74% |
| HXL | 36.80 | 1,803.20 | 2,534.28 | 40.54% |
| KOP | 31.47 | 2,958.18 | 1,953.32 | -33.97% |
| MHO | 60.00 | 2,520.00 | 1,521.66 | -39.62% |
| SENEA | 50.00 | 3,000.00 | 3,026.40 | 0.88% |
| SMTC | 30.00 | 3,000.00 | 2,941.00 | -1.97% |
| USNA | 58.00 | 2,900.00 | 2,802.50 | -3.36% |
| CHTR | 360.00 | 3,600.00 | 3,033.50 | -15.74% |
| FOSL | 3.50 | 2,975.00 | 2,907.00 | -2.29% |
Investors Title Company was the only company sold this quarter.
| Cost Basis | Sale Proceeds | Realized Gain/Loss | |
| ITIC | 1,974.48 | 1,986.56 | 0.6% |
Tanker Stocks
The tankers are finally breaking even. I will continue to hold them, but if they start to go against me again they will be sold off.
| Avg Price | Cost Basis | Current Value | Current Gain (Loss) | |
| DHT | 8.17 | 1,755.90 | 1,625.40 | -7.43% |
| TNK | 23.86 | 1,765.88 | 2,037.96 | 15.41% |
After some progress in the share price, Scorpio and Frontline pulled back so I exited my position. In hindsight I sold too early since they have bounced back, oh well.
| Cost Basis | Sale Proceeds | Realized Gain/Loss | |
| FRO | 1,738.29 | 1,351.21 | -22.2% |
| STNG | 1,742.67 | 1,992.34 | 14.3% |
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.
| 12/31/21 | 09/30/22 | YTD Gain/Loss | YTD Contributions | |
| Precious Metals | 12,854.19 | 11,173.10 | -13.1% | 0 |
| 401k | 60,578.76 | 60,636.83 | -22.9% | 16,329.14 |
Tail Hedging
This quarter I continued a tail hedging strategy that I have used in the past. The strategy involves buying 30% out of the money SPY put options that expire in a couple of months. Each month options are sold and a new set is bought. This quarter, the options have had a cost of $1,719.05, with no gains.