Tuesday, November 24, 2015

Update on the Greedy Dragon Portfolio



Disclaimer: Please do your own research before investing in anything. I’m NOT encouraging you to buy or sell any of the stocks mentioned in this article. Due to the fact that things can change, the reasons I had to buy or sell any of the stocks mentioned in this article may no longer be valid. This article simply reflects what I think at the time this article was uploaded, I could very well be wrong in my thinking.


Greetings value investing badasses and bad bitches. In this article I will quickly go over what I bought and sold for the Greedy Dragon portfolio since my last update in July. Since I don’t have anything in particular to ramble on about today, let’s just get down to business.

Bought

Skechers: I added this stock to the portfolio because the company has been experiencing pretty strong growth recently, it’s earning attractive returns on capital, and I think its stock is reasonably valued. 


Oasis petroleum: I bought the stock because I think it was oversold, and because I think that the company has a good chance to survive this crisis.


Northern Oil & Gas: I added to my position in Northern Oil & Gas for pretty much the same reasons as Oasis Petroleum. You read my analysis of Northern Oil & Gas here.


Fossil: I invested in Fossil because I thought it was undervalued and it was a business that generated good returns on capital. Investing in Fossil (and Skechers) also gives the portfolio exposure to the retail industry which is pretty sweet as I wanted to diversify the portfolio from just banks and natural resource companies. 


Banco Santander: I took a position in the bank as I think it is reasonably valued, and it has a healthy dividend yield (even after the dividend cut this year). The earnings of the bank could also get a boost in the event that there is a recovery in the EU and the Euro, and/or a recovery in the Latin American economies and their currencies. I also welcome the geographical diversification my investment in Banco Santander brings to the Greedy Dragon portfolio as much as I welcome an extra egg in a bowl of instant noodles, which is a lot.


Natural Resource Partners: I added to my position in Natural Resource Partners because I think the stock was undervalued. The stock also has a good dividend yield. However, I won’t count on the dividend as the company has been aggressively cutting its dividend so that it has more cash to reduce debt in this tough environment, a move I completely support.


Maybank: I bought shares in the bank basically because I think it’s reasonably valued, it earns a decent return on capital, and it has an attractive dividend yield. I’m trying to set up the portfolio to generate more cash flow, so I don’t have to sell a stock which I think is cheap just to buy a stock that I think is cheaper. You can read my analysis of Maybank here.

Sold

Sandridge Energy: Had to cut my loss on this stock, unfortunately I sold way too late. A large amount of protection this company got from its hedges will be gone next year. I think the company will have a difficult time making interest payments and funding its capex program to maintain production without using up a significant amount of its cash reserves. It was a bad decision to invest and hold on to this stock for as long as I did. This will be a case study in my “Investment Screw Ups (as in my own screw ups)” series. You can read about it when it’s up.


Mongolia Growth Group: This investment was another damn train wreck. This decision to invest in this company will be another case study in the “Investment Screw Ups (as in my own screw ups)” series. If you like reading about money being burnt to ash, you will probably like the articles in the series.   


National Bankshares: Sold the stock to raise capital. Although I sold the stock below the price I bought it for, I still made money if you factor in dividends and the appreciation of the USD.


Banco de Chile: Sold this position for pretty much the same reason I sold my stake in National Bankshares.


Part of my position in Comstock Resources: I sold some of my shares of Comstock Resources to raise capital to invest in other natural resource stocks.  I didn’t want the portfolio to have too large an exposure to the natural resource sector; don’t want to go broke because I didn’t manage my concentration risk. In hindsight, I should have sold all my shares in Comstock Resources back then. Natural gas prices have fell significantly recently with all the talk of a warm winter in the U.S. This, in my opinion, makes the stock a riskier investment. If I was running a professional hedge fund, I would have probably offloaded this position by now. But since this is my own money, I decided to gamble a little and wait for a rally in the energy sector before selling (The tiny angel Warren Buffett on my shoulder disapproves of this decision).         



Thank you for following my blog despite me not uploading many articles this year. You guys are awesome. Take care and stay rational.

Tuesday, November 10, 2015

Investment screw ups (as in my screw ups) part I



Sup guys! I’m sure many of you have read articles describing some investment mistakes that you should avoid. The mistakes will probably not be the mistakes made by the author himself, of course. Well, I don’t mind owning my screw ups and looking like an idiot when it’s deserved. And I know no better place to kick off this series than with the Greedy Dragon portfolio’s first (and hopefully last) position to go bankrupt: Alpha Natural Resources, a coal miner.

Lesson number 1: You ain’t no Carl Icahn

I stupidly held on to the stock because it still had a significant amount of cash on its balance sheet. My reasoning was that the cash could buy management time to close down or sell unprofitable mines, buyback debt at sharp discounts to par, and do other neat stuff to get things back on track. Boy, was I a na├»ve little piglet in the headlights of an oncoming 18-wheeler when I learned that management might not actually do the right things for shareholders. I’m not a Carl Icahn who can meaningfully change the direction of a company by investing hundreds of millions or billions of dollars in a company and getting a few board seats. I’m just a small shareholder who has no say in what management does. However, I could still defend myself by simply selling the fucking stock. But because I wasn’t smart enough to sell, I have no one to blame but myself.

Lesson number 2: Markets can remain depressed longer than a company can remain solvent

While the company did have a healthy amount of cash, it was cash flow negative. Unless coal prices recovered, it was just a matter of time before the company went belly up. I was hoping that coal prices would recover before the company burned through its cash. In effect, I was gambling and not investing, and I got caught with my dick out. I should have recognized that I didn’t have a fucking clue when the market for coal would recover. For all I know, coal prices could remain depressed for the next decade. That’s why when investing in troubled industries, it’s important to find companies that are still capable of generating free cash flow despite the shit they have to deal with. After all, you can never be sure when things will turn the corner.  


I’m pretty sure that I’ve read about most of the investment mistakes that I’ve made in some article or textbook. While I’ve forgotten what I learned then, hopefully losing money in real life will burn these lessons into my memory so I don’t forget them again. I hope you guys learned a thing or two from my fuck ups. I know I haven’t written about what I’ve done with the Greedy Dragon portfolio in months, so I’ll work on that soon. Thank you for reading. Take care and stay rational.