Portfolio Update 2: Dec 2016

In the last post, I provided a status report for some of my biggest positions. Here is a report for the remainder, in no particular order.

National Oilwell Varco

In late July, when NOV was trading around $32, I thought that it was worth about $46 on a normalized earnings basis. While normalization will probably take a while, NOV jumped to nearly $39 recently. I promptly wrote short duration $40 covered calls on more than half my position (Dec30 and Jan17 calls). Although I like the company long-term, I expect NOV to remain range-bound in the medium-term. Given the volatility, I am happy to collect option premiums offering to buy below $30, and sell in the $40s.

Fairfax Financial

In September, I concluded FFH was “an insurer with improving operations, temporarily depressed investment returns, with a huge asymmetric bet on deflation, run by a foxy CEO with skin in the game and history of successful (albeit early) macro bets.” and put a $515-$600 price tag on it. Shares, which were trading at $580 a piece at that time, tumbled 25% to $435 in mid-Nov, as the deflation bets continued to rot away. Just before the US presidential elections, Watsa went completely into cash. Selling out of US treasuries turned out to be a good move, at least in the short term. He pulled the plug out of half the deflation bets, and currently sits on $10B of gunpowder. While I have not been a big fan of recent equity picks (which represent a small fraction of the total investment), I think the deflation bet wasn’t as terrible as some people thought. Yes, it did not work out spectacularly like the CDS bets in 2008, but that is the nature of the beast. Long term Fairfax remains a solid holding, offering excellent diversification benefits to my portfolio. I added 25% to my position on the downswing (at $465), and don’t mind doing it again at lower prices.

Markel Corporation

Markel is a great compounder. In August, I pegged MKL’s IV at about $1000/share, plus or minus $200. In late October, MKL fell to $810 following earnings, which I thought was an over-reaction. I took the opportunity to add 20% to my position at $835. I believe that over time MKL, like Berkshire, will be a core holding. Currently it constitutes slightly shy of 5% of my portfolio, and I wouldn’t mind doubling that opportunistically over time.

Mind CTI

In July, Mind CTI was trading around $2.10, and I believed that it was worth about $3. In recent weeks, shares have rallied sharply over 15% to around $2.60. It remains a hold at present prices. It pays its monster annual dividend in Spring 2017.

Colfax

In late October, CFX was trading at about $30, when I suggested it could be worth as much as $34 in the medium term. Shares have exploded over 20% in the short time since that post, currently trading at about $39. I wrote $40 covered calls (Dec16)  on half the position. While I believe that in the long term CFX is a good potential compounder, the unusually strong move in the recent past makes me nervous. I am willing to add at lower prices, and also take advantage of momentary spikes.

Cullen-Frost

I argued CFR was worth about $72/share, and subsequently wrote $75 Oct covered call on the position. As it traded slightly above the strike price near expiry, I rolled the call to Jan17 (for additional proceeds of about 2% plus a dividend). I really like CFR, just not at these prices. My goal is to roll over the calls one more time beyond Feb 2017 so that I don’t have to pay short term capital gains taxes. I don’t mind owning CFR again, sometime in the future.

Cisco Inc.

Cisco was the first stock I valued after starting this blog. My valuation suggested it was worth about $32.50 a pop, and in September I wrote $32 Jan17 covered calls. Last week, CSCO was trading between $29-$30, and I closed the covered call position profitably (1.5% return). I plan to write another call on the shares I own on any strength in the stock, or increase in the implied volatility.

Staples, Inc.

Staples is a stock I want to dispose of at some point in the near future. I don’t like the business, or its long term prospects. I believe it may be worth around $11/share, although it is difficult to put good numbers on a company with its profile. I wrote $10 covered calls on my entire position (representing 1.5% of my total portfolio) for Jan 17. Currently shares trade around $9.75, and there is a good chance that it gets called away.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s