Portfolio Review 2017

As 2017 winds down, here is a review of my top holdings.

Cash

I started the year with 16% of my portfolio in cash. As the year wore on, I added new capital, and sold off more positions than I bought.

As a result, I ended the year with an uncharacteristically high cash position of 38%. I am starting to get uncomfortable, and hope not to get trigger-happy.

I disposed off significant stakes in Apple, Cisco, and Cullen-Frost as the positions reached my estimates of fair value. I also began cleaning house by eliminating several small positions that had accumulated over the years (Staples, Hanover Foods, and SPE). I did not have much conviction, or meaningful exposure in these names.

I also sold Weight Watchers for an approximately 40% loss ($15-18) just before it blasted off to nearly $50.

I added to Fairfax Financial and Oaktree Capital, and opened (small, but potentially growing) new positions in ALJ Regional Holdings, Under Armour, and GameStop.

Berkshire Hathaway

BRK.B started the year at $163, climbed to $190 in mid-October, before slouching down to the low $180s in early December. Since then it has whipsawed to nearly $200. It represents over 10% of my portfolio. I did not add or subtract from my holdings during the year. I believe the intrinsic value of BRK is probably a little north of $200.

Fairfax Financial

FFH was a 4.5% holding at the end of last year. For much of the first half of 2017 FFH traded between $420 and $460. I took the opportunity to raise my position to nearly 6% of my portfolio. Currently the stock price is in the $520-$540 range. I believe its intrinsic value is at least 10-15% higher ($580-$600).

Leucadia National

LUK is a 6% position. It has been tossed around between a “support” of $22-23 and a “resistance”  of $26-27 for much of the year. The operational performance, especially at National Beef, has improved considerably.

My latest estimate of IV pegs LUK at $32. It also raised its dividend yield to about 1.5% during the year.

Oaktree Financial

OAK started the year at $40, dipped to $37.50 in the first quarter, and subsequently spent the bulk of the year in the upper 40s. I added to my position at $39 and sold a similar-sized chunk at $47 a few months later, thus lowering my cost basis.

Recently, I updated my valuation notes, and figured OAK was worth $55-$60. I started writing puts and ended up buying a slug in the low 40s, recently. It is a 5.5% position.

IBM

IBM started the year at $170. Since I had assessed its IV to be around $165, I began writing $175 covered calls on 2/3 of my position, which eventually got called away, when the stock rose to $180 in February. Then the news of Buffett paring down his position became public, and IBM drifted down to $140 by mid-August.

Unfortunately, I bought back the position I had sold a little too early (around $165), and rode the roller-coaster all the way down to the 52 week lows. It looks like things have started to turn. The stock is currently in the low $150s, and pays a nearly 4% dividend. It is currently a 4.4% position.

Wells Fargo

WFC started the year at $55, and oscillated between $50 and $60 throughout the year. While I did not add to my 4% position, I wrote plenty of cash-secured puts in the low 50s, with the intent of adding to my position. I earned well over $1000 in premiums, almost twice what I earned from its nearly 3% dividend yield. I believe that WFC is a buy in the low $50s or below, since its IV is probably somewhere around $60.

 

Other

Other ~3% positions, which I did not touch over the year include:

  • MKL: 3.7% position, trading nears its IV of $1080.
  • XOM: 3.1% position, trading in the low 80s, after starting the year strong in the low $90s (IV ~ $90).
  • CFX: ~3% position, spent the year between $35 and $43. I collected nearly $2700
    ($6.75/share) in covered call premiums by offering to sell around $40.
  • MNDO: 3.1% position, trading above $2.50 for much of the year (IV ~ $3)

New Positions

I initiated positions in ALJJ (2.8%), UA (2.0%), and GME (1%) this year. I plan to build these positions up on price weakness. I believe all three stocks are materially undervalued.

In 3-5 years, it is easy to visualize a scenario where ALJJ could be worth >$5.0, UA > $30, and GME ~ $30.

GameStop is something of a wildcard. It has healthy current cash-flows and pays a fat dividend (>8%), but its core business is seriously impaired. I don’t plan on allocating more than 2% to GME.

With ALJJ and UA, I can see myself taking on a full 5% position if prices remain or become more attractive.

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