Portfolio Review 2018

2018 was a drama queen. She went up and down, up and down, and up (?; one trading day left). We got our 20% correction; volatility came roaring back; and after a long period  of slim pickings, the orchard seems ripe with opportunity.

At the end of 2018, my top 10 holdings, after cash (18%), are as follows:

  1. BRKB (13%)
  2. FB (9.2%)
  3. FRFHF (5.2%)
  4. OAK (5.0%)
  5. WFC (4.7%)
  6. TCEHY (4.7%)
  7. CHTR (3.9%)
  8. MCK (3.8%)
  9. MKL (3.7%)
  10. JEF (3.6%)

The numbers in parenthesis denote the percent of portfolio. Collectively, they constitute nearly 3/4 of my current portfolio.

Four of the top ten holdings (bold) are new positions for me. Let me run through what my current “position” on the top six (4%+) of these holdings is.

I will write up the other four some other time.

I expect BRK, FFH, OAK to thrive in a downturn. Sure, they will go down with the stock market, for sure, but they will emerge stronger at the other end.

 BRKB

I believe the IV is somewhere near $250, about 20% higher than current prices. Given their large cash hoard, relatively defensive posture, and flexible buyback policy, I like Berkshire as a top weighting going into 2019, with whatever traps or opportunities it brings.

Berkshire started the year at around $200, swung +/- $15-20 over the year to end up roughly where it started.

I added 25% to my already large position, at around $190/share, earlier in the year.

FB

This is a new one for me. Facebook has been absolutely hammered this year. Despite its increased CapEx, FB remains an insanely profitable company with a significant growth runway. It trades at an average (market) multiple, despite being an above average company in terms of growth and return on capital.

My relationship with FB is complicated. Personally, I stopped using the app sometime in Feb-March 2017. I haven’t felt the urge to reactivate. But perhaps I will in 2019, just to see if it has made progress on facilitating a less combative/superficial environment.

FB started the year in the mid-$180s, dropped to $160s, when I started writing some puts, only to blast off to $220, before collapsing to the $120s in December. I started buying perhaps too early; my effective buy price is around $160, although that might shift since I’ve been exploiting the volatility to sell puts and calls to back into my final position size.

Fairfax Financial

FRFHF started the year in the low $500s and dropped to $485, when I promptly added about 15% to my position. I saw it rise to $580 in mid-June, patting myself on my back for being a genius, only to be humbled as the stock fell to $420s in December.

The BVPS as of 9/2018 was $421. At current prices, the stock trades nearly at book value. Prem Watsa has said that he think the stock is worth a lot more than book value. I haven’t added in the recent downturn. Nevertheless, Fairfax plays an interesting role in my portfolio. It offers exposure to Africa and India. It has a reasonable cash position, and would survive (thrive?) in a downturn.

OAK

When I last looked at OAK, I believed it to be worth north of $50. Oaktree spent most of the year in a rather tight range between $40-$45. I took to writing some puts when it approached $40, but didn’t meaningfully add or subtract my position.

OAK needs bad stuff to happen to sow seeds. It is in the aftermath of market crashes that it flowers. This year, finally, there is increased volatility. As interest rates rise, weak companies will succumb to increased debt payments. In their ruins, Oaktree will find value. Right now, I just enjoy the fat 7% dividend. In 2018 alone, I collected over $2k in distributions.

WFC

Wells Fargo, along with many other financials, got slammed in the last quarter of the year. I added 50% to my position, and have several puts out. I think Wells is worth about $60. Along with FB, this is probably my best “safe” idea.

TCEHY

Tencent is a new “big” position for me. I started buying slowly around $48, and scaled into my final position near $35, for an average cost around $40. At one point, the stock had been cut nearly into half its 52-week high near $60. It has recovered somewhat in the last few weeks.

Tencent is a dominant company in a geography (China) that the rest of my portfolio has (had?) very little direct exposure to. I believe that over reasonably long time frames, Tencent ought to return a respectable double-digit compounded return.

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