Wednesday, December 31, 2014

Year End 2014 Portfolio Review

The back half of 2014 was a wild ride for my personal account, I was up almost 30% at the half way mark of the year and at one point in the fall I had lost all my paper gains for the year.  I sold most of my mistakes in energy (Civeo, Paragon Offshore and to lesser extent Ultra Petroleum) and with a little luck the market perked back up salvaging much of what I gained in the first half.  But onto the results, there were no deposits or withdrawals into the blog portfolio during the period:
Another good year, and I'm pleased to keep my lifetime-to-date IRR above 20% which is my goal over the course of the market cycle(s).  I really enjoy the investing process over the proceeds, but if I'm not out performing, might as well consolidate my holdings into index funds and focus more time/energy on my day job.  Moving to 2015, my aim is to reduce the number and impact of my mistakes, which will likely mean fewer trades and potentially more diversification, but I'll continue to highlight interesting ideas for the blog, even if they don't make it into my personal account.

Below is breakdown of the attribution of each holding during the year to my performance, which is interesting at least to me, the grayed out holdings were closed out during 2014:
And then below are my current holdings as of end of day 12/31/14:
Additional Miscellaneous Thoughts:
New Media vs News Corp
Missed the opportunity in New Media (NEWM), Fortress has executed nicely on their plan to rollup small local newspapers and basically doubled this year.  I might have to change my strict rule against third party management agreements to just a higher hurdle to overcome.  I picked the wrong horse in the newspaper spinoff crowd (at least in the short term) with News Corp (NWSA), it's my lowest conviction holding currently, while incredibly cheap on a sum of the parts basis, shareholder returns don't seem to be their top priority.  If you listen to CEO Robert Thompson on any of their quarterly calls, its more about story telling, empire building and self promotion than actual business results.  I like their assets, but may find a better use for this cash soon.

Civeo Corp
Obviously was a disastrous investment for me, I got a little too excited with REIT conversions and then add the spinoff dynamics with a couple respected hedge funds backing it... turned out to be peak everything in one.  Luckily I trimmed some of my position in July at $26.50, but still took a big hit with the downgrade in guidance and rejection of the REIT conversion, and sold everything in October at $12.00, was lucky to avoid the next leg down this week.  There's some good discussion in the comments section of my two posts on Civeo, could be an interesting addition to a basket trade of washed out energy names in 2015.  Not that I'll likely be participating, need to recalibrate my ability to take the market temperature in commodity industries, have some work do before I'd feel like its in my circle of competence again.

NOL Shells
I like the NOL theme right now, most of these companies seem below the radar (or restricted) of larger hedge funds/other investors, and a less crowded theme than spinoffs.  I've highlighted a few this year in Green Brick Partners (GRBK), MMA Capital Management (MMAC), Par Petroleum (PARR), Tropicana Entertainment (TPCA), and Cadus Corporation (KDUS).  Others that I'm looking at and might blog about in upcoming posts include Signature Group Holdings (SGGH), WMI Holdings (WMIH), and Special Diversified Opportunities (SDOI); Signature has made it's operating company purchase and WMIH and SDOI are still looking at potential acquisitions.

Thank you to everyone for reading and happy new year.

Disclosure: Table above is my blog/hobby portfolio, its a taxable account, and a relatively small slice of my overall asset allocation which follows a more diversified low-cost index approach.  The use of margin debt/options/concentration doesn't represent my true risk tolerance.


  1. I got caught up in CVEO too. I sold it the day that they announced not going forward with the REIT conversion. Turned out to be a good move.

    I actually first saw this blog when I was researching BIOF/GRBK. So I obviously have developed a similar interest in NOL shell companies. As a 'cheat sheet' to finding such companies I look at the portfolios of Warren Lichtenstein and Jonathan Couchman. I started researching NOL stubs last year and bought my first one outside of BIOF a month ago.

    The mechanics of NOL stub investment are pretty awesome. My current logic is that I'm going to take a basket approach for the ones that don't have a deal yet. But once they go into 'workout mode' you can increase your position size significantly if the acquiring company is a good deal or just sell out. I guess its basically the same strategy for net-nets. Only there are plenty of reasonably priced NOL stubs.

    I thought GRBK was a good deal but I'm not sure if SGGH is a good one or not. At first glance it looks like a bad deal.

    1. Thanks for the comment, I've had enough people ask me about SGGH that I'll put together my thoughts in a post in the next week or two. But initially I get a very promotional vibe from management, the acquisition they did has a number of adjustments to get to the quoted 6.5x EBITDA price tag, plus leading the press release with "the world's largest" just has an ick factor to it. Another picky thing is their presentation template and overall style seems like a free lunch seminar, but I'll dig deeper into the numbers and transaction details in an upcoming post.

  2. On the subject of NOL shells, my 2 cents: You guys should look at WMIH because (1) WMIH has ~$6B in NOLs, that dwarfs most NOL shells out there and (2) they just got $600M from KKR/Citi to go acquire a business or businesses.

    1. I mentioned I'm looking at WMIH as well, the capital structure makes my head hurt a little bit, and I'm not entirely sure how KKR/Citi can invest that much while maintaining the NOLs? I'm sure they've vetted this through an army of lawyers. But part of the reason I like NOLs (besides the obvious tax shield) is the restrictions on ownership, hard for big investors/funds to get in without triggering a change of ownership, easy for the little guys to get a free ride.

  3. MDC - love the blog...any thoughts on SDOI currently?

    1. Thanks for the kind words. I don't have any well reasoned thoughts on SDOI, only that maybe Becker might value the public entity shell more than the small NOLs, otherwise he would have made a small deal by now to monetize quicker. It's a nice cash proxy right now, limited downside, nice upside potential if a good deal gets done.