Back Home/Smart Money

Got back home yesterday. It is such a long flight. I watched

• Midnight in Paris (pretty good)
• Margin Call (disappointing)
• Amazing Race
• Friday Night Lights

But then I looked at my watch and still had four hours to go. Played a little Word Mole, read my Kindle (current book is 1491), read Smart Money and tried to nap a bit.

Smart Money had a very interesting article titled "The 400% Man". I would encourage everyone to read the attached link. It really shows what is wrong with Wall Street and the people who invest our money. Greenblatt definitely touched upon common themes in TLBTBTM when he argued that the Magic Formula was superior to mutual funds.

The article profiles Allan Meachem, a 34 year old in Utah that runs a fund which is up by 400% over 12 years. How does he do it?

• "He carefully reads company filings and other records."
• "Looks for business with great long term prospects, great management, strong cash flow and defensive moats."
• "Stresses importance of doing nothing. He says if he finds two new ideas per year that is phenomenal"
• "He typically owns between 6 and 12 stocks"
• "The first question he acts on any investment is 'where will it be in a decade'?"

The article comments that other money managers would not take this approach as concentrated portfolios are too volatile. In Margin of Safety, Seth Klarman argues the opposite. If you regularly only buy securities that are truly underpriced, it is less risky and has superior returns. That to me is what Meacham is doing.

Friday was a very flat day for me. The refinery play isn't off to a great start. I will be getting some investable funds at the end of February. I will likely largely sit in cash for a bit and see if I can find the "one or two good ideas". When I look at my portfolio I am interested in increasing holdings in NSU (gold) and STD (if there is a pullback). I think I was early in my sale of STD shares. Besides that more STO and perhaps a position in WY (if it drops back to around $20).

Update on Spiffy 50 vs Ed's Talking Stock

As my readers know, I occasionally read the Ed's Talking Stock blog. I am not sure why I read it, I suppose it is a guilty pleasure. But his investing style is fast and furious, generally based on "gut". In fact, his most recent gut call was the following:

"I added a small position right after the close in the ProShares Ultra VIX Short-Term Futures ETF (UVXY), which is a double long on the VIX Index (volatility). Call this a gut play, but the market felt like it was telling me something today. We got near the resistance, and proceeded to drop below yesterday’s close, before bouncing up at the very end to finish positive. The bounce up at the end could have just been daily short positions closing out, which isn’t a positive sign. But the drop prior to it had some meaning."

Can anyone explain this? Then a few days later:

"I dumped my ProShares Ultra VIX Short-Term Futures ETF (UVXY) for breaking my 10% rule (sell at losses of 10%), but also for vastly underperforming TVIX. I noticed TVIX was down about 3% today, while UVXY was rolling through a 9% loss.

The final line on this mistake:
UVXY: -0.62 today, -1.34 overall to $5.51 (-10.11% today, -14.57% overall)–bought at $6.45"

Now you might say I am being unfair, but anyone who reads his blog knows this is the norm. He has some rationale for buying a highly leverage ETF and then more often than not gets burned. I set-up a spiffy 50 portfolio near the end of 2010 to track against him as I had commented on his board that he traded too much and a less frantic approach would be better. I have revised the spiffy 50 just once, at the start of 2012. I am up 4.4% overall versus his down 32%. My stocks have done particularly well in 2012, up 16%. Here are the stats:

stock	Initial	Shares	Current	Daily Change	Y-day	Current Value	Total Change
AFAM	16.58	108.56	24.18	0.3%	2,619	2,625	45.8%
AMED	10.91	164.99	11.51	-0.4%	1,907	1,899	5.5%
APOL	53.87	33.41	52.23	0.2%	1,742	1,745	-3.0%
AMAT	10.71	168.07	12.74	-1.2%	2,168	2,141	19.7%
ASTX	1.89	952.38	1.96	2.9%	1,814	1,867	3.7%
CJES	20.93	86.00	22.63	0.4%	1,938	1,946	8.1%
CPLA	36.05	49.93	41.50	1.1%	2,051	2,072	15.1%
CECO	7.97	225.85	11.52	2.0%	2,550	2,602	44.5%
CRAY	6.47	278.21	7.88	1.3%	2,164	2,192	21.8%
CPIX	5.38	334.57	7.80	-1.4%	2,646	2,610	45.0%
DELL	14.63	123.03	17.40	1.5%	2,110	2,141	18.9%
DLX	22.76	79.09	25.16	1.1%	1,969	1,990	11.6%
DLB	30.51	59.00	38.61	-0.8%	2,296	2,278	26.5%
XLS	9.05	198.90	10.56	1.5%	2,068	2,100	17.8%
LNC	19.52	92.21	25.18	0.8%	2,304	2,322	29.4%
FRX	30.26	59.48	32.21	1.2%	1,894	1,916	6.4%
GTAT	7.24	248.62	9.27	1.1%	2,280	2,305	28.0%
GNW	6.55	274.81	9.34	1.5%	2,528	2,567	42.6%
GTIV	6.75	266.67	7.90	0.6%	2,093	2,107	17.0%
FCX	36.79	48.93	43.78	-0.8%	2,159	2,142	19.2%
ESI	56.89	31.64	72.40	-1.6%	2,327	2,291	27.3%
KLAC	48.25	37.31	48.55	0.5%	1,802	1,811	1.3%
KLIC	9.25	194.59	11.15	-0.8%	2,187	2,170	20.5%
LRCX	37.02	48.62	40.50	0.1%	1,967	1,969	9.4%
LPS	15.07	119.44	22.65	2.4%	2,643	2,705	50.3%
MEDW	12.82	140.41	15.10	4.1%	2,037	2,120	17.8%
MANT	31.24	57.62	34.84	-0.1%	2,009	2,007	12.2%
MDF	7.47	240.96	8.88	4.6%	2,046	2,140	18.9%
MSFT	25.96	69.34	31.37	0.3%	2,168	2,175	21.6%
MNTA	17.39	103.51	15.80	4.8%	1,561	1,635	-9.1%
NSU	5.53	325.50	4.27	0.7%	1,380	1,390	-22.8%
NOC	58.48	30.78	59.62	0.1%	1,833	1,835	2.8%
NVMI	7.37	244.23	7.93	0.6%	1,925	1,937	7.6%
PDLI	6.20	290.32	6.40	1.0%	1,841	1,858	3.2%
PETS	10.38	173.41	12.63	3.2%	2,122	2,190	22.9%
PWER	3.91	460.36	4.74	-4.4%	2,283	2,182	21.2%
RTN	48.38	37.21	50.36	-0.1%	1,876	1,874	4.1%
SAI	12.29	146.46	12.76	-0.6%	1,879	1,869	3.8%
SNDK	49.21	36.58	48.85	2.9%	1,737	1,787	-0.7%
SAVE	15.60	115.38	19.09	-1.0%	2,226	2,203	22.4%
TNAV	7.81	230.47	7.37	-1.1%	1,717	1,699	-5.6%
TER	13.63	132.06	16.58	2.2%	2,143	2,190	21.6%
TSRA	16.75	107.46	16.95	-0.2%	1,826	1,821	1.2%
USB	27.05	66.54	28.99	0.6%	1,917	1,929	7.2%
USNA	30.37	59.27	38.43	0.9%	2,258	2,278	26.5%
UIS	19.71	91.32	19.16	0.1%	1,749	1,750	-2.8%
EGY	6.04	298.01	8.48	0.5%	2,515	2,527	40.4%
VECO	20.80	86.54	29.38	3.1%	2,466	2,543	41.3%
VPHM	27.39	65.72	31.13	0.7%	2,033	2,046	13.7%
VG	2.45	734.69	2.46	-0.8%	1,822	1,807	0.4%
Totals				0.7%	103,596	104,303	4.4%
Ed	starting 12/3/10						-32.0%
MFI Index							3.4%
Russell 3000							8.4%
Ed 2012							-3.2%
Spiffy 50 2012							16.0%