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Portfolio holdings update August 2012

August 14, 2012

Not only have I not been posting much this summer (too much sun and beach) but I see that I have let my blog portfolio page get horribly out-of-date. Sorry. It’s now corrected and updated for trades over the past 3 months.

A quick review shows that I’ve added significantly to my Fortress Paper (FTPLF) position, as well as some incremental shares of Steel Partners Holdings (SPLP), Gravity (GRVY), Ebix (EBIX) and Hartford Financial warrants (HIG.WS).

As I was looking over my portfolio I realized that there is a large degree of inconsistency in the size of individual holdings. I’ve written about this before, but I always find that the organic growth of my portfolio combined with my micro-focused buying and selling leaves the portfolio weightings horribly out-of-line with my expectations for each holding WHEN COMPARED TO EACH OTHER. I’ve said before that I admire the Pabrai theory of having 10 to 20 equally weighted holdings in a portfolio. In practice, however, I find that I can never quite bring myself to construct a portfolio along these lines; I’m always gassed up about my latest idea and want to see it at the top of my holdings list. Add to that the fact that I try to buy into a position in gradually and I generally buy too early. Once in a while, however, I try to sit back and take a detached look at my portfolio weightings. Invariably my reaction is “HUH??? How did it get to look like THAT?” The position weightings are more often than not totally inconsistent with my expected outcome for each position. I’ll have 10% invested in shares that I think are trading at 50% of fair value and 2% in a position that I estimate is at 30% of fair value AND, ON REFLECTION, I HAVE TO CONCLUDE THAT MY ESTIMATE OF RISK IN BOTH POSITIONS IS SIMILAR. To put it another way, if you set up an expected outcome for each position based on price and probability, you should be able to look at positions in an apples-to-apples manner. For example, for stock X, if I think that the expected target price is $24 (10% probability that the stock trades at $40 in Y years, 20% probability at $30, 50% probability at $24 and 20% probability at $10), and the current price is $15, my expected return over the period is 60%. Don’t get me wrong, I don’t think you (or I) can predict stock prices any better than meteorologists can predict the weather three months from now, but at least you have a reasoned, risk adjusted expected value for each stock in your portfolio. If you do this exercise for all you holdings and then compare them you may see the same type of inconsistencies in your portfolio that I see in mine. If not, you are a better investor than I!

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2 Comments
  1. Alex H permalink

    I know as a value oriented investor you say sometimes you enter positions too early. Have you thought about waiting until volatility and volume dies down before entering?

    I don’t always get the best price (if I was buying HHC I would have waited until mid Nov and purchased around $45) but I feel like large sellers pummel stocks and often give me better average prices and confidence to buy more shares if I wait until volatility is lower.

  2. Sid permalink

    Any thoughts on the Q3 2012 GRVY results?

    Cheers!

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