Investment Portfolio - Grossbaum

[Grossbaum]

I am going to start putting out a quarterly note providing details about a hypothetical investment portfolio that I think will do well over time (unfortunately my firm doesn't allow me to directly invest in individual securities, otherwise this is how I would invest my portfolio).

 

The goal is to try and somewhat "formalize" an investment track record for myself - such that if in a few years, I start an investment management company, I can provide some details on how I have done in this hypothetical portfolio over the past few years.

 

The inception date of this "portfolio" is March 14th, so I have been tracking it for 2 full quarters now. I hope that by making it "public" and putting my investing ability somewhat on the line, it will help me to treat this portfolio as seriously as if it were my own money that was invested in these securities.

 

This won't be of much interest to most readers and I hesitate to even post it, but perhaps if there is interest in any of these securities it can start a discussion (although most already have their own threads).

Investment_Portfolio_Q3_2019.pdf

Portfolio_Details_10.18.2019.pdf

[stahleyp]

I doubt that having a hypothetical portfolio will be much of a selling point.

 

If you're good, raising funds isn't that difficult. Raising the right kind of funds and having the right investor base is the bigger hurdle.

[Grossbaum]

Portfolio update for Q4.

 

2019 Returns

Portfolio +22.8%

S&P 500 +16.8%

(from March 14 inception)

 

Sold NLSN after strategic alternatives concluded without a sale (either of the whole company or a segment). Instead there will be a spinoff of the "Global Media Business" (Buy segment). The original thesis was that NLSN was a moderately undervalued company with a potential catalyst from the strategic alternatives. I was hoping the discounted valuation would protect the share price if there was no sale as a result of the strategic review. That did not turn out to be the case (from the price I purchased at). I plan to keep an eye on the spin docs.

 

Sold CISN after a buyout offer from a private equity firm.

 

Bought Legacy Housing (LEGH) on the thesis that it is a moderately valued, manufactured home builder and lender run by a strong management team that has the ability to responsibly grow the business - perhaps significantly.

 

Increased position in OZK and CWH.

Portfolio_Details_12.31.19.pdf

Investment_Portfolio_Q4_2019_1.pdf

[Grossbaum]

Portfolio update for Q1.

 

Q1 2020 Returns

Portfolio -36.5%

S&P500TR -19.6%

 

Since Inception

Portfolio -22.0%

S&P500TR -6.1%

 

That was unpleasant. No transactions in the quarter. I believe the holdings are attractive at current prices, which may or may not prove to be true. I wasn't able to swap into more attractive things as prices fell.

Investment_Portfolio_Q1_2020.pdf

[Grossbaum]

Quick correction. There were a few small transactions early in the quarter:

 

Sold USB and WBA and purchased First National (FN.TO), thinking that First National was a more attractive opportunity.

 

First National (FN) is a conservatively run company that originates and services mortgages in Canada. It is the largest non bank lender. I believe I was purchasing shares at 12x earnings ($3 EPS, $37.90 price). If you combine the 8% earnings yield (at purchase price) with 6% earnings growth you would get 14% annual growth in value, assuming no increase in multiple.

 

Full post link here https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/fn-to-first-national-financial/msg394954/#msg394954

[Grossbaum]

Portfolio update for Q2.

 

Q2 2020 Returns

Portfolio 47.3%

S&P500TR 20.5%

 

Since Inception

Portfolio 11.7%

S&P500TR 13.2%

 

During the quarter I added to First National Financial (FN). I believe the company will manage through the downturn and profitability will increase coming out the other side, as competitors back away from the market and spreads widen. This dynamic took place during the Great Recession.

 

I initiated a position in Marathon Petroleum (MPC) during the quarter. I believe the combined value of MPC's three businesses (Refining, Retail, & Midstream) are worth more than the market is giving it credit for at the moment. The separation or sale of the Retail business may cause the market to revalue MPC. Initial write up here: https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/mpc-marathon-petroleum/msg420041/#msg420041

 

I sold AAPL and bought the above securities as I think they will provide more attractive forward returns.

 

 

Investment_Portfolio_Q2_2020.pdf

[valueinvestor]

Did you buy CWH on the bottom? Even though I've been watching Marcus and CWH for years, I've completely blanked out and didn't remember this was a stock. If so - great call.

 

I'm still kicking myself for CWH and Wayfair.

 

I think you'll do well long term!

[Maple Fun]

Congrats on Q2! Like your posts!

[Grossbaum]

@valueinvestor - Thanks. I bought CWH at ~$13 in March 2019 and added at ~$9 in August 2019 - so it's been a bit of a wild ride. Obviously sales increase due to a pandemic wasn't part of the thesis, so that was lucky. My thinking was that, before the Gander Mountain gamble, CWH was able to earn about $420m of operating income in 2017 with about 115 RV locations and 1.8m Good Sam members. Now, post Gander Mountain experiment, CWH has about 157 RV locations and 2.2m Good Sam members. Granted 2017 was a very strong year for RV industry sales, but I was thinking a normalized operating income number going forward might be $420m or higher. At the current price of $27/sh, $420m of EBIT would be about a 8.2x EV/EBIT multiple. I might be over estimating normalized operating income. CWH operating margins in 2017 were almost 8% and perhaps those levels will be hard to reach in the future. I guess we'll see.

 

@Maple Fun - Thanks for the comment

[valueinvestor]

That's awesome. It's hard to buy down, feels like catching a falling knife.

[Grossbaum]

Portfolio update for Q3.

 

Q3 2020 Returns

Portfolio 11.6%

S&P500TR 8.9%

 

Since Inception

Portfolio 24.4%

S&P500TR 23.3%

 

During the quarter I sold a part of the CWH position and used the proceeds to increase already held positions in FN, EQB, DISCK, OZK, MPC, and ST. The shares of CWH that were sold, were sold at $37. In my opinion, CWH is still a fairly attractive investment at that price, but obviously less attractive than when it was at much lower prices.

 

Towards the end of the quarter, I also sold the small position in BPY and used the proceeds to add again to MPC as the price continued to fall.

Investment_Portfolio_Q3_2020.pdf

[Grossbaum]

Portfolio update for Q4.

 

Q4 2020 Returns

Portfolio 25.0%

S&P500TR 12.1%

 

2020 Returns

Portfolio 26.8%

S&P500TR 18.4%

 

Since Inception - Cumulative

Portfolio 55.6%

S&P500TR 38.3%

 

Since Inception - Annualized

Portfolio 27.8%

S&P500TR 19.7%

 

The only buy/sell transaction in the quarter was a small purchase of Thor Industries (THO) at the end of the quarter. Thor is the largest RV manufacturer in the world and is well run. The company has returns on tangible assets (EBIT/Tangible Assets) of about 40% and was purchased for about 10x estimated normalized earnings. Full post link here: https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/tho-thor-industries/msg443715/#msg443715

Investment_Portfolio_Q4.pdf

[Guest cherzeca]

nice job!

[Grossbaum]

Portfolio update for Q1.

 

                         Portfolio Return        S&P500TR             Relative

2019*.................      22.7%                     16.8%                    5.9%

2020..................      26.8%                     18.4%                   8.4%

2021 YTD..........      27.8%                      6.2%                    21.7%

Cumulative              98.9%                     46.8%                  52.1%

Annualized               39.9%                    20.6%                   19.2%

 

 

In mid February I sold Marathon Petroleum (MPC) and invested the proceeds into buying more Legacy Housing Corp (LEGH) and more Thor Industries (THO), as I saw these as more attractive investments at then prevailing valuations. 

In mid March I sold Tegna Inc (TGNA) and trimmed Discovery Communications (DISCK) and invested the proceeds into Global Indemnity (GBLI). There is an investment thesis for Global Indemnity posted on the Value Investors Club website that makes a compelling case for investment, in my opinion. The brief summary is that GBLI is a respectable and stable insurance company selling at ~0.6x BV. The Company is over capitalized and it seems there are steps being taken to perhaps reduce this overcapitalization - and potentially improve the market's perception of the business, such that it trades at multiples more in line with peers. 

 

(I cannot figure out how to attach a PDF with the portfolio details to this post. If I find the capability to attach a file, I will do so subsequently).  

*March 14, 2019 inception date

[Grossbaum]

Portfolio Details Attached. 

Investment Portfolio Q1 2021.pdf

[Agrippa07]

great job 

[Cigarbutt]

On 3/31/2021 at 5:13 PM, Grossbaum said:

...and invested the proceeds into Global Indemnity (GBLI). There is an investment thesis for Global Indemnity posted on the Value Investors Club website that makes a compelling case for investment, in my opinion. The brief summary is that GBLI is a respectable and stable insurance company selling at ~0.6x BV. The Company is over capitalized and it seems there are steps being taken to perhaps reduce this overcapitalization - and potentially improve the market's perception of the business, such that it trades at multiples more in line with peers. 

 

This is interesting. This may be an interesting idea for a separate thread. The basic thesis is a re-rate over time based on net results that would end up better than expected.

Their core 1-specialty commercial lines and 2-reinsurance lines have a very decent longer term track record (for 2012-20 period, 1- CAGR NPW 6.4% and avg CR 92.3%, 2- CAGR 4.8% and avg CR 90.1%). This part is looking reasonably good going forward and even with no growth and 100% CR on other lines (personal, farm, ranch etc), a base case scenario of 3.4% float growth is quite reasonable in the next few years.

So, using a few reasonable assumptions, in five years, underwriting income=45 + float portfolio yield=52 - interest expense=10 - corporate expense=20 - 15% tax rate=10 ---)57M net income warranting a PE of 12 and an EPS of 4.00. This would mean an improved ROE 6 to 7% and a price to book going to 0.8, meaning (with dividend yield of about 3%) a potential CAGR of about 13% with 29.50 as starting share price.

Of course, results could be wildly better or wildly worse but this appears to be a middle ground scenario. The main negatives (apart from the usual risks) are 1-the fate of the poor performing lines and the recently changed strategy for reinsurance lines (significant move from property to casualty). The main positive includes some excess capitalization (estimated at around 210M at this point) which gives flexibility to improve future outcomes ie grow in a hard market, absorb an unexpected shock, opportunistic buybacks or 'special' dividends.

Results for this company have been noisy and property casualty insurers are not exactly in the limelight so the core earning power of GBLI (smaller niche player) may be underestimated at this point.

[CapriciousCapital]

Well, I know what I'm reading this weekend-- http://www.columbia.edu/~dn75/Analysis and Valuation of Insurance Companies - Final.pdf