In 2009 I began to write a weekly journal so that I could have a better appreciation of the present and a greater sense of direction for the future.
But until this week, I never took the time to look back at my actions in the stock market. So this week's essay is a summary of these activities. Not unlike a horse race, below is my scorecard.
I now own the common stock of 21 publicly-traded companies that operate in various industries; from airlines (Hawaiian Holdings) to specialty retail (Signet Jewelers); from media companies such as Beasley Broadcast Group to Carriage Services, a death care company.
Some are large companies - L Brand market capitalization is $7 billion for example - and some companies are small (Lifeway Food, the maker of Kefir milk, has market capitalization less than $50 million.)
Practically all my positions are less than a year old; Patterson Companies is the only company I've held for 14 months. Over the past year, on average, I bought two positions every month and reduced my position in three companies: Diversified Restaurant Holdings, Lifeway Food and ARC Documents Solutions.
Not unlike the Russell 2000 index, my portfolio market price dropped in May of this year and in December of last year. In May, the portfolio lost 6% in (unrealized) market price compared to 8% in market loss for the Russell 2000. In December, the portfolio market price fell by 11% while the Russell 2000 lost 12%. On an annual comparison, my portfolio is down 7.6% while the Russell 2000 is down 6.4%.
The reason for the drop in market value is due to two positions The first is Orchid Paper, a position with which I started with 4,000 shares in July 2018 and then bought 6,000 more shares in October 2018. Orchid filed for bankruptcy in May of this year. While I did not sell my Orchid position, I "wrote down" to zero the value of this position. This was an unforced error on my part. Click here to read why.
Frontier Communications was the second reason for the market loss. I bought 2,500 shares in July of last year and then bought 5,500 more shares in November. My cost basis is $4 and the market price of the stock is now 70% lower. I am holding 8,000 shares, but I am uncertain where Frontier will be in two or three years. I am certain, however, that today I would never have bought Frontier in the first place.
I learned more about stock investments over the last 12 months than I did over the past decade. As with many other things in life, there is no substitute for actual, real world experience (can you imagine learning to ride your bike by reading about it?)
Last year, I generated stock ideas mainly by observing price movements; today, I research what other value investors are buying. Last year, I was watching the list of 52-week low; today I watch daily the market price of over 50 stocks and built stock screens.
I also think on the portfolio-level. While a year ago I had 8 positions that represented 55% of the portfolio, today the entire 21 positions represent 52% of the portfolio (the rest is in cash). A year ago, I was running a very concentrated portfolio. Today, no stock represents more than 5% of the portfolio.
So I evolved. Because I used to follow the adage that "investing is not looking at the market price of the stocks;” - I never tracked the portfolio's value. But as preparation for this essay, I reviewed the portfolio and found the process valuable.
It now takes less than 20 seconds to answer questions, such as how did the portfolio return compare to the benchmark return in December, and which stocks performed best or worse during that month?
I invested over 750 hours over the last year in screening, researching, reading, analyzing, reviewing, comparing and thinking about stocks. If we assume that my hourly rate is $60, then I could have earned $45,000 pre-tax had I bought an ETF that tracks the value of the Russell 2000 instead of hand picking stocks myself.
But I expect at least 5 stocks to double in price over the next three years. Should that be the case, it will make up for the $45,000 in "opportunity cost,".
Some of these names include Hyster-Male, a lift truck company, Superior Industries, an aluminum wheel manufacturer, Gulfport Energy, a natural gas company and Flexsteel Industries, a furniture company.
That is just the economic side of the things. There is no price, or perhaps it was priceless, to find a craft which I am passionate about.
In a recent meeting I attended, my greatest strength was assessed as a passion for study - stock investing is one of the most enjoyable avenues to exercise this skill.
Similar to physical exercise, over the last year I overcame hurdles and now feel mentally stronger. For example my stock portion of the portfolio dropped by 40% in December of last year (but because I had reserved cash, the total effect on the portfolio was less than 10%). Not only did that not scare me, I bought Seritage Growth Companies and Voxx International during that month.
In short, tracking the portfolio allows to live with the past, not in the past.