Top 12 Holdings | An update largest positions

An update on my largest positions

Published on:
February 23, 2019
Written on:

About The Author

Noam Ganel, CFA is the founder of Pen&Paper, a value-oriented, contrary-minded journal of the financial markets. Noam worked as a Vice President in Capital Markets at Silvergate (publicly traded on NYSE under SI since Nov-2019.) At SI, which he joined in 2010, Noam was responsible for advisory services to family offices,  private companies, and financial advisors.

Frontier Communications

I bought the stock of Frontier in March of last year. In that article, I smugly wrote that, "sometimes, all we really need is one good investment idea."

But a year passed and I am not as confident. When I bought the stock, Frontier's valuation was low, I thought, compared to prior years. But I did not study the telecommunication industry enough to understand what an appropriate valuation would be.

I own 8,000 shares in Frontier and my cost basis is about $5 per share. The stock now trades at $2.55, which results in a 50% loss in market value or $20,000.

Orchid Paper Company

When I bought the stock of Orchid I overlooked important information. One example is that Orchid had only four customers. More so, Benjamin Graham would find it disgraceful that I utterly ignored the right side of Orchid’s balance sheet.

I did learn about securities lending by investing in Orchid. A few months after I had purchased the stock, a Charles Schwab representative called and inquired whether I would lend my Orchid shares to short sellers at a rate of over 52%. Sure, I replied, and you can read about it in “The Time Charles Schwab Asked for a Loan From Me”.

I own 10,000 shares in Orchid; my cost basis is about $3 and the stock trades at $1, an $18,000 paper loss and almost a 40% loss in market value.  

Lifeway Food

Lifeway's management is highly invested in the company, the company carries little debt obligations, generates ample after-tax cash flow and I consume their product on a weekly basis.

In August of last year I described the normalized earnings for the business - my opinion of the company did not change.

I own 10,000 shares in Lifeway, which I bought for $3 a share; the stock trades for $2.36, a $6,300 or 21% paper loss.

Tupperware Brands  

I learned about Tupperware from Guy Spier who described his purchase of the company in The Education of a Value Investor. But what Spier hated about Tupperware when the stock traded at $45, I did not mind as much as when it was trading at $36.

So, I bought 600 shares in August of last year and comically wrote to Tupperware's management about its ill use of leverage.

My cost basis is $36 and the stock trades at $31, a 14% paper loss or $3,024.  

Diversified Restaurant

I bought 17,000 shares of Diversified at a cost of $1.25. I estimated the value of the stock to be roughly $2 per share. In A Senseless Market Capitalization I explained my investment thesis; mainly, that the cost of buying shares in SAUC was much less than developing similar restaurants. And that I was confident that Paul Brown, who had revamped Arby's, is an excellent manager. The stock price is $0.93 which results in a paper loss of $4,446 and the stock is down 25% from my cost basis.  

L Brands

Not the lure of attractive women walking down an aisle while wearing laundry convinced me of buying shares in the L Brands - it was the accounting profession. In September of last year,  I wrote about the deficit in the equity account that was related to the company buying its own shares.

I had bought 1,000 shares, at $30 per share, and the stock trades for $27, a paper loss of $2,921 or 10% per share.  

The remaining companies

I have a paper gain on the remaining 6 stocks. I will write more on each stock when I sell them. Purchased in May of last year, Patterson Companies, which I wrote about in One Advantage of Short Term Thinking? A Cheap Stock Price is worth slightly more than when I bought it.

Stericycle, which I bought last month, is trading at roughly the same price and so is the common stock of Voxx International, which I wrote about in January of this year

I purchased in that month, too, the stock of Carriage Services which is up 19% and so is the stock of Seritage Growth Properties, which is up 10% and ARC Documents Solutions, which is up 15%.

It is not by accident that I write about my paper loss and hardly mention the stocks with a paper gain. The reason for the disproportionate attention is that there is nothing to be learned when a stock is purchased less than year ago and is now randomly trading at a higher price. To hold such positions does not take any mental energy.

But that it is different when positions are trading at 50% - and even 60% - below the cost basis. Such paper loss forces me to reflect on why I had bought the stock in the first place; to observe why the stock market is bearish on the future of the company, and to assess whether I was wrong in buying the shares in the first place. 

Most of all: a paper loss requires the attributes of patience and conviction. The last two are not easily attained.

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