Here are the results from the defensive portfolios for the second quarter of 2013:
|UK||YTD% 2013||QTD (Q2 2013)||US||YTD% 2013||QTD (Q2 2013)|
|FTSE 100||3.87%||-2.74%||S&P 500||12.27%||2.04%|
|Asset Value Portfolio||-7.55%||-3.37%||Asset Value Portfolio||-1.10%||-1.79%|
|The Relatively Unpopular Large Company||5.63%||-1.61%||The Relatively Unpopular Large Company||16.04%||7.13%|
|Winnowing Of The Stock Guide||-5.07%||-9.23%||Winnowing Of The Stock Guide||14.62%||5.44%|
Figures are taken from Yahoo! inclusive of dividends
The following posts discuss the details of these strategies for each of the portfolios:
- 3 Benjamin Graham Screeners Put To The Test – Part 1
- 3 Benjamin Graham Screeners Put To The Test – Part 2
The thing that comes to mind as I look at these results is: Ben Bernanke.
I’m not an economist so I’ll not waste your time by discussing the link between Bernanke’s stimulus program and stock prices. Instead I’ll link to this article that explains more, especially the third paragraph.
What These Results Mean For You
The UK Large Cap portfolio somewhat lags behind its US counterpart due to one reason: the mining sector. Indeed the drag on the US portfolio has been due to companies that serve the mining sector.
If you are or want to be an enterprising investor – one who picks stocks on an individual basis as bargains arise – then one conclusion from these results are to look for stocks in beaten up sectors like mining by all means, but avoid buying them until the point of maximum pessimism has been reached.
The truth is no one can know the exact point of maximum pessimism and its a subject I cover in the newsletter where you can sign up below:
The difference in returns between a defensive investor and an enterprising investor is marked by concepts like maximum pessimism and avoiding sectors that are still experiencing downward pressure on stock prices. There’s no point being an enterprising investor if returns match those of a defensive strategy.
Although I haven’t worked it out, my guess is that if the portfolios had avoided the mining sector, they would have netted an additional 2-3% on year-to-date returns for each large cap portfolio.
It’s not a consideration for defensive investors however since the very idea of defensive investing is one in which the consideration of maximum pessimism does not exist.
Still, its nice to see that the large cap portfolios are beating their respective indexes.
Ugly Stocks Getting Uglier
What’s more interesting is that portfolios based on asset backing are doing much worse than their large cap counterparts. A case of ugly stocks getting uglier – all except for the US ‘Winnowing Of The Stock Guide’.
Again this can attributed to the presence of mining stocks that have not yet seen their point of maximum pessimism. In some cases these mining stocks have lost up to 90% since inception (Jan 2013).
Interestingly, the US ‘Winnowing Of The Stock Guide’ portfolio has no mining stocks in it which accounts for its superiority in returns over its counterparts.
The highest year-to-date return for an individual stock is 107% from Broadwind Energy (BWEN)
Handily, ADVFN has access to the Edgar database and a quick look at the full year results on February 27 does not justify such a price rise. Scrolling through to March 14, Broadwind announced a $35 million order for its wind towers.
Not bad for a stock with a market cap of around $35 million at the time of the announcement.
Here’s how that looks on a price chart:
Its interesting how these OTC stocks can suddenly jump in price at such news, even more interestingly, the price started to rise some weeks before the announcement.
I’ll say no more.
The highest year-to-date loss for an individual stock is 90% from Avocet Mining (AVM)
Lets start with the chart:
What you can see is a massive drop in price in mid February that accounts for most of the 90% loss. What you don’t see is the accompanying volume – over 4 million – which as far as I can tell from the chart is Avocet’s highest ever one day volume spike.
Sure enough, looking through RNS announcements the one on Valentine’s Day reveals a negative report on a strategically important mine – Inata Mineral Reserve – and that Avocet will probably have to raise capital through equity due to its complex financial arrangements.
This double whammy sent the share price spiralling.
There’s really not much more to say on Avocet except that its a dog.
Improving On Defensive Investing
The contrast in fortunes between Broadwind and Avocet is striking but the real lesson here is that defensive investing is tougher than enterprising investing for the simple reason that an enterprising investor would have shorted a stock like Avocet rather than buy it.
It is difficult to watch a stock fall 90% in six months but due to the constraints of the strategy you are unable to just get out. It also highlights the dangers of pursuing an asset backed strategy without additional criteria such as a review of the trustworthiness/competency of management or a catalyst being in place ready to unlock value.
One thing’s for sure, the lack of proper diversification on the asset backed portfolios has contributed to their diabolical results as much as the miners have:
- UK Asset Value Model Portfolio has 12 stocks, 3 of which are miners and one oiler has been de-listed. Its 10 stocks for A Winnowing Of The Stock Guide, 4 of which are miners – Avocet being one of them. The large cap portfolio has 16 stocks, 3 of which are miners.
- The US Asset Value Model Portfolio has 13 stocks, none of them are miners. A Winnowing Of The Stock Guide has 10 stocks, none of which are miners and out of the 27 stocks for the large cap portfolio, none of them are miners either.
These issues highlight the fact that London has a lot of miners listed on its exchange which means that there ought to be some excellent opportunities in the future for London listed stocks when the point of maximum pessimism has been reached in the mining sector.
I hope you’ve found these half year results of value and there is something you can apply to your own investing.
Are you looking at any miners?
Disclosure: Long Broadwind and Avocet Mining