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    « Perfect Company FINAL SCORE 12/9/14 close – 12/9/15 close | Main | Perfect Company Results 11-29-15 »
    Monday
    Dec072015

    Perfect Company Report 12/5/15

    As we come down the home stretch to December 10 – a year since the inception of this experiment, the stocks remaining in the portfolio are up an average of 38.46%. Liquidated positions have returned an annualized 15.9%. Dividends are a matter of timing – I have never bought or sold to collect a dividend – but the portfolio has probably collected dividends of 3 to 5%. In the same period, the S&P is up 1.55%.

    The main strategy has been to invest in companies that are as close to “perfect” as possible: companies that earn a good return on their cost basis net of cash and debt, that insiders are buying (or at least not selling), that are growing sales profitably, that have a business that can grow quickly, and several other factors. We have been rewarded for our patience when holding good companies, which have often gone down before they went up – or went up, down, and then back up. I was reminded of this last week when a friend wrote to lament that he had sold OLED for a small profit; OLED is now up 98% for the year.

    On the other hand, disasters usually go from bad to worse – sometimes for mysterious reasons. Spirit Airlines continues to churn out impressive growth and profits, and has a business model that is stealing customers from the majors, but the stock cratered. KIN was more bet than investment, and the mistake proved the rule of sticking to what one knows: not only was KIN unprofitable, but it had no sales – and continued that tradition. The outcome of NMM remains to be seen, but the market may be saying that the supply of ships will long outpace demand.

    Most of these companies were not giants, but they were not all tiny. OLED (up 98%) has a market cap of $2.5 billion; NVDA (up 51%) $17.4 billion; ATNI (up 17%) $1.2 billion. Some were very small. The best – IDWM – has a market cap of only $110 million after a 197% gain. However, when I think of Marvel selling to Disney for $4 billion, I like to think about Universal buying IDWM, which is in comic books, movies, and all the paraphernalia surrounding story development that feed an entertainment colossus. LOAN has only a $30.8 million market cap, but pays a 7% dividend, is up 32% since we bought it, and scores 11.2 in our Perfect Company calculation.

    I like smaller companies because, if they are focused on a manageable idea, they are more likely to grow quickly. I would rather own shares in a good small company than a good large company. The small company is more likely to do one thing well, and is more likely to be acquired (as was BZC); the large company, while regarded as “safe” by many people, is subject to scandals, systemic errors, and selling shareholders that can keep the stock from appreciating for years. You’re also more likely to find a value in smaller stocks because most analysts follow only very large companies – their selection makes sense because they are following the flow of funds, but those companies – really collections of companies – have so many possible outcomes that they are virtually unknowable.

    This exercise has been helpful to me because it forced me every week to look for new opportunities and to ask, “Would I buy these companies again today?” That question helped limit my losses, which is critical, but it is also not easy in a flat year to find stocks that have grown 30, 50, 90 and 190%.

    I am not aware of anything quite like this public experiment. When fund managers want to impress you with their record, they pick an optimal point some years ago from which their portfolios would have delivered the maximum performance. The Perfect Company scoring system broke into two categories: (1) the average return on stocks in the remaining portfolio and (2) the annualized return on liquidated positions. One can argue that having some cash on the side would bring down the averages of both. However, the way some portfolios have performed, cash could also bring UP the performance.  Also, it would be possible to sell the losers to pump up the remaining stocks, but our annualized return on liquidated positions also outperformed the S&P by 10 times.

    The most interesting thing I learned this year is that no one cares about this kind of analysis, or about any results in particular. People tend to believe whatever they already believe. (They also tend to buy beds similar to the one they already own.) There are the earnings predictors who want to predict the future, and the vast majority of financial advisers who like to say that they deliver minimal return because know how to reduce risk. It seems to me that experiencing minimal return over time is a serious risk.

    I am also surprised at how difficult it is for small investors to get accurate data. In a time when most workers have been ejected from paternal pension plans into self-directed mobile retirement accounts, one might expect that someone would offer a data service that enables investors to tick off any corporate variables they choose to download into a spreadsheet that helps them make sense of the universe of stocks. I have yet to meet a system that offers the data I require – standard data, by the way, that can be had by piecemeal delivery, but never as a whole meal.

    I hope that you have only bought the winners that I recommended this year, and that you will buy dinner the next time we meet. I have had one dinner invitation already.

    All the best,

    Glenn

    #

    Symbol

    DIV@BUY

     BUY

    DATE IN

    12/5/2015

     

    +/-

                   

    1

    IDWM

    5.37%

     $12.15

    12/10/2014

     $36.15

     

    197.58%

    2

    OLED

    0.00%

     $27.64

    12/10/2014

     $54.71

     

    97.94%

    3

    NVDA

    1.50%

     $22.28

    4/27/2015

     $33.75

     

    51.48%

    4

    LOAN

    8.62%

     $3.25

    12/10/2014

     $ 4.30

     

    32.31%

    5

    ATNI

    1.69%

     $67.98

    12/10/2014

     $79.67

     

    17.20%

    6

    VIVO

    4.95%

     $17.77

    1/27/2015

     $19.60

     

    10.30%

    7

    WSTG

    0.04%

     $18.50

    5/4/2015

     $18.50

     

    0.00%

    8

    TWMC

    0.00%

     $3.82

    11/19/2015

     $ 3.74

     

    -2.09%

    9

    NMM

    24.60%

     $7.31

    8/26/2015

     $ 3.03

     

    -58.53%

       

    5.20%

           

    38.46%

     

    S&P 500

     CLOSE 12/9/14

     

    CURRENT

     

     

     

     

     $2,059.82

     

     

     $2,091.69

     

    1.55%

                   
     

    LIQUIDATED POSITIONS

           

    $

    ATAI

    12.17%

     $3.37

    12/10/2014

     $ 4.03

     

    19.58%

         

     SOLD

    2/17/2015

    Annualized:

     

    104%

    $

    WSTG

    3.85%

     $17.64

    12/10/2014

     $17.55

     

    -0.51%

         

     SOLD

    3/23/2015

    Annualized:

     

    -2%

    $

    FF

    3.78%

     $12.70

    12/10/2014

     $12.34

     

    -2.83%

         

     SOLD

    3/23/2015

    Annualized:

     

    -10%

    $

    IBM

    2.70%

     $162.99

    12/10/2014

     $ 169.78

     

    4.17%

         

     SOLD

    5/1/2015

    Annualized:

     

    11%

    $

    PRCP

    1.30%

     $11.50

    12/10/2014

     $12.11

     

    5.30%

         

     SOLD

    5/4/2015

    Annualized:

     

    13%

    $

    PDLI

    8.52%

     $7.07

    3/30/2015

     $ 6.20

     

    -12.26%

         

     SOLD

    6/10/2015

    Annualized:

     

    -62%

    $

    DRAD

    4.88%

     $4.10

    2/9/2015

     $ 5.97

     

    45.61%

         

     SOLD

    10/26/2015

    Annualized:

     

    64%

    $

    SAVE

    0.00%

     $73.77

    12/10/2014

     $39.21

     

    -46.85%

         

     SOLD

    10/26/2015

    Annualized:

     

    -53%

    $

    BZC

    0.00%

     $12.13

    6/10/2015

     $19.16

     

    57.96%

         

     SOLD

    11/19/2015

    Annualized:

     

    131%

    $

    KIN

    0.00%

     $6.63

    12/10/2014

     $ 4.38

     

    -33.94%

         

     SOLD

    11/19/2015

    Annualized:

     

    -36%

     

    Avg Div:

    3.72%

     

    Avg Annualized:

     

    15.9%

     

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