Portfolio Updated for September

September was a good month, indeed. An IRR (including cash balance) of 34% is keeping pace with the NASDAQ and lapping the S&P 500. After last month’s activity, cash available for investment sits at 37% of total capital so much of that return has been locked in. Do not mistake the large cash holding for a market timing call — it just happens to be an intersection of exiting my bail-out plays and a few special situations concluding in the same month.

I will post a portfolio review and market outlook tomorrow but for now, you can view my activity on the portfolio spreadsheet.

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Peter Thiel Struggles Against Market Rally

Peter Thiel isn’t as widely followed as some other hedge fund managers. One possible explanation may be his hedge fund, Clarium Capital, employs a macro strategies which are more complex and opaque to individual investors. Nevertheless, I have always found his views on the broader economy and global situation to be insightful.

Today’s Wall Street Journal writes that Thiel’s fund is one of the few struggling this year[$]. Apparently, he has put his money where his mouth is and stood by his view that the current economic “recovery” is a mirage. Obviously, with the powerful rally in nearly all markets, short bets are big losers.

I point this article out to readers as it coincides with a theme I will explore when I post my portfolio update at month’s end. Financial media is filled with stories about skeptical investors who missed the rally or need to get in to match their benchmarks. For months now, I have expressed doubt about the standing of the economy and markets. For months now, I have been wrong.

Nevertheless, my returns for the year have outpaced nearly all the indices, even accounting for a cash balance which has not dipped below 10% all year.

While Peter Thiel is paid to have an opinion on broader market trends and bet on those opinions, I pursue a different strategy. While I may have opinions about the broader market, I do not base my investment decisions on them and try to remain emotionally detached from whether those opinions are correct. By employing a mix of value investing and asset allocation, I strive to achieve returns with some non-correlation to the broader market.

I have discussed many of these themes in the past on my blog but readers will soon be able to see every detail of my strategies with the launch of a premium service offering unfettered access to my entire portfolio, research, and watch lists in real-time. I spent most of the weekend on getting the service ready to launch, which should happen this week. Since I will be administering it personally, the service will be limited to only fifty (50) slots for the ridiculous price of $129 annually.

More details to be announced by month’s end but until then, many happy returns, no matter where the market moves.

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Book Review: Pioneering Portfolio Management

AUTHOR: David Swensen
RATING: 8 of 10


  • As the originator of the now widespread “endowment” model, Swensen offers several new strategies for investors to consider.
  • Swensen book focuses more strongly on asset allocation than other books, which is probably a boon to investors who may be more focused on how to pick stocks.
  • The author’s overall approach to portfolio management is a mix of various philosophies, including value investing, asset allocation, and efficient market theory. This gives the reader much food for thought without descending into dogmatic assertions.
  • Swensen supports his advocacy, or lack thereof, for various asset classes with sound reasoning and historical data.

Weak Points

  • The writing style is a bit dry and academic.  This should come as no surprise as the author runs an academic institution’s endowment fund and the book is targeted toward other professionals in similar situations.
  • Some strategies may be impossible for individual investors to implement (anyone got a producing oil field in their portfolio?). Again, this is not a surprise — it is not geared toward individual investors.
  • The book, while revised to reflect the credit crisis of 2008, published before the major market drop in late 2008 and thus, no commentary is included to reflect upon Yale’s massive loss.

Despite Swensen’s focus toward institutional investors,  I found his revised edition to be insightful. While many of the strategies and recommendations are out of my purview (for instance, interviewing hedge fund managers or avoiding portfolio management consultants), the reasoning behind how to structure a portfolio and allocate assets is still relevant to all investors.

A book review is far too limiting to include all of Swensen’s key insights but a few are worth mentioning.

Continue reading this post…

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Update On a Pair of Gold Miners

With gold hovering over $1,000 per ounce, now seems a good time to check in on two gold mining stocks I hold in my portfolio, Minefinders (MFN) and Yamana Gold (AUY). Long-time readers will know that I have been writing call options all year long on these two stocks, to good profit. With the recent rally, it may be time to make a clean exit.

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“When You See Cash Flow, You’ve Got To Buy It”

I read that statement in an interview with a money manager in Barron’s last week and it stuck with me. So this sentiment provides the theme behind this week’s stock screen, which emphasizes free cash flow (FCF). Here were the specific criteria I used for the screen on the Morningstar site:

  • Free Cash Flow as % of Market Cap >= 25;
  • PEG Ratio <= 1;
  • Return on Equity ttm % >= 15

View the full list of results.

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The Journal Targets Gold

Today’s Wall Street Journal has no less than three articles spotlighting gold’s brief ascent to the $1,000 level. More accurately, the three articles explicitly and implicitly suggest investors stay away from the yellow metal:

So the Journal advises investors that gold’s recent $100 run-up is due mainly to Barrick Gold (ABX) buying back their hedges. One of the articles states that a consensus among traders and analysts has arrived to that conclusion (those experts — so useful after the fact).

If that is not enough to convince investors, they bring out a technical analysis article to confirm what the fundamentals (ABX hedging) are saying — gold is overbought. Message received loud and clear: DON’T BUY GOLD!

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