Value Focus

Portfolio Updates: Sold COH, Bought WTI, Added to GEOS

Value, deep value, and contrarian investing, at its core, is incredibly simple. That does not mean it is easy. We all naturally have a herd mentality. The primitive part of our brain tells us to run away when others are running away. It does not tell us to stop and investigate the situation first. It just tells us to run. Obviously, holding stocks when the market moves against you is even more difficult. It is emotionally painful. Human beings like to be “right”. We like to feel like we have the answers. Fortunately, I’m already painfully aware that I don’t have the answers! But I know the One who does!

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Portfolio Updates: Sold KEG and FES, Bought EXXI and More GEOS, Thoughts on BBY and WFM

I don’t fall into the camp of “never sell” investing, as a general rule. Even for a company as wonderful as Whole Foods, there could be legitimate reasons to sell at some point. There is no shortage of people who advocate a long term buy and hold strategy as the best general approach for investing in stocks. That approach is legitimate for index or broad market investors. However, I find it to be problematic for individual stock investors. Even Warren Buffett, perhaps the most vocal advocate of buy and hold, would probably have to agree that it can be problematic. When I read his past letters, I see among his holdings way too many companies and industries that have virtually disappeared.

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Sold TLYS, Bought Two More Cheap Oil Related Stocks

I accept uncertainty and price volatility, but I ask him for protection from bankruptcy. After all, God says in his word, “The Lord makes firm the steps of the one who delights in him; though he may stumble, he will not fall, for the Lord upholds him with his hand.” – Psalm 37:23-24, NIV. So far, that has been true for me. I have stumbled tremendously. But I have not fallen. I pray for God’s continued protection and blessing.

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More Trades And More Thoughts On The Oil Sector

As for the larger shale producers that do show profitability (in terms of net income) when crude prices are high, I question whether that is due to the fact that they are able to drill a well, classify much of that spending as capex, then enjoy most of the revenues that well will ever produce in the first year – against a backdrop of multi-year depreciation on the “capital expenditures” associated with that well. If this is the case, then those wells will not generate profits for the majority of their useful lives (i.e. on the back half or maybe even 3/4), but will instead operate at an accounting loss. However, this can be masked by constantly growing production (i.e. by drilling more and more new wells!).

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I’m Buying Oil Stocks Because I Cannot See The Future

The bottom line is that I don’t know how or when the oil market will turn (i.e. crude prices will go back above $75 and stay there for a quite a while). But I do believe there is a high likelihood of that happening at some point in the next couple of years. Further, I believe there is a fairly good chance it could happen soon. Therefore, I have elected to purchase quite a few oil service stocks that are trading at or near multi-year lows.

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Taking More Exposure To Oil With NADL

I continue to look for good opportunities to take exposure to oil related companies. However, I don’t see any need to rush in that regard. If something happens to send the price of oil spiking tomorrow, I can rest easy knowing I have some exposure. In fact, I’m currently in what I would call an emotional sweet spot. I’m at a point where I have some exposure and will be somewhat placated by that exposure if crude prices start soaring. But I’m also happy if they stay low for a while or continue falling, as I have plenty of room to add more exposure.

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Why I’m Dipping My Toe In The Oil Patch

Think about it this way. Someone has spent years of hard work building this company into what it is today. It has taken a lot of hard work, R&D, risk, investment, talent, foresight, salesmanship, and time to build the company into what it is today. But because they’re in the midst of a rough period that is probably not at all specific to their company (i.e. it’s cyclical), I can buy shares of the company for a little over half of what it cost them, in dollars, to get to the point they are at today. When you look at it like that, it almost seems too good to be true. If this company were closely held, there’s no way it would change hands for this price.

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KORS Has Been Added To The Value Focus Portfolio

Analysts seem to be negative on this company for no reason, other than something along this line, “Well, look what happened to Coach when they got really popular.” All of the actual results posted by the company are incredibly solid. Further, if you believe management’s plan for the company, there is plenty of growth ahead.

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Added Shares of SALE to the Value Focus Portfolio

Readers should keep in mind that I spend all day every day reviewing stocks. I review probably hundreds of stocks each month, some more in depth than others. I don’t take purchases or sales lightly. I pass on opportunities to do both of those things all day, every day that the market is open. Sometimes, I obviously miss great opportunities. Other times, I’m glad I stayed away. That’s how investing works. As Peter Lynch says, “You don’t have to kiss all the girls.”

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Removing AEO From The Value Focus Portfolio

But I’m going to be totally honest here – this is not a normal sell situation. As I said, the fundamentals of the business are improving. The medium term (1-3 year) business outlook, in my view, is more positive than negative. I’m simply trying to profit from volatility. This stock has shown a lot of volatility in the recent past over seemingly minor information. The company changed its outlook for the holiday quarter on December 4th, when it released the previous quarter’s earnings. The headline in the Wall Street Journal read, “American Eagle Outfitters Outlook Misses Expectations”.

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