Poetic Portfolios

At the end of 2007, the NAV for the Two Roads Diverged Portfolio was $86.71. The portfolio trails the S&P 500 by 5.85% since inception in 2004. This is significant because the portfolio was beating the S&P 500 at the end of 2007.

Much of the declines are a result of the small cap concentration of this portfolio. The current portfolio and returns are noted in the table below.

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I started this blog as a way to keep a journal of my thoughts about investing and to keep a record of my thoughts on individual companies. The Two Roads Diverged Portfolio is truly my investing testing ground.

If you look back at the beginning of this portfolio, a good portion of funds were invested in treasuries. These investments represented a rainy day fund. As I began to grow more comfortable with my analysis and investing, I began to invest these funds in stocks. Now it looks like this transition was a bit early.
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Now that I’ve made it through all of the holdings in the Two Roads Diverged Portfolio, I have a good sense of what the owner earnings are for each company. This is an exciting thing to know across an entire portfolio because you can compile a table to really show you what you own.

As investors, we often forget that we are buying businesses that produce a certain level of cash flow. The management of our individual holdings determine how this cash is allocated or reinvested in the business, but investors do own a certain portion of this cash flow. Warren Buffet performs this analysis in his annual letters to shareholders. He refers to this cash as look-through earnings. Below is a table representing the look-through earnings for the Two Roads Diverged Portfolio: (more…)

After the purchase of Oyo Geospace on Monday and the market’s recent movements, I think it is a good time to review the current holdings of the Two Roads Diverged Portfolio. The table below represents the portfolio’s holdings as of the market close on January 14. Previous holdings can be viewed within my introduction to this portfolio.

The returns noted above are annualized and include both buys and sells. For example, Jupitermedia has been on the decline, but I have managed to buy at lower points and sell at higher points. The returns above are the returns in this portfolio based on trading activity.It’s interesting for me to note how quickly these percentages can change. Late in 2007, Oyo Geospace was over $100 per share. It’s now in the 50s. Yamana Gold was languishing below $13 per share. Then it rose above $17.

The portfolio as a whole benefits from high commodity prices and also provides some currency protection. This helped tremendously in 2007, and I don’t see too many big changes in 2008. I am still planning an entry on my outlook for these companies and the portfolio as a whole for 2008, but I need to finish my analysis of ADP first.

I’ve been watching Oyo Geospace (NASD: OYOG) over the past couple of days decline to the low 60s. As noted in my previous post about Oyo, a price of $69 per share represents 12% earnings growth over the next 10 years. I think they can demonstrate a bit more growth than that given the demand for seismic sensors.

If Oyo can land a couple more RCS contracts, today’s shares will look like a real bargain. The thought of a contract had shares above $100 just a couple of months ago. I don’t think a contract is out of the question just yet. Their next quarter will likely see them going full steam at their new production facility with the capacity to grow earnings at a good rate and meet demands of future RCS clients.

If Oyo stays in the low 60s over the next several days, I will purchase another 3% for the Two Roads Diverged Portfolio, bringing the total holdings to 12.5% of the portfolio.

It’s a new year, and time to assess the performance of my Two Roads Diverged Portfolio for 2007 and since inception. I feel pretty good about the performance of this portfolio. Since 2004, the Net Asset Value has increased from 100 to 143.57. That’s a 43.57% four-year return. On an annualized basis, the portfolio has returned 8.61% during that time as compared to 9.18% for the S&P 500. Returns have been muted for the portfolio due to a large proportion of the portfolio having been invested in treasuries during that time to meet personal cash needs that occurred in 2007.

In 2007, the NAV increased from 120.72 to 143.57, an 18.55% one-year return. This compares to a 6.30% return for the S&P 500, adjusted for comparable deposits and withdrawals. (more…)

I haven’t even gotten to my analysis of Select Comfort, but I sold all the shares in the Two Roads Diverged portfolio last Friday. If earnings stay where they are, this stock may turn out to be a good value at today’s prices. However, I have my doubts that the company can hold the line on sales as they have been deteriorating all year.

Select Comfort has turned out to be more of a cyclical company than I originally thought or that their management is willing to admit. As the housing crisis continues, I can’t imagine that a lot of consumers will be spending money on luxury beds.

Looking back, my analysis was pretty superficial on this company prior to purchasing. This analysis is equally superficial, but I can think of little reason to hold this company now. In the future, my sell analysis will match my initial analysis. For now, though, time is an issue. A loss for tax purposes looks like a pretty good reason to sell right now prior to digging much deeper. Hopefully a more disciplined and well-documented approach will diminish losses of this magnitude in the future.

Just in time for year-end, I’ve updated the lost data for Two Roads Diverged. Looking at the performance of this portfolio, it doesn’t appear that recent market fluctuations have done too much damage relative to the S&P 500.

In a couple of days, I plan to take a look at the performance of this portfolio over various time frames as part of a year-end review.

I was pretty happy to find Icarra. I like the way that the site displays information. I have been very hopeful that I could rely on them for performance data. The site is a work in progress, but I went with it anyway. It looks like their website crashed recently, losing all the transactions in Two Roads from July of 2005 to present. I have to re-enter this data manually, so it may be a bit before Two Roads is up to date again regarding it’s performance.

One thing that I should point out regarding my holdings, and this will be true of the other portfolios I introduce as well, is that I tend to focus on smaller companies for my individual stock holdings. There are a few reasons for this.

1. I can gain exposure to large companies more easily through mutual funds.
2. Smaller companies are often easier to understand.
3. It’s easier to gain an advantage in smaller companies. (more…)