5 CHARTS THAT WILL KEEP YOU IN PEACE AND NOT IN PIECES DURING THE WEEK AHEAD
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PORTFOLIO UPDATE: IT’S LIKE THAT
During the trading day Friday, I tweeted the following: To be clear, this decision to reduce WMIH was a performance decision rather than anything having to do with my opinion about the market. All of my trend indicators remain bullish. I have very little reason to believe this uptrend is in the midst of turning into anything unfriendly during the weeks ahead. After experiencing a flat Q1 with respect to performance, it is obvious that the portfolios need to be rebalanced a bit in order to get performance back to where it should be at this stage of the year. Irrespective of my opinion of WMIH, the pullback has crossed my line in the sand for anything that warrants holding a large position in the name. For the time being, it will remain a mid-sized position. In the search for performance there are no attachments to any single idea. This is something that both retail and professional investors have a difficult time grasping. It may just be the most difficult emotional aspect of investing to overcome. When you put countless hours of research into an investment, there comes a certain attachment to an outcome that you, as an investor, become dependent on in order to validate your methodology. What way too many investors tend to do is put more credence into their research than what the market is telling them at that very moment. Furthermore, the ability to detach oneself from a single investment, instead choosing to make the decision that is best for the overall portfolio is extremely difficult. The making winning picks, doing research and taking small losses on insignificant position part is easy. It is the Wall Street version of popcorn and a movie. The difficult part is countering your own faith and conviction in any conceived predetermined outcome. You counter than conviction the moment you reduce or eliminate a position because your portfolio performance is sending you a different set of information than the Utopian scenario you had foreshadowed months ahead. No questions asked, you just do it. And that friendly friends is what creates long-term winning investors in the stock market. As of the close Friday, 60% long in SPNS, WMIH, JMBA, IWSY and MITL. 40% in...
THE BRUTAL, COLD AND HONEST TRUTH ABOUT “INVESTMENT THESIS”
In considering a topic to dissect for my viewing audience on this night, I couldn't quite put a finger on anything of relevance to discuss. Perhaps I have writers block? Perhaps it is a symptom of a schedule that has been busier than usual lately, with various projects I am working on causing my mind to race in a multitude of directions? Perhaps I am following my own advice, instinctively choosing not to think about this market more than I should? Whatever the case may be, given my lack of performance in 2013 and the fact that the markets have become more difficult to predict due to the monotonous tone they have taken on, my tendency continues towards conservatism as opposed to anything overtly aggressive. I simply have no reason to come out swinging here. Whether from a technical perspective. Individual allocation perspective. Performance perspective. Everything is telling me to stay put. It can even be argued that my duty may fall towards cutting exposure. I am bullish on every single stock held in the portfolios today. It is a matter of to what extent I am willing to sacrifice gains in order to allow the bullish thesis on these individual holdings to take shape. The more ingrained the faith that comes with extensive research into a portfolio holding, the more an investor is willing to sacrifice short, intermediate and long-term gains for the sake of allowing the thesis to take shape. Is this a proper form of portfolio management or an irresponsible, reckless act? Much like any other aspect of this business, the line between proper and irresponsible is razor thin. Crossing that line is often indeterminable, only visible in hindsight much past the point of no return. What has occurred over the past decade is that the market has become extremely efficient in putting the will of an investor to the test through often brutal demonstrations of relentless punishment. There is no more "I will think about this for a few weeks or months and then decide what to do." If you are behind the curve ball when the market is throwing its pitch, your chances of catching up are virtually nonexistent. The willingness to sacrifice gains for the sake of "the thesis" then must be looked at with increasing suspicion. The brutal, cold and honest truth is that these gains you are sacrificing as an investor simply have not come easily over the past 5 or 10 years. The cost of producing these gains with any consistency is extremely high in terms of willingness to maintain consistent exposure, constantly staring in the face of the next macro,...
MARCH MONTH END PERFORMANCE SUMMARY AND LOOKING AHEAD TO APRIL
*This is a copy of my letter to investors summarizing the month of March. February monthly report can be found here. 2012 Return: +58.61% 2013 Return: -0.33% Portfolio March Performance: -2.26% S&P 500 March Performance: +3.60% Portfolio YTD Performance: -0.33% S&P 500 YTD Performance: +10.03% Total Return Since Inception (1/1/12): +58.20% vs. S&P 500 +24.18% Portfolio Highlights For March - SPNS gained nearly 13% during the month of March after releasing their quarterly and full year earnings highlights during the first week of the month. The company saw annual revenue increase 63%, as growth of their insurance and relatively newly released financial suite of software continued gaining strength. Additionally, SPNS generated $18.8 million in cash during 2012, an increase of $8.4 million from 2011. The momentum within SPNS is clearly defined as the CEO continues to deliver on promises that he has been making for the past 18 months. I don't see any signs of this momentum decreasing in the near future due to a number of factors: 1) Insurance companies are still inundated with the need to upgrade from legacy systems that are inefficient relics of the past. As these companies continue to get comfortable following the financial crisis of 2008, more attention will be paid to allocating capital towards efficiency of operations 2) DECISION suite of software targeting financial institutions and their increasing need for seamless integration of compliance/regulatory requirements into their business systems. Sapiens has already signed one "major financial institution" in what is early validation of their DECISION software. 3) The markets have not even come close to factoring in the progress that SPNS has made over the past 18 months. The company continues to trade at less than 2 times sales in an industry where the average is 3 to 4 times sales for companies that are nowhere near the growth cycle that SPNS finds itself in. During the second half of March, I increased the position in SPNS, going from a medium to large position. This increase in exposure puts the portfolios at roughly 90% invested and 10% cash. - IWSY is a new position highlighted in the February monthly report. During the month of March IWSY gained roughly 19%, giving the portfolios a nice profit cushion on the position right from the onset. IWSY announced what seems to be a furthering of their relationship with FUJITSU during the month of March, as the Imageware CloudID product suite will be integrated on the Fujitsu Global Cloud Platform. This type of alliance with a major company puts the Imageware suite of products on the radar screen of other major companies and possible acquirers. Any success IWSY sees in this early adoption...