What a way to finish the first half of 2012! The relief in the markets is palpable with the possibility that a solution to European debt crisis may be on hand. The story, of course, does not end soon, but the market will take any improvement in the situation.
The Value Stock Guide Portfolio ended Q2 with a net gain of 18.74% YTD. This compares quite well with the S&P 500 which has ended the first 6 months of 2012 with a gain of 8.31%. The table below shows the comparative performance of VSG portfolio at various times during this year
|2012 Performance, YTD||Q1||Q2||Since Inception (Jul 23, 2009), cumulative|
|Value Stock Guide Portfolio||15.18%||18.74%||99.95%|
|S&P 500 Index Price Returns||12.00%||8.31%||42.77%|
I feel this table is quite revealing. During the 1st quarter of the year, both VSG portfolio and the general market enjoyed nice appreciation. In the 2nd quarter with the markets becoming increasingly uncertain over Europe, S&P 500 lost about 3.7% while VSG portfolio gained a further 3.55%.
In one of the earlier notes to my Premium members, I had mentioned that the correlation between Value Stock Guide portfolio and the overall market has decreased quite significantly and the portfolio now performs solely based on the underlying fundamentals of the individual stocks. Put it another way, we have a mix of sectors and industries that are in many ways hedged against each other. Of course, over time this mix will change and the market behavior will change as well, so this is an ongoing exercise. The gains reflect our selection of stocks with intrinsic value greater than the market price which helps maximize the appreciation potential and limit the downside risk.
Key Attributes of the VSG Portfolio
I think it is useful to provide a little more color to the VSG Portfolio to give an idea of how the portfolio is constructed and managed.
- Number of stocks: 12
- Highest weight of a stock: 11.3%
- Lowest allocation to a stock: 3.6%
- Cash: 19.3%
- Length of holdings:
0 – 3 months 4 stocks 3 – 6 months 4 stocks 6 – 12 months 3 stocks > 1 year 1 stock
The 19.3% cash position is not typical and it is high as I am waiting to get my order filled on a new stock. The values are attractive in the market today and the cash level will soon be back to below 5%.
Sales During Q2
We exited a total of 5 different holdings during Q2 (eventually replaced by new purchases). Of these, TIII and NEI were parties to acquisitions that unlocked part of the value for us. We felt that the acquisitions were done quite cheaply, but the stocks delivered good gains and it was time to move forward with new ideas.
I continue to maintain my track record of having never lost money on any sale in the VSG portfolio since the membership service was launched in Apr 2011. I hope to maintain this streak but will not hesitate to break it if a solid opportunity calls for me to reallocate capital from a position that is not yet profitable.
Looking forward to the rest of the year with anticipation.