Record Gains in S&P and We are Back in the Lead

Q1 has ended for the market in 2013 and the S&P horse that bolted off the gates at the beginning of the year has not yet slowed. As of today the S&P 500 has chalked up a 10.60% return YTD, including dividends. If this was not enough, the index today also bested its previous high close set way back in October 2007.

We Beat the Market Again in Q1 2013

At Value Stock Guide, our progress was much more steady, and after trailing the index for the first 2 months, we finally caught up and went a little further.

The following table breaks out the performance of VSG Portfolio and the S&P 500 index in Q1. All returns are quoted as Total Returns, including dividends.

Jan 2013 YTD Feb 2013 YTD Q1 2013 YTD (Mar 28, 2013) 2012 Full Year Since Inception (Jul 23 2009)
S&P 500 5.18% 6.61% 10.60% 16% 69.12%
Value Stock Guide Premium Portfolio 3.10% 4.75% 11.16% 32.44% 147.89%


The performance the VSG portfolio was heavily influenced by the following stocks finally starting to realize their value:

  1. Register or Log In to View: These are publicly traded warrants, not really stock. However you can buy/sell them in any brokerage account just like a stock, including in your retirement accounts. The warrants were purchased about a year ago. At that time, the underlying stock was undervalued and was trading at the warrant strike price. Once satisfied that the stock represents a great value, it just made sense to purchase warrants instead. Since then, the stock has gained 21.60%. The warrants on the other hand have gone up 100%. 11 months of the past 12 months the warrants treaded water and delivered a 115% return in the single month of March. There is a very good reason, entirely anticipated, for this kind of behavior. The only thing unclear at the time of the purchase was the timing of the catalyst, which has since partially arrived. At this time I expect another 50% – 100% gain at the least from today to come in 2013 so these continue to be a holding in the portfolio. (If you have been taught to avoid high beta stocks, you will probably stay away from this. Rapid appreciation by definition leads to high beta)

  2. Register or Log In to View: Delivered a 26.19% gain in the 9 months of holding this stock with 25.86% coming in the month of March. This is a unique stock that is almost guaranteed to give you accelerating capital gains in the way it is structured. It is also one of the oldest listed companies on New York Stock Exchange and has been making shareholders wealthy for the last 225 years. This is also one of the few stocks that I am prepared to hold for a long long time and have not assigned a target sell price.

  3. Register or Log In to View: We purchased this stock on Mar 18, 2013 and so far it has returned 7.1% in the last 10 days. This is what one can call a battleground stock, with at least one prominent investor taking a short position. I bought the stock because his short thesis is wrong and he very graciously gave us a great buying opportunity. I am prepared to buy more if the stock dips below my purchase price.

As in any portfolio, there were many stocks that are still under the radar and have not performed yet. One of the stock (Register or Log In to View) is a cyclical stock in the depressed solar industry which will turn around to give a handsome return sometime this year or early next year. Another stock (Register or Log In to View) is very quickly expanding into local markets, away from the big competition through a process of leveraging-acquisition-deleveraging and will be a big player before it comes on the Wall Street radar. This is one of those overnight success stories that takes years to develop. What I like about the company is their very diligent and disciplined acquisitions, that are always accretive right away and purchased at a great discount. For example, one of the past acquisitions they made for $43 million gave them a profitable business AND a fully paid for property worth $200 million. With an experienced leadership team and a board that includes Lee Iacocca, they have the required chops to make it happen. Until their time comes, I am excited to be able to continue purchasing these remarkable businesses at throwaway prices. So far, I have not had a single losing stock transaction in the VSG portfolio and I expect this to continue

There were no sales made in March.

A good investor spends most of his time waiting. Heavy lifting is done before the stock is purchased. [Click to tweet this quote]

There is the Market and then there is “The Market”

This is surely a strange market. On the one hand, we are at record highs, on the other hand, average fund investor has trailed the index by 4% points per year on average between 1993 and 2012. The performance gap is closing in the recent years, and while some believe that the investors are getting better, I tend to think that the not-so-disciplined investors are still out of the stock market. Once they return, and they have started this year, we will again see the performance gap widen.

So if the funds make up the bulk of the market, and mind you the hedge funds have underperformed for the last 3 years significantly as well, who out there is pocketing an average of 4% outperformance over the index? After all, the index is an average, right?

You will argue that in talking about S&P 500, I am only looking at the large cap universe, and you will be right. Significant gains are being made in the mid cap and small cap sectors. However, if you dig up the average fund investor returns by asset classes, I suspect the story will be similar.

We returned double the index last year and are now leading the S&P 500 this year. Your $100,000 investment would be worth $247,890 today with VSG versus $169,120 in the index if you had started following me in July 2009!

Beat the market since inception

[Chart: Growth of $100 since inception]

That is more than twice the profits. You would have got your $100K back, and would be left with the pleasant question of what to do with the remaining $148K. Can you think of any possibilities?

I suggest you keep it invested Smile

How has your portfolio done this year? How did you do last year? Are you tracking the average fund investor or the index, or are you doing better?

If you are not a premium member of Value Stock Guide, how much money have you saved by not joining?

Frankly, if you had invested in the lifetime membership on Jan 1 2012 and started with $100K, you would have still outperformed the S&P500 by 14% points by Dec 31 2012 after adjusting for the cost. That is $14,000 more than your returns in a S&P 500 index fund. (Note: Lifetime membership was not available then, it is now, so this is for illustration)


A Word on the Human Nature

In the last few years of running Value Stock Guide, I have seen a large uptick in the new membership interest when the Value Stock Guide portfolio is out performing the S&P 500 index for the year. When the portfolio returns are trailing, the interest in the membership trails off. I find it quite curious that investors continue to chase returns and ignore the basic principle of investing: Buy Low and Sell High.

In many ways I can’t complain. As a value investor I profit from these widespread tendencies

Happy Easter!

P.S. I had left a 1 month trial option for the membership for the last couple of months. However, I will be removing this option on March 31st. Realistically, I cannot deliver a knock-your-socks-off performance in the first month of your joining as I am not interested in sub-optimizing my long term performance by chasing ultra short term returns. If you stick around as a member for a year or more, you will be happy. I need committed investors as members, and you need outstanding stock recommendations and the trial option does not fit either of our needs.

P.P.S There will be no more reminders, so if you have considered joining, might as well do it now.

P.P.S Many of my past members have quit the membership and then rejoined after a few months. I am happy to have them back, but as you have no doubt noticed in the past, the membership will continue to become progressively more expensive over time until the day it closes forever. This is the only way I can control the new signups at manageable levels so I can deliver personal service.

Yes, I am 100% dyed in the wool capitalist, always looking to maximize my returns! Would you rather invest with someone different?

Join Now!

Update: The following was posted in the member’s forum

You cant be a very good or experienced capitalist if you are giving away life memberships for practically free.

Since I have heard this from many other members as well, I think it is time to listen to them. Affordability is not one of my main concerns since the cost is very quickly recouped. This is after all an exclusive club. I am planning to try and close the value versus price gap in the membership by rolling out a new pricing structure starting Apr 1.


  1. djthomas says

    I love the way you tell it like it is at the end of this post. Well done on the returns for the last quarter.

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