Investing & Maybe Fantasy Baseball

This morning ValueStockGeek released his 2020 Year End Review piece and a comment stood out: “Those that bought in March got lucky it didn’t turn into a 2008 debacle. It could have easily turned into that.”

Before I go on I want to make perfectly clear I am not disparaging him/her (I assume ValueStockGeek is a male). It’s a comment that got my intellectual curiosity about my process in investing and what I did in March.

Brief Background About Me

2020 was first year being fully invested. I began my journey as an investor 3-4 years ago. (I honestly don’t think I’ve even come close to the knowledge level of actual investors yet. When I read/listen to people like Tobias Carlisle and Jim OShaughnessy I know I’m still playing on the middle school basketball team.)

For the first 3 years I read mostly books/articles/hedge fund letters on investing, psychology, behavioral economics, financial history and valuation. My plan was to understand base rates, prepare myself psychologically and understand human behavior. Only in the last 12 months did I spend more time with 10ks, proxy statements and etc.

March 2020

I didn’t know what was going to happen. On March 14-15 I wrote my investing thesis. It included my thoughts about the macro environment and more importantly, I created a plan on how I would deploy my money.

I created a rudimentary quantitative system. My idea was to deploy money at certain levels at the SP 500. If it 2,500 I would deploy X% of my money.

I thought the worst case scenario was 1,950 for the SP 500. I was very aware of what happened to the Market in The Great Crash of 1929 and how there was a 90% drawdown.

My goal was to not buy at or find the bottom; instead I wanted to be fully invested at a SP 500 level where I would be psychologically okay with not missing out on greater deals. If you don’t deploy cash you have to be okay with being wrong; you have to be okay you missed out. In other words, I focused a lot on my potential future regret. How would I feel if the SP 500 got to 1,700. Would I be okay without any cash?

ValueStockGeek is 100% correct. People who bought in March were lucky the Market snapped back to all-time highs several months later.

However, when I was making my initial purchases I was buying Berkshire Hathaway and Markel. Both of which were selling below book value. The SP 500 was still pretty expensive (2,500) but I didn’t care. These businesses were selling at extremely cheap levels. I think they were that cheap only handful of times previously in the past 15-20 years.

Was I lucky that I bought Berkshire and Markel in March? Yes. In my opinion if you buy a great business at cheap prices the odds are overwhelmingly in your favor you’ll make money. (In all fairness I think ValueStockGeek is mostly talking about the very frothy stocks like Tesla, Zoom, Peloton and etc.)

When I was buying in March I was never scared. I was buying companies that were cheap and were operated by people with integrity. I invested in companies I thought would have a much higher probability than me to profit from the situation. As prices got lower I deviated from my aforementioned strategy and buy really cheap, good businesses like Micron, Heico, Bank of America, Carriage Services and Spirit Aerosystems.

My system didn’t fully work because I didn’t deploy all my cash at low prices. However, I spent a lot of it and I have no regrets.

My favorite investing book is The Most Important Thing by Howard Marks. The biggest lesson I learned is risk is a double edged sword. On one end you lose money BUT on the other end you miss out on gains. Investors are on seesaw and they must constantly balance between both sides of risk.

That’s why the first thing an investor has to learn is before he/she invests they must realize who they truly are; he/she must know how much future regret can they live with. This lesson wasn’t really learned until December 2018. I didn’t buy anything that month and I deeply regretted it. When I got my opportunity in March I didn’t make that mistake again.

Studies have shown the more you look at your portfolio the worse the results for the individual investor. That said, I’ve 5-7 books about the psychology of money so (hopefully) I avoid the pitfalls of cutting my flowers and watering my weeds. I believe it’s important for me to look at my portfolio every quarter to get an idea where my money is positioned.

Let’s get this out of the way. I am nowhere near where I think I should be knowledge wise. I’m still a complete noobie. (It goes without saying anything whatever I say/write is not financial advice…and if you buy something I bought, you deserve to lose your money.)

Even though no one will read this I am making my portfolio public because it provides accountability. All the analysis I provide is from the top of my head and should not be considered 100% accurate.

The table below is a breakdown of my portfolio on December 31, 2020 after the close.

Company	%
MU	15.2%
BRK.B	11.4%
MKL	7.5%
BAC	7.2%
XOM	4.3%
SPR	3.8%
SCHW	3.1%
MO	2.9%
GAPFF	2.4%
IWN	1.9%
IWS	1.5%
OGZPY	1.4%
KGC	1.3%
TAIL	1.2%
DJCO	1.2%
NEM	1.1%
RZV	0.9%
COP	0.9%
BHF	0.9%
DTLA	0.8%
FRFHF	0.8%
CVX	0.7%
HII	0.7%
NERD	0.6%
GD	0.6%
HERO	0.6%
LMT	0.6%
CTTOF	0.5%
NOC	0.5%
RTX	0.4%
FFXXF	0.4%
BXMT	0.4%
FPI	0.0%
LAND	0.0%
SMIT	0.0%
ECH	0.5%
EPOL	0.9%
ERUS	1.4%
EWP	0.2%
EWS	0.5%
TUR	0.5%
EWUS	0.1%
GVAL	1.7%
FNDC	1.1%
EWY	1.4%
FNDE	0.6%
AVDV	0.8%
ICOL	1.1%
Bitcoin	2.3%
Gold	3.9%
Platnium	1.1%
Farmland	3.7%

Below is a breakdown by category:

Row Labels	Sum of %
Aviation	3.8%
Bitcoin	2.3%
Conglomerate	11.4%
Defense	2.9%
eSports	1.3%
Financials	11.2%
Insurance	8.2%
International	14.3%
Mid Cap Value	1.5%
Oil	7.4%
Other	2.9%
Precious Metals	7.4%
Real Estate	5.0%
SaaS	1.2%
Semiconductor	15.2%
Small Cap Value	2.8%
Volatility	1.2%

Notes

For the year I am up 21.3%, which is quite remarkable considering I was long Boeing (BA) and Brookfield Property Partners (BPY) entering the year. Warren Buffett averaged 20% for decades so I at least got to have one year of Buffett-like returns. Ha. In all seriousness I think my returns were mostly generated because I didn’t have any fear in March. I literally could not sleep at night because I was so anxious to buy stocks. Entering 2020 I was about 50% cash. I had so much cash because this is only my third year as an investor and I didn’t see a lot of stuff that was cheap. I deployed about 60-65% of my cash in March/early April. I stopped buying as the Market climbed because I thought it was Bear Market Rally and I thought I would be able to buy more. I did spend the rest of my cash in June so I give myself credit for recognizing the Fed Put and buying in March. TLDR: I honestly believe my performance was mostly due to buying in March.

I have intentionally chosen to not learn about derivatives. I know what Call and Put Options are and that’s it. I’ve heard too many horror stories of people blowing up because of derivatives and I have issues being patient so I am intentionally ignorant. I put on a small position (in my Roth IRA) in TAIL from Cambria. They buy laddered puts and it gives me some insurance. I know how expensive the US Market is but I think the odds are less than 10% that we get a 20% or more drawdown in 2020. This Market will collapse eventually but I don’t know when. I think once Tesla begins to crash is when the Market as a whole tanks.

I bought Cinemark (CNK) in my IRA during Q4. I made a 1-2% bet because A) the company could survive a year with empty seats and B) the movie business would come back to pre-2020 levels. When the vaccines were announced I got a 90% gain and I exited the position because there were other stocks I wanted to buy. If the stock was in my PA I would still own CNK.

I doubled down on Energy this past quarter. I bought Exxon (XOM) in January thinking A) there wasn’t much downside, B) if oil prices positively regressed there was good upside and C) I could get a solid dividend in my Roth IRA. I knew their balance sheet was shit but I thought overtime it would get repaired even if oil prices were $60 a barrel. Well, I was completely wrong. I could have added to my position in March but was I adding to other positions and honestly, I wasn’t mentally prepared to double down on my bet. At the end of October I was given another chance to buy and I doubled down on the sector buying mostly Exxon and adding small positions to COP and CVX. Also, I think Gazprom is extremely cheap. Is it possible they get taken over by Putin? Yes, but at three times normalized earnings you’re getting compensated for the risk.

I had a big position in Boeing (BA) to begin the year and I got pwned. But I didn’t let that drawdown affect my ability to evaluate Spirit AeroSystems (SPR). This is one of the many companies I bought in March. I had a friend of a friend tell me that SPR and BA are joined at the hip so my job was to evaluate if SPR had enough liquidity to get through the pandemic.

My average buy price of Bitcoin is $9,800. I read an article in Meb Faber’s “The Best Investment Writing Volume 2: Selected Writing from Leading Investors and Authors” and it discussed Bitcoin in great detail and I decided it was worth a 1% allocation. I have no idea where the price will go but after my research into mania’s I find it hard to believe will not succumb to a big drawdown. I think once Tesla’s stock crashes is when Bitcoin crashes. In the long term I think crypto is not going away.

I bought Kinross (KGC) and Newmont (NEM) because they have best combination of good balance sheets and good management. I have no idea if inflation will come but I want to be hedged.

I’ve been buying a basket of Defense companies: HII, GD, RTX, LMT and NOC. The business are okay and they’re trading at okay prices but we’re in Cold War II and I don’t know which company will get the next big contract(s) in the future but if things aren’t entirely pleasant in the world I want to have exposure beforehand.

Brookfield DTLA Fund (DTLA) is preferred stock outstanding with a cumulative preferred. That means that if they skip a dividend payment they have to pay it in the furture. The stock owes about $19-20 in dividends and the par value is $25 which means the stock is worth $44-45. I made a 1% bet and I’m not adding to it.

I began the year buying ETFs of cheap countries (such as ERUS and EPOL) but I’ve been allocating more money to Value International ETFs. Specifically, Emerging Markets. Every month GMO publishes its 7 year asset forecast and they keep showing Emerging Markets are the only sector that will have positive returns. That’s why you see GVAL, FNDC, FNDE and AVDV in my portfolio now. I prefer GVAL the most of the four. As time goes on more money will be allocated there.

The Rational Walk wrote a great piece about how you can safely get a 3.5% yield from the US Government via Series EE Savings Bonds. In order to get 3.5% annualized you have to buy the bonds and hold them for 20 years. If you do that the government will give you double your money. If you hold for less than 20 years you only get 0.1%.

I think I said this in my last update but I didn’t think I would be this diversified. Part of me wishes I had less companies but I don’t want to get my face ripped off and get taken out of the game.

Enough rambling. I hope everyone has a great 2021!