2014 in review: Paper portfolio

Hey all,

With 2014 behind us it’s time to review what happened with the paper portfolio this year. Overall, this year was marked by a large amount of buying as we allocated the cash that had been sitting there previously (due mostly to my hiatus with the blog). Overall, the portfolio is performing about as I expect for holding most of the securities such a short period, or put another way almost completely flat.

Here is 2014 overall versus the S&P500:

As you can see, for 2014 the paper portfolio lost 1.55% versus the s&p500 gaining 11.81%. The fluctuation in the paper portfolio itself over the year could be the range of one of the major indices in a single day. Again, this is mostly due to the very short amount of time many of the securities have been in the portfolio, and they are thus still undervalued. At the same time, there have been some underperformers in the portfolio. Now we’ll look at each stock individually (with the exception of the preferred play, which I will talk about as a group).

For each stock, the gains include dividends and the percentage value is calculated using the yearly gains over the cost for the shares based on the Jan 3rd open. If the stock was bought during 2014, it is only reported from that point on but an annualized yield is presented as well.

Amcon Distributing (NYSE: DIT)

Open Jan 3 2014: 79.91
Close Dec 31 2014: 80.00
Dividends: $0.72
Shares: 100
Gains: $81(1.01%)

Amcon earned $6.48 for the year (although their fiscal year ends in september), which is an 8.1% return on the 2014 open. So less than the 10% we like to see. At the same time, their balance sheet remains strong and they reduced their debt load by a moderate amount. They’ve continued to pay the same dividend, which really needs to be raised. They earned this smaller amount on more revenue though. Overall I don’t think the flat year is a reason to drop them, unless we don’t see either improving earnings or more return of capital in 2015.

Corning Incorporate (NYSE: GLW)

Open Jan 3 2014: 17.77
Close Dec 31 2014: 22.93
Dividends: $0.40
Shares: 400
Gains: $2,224(31.29%)

Corning did very well for us this year. I recently reviewed them so I won’t go into more detail here, but the same conditions as then still hold true and although I’ve seen some interesting activity in the interim they are still on watch.

iShares Gold Trust (NYSE: IAU)

Open Jan 3 2014: 11.94
Sold Aug 20 2014: 12.47
Dividends: None:
Shares: 400
Gains: $212(4.43%)

Although we gained back a little over 2014, we closed this position at around a 20% loss. As I mentioned at the time, I decided to close it because I don’t think it fits with what I’m trying to accomplish with this portfolio, not the value (or lack thereof) of holding gold.

Friedman Industries (NYSE: FRD)

Open Jan 3 2014: 8.46
Close Dec 31 2014: 7.01
Dividends: $0.08
Shares: 500
Losses: $725(17.14%)

You may remember when I talked about the possibility to take advantage of the change in oil prices? Well, steel companies like this one get a lot of business from selling piping and whatnot to the oil industry. Their earnings dropped precipitously, they cut their dividend quite a bit, overall not a pretty picture for them. Again, I remain confident in them. A lot of steel companies showed a loss for the year (look at U.S. Steel) and just as I have every reason to suspect very good business conditions will end, I feel the same regarding bad ones. I am not planning to make a change here.

P & F Industries (NASDAQ: PFIN)

Bought Aug 20 2014: 7.88
Close Dec 31 2014: 7.94
Dividends: None
Shares: 600
Gains: $36(0.76%)
Annualized Yield: 2.10%

P&F has been mostly flat since we bought it. This one will be wait and see although I remain ornery regarding their lack of dividend.

Koss Corporation (NYSE: KOSS)

Bought Aug 21 2014: 2.95
Close Dec 31 2014: 1.75
Dividends: None
Shares: 1700
Losses: $2040(40.68%)
Annualized Yield: -76.40%

Koss had quite the drop. They have started to recoup a bit of those losses but this was completely to be expected. We’re not trying to time the dip, we just believe they’re undervalued. If we were doing a more complex portfolio with hedging I would most likely have been buying puts, but I don’t think this is a bad way to approach it. The hope being the short term loss will be outweighed by the long term gain.

Domtar Corp (NYSE: UFS)

Bought Aug 25 2014: 37.35
Close Dec 31 2014: 40.22
Dividends: 0.75
Shares: 150
Gains: $543(9.69%)
Annualized Yield: 23.50%

Domtar has performed quite well by all respects. I hope to see a dividend increase within the next two quarters and we will be watching them to make sure they don’t become overvalued.

Solitron Devices (OTC: SODI)

Bought Aug 29 2014: 4.13
Close Dec 31 2014: 4.28
Dividends: None
Shares: 1200
Gains: $180(3.63%)
Annualized Yield: 11.07%

Solitron has performed as expected. One of the issues with a company like this is you are working with less information. I’m aware that some of their shareholders have not been to happy with them, and they also made some anti-shareholder moves (staggered board for instance). But I think the company itself is in good condition and I hope for these issues to be smoothed out as it grows. Obviously if that weren’t the case it would mean a re-evaluation of our position.

Gencor Industries (NASDAQ: GENC)

Bought Aug 29 2014: 10.31
Close Dec 31 2014: 9.40
Dividends: None
Shares: 500
Losses: $455(8.83%)
Annualized Yield: 23.81%

This is the one I am closest to closing. I am somewhat pessimistic. I knew going in they have the corporation setup to be essentially on lockdown, with no real ownership by the common shareholders, but I still see a lot of potential value. It may mean a lawsuit on some large shareholders part, but I do believe someone will likely crack that nut. The question is how likely is it to happen soon and can we afford to wait? These guys are on probation with a possibility of closing the position soon.

Surge Components (OTC: SPRS)

Bought Sep 2 2014: 0.839
Close Dec 31 2014: 0.89
Dividends: None
Shares: 6000
Gains: $306(6.08%)
Annualized Yield: 19.66%

Again we have to consider the issues inherent in such a small company. But otherwise nothing much to report here. This is a wait and see situation.

Ampco-Pittsburgh (NYSE: AP)

Bought Sep 12 2014: 21.17
Close Dec 31 2014: 19.25
Dividends: 0.18
Shares: 250
Losses: $480(9.07%)
Annualized Yield: -24.96%

Two steel companies in our portfolio, and both are subject to the issues of low oil prices. AP has been suffering all year though so it can’t entirely be accounted for by oil prices. That said, my logic now remains the same as when I bought them, although I generally like to see better performance in depression conditions. The market is an excuse for less earnings, but not continuous losses. I would like to see them turn this around shortly to maintain my confidence in the position.

Emerson Radio (NYSE: MSN)

Bought Sep 19 2014: 2.02
Close Dec 31 2014: 1.05
Dividends: 0.70
Shares: 2500
Losses: $675(13.37%)
Annualized Yield: -55.56%

Quite the dip post-dividend. But that’s to be expected. The valuation remains the same as when we bought. They have been performing within expectations, and we will have to see what happens next.

AGCO (NYSE: AGCO)

Bought Sep 26 2014: 46.10
Close Dec 31 2014: 45.2
Dividends: 0.11
Shares: 100
Losses: 79(1.71%)
Annualized Yield: -6.38%

AGCO has been mostly flat. Despite their most recent earnings being low I don’t see any change in the valuation. Still planning to stick with them.

Preferred Play

Cost Basis Nov 21 2014: 16799.60
Value Dec 31 2014: 16707.08
Losses: $92.52(0.55%)
Annualized Yield: -4.91%

The small loss with this play is the result of what I mentioned at the time, that the margin between the preferred and underlying stock may get smaller. But over time this risk is lessened as yield eclipses that possible loss and by the end of the next year with the whole years worth of dividends we will start to get a more realistic idea of it.

Ship Finance International (NYSE: SFL)

Bought Nov 28 2014: 17.03
Close Dec 31: 14.12
Dividends: 0.41
Shares: 300
Losses: $873(17.09%)
Annualized Yield: -83.52%

Despite being one of the worst performers, this is one of the ones I am most confident in. Their valuation looks good, their balance sheet is well put together, and their dividend policy is really strong. Honestly the only thing I don’t like is that I can’t continue to buy as they dropped, which is what I would be doing normally. I am considering changing the rule and picking up more of them.

CTC Media (NASDAQ: CTCM)

Bought Dec 12 2014: 4.93
Close Dec 31 2014: 4.87
Dividends: None
Shares: 1000
Losses: $60(1.22%)
Annualized Yield: -20.96%

Our Russian interest remains fairly flat, which is honestly a little surprising to me. I thought they would probably drop more. Of course, this is a speculation which hinges upon what the company does to deal with new Russian legislation. I imagine we will hear something within the next 6-8 months.

Terra Nitrogen Company (NYSE: TNH)

Bought Dec 19 2014: 98.00
Close Dec 31 2014: 102.70
Dividends: None
Shares: 50
Gains: $235(4.80%)
Annualized Yield: 315.73%

Don’t let the annualized yield fool you, it is only because of a small bump in a very short time span. TNH made some small progress through the end of 2014, and I remain confident in the play. We’ll see what earnings and dividends look like over the next year.

Celanese Corporation (NYSE: CE)

Bought Dec 31 2014: 61.44
Close Dec 31 2014: 59.96
Dividends: None
Shares: 80
Losses: $118.40(2.41%)

With a total of <1 day in the paper portfolio as of the Dec 31 close, I am not even going to include the annualized yield. Basically no time has elapsed since I wrote it up. All there is to do is see what 2015 brings.

That brings us to the end of the paper portfolio review for 2014. As it stands currently we are at almost full allocation, and I like our position going forward. There are a couple in there that need to be watched more closely than the rest and of course I will continue to look for better value in which case we’ll start having to make some comparisons and decisions. Until then, happy new year, I hope you all had a good year and a better one to come.

-Will