August 31, 2009 marked the end of Greenbackd’s third quarter, and so it’s time again to report on the performance of the Greenbackd Portfolio and the positions in the portfolio, discuss the evolution of our valuation methodology and outline the future direction of Greenbackd.com.
Third quarter performance of the Greenbackd Portfolio
The third quarter was another satisfactory quarter for the Greenbackd Portfolio, up 23.5% on an absolute basis, which was 15.0% higher than the return on the S&P500 return over the same period. A large positive return for the period is great, but our celebration is tempered once again by the fact that the broader market also had a very good quarter, up 11.0%. Our total return since inception (assuming equal weighting in all quarters) is 107.2% against a return on the S&P500 of 13.9%, or an outperformance of 93.3% over the return in the S&P500.
It is still too early to determine how well Greenbackd’s strategy of investing in undervalued asset situations with a catalyst is performing, but we believe we are heading in the right direction. Set out below is a list of all the stocks in the Greenbackd Portfolio and the absolute and relative performance of each from the close of the last trading day of the first quarter, June 1, 2009, to the close on the last trading day in the second quarter, August 31, 2009:
You may have noticed something odd about our presentation of performance. The S&P500 index rose by 11.0% in our second quarter (from 919.14 to 1,020.62). Our +23.5% performance might suggest an outperformance over the S&P500 index of 12.5%, while we report outperformance of 15.0%. We calculate our performance on a slightly different basis, recording the level of the S&P500 Index on the day each stock is added to the portfolio and then comparing the performance of each stock against the index for the same holding period. The Total Relative performance, therefore, is the average performance of each stock against the performance of the S&P500 index for the same periods. As we discussed above, the holding period for Greenbackd’s positions has been too short to provide any meaningful information about the likely performance of the strategy over the long term (2 to 5 years), but we believe that the strategy should outperform the market by a small margin.
Update on the holdings in the Greenbackd Portfolio
There are currently nine stocks in the Greenbackd Portfolio:
- COSN (added August 6, 2009 @ $1.75)
- FORD (added July 20, 2009 @ $1.44)
- VXGN (added March 26, 2009 @ $0.48)
- DRAD (added March 9, 2009 @ $0.88)
- CAPS (added February 27, 2009 @ $0.60)
- DITC (added February 19, 2009 @ $0.89)
- SOAP (added February 2, 2009 @ $2.50)
- NSTR (added January 16, 2009 @ $1.91)
- ACLS (added January 8, 2009 @ $0.60)
Greenbackd’s valuation methodology
We started Greenbackd in an effort to extend our understanding of asset-based valuation described by Benjamin Graham in the 1934 Edition of Security Analysis. (You can see our summary of Graham’s approach here). Through some great discussion with our readers, many of whom work in the fund management industry as experienced analysts or even managing members of hedge funds, and by incorporating the observations of Marty Whitman (see Marty Whitman’s adjustments to Graham’s net net formula here) and Seth Klarman (our Seth Klarman series starts here), we have refined our process. We believe that our analyses are now robust and that has manifest itself in satisfactory performance.
Tweedy Browne provides compelling evidence for the asset-based valuation approach. We have now conducted our own study into the performance of sub-liquidation value stocks (You may recall that in July we called for assistance with a research project. Now you know what it was for.) We’ll shortly be circulating the draft paper for review, and then hope to publish the results in a practitioner journal. The study will also appear on Greenbackd.
The future of Greenbackd.com
Greenbackd is a labor of love. We try to create new content every weekday, and to get the stock analyses up just after midnight Eastern Standard Time, so that they’re available before the markets open the following day. Most of the stocks that are currently trading at a premium to the price at which we originally identified them traded for a period at a discount to the price at which we identified them. This means that there are plenty of opportunities to trade on our ideas (not that we suggest you do that without reading our disclosures and doing your own research). If you find the ideas here compelling and you get some value from them, you can support our efforts by making a donation via PayPal.
We are taking a brief vacation until after Labor Day. We’ll be back full-time on September 8th, always reserving the right to post interesting ideas in the interum and update our open positions. If you’re looking for net nets in the meantime, here are two good screens:
- GuruFocus has a Graham net net screen, with some great functionality ($249 per year)
- Graham Investor NCAV screen (Free)
We look forward to bringing you the best undervalued asset situations we can dig up in the next quarter.
You say, “The Total Relative performance, therefore, is the average performance of each stock against the performance of the S&P500 index for the same periods.”
Yet, you count the absolute return as if it is the return on the portfolio… What you’re really measuring, like you said, is the average absolute and relative performance of each of your positions. Your average position returned 29.2% during the quarter. It is not really a measure of how the portfolio would have performed. The portfolio may have performed under/over this amount (depending upon a variety of factors). What if you had cash on the sideline, which you realistically would have had since you bought/sold a number of stocks during the quarter?
How are you measuring your performance YTD? That could be under/over stated as well.
Anyways, I’m not trying to be a stickler or annoying. I hope I don’t come across that way.
Thanks for all your hard work – I enjoy your blog!
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Are you just trying to track the average return of a stock using your strategy?
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Hey Anon,
The Greenbackd Portfolio is a theoretical portfolio that makes the following assumptions:
1. We can trade at the closing price (or, if there’s after-hours trading, the last price) for each purchase and sale for each stock.
2. Each stock is equally weighted in the portfolio.
3. We aren’t subject to brokerage or taxes.
4. We don’t hold cash and we have unlimited buying power.
Obviously, none of these assumptions apply in the real world, as much as we wish that they did (especially the one about unlimited buying power).
G
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i thought you guys had a position in TRID?
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We considered it but didn’t ever add it to the Portfolio. We last looked at it in March, when Spencer Capital showed up. It was trading at $1.30. It closed yesterday at $2.45, up 89%. A sin of omission if ever there was one.
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