November 30, 2009 marked the end of Greenbackd’s fourth quarter and first year, and so it’s time again to report on the performance of the Greenbackd Portfolio and the positions in the portfolio, and outline the future direction of Greenbackd.com.
Fourth quarter 2009 performance of the Greenbackd Portfolio
The fourth quarter was another satisfactory quarter for the Greenbackd Portfolio, up 14.3% on an absolute basis, which was 9.8% higher than the return on the S&P500 return over the same period. A large positive return for the period is great, but my celebration is tempered once again by the fact that the broader market also had a pretty solid quarter, up 7.4%. The total return for Greenbackd’s first year (assuming equal weighting in all quarters) is 136.8% against a return on the S&P500 of 34.2%, or an outperformance of 102.6% 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 I believe Greenbackd is 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 third quarter, September 1, 2009, to the close on the last trading day in the fourth quarter, November 30, 2009:
*Note the returns for SOAP and NSTR include special dividends paid. See below for further detail.
You may have noticed something odd about my presentation of performance. The S&P500 index rose by 7.4% in the fourth quarter (from 1020.62 to 1,095.63). Greenbackd’s +14.3% performance might suggest an outperformance over the S&P500 index of 6.9%, while I report outperformance of 9.8%. I calculate Greenbackd’s 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 I believe that the strategy should outperform the market by a small margin.
Update on the holdings in the Greenbackd Portfolio
There are currently ten stocks in the Greenbackd Portfolio:
- TSRI (added November 12, 2009 @ $2.10)
- CNVR (added November 11, 2009 @ $0.221)
- NYER (added November 3, 2009 @ $1.75)
- ASPN (added October 1, 2009 @ $0.985)
- KDUS (added September 29, 2009 @ $1.51)
- COSN (added August 6, 2009 @ $1.75)
- FORD (added July 20, 2009 @ $1.44)
- DRAD (added March 9, 2009 @ $0.88)
- SOAP (added February 2, 2009 @ $2.50. Initial $3.75 dividend paid July 30)
- NSTR (added January 16, 2009 @ $1.91. Initial $2.06 dividend paid July 15)
Greenbackd’s investment philosophy and process
I started Greenbackd in an effort to extend my understanding of asset-based valuation described by Benjamin Graham in the 1934 Edition of Security Analysis. (You can see a summary of Graham’s approach here). Through some great discussion with Greenbackd’s readers, many of who 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 (the Seth Klarman series starts here), I have refined Greenbackd’s process. I believe that the analyses are now pretty robust and that has manifest itself in satisfactory performance.
Tweedy Browne provides compelling evidence for the asset-based valuation approach. In conjunction with a reader of Greenbackd I have now conducted my own study into the performance of sub-liquidation value stocks over the last 25 years. The paper has been submitted to a practitioner journal and will also appear on Greenbackd in the future.
The future of Greenbackd.com
Greenbackd is a labor of love. I 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 I originally identified them traded for a period at a discount to the price at which I identified them. This means that there are plenty of opportunities to trade on the ideas (not that I suggest you do that without reading the disclosures and doing your own research). If you find the ideas here compelling and you get some value from them, you can support my efforts by making a donation via PayPal.
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)
I look forward to bringing you the best undervalued asset situations I can dig up in the next quarter and the next year.
Are you the same guy who runs valueinvestortoday? I hope that behind the scenes you’re not really the same guy. That guy is a dork. Which would mean you’re a dork if you’re the same dude. He’s waaaay too argumentative and gets caught up arguing meaningless junk.
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No. Jim Hodges operates the valueinvestortoday site and contributed to Greenbackd a guest post a while back.
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Congratulations and keep up the good work… This blog has certainly come a long way. Most importantly, I think you are improving your methodology. The way you value assets has improved since the early days.
I suspect the real test will be next year. Given the strong rally in almost everything, especially small-caps, it’s hard to tell how much is due to the strategy. Next year may also provide an opportunity for this strategy to truly shine, relative to other strategies.
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