With FallStreet.com we explore the macro: the big themes and investment trends that shape the financial world. With the Wish List our concentration switches to the micro: the individual companies that may help positively shape an investment portfolio. In short, although 2013 brings with it a great deal of uncertainty, there are also opportunities to be found.
During the last 12-years the Wish List has had to contend with two brutal U.S. bear markets, a historic and almost catastrophic financial meltdown set ablaze by a crash in the U.S. housing market, and, more generally, the worst economic downturn since the Great Depression. We are happy to say that the Wish List performed remarkably during these tumultuous times, and has outperformed the broader equity markets during every instance of annual decline.
2012: The Year That Was
Investor fear and speculation of accounting fraud bludgeoned Chinese small cap stocks listed in the U.S. in 2011. This collapse revealed a contrarian opportunity for the savvy investor. We acted by selecting one of the most transparent and undervalued companies in the group, Longwei Petroleum. Net result +71.9%.
Also during 2012 we sold one of our longest and most prized holdings in High Liner Foods Incorporated. Originally selected in 2007 as a ‘forever’ holding, we spent many years patiently flaunting High Liner as a severely undervalued gem. As High Liner acquired key assets in 2012 the company’s stock price reached the realm of overvalued. We sold. +156%.
We end 2012 with four selections in our portfolio – the smallest number of companies since the Wish List began. Our goal is to find undervalued and special situation gems, replace the low risk/high return opportunity that High Liner once represented, and, more generally, be ready for the financial hell that could be unleashed at a moment notice…
A Different Kind of Tinderbox
The current build up to the next crisis is an entirely different animal than the equity and housing backed manias since the 1990s. To be sure, whereas a dramatic and an unsustainable increase in specific asset prices sowed the seeds of financial destruction yesterday, today all assets and market prices are abiding by a blatant mania in money printing and government borrowing. Predicting and waiting for a currency(ies) or sovereign to collapse is not the same thing as Pets.com or skyrocketing home prices.
Wish List 2013
With the exception of one ‘speculative’ position, all the companies on the Wish List today are dollar cost average candidates. That is, should the worst come to pass in the financial markets we stand ready to purchase more shares at a discounted price. It is this mindset that permeates our investment outlook and pays homage to a mantra uttered nearly 13-years ago: ‘Our goal is successful investment, not risk-filled speculation’.
In short, while we fully expect monetary and fiscal recklessness to glide towards yet another financial calamity, equity positions are the pre-requisite to profit whether the worst arrives tomorrow or years from now. In this year’s Wish List we will be making new selections and, per usual, covering our Top 10 ‘Prospects’ leading into 2013.