Aug 22, 2011

Hewlett-Packard (HPQ) Is Still Good Without a PC Business

After the release of it's most recent quarterly earnings, and the conference call that came with it. HP's CEO Leo Apotheker has been under constant strain because of the seemingly ill time proposed acquisition of Autonomy. Investors are getting pessimistic about the future of the company and it reflects in the recent selloff that has hit HP's stock. Maybe is it time to take a break from the unending stream of information and be rational about the real long term potential of this company.

For those not in the know, and Reuters provides a very detailed description, Hewlett-Packard Company (HP), incorporated in 1947, is a provider of products, technologies, software, solutions and services to individual consumers, small- and medium-sized businesses (SMBs) and large enterprises, including customers in the government, health and education sectors. Its operations are organized into seven segments: Services, Enterprise Storage and Servers (ESS), HP Software, the Personal Systems Group (PSG), the Imaging and Printing Group (IPG), HP Financial Services (HPFS), and Corporate Investments. Services, ESS and HP Software are reported collectively as a broader HP Enterprise Business. In April 2010, the Company completed its acquisition of 3Com Corporation. In July 2010, the Company completed the acquisition of Palm, Inc. (Palm), In September 2010, the Company acquired Fortify Software. In September 2010, the Company acquired 3PAR Inc., a global provider of utility storage. In October 2010, the Company acquired ArcSight, Inc., a security and compliance management company. The Company’s offerings include multi-vendor customer services, including infrastructure technology and business process outsourcing, technology support and maintenance, application development and support services and consulting and integration services. It also provides enterprise information technology infrastructure, including enterprise storage and server technology, networking products and solutions, information management software and software that optimizes business technology investments; personal computing and other access devices, and imaging and printing-related products and services. It is interesting to note that, at current prices, the company offers the best long term potential among the components of the Dow Jones Index. 

An unfortunate chains of events leading to a 33%+ decline in the stock price of an established company can only mean two things. For one, it could mean that investors might be thinking that the company has seen it's share of growth and are anticipating that the coming years will see a major drop in the company's earnings. Another more frequent reason might be that investors are overreacting to a series of what they assume to be very bad news for the firm. 

Time will tell which of those two scenarios fits best to reality, but in the meantime, I adhere to a contrarian camp who thinks that HP still has room for even modest growth. Assuming a reasonable P/E ratio of 10, the current price assumes a decrease of HP's earnings of 0.5%% annually over the next 5 years, giving us a 2016 price of 35$. A 8% discount rate would then justify the current 24.45$ at the end of the August 22nd. However, we know that HP has been growing earnings at about 8% a year over the past 10 years, and they went through two recessions over that period. Let's make another assumption and let's say that the acquisition of Autonomy puts some breaks on the growth of HP's earnings and that the company is only able to grow EPS at 5% per annum. We find ourselves with a 2016 price of 48$ per share. 

For the long term investor who is knowledgeable of the tech industry, this must be a great entry price into a company that has rewarded investors with a solid performance in the past 10 years, considering it's seize. With my limited knowledge of this particular industry, I used four different measurements and I came to the conclusion that the current price of HP's stock is overly pessimistic. The earlier stated P/E method gave me a 48$ price tag on shares of HP. 

Interestingly enough, HP has managed to grow it's book value per share over the past 10 years at about 7.5% per year. Assuming they can manage to keep that pace, we end up with a book value of nearly 23$ per share in 2016. At the current depressed Price/Book ratio of 1.6, we end up with a price per share of 38$. 

We can also look at free cash flow per share, which I calculated to have grown about 7% per year over the same period, even if it has been swigging wildly as it can be seen on the above chart. Keeping HP's stock for 5 years and using a 8% discount rate, I ended up with a present value of 49$ per share for HP. Free cash flow per share would end up being about 4$ per share in 2016, If we use a reasonable Price/Free cash flow ratio of 10, we end up with a 2016 price per share of 40$ per share. 

Assuming that my assumptions are not too flawed, it seems to me therefore that the market is being overly bearish on the long term prospects of Hewlett-Packard. Investors are assuming that the current change of strategy will have negative effects on the company, without taking into account that HP might come out of this crisis as a more profitable company. And it will certainly be more profitable if it dumps it's hardware business and stops acquiring companies at absurd premiums to the current price. 

Disclosure: The author has no position in HPQ and does not intend to initiate one in the near future.

Jun 6, 2011

Microsoft Corporation (NASDAQ: MSFT) and Windows 8 Are On Sale

There is a consensus in play right now in the technology sector and it could be very profitable for investors willing to get in now and position themselves for the revaluation of an opportunity. Microsoft has a dominant position in the technology industry and with Windows enjoying almost a 90% market share in the operating systems business and the Microsoft Office Suite camping on a big chunk of the professional software market, this company is poised to experience growing profits over the coming years.

Investors appear to be anticipating a big drop in the market share of the company because of the rising threat arising from sales of tablets. Analysts seem convinced that iPads and Android tablets will eat the market share of PCs, thus reducing the overall grasp of the market by Microsoft.

Lets take a closer look at what the future has in place for Microsoft. First, Windows 8 is in the pipeline and according to the teaser preview provided by the company last week, this version of Windows promises to be quite different from it's predecessors. If you haven't seen it yet, take a look on their official website here. Windows 8 seems more exciting and more intuitive, showing that the company is working to create products that are more in line with what the competition, namely Apple and Google, are currently doing. Also they are not just imitating their competitors, they are innovating and bringing something new to the marketplace. The big news with Windows 8 is that it will be compatible with the touch technology, we will therefore expect to have an announcement in the coming months of a Windows 8 tablet.

 EPS for 2011 is an estimate and data for 2012 and after are projections.
The current attractiveness of the company is phenomenal from a fundamental standpoint. Over the past 10 years, Microsoft has been able to grow sales by roughly 10% per year because of good pricing power and an average 4 year product cycle. Assuming the company can grow it's sales by 7% over the next ten years and that most other expenses grow in line with sales, we end up with a company valuation of 33$ per share. At current prices, this provide investors getting in right now with a 40% return as the market starts to realize how undervalued the company is. 

The recent price of 23.91$ implies that Microsoft will be able to grow EPS by only 3% per year over the coming 10 years! We know that in reality the company has been able to grow this metric by an average of 13% over the past five years.

Also, you are paid to wait, as the shareholders currently enjoy close to a 3% dividend yield and Microsoft certainly has enough cash on hand, even following the recent acquisition of Skype, to sustain a healthy growing dividend. Long term investors should see the current price levels of the company as a great buying opportunity.

Using a price-earnings multiples valuation, we also come to the conclusion that the company is undervalued. The P/E ratio of the company is currently at 9.47. Over the past fire years, the average P/E ratio of Microsoft was 16, with a high of  23.7, which doesn't seem very much out of this world. With a trailing twelve months EPS of 2.52, we end up with a price per share of 40$ using the five years historical average P/E of Microsoft.

In my humble opinion, EPS for FY 2012 of Microsoft will hover around 3$ per share as the company finally catches up with it's competition and sales of Windows 8 pick up. By using once again our historical P/E of 16, we come up with a stock price of 48$. It is clear that current prices grossly undervalue the profit potential of the company as it is able to generate an incredible amount of profits for it's shareholders.

As you can see, these two methods allowed me to come to an approximate value for the shares of Microsoft ranging from 33$ to 48$ one year from now with fairly conservative assumptions. Acquiring a position now will be very beneficial to shareholders as those intrinsic values allow them to reap substantial profits. There is very little downside left and any good news by Microsoft will have a positive effect on the stock price.

Full Disclosure: The author is Long MSFT

May 14, 2011

The Comeback of the US Dollar?

The following graph of the US Dollar Index tells a story that can be summed up in the following terms. There seems to be change in sentiment regarding the way people perceive their positions relative to the US Dollar. This is all translating into a major change in the way Forex traders are positioning themselves regarding the future of the US Dollar.

Recent economic news on each side of the Atlantic have heavily influenced the strength of the American currency. In the US, it is clear that talks by the Federal Reserve to end of quantitative easing, QE2 on time, and that there probably is no QE3 in sight. Economic data on employment is improving and recent speeches by Fed's Chairman Ben Bernanke lead to think that the US economy is getting stronger.

Expect for the specific cases of Germany and France, economic data for Europe is coming in short of expectations and the continued Greek sovereign crisis is weighting on the Euro. As long as the market has no certainty as to what will happen with Greece's debt, forex investors will keep expecting the worse as time passes by and will fly back to the US Dollar.

Looking at the chart at the beginning of this post, there a long term reversal is in place for a comeback of the US Dollar that should last many weeks. Shorting the Euro and getting long on the US Dollar will prove to be a winning trade as long as a bond crisis still looms over Greece.

May 13, 2011

Google (NASDAQ: GOOG) is Releasing it's Chromebook

I recently fell on a pretty interesting article from the The 5 Dumbest Things on Wall Street: May 13 - TheStreet. It is about major blunders made by big public companies or people employed by them.

I was mostly intrigued by the article relating to Google (GOOG) and their newly issued Chromebook, described by Google on the Chromebook website in the following terms:
A Chromebook is a mobile device designed specifically for people who live on the web. With a comfortable full-sized keyboard, large display and clickable trackpad, all-day battery life, light weight, and built-in ability to connect to Wi-Fi and mobile broadband networks, Chromebooks are ideal for anytime, anywhere access to the web. They provide a faster, safer, more secure online experience for people who live on the web, without all the time-consuming, often confusing, high level of maintenance required by typical computers.

It will come in two models, one manufactured by Samsung and the other by Acer and will be available on June 15th. The author of the article on discusses the fact that the Chromebook comes at a time when mini-notebooks are simply outdated and that linking the product to a 3 years contract on a data plan was a silly move to take.


This point of view seems to be adopted a long time before the product has even had a chance to get going in the marketplace. The target costumers of the Chromebook are people who spend most of their time on the web and do not us their computer for much other use. Google seems to be targeting a niche market and it is reasonable to think that the people in the marketing department saw at least a medium term opportunity for Google.

These notebooks will be well adapted for people who are already accustomed to the Google product line but they still need to offer some features that many people are still looking for when acquiring a computer. First, Java is not supported by the Chromebook. If it is supposed to appeal to regular Internet users, this is a functionality that will have to be addressed.

The Chromebook doesn't yet support networks that require security certificates and this is an issue considering that most enterprise wireless networks are secured. As noted on, it's not currently possible to transfer owner privileges of your Chrome notebook to another user account unless it is set back to back to it's set back to it's initial state, loosing all previously recorded data.

There are only some of the few drawbacks of the Chromebook but I am pretty sure it will provide Google with a business segment that will constantly expose it's users to the advertising distributed by the company, thus increasing revenues.

Full Disclosure: The author does not have a position in GOOG.

Mar 31, 2011

The One Good Reason Why David Sokol Is Clean (NYSE: BRK; LZ)

Even if it is widely discussed that the former Berkshire Hathaway (NYSE BRK.A, BRK.B) executive David Sokol acted in an unethical manner in the Lubrizol Corporation (NYSE: LZ) deal, people seem to forget one important matter.

A lot of the buzz is generated by the fact that Sokol took his position after that meeting with investment bankers at Citigroup on December 13th 2010. those who are in such a ruch to throw accusations at Sokol seemed to miss that there were 18 companies proposed to David Sokol on that day.

Even if he acknowledged that Lubrizol was the most interesting company out of that list. There is no way he could have known in advance which of those 18 companies Berkshire Hathaway's Chairman Warren Buffet would come to chose in the end. It is also interesting to note that Buffet was pretty cold about buying Lubrizol until near the end of January 2011.

A way to know that Sokol acted in a way to profit from an acquisition by Berkshire Hathaway would have been for him to buy all of the 18 companies. One must remember that before the acquisition, as he said in an interview on CNBC, David Sokol purchased those Lubrizol stocks for his own account because he thought that the company had a good long term potential. He also mentioned that he trades pretty rarely. That is also the same reason why he was pressing for a deal between Berkshire Hathaway and Lubrizol. He was just acting in the interest of Berkshire Hathaway shareholders according to his duties. 

This all just seems to be a matter of bad timing and probably bad judgement about the perception of those moves from David Sokol if we take into account that his portfolio turnover is dismal on a yearly basis.

On the right is a timeline of the deal between Berkshire Hathaway and Lubrizol from an article provided by the Wall Street Journal.

Mar 26, 2011

Marauder Ressources East Coast (MES.V): An Overrated Penny Stock?

Investing in a penny stock is a bad ideas most of the time, they are very risky and are pretty easily manipulated. It seems however that one can come across interesting companies trading on the TSX Venture Exchange. Going through some screenings recently, I came across this company with some impressive valuations. Marauder Ressources East Coast principal business is the exploration for and the (potential future...) production of pretroleum and natural gas reserves off the east coast of Canada (for now) and elsewhere.

What is interesting to notice at first is that a lot of populat sites like google finance do not provide a lot of information about the financials of the company. Looking deeper on the website of SEDAR for their most recent quarterly earnings report, dated september 30th 2010. The company seems under valued. Here are some summary financial information about the company. All amount are in thousands of dollars.

Balance Sheet for the year ended 2009

Evolution of Liabilities and Equity over the last five years
Income Statement for the year ended 2009

Cashflow statements for the year ended 2009

Currently, the company does not sell any of the ressources that are on their fields. If they manage to find a way to exploit those fields of if s company comes to acquire a part of their assets, This would be greatly valuable for shareholders of the company.

One good example is the sale of it's interests, in July 2009 of certain zones in Production License 2901, Offshore Nova-scotia, to Encana Corporation, operator of the Deep Panuke Natural Gas field. Marauder Ressources East coast received 3.5 Million CAD in the transaction, plus an overriding royalty on the future production from two currently non-producing exploration licenses offshore of Greenland.

As the company will not have enough cash fo finance it's own exploration of the area and that their principal sources of cash is the issuance of debt or equity. The first option has not been used yet, and probably will not be used since the company doest not generate enough cashflows from it's continuing operations to justify a loan from any right minded bank or investor.

Their main assets are currently their petroleum and natural gas properties, with an aggregate value of a little over 32 million CAD. With liabilities mainly composed of a differed

It seems that investors have been very discouraged with this company. To the point that they have left the company for dead. As it can be seen from the company's balance sheet. Equity stands at 27 million CAD. With the 63 millions shares currently trading, that makes for a book value per share of 0.39$ and the stock is trading at 0.07$ that makes for over a possible 450% return for investors willing to be patient enough for a favourable event to happen to the company. At current prices, the company can't issue many shares for fear of massively diluting current shareholders.

Another interesting fact is that insiders of the company have been exercising options over the last couple of months to acquire about 4.4 million shares in the company when the company's stock was trading at around 0.05$ per share. This might be good news for the stock.

This is a very risky position but the reward might justify the risk. Keep in mind however that investing in penny stocks is extremely risky.

Disclosure: The author is long MES.V

Feb 26, 2011

Buffett's Successor Revealed (NYSE: BRK.A, BRK.B)

For those who have already had the opportunity to get through the 2010 Letter to Shareholders by Warren Buffett, it is obvious that a plan to his succession is clearly taking shape. It has made sense for him that there will have to be a split for his position in the coming years and there has been great mystery as to who will be in charge of investment decisions when Buffett retires.

As he had already officially revealed in October 2010, it seems that the position of chief investment officer will be split into many persons and the first person to be nominated for the task is former hedge fund manager Todd Anthony Combs. As Berkshire Hathaway revealed results for 2010, he went into great lengths to explain his choice of manager, as this person is relatively unknown to the financial markets.

Here is what Warren Buffet had to say about Todd Combs in his 2010 Letter:

Four years ago, I told you that we needed to add one or more younger investment managers to carry on when Charlie, Lou and I weren’t around. At that time we had multiple outstanding candidates immediately available for my CEO job (as we do now), but we did not have backup in the investment area. 
It’s easy to identify many investment managers with great recent records. But past results, though important, do not suffice when prospective performance is being judged. How the record has been achieved is crucial, as is the  manager’s understanding of – and sensitivity to – risk (which in no way should be measured by beta, the choice of too many academics). In respect to the risk criterion, we were looking for someone with a hard-to-evaluate skill: the ability to anticipate the effects of economic scenarios not previously observed. Finally, we wanted someone who would regard working for Berkshire as far more than a job.
When Charlie and I met Todd Combs, we knew he fit our requirements. Todd, as was the case with Lou, will be paid a salary plus a contingent payment based on his performance relative to the S&P. We have arrangements in place for deferrals and carryforwards that will prevent see-saw performance being met by undeserved payments. The hedge-fund world has witnessed some terrible behavior by general partners who have received huge payouts on the upside and who then, when bad results occurred, have walked away rich, with their limited partners losing back their earlier gains. Sometimes these same general partners thereafter quickly started another fund so that they could immediately participate in future profits without having to overcome their past losses. Investors who put money with such managers should be labeled patsies, not partners.
As long as I am CEO, I will continue to manage the great majority of Berkshire’s holdings, both bonds and equities. Todd initially will manage funds in the range of one to three billion dollars, an amount he can reset annually. His focus will be equities but he is not restricted to that form of investment. (Fund consultants like to require style boxes such as “long-short,” “macro,” “international equities.” At Berkshire our only style box is “smart.”)
Over time, we may add one or two investment managers if we find the right individuals. Should we do that, we will probably have 80% of each manager’s performance compensation be dependent on his or her own portfolio and 20% on that of the other manager(s). We want a compensation system that pays off big for individual success but that also fosters cooperation, not competition. 
When Charlie and I are no longer around, our investment manager(s) will have responsibility for the entire portfolio in a manner then set by the CEO and Board of Directors. Because good investors bring a useful perspective to the purchase of businesses, we would expect them to be consulted – but not to have a vote – on the wisdom of possible acquisitions. In the end, of course, the Board will make the call on any major acquisition.
One footnote: When we issued a press release about Todd’s joining us, a number of commentators pointed out that he was “little-known” and expressed puzzlement that we didn’t seek a “big-name.” I wonder how many of them would have known of Lou in 1979, Ajit in 1985, or, for that matter, Charlie in 1959. Our goal was to find a 2-year-old Secretariat, not a 10-year-old Seabiscuit. (Whoops – that may not be the smartest metaphor for an 80-year-old CEO to use.)
He hints that there will probably other managers added to the team and even a compensation structure already in place. The investment results of Berkshire Hathaway's equity portfolio will therefore present the performance of Todd Combs.

Another interesting part of his letter is the update on the equity put contracts that Berkshire Hathaway carries in his books.

You can access his full letter here.

Feb 16, 2011

Jim Chuong's 2010 Letter to Partners

A couple weeks ago, I came out with an article depicting the performance of the stock portfolio of Canadian value investor Jim Chuong for the past decade. With a lot of humility, he attributed his outstanding 2010 57% performance to just sitting there and watching his portfolio rise. Here are of his own words:

The return I achieved in 2010 is not repeatable, should not be considered a reflection of my investment skill and, if anything, foreshadows a very bad 2011 for me.
In fact, in 2010, aside from picking up a small handful of shares in The Buckle, my activity was non-existent. Readers should expect inactivity in the face of rising prices. For me, it makes no sense to buy at increasingly higher prices. In fact, it appears more profitable to start looking in areas where prices are declining or, even better, have collapsed.
This year my letter will be short because nothing happened – everything rose in price and I sat dumbfounded - gawking at all the businesses that I was suddenly priced out of.

He his very modest indeed and as many will have guessed, his task has not been so easy. In his 2010 letter, he explains his views about investing and the method he uses to find attractive stocks for his portfolio.

He talks about the effect of diversification and asset allocation. He shines the light on the reason why many companies decided ti distribute a special dividend in 2010. As a value investor he shuns companies that have debt on their balance sheets and he gives a lengthy argument to support his view.

He also candidly compares poker to investing in a very light way. And reminds us of the effect of taxes on different ways to earns money, ranging from earned income to dividends.

He also insists on the importance of retirement and what it implies for any person facing the dilemma of immediate gratification versus long term wealth. He thankfully ends with a description of the performance of his portfolio, and the companies in it.
Here are his holdings at the end of 2010:

% of Portfolio
The Buckle (NYSE: BKE)
Columbia Sportswear (NASDAQ: COLM)
American Eagle (NYSE: AEO)
Berkshire Hathaway (NYSE: BRK.B)
General Employment (AMEX: JOB)

You can access his full letter and his insights right on his website.

Feb 8, 2011

The Egypt Crisis Play: Transglobe Energy Corporation (TGA)

Here is an interesting article about how value investors can benefit from technical analysis. Even if it has not been that publicized today, the political crisis that was happening in the past days over in Egypt proved to be very beneficial for investors who were able to fairly assess the level of potential danger arising from this situation..

There seems to have been some situations that offer great opportunities to investors. The case of TransGlobe Energy Corporation (NASDAQ: TGA, TSE: TGL) sheds some light on events of this king. This Canadian company conducts oil well drilling operations in the Arab Republic of Egypt and in the Republic of Yemen, solely or in partnership with local companies.

Those two regions were recently affected by an uprising of the population to the political regimen in place. This proved to be a great buying opportunity for those who could take advantage of it. In the days before the unfolding of the situation in Tunisia and in Egypt, many investors in the company showed little faith in it's future prospects. This fact can clearly be concluded from the declining stock price fo TransGlobe energy Partners before January 31st 2011 that went from over 20$ a share in December 2010 to a mere 12.25 just two months later.

As the company showed in a recent update of their operations, it seems that people were too pessimistic about the outcome of the situation in Egypt and the repercussions it would have on the company:
To date, the Company's West Gharib production operations have not been affected by the recent political demonstrations in Egypt. The Company continues to the monitor the situation and has daily communication with our Cairo staff and our Joint Venture operating company. All employees are safe and accounted for. The Company will take all steps to adapt to the situation and will attempt to mitigate any adverse consequences.
 Moreover, the recent turmoil in the Middle-East is such of insignificant effect that the company's production has actually increased over the month of January. 

For my part, I purchased shares of the company on February 1st 2011 on market open for an average price of 12.13$ per share and my oversold thesis has been clearly validated. I am only left to see if there will be any upside left since the stock of TransGlobe Energy Corporation is getting very close to it's target value of 16$ per share.

Disclosure: The author is Long TGA

Jan 31, 2011

Fairfax Financial (TSE: FFH) is a Buy Once Again

For people who have ha the opportunity to follow my posts: my first report on the company, when I commented on the company taking it's subsidiaries private or on a recent acquisition over the past two years, know how much we are fond of Fairfax Financial Holdings limited. This Canadian based insurer has provided great returns for it's shareholders through astute acquisitions and massive gains on credit default swaps derivative contracts in 2008. I am very pleased with it's performance for the past two years I have held at the company's stock.

The company announced on January 18th 2011 that the 99% of the shareholders of First Mercury Financial Corporation that cast their vote had visibly almost unanimously voted in favor of the friendly takeover bid proposed by Fairfax Financial. This acquisition is very typical of the way the company's CEO, the great investor Vivan Prem Watsa manages these operations. For those who are not accustomed to the company, it's name stands for Fair and Frieldly Acquisitions and should not be mistaken with Fairfax county in Virginia. The company will generally come with a bid for a company that is usually higher than the target's current price and win the approval of shareholders.

It is interesting to note that acquisitions and major investments are managed at the holding company level by  Vivam Prem Watsa and his small team. As of the last quarterly earnings release, the company stated that it had $32.5 billion of assets and close to $8.9 billion of shareholder's equity or 416$ per share and this is certainly the first reason to buy the stock. We also know from the 2010 annual meeting slide presentation that when current management took over in 1985, the company's book value was 1.52$ per share. They have to be doing something right in the tough insurance business.

Many other factors have to be taken into account, but I have noticed that when the company is trading under book value per share, it tends to rally back to this value. At the current price of 383$ per share, that implies at least an 8.3% return if book value doesn't change by the next quarterly filing on February 17th 2011.

10 year target price: 910$

Disclosure: The author is long FFH.TO

Jan 18, 2011

Investing Performance for 2010

2010 proved to be a very favorable year for me and as I will explain a little further, it is mostly due to the high concentration of almost half of my holdings in one specific company and the use of options contracts that were severy undervalued. More on that later.

The broad rally experienced by stocks during the year is fundamentally attributable to the quantitative easing measures by the Federal Reserve in the US and the rising price of commodities. Because of the intricacy of the canadian economy with the US economy and also because the canadian economy is so greatly influenced by the price of commodities. Provident Energy Trust helped fairly while providing a nice 10% dividend yield during the holding period.

My biggest position was certainly Winalta Inc. The company was going through a tough restructuring process and the uncertainty surrounding the company got it's price gyrating at historic lows during the summer of 2010.

There is also something new this year, options were a fair part of the performance. I acquired them at the end of the month of august as it seemed to me that the investment community was pretty pessimistic about earning results that would be soon announced by several companies and two of them had unfair bearish sentiment surrounding them. I was greatly rewarded as those position took full advantage of the earnings surprise inherent to those companies. 

I also managed to commit some mistakes. My position in Le Chateau Inc. did not perform the way I expected and it ended up slowing my performance. I also succumbed to greed at some extent when I decided to hold my position in my November out-of-the-money call options of Dryships Inc. after the earnings announcement, which caused them to decay as their maturity was getting closer, this proved to be a great error since the stock started sliding  in the days following their earnings release. Ironically, I departed myself from my options on Microsoft, which went to get deeply in the money. 

Here are my positions for the year:


Call options long:

Taking those positions into account, my performance in 2010 was a surprising 80.4%, and the S&P/TSX did 14.4%, so it makes it that I over-performed it by 66%. This is very encouraging but I remain cautious, this performance might be due a great deal to chance and it is very improbable that I will be able to replicate it in the future. The downside is that even if I showcased a better performance than this index, it will get harder in the coming year to find such attractive opportunities and repeat a relative performance of this magnitude.

Jan 5, 2011

Jim Chuong Investing Performance in 2010

A little over a year ago, I wrote an article about a young canadian investor who had been showcasing outstanding returns over the past decade. It seems than he fared very well since the last time I wrote about him.

As stated previously, Jim Chuong started seriously managing funds in 1998 with a staggering 68% return for the period. His objective was to beat the S&P 500 index and he has managed to do it 9 times since then. An investor who started with 10 000$ invested with him at the beginning of his career would have found himself with  a whooping sum of more than 66 000$ at the end of 2010.

As can bee seen in the chart below, his fund got hit in 2008, as many did, but Jim Chuong still managed to generate positive returns even for investors who got in at the beginning of 2008.

For those who have not done it yet, his website contains the annual letters he provides to explain his performance for the year. They are very insightful as he even adds explanations about the topics that prevailed during the year. He has not yet completed the 2010 letter but he will post it shortly. One can also find the rare copies available on the internet of the partnership letters of Warren Buffett and Benjamin Graham.

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