Value Stock Guide Portfolio – Q1 2012 Wrap Up

The first quarter has been good to the stock portfolios across the country and the Value Stock Guide portfolio performed quite well. We were up 15.18% compared to S&P 500 that was up 12.00% (excluding dividends). While I am happy with the performance this year so far, I am more excited by the fact that the portfolio is now well placed with excellent investments that should perform well for the rest of the year.

We were up 12.9% in Jan (S&P 500 = 4.41%). So What Happened?

Short answer is that for a focused portfolio that aims to keep its holdings between 10 – 15 stocks, this kind of ebb and flow is to be expected. We still grew the portfolio since the January report.

The long answer of course is that we took profits on a few stocks that had appreciated quite a bit and redeployed the capital in new investments. See the sale reports for VOXX Internationa (VOXX), Heelys (HLYS) and Xyratex (XRTX). New investments might take some time to start appreciating, since a value investor tends to buy at a depressed price and wait for the catalyst to move the stock price. When the appreciation comes, in most cases it tends to be swift, as the market wakes up to the stock and starts respecting it. This is what happened to the 3 stocks I mentioned above, and this is what is happening to a few other stocks in the portfolio right now.

Some of the stocks have also been volatile, as the underlying businesses continue to execute their business building/revitalizing activities, which is fine as these companies are working through their issues which will enhance shareholder wealth in the near future.

The take away of course is that there have been quite a few new investments made in the recent months that are still at attractive valuations so the current and new members are able to get in these stocks at excellent prices.

Current Market Environment

The economy is on the mend, Wall Street is finally warming up to equities after missing the rally taking place right under their noses for the last 6 months, and the hedge funds are changing their sentiment from bearish to bullish. All signs point to a coming market top, right?

I do believe that we are still early in the bull market that will be with us for a number of years. It is hard to make accurate projections and I will not even try. Thankfully, a focus on business fundamentals and underlying value makes most of the macro economic market trends irrelevant to my investment decisions.

At some point, finding undervalued stocks will become difficult if the stock market continues to appreciate. We have not reached that point yet. And so, I look forward to rest of the year with great excitement and anticipation