Here is the latest from Canadian Value Investors!
2022 performance review
Current portfolios
It could have been worse – Returns from around the web
Line goes up – The problem with NFTs - for subscribers
2022 performance review
Both the CVI model portfolio and Diversified portfolios performed relatively well (literally) in 2022 as noted below, but on an absolute basis the performance was disappointing. However, if we can continue to beat the S&P 500 by 10% a year that would be something. Here’s to 2023.
Our energy investments performed strongly as did various special situations we have discussed previously. However, some misses ate up those gains and, similar to Warren Buffett and Charlie Munger, we prefer to focus on our mistakes to learn from them.
Key Lessons
The most avoidable mistake was Warner Brother Discovery (WBD). Discovery’s merger/takeover of Warner Brothers from AT&T (we were a shareholder of Discovery pre-merger) was a textbook example of 1) the thesis changing, but more importantly 2) a spin-off sale that had a high chance of massive selling pressure. For those that did not track this situation, AT&T sold its Warner Brother division by merging it with Discovery and providing its portion of ownership in the entity directly to AT&T shareholders; i.e. AT&T shareholders ended up with an AT&T share and a share in WBD. It was tax efficient for AT&T, but is a textbook scenario of creating a pool of unhappy WBD shareholders. We imagine that many AT&T shareholders had no intention of ever owning something like WBD and became natural sellers. Compounding the problem is this combined newly levered-up WBD entity now needs 2-3 years to merge and get its combined online-Netflix-fighting platform up and running while interest rates are rising, and inflation is raging. This is not a recipe for a good time. We still like the potential of the combined entity, but we should have at least bought puts to protect ourselves.
An error of omission was Tesla puts. Rising interest rates and frothy inflation is the perfect recipe to knock down inflated valuations, never mind crazy executive suite antics to really get the fire going. Some long-dated OTM puts we priced in the spring of 2022 would be up about 30x at this point and still have some life left. We do not mind this miss that much, as this felt and still feels like too close to gambling.
Selectively Writing Call Options
This has been an area of success for us, specifically with MEG Energy and Activision Blizzard. We have wrote about both previously. Available for subscribers.
Current Portfolios
We have two portfolios here at CVI, the Model Portfolio and the Diversified Portfolio.
We strive to follow our own principles ( https://www.canadianvalueinvestors.com/value-investing-101 ), namely:
Being concentrated (figuratively by focusing our efforts on the best hunting grounds and ideas we find, and literally by having only a few positions).
Building in a margin of safety in our analysis.
Betting big when the odds are in our favor.
Our current portfolios are as follows. Changes since the last subscriber update:
-Model Portfolio – Purchased Philips PHG (see January article provided for subscribers) using proceeds from wind up of special situations and trimming ATVI.
-Diversified Portfolio – Purchased PHG using proceeds from wind up of special situations.
It could have been worse – Returns from around the web
The S&P is upsetting on a one-year basis, but much less dramatic with a longer lens.
Maybe some things are just going back to where they should be…
