"But my lord, when we addressed this issue a few years ago,
didn't you argue the other side?" He said, "That's true, but when
I get more evidence I sometimes change my mind. What do you do?"
? John Maynard Keynes
Part of being a successful investor is doing a periodic
evaluation of one's own performance. It is particularly important
that an investor pays attention to his/her outright failures and
under-performing positions as well as the winners.
Sometimes the premise of an investment changes, sometimes the
premise for the investment is proven to be faulty; while other
times the premise still exists but the anticipated result simply
has not materialized. Of course an investment premise must
ultimately be tied to value or no margin of safety exists. If no
value exists, the investing premise is little more than an
Successful evaluation should never focus merely upon the price
movement of an equity. It is important to note than not all
winners are good investments and not all losers are bad ones.
Just as all birdies in golf are not the result of a well-executed
swing. Sometimes a fortuitous bounce leads to a positive result
which had nothing to do with proper aim or execution. A bladed
shot sometimes hits the pin and drops straight down or a duffer
occasionally records a hole-in-one with a poorly struck ball.
The focal point of the assessment should involve determining
whether value still exists and/or the premise for the original
investment remains valid. Further, in many cases the realization
of value takes much longer than the investor has anticipated.
Most investors have experienced periods of impatience where they
have sold a long-held position only to watch its price ascend
shortly after they have jettisoned the stock. If the stock was
sold on the assumption it was "dead money" rather than based upon
a change in its previously ascertained merits, then the investor
has committed a grievous sin. Emotion has caused the investors to
enter the land of speculation.
On the other hand, if the premise for the original investment or
the perceived underlying value of the equity has changed
materially, the investor has committed no sin at all. Rather, he
has become the victim of bad luck or an unforeseen event which
triggered the upward price movement. In such cases the investor
is likely to feel foolish about selling the equity; however, his
decision to sell was prudent.
Many investors spend entirely too much time monitoring stocks
which they have recently removed from their portfolios. It is as
if they have been suddenly been fitted with a pair of rear view
mirrors that are attached to their temples. Although such
behavior is commonplace, it can become a dangerous pursuit if the
investor begins to second guess the rational evaluation process
which led to his equity sale. Those who choose to evaluate their
success by short term market fluctuations are ultimately destined
to long term under-performance.
With the aforementioned thoughts in mind, now it is time for me
to evaluate my 2011 performance.
2011 Stock Write-ups on GuruFocus
Last year I wrote detailed reports on four tiny companies which
represented my largest holdings. I submitted three of the stocks
(BERK,CNTY,TATT) for review in the Gurufocus Value Investing
Contest. The other stock (
), was chosen as a likely turnaround candidate.
Here are the links to my 2011 Gurufocus articles on the four
Berkshire Bankcorp: Undervalued and
Century Casinos - An Asset Play with an Earnings
TATT: An Asset Based Value with a Dual
TCHC; APC Turnaround Candidate
All four stocks traded at large discounts to their tangible book
values and possessed strong balance sheets. All four stocks were
net cash positive (Cash > LT Debt). Further, I believed that
all four candidates would turn profitable or increase their net
operating earnings in the following 12 months. I felt several of
the stocks had other potential catalysts.
My thesis for BERK was quite simple, specifically the tiny
regional bank was extremely over-reserved, reasonably priced and
profitable. Additionally, It appeared to have a high quality loan
book with a low percentage of non-performing loans suggesting
that the bank was over-reserved.
The main catalyst involved the fact that the majority owner
(Moses Marx) was forced to convert his interest paying
convertible stock into common stock last fall. Thus he would no
longer receive any income suggesting that he would likely wish to
monetize his large position through a dividend reinstatement or
an outright sale of the bank.
Although, Marx has not yet monetized any of the banks assets, he
has increased his position to about 70% of the outstanding shares
since the preferred shares converted on 10-31-2011. His latest
purchase came on April 26th when he bought over 25 thousand
shares at 6.70. It should be noted that Marx purchased slightly
fewer than 6 million shares of the bank last fall at a price of
8.12 per share following the conversion of the preferred shares.
It appears that Mr. Marx bought out all the other preferred
investors which the exception of the George Karfunkel Trust which
owns just under 10% of the outstanding shares.
Nothing much has changed in regard to the investing thesis for
BERK with the exception that the discount in the stock has
largely disappeared following about a 40% appreciation in share
price. To date I have not sold any shares in the stock; however I
will likely begin to sell some of the shares in my non-taxable
accounts in the near future. Further I will consider selling
shares in my taxable accounts as the gains become long term (held
over one year).
21st Century Holding Company (
Without question, my best investing idea for 2011 turned out to
be the turnaround candidate, TCHC. As predicted the company
returned to profitability in the quarter following my article and
now has recorded three consecutive profitable quarters. In the
trailing 9 months the stock has earned 42 cents and still trades
at less than 53% of its tangible book value at it current price
of 4.00 per share.
More importantly, the company has started writing sound business
and its operating earnings (total earnings less income earnings)
have turned positive for the last two quarters. In the latest
quarter the overall loss ratio for the company dropped to 44.69%.
To be fair, the stock still contains a high amount of risk in the
form of its heavy concentration of underwriting in Florida
hurricane zones. Additionally, a substantial amount of the
companies net earnings for the prior nine months were a result of
net investment gains. Still, considering the current discount to
book value the stock holds, its rapidly improving loss ratios,
and increased pricing for the Florida P&C market, TCHC
remains highly favorable in terms of risk vs. reward at it
I have no intention to sell any of my position in the
intermediate future, unless conditions change.
Century Casinos (
CNTY has recorded net earnings of 17 cents in the trailing 12
month period and continues to trade at about a 57% discount to it
ten year average price to book ratio of around 1.3X. The stock
remains significantly discounted while earning a modest earnings
flow and a net cash position.
In late May, the company secured a loan from the Bank of Montreal
at highly favorable interest rate. It appears that the management
of CNTY is poised to make an acquisition with the remaining 23
million left on the note after paying down the outstanding 4
million owed on their best property in Edmonton.
Although the debt slightly increases the investment risk in CNTY,
their management has a long history of making valuable
acquisitions at bargain prices which have resulted in substantial
gains in long-term shareholder equity over time. The company has
raised book value per share at an annual rate of 10.8% in the
last ten years.
I continue to hold CNTY with a perceived value of slightly more
than it book value of around 5 dollars a share.
TATT Technologies (
TATT has been a dog. Since I entered the stock in the Gurufocus
value contest approximately 13 month ago, its price per share has
descended about 25%. My apologies go out to anyone who bought
into my thesis and invested their hard-earned money in the
company. It still sells at a sizable discount to net current
assets and a large discount to its book value.
All that said, the company did finally issue a dividend of 28
cents about a month ago (less 20% withholding by the Israeli
government) and agree to a share buy-back of a maximum of 500
thousand shares. Additionally, in the last six months the TATT
has shown a meager profit following a poor summer quarter which
featured impairments of intangible assets and inventory
The various business sections of TATT have improved slightly with
the notable exception of Bental, (the electronic motion division)
which has shown precipitous declines. Overall, the business
continues to languish but the price of the company remains highly
favorable considering the strength of the balance sheet, its
substantial cash reserves and the discount to net current assets.
Post dividend, the company still has in the neighborhood of 6.8
dollars per share in net current assets while trading at 4.25 per
share. Further, its business model is still relevant although the
aircraft OEM and replacement part and service sector continues to
remain depressed. At some point in the future, new aircraft
production will accelerate and the repair cycle will improve. It
remains to be seen if TATT will eventually ascend to it fair
value in terms of its balance sheet.
I may hold on to all of my shares of TATT for 2012 unless I
decide to utilize some of them as capital losses to offset some
of my capital gains in the calendar year. That would be a viable
strategy if I found a suitable replacement for the shares with
better prospects than TATT.
On the positive side, the management of the company has shown
some regard for shareholders by issuing an excellent dividend and
agreed to buy-back a modest amount of stock.
All worthwhile portfolio evaluation must be followed by
appropriate actions. It does little good to analyze one's
holdings and then to merely sit back and remain inactive, hoping
for the best. Human nature lends itself to inactivity until
stress is felt; at that point the investor tends to overreact.
In the case of the aforementioned equities, I intend to sell some
BERK, hold my entire position of TCHC, hold my entire position of
CNTY, and consider selling some of my position in TATT to offset
capital gains. I will only sell some TATT if I find a suitable
replacement since I already have approximately 16% in cash in my
current portfolio. Of course my cash position will increase as I
sell BERK unless I redeploy the capital in other stocks.
Always remember, one's plans should always be subject to change
as investment holdings are dynamic rather than static in
nature.About GuruFocus: GuruFocus.com tracks the stocks picks and
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