Controlled Greed.com Portfolio Picks Average -6% in 2007

As a group, my stocks this year averaged a loss of 6% in 2007. That compares to the S&P 500 being up 3.5% for the year, according to WSJ.com. For reasons given in my previous post, I am now factoring in dividends and returns of capital to shareholders in my results. I don’t believe the S&P 500 result reported on WSJ.com includes dividends.

Here’s how each of the holdings covered on Controlled Greed.com have performed so far this year.

BCE Inc. +48.3%
Fairfax Financial +38.9%
3i Group +37.1%
Nikko Cordial ADR +25.2%
Whirlpool +11.4%
Walter Industries/Mueller Water Products Class B +7.8%
Molson Coors Class B +7.7%
Deckers Outdoor +6.1%
Liberty Media (Liberty Capital/Liberty Interactive) +2.9%
DirecTV Group -6.2%
Office Depot -7.3%
American Eagle Outfitters -8%
CBS Class B -9.7%%
General Motors -15.7%
USA Mobility -20%
Comcast Class A Special -23.7%
Foot Locker Inc. -26.6%
Aiful Corp. ADR -32.7%
Takefuji Corp. -35.9%
Mueller Water Products Series A -36%
Media General Class A -40.4%
ArmorGroup International -54%

The stock picks averaged +9.95% at the end of the second quarter. To go from that to -5.9% means the last half of the year was brutal. The last few months of 2007 saw me initiate five new positions, with four immediately becoming losers after their purchase -- Aiful, Foot Locker, American Eagle Outfitters and Office Depot. The broadcast and media-related stocks did poorly. And the two Japanese consumer lenders have done terribly.

Battered and bruised, I remain cautiously optimistic over the long term. Yet it looks like the first half of 2008 may be rough, if not the whole year.

Comments

[Amit Chokshi]

Don't worry about it, I think people get fooled into thinking what the length of the "game" is. I don't think WEB or Lampert buys something across a 12 month span, whether its Jan or July or Oct thinking it will end up positive by December. You're buying businesses as you know, they can take time to work out, Mr. Market can say its worth 50% less in certain instances for 1-2 years but by year 3-4 or 5, you could have a 2-4bagger resulting in at min a 15% annualized return not counting dividends (a double in 5 years for example).

[John]

Yeah, I'm taking the long view. Not getting suicidal or anything. ;-)

[David]

John,

When do you, as a value investor, know when to throw in the towel and sell an investment that has produced a loss?

I have been meaning to ask your opinion on this for a while, but this question really has nothing to do with the 6 percent loss on your 2007 portfolio picks.

I am just curious, because most value investors seem to say "we buy more shares when the stock is down, as long as the fundamentals and story are intact".

Meanwhile, most successful traders or speculators would take losses at/near a predetermined point (as long as discipline holds) and consider it the market's way of telling them they're wrong, at least for the time being.

Interested to hear your thoughts on this.

[John]

David, I don't have a set rule. And I certainly don't go by the notion of selling automatically once a position has dropped a certain percentage. (I'd have missed the gains enjoyed with DECK and FFH if I did that.)

[David]

I can dig why you don't sell automatically, I know that this is something that does not appeal to most value investors.

But have you come across some good guidelines or personal rules on knowing when to switch gears and sell an investment that doesn't seem to be working out?

[John]

It depends on each individual case. If I thought the company had no hope of ever turning around, I'd sell it. But there's no mathematical formula. Sometimes I'm right and other times wrong -- that's why I spread my investments across 20 or so positions, so no one (or two) will kill me. :-)