UPDATE TO THIS POST:  Date 10/28/2020

I cited research from CITI global research (referencing Robert Bucklands work) on why the growth bias in the markets still has sufficient leg-room to go.  I got a copy-right infringement notification to take down the graphs that I posted in this blog post. As a result, I am modifying the post to remove the content in question.

For the better part of the year thus far, we have been experiencing the worst of pacific-nortwest weather. Gloomy skies, constant downpour and no sun has been the norm for the month of January and two weeks into February. The weather gods finally smiled upon us earlier this week showering us with some sunshine and a break from the rains.

In particular, last Friday, we experienced, what I would describe as a blissful San Diego day!  The weather break was timely given that AVI kiddo was home for winter break. Mr AVI decided to take a day off from work and  go hiking with the kiddo. We hiked up to the top of  Rattle Snake Ledge trail, and it was absolutely gorgeous.

Getting back to the topic of the week, NW update for February 2020, the numbers are

And the key tracking metrics:

• Liquid NW/Debt Ratio: 1.579
• Cash Balance/Two Year Expense Ratio: 1.12

Below I outline the story behind the numbers for February.

• Last month I made a note of cash drag in my checking account and talked about my reservation towards signing up for yet another 1-year CD. That is exactly what I ended up doing, and it is reflected in the large increase in my CD assets.
• Why would I change my mind on CD investment? Two reasons: (a) yield and (b) concerns related to the late cycle market activity. I got a rate of 2.15 yield on 1-year CD with Marcus (online retail banking branch of Goldman Sachs), which I believe is not bad considering my view that we are probably gearing up for a market correction and yet another round of Fed interest rate cuts!
• The CD funds account for cash balance in my portfolio and my preference is to have cash balance to cover atleast 2 years worth of living expense and as such I want to take zero risk on these funds. Even though CD interest income is taxed at ordinary income tax rate, for me it is penalty worth paying to lock in the highest zero-risk returns I can conjure.
• Non-retirment investment portfolio increased by more than 4%. How can that be, given the market returns were flat for the month, and my portfolio of contrarian-investments took a beating? the answer, equity bonus. My employer pays a generous equity bonus every quarter, offering a nice bump up in my non-retirement investment assets.
• The downward trend in housing prices seems to have subsided for now. If anything I expect the housing market in our neighborbood to pick up in the coming months. I got a flavor of things to come last week, when a two houses in my neighborhood went up for sale and within 2 days were off the market and under contract.
• AVI family NW grew by almost 3 % for the month. This comes off a 2.3 % gain in the month of January. If this trend continues (optimistic scenario), we should have no difficulty meeting our target goal of NW being 3 quarters of FI by end of 2020.

Investment Updates

Rules based investing can back fire big time! And that is exactly what I experienced in the past few days.  One of the multi-baggers in my portfolio was STMP. As I noted in my blog post, titled Process, STMP was the only stock in my portfolio which I actually managed to hold on long enough to exit with multi-bagger (>100 %) gains. Alas, I exited too soon. In the past two weeks, STMP stocked has rocketed to $174 on the backs of a massive earnings beat. Only if I had held onto the stock for the ride on the upside!

Earlier in the past week, I also posted a note on how stupid my contrarian value strategy is turning out to be in 2020. To emphasize how bad things have gotten for folks like myself, here’s another statistics, from the start of the year until mid-february, the cumulative daily return difference between the Russell 1000 Growth index and the Russell 1000 Value index stands at 6.4 %. To put things in perspective, considering time period since 2010, this degree of divergence qualifies as a zeroth percentile event! The decade of 2010 was bad for value investing, the year of 2020, thus far has been the absolute worst.

However, I have drunk enough of a rationale, price sensitive, risk averse, contrarian investing koolaid, to alter course.  I will continue to persist in my ways of investing, trying to find good companies, trading at a bargain with the eternal hope that value investing will again rise to the ocassion!

In the past one month, I increased my stake in EAF, PVAC and MMP. I also initiated a new position in Chemour Chemicals, ticker CC.

Investment thesis for CC: CC came on my radar when I read the annual share holder letter by David Einhorn, the hedge fund manager of Greenlight capital, a long-short value-oriented firm. CC makes titanium dioxide and refrigerants. The stock prize has been under some pressure through 2019, due to the cyclical nature of the business and excess supply. However the bigger overhang is from liabilities related to PFOA, the so-called forever chemical that DuPont (from whom CC spun off) used to make Teflon. As  I learned from Einhorn letters, DuPont has curtailed emissions from PFOA since 2004 and CC has settled health claims related to use of PFOA in 2017. The current liabilities stem from a related chemical PFOS, which is used in firefighting foam. However, CC does not have any material liability for PFOS. Einhorn and team believes that CC has the potential to earn $8.50 to $10 per share for 2021 vs. analyst estimates of about $3.99 per share earnings. Given Einhorn’s track record with CC in the past, I am willing to go along with him for a ride on this one. My per share cost basis for CC stands at $14.12 and the share is currently trading at $19.44

Video/Book/Article/Audio for the Week

• Article: Annual Berkshire share holder letter, most anticipated letter of the year for all value investors and Buffett acolytes.
• Article: Annual Semper Augustus investment group letter by Chris Bloomstran, President and CIO of Semper Augustus.