by Travis Johnson, Stock Gumshoe | May 23, 2013 2:14 pm
I try to share my opinions with readers like you in a variety of different ways, from my notes on each teaser stock I cover to my more thorough looks at “idea of the month” picks or stocks that I buy personally … but investing is a very quantifiable thing, so even though my investment priorities, predilections and peccadillos are almost certain to be quite different from yours, one way I can share my thoughts and convictions is by telling you not just which stocks I find appealing in the abstract but which stocks I’ve actually bought with my own money.
I do that every time I trade, of course — I update the Irregulars whenever there’s a buy or sell in my individual equity portfolio. But that doesn’t tell you which positions are largest or most important to me. So every now and then I update folks with the list of my top positions. This is just my equity holdings, so it doesn’t include warrants or options or mutual funds or other investments (if we included derivatives, Boston Private Financial and Sandstorm Gold would have been on this list). I am not a nimble or active trader, and most positions I buy with the intention of holding them for a very long time.
So that’s the backdrop, and these are my current top ten personal holdings, in order:
Berkshire Hathaway (BRK-B)
Africa Oil (AOIFF)
Altius Minerals (ATUSF)
Sprott Resource Corp (SCPZF)
Greenlight Re (GLRE)
Retail Opportunity Investments Corp (ROIC)
(If we included warrants, SAND would be up near Apple and Berkshire — but my SAND common stock holding now comes in at number 11, tied with Dorchester Minerals (DMLP))
Those ten names make up about 2/3 of my individual stock portfolio (the remaining 1/3 is spread among another 20 or so stocks), so it’s fairly concentrated at the top.
Which ones have done best? Well, other than the moonshot that was Africa Oil, which was lucky, they’ve been the stocks that I’ve held onto for the longest — I started buying Google and Berkshire Hathaway in 2005, and Markel and Seadrill in 2006, and they’re among the stocks I hold with the highest conviction because I understand them well and am comfortable with their ongoing business and strategy — Seadrill is certainly the most potentially volatile, given their heavy leverage, but about a quarter of my shares have come via dividend reinvestment so I’ve been paid well for that volatility.
And you might also note that there are some big overweights on that list — like property and casualty insurance, and commodities.
Insurance is a favorite sector of mine, and one of my ongoing themes for the current market is that I think insurance companies with excellent and flexible investment management will do very well for the next several years. That’s because regular insurance companies invest almost exclusively in “safe” fixed income portfolios, which yield very little now, so they can’t count on big investment returns to bail them out. That will make them stricter underwriters, helping to harden the market — so companies that can make an investment profit by being flexible and buying equities or alternative investments — like Berkshire, Markel and Greenlight — should benefit doubly. There’s still risk in insurance, of course — there’s always a new disaster to be worried about, as with the latest horrific tornado touchdown in Oklahoma — but insurance companies are in the business of being ready for that and managing around it (which includes, again, raising rates and hardening the market).
And of course, the commodities picks have not done particularly well as of late — Seadrill has done fine as a deepwater oil driller and demand remains strong, but Altius and Sprott Resource are down lately because of iron ore prices (Altius) and natural gas prices (Sprott). That’s an oversimplification, but these are well-managed investors in the private equity space and I’m confident they’ll do better than the underlying commodities over the long run, with plenty of financial flexibility to get them through if we do end up with a prolonged bear market for energy or metals. I like owning the valuable private market assets these companies own, including prospects and royalties, especially since I think the managers will handle them very well and will invest in a contrarian way to find value for shareholders (and, of course, Sprott and Seadrill both pay huge dividend yields along the way, and half of Altius’ share price is backed by cash on their books).
These top ten positions are also stocks that I might trade in and out of a bit, adding or trimming to my position, but they’re not stocks that I would hold with a firm stop loss order in place (with the possible exception of Africa Oil, which is a speculation that reached the top ten by virtue of a 400%+ gain on an oil discovery) — All of those stocks except GLRE and ROIC (which I haven’t held for all that long) would have been sold by now if I had a 25% stop loss order in place, and in every case (except Apple, arguably) that would be to my detriment unless I had miraculously decided on a perfect re-entry point after selling shares with a stop loss. That’s why I do sometimes use stop losses for stocks that I’m inclined to sell anyway, or for very speculative trades in stocks that I’m not all that comfortable with on a fundamental level, but I don’t automatically use them as a matter of course for stocks that I intend to hold as long-term investments.
This is not, of course, a suggestion that you rush out and buy these stocks — just an update for those who have asked.
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